<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MASTER GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 2752 62-1694322
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE)
INCORPORATION OR
ORGANIZATION)
6075 POPLAR AVENUE, SUITE 401
MEMPHIS, TENNESSEE 38119
(901) 685-2020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
JOHN P. MILLER
CHIEF EXECUTIVE OFFICER
6075 POPLAR AVENUE, SUITE 401
MEMPHIS, TENNESSEE 38119
(901) 685-2020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
JOHN A. GOOD, ESQ. JOHN J. KELLEY III, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL KING & SPALDING
165 MADISON AVENUE, SUITE 2000 191 PEACHTREE STREET
MEMPHIS, TENNESSEE 38103 ATLANTA, GEORGIA 30303-1763
(901) 577-2148 TELEPHONE (404) 572-4600 TELEPHONE
(901) 577-2303 FACSIMILE (404) 572-5100 FACSIMILE
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE
SECURITIES TO BE TO BE PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE PRICE REGISTRATION FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 4,140,000 $13.00 $53,820,000 $15,877
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes up to 540,000 shares of Common Stock that the Underwriters have
the option to purchase from the Registrant to cover over-allotments, if
any.
(2) Estimated in accordance with Rule 457(a) solely for the purpose of
calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
MASTER GRAPHICS, INC.
CROSS REFERENCE SHEET
CROSS-REFERENCE SHEET SHOWING
LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED
BY PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-
1 REGISTRATION STATEMENT ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------------ ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............... Use of Proceeds
5. Determination of Offering
Price........................ Underwriting
6. Dilution...................... Dilution
7. Selling Security Holders...... Principal and Selling Shareholders
8. Plan of Distribution.......... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Dividend Policy; Capitalization;
be Registered................ Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and
Counsel...................... Not Applicable
11. Information With Respect to Outside Front Cover Page of Prospectus;
the Registrant............... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected
Historical, Combined and Pro Forma
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Shareholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL , 1998
PROSPECTUS
[LOGO OF MASTER GRAPHICS, INC. APPEARS HERE.]
3,600,000 SHARES
MASTER GRAPHICS, INC.
COMMON STOCK
-----------
Of the 3,600,000 shares of Common Stock offered hereby, 3,400,000 shares are
being sold by Master Graphics, Inc. (the "Company") and 200,000 shares are
being offered by a shareholder of the Company (the "Selling Shareholder"). See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholder.
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently anticipated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price of the Common Stock. The Company has applied to have the
Common Stock approved for quotation on The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "MAGR."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2)(3) SHAREHOLDER(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
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Total....................... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
540,000 additional shares of Common Stock on the same terms and conditions
as set forth above. If all such shares are purchased by the Underwriters,
the total Price to Public will be $ , the total Underwriting Discount
will be $ , and the total Proceeds to Company will be $ . See
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as, and if issued to and accepted by them,
and subject to the Underwriters' right to withdraw, cancel, or modify such
offer and reject any order in whole or in part. It is expected that delivery of
the shares of Common Stock will be made on or about , 1998.
-----------
MORGAN KEEGAN & COMPANY, INC.
, 1998.
<PAGE>
[GRAPHICS TO FOLLOW]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SHARES OF
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. This summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the related notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus (i)
assumes a 40,000 for 1 stock split to be effected immediately prior to the
closing of the Offering; (ii) assumes conversion of the Company's 5% Series A
Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
Stock") into 177,776 shares of Common Stock; (iii) assumes the exercise of a
warrant to purchase 183,333 shares of Common Stock (assuming an initial public
offering price of $12.00 per share, the mid-point of the range set forth on the
cover page of this Prospectus (the "Mid-Point")); (iv) assumes no exercise of
any other outstanding warrants or options to purchase Common Stock; and (v)
assumes no exercise of the Underwriters' over-allotment option. Unless the
context otherwise requires, as used herein the term "Company" means and refers
to Master Graphics, Inc., a Tennessee corporation, its wholly-owned operating
subsidiaries, including Premier Graphics, Inc., a Delaware corporation
("Premier Graphics") as well as Master Printing, Inc. ("Master Printing") and
B&M Printing, Inc. ("B&M Printing"), the predecessors of Master Graphics, Inc.
and Premier Graphics, respectively. On March 26, 1998, Master Graphics, Inc., a
Delaware corporation formed in June 1997 merged with and into Master Graphics,
Inc., a Tennessee corporation in a reincorporation transaction. References to
fiscal year financial information of the Company refer to the fiscal year ended
June 30 of the relevant year. References to fiscal year financial information
of the companies acquired by the Company prior to the date hereof (the
"Acquired Companies") and McQuiddy Printing Company refer to the respective
fiscal year ends of such companies. Effective January 1, 1998, the Company
changed its fiscal year to a calendar year.
THE COMPANY
The Company is a rapidly growing provider of general commercial printing
services to customers throughout the United States. Since June 1997, the
Company has acquired nine high quality, market leading general commercial
printing companies, each of which operates as a separate division of the
Company. In addition, the Company has entered into a definitive agreement to
acquire McQuiddy Printing Company ("McQuiddy" and together with the Acquired
Companies, the "Master Graphics Companies"). The Master Graphics Companies have
an average operating history of over 50 years, established customer
relationships and strong reputations for customer service, responsiveness and
quality. The Company's acquisition and operating strategies are focused on
continued selective acquisitions and internal growth. The Company expects that
this strategy will enable each division to offer broader services to existing
customers and attract new customers for existing services. The Company's pro
forma consolidated revenue and operating income for the twelve months ended
December 31, 1997 were $154.0 million and $8.5 million, respectively.
The Company provides service in all areas of general commercial printing,
including prepress, printing and postpress services. The Company's products
include annual reports, direct mail pieces, sales literature, point of purchase
materials, market letters, newsletters, training manuals, product brochures,
catalogs and university recruiting materials for customers such as Federal
Express, IBM, Provident Life, W. W. Grainger, Turner Broadcasting and
G. D. Searle. The Company's operating philosophy emphasizes responding rapidly
to customer requirements and producing high quality printed materials.
Responsiveness is essential because of the typically short lead time on most
general commercial printing jobs.
The printing industry is one of the largest and most fragmented industries in
the United States, with total estimated 1996 sales of $132 billion among an
estimated 50,000 printing companies, according to the Printing Industries of
America, Inc. (the "PIA"). The printing industry includes general commercial
printing, financial printing, printing and publishing of books, newspapers and
periodicals, quick printing and production of business forms and greeting
cards. The Company focuses on providing general commercial printing and related
services. According to the PIA, this segment had approximately $43 billion in
revenue in 1996 compared to $40 billion in 1995. There are approximately 25,000
general commercial printing companies in the United States according to the
PIA.
3
<PAGE>
The general commercial printing industry is characterized by unpredictable
shifts in demand and fast turnaround times. To remain competitive and meet
their customers' demands, general commercial printers must make substantial
investments in plant capacity. Independent general commercial printers often
experience lower than optimal capacity utilization because of wide fluctuations
in demand, which can adversely affect profitability. The Company seeks to
smooth its capacity utilization through its proprietary "Master Central"
equipment utilization and marketing process. Master Central serves as a
clearinghouse to allocate projects to those divisions with available capacity
or those that possess the specialized equipment and expertise required for a
particular project. See "Business--Master Central."
The Company has developed an integrated operating and acquisition strategy
designed to maximize internal and external growth and maintain and expand its
position as a leading provider of general commercial printing services. The
Company's operating strategy is to combine the service and responsiveness of a
locally-oriented, independent general commercial printing company with the
resources and economies of scale of a large company. The key elements of the
Company's operating strategy are as follows:
. Provide Premium, High Quality Service. The Company targets the premium
segment of the general commercial printing market. The Company's
customers generally choose printers primarily based on service, quality
and responsiveness, and not based solely on price.
. Cross-Sell Production Capabilities. In order to maximize "same store"
revenue growth and profitability, the Company has developed its
proprietary Master Central equipment utilization and marketing process.
Master Central is designed to maximize the utilization of the Company's
existing printing capacity and capabilities by (i) allocating, on a real
time basis, certain printing projects to a particular division based on
equipment capabilities and availability; and (ii) training the Company's
sales force to market the production capacity and capabilities of all of
the Company's divisions. See "Business--Master Central."
. Achieve Economies of Scale. As a result of centralized purchasing, the
Company expects to receive volume discounts and rebates from
manufacturers of paper, film, printing plates and ink that would be
unavailable to the Company's divisions on a stand-alone basis. Paper is
generally the largest cost item for general commercial printing
companies, including the Company. The Company's paper costs were
approximately 27% of revenue for the six months ended December 31, 1997.
The Company has pricing agreements with five paper suppliers which
provide discounts and rebates based on volume and is currently
discussing with certain manufacturers purchase terms for film, printing
plates and ink and other printing supplies. In addition, the Company
intends to centralize administrative items such as insurance and
employee benefits to further reduce costs.
. Operate on a Decentralized Basis. The Company intends to retain the key
managers of the businesses it acquires and allow them to maintain
substantial responsibility for the day-to-day operations, profitability
and growth of those businesses as separate divisions. The Company
believes that the operating autonomy provided by this decentralized
structure, together with the implementation of reporting systems and
financial controls at the corporate level, will enable it to combine the
service and responsiveness of a locally-oriented, independent general
commercial printing company with the resources and economies of scale of
a large company. Moreover, the Company intends to motivate its employees
and align their interests with those of the Company's shareholders by
using Common Stock as a currency in its acquisition program and by
granting stock options as a part of employee compensation.
The Company's acquisition strategy is to become a leading provider of general
commercial printing services in the United States through the acquisition of
independent general commercial printing companies that are well managed and
market leaders in customer service, responsiveness and quality. The Company
believes that its profile within the industry and its philosophy of
decentralized operations and centralized administration enable
4
<PAGE>
the Company to identify and acquire high quality, market leading independent
general commercial printing companies. The key elements of the Company's
acquisition strategy are as follows:
. Acquire High Quality, Well Managed Companies. The Company evaluates
potential acquisition candidates based on a variety of factors,
including reputation for quality, service, strength of management,
competitive market position, historical financial performance, growth
potential, customer base, equipment capabilities and available capacity.
The Company seeks to acquire only those companies which maintain high
levels of quality and service consistent with the Company's existing
divisions. The Company believes this strategy is essential to enabling
each division of the Company to cross-sell the capacity and capabilities
of the other divisions without concerns about quality and service.
. Retain Existing Management of Companies Acquired. The Company seeks to
acquire successful companies whose key managers will become employees of
the Company and continue to operate acquired businesses as divisions of
the Company. To preserve local market knowledge and customer
relationships, the Company has entered into employment contracts and
agreements not to compete with the key managers at each Acquired Company
and intends to continue to do so in the future.
The Company is a Tennessee corporation with its principal executive offices
located at 6075 Poplar Avenue, Suite 401, Memphis, Tennessee 38119, and its
telephone number is (901) 685-2020.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 3,400,000
Common Stock offered by the Selling Shareholder... 200,000
Common Stock to be outstanding after the Offer-
ing(1)........................................... 8,027,773
Use of proceeds................................... Repayment of indebtedness
and certain other fees. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............ MAGR
</TABLE>
- --------
(1) Includes (i) 177,776 shares of Common Stock issuable for nominal
consideration upon the conversion of the Series A Preferred Stock and (ii)
183,333 shares of Common Stock (assuming an initial offering price equal to
the Mid-Point) issuable for nominal consideration upon the exercise of a
warrant issued in connection with a financing transaction. Does not include
(i) 1,516,412 shares of Common Stock issuable at $12.00 per share (assuming
an initial offering price equal to the Mid-Point) upon the exercise of
warrants issued in connection with the Company's acquisition of the
Acquired Companies and its proposed acquisition of McQuiddy; (ii) 606,914
shares of Common Stock issuable at $12.00 per share (assuming an initial
offering price equal to the Mid-Point) upon the exercise of outstanding
stock options held by employees of the Company; (iii) 108,333 shares of
Common Stock issuable at $12.00 per share (assuming an initial offering
price equal to the Mid-Point) upon the exercise of rights granted to former
B&M Printing shareholders; and (iv) 83,333 shares of Common Stock issuable
at $12.00 per share (assuming an initial offering price equal to the Mid-
Point) pursuant to the Company's deferred compensation plan.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including, among others, risks related to lack of operating
history, integration of assets and personnel and acquisition and operating
strategies. See "Risk Factors."
5
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
YEAR ENDED
DECEMBER 31,
1997(1)
-------------
<S> <C>
INCOME STATEMENT DATA:
Revenue......................................................... $153,971
Gross profit.................................................... 38,790
Operating income................................................ 8,545
Net earnings.................................................... 893
Net earnings applicable to common shares........................ 779
Net earnings per common share
Basic......................................................... $ 0.10
Diluted....................................................... $ 0.10
OTHER DATA:
EBITDA(2)....................................................... $ 13,991
<CAPTION>
PRO FORMA
AS ADJUSTED
AS OF
DECEMBER 31,
1997(1)
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital................................................. $ 17,038
Property, plant and equipment, net.............................. 54,216
Total assets.................................................... 137,294
Long-term debt, including current installments.................. 77,803
Redeemable common stock warrants................................ 2,200
Redeemable preferred stock...................................... 1,350
Shareholders' equity............................................ 34,842
</TABLE>
- --------
(1) Pro forma as adjusted financial data as of December 31, 1997 gives effect
to the completed acquisitions, the probable acquisition of McQuiddy, and
financings thereof that are described in Unaudited Pro Forma Consolidated
Financial Statements, as if they had occurred at January 1, 1997 for the
Income Statement Data and on December 31, 1997 for the Balance Sheet Data.
The pro forma financial information presents certain information for the
Company, as adjusted for (i) the effects of the acquisitions of the Master
Graphics Companies, (ii) the effects of certain pro forma adjustments to
the historical financial statements of the Master Graphics Companies which
are directly related to these acquisitions, (iii) the exercise of a warrant
by the Selling Shareholder to purchase 266,664 shares of Common Stock for
nominal value, (iv) the issuance of the Series A Preferred Stock, and (v)
the consummation of the Offering and the application of the net proceeds
therefrom. The conversion of the Series A Preferred Stock into 177,776
shares of Common Stock and the exercise of a warrant to purchase 183,333
shares of Common Stock for nominal consideration have not been assumed in
the pro forma balance sheet data; their assumed conversion and exercise,
respectively, have been considered in computing diluted net earnings per
share. The pro forma adjustments reflect, among other things, a reduction
in interest expense and the interest rate as a result of the application of
the net proceeds of the Offering. The pro forma as adjusted financial
information does not purport to represent what the Company's results of
operations or financial position actually would have been had these events,
in fact, occurred on the date or at the beginning of the period indicated,
nor is it intended to project the Company's results of operations or
financial position for any future date or period.
6
<PAGE>
(2) Represents earnings before interest, taxes, depreciation and amortization
("EBITDA"). Based on its experience in the general commercial printing
industry, the Company believes that EBITDA is an important tool for
measuring the performance of companies in the industry (including potential
acquisition targets) in several areas such as liquidity, operating
performance and leverage. In addition, lenders use EBITDA as a criterion in
evaluating companies in the industry, and the Company's financing
arrangements contain covenants in which EBITDA is used as a measure of
financial performance. The EBITDA measure for the Company may not be
consistent with similarly titled measures for other companies. EBITDA
should not be considered as an alternative to operating or net income (as
determined in accordance with generally accepted accounting principles
("GAAP")) as an indicator of the Company's performance or to cash flow from
operations (as determined in accordance with GAAP) as a measure of
liquidity. See the comparative historical statements of cash flows included
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "--Liquidity and Capital Resources" for a
discussion of other measures of performance determined in accordance with
GAAP and the Company's sources and applications of cash flow.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION FOR THE COMPANY AND INDIVIDUAL MASTER GRAPHICS
COMPANIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Master Graphics, Inc.(1)
Revenue......................................... $ 11,426 $ 13,243 $ 13,433
Gross profit.................................... 2,498 3,288 2,121
Operating income (loss)......................... (72) 597 (900)
Blackwell Lithographers, Inc.(2)
Revenue......................................... $ 3,715 $ 4,004 $ 4,164
Gross profit.................................... 1,582 1,544 1,526
Operating income................................ 188 745 609
Lithograph Printing Company of Memphis(2)
Revenue......................................... $ 16,659 $ 18,954 $ 20,118
Gross profit.................................... 3,457 4,203 4,574
Operating income................................ 78 694 1,606
Sutherland Printing Company, Inc.(2)
Revenue......................................... $ 7,451 $ 6,704 $ 7,892
Gross profit.................................... 2,048 2,642 1,836
Operating income (loss)......................... (1,366) 295 580
The Argus Press, Inc.(2)
Revenue......................................... $ 18,655 $ 24,662 $ 23,277
Gross profit.................................... 3,755 5,671 4,765
Operating income................................ 831 1,895 1,147
Phoenix Communications, Inc.(3)
Revenue......................................... $ 22,320 $ 20,093 $ 25,859
Gross profit.................................... 6,075 4,805 6,336
Operating income (loss)......................... 767 (403) 248
Jones Printing Company, Inc.(2)
Revenue......................................... $ 6,984 $ 7,952 $ 6,343
Gross profit.................................... 2,174 2,089 1,318
Operating income................................ 702 606 311
Hederman Brothers, Inc.
Revenue......................................... $ 8,556 $ 9,360 $ 10,459
Gross profit.................................... 2,064 2,509 2,354
Operating income................................ 204 478 322
Phillips Litho Co., Inc.
Revenue......................................... $ 12,162 $ 11,661 $ 12,727
Gross profit.................................... 3,386 2,648 4,087
Operating income (loss)......................... 788 (124) 1,216
Harperprints, Inc.
Revenue......................................... $ 10,721 $ 10,428 $ 10,904
Gross profit.................................... 3,529 2,889 2,607
Operating income................................ 1,625 1,168 686
McQuiddy Printing Company(3)
Revenue......................................... $ 15,681 $ 15,574 $ 16,583
Gross profit.................................... 3,505 3,015 3,438
Operating income................................ 915 410 697
Total
Revenue......................................... $134,330 $142,635 $151,759
Gross profit.................................... 34,073 35,303 34,962
Operating income................................ 4,660 6,361 6,522
</TABLE>
- --------
(1) Consists primarily of results of operations of B&M Printing, which was the
sole operating entity of the Company prior to the inception of the
Company's acquisition transactions in June 1997. The Company had a fiscal
year end of June 30 until January 1, 1998.
(2) Since these companies were purchased at different times during 1997, these
amounts reflect combined pre- and post-acquisition activity during the
year.
(3) Phoenix Communications, Inc. ("Phoenix") (January 31) and McQuiddy (June
30) had fiscal year ends that differed from December 31, which is the year
end the Company will use effective January 1, 1998.
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the shares of Common Stock offered hereby. The Company believes
that the following risk factors constitute all of the material risks
associated with an investment in the Common Stock. This discussion also
identifies important cautionary factors that could cause the Company's actual
results to differ materially from those projected in forward looking
statements of the Company made by, or on behalf of, the Company.
LIMITED COMBINED OPERATING HISTORY
The Company has acquired nine general commercial printing companies since
June 1997. In addition, the Company has entered into a definitive agreement to
acquire McQuiddy. Moreover, the Company's management team has been assembled
only recently, and several of its members have not worked in the printing
industry prior to joining the Company. There can be no assurance that the
management team will be able to manage effectively the combined operations of
a multiple-division general commercial printing company or that the Company
will be able to integrate the operations of the Master Graphics Companies
successfully and achieve expected operating efficiencies and economies of
scale. The pro forma and combined historical financial results of the Master
Graphics Companies cover periods during which the Master Graphics Companies
were not under common control or management and may not be indicative of the
Company's future financial or operating results. The inability of the Company
to integrate and manage effectively the Master Graphics Companies and
additional acquired businesses as a cohesive, efficient enterprise or to
eliminate unnecessary duplication or achieve other operating efficiencies and
economies of scale may have a material adverse effect on the business,
financial condition and results of operations of the Company.
INABILITY TO INTEGRATE OPERATIONS OR IMPLEMENT OPERATING SYSTEMS AND POLICIES
As a rapidly growing provider of general commercial printing services, the
Company is faced with the development, implementation and integration of
Company-wide policies and systems related to its operations. Prior to their
acquisition by the Company, the Acquired Companies operated as separate
independent businesses. Further, McQuiddy has operated and will continue to
operate prior to acquisition by the Company as a separate independent
business. For the foreseeable future, the Company will rely on the separate
accounting, information and operating systems of the Master Graphics
Companies. The Company eventually plans, however, to implement and integrate
certain information and operating systems, policies and procedures for the
Master Graphics Companies and companies to be acquired in the future
including, but not limited to, accounting systems, employment and human
resources policies, purchasing programs and the Company's Master Central
equipment utilization and marketing process. Each of the Master Graphics
Companies and companies to be acquired in the future may need to modify
certain systems and policies they have utilized historically to conform with
the Company's systems and policies. As a result of the Company's decentralized
operating philosophy, there can be no assurance that the Company's operating
systems and policies will be implemented successfully across each of its
divisions or that the Company will be successful in monitoring the performance
of the divisions. The Company may experience delays, complications and
expenses in implementing, integrating and operating such systems, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Operating Strategy" and
"Business--Master Central."
The Company expects that Master Central will enable it to utilize more
effectively its printing capacity and effectively allocate print jobs across
the range of the Company's available production equipment. However, there can
be no assurance that the Company will be able to implement successfully Master
Central or that, once implemented, it will enable the Company to utilize more
efficiently its printing capacity.
SUBSTANTIAL LEVERAGE
At December 31, 1997, on a pro forma basis, the Company's indebtedness was
approximately $77 million, net of $1.8 million of unamortized discount. The
Company currently has an $85 million secured credit facility (the "Senior
Credit Facility") with its senior lender and has received a commitment from
such lender to increase the facility to $90 million upon closing of the
Offering. Currently, the Company has approximately $6.3 million of additional
borrowing capacity available under the Senior Credit Facility and, upon
closing of the Offering, the
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application of the net proceeds thereof, the acquisition of McQuiddy, and the
increase of the available credit under the Senior Credit Facility, the Company
will have approximately $35 million of additional borrowing capacity under the
Senior Credit Facility. Moreover, the Company has a $7.5 million credit
facility (the "Revolving Credit Facility") through a commercial bank and is
negotiating with the bank to increase the maximum credit amount under the
Revolving Credit Facility to $15 million upon closing of the Offering.
Currently, the Company has approximately $7.2 million of additional borrowing
capacity available under the Revolving Credit Facility and, upon closing of
the Offering, the application of the net proceeds thereof, the acquisition of
McQuiddy, and the increase of the available credit under the Revolving Credit
Facility, the Company will have approximately $11.2 million of additional
borrowing capacity under the Revolving Credit Facility. The Senior Credit
Facility and the Revolving Credit Facility are referred to herein as the
"Credit Facilities." The Company expects to fully utilize available credit
under the Senior Credit Facility and the Revolving Credit Facility, and could
incur additional indebtedness, which amounts could be significant, in
connection with future acquisitions. The level of the Company's indebtedness
could have important consequences to shareholders, including: (i) a
substantial portion of the Company's cash flow from operations could be
dedicated to debt service and will not be available for other purposes; (ii)
the Company's ability to obtain additional equity or debt financing in the
future for working capital, capital expenditures or acquisitions may be
limited; and (iii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the printing industry and economic
conditions generally. Moreover, Master Graphics, Inc. is dependent upon the
cash flow of and the transfer of funds from its subsidiary, Premier Graphics,
which, under the Credit Facilities, is subject to restrictions on its ability
to pay dividends to Master Graphics, Inc. Certain of the Company's competitors
currently operate on a less leveraged basis and have significantly greater
operating and financing flexibility than the Company.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
A key element of the Company's acquisition strategy is to consummate
numerous acquisitions of independent general commercial printing companies
throughout the United States. The Company's acquisition strategy presents
risks that, singly or in any combination, could have a material adverse effect
on the Company's business, financial condition and results of operations.
These risks include inattention by management to existing operations of the
Company because of increased management attention and resources to
acquisitions, the possible loss of customers of acquired businesses as a
result of the acquisition by the Company, the loss of key personnel of
acquired businesses, possible adverse effects on earnings resulting from
amortization of goodwill created in purchase transactions and the contingent
and latent risks associated with the past operations and other unanticipated
problems arising in the acquired businesses.
The success of the Company's acquisition strategy will be dependent upon a
number of factors, including (i) the Company's ability to locate existing
general commercial printing companies for acquisitions and to integrate
successfully the operations of printing companies acquired in the future into
the Company's operations and (ii) the availability of adequate financing to
develop or acquire additional general commercial printing companies. There can
be no assurance that the Company's acquisition strategy will be successful,
that modifications to the Company's acquisition strategy will not be required,
that the Company will be able to manage effectively and enhance the
profitability of the Master Graphics Companies or companies to be acquired in
the future or that the Company will be able to obtain adequate financing on
reasonable terms to acquire additional general commercial printing companies.
The failure of the Company to implement its strategy of making additional
acquisitions would have a material adverse effect on the stock price of the
Company. Moreover, there can be no assurance that future acquisitions, if any,
will contribute to the Company's profitability or otherwise facilitate the
successful implementation of the Company's overall strategy. See "Business--
Acquisition Strategy" and "--Operating Strategy."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
The Company's acquisition strategy will require substantial capital, and the
Company anticipates that it will, in the future, seek to raise additional
funds through equity or debt financing. There can be no assurance that
sufficient funds will be available on terms acceptable to the Company, if at
all. If additional equity securities are issued, dilution to the Company's
shareholders may result, and if additional funds are raised through the
incurrence of debt, the Company may become subject to restrictions on its
operations and finances. Such
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restrictions may have an adverse effect on, among other things, the Company's
ability to pursue its acquisition strategy. Although the Company has received
a commitment from its senior lender and expects to receive a commitment from
its Revolving Credit Facility lender to increase the maximum credit available
under the Credit Facilities to the aggregate amount of $105 million at the
time the Offering is closed, there can be no assurance that this increase will
be obtained. Moreover, the Company currently intends to finance future
acquisitions in part by using shares of its Common Stock as consideration. If
the Common Stock does not maintain a sufficient market value, or if potential
acquisition candidates are unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, to initiate and maintain its
acquisition program. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
FLUCTUATION IN QUARTERLY OPERATING RESULTS; PRIOR OPERATING LOSSES
The Company's operating results may fluctuate from quarter to quarter as a
result of a number of factors, including overall trends in the economy, the
timing of acquisitions of new businesses and unpredictable customer buying
patterns. The Company competes primarily in the general commercial printing
sector, which is characterized by individual orders from customers for
specific printing projects rather than long-term contracts. Future engagement
by existing customers is dependent upon the customers' satisfaction with the
services provided by the Company. Therefore, the Company is unable to predict
in advance the number, size and profitability of printing jobs in a given
period. Irregular customer purchasing patterns could result in significant
fluctuations in operating results from quarter to quarter. In addition, direct
costs and timing of acquisitions could cause results of operations to
fluctuate from quarter to quarter.
The Company, Sutherland Printing Company, Inc. ("Sutherland"), Phoenix and
Phillips Litho Co., Inc. ("Phillips") have each experienced operating losses
in the last several years. See "Prospectus Summary--Summary Financial
Information for Individual Master Graphics Companies." There can be no
assurance that such operating losses will not continue. Moreover, Sutherland
was a debtor-in-possession under the protection of a proceeding filed under
Chapter 11 of the United States Bankruptcy Code at the time of its acquisition
by the Company.
RAW MATERIALS--PAPER
The cost of paper is a principal factor in the Company's pricing to certain
customers. The Company is generally able to pass increases in the cost of
paper to its customers, while decreases in paper costs generally result in
lower prices to customers. In the last three years, paper prices for the
industry have experienced dramatic fluctuations. To the extent that there are
future paper cost increases and the Company is not able to pass such increases
to its customers or its customers reduce the size or number of their orders,
the Company's results of operations could be materially adversely affected.
In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes and, in periods of high demand, to limitations
on the availability of certain paper grades, including grades utilized by the
Company. Any loss of the sources for paper supply or any disruption in such
sources' business or failure by them to meet the Company's product needs on a
timely basis could cause, at a minimum, temporary shortages in needed
materials which could have a material adverse effect on the Company's results
of operations. Although the Company actively manages its paper supply, it does
not maintain large inventories of paper, and there can be no assurance that
the Company's sources of supply for its paper will be adequate or, in the
event that such sources are not adequate, that alternative sources can be
developed in a timely manner.
AVAILABILITY OF TECHNICIANS AND SALESPEOPLE
The Company's ability to provide high-quality finished printed products in a
timely fashion is dependant on the Company's maintaining an adequate staff of
skilled technicians, including prepress personnel, pressmen, bindery operators
and fulfillment personnel. Accordingly, the Company's ability to increase its
productivity and profitability will be limited by its ability to employ, train
and retain the skilled technicians necessary to meet the Company's
commitments. From time-to-time, the printing industry experiences shortages of
qualified technicians, and there can be no assurance that the Company will be
able to maintain an adequate skilled labor
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<PAGE>
force necessary to operate efficiently, that the Company's labor expenses will
not increase from time to time as a result of shortages of skilled technicians
or that the Company will not have to curtail its planned internal growth as a
result of labor shortages. Moreover, the general commercial printing industry
is characterized by personal relationships between individual members of a
company's sales force and customers who order printing services. The inability
of the Company to retain salespeople with large customer bases could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Marketing and Sales."
RAPID TECHNOLOGICAL CHANGE
The technology used by the Company primarily in its prepress operations is
rapidly evolving. The Company could experience delays or difficulties in
adjusting its prepress systems to accommodate changing technology on a timely
basis to address the increasingly sophisticated needs of its customers and to
keep pace with technological developments and emerging industry standards. The
financial investment required to respond to and integrate changing
technologies may be greater than anticipated by the Company. If the Company
does not respond adequately to the need to integrate changing technologies in
a timely manner or the investment required to so respond is greater than
anticipated, the Company's business, financial condition and results of
operations may be materially adversely affected.
FACTORS AFFECTING INTERNAL GROWTH
The Company's ability to increase the revenue of the Master Graphics
Companies and any subsequently acquired company will be affected by various
factors, including the demand for general commercial printing services and
other factors discussed in this Prospectus. Many of these factors are beyond
the control of the Company, and there can be no assurance that the Company's
operating and internal growth strategies will be successful or that it will be
able to generate cash flow adequate for its operation and to support internal
growth. Furthermore, there can be no assurance that management will be able to
integrate successfully acquired businesses and reduce operating expenses. See
"--Inability to Integrate Operations or Implement Operating Systems and
Policies," "--Limited Combined Operating History," "--Risks Associated with
Acquisition Strategy," "Business--Operating Strategy" and "Business--Master
Central."
VALUATION OF ACQUISITIONS
The Company has negotiated acquisitions on an individual, company-by-company
basis, using valuations based on prior and anticipated operating results of
the acquired businesses. There can be no assurance that the consideration paid
by the Company for the Acquired Companies accurately reflects the value of
these companies. Moreover, there can be no assurance that valuations prepared
in connection with the McQuiddy acquisition and subsequent acquisitions will
accurately reflect the values of companies acquired in the future. If the fair
market values of the Acquired Companies, McQuiddy, or companies to be acquired
in the future at the time of acquisition by the Company are materially
different from the amounts paid by the Company, the Company may have overpaid
for such companies, which could result in a material and adverse effect on the
financial performance of the Company and the value of the Common Stock. The
Company will have recorded $41 million of goodwill in connection with its
acquisition of the Master Graphics Companies, and the Company expects to
record additional goodwill in connection with future acquisitions. The Company
intends to evaluate periodically the amount of goodwill on its balance sheet.
In the event the Company determines that the value of goodwill has been
impaired, it may be required to charge earnings for the amount of such
impairment. Any such charge could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The general commercial printing industry is extremely competitive and
fragmented. In spite of the fragmentation of the industry, recent
technological developments in prepress and design and over-capacity in the
printing industry have increased industry consolidation and competitive
pressures. The Company competes with numerous large and small printing
companies, some of which have greater financial resources than the Company.
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<PAGE>
The Company competes on the basis of ongoing customer service, quality of
finished products and price. Moreover, the Company competes for potential
acquisition candidates with other printing industry consolidators, some of
which have greater financial resources than the Company. There can be no
assurance that the Company will be able to compete successfully with such
competitors. See "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company's operation and implementation of its acquisition and operating
strategies are dependent on the continued efforts of its executive officers
and key managers of the Master Graphics Companies. Furthermore, the Company
will be dependent on the key managers of companies that may be acquired in the
future. The Company currently has employment contracts with its five executive
officers and certain key managers of the divisions. Because of the difficulty
in finding adequate replacements for such personnel, the loss of the services
of any of them or the Company's inability in the future to attract and retain
management and other key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management--Executive Compensation."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to numerous federal,
state and local laws and regulations relating to human health and safety and
the environment. These laws and regulations address and regulate, among other
matters, wastewater discharge, air quality and the generation, handling,
storage, treatment, disposal and transportation of solid and hazardous wastes
and releases of hazardous substances into the environment. In addition, third
parties and governmental agencies in some cases have the power under such laws
and regulations to require remediation of environmental conditions and, in the
case of governmental agencies, to impose fines and penalties. The Company
makes capital expenditures from time to time to stay in compliance with
applicable laws and regulations.
The Company has obtained all permits and approvals and filed all
registrations required for the conduct of its business. The Company is in
compliance in all material respects with the numerous federal, state and local
laws and regulations and permits, approvals and registrations relating to
human health and safety and the environment except where noncompliance would
not have a material adverse effect on the Company's business, financial
condition and results of operations.
In connection with the acquisition of the Master Graphics Companies, each of
the Company's properties has been subjected to a Phase I environmental site
assessment ("ESA") (which does not involve invasive procedures, such as soil
sampling or ground water analysis) by independent environmental consultants.
The ESAs have not revealed any material environmental liability that would
have a material adverse effect on the Company. The Company has not been
notified by any governmental authority of any continuing noncompliance,
liability or other claim in connection with any of its properties, nor is the
Company aware of any other material environmental condition with respect to
any of its properties. However, in connection with the ownership and operation
of its properties and the conduct of its business, the Company potentially may
be liable for damages or cleanup, investigation or remediation costs.
No assurance can be given that all potential environmental liabilities have
been identified or properly quantified or that any prior owner, operator, or
tenant has not created an environmental condition unknown to the Company.
Moreover, no assurance can be given that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the properties will not be affected by the
condition of land or operations in the vicinity of the properties (such as the
presence of underground storage tanks), or by third parties unrelated to the
Company. Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on the Company. Such costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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NO PRIOR MARKET; VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made for quotation of the Common Stock on the
Nasdaq National Market, there can be no assurance that an active public market
for the Common Stock will develop or continue after the Offering. The initial
public offering price for the Common Stock will be determined by negotiations
among the Company and the representative of the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriting" for factors to be considered in determining the initial public
offering price. The market price of the Common Stock after the Offering may be
subject to significant fluctuations from time to time in response to numerous
factors, including the depth and liquidity of the market for the Common Stock,
variations in the reported financial results of the Company, investor
perception of the Company, changes in conditions in the economy in general and
the printing industry in particular. The equity markets have from time to time
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and that have often been
unrelated to the operating performance of these companies. Any such
fluctuations that occur following completion of the Offering may adversely
affect the market price of the Common Stock.
IMMEDIATE, SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $12.75 per share. See "Dilution." In
the event the Company issues additional shares of Common Stock in the future,
including shares that may be issued in connection with future acquisitions,
purchasers of the Common Stock in the Offering may experience further dilution
in the net tangible book value per share of the Common Stock.
RESTRICTIONS ON DIVIDENDS
The Company has never paid or declared a cash dividend on the Common Stock.
The Company currently intends to retain all future earnings, with the
exception of earnings paid as dividends on the Series A Preferred Stock, to
finance the continuing development of its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. The
Company's ability to pay dividends on the Common Stock is currently restricted
by the terms of the Credit Facilities, the terms of the Series A Preferred
Stock, and in the future will be restricted by the terms of the Credit
Facilities and could be restricted by the terms of subsequent financings and
series of Preferred Stock that may be issued in the future. See "Description
of Capital Stock--Common Stock" and "--Preferred Stock." Additionally, the
ability of Premier Graphics to pay dividends to Master Graphics, Inc. is
limited by the terms of the Credit Facilities.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, 7,666,664 shares of Common Stock will be
outstanding. The 3,600,000 shares of Common Stock sold in the Offering (other
than shares that may be purchased by "affiliates" of the Company, as that term
is defined under the Securities Act) will be freely tradeable. The remaining
shares outstanding may be resold publicly only following their effective
registration under the Securities Act or pursuant to an available exemption
(such as provided by Rule 144 following a holding period for previously
unregistered shares) from the registration requirements of the Securities Act.
As of the date of this Prospectus, no "restricted" shares of Common Stock are
eligible for resale pursuant to Rule 144. The earliest point in time when any
restricted shares of Common Stock are eligible for resale pursuant to Rule 144
is June 1998.
Upon the closing of the Offering, the Company will have outstanding 177,776
shares of Series A Preferred Stock which will be immediately convertible, at
the option of the holder thereof, into an identical number of shares of Common
Stock. The holder of Series A Preferred Stock has the right to include its
shares of Common Stock issued upon conversion of such Series A Preferred Stock
for offer and sale pursuant to a registration by the Company under the
Securities Act of a subsequent public offering of Common Stock (a "Piggyback
Registration") or to require the Company to effect a registration under the
Securities Act of the offer and sale
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of all or any part of the number of shares of Common Stock issued upon
conversion of the Series A Preferred Stock (a "Demand Registration"). If a
Piggyback Registration is elected in connection with an underwritten offering,
the number of shares that may be offered and sold by selling shareholders may
be limited or eliminated entirely if the managing underwriter determines
marketing factors require a limitation on the number of shares to be
underwritten. See "Shares Eligible for Future Sale--Registration Rights."
Upon the closing of the Offering, the Company also will have outstanding
options to purchase up to a total of 606,914 shares of Common Stock, none of
which will be exercisable within 60 days after the closing of the Offering.
See "Shares Eligible for Future Sale -- Options." The Company intends to
register the shares subject to these options under the Securities Act for
public resale. See "Shares Eligible for Future Sale --Options."
In connection with the acquisition of the Master Graphics Companies, the
Company has issued or will issue warrants (the "Seller Warrants") to purchase
1,516,412 shares of Common Stock at an exercise price of $12.00 per share
(assuming an initial offering price equal to the Mid-Point). All Seller
Warrants may be exercised immediately after the closing of the Offering.
Certain holders of Seller Warrants to purchase an aggregate of 491,666 shares
of Common Stock have Piggyback Registration rights.
In connection with a financing transaction, the Company issued to its senior
lender a warrant to purchase 183,333 shares of Common Stock (assuming an
initial offering price equal to the Mid-Point) for nominal consideration,
which is exercisable immediately after the closing of the Offering. Moreover,
in connection with the acquisition of B&M Printing, the Company granted rights
to purchase 108,333 shares of Common Stock at a price of $12.00 per share
(assuming an initial offering price equal to the Mid-Point) to certain former
shareholders of B&M Printing, which are exercisable immediately after the
closing of the Offering. Pursuant to the Company's deferred compensation plan,
the Company issued rights to purchase 83,333 shares of Common Stock at a price
of $12.00 per share (assuming an initial offering price equal to the Mid-
Point), which are exercisable immediately after the closing of the Offering.
See "Shares Eligible for Future Sale -- Warrants and Rights.").
The Company, its executive officers and directors have agreed that they will
not offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission (the "Commission") a registration statement under the
Securities Act relating to any additional shares of Common Stock or securities
convertible or exchangeable or exercisable for shares of Common Stock, without
the prior written consent of Morgan Keegan & Company, Inc. for a period of 180
days after the date of this Prospectus (the "lock-up period"), except (i)
subsequent sales of Common Stock offered in the Offering, (ii) issuances by
the Company of unregistered Common Stock in connection with the acquisition of
printing companies, (iii) issuances by the Company of Common Stock pursuant to
the exercise of stock purchase warrants or stock options outstanding on the
date of this Prospectus, or (iv) issuance or registration of stock options or
other rights granted under the Company's 1998 Equity Compensation Plan or 1998
Non-Employee Director Option Plan.
The effect, if any, of the availability for sale, or sale, of the shares of
Common Stock eligible for future sale on the market price of the Common Stock
prevailing from time-to-time is unpredictable, and no assurance can be given
that the effect will not be adverse.
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of the Offering, the existing shareholders of the Company
will beneficially own in the aggregate approximately 53.0% of the outstanding
Common Stock (or approximately 50.0% if the Underwriters' over-allotment
option is exercised in full). Accordingly, such persons will have substantial
influence on the Company, which influence might not be consistent with the
interests of other shareholders, and on the outcome of any matters submitted
to the Company's shareholders for approval. In addition, although there is no
current
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agreement, understanding or arrangement for these shareholders to act together
on any matter, these shareholders may have economic and business reasons to
act together, and would be in a position to exert significant influence over
the affairs of the Company if they were to act together in the future. If
these persons were to act in concert, they might, as a practical matter, be
able to exercise control over the Company's affairs, including the election of
the Company's Board of Directors and other matters requiring shareholder
approval. See "Principal and Selling Shareholders."
POTENTIAL ANTI-TAKEOVER EFFECTS
The Company's charter (the "Charter") and bylaws (the "Bylaws") provide for
a classified Board of Directors, restrict the ability of shareholders to call
special meetings and contain advance notice requirements for shareholder
proposals and nominations and special voting requirements for the amendment of
the Charter and Bylaws. These provisions could delay or hinder the removal of
incumbent directors and could discourage or make more difficult a proposed
merger, tender offer or proxy contest involving the Company or may otherwise
have an adverse effect on the market price of the Common Stock. There are
certain Tennessee statutes which provide anti-takeover protection for
Tennessee corporations. See "Description of Capital Stock--Certain Provisions
of the Charter, Bylaws and Tennessee Law." The Charter authorizes 10,000,000
shares of Preferred Stock, the rights, preferences, qualifications,
limitations and restrictions of which may be fixed by the Board of Directors
without any further action by shareholders and which could be used by the
Company to deter unwanted merger or acquisition proposals. See "Description of
Capital Stock--Preferred Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, at an assumed initial public offering price of $12.00 per
share (the midpoint of the range indicated on the cover page of this
Prospectus) are estimated to be approximately $37.0 million ($43.1 million if
the Underwriters' over-allotment option is exercised in full) after deduction
of the underwriting discount and estimated offering expenses payable by the
Company. The Company will not receive any proceeds from the sale of shares of
the Common Stock by the Selling Shareholder. The Company expects to use $3
million of such net proceeds to pay acquisition advisory fees, payment of
which was deferred until the completion of the Offering, approximately $4.3
million to repay indebtedness owed to the Selling Shareholder which matures in
May 2002 and bears interest at 13.25% per annum, and the balance to repay
indebtedness owed to the Company's senior lender which matures on March 2003
and bears interest at 12% per annum. The proceeds of each of the loans were
used for acquisitions and working capital. The Company expects that the
combination of these proceeds and proceeds available under the Credit
Facilities will enable the Company to obtain financing for its new
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid or declared a cash dividend on its Common Stock.
The Company currently intends to retain all future earnings, with the
exception of earnings paid as dividends on the Series A Preferred Stock, to
finance the continuing development of its business and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock in the future will be at the
Board of Directors' discretion and will depend on the Company's earnings,
financial condition, capital needs and other factors deemed pertinent by the
Company's Board of Directors, including the limitations, if any, on the
payment of dividends under state law, any then-existing credit agreement and
any subsequently issued Preferred Stock. The Credit Facilities restrict the
payment of dividends. See "Restriction of Dividends."
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an historical basis including the 40,000 for 1 stock
split to be effected immediately prior to the closing of the Offering; (ii) on
a pro forma basis to reflect the acquisition of companies acquired after
December 31, 1997 and the financing thereof, including the issuance of 177,776
shares of the Series A Preferred Stock on March 31, 1998 and the issuance of a
warrant to acquire 183,333 shares of Common Stock on March 31, 1998; and (iii)
on a pro forma as adjusted basis to reflect the exercise of a warrant to
purchase 266,664 shares of Common Stock on April 8, 1998, and the application
of the net proceeds from the Offering, which are estimated to be approximately
$37 million (after deducting underwriting discounts and commissions and
estimated offering expenses). For a description of the adjustments, see Notes
to the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere herein. 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, historical and pro
forma financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
(IN THOUSANDS)
----------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current portion of long-term debt.......... $ 3,834 $ 3,959 $ 3,959
Long-term debt, net of current portion and
unamortized discount...................... 65,483 104,798 73,844
Redeemable common stock warrants........... 3,376 4,226 2,200
Preferred Stock, $.001 par value per share,
10,000,000 shares authorized, no shares
issued and outstanding (historical),
177,776 of 5% Series A Cumulative
Convertible Redeemable Preferred Stock,
$12.81 Liquidation Value per share issued
and outstanding (pro forma) and 177,776
shares of 5% Series A Cumulative
Convertible Redeemable Preferred Stock
issued and outstanding (pro forma as
adjusted)................................. -- 1,350 1,350
Shareholders' equity:
Common Stock, $.001 par value per share;
100,000,000 shares authorized; 4,000,000
shares issued and outstanding
(historical); 4,000,000 shares issued and
outstanding (pro forma) and 7,666,664
shares issued and outstanding (pro forma
as adjusted) (1).......................... 4 4 8
Additional paid-in capital................. 3,850 5,124 43,939
Retained earnings (deficit)................ (5,449) (5,449) (9,105)
------- -------- --------
Total shareholders' equity (deficit)....... (1,596) (528) 34,842
------- -------- --------
Total capitalization....................... $74,289 $113,805 $116,195
======= ======== ========
</TABLE>
- --------
(1) Does not include (i) 177,776 shares of Common Stock issuable for nominal
consideration upon the conversion of the Series A Preferred Stock; (ii)
183,333 shares of Common Stock (assuming an initial offering price equal
to the Mid-Point) issuable for nominal consideration upon the exercise of
a warrant issued in connection with a financing transaction; (iii)
1,516,412 shares of Common Stock issuable at $12.00 per share (assuming an
initial offering price equal to the Mid-Point) upon the exercise of the
Seller Warrants; (iv) 606,914 shares of Common Stock issuable at $12.00
per share (assuming an initial offering price equal to the Mid-Point) upon
the exercise of outstanding stock options held by employees of the
Company; (v) 108,333 shares of Common Stock issuable at $12.00 per share
(assuming an initial offering price equal to the Mid-Point) upon the
exercise of rights granted to former B&M Printing shareholders; and (vi)
83,333 shares of Common Stock issuable at $12.00 per share (assuming an
initial offering price equal to the Mid-Point) pursuant to the Company's
deferred compensation plan.
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at December 31, 1997,
after giving effect to the acquisition of the Master Graphics Companies, the
exercise of a warrant to purchase 266,664 shares of Common Stock, the
conversion of the Series A Preferred Stock into 177,776 shares of Common Stock,
and the exercise of a warrant to purchase 183,333 shares of Common Stock as if
each had occurred as of that date, but before giving effect to the Offering,
was $(41.4) million or $(8.95) per share. "Pro forma net tangible book value
per share" before the Offering represents the amount of pro forma total
tangible assets of the Company less pro forma total liabilities divided by the
number of shares of Common Stock outstanding. Net tangible book value dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma as
adjusted net tangible book value per share immediately after completion of the
Offering. After giving effect to the sale by the Company of the 3,400,000
shares of Common Stock offered hereby (assuming an initial public offering
price equal to the Mid Point and after deducting the underwriting discounts and
estimated offering expenses payable by the Company) and the application of the
net proceeds therefrom as discussed under "Use of Proceeds," the pro forma as
adjusted net tangible book value of the Company as of December 31, 1997 would
have been approximately $(6.0 million) or $(0.75) per share. This represents an
immediate increase in pro forma net tangible book value of approximately $8.20
per share to the existing shareholders and an immediate dilution in pro forma
net tangible book value of approximately $12.75 per share to purchasers of
Common Stock in this Offering. The following table illustrated this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ 12.00
Net tangible book value (deficit) per share before the
Offering................................................ $(8.95)
Increase per share attributable to the Offering.......... 8.20
------
Pro forma as adjusted net tangible book value deficit after
the Offering.............................................. (0.75)
------
Dilution per share to new investors........................ $12.75
======
</TABLE>
The following table shows, after giving effect to the Offering, the
difference between existing shareholders and new investors with respect to the
number of shares purchased from the Company and the total consideration and
average price per share paid to the Company, before deducting the underwriting
discounts and estimated Offering expenses (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PER SHARE
--------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Existing shareholders.......... 4,627,773 57.6% $ 2,200,000 $ .48
New investors.................. 3,400,000 42.4% 40,800,000 $12.00
--------- ------ ----------- ------
Total........................ 8,027,773 100.0% $43,000,000
========= ====== ===========
</TABLE>
The foregoing table assumes the conversion of the Series A Preferred Stock
into 177,776 shares of Common Stock and the exercise by the senior lender of
its warrant to purchase 183,333 shares of Common Stock for nominal
consideration. In addition to the foregoing, upon closing of the Offering,
there will be (i) 1,516,412 shares of Common Stock issuable at $12.00 per share
(assuming an initial offering price equal to the Mid-Point) upon the exercise
of the Seller Warrants; (ii) 606,914 shares of Common Stock issuable at $12.00
per share (assuming an initial offering price equal to the Mid-Point) upon the
exercise of outstanding stock options held by employees of the Company; (iii)
108,333 shares of Common Stock issuable at $12.00 per share (assuming an
initial offering price equal to the Mid-Point) issuable upon the exercise of
rights granted to former B&M Printing shareholders; and (iv) 83,333 shares of
Common Stock issuable at $12.00 per share (assuming an initial offering price
equal to the Mid-Point) issuable pursuant to the Company's deferred
compensation plan.
18
<PAGE>
SELECTED HISTORICAL, PRO FORMA AND COMBINED FINANCIAL DATA
The following operating data and balance sheet data of the Company and the
Master Graphics Companies combined, and the historical consolidated operating
data and balance sheet data of the Company have been derived from the separate
historical financial statements of the Company and the Master Graphics
Companies and the historical consolidated financial statements of the Company,
respectively. The consolidated financial statements of the Company and certain
of the separate financial statements of the Master Graphics Companies have
been audited by independent auditors to the extent and for the periods
indicated in the respective reports of KPMG Peat Marwick LLP (with respect to
the financial statements of Master Graphics, Inc., Lithograph Printing Company
of Memphis ("Lithograph"), Blackwell Lithographers, Inc. ("Blackwell"), The
Argus Press, Inc. ("Argus"), Jones Printing Company, Inc. ("Jones"), Phoenix,
and Hederman Brothers, Inc. ("Hederman")), Arthur Andersen LLP (with respect
to the financial statements of Phoenix), Marlin and Edmondson, P.C. (with
respect to the financial statements of McQuiddy), Joseph Decosimo and Company,
LLP (with respect to Jones), Thompson Dunavant PLC (with respect to Master
Printing), Becker & Company, P.C. (with respect to Harperprints), and S. F.
Fiser & Company, P.A. (with respect to Phillips), all of which reports are
included elsewhere herein.
The combined historical data for the Company and the Master Graphics
Companies are merely additions of such data for each of the individual
companies and do not purport to represent what the Company's results of
operations or financial position would have been if the operations of such
businesses had actually been combined during the periods or on the dates
indicated or to project the Company's results of operations or financial
position for any period or date. Additionally, the Master Graphics Companies
operated with varying fiscal years, and such data combines information from
those varying fiscal years into single periods and as of single dates. See
Note 1 below.
The pro forma consolidated financial data are derived from the pro forma
consolidated financial statements of the Company as of and for the year ended
December 31, 1997, which statements are included elsewhere in this Prospectus.
Such pro forma financial statements give effect to acquisitions consummated in
1997 and 1998 and the probable acquisition of McQuiddy, and the financing of
all completed and probable acquisitions as if those transactions had occurred
as of January 1, 1997 in the case of the consolidated pro forma operating
data, and give effect to the 1998 acquisitions (including the probable
acquisition of McQuiddy) and financing thereof as if those transactions had
occurred as of December 31, 1997 in the case of the consolidated pro forma
balance sheet data. The pro forma consolidated financial data do not purport
to represent what the Company's results of operations or financial position
would actually have been if such transactions in fact had occurred on such
dates, or to project the Company's results of operations or financial position
for any period or date. Pro forma adjustments are based on the purchase method
of accounting.
Pro forma as adjusted operating and balance sheet data give effect to the
transactions described in the previous paragraph and, in addition, give effect
to the use of proceeds from the Offering, primarily reducing debt and the
related interest expense. The pro forma, as adjusted data are derived from the
pro forma condensed consolidated financial statements of the Company, included
elsewhere in this Prospectus.
The financial information should be read in conjunction with the historical
financial statements of the Company and certain of the Master Graphics
Companies, and the pro forma condensed consolidated financial statements of
the Company, including the related notes thereto, included elsewhere herein.
19
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
YEARS ENDED JUNE 30(1) SIX MONTHS ENDED YEAR ENDED
------------------------------------------- DECEMBER 31 DECEMBER 31
1993 1994 1995 1996 1997 1997 (1) 1997(2)
------- ------- ------- ------- ------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY:
INCOME STATEMENT DATA:
Revenue............... $10,514 $10,804 $11,426 $13,243 $13,433 $32,394 $153,971
Cost of revenue....... 8,339 8,098 8,928 9,955 11,312 26,528 115,181
------- ------- ------- ------- ------- ------- --------
Gross profit......... 2,175 2,706 2,498 3,288 2,121 5,866 38,790
Selling, general and
administrative
expenses............. 2,231 2,587 2,570 2,691 3,021 5,990 29,223
Amortization of
goodwill............. -- -- -- -- -- 98 1,022
------- ------- ------- ------- ------- ------- --------
Operating income
(loss).............. (56) 119 (72) 597 (900) (222) 8,545
Other income
(expense):
Redeemable warrant
valuation
adjustment.......... -- -- -- -- -- (1,635) --
Interest income...... 102 84 67 68 68 48 135
Interest expense..... (365) (403) (334) (376) (439) (2,181) (6,987)
Other, net........... 85 83 44 44 23 191 (126)
------- ------- ------- ------- ------- ------- --------
Other income
(expense), net.... (178) (236) (223) (264) (348) (3,577) (6,978)
------- ------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........ (234) (117) (295) 334 (1,248) (3,799) 1,567
Income tax expense
(benefit)............ (43) (25) (86) 161 25 20 674
------- ------- ------- ------- ------- ------- --------
Net earnings (loss).. (191) (92) (209) 173 (1,273) (3,819) 893
Net earnings (loss)
applicable to common
shares.............. -- -- -- -- -- -- 779
======= ======= ======= ======= ======= ======= ========
Earnings per share:
Basic................ ($0.05) ($0.02) ($0.05) 0.04 ($0.32) ($0.95) 0.10
======= ======= ======= ======= ======= ======= ========
Diluted.............. ($0.05) ($0.02) ($0.05) 0.04 ($0.32) ($0.95) 0.10
======= ======= ======= ======= ======= ======= ========
OTHER DATA:
EBITDA(3)............ 1,610 1,152 795 1,315 (186) (205) 13,991
Depreciation and
amortization........ 1,480 867 757 605 623 1,413 5,437
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------- ---------------------------
AT JUNE 30
------------------------------
AT AT AS ADJUSTED AT
DECEMBER 31 DECEMBER 31 DECEMBER 31,
1993 1994 1995 1996 1997 1997 1997 1997
----- ----- ----- ----- ------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... 738 866 765 1,286 3,056 6,691 14,038 17,038
Property, plant and
equipment, net....... 2,458 2,276 1,934 2,007 20,472 29,550 54,216 54,216
Total assets.......... 8,902 6,330 6,102 6,426 37,215 86,384 137,904 137,294
Long-term obligations,
including current
installments......... 5,886 3,566 3,382 2,794 30,612 69,317 108,757 77,803
Redeemable common
stock warrants....... -- -- -- -- 638 3,376 4,226 2,200
Redeemable preferred
stock................ -- -- -- -- -- -- 1,350 1,350
Shareholders' equity
(deficit)............ 1,972 1,880 1,671 1,843 780 (1,596) (528) 34,842
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR(4)
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COMBINED HISTORICAL INCOME
STATEMENT DATA OF THE COMPANY
AND THE MASTER GRAPHICS
COMPANIES:
Revenue........................ $115,526 $120,834 $134,330 $142,635 $151,759
Gross profit................... 27,751 30,074 34,073 35,303 34,962
Selling, general and
administrative expenses....... 23,596 25,746 29,412 28,942 28,440
Operating income............... 4,155 4,328 4,660 6,361 6,522
</TABLE>
- --------
(1) Effective January 1, 1998, the Company changed its annual accounting period
to a calendar year.
20
<PAGE>
(2) Pro forma as adjusted financial data as of December 31, 1997 gives effect
to the completed acquisitions, the probable acquisition of McQuiddy, and
financings thereof that are described in Unaudited Pro Forma Consolidated
Financial Statements, as if they had occurred at January 1, 1997 for the
Income Statement Data and on December 31, 1997 for the Balance Sheet Data.
The pro forma financial information presents certain information for the
Company, as adjusted for (i) the effects of the acquisitions of the Master
Graphics Companies, (ii) the effects of certain pro forma adjustments to
the historical financial statements of the Master Graphics Companies which
are directly related to these acquisitions, (iii) the exercise of a
warrant by the Selling Shareholder to purchase 266,664 shares of Common
Stock for nominal value, (iv) the issuance of the Series A Preferred
Stock, and (v) the consummation of the Offering and the application of the
net proceeds therefrom.The conversion of the Series A Preferred Stock into
177,776 shares of Common Stock and the exercise of a warrant to purchase
183,333 shares of Common Stock for nominal consideration have not been
assumed in the pro forma balance sheet data; their assumed conversion and
exercise, respectively, have been considered in computing diluted earnings
per share. The pro forma adjustments reflect, among other things, a
reduction in interest expense and the interest rate as a result of the
application of the net proceeds of the Offering. The pro forma as adjusted
financial information does not purport to represent what the Company's
results of operations or financial position actually would have been had
these events, in fact, occurred on the date or at the beginning of the
period indicated, nor are they intended to project the Company's results
of operations or financial position for any future date or period.
(3) Represents earnings before interest, taxes, depreciation and amortization
("EBITDA"). Based on its experience in the general commercial printing
industry, the Company believes that EBITDA is an important tool for
measuring the performance of companies in the industry (including
potential acquisition targets) in several areas such as liquidity,
operating performance and leverage. In addition, lenders use EBITDA as a
criterion in evaluating companies in the industry, and the Company's
financing arrangements contain covenants in which EBITDA is used as a
measure of financial performance. The EBITDA measure for the Company may
not be consistent with similarly titled measures for other companies.
EBITDA should not be considered as an alternative to operating or net
income (as determined in accordance with generally accepted accounting
principles ("GAAP")) as an indicator of the Company's performance or to
cash flow from operations (as determined in accordance with GAAP) as a
measure of liquidity. See the comparative historical statements of cash
flows included herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "--Liquidity and
Capital Resources" for a discussion of other measures of performance
determined in accordance with GAAP and the Company's sources and
applications of cash flow.
(4) In addition to the Company itself which previously had a June 30 year end,
McQuiddy (June 30) and Phoenix (January 31) had fiscal year ends that
differed from December 31, which is the year end the Company will use
effective January 1, 1998.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
and the pro forma financial statements and related notes of the Company, the
financial statements of the Master Graphics Companies presented herein and
Selected Historical, Pro Forma and Combined Financial Data included elsewhere
in this Prospectus.
INTRODUCTION
Since June 1997, the Company has acquired nine high quality, market leading
general commercial printing companies. In addition, the Company has entered
into a definitive agreement to acquire McQuiddy. Each of the Master Graphics
Companies was or will be acquired with a combination of cash, notes and
warrants. The Company financed the cash portion of the purchase price
primarily with debt. As a result, the Company has substantial interest expense
that will be reduced by application of the net proceeds from the Offering.
Each acquisition was accounted for as a purchase, and any purchase price in
excess of the fair value of the assets acquired was allocated to goodwill
which is amortized over 40 years. A substantial portion of this non-cash
expense will likely be non-deductible for tax purposes.
The Master Graphics Companies were all closely-held businesses, and several
were S corporations. In many cases, the tax structure influenced the
historical level of owners' compensation. Many of the owners have agreed to
certain reductions in their compensation and benefits following the
acquisition by the Company.
As a result of the acquisitions and the Company's increased size, the
Company expects to receive volume discounts and rebates from manufacturers and
suppliers of paper, film, printing plates and ink. The Company has in place
agreements with five major paper suppliers which should reduce the Company's
costs. See "Risk Factors--Limited Combined Operating History" and "--Raw
Materials--Paper."
The Company has incurred and will incur various non-cash charges related to
this Offering. In the fourth quarter of 1997, the Company incurred a charge of
$735,000 related to deferred compensation for executives recruited in
connection with the Offering. Also, the Company incurred a charge for an
increase in the value of a redeemable warrant issued to one of the Company's
lenders in the amount of approximately $1.6 million. Upon the closing of the
Offering, the Company will incur a one-time charge related to the write-off of
deferred loan costs of approximately $3.7 million.
COMBINED COMPANIES
RESULTS OF OPERATIONS
The following table sets forth certain unaudited combined financial data for
the periods indicated (dollars in millions) and such results as a percentage
of revenue.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------
1995 1996 1997(2)
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $134.3 100.0% $142.6 100.0% $151.8 100.0%
Gross profit........................ 34.1 25.4 35.3 24.8 35.0 23.1
Selling, general and administrative
expenses........................... 29.4 21.9 28.9 20.3 28.4 18.7
Operating income.................... 4.7 3.5 6.4 4.5 6.6 4.3
</TABLE>
- --------
(1) The Company and several of the Master Graphics Companies have fiscal year
ends which differ from December 31, which is the year end the Company will
use effective January 1, 1998. The financial data set forth above reflect
the respective fiscal year ends of the Master Graphics Companies in the
calendar years indicated.
(2) For Blackwell, Lithograph, Sutherland, Argus, and Jones, these amounts
reflect combined pre- and post-acquisition activity during the year.
22
<PAGE>
The combined results of operations of the Company and the Master Graphics
Companies for the periods presented do not represent combined results of
operations presented in accordance with generally accepted accounting
principles, but are only a summation of the revenue, gross profit, selling,
general and administrative expenses and operating income of the individual
companies on an historical basis. The combined results of operations assume
that each of the Master Graphics Companies was combined from the beginning of
each period presented. The combined results also exclude the effect of pro
forma adjustments and may not be comparable to, and may not be indicative of,
the Company's post-combination results of operations because (i) the Master
Graphics Companies were not under common control or management during the
periods presented; (ii) the Company will incur incremental costs for its
corporate management and the costs of being a public company; (iii) the
Company will use the purchase method to record the acquisitions of the Master
Graphics Companies at different points in time, resulting in the recording of
goodwill that will be amortized over 40 years; and (iv) the combined data do
not reflect the potential benefits and cost savings the Company expects to
realize when operating as a combined entity.
Fiscal Year 1997 Compared to Fiscal Year 1996
Revenue. Revenue increased 6.5% from $142.6 million for fiscal year 1996 to
$151.8 million for fiscal year 1997. The increase in revenue was primarily
attributable to the Phoenix acquisition of substantially all the operating
assets and business of the Cunningham Group, Inc. in January 1996. The first
complete fiscal year of operations including the results of the Cunningham was
Phoenix's year ended January 31, 1997, resulting in an increase in revenue of
approximately $5.8 million. Further revenue growth was attributable to volume
increases and a continued strong economy. Of the Master Graphics Companies,
eight reported increases in revenues from fiscal 1996 to the corresponding
period in 1997.
Gross Profit. Gross profit decreased 0.8% from $35.3 million for fiscal 1996
to $35.0 million for fiscal 1997. Gross margin decreased from 24.8% to 23.1%
from fiscal year 1996 to the corresponding period in 1997. The decrease in
gross profit was primarily attributable to the increased labor, depreciation
and lease expense associated with operation of new presses at B&M Printing,
Argus and McQuiddy which was partially offset by an increase in revenue during
the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 1.7% from $28.9 million for fiscal year 1996
to $28.4 million for fiscal year 1997. The decrease was attributable to a
reduction in compensation and certain other expenses at three of the Acquired
Companies. This decrease was partially offset by the increase in selling costs
which accompany volume increases seen during the same period.
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenue. Revenue increased 6.2% from $134.3 million for fiscal year 1995 to
$142.6 million for fiscal year 1996. The increase in revenue was primarily
volume driven and attributable to a strong economy in the markets of the
Company and the Master Graphics Companies. The increase in revenue also was
attributable to the acquisition of several large accounts at Argus and
Lithograph, along with increased demand from the existing customer base
throughout the Company.
Gross Profit. Gross profit increased 3.5% from $34.1 million for fiscal 1995
to $35.3 million for fiscal year 1996. The increase in gross profit was
primarily attributable to improved operating leverage from growth in sales
volume. Gross margin decreased from 25.4% to 24.8% from fiscal year 1996 to
fiscal year 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately 1.7% from $29.4 million for
fiscal year 1995 to $28.9 million for fiscal year 1996. The decrease in
expense was attributable to a 1996 corporate restructuring at Sutherland
Printing Company, Inc. which resulted in a decrease of approximately $1.1
million in these expenses during 1997. This decrease was partially offset by
the increase in selling costs which accompany volume increases seen during the
same period.
23
<PAGE>
THE COMPANY
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated (dollars in millions) and such results as a percentage of revenue.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ 11.4 100.0% 13.2 100.0% 13.4 100.0%
Gross profit........................... 2.5 21.9 3.3 25.0 2.1 15.7
Selling, general and administrative
expenses.............................. 2.6 22.8 2.7 20.5 3.0 22.4
Operating income (loss)................ (.1) .9 .6 4.5 (.9) 6.7
Interest expense....................... (.3) 2.6 (.4) 3.0 (.4) 3.0
</TABLE>
- --------
(1) Effective January 1, 1998, the Company changed its annual accounting
period to a calendar year.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenue. Revenue increased approximately 1.5% from $13.2 million for the
year ended June 30, 1996 to $13.4 million for the year ended June 30, 1997.
Revenue growth was attributable to the addition of an eight-color heat set web
press and was partially offset by a decrease in the level of sheet fed
business due to market conditions.
Gross Profit. Gross profit decreased 36.4% from $3.3 million for the year
ended June 30, 1996 to $2.1 million for the year ended June 30, 1997. Gross
margin decreased from 20.5% to 22.4% from June 30, 1996 to the corresponding
period in 1997. The decrease in gross profit was primarily attributable to the
increased labor costs associated with operation of the new web press as well
as lease expense. This decrease was partially offset by an increase in
revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 11.1% from $2.7 million for the year ended
June 30, 1996 to $3.0 million for the year ended June 30, 1997. The increase
was attributable to increasing revenue as well as personnel related to the web
press. This increase was partially offset by a reduction in professional fees
and prepayment penalties compared to the previous period.
Interest Expense. Interest expense remained relatively consistent at
approximately $.4 million in the year ended June 30, 1996 and in the year
ended June 30, 1997.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenue. Revenue increased 15.8% from $11.4 million for the year ended June
30, 1995 to $13.2 million for the year ended June 30, 1996. The increase in
revenues was primarily volume driven and attributable to a strong economy in
the Company's market. One of the Company's large accounts closed down its in-
house print shop resulting in an increase in business for the Company.
Gross Profit. Gross profit increased 32.0% from $2.5 million for the year
ended June 30, 1995 to $3.3 million for the year ended June 30, 1996. Gross
margin increased from 21.9% to 25.0% from June 30, 1995 to the corresponding
period in 1996. The increase in gross profit was primarily attributable to
efficiencies gained from the sales volume increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.8% from $2.6 million for the year ended
June 30, 1995 to $2.7 million for the year ended June 30, 1996. The increase
was attributable to the increase in selling costs that accompany the volume
increases during the same period.
Interest Expense. Interest expense increased 33.3% from $0.3 million for the
year ended June 30, 1995 to $0.4 million for the year ended June 30, 1996. The
increase related primarily to an increase in amounts borrowed to fund working
capital associated with increasing sales.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company and the Master Graphics Companies have financed
their operations and equipment with cash flow from operations, capital leases
and secured loans through commercial banks or other institutional lenders and
credit lines from commercial banks. The Company has financed its acquisitions
primarily with funds from its Senior Credit Facility and, to a lesser extent,
with subordinated notes payable to the former owners of the Acquired
Companies. Upon consummating acquisitions, the Company has repaid or
refinanced a substantial amount of the debt of the Acquired Companies with
funds provided under its Senior Credit Facility.
The Company anticipates that its primary requirement for capital after
completion of the Offering will be for the acquisition of additional general
commercial printing companies. The Company intends to finance its acquisitions
with a combination of borrowings under its Senior Credit Facility and
Revolving Credit Facility, and issuance of Common Stock and subordinated
notes. The Company also requires capital to acquire equipment used in the
operation of its printing divisions. During fiscal years ended June 30, 1996
and 1997, and for the six-month period ended December 31, 1997, the Company's
capital expenditures amounted to an aggregate of approximately $349,000, $4.1
million and $328,000, respectively. The Company generally finances equipment
acquisitions with capital leases, term loans, borrowings under the Credit
Facilities and cash flow from operations.
Presently, the Company's largest source of capital is its Senior Credit
Facility. The Senior Credit Facility closed in June 1997 and has been
periodically increased to provide funding for the acquisitions completed since
that time. The Senior Credit Facility presently provides for a maximum of $85
million of credit. As of March 31, 1998, approximately $78.7 million had been
borrowed by the Company under the Senior Credit Facility. Of the outstanding
borrowings, (i) approximately $30 million is owed pursuant to a term note due
in March 2003, payable in quarterly installments of principal in the amount of
$937,500, plus interest payable monthly at a floating rate equal to the London
Interbank Offered Rate ("LIBOR") plus 3.25%; (ii) approximately $23.7 million
is owed pursuant to a term note due in March 2003, payable in quarterly
installments of principal in the amount of $25,000, plus interest payable
monthly at an annual rate of 12%, which rate may be converted at the option of
the Company to a floating rate; and (iii) approximately $25 million is owed
pursuant to two separate term notes in the principal amounts of $15 million
and $10 million, respectively, due in March 2003, each payable in quarterly
installments of principal in the amount of $12,500 commencing in July 1998,
plus interest payable monthly at an annual rate of 12%, which may be converted
at the option of the senior lender to a floating rate equal to prime plus
3.5%. The Senior Credit Facility is secured by a first priority security
interest in all assets of Premier Graphics except inventory and accounts
receivable, and by a second priority security interest in inventory and
accounts receivable (junior only to the Revolving Credit Facility), and is
senior in priority of payments to all other debt of the Company. Under the
Senior Credit Facility, the Company is required to maintain certain interest
coverage, fixed charge coverage and leverage ratios. The Senior Credit
Facility also contains covenants limiting capital expenditures and the payment
of dividends and requiring a minimum level of earnings before interest, taxes,
depreciation and amortization. The Senior Credit Facility requires mandatory
prepayment based on 75% of annual excess cash flows. The Senior Credit
Facility may be prepaid with a prepayment penalty of 3% of the amount prepaid
during the first year of a loan, 2% during the second year, 1% during the
third year, and without penalty after the third anniversary of the loan except
that the Senior Credit Facility may be prepaid without penalty with the
proceeds of an initial public offering.
In addition, as of March 31, 1998 the Company had borrowed $4.3 million from
the Selling Shareholder to partially finance its initial acquisitions, which
loan is payable in full in May 2002 and bears interest at an annual rate of
13.25%, payable monthly. The loan is secured by a subordinated lien on all
assets of Premier Graphics and may be prepaid at any time without penalty. The
Company intends to prepay the loan in full out of the net proceeds from the
Offering.
As of March 31, 1998 the Company had financed approximately $13.5 million of
the aggregate amount paid for the Acquired Companies by issuing unsecured
subordinated notes to the sellers. Each of these
25
<PAGE>
subordinated notes bears interest at an annual rate of 12%, payable monthly,
and is subject to prepayment at the option of the Company only upon payment of
a penalty which generally equals or exceeds 20% of the amount prepaid. Many of
the subordinated notes may be prepaid out of net proceeds of the Offering,
with the consent of the senior lender, if requested by the holders of the
subordinated notes.
As of March 31, 1998, the Company had approximately $6.3 million of
borrowing capacity under its Senior Credit Facility, which may be utilized to
finance acquisitions with the approval of the senior lender. The Company
intends to use approximately $29.7 million of the net proceeds from the
Offering ($35.8 million if the Underwriters' overallotment option is exercised
in full) to prepay amounts due under the Senior Credit Facility. The Company
has received the commitment of the senior lender to increase the Senior Credit
Facility to $90 million, effective upon the closing of the Offering. Pursuant
to the commitment, the Senior Credit Facility will consist of two term loans,
the maximum principal amounts of which shall be $55 million ("Term Loan A")
and $65 million ("Term Loan B"), respectively, but which will not exceed in
the aggregate the $90 million commitment. The amount of funding under each
term loan will be in the discretion of the Senior Lender. Term Loan A will
bear interest at either the index rate (equal to the higher of prime or the
overnight Federal funds rate plus .5%) or LIBOR plus 2.5%, at the Company's
option. Term Loan B will bear interest at either the index rate (equal to the
higher of prime or the overnight Federal funds rate plus .5%) plus .5% or
LIBOR plus 3%. Term Loan A will be payable in full five years after initial
funding, and principal will be payable in quarterly installments based on an
eight year amortization. Term Loan B will be payable in full on the same date
as Term Loan A, and principal will be payable in annual installments of
$350,000. The security for the Senior Credit Facility will be the same as
presently exists, and the Company's covenants will be adjusted only to take
into account the effect of the Offering. Both loans may be prepaid in whole or
in part, without penalty, out of the net proceeds of any subsequent public
offering of Common Stock, but may otherwise be prepaid only upon payment of
prepayment penalties of 3%, decreasing to 2% during the second year of the
loan, 1% during the third year and without penalty after the third anniversary
of the loan.
The Company also may borrow under the Revolving Credit Facility, which is a
$7.5 million working capital line of credit with a commercial bank. Borrowings
under the Revolving Credit Facility are limited by a borrowing base
calculation equal to 85% of eligible receivables and 50% of eligible
inventory. The Revolving Credit Facility is secured by a first priority
security interest in Premier Graphics' inventory and accounts receivable and a
second priority security interest in certain of the Company's other assets,
and contains various covenants, including the maintenance of certain financial
ratios. The Revolving Credit Facility matures on March 31, 2000, and bears
interest at a floating rate (8.5% at December 31, 1997) based on the bank's
base lending rate. The Company is negotiating with the bank to increase the
amount of the Revolving Credit Facility to $15 million upon completion of the
Offering.
The Company anticipates that its cash flow from operations will provide cash
in excess of its normal working capital needs, debt service requirements and
planned capital expenditures for property and equipment.
The Company believes its exposure to Year 2000 issues is limited to the
purchase of computer hardware at certain locations. Operating and financial
software vendors have certified that current versions of their products are
Year 2000 compliant, or will be by fall 1998. The Company is undertaking an
inventory of its computer hardware to determine equipment age and the
capability to operate Windows based software. Based on the Company's internal
investigation, it does not believe Year 2000 issues will have a material
adverse effect on the Company's business, financial condition and results of
operations.
26
<PAGE>
INDUSTRY OVERVIEW
The printing industry is one of the largest and most fragmented industries
in the United States, with total estimated 1996 sales of $132 billion among an
estimated 50,000 printing companies according to the PIA. The printing
industry includes general commercial printing, financial printing, printing
and publishing of books, newspapers and periodicals, quick printing and
production of business forms and greeting cards. The Company focuses on
providing general commercial printing and related services. According to the
PIA, this segment had approximately $43 billion in revenue in 1996 compared to
$40 billion in 1995. There are approximately 25,000 general commercial
printing companies in the United States according to the PIA.
The general commercial printing industry involves developing a customer's
concept into printable material through the use of design and electronic
prepress services; using printing presses to imprint the printable material
onto paper; cutting, folding, and binding the finished product; and, finally,
storing and distributing the finished product at the customer's direction.
Historically, design and prepress services were performed by advertising
agencies, specialty printing services or the customer, but because of the
decreased cost of and technological advancements in computer-aided design
software and hardware, general commercial printing companies are able to offer
electronic prepress services to their customers on a more efficient and cost-
effective basis.
The primary printing process used by the general commercial printing
industry is offset lithography. Paper is fed into the printing presses
utilized in the offset lithography process either sheet by sheet ("sheet fed
presses") or on continuous rolls ("web presses"). The sheet fed presses are
generally more cost-effective than web presses for jobs of fewer than 50,000
impressions. Web presses are generally used for large printing jobs such as
catalogs and magazines. Sheet fed presses vary in size and are capable of
printing up to 16 pages of letter-sized finished product on a 25 by 38-inch
sheet of paper with eight pages on each side (known as 16-page "signature") at
speeds of up to 15,000 impressions per hour. Web presses print on a continuous
roll of paper and can print on both sides of the paper at the same time, print
32-page signatures at speeds of over 40,000 impressions per hour and fold,
glue and perforate a finished product.
Large printing companies making extensive use of web presses include R.R.
Donnelley, World Color Press and Quebecor. These companies specialize in large
production runs of over 50,000 copies generally pursuant to long-term
contracts. General commercial printing companies relying heavily on sheet fed
presses tend to be smaller, locally owned and operated companies that service
customers predominately on a job-by-job basis. These companies compete by
offering a high level of customer service and rapid turnaround of projects.
Due to the fragmented nature of the general commercial printing industry,
the Company believes an abundance of acquisition opportunities exist. The
general commercial printing business is characterized by a significant number
of locally oriented, privately-held businesses, many of which are viable
acquisition candidates. Owners of these independent companies are often
motivated to sell their printing businesses to increase their personal
financial liquidity, facilitate retirement or access the financial capital and
other operating strengths the Company has to offer to grow the business.
Moreover, consolidators, such as the Company, are motivated to purchase
independent companies because of substantial potential economies of scale to
be achieved from a large multi-plant and geographically diverse organization.
27
<PAGE>
BUSINESS
GENERAL
The Company is a rapidly growing provider of general commercial printing
services to customers throughout the United States. Since June 1997, the
Company has acquired nine high quality, market leading general commercial
printing companies, each of which operates as a separate division of the
Company. In addition, the Company has entered into a definitive agreement to
acquire McQuiddy. The Master Graphics Companies have an average operating
history of over 50 years, established customer relationships and strong
reputations for customer service, responsiveness and quality. The Company's
acquisition and operating strategies are focused on continued selective
acquisitions and internal growth. The Company expects that this strategy will
enable each division to offer broader services to existing customers and
attract new customers for existing services. The Company's pro forma
consolidated revenue and operating income for the twelve months ended December
31, 1997 were $154.0 million and $8.5 million, respectively.
The Company provides service in all areas of general commercial printing,
including prepress, printing and postpress services. The Company's products
include annual reports, direct mail pieces, sales literature, point of
purchase materials, market letters, newsletters, training manuals, product
brochures, catalogs and university recruiting materials for customers such as
Federal Express, IBM, Provident Life, W. W. Grainger, Turner Broadcasting and
G. D. Searle. The Company's operating philosophy emphasizes responding rapidly
to customer requirements and producing high quality printed materials.
Responsiveness is essential because of the typically short lead time on most
general commercial printing jobs.
OPERATING STRATEGY
The Company has developed an integrated operating and acquisition strategy
designed to maximize internal and external growth and maintain and expand its
position as a leading provider of general commercial printing services. The
Company's operating strategy is to combine the service and responsiveness of a
locally-oriented, independent general commercial printing company with the
resources and economies of scale of a large company. The key elements of the
Company's operating strategy are as follows:
. Provide Premium, High Quality Service. The Company targets the premium
segment of the general commercial printing market. The Company's
customers generally choose printers primarily based on service, quality
and responsiveness, and not based solely on price.
. Cross-Sell Production Capabilities. In order to maximize "same store"
revenue growth and profitability, the Company has developed its
proprietary Master Central equipment utilization and marketing process.
Master Central is designed to maximize utilization of the Company's
existing printing capacity and capabilities by (i) allocating, on a real
time basis, certain printing projects to a particular division based on
equipment capabilities and availability; and (ii) training the Company's
sales force to market the production capacity and capabilities of all of
the Company's divisions. See "--Master Central."
. Achieve Economies of Scale. As a result of centralized purchasing, the
Company expects to receive volume discounts and rebates from
manufacturers of paper, film, printing plates and ink that would be
unavailable to the Company's divisions on a stand-alone basis. Paper is
generally the largest cost item for general commercial printing
companies, including the Company. The Company's paper costs were
approximately 27% of revenue for the six months ended December 31, 1997.
The Company has pricing agreements with five paper suppliers which
provide discounts and rebates based on volume and is currently discussing
with certain manufacturers purchase terms for film, printing plates and
ink and other printing supplies. In addition, the Company intends to
centralize administrative items such as insurance and employee benefits
to further reduce costs.
. Operate on a Decentralized Basis. The Company intends to retain the key
managers of the businesses it acquires and allow them to maintain
substantial responsibility for the day-to-day operations, profitability
and growth of those businesses as separate divisions. The Company
believes that the operating autonomy provided by the decentralized
structure, together with the implementation of
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<PAGE>
reporting systems and financial controls at the corporate level, will
enable it to combine the service and responsiveness of a locally-oriented,
independent general commercial printing company with the resources and
economies of scale of a large company. Moreover, the Company intends to
motivate its employees and align their interests with those of the
Company's shareholders by using Common Stock as a currency in its
acquisition program and by granting stock options as a part of employee
compensation.
ACQUISITION STRATEGY
The Company's acquisition strategy is to become a leading provider of
general commercial printing services in the United States through the
acquisition of independent general commercial printing companies that are well
managed and market leaders in customer service, responsiveness and quality.
The Company believes that its profile within the industry and its philosophy
of decentralized operations and centralized administration enable to identify
and acquire high quality, market leading independent general commercial
printing companies. The key elements of the Company's acquisition strategy are
as follows:
. Acquire High Quality, Well Managed Companies. The Company evaluates
potential acquisition candidates based on a variety of factors, including
reputation for quality, service, strength of management, competitive
market position, historical financial performance, growth potential,
customer base, equipment capabilities and available capacity. The Company
seeks to acquire only those companies which maintain high levels of
quality and service consistent with the Company's existing divisions. The
Company believes this strategy is essential to enabling each division of
the Company to cross-sell the capacity and capabilities of the other
divisions without concerns about quality and service.
. Retain Existing Management of Companies Acquired. The Company seeks to
acquire successful companies whose key managers will become employees of
the Company and continue to operate acquired businesses as divisions of
the Company. To preserve local market knowledge and customer
relationships, the Company has entered into employment contracts and
agreements not to compete with the key managers at each Acquired Company
and intends to continue to do so in the future.
MASTER GRAPHICS COMPANIES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
1997 REVENUES YEAR SHEET FED WEB
MASTER GRAPHICS COMPANY ($ IN 000'S) (1) FOUNDED LOCATION PRESSES PRESSES
----------------------- ---------------- ------- ------------------------ --------- ---------
<S> <C> <C> <C> <C> <C>
B&M Printing, Inc....... $ 13,433 1969 Memphis, Tennessee 6 0
Blackwell Lithographers,
Inc.................... 4,164 1932 Jackson, Mississippi
4 0
Lithograph Printing
Company of Memphis..... 20,118 1947 Memphis, Tennessee 3 2
Sutherland Printing
Company, Inc........... 7,892 1940 Montezuma, Iowa 6 0
Ozark, Missouri 1 0
The Argus Press, Inc.... 23,277 1922 Chicago, Illinois 5 0
Phoenix Communications,
Inc.................... 25,859 1960 Atlanta, Georgia 6 2
Jones Printing Company,
Inc.................... 6,343 1942 Chattanooga, Tennessee 8 1
Hederman Brothers,
Inc.................... 10,459 1898 Jackson, Mississippi 7 0
Phillips Litho Co.,
Inc.................... 12,727 1973 Springdale, Arkansas 4 4
Henderson, North
Harperprints, Inc....... 10,904 1974 Carolina 3 0
McQuiddy Printing
Company................ 16,583 1903 Nashville, Tennessee 4 2
--------
Total Combined Revenue.. $151,759
========
</TABLE>
- --------
(1) The Company and several of the individual Master Graphics Companies had
fiscal years that differed from December 31, which is the year end the
Company will use effective January 1, 1998.
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<PAGE>
The Master Graphics Companies were or will be acquired using a combination
of cash, promissory notes and warrants. The aggregate consideration that will
have been paid by the Company to acquire the Master Graphics Companies
consists of (i) approximately $51.4 million in cash, (ii) approximately $15.0
million in aggregate principal amount of notes to the former owners of the
Master Graphics Companies and (iii) warrants to purchase 1,516,412 shares of
Common Stock at an exercise price at $12.00 share (assuming an initial public
offering equal to the Mid-Point). Former owners of several Acquired Companies
have the opportunity to receive additional amounts of consideration, payable
in cash, contingent upon meeting certain cash flow targets up to a maximum of
approximately $15 million.
The consideration paid or to be paid by the Company for each Master Graphics
Company was the result of arm's length negotiations between representatives of
the Company and representatives of each Master Graphics Company and was based
generally on the Company's evaluation of such acquired company's operating
results, assets and capitalization. Certain former owners of Acquired
Companies were required to enter into employment agreements containing
confidentiality and non-competition provisions.
MASTER CENTRAL
A successful printing company must have a substantial investment in printing
presses and related equipment and plant facilities. The general commercial
printing industry is characterized by unpredictable demand which affects
equipment utilization. A particular printing facility may at any given time
have either excess capacity or demands from customers which cannot be met.
Further, the size and type of printing jobs a general commercial printing
company is capable of completing is limited by type and number of printing
presses owned by that company. For example, it may not be economically
feasible for one of the Company's divisions which operates only sheet fed
presses to bid on a large printing project which could be produced more
efficiently on a web press.
The Company has established Master Central to utilize more efficiently
printing capacity and effectively allocate print jobs across the range of the
Company's available equipment. Currently, three employees located at the
Company's headquarters and one employee in each division, all under the
direction of the Chief Operating Officer, have been designated as the Master
Central Team. Master Central acts as a clearinghouse whereby a division
submits a job that it cannot print either because of capacity restraints or
because the division does not have necessary equipment. Through Master
Central, this job is routed to the division with the necessary equipment or
available capacity to handle the job. Master Central is an operating process
which focuses on (i) effective marketing of the production capacity and
capabilities of all of the divisions of the Company, (ii) increasing equipment
availability across all divisions, (iii) responsiveness to customer driven
deadlines, and (iv) efficient distribution of finished products to customers.
In connection with Master Central, the Company is training its sales force to
effectively promote and market the production capacity and capabilities of all
of the Company's divisions.
OPERATIONS
The Company provides service in all areas of general commercial printing,
including (i) developing a customer's concept into printable material through
the use of electronic prepress services, (ii) using printing presses to
imprint the printable material onto paper, (iii) cutting, folding, and binding
the finished product and (iv) storing and distributing the finished product.
Design and Prepress Services. One of the most significant technological
advancements in the general commercial printing industry in recent years has
been the computerization of the prepress area. Because of such technological
advances and a decrease in the cost of such technology, the Company is able to
offer design and prepress services to its customers on an efficient and cost-
effective basis. Historically, such design and prepress services were provided
by advertising agencies, specialty printing services or customers in-house.
Prepress services include the development of designs for customers and the
conversion of designs into digitized images. The Company offers commercial
prepress services at all of its facilities, enabling each division to service
customers from inception of the concept through delivery of the finished
product.
30
<PAGE>
Printing. Once a project has finished the prepress area, it is moved to the
press area where the image is reproduced on paper. The Company operates 57
sheet fed presses, ranging in size from 11x17 to 28x41, which are capable of
simultaneously printing up to six colors and producing up to 15,000
impressions per hour. The Company also operates 11 web presses which are
capable of producing up to 40,000 impressions per hour, folding, glueing and
perforating a finished product. The Company's web presses are located in five
divisions.
Finishing. The finishing operations provided by the Company include cutting,
folding, binding and other operations to finish the printed product.
Historically, general commercial printing companies outsourced finishing
operations which required substantial capital investments. Because some of the
Master Graphics Companies own such equipment, the Company is able to offer
finishing operations and provide a completely integrated service from design
to fulfillment.
Fulfillment. The fulfillment area provides a wide range of labor intensive
services that combine, package, store and ship the Company's finished
products. The fulfillment area also provides electronic tracing services for
customer inventory and accumulates data for marketing departments that
indicates the effectiveness of print related marketing campaigns. Large
corporations utilize a variety of the Company's fulfillment services
including: custom assembly of binders; gathering information from promotional
mailings; returning premium or incentive items to respondents; and combining
magnetic media with printed media prior to shipment.
CUSTOMERS
Most of the Company's top customers are large companies such as Federal
Express, IBM, Provident Life, W. W. Grainger, Turner Broadcasting and G. D.
Searle. Consistent with the general commercial printing industry as a whole,
the Company has no significant long-term contracts with its customers. Due to
the project-oriented nature of customers' printing requirements, sales to
particular customers may vary significantly from year to year. On a pro forma
basis, the Company's top ten customers in 1997 accounted for 17.9% of sales;
no customer accounted for more than 3%.
SALES AND MARKETING
The Company employs 91 salespeople across all of its divisions, a majority
of which are paid on a commission basis. The Company markets its services
based primarily on quality and responsiveness and, to a lesser degree, on
price. Through its salespeople and other management professionals, the Company
maintains strict control of the printing process from the time a prospective
customer is identified through the scheduling, prepress, printing and
postpress operations. The Company's business is principally service-oriented,
and its operating philosophy emphasizes responding rapidly to customer
requirements and producing high quality products. Responsiveness is essential
because of the typically short lead time on most general commercial printing
jobs. The Company, like general commercial printing companies generally, is
designed to maintain maximum flexibility to meet customer needs both on a
scheduled and an emergency basis.
The Company believes that a well trained, experienced sales force is a vital
component of the Company's internal growth strategy. In addition to the
training provided with respect to Master Central, the Company has implemented
a training program designed to enhance the effectiveness and knowledge of the
Company's sales force. The general commercial printing business requires a
substantial amount of interaction with customers, including personal sales
calls, art work and computer disk reviews, reviews of color and other proofs
and "press checks" (customer approval of the printed piece while it is being
printed).
Each division of the Company employs salespeople who are knowledgeable about
the industry and the printing capabilities of the division they serve. As a
result of the implementation of Master Central, each salesperson will also be
trained in the printing capabilities at each of the other divisions. The
Company's sales philosophy stresses frequent sales calls on existing customers
and constant marketing to prospective new customers. Each division emphasizes
to its customers the breadth and sophistication of the particular division's
printing capacity and the printing capacity of the Company as a whole, the
speed and quality of its service and
31
<PAGE>
the personal attention offered by its salespeople. In addition to soliciting
business from existing and prospective customers, the salespeople act as
liaisons between customers and production personnel and provide technical
advice and assistance to customers throughout the printing process.
The general commercial printing industry is characterized by strong
relationships between the purchasers of printing services and the salespeople
who service their accounts. The Company believes that it is important to
retain its existing sales force and attract new salespeople. The Company
believes that its existing compensation structure is competitive with other
companies in the general commercial printing industry. Moreover, because the
Company generally can offer greater capacity and a broader array of
capabilities as compared to smaller, locally-owned general commercial printing
companies, the Company can successfully compete with these other printing
companies to hire additional qualified salespeople.
PURCHASING AND RAW MATERIALS
As a result of centralized purchasing, the Company is able to take advantage
of volume discounts and rebates from manufacturers and suppliers of paper,
film, printing plates and ink that would be unavailable to the divisions on a
stand-alone basis. The Company purchases various materials, including paper,
prepress supplies, printing plates, ink, film, chemicals, solvents, glue and
wire, from a number of national and local suppliers. Paper is generally the
largest cost item for general commercial printing companies, including the
Company. The Company's paper costs were approximately 27% of revenue for the
six months ended December 31, 1997. The Company does not maintain a
significant inventory of paper and is generally able to pass the cost of the
paper through to its customers. The Company has in place agreements with five
major paper suppliers which provide for discounts and rebates based on the
Company achieving certain purchase levels.
The Company is currently in the process of negotiating national purchasing
arrangements with other major suppliers and manufacturers. The Company
anticipates that each division will order the goods and services as needed
either in accordance with the terms set forth in the national purchasing
arrangements, if applicable, or on a local basis. The Company will receive
input from each division on market conditions, local supplier service and
product developments which will enable the Company to continually maximize the
benefits of these master purchasing arrangements.
The Company has not experienced any significant difficulty in obtaining raw
materials necessary for its operations.
COMPETITION
The Company competes with a substantial number of other general commercial
printing companies. Because of the nature of the Company's business, most of
the Company's competition is confined to local printing markets. The major
competitive factors in the Company's business are the quality of customer
service, the quality of finished products and price. The ability of the
Company to compete effectively in providing customer service and quality
finished products is primarily dependent on production and distribution
capabilities, the availability of equipment and the ability to perform the
services with speed and accuracy. The Company believes it competes effectively
in all of these areas.
Although the general commercial printing industry in the United States
remains highly fragmented, recent technological developments and over-capacity
in the industry have increased industry consolidation and competitive
pressures. Moreover, the Company competes for potential acquisition candidates
with other printing industry consolidators, some of which have greater
financial resources than the Company.
EMPLOYEES
On March 31, 1998, the Company had approximately 1,100 employees. Less than
five percent of its employees are members of the Graphic Communications Union.
These employees work under a collective bargaining agreement which expires on
March 31, 2000. The Company believes its relationship with its employees,
including those covered by a collective bargaining agreement, is good.
32
<PAGE>
FACILITIES
The Company's principal facilities are described in the table below. All of
the listed facilities contain office, production and storage space. For
additional information, see "Certain Transactions."
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING SPACE
FACILITY AND LOCATION OWNED/LEASED (SQUARE FEET)
- --------------------- ------------ --------------
<S> <C> <C>
Master Graphics, Inc.
Memphis, Tennessee.................................. Leased 3,000
B&M Printing Division
Memphis, Tennessee.................................. Leased 70,000
Blackwell Lithographers Division
Ridgeland, Mississippi.............................. Owned 18,000
Lithograph Printing Division
Memphis, Tennessee.................................. Leased 64,000
Sutherland Printing Division
Ozark, Missouri..................................... Owned 15,000
Sutherland Printing Division
Montezuma, Iowa..................................... Owned 33,000
Argus Press Division
Niles, Illinois..................................... Leased 56,000
Phoenix Communications Division
Chamblee, Georgia................................... Leased 67,000
King Mailing Services Division
Chamblee, Georgia................................... Leased 10,400
Jones Printing Division
Chattanooga, Tennessee.............................. Leased 31,000
Jones Printing Division
Chattanooga, Tennessee.............................. Leased 16,500
Hederman Brothers Division
Ridgeland, Mississippi.............................. Leased 72,000
Phillips Litho Division
Springdale, Arkansas................................ Leased 73,800
Harperprints Division
Henderson, North Carolina........................... Leased 55,000
McQuiddy Printing Division
Nashville, Tennessee................................ Owned 83,400
</TABLE>
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company's manufacturing operations are subject to numerous federal,
state and local laws and regulations relating to human health and safety and
the environment. These laws and regulations address and regulate, among other
matters, wastewater discharge, air quality and the generation, handling,
storage, treatment, disposal and transportation of solid and hazardous wastes
and releases of hazardous substances into the environment. In addition, third
parties and governmental agencies in some cases have the power under such laws
and regulations to require remediation of environmental conditions and, in the
case of governmental agencies, to impose fines and penalties. The Company
makes capital expenditures from time to time to stay in compliance with
applicable laws and regulations.
33
<PAGE>
The Company has obtained all permits and approvals and filed all
registrations required for the conduct of its business. The Company is in
compliance in all material respects with the numerous federal, state and local
laws and regulations and permits, approvals and registrations relating to
human health and safety and the environment except where noncompliance would
not have a material adverse effect on the Company's business, financial
condition or results of operations.
In connection with the acquisition of the Master Graphics Companies, each of
the Company's properties has been subjected to an ESA (which does not involve
invasive procedures, such as soil sampling or ground water analysis) by
independent environmental consultants. The ESAs have not revealed any
environmental liability that would have a material adverse effect on the
Company. The Company has not been notified by any governmental authority of
any continuing noncompliance, liability or other claim in connection with any
of its properties, nor is the Company aware of any other material
environmental condition with respect to any of its properties. However, in
connection with the ownership and operation of its properties and the conduct
of its business, the Company potentially may be liable for damages or cleanup,
investigation or remediation costs.
No assurances can be given that all potential environmental liabilities have
been identified or properly quantified or that any prior owner, operator, or
tenant has not created an environmental condition unknown to the Company.
Moreover, no assurances can be given that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the properties will not be affected by the
condition of land or operations in the vicinity of the properties (such as the
presence of underground storage tanks), or by third parties unrelated to the
Company. Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on the Company. Such costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising in the normal course of business. The Company maintains insurance
coverage against potential claims in an amount which it believes to be
adequate. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, the Company does not believe these
matters whether or not covered by insurance will have a material adverse
effect on its business or financial position, individually or in the
aggregate.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John P. Miller............ 44 Chairman of the Board, Chief Executive Officer
and President
Lance T. Fair............. 35 Senior Vice President--Acquisitions; Chief
Financial Officer
Robert J. Diehl........... 56 Chief Operating Officer
P. Melvin Henson, Jr...... 40 Senior Vice President--Finance and
Administration; Chief Accounting Officer
James B. Duncan........... 55 Senior Vice President--Sales and Marketing
H. Henry (Hap) Hederman, 52
Jr. ..................... Director, President Hederman Brothers Division
Walter P. McMullen........ 73 Director, Chairman Lithograph Printing Division
Cary Rosenthal............ 58 Director, President Phoenix Division
Frederick F. Avery........ 67 Director
Donald L. Hutson.......... 52 Director
</TABLE>
John P. Miller has been Chairman of the Board of Directors, Chief Executive
Officer and President of the Company since its inception. Prior to assuming
his position with the Company, Mr. Miller was the Chairman of the Board of
Directors and Chief Executive Officer of B&M Printing from December 1992 to
June 1997.
Lance T. Fair has been the Senior Vice President--Acquisitions and Chief
Financial Officer of the Company since September 1997. From July 1995 until he
joined the Company, Mr. Fair was Vice President and Chief Financial Officer of
Warterfield Holdings, Inc. From June 1989 to July 1995, Mr. Fair was a
principal at Asset Services, L.P., a Memphis, Tennessee-based mergers and
acquisition advisory firm.
Robert J. Diehl has been the Chief Operating Officer of the Company since
January 1998. Mr. Diehl has over 25 years of experience in the general
commercial printing industry. From January 1994 to December 1997, Mr. Diehl
was President of Hollis Digital Imaging Systems, Inc., a digital printing
company located in Tucson, Arizona. From 1989 to December 1993, Mr. Diehl was
Managing Director of R.H. Rosen Associates, Inc., a printing industry
consulting firm.
P. Melvin Henson, Jr. has been the Senior Vice President--Finance and
Administration and Chief Accounting Officer of the Company since December
1997. From July 1979 to December 1997, Mr. Henson was employed in a variety of
financial management positions with International Paper Company including
Manager--Finance for International Paper's business process redesign project
and controller for International Paper's pulp and paper manufacturing facility
in Erie, Pennsylvania.
James B. Duncan has been the Senior Vice President--Sales and Marketing of
the Company since October 1997. From November 1996 to September 1997, Mr.
Duncan operated a consulting practice focused on sales training and
management. From April 1989 to October 1996, Mr. Duncan was a Division
President for Smith & Nephew PLC, where he directed global operations for the
Center of Excellence for Smith & Nephew's ear, nose and throat products.
H. Henry Hederman, Jr. has been a Director of the Company since March 1998
and has served as the President of the Hederman Brothers Division since March
1998. Mr. Hederman has over 30 years of experience in the general commercial
printing industry. From 1982 through March 1998, Mr. Hederman served as the
35
<PAGE>
President and Chief Executive Officer of Hederman (which was acquired by the
Company in March 1998). Mr. Hederman currently serves as a member of the board
of directors and a member of the executive committee of the board of directors
of MS Diversified Corp.
Walter P. McMullen has been a Director of the Company since March 1998 and
has served as the Chairman of the Lithograph Printing Company Division since
June 1997. Mr. McMullen has over 50 years of experience in the general
commercial printing industry. From March 1973 to June 1997, Mr. McMullen
served as the Chairman and Chief Executive Officer of Lithograph (which was
acquired by the Company in June 1997).
Cary Rosenthal has been a Director of the Company since March 1998 and has
served as the President of the Phoenix Division since December 1997. Mr.
Rosenthal has over 30 years of experience in the general commercial printing
industry. From September 1979 to December 1997, Mr. Rosenthal served as
President and Chief Executive Officer of Phoenix and King Mailing Services,
Inc. (both of which were acquired by the Company in December 1997). Mr.
Rosenthal currently serves as a member of the board of directors and serves on
the audit and option committees of the board of directors of SED International
Holdings, Inc. Additionally, Mr. Rosenthal serves as a member of the board of
directors of Printing Industries Association of Georgia, a trade organization.
Frederick F. Avery has been a Director of the Company since March 1998. Mr.
Avery has been a business consultant since April 1994. From July 1987 to March
1994, Mr. Avery served in a variety of roles with Kraft Foods, including
President of Kraft Food Ingredients and Group Vice President.
Donald L. Hutson has been a Director of the Company since March 1998. Since
September 1966, Mr. Hutson has been a business trainer, professional speaker
and consultant to corporations and trade associations on employee development
issues.
There are no family relationships among any of the executive officers or
directors of the Company.
The Company's Charter divides the Board into three classes of as equal size
as possible, with the terms of each class expiring in consecutive years so
that only one class is elected in any given year. The terms of Messrs.
Hederman and Hutson will expire at the 1999 annual meeting of shareholders;
the terms of Messrs. McMullen and Avery will expire at the 2000 annual meeting
of shareholders; and the terms of Messrs. Miller and Rosenthal will expire at
the 2001 annual meeting of shareholders. The executive officers of the Company
are elected annually by the Board following the annual meeting of shareholders
and serve at the discretion of the Board, subject to the terms of their
respective employment agreements, until their successors are elected and
qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established an Audit Committee, an
Acquisition Committee, an Options and Benefits Committee and a Compensation
Committee. Pursuant to resolutions of the Board, these committees have the
following described responsibilities and authority.
The Audit Committee has the responsibility, among other things, of (i)
recommending the selection of the Company's independent public accountants,
(ii) reviewing and approving the scope of the independent public accountants'
audit activity and the extent of non-audit services, (iii) reviewing with
management and such independent public accountants the adequacy of the
Company's basic accounting systems and the effectiveness of the Company's
internal audit plan and activities, (iv) reviewing with management and the
independent public accountants the Company's financial statements and
exercising general oversight of the Company's financial reporting process, and
(v) reviewing with the Company litigation and other legal matters that may
affect the Company's financial condition. The members of the Audit Committee
are Messrs. Avery, Hutson and Miller.
The Compensation Committee has the responsibility, among other things, of
(i) establishing the salary rates of executive officers of the Company, and
(ii) examining periodically the compensation structure of the Company. The
members of the Compensation Committee are Messrs. Miller, Avery and Hutson.
36
<PAGE>
The Options and Benefits Committee has the responsibility to administer the
1998 Equity Compensation Plan and to supervise the welfare and pension plans
of the Company. The members of the Options and Benefits committee are Messrs.
Avery and Hutson.
The Acquisition Committee has the authority to approve the terms and
conditions of acquisitions of businesses by the Company, including the
authority to approve the issuance of debt and equity securities of the Company
in connection with such acquisitions, provided that the consideration paid by
the Company for each business is less than $10 million. The members of the
Acquisition Committee are Messrs. Miller, Hederman and Rosenthal.
The Company's Board of Directors may also establish other committees.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid $1,000 for each
meeting attended. All directors are reimbursed for expenses incurred in
attending meetings of the Board of Directors and committee meetings of the
Board of Directors. Non-employee Directors are eligible to receive grants
under the Company's 1998 Non-Employee Director Option Plan. Each non-employee
Director received a grant of an option to purchase 833 shares of Common Stock
at a purchase price of $12.00 per share (assuming an initial public offering
equal to the Mid-Point).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 1998, the Company did not have a Compensation Committee of
the Board of Directors. The compensation of the Company's executive officers
has been determined by negotiations between Mr. Miller, the Company's Chief
Executive Officer, and such individuals.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information concerning the compensation paid by the Company to the Chief
Executive Officer of the Company and the two other most highly paid executive
officers earning in excess of $100,000 during 1997 (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (1)
--------------------------- ----------- -------- ---------
<S> <C> <C> <C>
John P. Miller.................................. 1997 $145,833 --
Chairman of the Board, President and Chief
Executive Officer
Lance T. Fair................................... 1997 $ 34,153 $600,000
Senior Vice President--Acquisitions and Chief
Financial Officer
Robert J. Diehl................................. 1997 -- $300,000
Chief Operating Officer
</TABLE>
- --------
(1) Includes deferred compensation payments to the Named Executive Officers as
indicated. The amount indicated is payable in cash on December 31, 2002
or, at the option of the applicable Named Executive Officer, in Common
Stock on or before December 31, 2002. The Company may prepay the full
deferred compensation obligation at any time. If the Named Executive
Officer elects to receive Common Stock in lieu of cash, he is entitled to
receive the number of shares of Common Stock equal to the quotient of (i)
the deferred compensation amount owed to such Named Executive Officer
divided by (ii) the initial public offering price of a share of Common
Stock.
The Company has employment agreements with each of the above Named Executive
Officers and P. Melvin Henson, Jr. and James B. Duncan dated as of March 1,
1998. Each agreement has an initial term of three years and is renewable
automatically for one year periods unless terminated by one of the parties.
The agreements provide for the following annual salaries: Mr. Miller--
$250,000; Mr. Diehl--$175,000; Mr. Fair--$120,000; Mr. Henson--$100,000; and
Mr. Duncan--$100,000. The annual salaries are subject to adjustment at the
discretion of the Compensation Committee of the Board, but may not be
decreased more than 5% from the previous years' salary. In addition, the
agreements provide for annual incentive compensation to each officer
37
<PAGE>
equal to up to 100% of his base salary based on performance targets
established by the Compensation Committee of the Board of Directors. In the
event that the officer is terminated without cause or suffers a constructive
termination and there has been no change of control of the Company, the
Company will pay such officer a lump sum severance payment equal to 200% of
the sum of such officer's combined (i) base salary in effect at the time of
termination and (ii) the average of the annual incentive award for the two
immediately preceding calendar year. In the event the officer is terminated
with cause, regardless of whether there has been a change of control of the
Company, the Company will pay such officer only accrued but unpaid base salary
through the date of termination. If the officer is terminated without cause or
suffers a constructive termination upon a change of control of the Company, he
is entitled to receive a lump sum upon such termination of an amount equal to
the sum of (i) 299% of such officer's combined (A) base salary in effect at
the time of termination and (B) the average of the annual incentive award for
the two immediately preceding completed calendar years and, (ii) to the extent
that such payment constitutes an "excess parachute payment" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
an amount equal to any tax incurred by such officer pursuant to Section 280G
of the Code. Each agreement contains certain confidentiality and non-
competition covenants.
OPTION GRANTS
The following table sets forth the number of options to purchase shares of
Common Stock that have been granted to the Named Executive Officers of the
Company.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)(4)
---------------------------------------------------------- ------------------
% OF TOTAL
OPTIONS
OPTIONS GRANTED GRANTED TO EXERCISE PRICE EXPIRATION
(NO. OF SHARES (1) EMPLOYEES (2) PER SHARE(3) DATE 5% 10%
------------------ ------------- -------------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
John P. Miller.......... -- -- -- --
Lance T. Fair........... 83,333 13.7% $12.00 March 2008 $628,892 $1,593,694
Robert J. Diehl......... 25,000 4.1 $12.00 March 2008 188,668 478,122
</TABLE>
- --------
(1) The options reported in this column consist of options granted under the
Company's 1998 Equity Compensation Plan. The options will become
exercisable on each of the first, second, and third anniversaries of the
date of grant with respect to 25%, 25% and 50%, respectively, of the
shares subject to the option.
(2) Based on outstanding options to purchase an aggregate of 606,914 shares of
Common Stock.
(3) Assumes an initial offering price equal to the Mid-Point.
(4) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the Commission and, therefore,
are not intended to forecast possible future appreciation, if any, in the
price of the Common Stock. In order to realize the potential values set
forth in the 5% and 10% columns of this table, the per share price of the
Common Stock would be $19.55 and $31.12 respectively, or 62.9% and 159.3%,
respectively, above the base exercise price. Because the Common Stock was
not publicly traded prior to the Offering, these amounts were calculated
based on the assumption that the fair market value of one share of Common
Stock on the date of grant was equal to the exercise price.
The following table sets forth the number of options to purchase shares of
Common Stock held, as of March 31, 1998, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
MARCH 31, 1998
-------------------------
EXERCISABLE UNEXERCISABLE
----------- -------------
<S> <C> <C>
John P. Miller........................................ -- --
Lance T. Fair......................................... -- 83,333
Robert J. Diehl....................................... -- 25,000
</TABLE>
- --------
(1) Based on an initial offering price equal to the Mid-Point.
38
<PAGE>
EQUITY COMPENSATION PLAN
The Company's 1998 Equity Compensation Plan (the "Plan") provides for grants
of (i) stock options, (ii) stock appreciation rights and (iii) restricted
stock (collectively, "Awards") to selected employees, officers, directors,
consultants and advisers of the Company. By encouraging stock ownership, the
Company seeks to attract, retain and motivate such persons and to encourage
them to devote their best efforts to the business and financial success of the
Company.
The Plan authorizes up to 750,000 shares of the Company's Common Stock
(subject to adjustment in certain circumstances) for issuance pursuant to the
terms of the Plan. If Awards expire or are terminated for any reason without
being exercised, the shares of Common Stock subject to such Awards again will
be available for purposes of the Plan. As of the date of this Prospectus, the
Company has granted options to purchase 605,248 shares of Common Stock under
the Plan.
The Plan may be administered by the Board of Directors (the "Board") or by a
committee of the Board (references to the "Committee" refers to the committee,
if one is appointed, and otherwise to the Board). Awards under the Plan may
consist of (i) options intended to qualify as incentive stock options ("ISOs")
within the meaning of section 422 of the Code, (ii) "non-qualified stock
options" that are not intended so to qualify ("NQSOs"), (iii) stock
appreciation rights, or (iv) shares of restricted stock. Awards may be granted
to any employee (including officers and directors) of the Company and
consultants and advisers who perform services for the Company.
The option price of any ISO granted under the Plan will not be less than the
fair market value of the underlying shares of Common Stock on the date of
grant. The option price of a NQSO will be determined by the Committee, in its
sole discretion, and may be greater than, equal to or less than the fair
market value of the underlying shares of Common Stock on the date of grant.
The Committee will determine the term of each option, provided that the
exercise period may not exceed ten years from the date of grant. The option
price of an ISO granted to a person who owns more than 10% of the total
combined voting power of all classes of stock of the Company must be at least
equal to 110% of the fair market value of Common Stock on the date of grant,
and the ISO's term may not exceed five years. A grantee may pay the option
price (i) in cash, (ii) by delivering shares of Common Stock already owned by
the grantee and having a fair market value on the date of exercise equal to
the option price, or (iii) by such other method as the Committee may approve.
The Committee may impose on options such vesting and other conditions as the
Committee deems appropriate. The terms and conditions of NQSOs, stock
appreciation rights and restricted stock relating to the effect of termination
of the participant's employment or the participant's death or disability are
specified by the Committee. Each ISO terminates upon the termination of the
employment of the participant holding the ISO for cause or voluntary
termination. Upon a participant's death or disability, ISOs previously granted
to such participant may be exercised within the period ending on the earlier
of the expiration date of the ISO or the one year anniversary of the date of
such participant's death or termination of employment.
Stock appreciation rights may be granted under the Plan in conjunction with
all or part of a stock option and will be exercisable only when the underlying
stock option is exercisable. Once a stock appreciation right has been
exercised, the related portion of the stock option underlying the stock
appreciation right will terminate. Upon the exercise of a stock appreciation
right, the Company will pay to the employee or consultant in cash, Common
Stock or a combination thereof (the method of payment to be at the discretion
of the Committee), an amount equal to the excess of the fair market value of
the Common Stock on the exercise date over the option price, multiplied by the
number of stock appreciation rights being exercised.
Restricted stock awards may be granted alone, or in addition to, or in
tandem with, other awards under the Plan or cash awards made outside the Plan.
The provisions attendant to a grant of restricted stock may vary from
participant to participant. In making an award of restricted stock, the
Committee will determine the periods during which the restricted stock is
subject to forfeiture and may provide for such other awards designed to
guarantee a minimum of value for such stock. During the restricted period, the
employee or consultant may not sell, transfer, pledge, assign, or otherwise
encumber the restricted stock but will be entitled to vote the restricted
stock and to receive, at the election of the Committee, cash or deferred
dividends.
39
<PAGE>
In the event of a change of control (as defined in the Plan), all
outstanding Awards will become fully exercisable, unless the Committee
determines otherwise. Except as provided below, unless the Committee
determines otherwise, in the event of a merger where the Company is not the
surviving corporation, all outstanding Awards will be assumed by or replaced
with comparable options by the surviving corporation. The Committee may
require that grantees surrender their outstanding Awards in the event of a
change of control and receive a payment in cash or Common Stock equal to the
amount by which the fair market value of the shares of Common Stock subject to
the Awards exceeds the exercise price of the Awards.
All Awards issued under the Plan will be granted subject to any applicable
federal, state and local withholding requirements; the Company can deduct from
wages paid to the grantee any such taxes required to be withheld with respect
to the options. If the Company so permits, a grantee may choose to satisfy the
Company's income tax withholding obligation with respect to an option by
having shares withheld up to an amount that does not exceed the grantee's
maximum marginal tax rate for federal, local and state taxes.
The Board may amend or terminate the Plan at any time; provided that, if the
Common Stock becomes publicly traded, the Board may not make any amendment
without shareholder approval if such approval is required by Section 162(m) of
the Code. As of December 31, 1997, no options to purchase shares of Common
Stock were outstanding under the Plan. The Plan will terminate on April 1,
2008, unless terminated earlier by the Board or extended by the Board with
approval of the shareholders.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company has adopted the 1998 Non-Employee Director Stock Option Plan
(the "Director Option Plan"). The purposes of the Director Option Plan are to
(i) promote a greater identity of interest between the Company's non-employee
Directors and its shareholders, (ii) provide non-employee Directors with an
additional incentive to manage the Company effectively and contribute to its
success, and (iii) provide a form of compensation which will attract and
retain highly qualified individuals as members of the Board of Directors.
The Director Option Plan is administered by the Board of Directors. Pursuant
to the terms of the Director Option Plan, non-employee Directors of the
Company (each an "Eligible Director") will be eligible to participate in the
Director Option Plan. A maximum of 50,000 shares of Common Stock is available
for issuance and available for grants under the Director Option Plan. As of
the date of this Prospectus, the Company has granted options to purchase 1,666
shares of Common Stock under the Director Option Plan.
In the event of any change in corporate capitalization (such as a stock
split), the number of shares of Common Stock covered by each outstanding
option and the purchase price thereof will be proportionately adjusted from
any increase or decrease in the number of issued and outstanding shares of
Common Stock. If the Company undergoes a "change in control" as defined in the
Director Option Plan, to the extent provided in the instrument granting the
option, all options shall immediately vest and become exercisable. The Board
of Directors, in its sole discretion, may direct the Company to cash out all
outstanding options at the highest price per share of Common Stock paid in any
transaction reported on The Nasdaq National Market or paid or offered in any
bona fide transaction related to a change in control at any time during the 60
day period immediately preceding the occurrence of the change in control.
Grants and awards under the Director Option Plan are nontransferable other
than by will or the laws of descent and distribution, on a case-by-case basis
as may be approved by the Board in its discretion, in accordance with the
terms of the Director Option Plan.
40
<PAGE>
CERTAIN TRANSACTIONS
Premier Graphics, through the B&M Printing division, has loaned Mr. Miller
$950,000, which bears interest at a rate of 7% per annum and matures on
December 10, 2002. Mr. Miller will repay this amount in full within 30 days of
the closing of the Offering.
The Company leases the facilities in which the B&M Printing division is
located from Mr. Miller. The lease expires on November 30, 2002. The annual
base rent to be paid under this lease is approximately $140,000. The Company
believes that the terms of the lease are no less favorable to the Company than
could have been negotiated by the Company with unaffiliated third parties.
On December 31, 1997, Mr. Miller purchased from the Company a web press for
total consideration of $2,774,706, which is represented by a promissory note
from Mr. Miller to the Company in the principal amount of $2,774,706. The note
matures on the earlier of (i) December 31, 2002, (ii) Mr. Miller's sale of the
press (which is his intention) or (iii) 30 days after an initial public
offering of the Common Stock, and bears interest at an annual rate of interest
equal to LIBOR plus 3.25%. Mr. Miller will repay this amount in full within 30
days of the closing of the Offering. Net proceeds realized from a sale of the
press by Mr. Miller that are in excess of the principal amount of the note
will be paid to the Company. B&M Printing acquired the web press pursuant to a
lease in March, 1996 and purchased it in June, 1997 for total consideration of
$2,623,891.
Sirrom Capital Corporation, the Selling Shareholder and beneficial owner of
6% of the Common Stock, entered into a $4.3 million loan agreement with the
Company on June 19, 1997. The loan bears interest at a rate of 13.25% per
annum and matures in May 2002. In connection with this financing transaction,
the Company granted to Sirrom Capital Corporation a warrant to purchase
266,664 shares of the Common Stock for nominal consideration which was
exercised on April 8, 1998.
In the Company's acquisition of Hederman, Mr. Hederman received
consideration in the form of $1.5 million cash. Mr. Hederman and members of
his immediate family (or trusts for the benefit of such individuals) received
warrants to purchase a total of 166,666 shares of Common Stock at a price per
share of $12.00 (assuming an initial public offering price equal to the Mid-
Point). Mr. Hederman and members of his immediate family (or trust for the
benefit of such individuals) received promissory notes in the aggregate
principal amount of $2,000,000 which mature on February 28, 2005 and bear
interest at a rate of 12% per annum. Moreover, the Company currently leases
its Hederman Brothers division facility from Mr. Hederman for annual rental of
$300,000 per annum. The Company believes that the terms of such lease are no
less favorable to the Company than could have been negotiated by the Company
with unaffiliated third parties.
In the Company's acquisition of Phoenix and King Mailing Services, Inc.,
Mr. Rosenthal received consideration in the form of approximately $3.3 million
cash, a warrant to purchase 193,750 shares of Common Stock at a price per
share of $12.00 (assuming an initial public offering price equal to the Mid-
Point), and a promissory note in the principal amount of $557,750 which
matures on December 16, 2004 and bears interest at a rate of 12% per annum.
Moreover, the acquisition documents provide up to $611,111 in contingent
consideration to be paid to Mr. Rosenthal in the event certain conditions are
satisfied. Mr. Rosenthal owns 50% of RFTA Associates, LLC, which leases the
Phoenix Communications division facilities to the Company for an annual rent
of approximately $252,000 per year subject to annual adjustment based upon
changes in the consumer price index. The Company believes that the terms of
such leases are no less favorable to the Company than could have been
negotiated by the Company with unaffiliated third parties.
In the Company's acquisition of Lithograph, Mr. McMullen received
consideration in the form of approximately $5.9 million cash, property valued
at approximately $374,000, a warrant to purchase 312,500 shares of Common
Stock at a price per share of $12.00 (assuming an initial public offering
price equal to the Mid-Point), and a promissory note in the principal amount
of $3.75 million which matures on June 18, 2004 and bears interest at a rate
of 12% per annum. Mr. McMullen's wife is the general partner of Graphic
Development Company, L.P., which leases the Lithograph Printing Company
division facilities to the Company for an annual rent of approximately
$272,400 per year. The Company believes that the terms of such lease are no
less favorable to the Company than could have been negotiated by the Company
with unaffiliated third parties.
41
<PAGE>
On March 30, 1998, GECC exercised two warrants to purchase an aggregate of
177,776 shares of Common Stock. The shares of Common Stock were issued to a
wholly-owned subsidiary of GECC (the "GECC Subsidiary"). On March 31, 1998,
the GECC Subsidiary entered into an exchange agreement with the Company
pursuant to which the 177,776 shares of Common Stock were converted into
177,776 shares of Series A Preferred Stock. See "Description of Capital
Stock--Series A Preferred Stock." On April 1, 1998, the Company issued to GECC
a warrant to purchase 183,333 shares of Common Stock (assuming an initial
offering price equal to the Mid-Point) for nominal consideration. In addition,
GECC is the Senior Credit Facility lender. See "Management Discussion and
Analysis--Liquidity and Capital Resources."
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information known by the Company with respect to the beneficial ownership of
shares of the Common Stock by (i) each director of the Company; (ii) each
Named Executive Officer; (iii) each person known by the Company to own
beneficially more than 5% of the Common Stock; (iv) the Selling Shareholder;
and (v) all directors and executive officers of the Company as a group, both
before and after giving effect to the Offering. Information set forth in the
table with respect to the beneficial ownership of the Common Stock has been
provided to the Company by such holders. Unless otherwise indicated, each
person's address is c/o the Company's principal executive offices at 6075
Poplar Avenue, Suite 401, Memphis, Tennessee 38119.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED SUBSEQUENT
TO OFFERING (1) SHARES TO OFFERING (1)
-------------------------- BEING --------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ------------ ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
John P. Miller.......... 4,000,000 95.2% -- 4,000,000 52.2%
Sirrom Capital 266,664 6.2 200,000 66,664 *
Corporation............
P. O. Box 30378
Nashville, Tennessee
37241-0378
Walter P. McMullen...... 312,500(2) 6.8 -- 312,500(2) 3.9
4222 Pilot Drive
Memphis, Tennessee
38118
General Electric Capital 361,109(3) 7.8 -- 361,109(3) 4.5
Corporation............
977 Long Ridge Road
Building B, First Floor
Stanford, Connecticut
06927
H. Henry (Hap) Hederman,
Jr..................... 158,625(4) 3.6 -- 158,625(4) 2.0
Cary Rosenthal.......... 193,750(5) 4.3 -- 193,750(5) 2.5
Frederick F. Avery...... -- -- -- -- --
Donald L. Hutson........ -- -- -- -- --
Lance T. Fair........... 50,000(6) 1.2 -- 50,000(6) *
Robert J. Diehl......... 25,000(7) * -- 25,000(7) *
P. Melvin Henson, Jr.... 4,166(8) * -- 4,166(8) *
James B. Duncan......... 4,166(9) * -- 4,166(9) *
All Named Executive
Officers and directors
of the Company as a
group (10 persons)..... 4,748,207 94.7 -- 4,748,207 56.4
</TABLE>
- --------
* Less than 1%
(1) Applicable percent of ownership is based on 4,266,664 shares of Common
Stock outstanding as of the date of this Prospectus and 7,666,664 shares
of Common Stock outstanding upon consummation of this Offering. Beneficial
ownership is determined in accordance with the rules of the Commission and
include voting or investment power with respect to securities. Shares of
Common Stock issuable upon the exercise of stock options, warrants or
other rights to acquire Common Stock, currently exercisable or
convertible, or exercisable or convertible within 60 days of the date of
this Prospectus are deemed outstanding and to be beneficially owned by the
person holding such option, warrant or other right for purposes of
computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or indicated in the
footnotes to this table, each shareholder identified in the table
possesses sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such shareholder.
(2) Includes 312,500 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable upon exercise of a warrant
held by Mr. McMullen.
(3) Includes 177,776 shares of Series A Preferred Stock owned by the GECC
Subsidiary which are convertible into 177,776 shares of Common Stock and a
warrant to purchase 183,333 shares of Common Stock.
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<PAGE>
(4) Includes 58,625 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable upon exercise of a warrant
held by Mr. Hederman and 100,000 shares of Common Stock held by the H.
Henry Hederman, Jr. Trust of which Mr. Hederman is a trustee.
(5) Includes 193,750 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable upon exercise of a warrant
held by Mr. Rosenthal.
(6) Includes 50,000 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable to Mr. Fair in connection
with the Company's deferred compensation plan.
(7) Includes 25,000 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable to Mr. Diehl, in
connection with the Company's deferred compensation plan.
(8) Includes 4,166 shares of Common Stock (assuming an initial public offering
price equal to the Mid-Point) issuable to Mr. Henson in connection with
the Company's deferred compensation plan.
(9) Includes 4,166 shares of Common Stock (assuming an initial public offering
price equal to the Mid-Point) issuable to Mr. Duncan in connection with
the Company's deferred compensation plan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value per share and 10,000,000 shares of Preferred
Stock, $.001 par value per share (the "Preferred Stock"). As of the date of
this Prospectus, there were 4,266,664 shares of Common Stock outstanding
(assuming no conversion of the Series A Preferred Stock and exercise of
warrants) held of record by two shareholders and 177,776 shares of Series A
Preferred Stock outstanding. No other shares of Preferred Stock are currently
outstanding.
COMMON STOCK
Voting Rights. The holders of Common Stock are entitled to one vote per
share on each matter to be decided by the shareholders and do not have
cumulative voting rights. Accordingly, the holders of a majority of Common
Stock entitled to vote in any election of Directors may elect all of the
Directors standing for election. The holders of Common Stock have no
preemptive, redemption or conversion rights.
Dividends. Subject to the preferential rights of any outstanding Preferred
Stock that may be created by the Board of Directors under the Charter,
dividends may be paid to holders of the Common Stock when, as and if declared
by the Board of Directors out of funds legally available for such purpose. The
Company does not intend to pay dividends at the present time. See "Dividend
Policy."
Liquidation. In the event of liquidation, dissolution or winding up of the
affairs of the Company, after payment or provision for payment of all of the
Company's debts and obligations and any preferential distributions to holders
of Preferred Stock and any series or class of the Company's stock hereafter
issued that ranks senior as to liquidation rights to the Common Stock, if any,
the holders of the Common Stock will be entitled to share ratably in the
Company's remaining assets.
Miscellaneous. All outstanding shares of Common Stock are, and the Common
Stock offered hereby will be, validly issued, fully paid and nonassessable.
There is no established public trading market for the Common Stock.
The transfer agent and registrar for the Common Stock is Union Planters
Bank, N.A.
SERIES A PREFERRED STOCK
The following summary of the terms and provisions of the Series A Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Company's Charter and Charter
Amendment creating the Series A Preferred Stock, each of which is available
from the Company.
Maturity. The Series A Preferred Stock has no stated maturity but will be
subject to mandatory redemption on March 30, 2005.
Rank. The Series A Preferred Stock, with respect to dividend rights and
rights upon liquidation, dissolution and winding up of the Company, ranks (i)
senior to all classes or series of Common Stock of the Company, and to all
equity securities ranking junior to the Series A Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding up of
the Company; (ii) on parity with all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank on a
parity with the Series A Preferred Stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company and have
been consented to by the holders of the Series A Preferred Stock; and (iii)
junior to all existing and future indebtedness of the Company. The term
"equity securities" does not include convertible debt securities, which will
rank senior to the Series A Preferred Stock prior to conversion.
Dividends. Holders of the Series A Preferred Stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, preferential cumulative cash
45
<PAGE>
dividends at the rate of 5% per annum of the $12.81 liquidation preference per
share, payable upon the earlier of the redemption of the Series A Preferred
Stock or upon conversion of the Series A Preferred Stock.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the Company, the holders of the Series A Preferred Stock will be entitled to
be paid out of the funds of the Company legally available for distribution to
its shareholders a liquidation preference in cash of $12.81 per share, plus
all accrued and unpaid dividends, but without interest, before any
distribution of assets to holders of Common Stock or any other class or series
of capital stock of the Company that ranks junior to the Series A Preferred
Stock as to dividends or liquidation.
Mandatory Redemption. The Company will redeem all of the issued and
outstanding shares of Series A Preferred Stock on March 30, 2005 at a price
per share equal to the difference of (a) the greater of (i) $12.81 per share
plus all accrued and unpaid dividends or (ii) the fair value thereof
calculated as if such shares had been converted into Common Stock, minus (b)
an amount equal to 5% of the $12.81 per share liquidation preference
calculated on a per annum basis for the period commencing on the date of
issuance and ending on the redemption date. The redemption price is subject to
equitable adjustment upon the occurrence of certain events affecting the
capital structure of the Company or the issuance of shares for below market
value. If for any reason the Company defaults in its obligation to pay all or
any portion of the redemption price, in addition to any other rights or
remedies of the redeeming holder of Series A Preferred Stock, the unpaid
portion thereof will bear interest at a rate per annum of 14%.
Redemption Upon Material Event. If any of the following events occurs (i) a
change in control, (ii) a payment or prepayment of all or substantially all of
the indebtedness of the Company to an affiliate of the holder of the Series A
Preferred Stock, (iii) a merger, consolidation, share exchange or similar
transaction, (iv) the Company disposes of all or a substantial portion of its
assets or (v) a substantial change in the type of business conducted by the
Company, the holders of the Series A Preferred Stock may require the Company
to purchase the Series A Preferred Stock at a price per share equal to the
difference of (a) the greater of (i) $12.81 per share plus all accrued and
unpaid dividends or (ii) the fair value thereof calculated as if such shares
had been converted into Common Stock, minus (b) an amount equal to 5% of the
$12.81 per share liquidation preference calculated on a per annum basis for
the period commencing on the date of issuance and ending on the redemption
date. The redemption price is subject to equitable adjustment upon the
occurrence of certain events affecting the capital structure of the Company or
the issuance of shares for below market value. If for any reason the Company
defaults in its obligation to pay all or any portion of the redemption price,
in addition to any other rights or remedies of the redeeming holder of Series
A Preferred Stock, the unpaid portion thereof will bear interest at a rate per
annum of 14%.
Voting Rights. Holders of Series A Preferred Stock generally will have no
voting rights except as required by law. However, the consent of the holders
of at least a majority of the outstanding shares of Series A Preferred Stock
is necessary in order for the Company to increase the authorized number of
shares of Series A Preferred Stock or authorize or issue any shares of stock
or any securities convertible into shares of stock which shall rank in any
respect on a parity with the Series A Preferred Stock. In addition, the
holders of at least 80% of the outstanding shares of Series A Preferred Stock
must consent before the Company may amend or alter any of the express terms
and provisions of the Series A Preferred Stock in a manner which would
materially adversely affect the rights or preferences of the Series A
Preferred Stock or authorize or issue any shares of stock or any securities by
their terms convertible into shares of stock which rank in any respect prior
to shares of Series A Preferred Stock. Such special voting provisions shall be
inapplicable in the event no shares of Series A Preferred Stock are
outstanding.
Conversion. Any holder of Series A Preferred Stock may convert into Common
Stock all or any portion of the Series A Preferred Stock at any time and from
time to time upon payment of a conversion fee equal to 5% of the $12.81 per
share liquidation preference, calculated on a per annum basis for the period
commencing on the date of issuance of such share and ending on the date such
share is converted into Common Stock. The Series A Preferred Stock is
convertible into Common Stock at the holder's option at a ratio of one share
of Common Stock for each share of Series A Preferred Stock.
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<PAGE>
The conversion price is subject to equitable adjustment upon the occurrence of
certain events affecting the capital structure of the Company or the issuance
of shares for below market value.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
shareholders, to provide for the issuance of shares of Preferred Stock as a
class without series or in one or more series, to establish the number of
shares in each class or series and to fix the designation, powers, preferences
and rights of each such class or series and the qualifications, limitations or
restrictions thereof. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of Preferred
Stock, the Board of Directors may afford the holders of any class or series of
Preferred Stock preferences, powers and rights, voting or otherwise, senior to
the rights of holders of Common Stock. The issuance of Preferred Stock could
have the effect of delaying or preventing a change in control of the Company.
CERTAIN PROVISIONS OF THE CHARTER, BYLAWS AND TENNESSEE LAW
General. The provisions of the Charter, the Bylaws and Tennessee corporate
law described in this section may delay or make more difficult acquisitions or
changes of control of the Company that are not approved by the Board of
Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as an
independent, publicly-owned company, to develop its business in a manner that
will foster its long-term growth without the disruption of the threat of a
takeover not deemed by the Board of Directors to be in the best interests of
the Company and its shareholders.
Directors and Officers. Pursuant to the Company's Charter, the members of
the Board of Directors are divided into three classes, each of which serves a
term of three years. The Bylaws provide that the number of directors shall be
no fewer than three or more than 15, with the exact number to be established
by the Board of Directors and subject to change from time to time as
determined by the Board of Directors. Vacancies on the Board of Directors
(including vacancies created by an increase in the number of directors) may be
filled only by the affirmative vote of a majority of the remaining directors.
Generally, officers are elected annually by and serve at the pleasure of the
Board of Directors.
The Charter provides that directors may be removed only for cause and only
by (i) the affirmative vote of the holders of a majority of the voting power
of all the shares of the Company's capital stock then entitled to vote in the
election of directors, voting together as a single class, unless the vote of a
special voting group is otherwise required by law, or (ii) the affirmative
vote of a majority of the entire Board of Directors then in office. This
provision, in conjunction with the provision of the Charter authorizing the
Board of Directors to fill vacant directorships, could prevent shareholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
Advance Notice for Shareholder Proposals or Making Nominations for
Meetings. The Bylaws establish an advance notice procedure for shareholder
proposals to be brought before a shareholders meeting of the Company and for
nominations by shareholders of candidates for election as directors at an
annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, only such business may be
conducted at a shareholders meeting as has been brought before the meeting by,
or at the direction of, the Board of Directors, or by a shareholder who has
given to the Secretary of the Company timely written notice in proper form of
the shareholder's intention to bring that business before the meeting. The
presiding officer at such meeting has the authority to make determinations
regarding the shareholder proposals or nominees. Only persons who are selected
and recommended by the Board of Directors, or the committee of the Board of
Directors designated to make nominations, or who are nominated by a
shareholder who gives the required notice will be eligible for election as
directors of the Company.
To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of the Company not later than
120 days in advance of the anniversary date of the Company's
47
<PAGE>
proxy statement for the previous year's annual meeting or, in the case of
special meetings, at the close of business on the tenth day following the date
on which notice of such meeting is first given to shareholders.
The notice of any shareholder proposal or nomination for election as
director must set forth various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert
with such person must provide, among other things, the name and address under
which they appear on the Company's books (if they so appear) and the class and
number of shares of the Company's capital stock that are beneficially owned by
them.
Amendment of the Bylaws and Charter. The Bylaws provide that a majority of
the members of the Board of Directors or the holders of not less than sixty-
six and two-thirds percent (66 2/3%) of the outstanding shares of stock of
each class and series entitled to vote upon the matter have the power to
amend, alter or repeal the Bylaws.
Except as may be set forth in resolutions providing for any class or series
of Preferred Stock and except for provisions in the Charter establishing (i)
the number of directors and the designation of three classes of directors;
(ii) the procedure for filling vacancies in the Board of Directors; (iii) the
allowance of the removal of directors only for cause; (iv) the requirements to
call a special meeting of shareholders; (v) the liability and indemnification
of directors; and (vi) the procedures for amending the Charter and Bylaws,
each of which require the affirmative vote of holders of two-thirds of the
voting power of the shares entitled to vote at an election of directors, any
proposal to amend any other provision of the Charter requires approval by the
affirmative vote of both a majority of the members of the Board of Directors
then in office and the holders of a majority of the voting power of all of the
shares of the Company's capital stock entitled to vote on the amendments, with
shareholders entitled to dissenters' rights as a result of the Charter
amendment voting together as a single class. Shareholders entitled to
dissenters' rights as a result of a Charter amendment are those whose rights
would be materially and adversely affected because the amendment (i) alters or
abolishes a preferential right of the shares; (ii) creates, alters, or
abolishes a right in respect of redemption; (iii) alters or abolishes a
preemptive right; (iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (v)
reduces the number of shares held by such holder to a fraction if the
fractional share is to be acquired for cash. In general, however, no
shareholder is entitled to dissenter's rights if the security he or she holds
is listed on a national securities exchange or the Nasdaq National Market.
Anti-Takeover Legislation. The Tennessee Investor Protection Act (the
"Investor Protection Act") applies to "takeover offers" directed at an
"Offeree Company." The Investor Protection Act defines a "takeover offer" as
an offer to acquire or the acquisition of any equity security of an Offeree
Company, pursuant to a tender offer or a request or invitation for tenders if,
after the acquisition thereof, the Offeror would be directly or indirectly a
beneficial owner of more than 10% of any class of equity security of the
Offeree Company. The Investor Protection Act defines the term "Offeree
Company" as any corporation or other issuer incorporated in Tennessee or
having its principal place of business in the State of Tennessee. The Investor
Protection Act prohibits an Offeror from making a "takeover offer" if the
Offeror beneficially owns 5% or more of the stock of the "Offeree Company,"
any of which was purchased within one year before the proposed "takeover
offer" unless the Offeror (i) has made a public announcement of the "takeover
offer" and announces its intentions with respect to the management and control
of the "Offeree Company"; (ii) has made full, fair and adequate disclosure to
the holders of the securities to be acquired; and (iii) has filed with the
Commissioner of Commerce and Insurance (the "Commissioner") a Registration
Statement which contains information similar to that which federal law
requires to be disclosed on Schedule 13D (which must be filed within 10 days
of the acquisition of 5% of any class of equity security). After the
Registration Statement is filed with the Commissioner, he may request
additional information material to the "takeover offer" and may call for
hearings. The Investor Protection Act requires a seven day right of rescission
for any shareholder who tenders his shares and additionally provides that if
the "takeover offer" lasts more than 60 days, an Offeree may rescind his
tender. The Offeror must deliver to the Commissioner all solicitation
materials used in connection with the tender offer. The Investor Protection
Act prohibits "fraudulent, deceptive or manipulative acts or practices" by
either side.
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<PAGE>
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company from
purchasing or agreeing to purchase any of its securities, at a price in excess
of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned such securities for less than two years,
unless such purchase has been approved by the affirmative vote of a majority
of the outstanding shares of each class of voting stock issued by the Company
or the Company makes an offer of at least equal value per share to all holders
of shares of such class.
The Investor Protection Act and the Greenmail Act may render a change of
control of the Company more difficult.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 7,666,664
shares of Common Stock (8,206,664 shares if the Underwriters' over-allotment
option is exercised in full). Moreover, the Company has outstanding 177,776
shares of Series A Preferred Stock which will be immediately convertible, at
the option of the holder thereof, into an identical number of shares of Common
Stock after the closing of the Offering. Of the shares of Common Stock
outstanding, the 3,600,000 shares (4,140,000 if the Underwriters' over-
allotment option is exercised in full) sold in the Offering will be freely
tradeable in the public market without restriction or limitation under the
Securities Act, except for any shares held by an "affiliate" (as defined in
the Securities Act) of the Company. The remaining shares of Common Stock
outstanding may be resold publicly only following their effective registration
under the Securities Act or pursuant to an available exemption (such as
provided by Rule 144 following a holding period for previously unregistered
shares) from the registration requirements of the Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock that does not exceed the greater of (i) one percent of the number of the
then outstanding shares or (ii) the average weekly reported trading volume of
the Common Stock during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and to the
availability of current public information about the Company and must be made
in unsolicited brokers' transactions or to a market maker. A person (or
persons whose shares are aggregated) who is not an "affiliate" of the Company
under the Securities Act during the three months preceding a sale and who has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144(k) without regard to the information, volume, manner of
sale and notice provisions of Rule 144. As of the date of this Prospectus, no
"restricted" shares of Common Stock are eligible for resale pursuant to
Rule 144. On June 19, 1998, 4,000,000 "restricted" shares will be eligible for
resale pursuant to Rule 144, subject to the volume, manner of sale and other
limitations thereof. The remaining "restricted" shares will become eligible
for resale pursuant to Rule 144 from time-to-time thereafter.
Prior to this Offering, there has been no active trading market for the
Common Stock. No predictions can be made of the effect, if any, that market
sales of shares of Common Stock or the availability of such shares for sale
will have on the market price prevailing from time-to-time. Nevertheless,
sales of significant amounts of Common Stock could adversely affect the
prevailing market price of Common Stock, as well as impair the ability of the
Company to raise capital through the issuance of additional equity securities.
OPTIONS
Upon the closing of the Offering, the Company will have outstanding options
to purchase up to a total of 606,914 shares of Common Stock (assuming an
initial public price equal to the Mid-Point), of which no options will be
exercisable within 60 days after the consummation of the Offering. The Company
expects to file a registration statement on Form S-8 under the Securities Act
to register shares of Common Stock issuable upon exercise of options granted
under the Plan.
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<PAGE>
Accordingly, such shares will be freely tradeable by holders who are not
affiliates of the Company and, subject to the volume and manner of sale
limitations of Rule 144, by holders who are affiliates of the Company.
WARRANTS AND RIGHTS
In connection with the acquisition of the Master Graphics Companies, the
Company has issued or will issue the Seller Warrants, which may be exercised
immediately afer the closing of the Offering, to purchase 1,516,412 shares of
Common Stock at a price of $12.00 per share (assuming an initial public
offering equal to the Mid-Point).
In connection with a financing transaction, the Company issued to its senior
lender a warrant, which is exercisable immediately after the closing of the
Offering, to purchase 183,333 shares of Common Stock (assuming an initial
public offering price equal to the Mid-Point) for nominal consideration.
The Company granted rights, which are exercisable immediately after the
closing of the Offering, to purchase 108,333 shares of Common Stock at a price
of $12.00 per share (assuming an initial offering price equal to the Mid-
Point) to certain former B&M Printing shareholders in return for their
modification of certain terms of their notes with the Company.
Pursuant to the Company's deferred compensation plan, the Company issued
rights, which are exercisable immediately after the closing of the Offering,
to purchase 83,333 shares of Common Stock at a price of $12.00 per share
(assuming an initial offering price equal to the Mid-Point).
REGISTRATION RIGHTS
The holder of Series A Preferred Stock has the right to require the Company
to register its shares of Common Stock issued upon conversion of such Series A
Preferred Stock under the Securities Act in connection with a registration of
shares of Common Stock subsequent to this Offering which is initiated by the
Company under the Securities Act or to require the Company to effect a Demand
Registration. In connection with a registration of shares of Common Stock
subsequent to this offering which is initiated by the Company under the
Securities Act involving an underwritten offering, the number of shares to be
registered by selling shareholders may be limited or eliminated entirely if
the managing underwriter determines marketing factors require a limitation on
the number of shares to be underwritten.
The Selling Shareholder, subject to certain limitations, has the right to
require the Company to register 66,664 shares of Common Stock in a
registration of shares of Common Stock subsequent to this Offering which is
initiated by the Company under the Securities Act.
Certain holders of Seller Warrants to purchase an aggregate of 491,666
shares of Common Stock at a price of $12.00 per share (assuming an initial
public offering price equal to the Mid-Point), subject to certain limitations,
have the right to require the Company to register such shares in a
registration of shares of Common Stock subsequent to this Offering which is
initiated by the Company under the Securities Act. The holder of a warrant to
purchase 183,333 shares of Common Stock (assuming an initial public offering
price equal to the Mid-Point) has Piggy Back Registration and Demand
Registration rights.
The registration rights agreements and warrants which contain registration
rights, as applicable, contain customary provisions whereby the Company and
the other parties party thereto agree to indemnify and contribute to the other
with regard to losses caused by the misstatement of any information or the
omission of any information required to be provided in a registration
statement filed under the Securities Act. The registration rights require the
Company to pay the expenses associated with any registration other than sales
discounts, commissions, transfer taxes and amounts to be borne by underwriters
or as otherwise required by law.
The summary herein of certain provisions of the registration rights does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the warrants, copies of which are filed
as exhibits to the Registration Statement.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and the Underwriters named below
for whom Morgan Keegan & Company, Inc. is acting as representative (the
"Representative"), the Company has agreed to sell to each of such Underwriters
named below, and each of such Underwriters has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ----------
<S> <C>
Morgan Keegan & Company, Inc....................................
---
Total.........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than those shares covered by the over-allotment option described below), if
any are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriter may be increased or the Underwriting
Agreement may be terminated.
The Company and the Selling Shareholder have granted the Underwriters an
over-allotment option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 540,000 additional shares of Common Stock from
the Company on the same terms and conditions as set forth above. Such option
may be exercised only to cover over-allotments in the sale of the shares of
Common Stock. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of the additional shares of Common Stock as it was obligated
to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholder have agreed to indemnify the several
Underwriters or to contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
Prior to this Offering, there has been no public market for the Common
Stock. The initial price to the public for the shares of Common Stock will be
determined by negotiation among the Company and the Representative and will be
based on, among other things, the Company's financial and operating history
and condition, its prospects and the prospects for its industry in general,
the management of the Company and the market prices for the securities of
companies in businesses similar to that of the Company.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares offered hereby to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on sales
to certain other dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
Representative.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company, its officers and directors and certain other shareholders of
the Company have agreed that they will not offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to any additional shares of Common Stock or securities
convertible into or exchangeable or exercisable for any shares of Common Stock
without the prior written consent of Morgan Keegan & Company, Inc. for a
period of 180 days from the date of this Prospectus, except (i) subsequent
sales of Common Stock offered in this Offering,
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(ii) issuances of unregistered Common Stock by the Company issued in
connection with acquiring printing companies, (iii) issuances of Common Stock
by the Company pursuant to the exercise of stock purchase warrants or stock
options outstanding on the date of this Prospectus or (iv) issuances or
registration of options or other rights granted under the Plan or the Director
Option Plan.
The Company has agreed to indemnify the Selling Shareholder against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Selling Shareholder may be required to make
in respect thereof.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Such transactions may include stabilization transactions
pursuant to which the Underwriters may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create
a short position for the account of the Underwriters by selling more Common
Stock in connection with the Offering than they are committed to purchase from
the Company, and in such case the Underwriters may purchase Common Stock in
the open market following completion of the Offering to cover all or a portion
of such short position. The Underwriters may also cover all or a portion of
such short position by exercising the Underwriters' over-allotment option
referred to above. In addition, the Underwriters may impose "penalty bids"
whereby selling concessions allowed to syndicate members or other broker-
dealers for the shares of Common Stock sold in the Offering for their account
may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid might also affect the price of the
Common Stock to the extent that it could discourage resales of the Common
Stock. Neither the Company nor any of the Underwriters make any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters make any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Company has been advised by the Representative that it presently intends
to make a market in the Common Stock offered hereby; the Representative is not
obligated to do so, however, and any market making activity may be
discontinued at any time. There can be no assurance that an active public
market for the Common Stock will develop and continue after the Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholder by Baker, Donelson, Bearman &
Caldwell, Memphis, Tennessee. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by King & Spalding, Atlanta,
Georgia.
52
<PAGE>
EXPERTS
The financial statements of Master Graphics, Inc., Blackwell, Lithograph,
Argus, Jones, Phoenix, and Hederman, to the extent and for the periods
indicated in their reports, have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated statements operations, shareholder's equity, and cash flows
of Master Printing (predecessor of Master Graphics, Inc.) for the year ended
June 30, 1995 have been included herein and in the registration statement in
reliance upon the report of Thompson Dunavant, P.L.L.C., independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Jones Printing Company, Inc. as of December 31,
1996, and for each of the years in the two-year period ended December 31,
1996, have been included herein and in the registration statement in reliance
upon the report of Joseph Decosimo and Company, LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Phoenix as of January 31, 1997, and for each of
the years in the two-year period ended January 31, 1997, included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report with respect thereto and are included herein, in reliance upon
the authority of said firm as experts in accounting and auditing.
The financial statements of McQuiddy as of June 30, 1996 and 1997, and for
each of the years in the three-year period ended June 30, 1997, have been
included herein and in the registration statement in reliance upon the report
of Marlin & Edmondson, P.C., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Phillips as of December 31, 1996 and 1997, and
for each of the years in the three-year period ended December 31, 1997, have
been included herein and in the registration statement in reliance upon the
report of S. F. Fiser & Company, P.A. independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The financial statements of Harperprints as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the report of Becker & Company, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the shares of Common Stock offered by this Prospectus. This Prospectus, which
is a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement or the exhibits or
schedules thereto, certain portions having been omitted pursuant to the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
53
<PAGE>
The Registration Statement, including the exhibits and schedules thereto,
may be inspected without charge at the principal office of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's Regional Offices at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the registration statement and
certain other filings made with the Commission through its Electronic Data
Gathering Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
54
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Master Graphics, Inc. and subsidiaries:
Unaudited Condensed Consolidated Balance Sheet as of December 31, 1997.. F-4
Unaudited Condensed Consolidated Statement of Operations for the year
ended December 31, 1997................................................ F-5
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................. F-6
HISTORICAL:
Master Graphics, Inc. and subsidiary:
Reports of Independent Public Accountants............................... F-13
Consolidated Balance Sheets as of June 30, 1996 and 1997 and December
31, 1997............................................................... F-15
Consolidated Statements of Operations for the years ended June 30, 1995,
1996, and 1997, and the six months ended December 31, 1997............. F-16
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1995, 1996, and 1997, and the six months ended December 31, 1997... F-17
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1996, and 1997, and the six months ended December 31, 1997............. F-18
Notes to Consolidated Financial Statements.............................. F-19
1997 ACQUISITIONS:
Lithograph Printing Company of Memphis:
Report of Independent Public Accountants................................ F-30
Balance Sheets as of December 31, 1995 and 1996, and June 19, 1997...... F-31
Statements of Income for the years ended December 31, 1995 and 1996, and
the period from January 1, 1997 through June 19, 1997.................. F-32
Statements of Stockholders' Equity for the years ended December 31, 1995
and 1996, and the period from January 1, 1997 through June 19, 1997.... F-33
Statements of Cash Flows for the years ended December 31, 1995 and 1996,
and the period from January 1, 1997 through June 19, 1997.............. F-34
Notes to Financial Statements........................................... F-35
Blackwell Lithographers, Inc.:
Report of Independent Public Accountants................................ F-38
Balance Sheet as of June 19, 1997....................................... F-39
Statement of Operations for the period from January 1, 1997 through June
19, 1997............................................................... F-40
Statement of Stockholders' Equity for the period from January 1, 1997
through June 19, 1997.................................................. F-41
Statement of Cash Flows for the period from January 1, 1997 through June
19, 1997............................................................... F-42
Notes to Financial Statements........................................... F-43
The Argus Press, Inc.:
Report of Independent Public Accountants................................ F-46
Balance Sheets as of December 31, 1996, and September 22, 1997.......... F-47
Statements of Operations for the year ended December 31, 1996, and the
period from January 1, 1997 through September 22, 1997................. F-48
Statements of Stockholders' Equity for the year ended December 31, 1996,
and the period from January 1, 1997 through September 22, 1997......... F-49
Statements of Cash Flows for the year ended December 31, 1996, and the
period from January 1, 1997 through September 22, 1997................. F-50
Notes to Financial Statements........................................... F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Phoenix Communications, Inc.:
Reports of Independent Public Accountants.............................. F-54
Balance Sheets as of January 31, 1997, and December 16, 1997........... F-56
Statements of Operations and Retained Earnings for the years ended
January 31, 1996 and 1997, and the period from February 1, 1997
through December 16, 1997............................................. F-57
Statements of Cash Flows for the years ended January 31, 1996 and 1997,
and the period from February 1, 1997 through December 16, 1997........ F-58
Notes to Financial Statements.......................................... F-59
Jones Printing Company, Inc.:
Reports of Independent Public Accountants.............................. F-65
Balance Sheets as of December 31, 1996, and December 16, 1997.......... F-67
Statements of Income and Retained Earnings for the years ended December
31, 1995 and 1996, and the period from January 1, 1997 through
December 16, 1997..................................................... F-68
Statements of Cash Flows for the years ended December 31, 1995 and
1996, and the period from January 1, 1997 through December 16, 1997... F-69
Notes to Financial Statements.......................................... F-70
1998 ACQUISITIONS:
McQuiddy Printing Company:
Report of Independent Public Accountants............................... F-74
Balance Sheets as of June 30, 1996 and 1997 and December 31, 1997
(unaudited)........................................................... F-75
Statements of Earnings for the years ended June 30, 1995, 1996 and 1997
and the six months ended December 31, 1996 and 1997 (unaudited)....... F-76
Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997 and the six months ended December 31, 1996 and 1997
(unaudited)........................................................... F-77
Statements of Cash Flows for the years ended June 30, 1995, 1996 and
1997 and the six months ended December 31, 1996 and 1997 (unaudited).. F-78
Notes to Financial Statements.......................................... F-79
Phillips Litho Co., Inc.:
Report of Independent Public Accountants............................... F-86
Balance Sheets as of December 31, 1996 and 1997........................ F-87
Statements of Operations for the years ended December 31, 1995, 1996
and 1997.............................................................. F-88
Statements of Retained Earnings for the years ended December 31, 1995,
1996 and 1997......................................................... F-89
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................. F-90
Notes to Financial Statements.......................................... F-91
Hederman Brothers, Inc.:
Report of Independent Public Accountants............................... F-96
Balance Sheets as of December 31, 1996 and 1997........................ F-97
Statements of Operations for the years ended December 31, 1995, 1996
and 1997.............................................................. F-98
Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997................................................... F-99
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................. F-100
Notes to Financial Statements.......................................... F-101
Harperprints, Inc.:
Report of Independent Public Accountants............................... F-105
Balance Sheets as of December 31, 1996 and 1997........................ F-106
Statements of Income for the years ended December 31, 1995, 1996 and
1997.................................................................. F-107
Statements of Changes In Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997...................................... F-108
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................. F-109
Notes to Financial Statements.......................................... F-110
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet of the Company
as of December 31, 1997 gives effect to the acquisitions of the Acquired
Companies acquired in 1998 (Harperprints, Hederman, and Phillips), the
probable acquisition of McQuiddy and the financings thereof as if such
transactions had occurred on December 31, 1997. The unaudited pro forma
condensed consolidated statement of operations of the Company for the year
ended December 31, 1997 gives effect to the acquisitions of the Acquired
Companies acquired in 1997 (Lithograph, Blackwell, Sutherland, Argus, Phoenix
and Jones) and the Acquired Companies acquired in 1998 (Harperprints,
Hederman, and Phillips), the probable acquisition of McQuiddy and the
financings thereof as if such transactions had occurred on January 1, 1997.
Share amounts reflect an assumed stock split of 40,000 to 1. The pro forma, as
adjusted, financial data gives effect to the acquisitions and related
financings, and additionally gives effect to (1) the exercise by the Selling
Shareholder of a warrant to acquire 266,664 shares of Common Stock 200,000
shares of which are being offered by the Selling Shareholder in the Offering),
and (2) the Offering and the uses of proceeds thereof. The pro forma data
presented herein do not purport to represent what the Company's financial
position or results of operations would have been had such transactions in
fact occurred on such dates or to project the Company's results of operations
for any future period. The unaudited pro forma consolidated financial
statements should be read in conjunction with the historical audited financial
statements of the Company and of the acquired companies, and "Management's
Discussion and Analysis of financial Condition and Results of Operations"
which are included elsewhere in this Prospectus, except for the historical
financial statements of Sutherland which have not been included.
F-3
<PAGE>
MASTER GRAPHICS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 PRO FORMA PRO FORMA
ACQUISITIONS ACQUISITION OFFERING PRO FORMA
(NOTES ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
COMPANY 1 AND 2) (NOTE 3) CONSOLIDATED (NOTE 4) AS ADJUSTED
------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.................. 1,174 397 -- 1,571 -- 1,571
Trade accounts
receivable, net...... 14,990 8,681 -- 23,671 -- 23,671
Inventories........... 4,836 2,544 128 7,508 -- 7,508
Other current assets.. 1,480 1,640 -- 3,120 -- 3,120
------ ------ ------- ------- ------- -------
Total current
assets............. 22,480 13,262 128 35,870 -- 35,870
Property, plant and
equipment, net......... 29,550 24,330 336 54,216 -- 54,216
Goodwill, net........... 28,853 -- 12,035 40,888 -- 40,888
Other assets............ 5,501 1,043 386 6,930 (610)(c) 6,320
------ ------ ------- ------- ------- -------
86,384 38,635 12,885 137,904 (610) 137,294
====== ====== ======= ======= ======= =======
Current liabilities:
Current installments
of long-term debt.... 3,834 4,766 (4,641) 3,959 -- 3,959
Accounts payable,
trade................ 5,466 3,291 -- 8,757 -- 8,757
Accrued expenses and
other liabilities.... 6,489 1,364 1,263 9,116 (3,000)(c) 6,116
------ ------ ------- ------- ------- -------
Total current
liabilities........ 15,789 9,421 (3,378) 21,832 (3,000) 18,832
Long-term debt:
Finance companies..... 49,817 -- 33,832 83,649 (30,954)(c) 52,695
Sellers' notes........ 15,097 1,807 3,675 20,579 -- 20,579
Other................. 570 15,107 (15,107) 570 -- 570
------ ------ ------- ------- ------- -------
Total long-term
debt............... 65,484 16,914 22,400 104,798 (30,954)(c) 73,844
Other liabilities....... 1,065 -- -- 1,065 -- 1,065
Deferred income tax..... 2,266 1,345 1,550 5,161 -- 5,161
------ ------ ------- ------- ------- -------
Total liabilities... 84,604 27,680 20,572 132,856 (33,954) 98,902
Redeemable warrants..... 3,376 -- 850 4,226 (2,026)(b) 2,200
Redeemable preferred
stock.................. -- -- 1,350 1,350 -- 1,350
Shareholders' equity.... (1,596) 10,955 (9,887) (528) 35,370(a,b,c,d) 34,842
------ ------ ------- ------- ------- -------
86,384 38,635 12,885 137,904 (610) 137,294
====== ====== ======= ======= ======= =======
</TABLE>
F-4
<PAGE>
MASTER GRAPHICS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION OFFERING PRO FORMA
1997 1998 ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
COMPANY ACQUISTIONS ACQUISTIONS (NOTE 5) CONSOLIDATED (NOTE 6) AS ADJUSTED
------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. 39,470 62,895 51,606 -- 153,971 -- 153,971
Cost of revenue......... 32,460 46,375 38,770 (2,424) 115,181 -- 115,181
------ ------ ------ ------ ------- ----- -------
Gross profit........ 7,010 16,520 12,836 2,424 38,790 -- 38,790
Selling, general &
administrative
expenses............... 7,760 12,219 9,840 (596) 29,223 -- 29,223
Amortization of
goodwill............... 98 831 -- 93 1,022 -- 1,022
------ ------ ------ ------ ------- ----- -------
Operating income
(loss)............. (848) 3,470 2,996 2,927 8,545 -- 8,545
Other income (expense):
Redeemable warrant
valuation
adjustment........... (1,635) -- -- 455 (1,180) 1,180(a) --
Interest income....... 82 24 29 -- 135 -- 135
Interest expense...... (2,345) (1,752) (1,240) (6,334) (11,671) 5,138(b) (6,533)
Deferred loan cost
amortization......... (90) -- -- (1,095) (1,185) 731(b) (454)
Other, net............ 156 (234) (48) -- (126) -- (126)
------ ------ ------ ------ ------- ----- -------
Other, net.......... (3,832) (1,962) (1,259) (6,974) (14,027) 7,049 (6,978)
------ ------ ------ ------ ------- ----- -------
Earnings (loss)
before income
taxes.............. (4,680) 1,508 1,737 (4,047) (5,482) 7,049 1,567
Income tax expense
(benefit).............. 45 14 791 (850) -- 674(c) 674
------ ------ ------ ------ ------- ----- -------
Net earnings (loss)... (4,725) 1,494 946 (3,197) (5,482) 6,375 893
====== ====== ====== ====== ======= ===== =======
Net earnings (loss)
per common share:
Basic............... $(1.18) $ (1.40) $ 0.10
====== ======= =======
Diluted............. $(1.18) $ (1.40) $ 0.10
====== ======= =======
</TABLE>
F-5
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated balance sheet
presents the pro forma consolidated financial position of the Company as if the
acquisitions of the Acquired Companies acquired in 1998 (Harperprints,
Hederman, and Phillips), the proposed acquisition of McQuiddy and the
financings thereof had occurred on December 31, 1997. The accompanying
unaudited pro forma condensed consolidated statement of operations presents the
pro forma consolidated results of operations of the Company as if the
acquisitions of the Acquired Companies acquired in 1997 (Lithograph, Blackwell,
Sutherland, Argus, Phoenix and Jones) and the Acquired Companies acquired in
1998 (Harperprints, Hederman and Phillips), the proposed acquisition of
McQuiddy and the financings thereof had occurred on January 1, 1997. The pro
forma condensed consolidated financial statements have been derived from the
historical financial statements of the Company, the Acquired Companies acquired
in 1998 and McQuiddy as of and for the year ended December 31, 1997, and from
the historical financial statements of the Acquired Companies acquired in 1997
for the period from January 1, 1997 to the respective dates of their actual
acquisitions by the Company. The results of operations of the Acquired
Companies acquired in 1997 subsequent to their acquisitions have been included
in the historical statement of operations of the Company. The actual
acquisition dates of the Acquired Companies acquired in 1997 are as follows:
Lithograph, Blackwell, and Sutherland (June 19, 1997), Argus (September 22,
1997), and Phoenix and Jones (December 16, 1997).
In addition, the pro forma, as adjusted, financial information gives effect
to the Offering and the use of proceeds thereof, and also gives effect to the
exercise by the Selling Shareholder of a warrant to acquire 266,664 shares of
Common Stock, 200,000 shares of which are being offered by the Selling
Shareholder in the Offering.
The acquisitions have been accounted for in the pro forma condensed
consolidated financial statements using the purchase method of accounting. The
total purchase cost has been allocated to the assets and liabilities acquired
based upon their estimated fair values on the effective dates of the respective
acquisitions. Such allocations are based on studies, all of which have not been
finalized. Accordingly, the effect of the allocation of the purchase cost on
the pro forma balance sheet, and the related effect on pro forma results of
operations, is preliminary. The final values assigned may differ from those set
forth herein; however, it is not expected that the final allocation of purchase
costs will differ materially from those set forth herein.
The pro forma data presented herein do not purport to represent what the
Company's financial position or results of operations would have been had the
1997 and 1998 acquisitions in fact occurred on such dates or to project the
Company's results of operations for any future period.
(2) ACQUISITIONS AND RELATED FINANCINGS
Acquisitions
On June 19, 1997, the Company acquired all of the outstanding common stock of
Blackwell Lithographers, Inc. and Lithograph Printing Company of Memphis, and
the assets of Sutherland Printing Company. All of these businesses are engaged
in the general commercial printing business. The acquisitions were financed
with a combination of cash ($10.4 million), subordinated notes to the sellers
($5.1 million) and warrants to acquire Common Stock (valued at $210,000). In
addition, the Company incurred other acquisition costs totalling approximately
$470,000. These acquisitions have been accounted for by the purchase method
and, accordingly, the results of operations of Blackwell, Lithograph and
Sutherland have been included in the Company's consolidated financial
statements from June 19, 1997. The $4.9 million excess of the aggregate
purchase prices over the aggregate fair value of the net identifiable assets
acquired has been recorded as goodwill and is being amortized on a straight
line basis over 40 years.
During the six months ended December 31, 1997, the Company acquired all of
outstanding common stock of the following companies: as of September 22, 1997--
The Argus Press, Inc.; as of December 16, 1997--
F-6
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
Phoenix Communications, Inc., and Jones Printing Company, Inc. All of these
businesses are engaged in the general commercial printing business. The
acquisitions were financed with a combination of cash ($17.8 million),
subordinated notes issued to the sellers ($6.15 million), and warrants to
acquire common stock (valued at $1.4 million). In addition, the Company
incurred other acquisition costs totalling approximately $2.3 million. These
acquisitions have been accounted for by the purchase method and, accordingly,
the results of operations of Argus have been included in the Company's
consolidated financial statements from September 22, 1997, and the results of
operations of Phoenix and Jones have been included in the Company's
consolidated financial statements from December 16, 1997. The $23 million
excess of the aggregate purchase prices over the aggregate fair value of the
net identifiable assets acquired has been recorded as goodwill and is being
amortized on a straight line basis over 40 years.
In March 1998, the Company acquired all of the outstanding common stock of
Harperprints, Inc., Hederman Brothers, Inc., and Phillips Litho Co., Inc. In
addition, in April 1998 the Company entered into a definitive merger agreement
pursuant to which it expects to acquire all of the outstanding common stock of
McQuiddy Printing Company. All of these businesses are engaged in the general
commercial printing business. The acquisitions were financed with a combination
of cash ($18.7 million), subordinated notes issued to the sellers ($3.7
million) and warrants to acquire common stock (valued at $1.1 million). In
addition, the Company incurred other acquisition costs totalling approximately
$2.3 million. These acquisitions have been accounted for by the purchase method
and, accordingly, the results of operations of Harperprints, Inc., Hederman,
McQuiddy, and Phillips will be included in the Company's 1998 consolidated
financial statements from their respective acquisition dates in 1998. The
estimated $12.0 million excess of the aggregate purchase prices over the
aggregate fair value of the net identifiable assets acquired will be recorded
as goodwill and amortized on a straight line basis over 40 years.
The Harperprints, Hederman, Jones, Phillips and Phoenix stock purchase
agreements also provide for additional payments over the next three years
contingent on future cash flows, as defined, of the respective businesses.
Management expects that such payments will not exceed $15 million.
Financing of Acquisitions
In June 1997 the Company borrowed $4.3 million from Sirrom Capital
Corporation ("Sirrom") to partially finance its June 1997 business acquisitions
described above. The Sirrom loan bears interest at 13.25%, payable monthly, and
the principal is due in May, 2002, with no penalty for early repayment. The
loan is subject to a security agreement providing subordinated liens on all
equipment, inventory, accounts receivable, and intangible assets. In connection
with obtaining the Sirrom loan, the Company paid a processing fee of $107,500
and issued to Sirrom a common stock warrant to acquire a 6% interest in the
Common Stock of the Company. On April 8, 1998, Sirrom exercised its warrant and
acquired 6.6666 shares of Common Stock (266,664 shares after the effect of the
40,000 to 1 stock split to be effected immediately preceding the Offering).
At December 31, 1997, the Company, through its operating subsidiary, Premier
Graphics, is a borrower under a $60 million Amended and Restated Loan and
Security Agreement dated December 16, 1997, with General Electric Capital
Corporation ("Senior Lender"). Proceeds from the loan agreement have been used
primarily to finance the 1997 acquisitions. At December 31, 1997, the loan
agreement was comprised of a Term Loan-A of $30 million, a Term Loan-B of $17.8
million, and an unused acquisition line of $12.2 million. The Term Loan-A is
due in 19 quarterly installments of approximately $937,500, plus a final
principal payment due in December, 2002; interest on the Term Loan-A which is
payable monthly is based on a LIBOR-adjusted rate (8.94% at December 31, 1997).
The Term Loan-B is due in 19 quarterly installments of $25,000, with a final
principal payment due in December, 2002; interest on the Term Loan-B at an
annual rate of 12% is payable monthly, and the Company has an option to convert
such rate to a variable rate. The Term Loan-A is subject to a prepayment
penalty which declines from 3% in the first year to 0% after the third year;
the Term Loan-B is
F-7
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
not subject to a prepayment penalty. The Loan Agreement contains mandatory
prepayment provisions which are based on annual excess cash flows, as defined
in the credit agreement. The Term Loans are collateralized by substantially
all of the Company's tangible and intangible assets. The Term Loans are
subject to various covenants, including limits on dividends, additional debt,
total liabilities and capital expenditures, and the maintenance of levels of
EBITDA (as defined) and interest, fixed charge, and leverage ratios. In
conjunction with obtaining the Term Loans, the Company incurred fees of
approximately $1 million; the Company also issued to the Senior Lender a
common stock warrant which is described in Note 12 to the Company's
consolidated financial statements.
In connection with the various acquisitions in 1997, the Company has issued
subordinated unsecured notes to the respective sellers. These subordinated
notes, which totaled $4.8 million and $10.9 million at June 30, 1997 and
December 31, 1997, respectively, are due in seven years, bear interest at 12%
(payable monthly), and generally are subject to 20% prepayment penalties.
In connection with its acquisition of B&M Printing Company, Inc. in 1992,
the Company issued notes to the sellers in the aggregate amount of $1.3
million. The notes bear interest at 10%, payable quarterly, and the principal
is due on November 30, 2002. The Company granted rights to purchase Common
Stock to these sellers in June 1997, in return for certain modifications to
the related loan agreements. Effectively, the holders have the right, if there
has been a public offering of the Company's Common Stock, to acquire up to
approximately $430,000 of Common Stock at an exercise price equal to the of
the Company's Common Stock initial public offering price; such rights expire
three years after any initial public offering of the Company's Common Stock.
In connection with a June 1997 acquisition, the Company issued a $1,090,000
non-interest bearing note payable to the seller maturing in May, 2007. The
Company recorded the note at its net present value and is amortizing the
discount thereon over the life of the note using the interest method. The note
is classified above as "other" long-term debt.
The cash portion of the Hederman acquisition was funded by a $5.9 million
borrowing under on the Company's acquisition line under its Amended and
Restated Credit Agreement with its Senior Lender. In connection with this
financing, the Company agreed to certain modifications to the credit
agreement, including an increase in the quarterly amortization of the Term
Loan-B from $25,000 to $50,000.
The cash portion of the Phillips Litho acquisition was financed by a $15
million term loan from its Senior Lender. The loan is to be repaid in 19
quarterly installments of $12,500, beginning in July 1998, and a twentieth and
final installment, in March 2003, of the remaining balance. Interest at an
annual rate of 12% is payable monthly, provided that the Senior Lender may at
its option convert the rate to a floating rate at 3.5% over prime. The term
loan requires mandatory prepayment based on 75% of annual excess cash flows,
as defined; voluntary prepayments will incur prepayment penalties on a
declining scale during the first three years of the loan. In consideration for
the loan, the Company agreed to pay to the Senior Lender an origination fee of
$500,000.
The cash portion of the Harperprints acquisition was financed with $6.5
million in proceeds from a $10 million term loan from its Senior Lender. The
loan is to be repaid in 19 quarterly installments of $12,500, beginning in
July, 1998, and a twentieth and final installment, in March 2003, of the
remaining balance. Interest at an annual rate of 12% is payable monthly;
provided that the Senior Lender may at its option convert the rate to a
floating rate at 3.5% over prime. The term loan requires mandatory prepayment
based on 75% of annual excess cash flows, as defined; voluntary prepayments
will incur prepayment penalties on a declining scale during the first three
years of the loan. In consideration for the loan, the Company issued a warrant
to the Senior Lender which allows the Senior Lender to acquire a number of
shares of Common Stock equivalent to $2.2 million divided by the initial
public offering price of the Common Stock. The warrant has an exercise price
of $100, and the holder may require the Company to redeem the warrant under
certain conditions at a price equivalent to the then fair value of the
underlying common stock at that date.
F-8
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
The cash portion of the McQuiddy acquisition will be funded by an advance of
$6.3 million from the Company's acquisition line under its Amended and
Restated Credit Agreement with its Senior Lender as well as the remaining $3.5
million from the Harperprints loan. The draw under the acquisition line will
be repayable at March 2003.
In connection with the financings of the 1998 acquisitions,the Company and
the Senior Lender also entered into an exchange agreement whereby the Company
issued 177,776 shares (based on the 40,000 to 1 stock split to be effected
immediately prior to the Offering) of its newly created Series A Cumulative
Convertible Preferred Stock, par value $0.01 ("Series A Preferred Stock") in
exchange for the senior lender's warrant to purchase a 4% interest in the
Company's outstanding common stock. The Series A Preferred Stock carries an
annual dividend rate of 5% of its liquidation value ($12.81 per share);
dividends are payable quarterly and may be paid in cash and/or in kind. The
Series A Preferred Stock is convertible into Common Stock at the holder's
option at a ratio of 1 share of Common Stock for each share of Series A
Preferred Stock. The Series A Preferred Stock is redeemable by the holder at
the end of year seven, if the Sirrom note has been repaid, at a price
effectively equal to the greater of its liquidation value or the fair value of
the underlying common stock on an as-if converted basis.
3. PRO FORMA ACQUISITION ADJUSTMENTS--BALANCE SHEET
a) To record the elimination of assets and liabilities of Acquired Companies
and McQuiddy which were specifically excluded from the purchase transactions.
b) To record the proceeds from borrowings used to fund the cash portions of
the acquisition (approximately $19 million) and refinancing of debt
(approximately $17 million), along with debt issuance costs incurred.
c) To record the issuance of notes and warrants issued to sellers as partial
consideration for the acquisitions.
d) To eliminate the historical equity accounts of the companies acquired in
1998 and McQuiddy.
e) To record the purchase of the acquired companies.
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENT
------ ------ ------ ------ ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash.................... -- 35,657 -- -- (35,657) --
Inventory............... -- -- -- -- 128 128
Property, plant &
equipment.............. (4,194) -- -- -- 4,530 336
Goodwill................ -- -- 1,067 (7,239) 18,207 12,035
Other assets............ -- 500 -- -- (114) 386
Current installments of
long-term debt......... -- 125 -- -- (4,766) (4,641)
Accrued expense &
other.................. -- -- -- -- 1,263 1,263
Long-term debt:
Finance company....... -- 33,832 -- -- -- 33,832
Other................. (3,086) -- -- -- (12,021) (15,107)
Sellers' notes........ -- -- 3,675 -- -- 3,675
Deferred tax liability.. -- -- -- -- 1,550 1,550
Redeemable warrants..... -- 850 -- -- -- 850
Redeemable preferred
stock.................. 1,350 1,350
Stockholders' equity.... (1,108) -- (2,608) (7,239) 1,067 (9,887)
------ ------ ------ ------ ------- -------
Total................. -- -- -- -- -- --
====== ====== ====== ====== ======= =======
</TABLE>
F-9
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
4. PRO FORMA OFFERING ADJUSTMENTS--BALANCE SHEET
a) To record the proceeds ($40.8 million) from the issuance of 3,400,000
shares of the Company's Common Stock, net of $3.8 million underwriting
discounts and estimated offering costs, primarily consisting of accounting and
legal fees, filing and listing fees, and printing expenses.
b) To record the effect of the exercise of a common stock warrant to acquire
266,664 shares of Common Stock (200,000 shares of which are being offered by
the Selling Shareholder in the Offering).
c) To record the payment of accrued acquisition advisory costs ($3.0
million), the repayment of the Sirrom debt ($4.3 million), and the partial
repayment of the senior debt ($29.7 million), and the write-off of the
deferred loan costs and unamortized debt discounts associated with the debt
repaid ($610,000 and $3.0 million, respectively).
d) The net effect on shareholders' equity includes the net proceeds of the
Offerings ($37.0 million) plus the exercise of a warrant ($2.0 million) and
less the write-off of deferred financing costs and unamortized debt discount
($3.6 million).
5. PRO FORMA ACQUISITION ADJUSTMENTS--STATEMENT OF OPERATIONS
a) To record the net decrease in depreciation expense related to (1)
adjustments to the basis in the fixed assets acquired as a result of applying
purchase accounting, (2) the effect on depreciation of assets not acquired
(see (c) below), and (3) changes in estimated useful lives.
b) To record reductions in rent expense related to equipment previously
leased, which were acquired as a part of the acquisitions.
c) To record additional rent expense for facilities not acquired, but to be
leased from the former owner of the company acquired as a part of the
acquisition agreement.
d) To record increased cost of sales arising from the stepped-up basis in
inventory as a result of applying purchase accounting.
e) To record the annual amortization ($1.0 million) of goodwill ($40.9
million) arising as a result of applying purchase accounting to the
acquisitions over a 40-year estimated life, net of goodwill amortization
previously recorded by an acquired company.
f) To record a reduction in compensation from historical amounts to amounts
agreed to as a part of the acquisition agreements.
g) To record additional interest expense and related amortization arising
from the financings of the acquisitions, including interest on seller
subordinated notes at 12% and senior debt at rates ranging from 9% to 13.25%.
h) To record the elimination of the adjustment of a redeemable warrant to
fair value; on a pro forma basis, effective January 1, 1997 the warrant was
exchanged for redeemable preferred stock as a part of the financing of the
1998 acquisitions.
i) To eliminate income tax expense, as the Company would have had a
consolidated net loss on a pro forma basis.
F-10
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the pro forma statement of operations
adjustments necessary to reflect the 1997 and 1998 acquisitions and financings
thereof as if they had occurred on January 1, 1997:
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) (I) ADJUSTMENT
------ ---- --- --- --- ---- ----- --- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... (2,611) (241) 300 128 (2,424)
Selling, general and
administrative
expenses............... 147 93 (743) (503)
Interest expense........ 7,429 7,429
Amortization of
goodwill...............
Other expense........... 455 455
Income taxes............ (850) (850)
</TABLE>
6. PRO FORMA OFFERING ADJUSTMENTS--STATEMENT OF OPERATIONS
a) To record the elimination of the adjustment of the redeemable warrant to
fair value; on a pro forma, as adjusted basis, the warrant was exercised and
shares of Common Stock were issued effective January 1, 1997.
b) To record the decrease in interest expense, including amortization of
deferred financing costs and contractual rate reductions, resulting from the
repayment of Sirrom and senior debt with proceeds of the Offering.
c) To record the income tax effect of the above adjustments; income taxes
are provided at a combined 43% rate, reflecting federal and state taxes at the
estimated statutory rates adjusted for nondeductible goodwill.
7. PRO FORMA EARNINGS PER SHARE
Basic earnings per share (EPS) are computed by dividing net earnings (loss)
less the preferred stock dividend requirement by the weighted-average number
of common shares outstanding (4,000,000 in 1997); as adjusted for the public
offering, outstanding shares also include 3,400,000 shares issued by the
Company in the Offering and 266,664 shares issued to a warrant holder in
April, 1998 (200,000 shares of which will be sold in the Offering).
Diluted EPS are computed assuming the conversion or exercise of dilutive
potential equity instruments. In the Diluted EPS calculations for both pro
forma and pro forma, as adjusted, conversion of the Series A Preferred Stock
is not assumed because of its antidilutive effect. Exercise of the Senior
Lender's warrant is not assumed in the pro forma calculation because of its
antidilutive effect. Exercise of the option effect of the deferred
compensation contracts is not assumed in the pro forma calculation because the
option would not be exercisable until the initial public offering;
additionally, if exercisable, the effect would have been antidilutive.
F-11
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
Following is a reconciliation of the calculation of basic and diluted
earnings per share :
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
-----------------------
PRO FORMA
PRO FORMA AS ADJUSTED
---------- -----------
<S> <C> <C>
Net earnings (loss)......... $ (5,482) $ 893
Less preferred stock
dividend requirement....... 114 114
---------- ----------
Net earnings (loss)
available for common
shareholders............... $ (5,596) $ 779
========== ==========
Basic--Average shares
outstanding................ 4,000,000 7,666,664
========== ==========
Basic EPS............... $ (1.40) $ 0.10
========== ==========
Diluted:
Average shares
outstanding.............. 4,000,000 7,666,664
Assumed exercise of:
Deferred compensation
contract............... -- 83,333
Warrant................. -- 183,333
---------- ----------
4,000,000 7,933,330
========== ==========
Diluted EPS............. $ (1.40) $ 0.10
========== ==========
</TABLE>
(8) OTHER MATTERS
The pro forma condensed consolidated balance sheet reflects the write-off of
unamortized deferred financing costs ($610,000) and loan discounts ($3,046,000)
as a result of the repayment of certain loans with proceeds from the Offering.
This expense has been appropriately excluded from the pro forma condensed
consolidated statement of operations, but will be reflected in the Company's
historical consolidated financial statements in 1998 as an extraordinary loss
on extinguishment of debt.
The Company's historical consolidated financial statements as of and for the
six months ended December 31, 1997 include a provision for deferred
compensation of approximately $750,000 related to employment arrangements with
certain officers. Since these arrangements were not directly related to the
acquisitions or the Offering, the provision has not been eliminated from the
pro forma condensed consolidated balance sheet or statement of operations.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the stock split referred to in Note 1 has been consummated,
we will be in a position to render the following report.
KPMG Peat Marwick LLP
The Board of Directors Master Graphics, Inc. and subsidiary:
We have audited the consolidated balance sheets of Master Graphics, Inc. and
subsidiary as of June 30, 1996 and 1997, and December 31, 1997, and the
related consolidated statements of operations, shareholder's equity and cash
flows for each of the years in the two-year period ended June 30, 1997 and the
six-month period ended December 31, 1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Master
Graphics, Inc. and subsidiary as of June 30, 1996 and 1997 and December 31,
1997, and the results of their operations and their cash flows for each of the
years in the two-year period ended June 30, 1997 and the six-month period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
(unsigned)
KPMG Peat Marwick LLP
Memphis, Tennessee
April 7, 1998, except as to the third
paragraph of Note 1, which is as of
May , 1998.
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Master Printing, Inc.:
We have audited the accompanying consolidated statements of operations,
changes in stockholder's equity and cash flows of Master Printing, Inc. and
Subsidiary for the year ended June 30, 1995. 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 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Master Printing, Inc. and Subsidiary for the year ended June 30, 1995 in
conformity with generally accepted accounting principles.
Thompson Dunavant, P.L.L.C.
Memphis, Tennessee
March 20, 1998
F-14
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------- DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 0 $ 497,579 $ 1,173,812
Trade accounts receivable, net......... 2,053,434 6,947,608 14,989,796
Inventories:
Raw materials and supplies........... 47,661 883,920 1,926,692
Work-in-process...................... 127,773 852,973 2,909,206
---------- ----------- -----------
Total inventories................... 175,434 1,736,893 4,835,898
Deferred income taxes.................. 0 0 160,698
Prepaid expenses and other current
assets................................ 771,852 475,400 1,319,609
---------- ----------- -----------
Total current assets................. 3,000,720 9,657,480 22,479,813
---------- ----------- -----------
Property, plant and equipment, net....... 2,007,410 20,472,214 29,550,176
Goodwill, net............................ 0 4,908,380 28,853,263
Deferred loan costs, net................. 0 777,023 1,396,096
Due from shareholder..................... 950,000 950,000 3,894,726
Other.................................... 467,500 449,862 209,604
---------- ----------- -----------
Total assets......................... $6,425,630 $37,214,959 $86,383,678
========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current installments of long-term
debt.................................. $ 161,526 $ 1,813,696 $ 3,833,844
Accounts payable....................... 1,062,725 2,822,173 5,465,707
Accrued expenses....................... 490,848 1,965,188 6,489,064
---------- ----------- -----------
Total current liabilities............ 1,715,099 6,601,057 15,788,615
---------- ----------- -----------
Bank line of credit...................... 113,309 0 569,561
Long-term debt, net of current install-
ments................................... 2,519,267 28,797,993 64,913,896
Deferred income taxes.................... 234,623 397,499 2,266,160
Other liabilities........................ 0 0 1,065,046
Redeemable common stock warrants......... 0 638,176 3,376,060
Commitments and contingencies
Shareholder's equity:
Common stock (no par value at June 30,
1996; $0.001 par value at June 30,
1997 and December 31, 1997);
100,000,000 shares authorized;
4,000,000 shares issued and
outstanding in all periods............ 100,000 4,000 4,000
Additional paid-in capital............. 2,100,000 2,406,213 3,849,748
Retained earnings (deficit)............ (356,668) (1,629,979) (5,449,408)
---------- ----------- -----------
Total shareholder's equity
(deficit)........................... 1,843,332 780,234 (1,595,660)
---------- ----------- -----------
$6,425,630 $37,214,959 $86,383,678
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------------------- DECEMBER 31,
1995 1996 1997 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue............... $11,426,172 $13,243,535 $13,432,719 $32,394,430
Cost of revenue........... 8,928,152 9,954,851 11,311,910 26,528,378
----------- ----------- ----------- -----------
Gross profit............ 2,498,020 3,288,684 2,120,809 5,866,052
Selling, general and ad-
ministrative expenses.... 2,570,124 2,691,257 3,021,102 5,990,167
Amortization of goodwill.. 0 0 0 97,800
----------- ----------- ----------- -----------
Operating income
(loss)................. (72,104) 597,427 (900,293) (221,915)
Other income (expense):
Redeemable warrant valu-
ation adjustment....... 0 0 0 (1,635,173)
Interest income......... 66,645 67,726 67,777 48,304
Interest expense........ (333,893) (375,890) (438,686) (2,181,247)
Other, net.............. 43,780 44,479 23,265 190,602
----------- ----------- ----------- -----------
Other income (ex-
pense), net.......... (223,468) (263,685) (347,644) (3,577,514)
----------- ----------- ----------- -----------
Income (loss) before in-
come taxes............. (295,572) 333,742 (1,247,937) (3,799,429)
Income tax expense (bene-
fit)..................... (86,374) 161,361 25,374 20,000
----------- ----------- ----------- -----------
Net earnings (loss)..... $ (209,198) $ 172,381 $(1,273,311) $(3,819,429)
=========== =========== =========== ===========
Earnings per share:
Basic................... $ (0.05) $ 0.04 $ (0.32) $ (0.95)
=========== =========== =========== ===========
Diluted................. $ (0.05) $ 0.04 $ (0.32) $ (0.95)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997, AND
SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------ PAID-IN EARNINGS SHAREHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY (DEFICIT)
--------- -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at June 30,
1994................... 4,000,000 $100,000 $2,100,000 $ (319,851) $ 1,880,149
Net earnings (loss)
for year ended June
30, 1995............. (209,198) (209,198)
--------- -------- ---------- ----------- -----------
Balances at June 30,
1995................... 4,000,000 100,000 2,100,000 (529,049) 1,670,951
Net earnings (loss)
for year ended June
30, 1996............. 172,381 172,381
--------- -------- ---------- ----------- -----------
Balances at June 30,
1996................... 4,000,000 100,000 2,100,000 (356,668) 1,843,332
Effects of re-incorpo-
ration............... -96,000 96,000 0
Issuance of seller
warrants............. 210,213 (1,063,098)
Net earnings (loss)
for year ended June
30, 1997............. (1,273,311)
--------- -------- ---------- ----------- -----------
Balances at June 30,
1997................... 4,000,000 4,000 2,406,213 (1,629,979) 780,234
Issuance of seller
warrants............. 1,443,535 1,443,535
Net earnings (loss)
for six months ended
December 31, 1997.... (3,819,429) (3,819,429)
--------- -------- ---------- ----------- -----------
Balances at December 31,
1997................... 4,000,000 $ 4,000 $3,849,748 $(5,449,408) $(1,595,660)
========= ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS ENDED
--------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)....... (209,198) 172,381 (1,273,311) (3,819,429)
Adjustments to reconcile
net income to net cash
from operating
activities:
Depreciation............. 416,549 275,343 293,037 1,087,288
Amortization of
intangibles............. 330,000 330,000 330,000 325,621
Deferred compensation
provision............... -- -- -- 765,046
Redeemable warrants
adjustment.............. -- -- -- 1,635,173
Deferred income taxes.... (70,295) 63,213 162,876 --
(Gain) loss on disposal
of equipment............ -- (10,000) -- --
Changes in operating
assets and liabilities,
net of effect of
business acquisitions:
Trade accounts
receivable............. (461,156) (128,534) (1,124,340) 459,020
Inventories............. (16,185) 81,195 (300,098) 651,156
Other assets............ (75,032) (622,446) 197,589 (499,125)
Accounts payable........ 44,541 260,685 797,084 (14,623)
Accrued expenses........ (10,973) 206,235 837,414 1,902,727
--------- --------- ----------- -----------
Net cash provided by
(used in) operating
activities............ (51,749) 628,072 (79,749) 2,492,854
--------- --------- ----------- -----------
Cash flows from investing
activities:
Business acquisitions, net
of cash acquired......... (13,392,127) (28,511,229)
Purchases of equipment.... (47,390) (373,836) (4,151,336) (328,309)
Proceeds from sale of
equipment................ -- 10,000 -- --
--------- --------- ----------- -----------
Net cash used in
investing activities.. (47,390) (363,836) (17,543,463) (28,839,538)
--------- --------- ----------- -----------
Cash flows from financing
activities:
Net borrowings
(repayments) on lines of
credit................... 384,919 (271,610) (113,309) 569,561
Proceeds from issuance of
long-term debt........... -- -- 20,821,586 27,940,625
Principal payments of
long-term debt........... (596,083) (291,187) (1,380,793) (777,875)
Loan costs incurred....... -- -- (777,023) (709,394)
--------- --------- ----------- -----------
Net cash provided by
(used in) financing
activities............ (211,164) (562,797) 18,550,461 27,022,917
--------- --------- ----------- -----------
Net increase (decrease) in
cash...................... (310,303) (298,561) 927,249 676,233
Cash (overdraft) at
beginning of period....... 179,194 (131,109) (429,670) 497,579
--------- --------- ----------- -----------
Cash (overdraft) at end of
period.................... $(131,109) $(429,670) $ 497,579 $ 1,173,812
========= ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997, AND DECEMBER 31, 1997
(1) BASIS OF PRESENTATION
Master Graphics, Inc. and its wholly-owned operating subsidiary, Premier
Graphics, Inc. (collectively the "Company") are engaged in the business of
commercial printing, with 8 facilities in 6 states. Prior to June, 1997, the
Company was comprised of a holding company, Master Printing, Inc. and its
wholly-owned operating subsidiary, B&M Printing, Inc. In June, 1997, the sole
shareholder of Master Printing, Inc. formed a new corporate holding company,
Master Graphics, Inc., and merged Master Printing, Inc. into Master Graphics,
Inc. Contemporaneously, Master Graphics, Inc. formed a new wholly-owned
subsidiary, Premier Graphics, Inc., and merged B&M Printing, Inc. into Premier
Graphics, Inc. References in these consolidated financial statements to the
Company for periods prior to the June, 1997 transactions described above are
to Master Printing, Inc. and B&M Printing, Inc. consolidated. The transactions
discussed above were among entities totally controlled by the sole
shareholder, and, as such, gave rise to no changes in accounting or reporting,
other than an adjustment to the Company's shareholder's equity as a result of
changing the par value of common stock from no par value to $0.001 per share.
The Company operated on a fiscal year ending June 30, through its year ended
June 30, 1997. In conjunction with the corporate reorganization described
above and the acquisitions and related financings described in Notes 3 and 5
below, the Company changed its fiscal year-end to December 31.
On May , 1998, the Board of Directors of the Company approved a 40,000 to
1 stock split. All references to share and per share amounts in these
Consolidated Financial Statements have been retroactively restated to reflect
the stock split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Master
Graphics, Inc. and its wholly-owned subsidiary after the elimination of
intercompany transactions.
(b) Use of Estimates
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
(e) Property, Plant and Equipment
Property, plant, and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from 5 to 39 years. Leasehold improvements are amortized on a
straight-line basis over the estimated useful lives of the related property,
generally fifteen to forty years. Amortization of assets held under capital
leases is included with depreciation expense.
F-19
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Expenditures which materially increase values or extend the useful lives of
assets are capitalized while replacements, maintenance and repairs which do
not improve or extend the lives of the respective assets are charged against
income as incurred. Depreciation expense for fiscal years 1995, 1996 and 1997
and the six months ended December 31, 1997 was $417,000, $275,000, $293,000
and $1,087,000, respectively.
(f) Intangibles
Goodwill represents costs in excess of the fair value of the net assets of
businesses acquired in 1997. Goodwill is being amortized over forty years,
using the straight-line method; accumulated amortization of goodwill was
$97,800 at December 31, 1997, respectively. The Company periodically assesses
the recoverability of goodwill based on reviews of estimated future results of
operations and cash flows.
Costs incurred in obtaining long-term financing are deferred and
subsequently amortized, using the interest method over the life of the
respective financing, as a component of interest expense. Accumulated
amortization at December 31, 1997 was approximately $90,000.
(g) Income Taxes
The Company follows the asset and liability method for deferred income taxes
as required by the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities.
(h) Financial Instruments
The Company's financial instruments recorded on the consolidated balance
sheet include cash and cash equivalents, accounts and notes receivable,
accounts payable and debt. Because of their short maturity, the carrying
amount of cash and cash equivalents, accounts and notes receivable, accounts
payable and short-term bank debt approximates fair value. The fair value of
long-term debt, which approximates its carrying value, is based on rates
available to the Company for debt with similar terms and maturities.
(i) Revenue Recognition
Substantially all revenue is recognized when products are shipped to
customers.
(j) Earnings Per Share
Basic earnings per share for each period presented has been computed by
dividing net earnings (loss) by the weighted-average number of common shares
outstanding. Diluted earnings per share are calculated by dividing net
earnings (loss) by the sum of (1) the weighted-average number of shares
outstanding and (2) the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued. A
reconciliation of calculation of basic and diluted earnings per share is
presented in Note 13.
(3) ACQUISITIONS
On June 19, 1997, the Company acquired all of the outstanding common stock
of Blackwell Lithographers, Inc. and of Lithograph Printing Company of
Memphis, and the assets of Sutherland Printing Company. All of these
businesses are engaged in commercial printing. The acquisitions were paid for
with a combination of cash ($10.4 million), notes given to the sellers ($5.1
million) (see Note 5), and warrants to acquire common stock (valued at
$210,000) (see Note 12). In addition, the Company incurred other acquisition
costs totaling approximately $470,000. These acquisitions have been accounted
for by the purchase method and, accordingly, the results of operations of
Blackwell, Lithograph and Sutherland have been included in the Company's
F-20
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consolidated financial statements from June 19, 1997. The excess of the
purchase prices over the fair value of the net identifiable assets acquired of
$4.9 million has been recorded as goodwill and is being amortized on a
straight line basis over 40 years.
During the six months ended December 31, 1997, the Company acquired all of
outstanding common stock of the following companies: as of September 22,
1997--The Argus Press, Inc.; as of December 16, 1997-- Phoenix Communications,
Inc., and Jones Printing Company, Inc. All of these businesses are engaged in
commercial printing. Their acquisitions were paid for with a combination of
cash ($17.8 million), notes given to the sellers ($6.2 million) (see Note 5),
and warrants to acquire common stock (valued at $1.4 million) (see Note 12).
In addition, the Company incurred other acquisition costs totaling
approximately $2.3 million. These acquisitions have been accounted for by the
purchase method and, accordingly, the results of operations of Argus have been
included in the Company's consolidated financial statements from September 22,
1997, and the results of operations of Phoenix and Jones have been included in
the Company's consolidated financial statements from December 16, 1997. The
excess of the purchase prices over the fair value of the net identifiable
assets acquired of $23 million has been recorded as goodwill and is being
amortized on a straight line basis over 40 years. The Phoenix and Jones stock
purchase agreements also provide for additional payments over the next three
years contingent on future cash flows, as defined, of the respective
businesses.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the acquired businesses as
if the acquisitions had occurred as of the beginning of the Company's fiscal
year beginning July 1, 1996, after giving effect to certain adjustments,
including amortization of goodwill, adjusted depreciation expense and
increased interest expense on debt related to the acquisitions. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and the acquired businesses
constituted a single entity during such periods.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1997 DECEMBER 31, 1997
------------- -------------- -----------------
<S> <C> <C> <C>
Net revenue............. $91.9 million $100.6 million $51.7 million
============= ============== =============
Net earnings (loss)..... $(3.6 million) $ (3.3 million) $(4.4 million)
============= ============== =============
Net earnings (loss) per
share.................. $ (0.91) $ (0.82) $ (1.11)
============= ============== =============
</TABLE>
See Note 15 "Subsequent Events" regarding 1998 acquisitions.
(4) BANK LINE OF CREDIT
The Company has a $7.5 million working capital line of credit agreement with
a commercial bank. Borrowings under the credit agreement are limited by a
borrowing base calculation which is based generally on 85% of eligible
receivables and 50% of eligible inventory, as defined. Interest is based on
the bank's floating index rate (8.5% at December 31, 1997) and is payable
monthly. The line of credit is secured primarily by the Company's accounts
receivables, inventory, and intangible assets. The credit agreement contains
various restrictive covenants, including the maintenance of certain financial
ratios. The credit agreement expires on, and all outstanding balances must be
repaid by, March 31, 2000. The working capital line of credit replaced a
previously outstanding $750,000 revolving line of credit.
F-21
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------- DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
Term Loans............................... $ 0 $20,500,000 $46,904,824
Sirrom note.............................. 0 3,661,824 3,454,289
Sellers' notes........................... 1,300,000 6,098,811 12,200,000
8.84% note payable....................... 1,364,079 0 0
Other, primarily capital lease........... 16,714 351,054 6,188,627
---------- ----------- -----------
2,680,793 30,611,689 68,747,740
Less current installments................ 161,526 1,813,696 3,833,844
---------- ----------- -----------
Long-term debt, net...................... $2,519,267 $28,797,993 $64,913,896
========== =========== ===========
</TABLE>
The Term Loans are net of unamortized discount of approximately $900,000 at
December 31, 1997. The Sirrom note is net of unamortized discount of
approximately $638,196 and $845,711 at June 30, 1997 and December 31, 1997,
respectively.
In June, 1997 the Company borrowed $4.3 million from Sirrom Capital
Corporation ("Sirrom") to partially finance its June, 1997 business
acquisitions described on Note 3. The loan bears interest at 13.25%, payable
monthly, and the principal is due in May, 2002, with no penalty for early
repayment. The loan is subject to a security agreement, with collateral
consisting of all equipment, inventory, accounts receivable, and intangible
assets. In conjunction with the obtaining of the loan, the Company paid a
processing fee of $107,500 and issued to Sirrom a common stock warrant more
fully described in Note 12.
The Company, through its operating subsidiary, Premier Graphics, is a
borrower under a $60 million Amended and Restated Loan and Security Agreement
dated December 16, 1997, with General Electric Capital Corporation ("Senior
Lender"). Proceeds from the loan agreement have been used primarily to finance
the business acquisitions more fully described in Note 3. At December 31, 1997,
the loan agreement was comprised of a Term Loan-A of $30 million, a Term Loan-B
of $17.8 million, and an unused Acquisition Line of $12.2 million to finance
future acquisitions. The Term Loan-A is due in 19 quarterly installments of
approximately $937,500, plus a final principal payment due in December, 2002;
interest on the Term Loan-A which is payable monthly is based on a LIBOR-
adjusted rate (8.94% at December 31, 1997). The Term Loan-B is due in 19
quarterly installments of $25,000, with a final principal payment due in March,
2003; interest on the Term Loan-B which is payable monthly is at 12%, and the
Company has an option to convert to a variable rate. The Term Loan-A is subject
to a prepayment penalty which declines from 3% in the first year to 0% after
the third year; the Term Loan-B is not subject to a prepayment penalty. The
Loan Agreement contains mandatory prepayment provisions which are based on
annual excess cash flows, as defined. The Term Loans are collateralized
substantially all of the Company's tangible and intangible assets. The Term
Loans are subject to various covenants, including limits on dividends,
additional debt, total liabilities and capital expenditures, and the
maintenance of levels of EBITDA (as defined) and interest, fixed charge, and
leverage ratios. In conjunction with obtaining the Term Loans, the Company
incurred fees of approximately $2.4 million of which payment of $1.5 million is
deferred to the earlier of an initial public offering or June 30, 1998; the
Company also issued to the Senior Lender a common stock warrant which is
described in Note 12.
In connection with the various business acquisitions in 1997, the Company has
issued subordinated notes to the respective sellers. These subordinated notes,
which totaled $4.8 million and $10.9 million at June 30, 1997 and December 31,
1997, respectively, are due in seven years, bear interest at 12 percent, and
generally are subject to 20 percent prepayment penalties.
F-22
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with its acquisition of B&M Printing Company, Inc. in 1992, the
Company issued notes to the sellers in the aggregate amount of $1.3 million.
The notes bear interest at 10%, payable quarterly, and the principal is due on
November 30, 2002. The Company issued warrants to purchase common stock to
these sellers in June, 1997, in return for certain modifications to the related
loan agreements. Effectively, the warrants give the holders the right, if there
has been a public offering, to acquire up to approximately $430,000 of common
stock at an exercise price equal to the common stock's initial public offering
price; the warrants expire three years after the Company's initial public
offering
The 8.84% note was payable in monthly installments of $22,750, including
interest, through May, 2003, and is collateralized by certain machinery and
equipment; the note was repaid in June, 1997.
In connection with a June, 1997 acquisition, the Company issued a $1,090,000
non-interest bearing note payable to the seller maturing in June, 2007. The
Company recorded the note at its net present value and is amortizing the
discount thereon over the life of the note using the interest method. The note
is classified above as "other" long-term debt.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997 are as follows: 1998, $3.8 million; 1999, $4.3
million; 2000, $4.1 million; 2001, $4.2 million; 2002, $36.9 million;
thereafter, $15.4 million.
In March, 1998, the Company modified its existing Loan Agreement with its
Senior Lender, and also entered into [two] additional loan agreements with the
Senior Lender, all in conjunction with the business acquisitions which occurred
in March, 1998 (see Note 15).
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment was comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- ------------
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
Land..................................... $ 0 $ 175,918 $ 175,918
Buildings................................ 0 1,401,460 1,385,545
Leasehold improvements................... 556,673 889,792 991,055
Machinery and equipment.................. 4,907,835 20,170,099 29,508,005
Furniture and fixtures................... 575,907 1,863,493 2,274,580
Vehicles................................. 101,158 398,780 703,530
---------- ----------- -----------
6,141,573 24,899,542 35,038,633
Less accumulated depreciation............ 4,134,163 4,427,328 5,488,457
---------- ----------- -----------
$2,007,410 $20,472,214 $29,550,176
---------- ----------- -----------
</TABLE>
(7) LEASES
The Company is obligated under various capital leases for certain machinery
and equipment that expire at various dates during the next 6 years. At December
31, 1997, the gross amount of plant and equipment and related accumulated
amortization recorded under capital leases were $2,000,000 and $41,667,
respectively. The recorded liability for capital leases is classified as other
long-term debt.
The Company also has several noncancelable operating leases, primarily for
facilities and printing equipment, that expire over the next 7 years. Rental
expense for operating leases during fiscal years 1995, 1996 and 1997 and the
six months ended December 31, 1997 totaled $320,000, $410,000, $1,050,000, and
$398,000,
F-23
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively. Future minimum lease payments under noncancelable operating
leases (with initial or remaining lease terms in excess of one year) and future
minimum capital lease payments as of December 31, 1997 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Year ending December 31,
1998............................................... $ 420,863 $1,177,061
1999............................................... 411,753 1,171,846
2000............................................... 411,753 1,171,294
2001............................................... 411,753 801,053
2002............................................... 411,753 654,737
Later years, through 2005.......................... 709,251 431,300
---------- ----------
Total minimum lease payments..................... $2,777,126 $5,407,291
---------- ----------
Less amount representing interest (at rates ranging
from 9.1% to 10.9%)............................... 669,181
----------
Present value of net minimum capital lease
payments.......................................... 2,107,945
Less current installments of obligations under
capital leases.................................... 246,040
----------
Obligations under capital leases, excluding current
installments...................................... $1,861,905
==========
</TABLE>
(8) RETIREMENT PLANS
The Company has had a 401(k) profit sharing plan for the benefit of
substantially all of the employees of B&M Printing, Inc., which includes a
Company contribution matching a portion of the employees' contributions. The
Company's contributions to the plan were approximately $25,000, $37,000,
$40,000, and $24,000 for the years ended June 30, 1995, 1996, and 1997, and the
six months ended December 31, 1997.
The Company has retained the existing employee benefit plans of each of the
companies acquired from June, 1997 through December, 1997. Each of the acquired
companies had plans similar to the Company's B&M plan described above. The
combined expense recognized for those plans subsequent to the sponsor company's
acquisition was approximately $200,000.
(9) RELATED PARTY TRANSACTIONS
As of December 31, 1997, the Company sold to its sole shareholder certain
printing equipment which was considered to be redundant as a result of the
various 1997 acquisitions. It is the shareholder's intent to sell the equipment
to an unrelated third party. The equipment was sold at its net book value ($2.8
million), which the Company believes approximates its fair market value. The
Company received a promissory note for the sale amount, which is classified as
an other asset, with interest at LIBOR plus 3.25% (8.94 % at December 31,
1997); interest is payable annually and principal is due at the earlier of (1)
December 31, 2002, (2) thirty days following an initial public offering of the
Company's common stock, or (3) the sale of the equipment by the shareholder.
The sales agreement also requires the shareholder to pay to the Company any
sale proceeds in excess of the principal amount of the note. The Company
remains liable to a third party lender for indebtedness on the equipment.
The Company's sole shareholder also has a $950,000 note payable to the
Company; the note is unsecured, bears interest at 7% payable semi-annually, and
matures in December, 2002.
F-24
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has leasing arrangements with its president and with certain of
the former owners of the acquired companies (each of whom is a current employee
of the Company) for certain plant facilities. The Company's aggregate annual
obligation under these operating lease agreements is approximately $930,000,
and the agreements generally expire from 2000 through 2004.
(10) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended June 30, 1995:
U.S. Federal................................. $(62,632) $(10,075) $(72,707)
State and local.............................. 0 (13,667) (13,667)
-------- -------- --------
$(62,632) $(23,742) $(86,374)
======== ======== ========
Year ended June 30, 1996:
U.S. Federal................................. 147,770 18,978 166,748
State and local.............................. 13,010 (18,397) (5,387)
-------- -------- --------
$160,780 $ 581 $161,361
======== ======== ========
Year ended June 30, 1997:
U.S. Federal................................. 0 0 0
State and local.............................. 0 25,374 25,374
-------- -------- --------
$ 0 $ 25,374 $ 25,374
======== ======== ========
Six months ended December 31, 1997:
U.S. Federal................................. 0 0 0
State and local.............................. 20,000 0 20,000
-------- -------- --------
$ 20,000 $ 0 $ 20,000
======== ======== ========
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS ENDED
----------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- -------- --------- -----------------
<S> <C> <C> <C> <C>
Computed "expected" tax
expense................... $(100,494) $113,472 $(424,299) $(1,291,806)
Increase (reduction) in
income taxes resulting
from:
Change in the beginning-of-
the-year balance of the
valuation allowance for
deferred tax assets
allocated to income tax
expense................... 527,347 1,272,296
State and local income
taxes, net of federal
income tax benefit........ (10,913) 13,216 (48,418) (150,457)
Effect of S-Corporation
termination............... -- -- -- (318,296)
Warrants valuation
adjustment................ -- -- -- 555,900
Amortization of goodwill... -- -- -- 33,252
Other, net................. 25,033 34,673 (29,256) (80,889)
--------- -------- --------- -----------
$ (86,374) $161,361 $ 25,374 $ 20,000
========= ======== ========= ===========
</TABLE>
F-25
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 and 1997, and December 31, 1997 are presented below.
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------- -------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable principally due to
allowance for doubtful accounts........... $ 510 $ 10,823 $ 135,742
Income tax loss carryforwards and tax
credit carryforwards...................... -- 527,347 1,466,926
Vacation accrual........................... -- 29,272 --
Alternative minimum tax credit
carryforwards............................. -- -- 80,000
Deferred compensation...................... -- -- 252,717
Other...................................... -- 7,971 218,467
------- -------- ----------
Total gross deferred tax assets.......... 510 575,413 2,153,852
Less valuation allowance..................... -- (527,347) (1,799,643)
------- -------- ----------
Net deferred tax assets...................... 510 48,066 354,209
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and
capitalized interest...................... 235,133 295,496 380,996
Purchase accounting adjustments............ 2,028,217
Other...................................... -- 150,069 50,458
------- -------- ----------
Total gross deferred liabilities............. 235,133 445,565 2,459,671
------- -------- ----------
Net deferred tax liability................... 234,623 397,499 2,105,462
======= ======== ==========
</TABLE>
The valuation allowance for deferred tax assets as of June 30, 1997 and
December 31, 1997 was $527,347 and $1,799,643, respectively. The net change in
the total valuation allowance for the six months ended December 31, 1997 and
the year ended June 30, 1997 was an increase of $1,272,296 and an increase of
$527,347 due to a net operating loss and alternative minimum tax credit
carryforwards, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is not more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1997.
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $4 million which are available to
offset future federal taxable income, if any, through 2010. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$80,000 which are available to reduce future federal regular income taxes, if
any, over an indefinite period.
(11) OTHER LIABILITIES
As of December 31, 1997, the Company entered into deferred compensation
agreement with its executive officers. In the aggregate, these agreements
obligate the Company to pay a total of $1,000,000 to those officers
F-26
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
on December 31, 2002. The agreements allow the officers to receive common stock
in lieu of cash, with the number of shares calculated based on the initial
public offering price of the common stock. Such calls, for settlement in stock,
may be exercised at any time after an initial public offering. The net present
values of the ultimate obligation was accrued as compensation as of December
31, 1997, with the discount being amortized as additional compensation over the
five year life of the agreement; an early exercise of the calls by the officers
would result in an acceleration of the discount amortization.
(12) COMMON STOCK WARRANTS
Sellers' Warrants
As part of the consideration given in each of the acquisitions, the Company
issued common stock warrants to the sellers. The terms of warrants were
generally the same, stating that, if an initial public offering were to occur
within ten years of the respective acquisition, the seller would have the
ability to exercise his warrant at any time during the subsequent ten years.
The exercise price is the initial public offering price, and the shares
obtainable are generally the face amount of the sellers' notes divided by the
initial public offering price. The estimated fair values of the warrants at the
dates of issuance, which totaled $210,000 and $1.7 million at June 30, 1997 and
December 31, 1997, respectively, has been recorded in shareholder's equity as
additional paid-in capital.
Lenders' Warrants
In connection with the obtaining of a loan to partially fund its June, 1997
acquisitions, the Company issued a common stock warrant to Sirrom. The warrant
granted Sirrom the right to acquire shares of common stock equivalent to six
percent of the Company's outstanding shares on a diluted basis on the date of
exercise. If the related debt has not been repaid by the second, third, fourth
and fifth anniversary of the loan, then the percentage of shares obtainable
increases to 8.67%, 11.34%, 14%, and 16.67%, respectively. The warrant, which
has an exercise price of $0.01, expires on July 30, 2002. The warrant holder
has piggy back registration rights, and also has an option to put the warrant
back to the Company, if not previously exercised, during the last thirty days
of the exercise period for a purchase price equal to the appraised fair value
of the underlying common stock. In March, 1998, the holder exercised the
warrant and was issued 333,330 shares of common stock.
In connection with the obtaining of acquisition financing under its $60
million loan and security agreement, the Company issued to its Senior Lender a
warrant to acquire a fully-diluted four percent interest in its outstanding
common stock for a total purchase price of $100. The warrant expires, if
unexercised, on September 26, 2007. The Senior Lender was granted demand and
piggyback registration rights, and also has a right to put the warrant back to
the Company under certain conditions, including the passage of three years, a
change in control of the Company (as defined), an event of default under the
loan agreement, or a repayment of substantially all of the senior debt. The
redemption price of the warrant would be its current market value (as defined)
at that date. The Company has the option to call the warrant under certain
conditions, including the passage of five years, at a price equal to the
warrant's current market value at that date. In March, 1998, these warrants
were exchanged for redeemable, convertible preferred stock (see Note 14).
Because both of the lenders' warrant agreements gave the holders the right to
put the warrants back to the Company for cash, these instruments were recorded,
at their respective fair values at the dates of issuance, as redeemable common
stock warrants in the accompanying consolidated balance sheet, and therefore
are excluded from shareholder's equity. The initial fair market value of the
lenders' warrants has been netted against the related debt and will be
amortized as a component of interest expense over the life of the debt. The
carrying value of the redeemable common stock warrants has subsequently been
adjusted to fair value, with a corresponding charge to other expense in the
statement of operations in accordance with EITF Issue No. 96-13.
F-27
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) EARNINGS PER SHARE
Following is a reconciliation of the numerator and denominator of the
earnings (loss) per share (EPS) computations:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------- SIX MONTHS ENDED
1995 1996 1997 DECEMBER 31, 1997
--------- --------- ----------- -----------------
<S> <C> <C> <C> <C>
Net earnings (loss)..... $(209,198) $ 172,381 $(1,273,311) $(3,819,429)
--------- --------- ----------- -----------
Basic--Average shares
outstanding............ 4,000,000 4,000,000 4,000,000 4,000,000
--------- --------- ----------- -----------
Basic EPS............. $ (0.05) $ 0.04 $ (0.32) $ (0.95)
========= ========= =========== ===========
Diluted:
Average shares
outstanding.......... 4,000,000 4,000,000 4,000,000 4,000,000
--------- --------- ----------- -----------
Diluted EPS........... $ (0.05) $ 0.04 $ (0.32) $ (0.95)
========= ========= =========== ===========
</TABLE>
Exercise of potential equity securities, including warrants, has not been
reflected in the computation of diluted EPS because their impact would have
been antidilutive.
(14) OTHER FINANCIAL INFORMATION
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------- DECEMBER 31,
1996 1997 1997
-------- ---------- ------------
<S> <C> <C> <C>
Accrued compensation........................ $182,635 $ 862,719 $1,840,797
Accrued interest............................ -- 126,981 438,108
Accrued acquisition costs................... -- -- 1,852,000
Other accrued expenses...................... 308,213 975,488 2,358,159
-------- ---------- ----------
$490,848 $1,965,188 $6,489,064
======== ========== ==========
</TABLE>
(15) SUBSEQUENT EVENTS
In March 1998, The Company acquired all of the outstanding common stock of
Harperprints, Inc., Hederman Brothers, Inc., and Phillips Litho Co., Inc. The
Company also has signed a merger agreement to acquire all of the outstanding
common stock of McQuiddy Printing Company, Inc. All of these businesses are
engaged in commercial printing. These four acquisitions will be paid for with a
combination of cash ($18.7 million), notes given to the sellers ($3.7 million)
and warrants to acquire common stock (valued at $1.3 million). In addition, the
Company incurred other acquisition costs totaling approximately $2.3 million.
These acquisitions will be accounted for by the purchase method and,
accordingly, the results of operations of Harperprints, Inc., Hederman,
McQuiddy, and Phillips will be included in the Company's 1998 consolidated
financial statements from their respective acquisition dates in 1998. The
estimated excess of the purchase prices over the fair value of the net
identifiable assets acquired is estimated to be approximately $12 million,
which will be recorded as goodwill and amortized on a straight line basis over
40 years.
The cash portion of the Hederman acquisition was funded by a $5.9 million
draw on the Company's Acquisition Line under its Amended and Restated Credit
Agreement with its Senior Lender. In conjunction with this financing, the
Company agreed to certain modifications to the Credit Agreement, including an
increase in the amortization of the Term Loan-B from $25,000 to $50,000. The
modifications also affected the Company's Credit Agreement covenants, including
its financial ratio requirements.
F-28
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cash portion of the Phillips Litho acquisition was financed by a $15
million term loan from its Senior Lender. The loan is to be repaid in 19
quarterly installments of $12,500, beginning in July, 1998, and a twentieth and
final installment, in March, 2003, of the remaining balance. Interest, which is
payable monthly, is at 12%; the Senior Lender may at its option convert the
rate to a floating rate at 3.5% over prime. The term loan requires mandatory
prepayment based on 75% of annual excess cash flows, as defined; voluntary
prepayments will incur prepayment penalties on a declining scale during the
first three years of the loan. In consideration for the loan, the Company
agreed to pay to the senior lender an origination fee of $500,000 and an
advisory fee of $1,500,000; the advisory fee must be paid at the earlier of the
date of an initial public offering or June 30, 1998.
The cash portion of the Harperprints acquisition was financed by a $10
million term loan from its Senior Lender. The loan is to be repaid in 19
quarterly installments of $12,500, beginning in July, 1998, and a twentieth and
final installment, in March, 2003, of the remaining balance. Interest, which is
payable monthly, is at 12%; the Senior Lender may at its option convert the
rate to a floating rate at 3.5% over prime. The term loan requires mandatory
prepayment based on 75% of annual excess cash flows, as defined; voluntary
prepayments will incur prepayment penalties on a declining scale during the
first three years of the loan, except in certain cases including prepayments
from the proceeds of an initial public offering. In consideration for the loan,
the Company issued a warrant to the Senior Lender, which allows the Senior
Lender to acquire a number of shares of common stock equivalent to $2.2 million
divided by the initial public offering price of the common stock. The warrant
has an exercise price of $100, and the holder may put the warrant back to the
Company in March, 2003, if not previously exercised, at a price equivalent to
the fair value of the underlying common stock at that date.
The cash portion of the McQuiddy acquisition will be funded by an advance of
$6.3 million from the Company's acquisition line under its Amended and Restated
Credit Agreement with its Senior Lender as well as a $3.5 million draw on its
revolving line of credit from its Revolver Credit Lender. The draw under the
acquisition line will be repayable at March 2003.
The Company and its senior lender also entered into an exchange agreement
whereby the Company issued 222,220 shares of its newly created Series A
Cumulative Convertible Preferred Stock, par value $0.001 ("Series A Preferred
Stock") in exchange for the senior lender's warrant to purchase a 4% interest
in the Company's outstanding common stock. The Series A Preferred Stock carries
an annual dividend rate of 5% of its liquidation value ($10.25 per share);
dividends are payable quarterly and may be paid in cash and/or inkind. The
Series A Preferred Stock is convertible into common stock at the holder's
option at a ratio of 1 share of common stock for each share of Series A
Preferred Stock. The Series A Preferred Stock is redeemable by the holder at
the end of seven year, if the Sirrom note has been repaid, at a price
effectively equal to the greater of its liquidation value or the fair value of
the underlying common stock on an as-if converted basis.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors Lithograph Printing Company of Memphis:
We have audited the accompanying balance sheets of Lithograph Printing Company
of Memphis as of December 31, 1995 and 1996 and June 19, 1997 and the related
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1995 and 1996 and the period from January 1, 1997 through June 19,
1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lithograph Printing of Memphis
as of December 31, 1995 and 1996 and June 19, 1997 and the results of its
operations and its cash flows for the years ended December 31, 1995 and 1996
and the period from January 1, 1997 through June 19, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 6, 1998
F-30
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 19, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 19,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 998,182 496,557 538,803
Trade receivables, net................ 2,150,638 2,348,815 2,553,830
Other receivables..................... 88,244 48,242 145,925
Inventories........................... 455,885 209,592 529,546
Prepaids and other assets............. 37,390 -- 9,994
----------- ----------- -----------
Total current assets................ 3,730,339 3,103,206 3,778,098
Property, plant and equipment, net...... 4,465,225 5,402,134 5,182,311
Other assets............................ 462,347 484,386 492,193
----------- ----------- -----------
Total assets........................ $ 8,657,911 8,989,726 9,452,602
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..... $ 637,160 1,858,827 1,688,493
Accounts payable...................... 359,607 784,559 526,869
Accrued expenses...................... 337,787 466,081 517,920
----------- ----------- -----------
Total current liabilities........... 1,334,554 3,109,467 2,733,282
----------- ----------- -----------
Long-term debt, net of current portion.. 3,159,507 1,217,840 1,449,410
----------- ----------- -----------
Stockholders' equity:
Common stock, no par value. Authorized
400,000 voting shares and 400,000
non-voting shares; 188,004 shares
issued at December 31, 1995 and 1996,
and 188,286 shares issued at June 19,
1997................................. 332,071 332,071 357,412
Retained earnings..................... 7,725,179 8,223,748 8,805,898
----------- ----------- -----------
8,057,250 8,555,819 9,163,310
Less treasury stock, at cost; 60,000
shares............................... (3,893,400) (3,893,400) (3,893,400)
----------- ----------- -----------
Total stockholders' equity.......... 4,163,850 4,662,419 5,269,910
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $ 8,657,911 8,989,726 9,452,602
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ---------
<S> <C> <C> <C>
Net sales................................. $16,658,928 18,953,731 9,529,373
Cost of sales............................. 13,202,341 14,750,384 7,236,701
----------- ---------- ---------
Gross profit.......................... 3,456,587 4,203,347 2,292,672
Selling, general and administrative
expenses................................. 3,378,180 3,508,921 1,650,185
----------- ---------- ---------
Income from operations................ 78,407 694,426 642,487
----------- ---------- ---------
Other income (expense):
Insurance proceeds...................... 1,007,044 -- --
Interest income......................... 89,869 38,916 11,498
Interest expense........................ (281,339) (280,695) (140,755)
Gain on sale of assets.................. (1,010) 40,465 --
Other................................... 3,895 20,053 74,794
----------- ---------- ---------
818,459 (181,261) (54,463)
----------- ---------- ---------
Income before state income taxes...... 896,866 513,165 588,024
State income taxes (benefit).............. 1,077 14,596 (8,000)
----------- ---------- ---------
Net income............................ $ 895,789 498,569 596,024
=========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
-------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994... $332,071 6,829,390 (3,893,400) 3,268,061
Net income.................... -- 895,789 -- 895,789
-------- --------- ---------- ---------
Balances at December 31,1995.... 332,071 7,725,179 (3,893,400) 4,163,850
Net income.................... -- 498,569 -- 498,569
-------- --------- ---------- ---------
Balances at December 31, 1996... 332,071 8,223,748 (3,893,400) 4,662,419
Repurchase and retirement of
1,614 shares................. (44,982) (13,874) -- (58,856)
Issuance of 1,896 shares
pursuant to stock bonus
plan......................... 70,323 -- -- 70,323
Net income.................... -- 596,024 -- 596,024
-------- --------- ---------- ---------
Balances at June 19, 1997....... $357,412 8,805,898 (3,893,400) 5,269,910
======== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ 895,789 $ 498,569 $ 596,024
Depreciation and amortization............ 863,954 701,576 364,843
(Gain) on life insurance proceeds........ (1,007,044) -- --
Common stock issued pursuant to bonus
plan.................................... -- -- 70,323
(Gain) loss on disposal of equipment..... 1,010 (40,464) --
(Increase) decrease in:
Accounts receivable..................... 887,030 (158,175) (302,698)
Inventories............................. (19,781) 246,293 (319,954)
Prepaid expenses and other current as-
sets................................... (6,056) 6,056 (9,994)
Increase (decrease) in:
Accounts payable........................ 27,271 424,952 (257,690)
Accrued expenses........................ (124,379) 128,294 51,839
----------- ----------- ---------
Net cash provided by operating ac-
tivities........................... 1,517,794 1,807,101 192,693
----------- ----------- ---------
Cash flows from investing activities:
Purchases of property, plant and equip-
ment.................................... (136,674) (1,570,588) (146,802)
Proceeds from sales of property, plant
and equipment........................... 19,000 3,900 1,784
(Increase) decrease in cash surrender
value of life insurance................. (28,153) (14,786) 16,758
Increase in club memberships............. -- (7,252) (8,567)
Life insurance proceeds.................. 1,315,193 -- --
Increase in other assets................. 1,400 -- (16,000)
----------- ----------- ---------
Net cash provided by (used in) in-
vesting activities................. 1,170,766 1,588,726 (152,827)
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of long term
debt.................................... 1,800,000 -- 350,000
Principal payments on long term debt..... (408,333) (720,000) (288,764)
Treasury stock required.................. (3,893,400) -- --
Repurchase and retirement of common
stock................................... -- -- (58,856)
----------- ----------- ---------
Net cash provided by (used in) fi-
nancing activities................. (2,501,733) (720,000) 2,380
----------- ----------- ---------
Increase (decrease) in cash............... 186,827 (501,625) 42,246
Cash beginning of period.................. 811,355 998,182 496,557
----------- ----------- ---------
Cash end of period........................ $ 998,182 $ 496,557 $ 538,803
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996, AND JUNE 19, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the Company are
as follows:
(a) Description of Business
The Company provides a full line of superior quality print services and
products to retailers, manufacturers, ad agencies and other users of printed
materials. The majority of the Company's sales are concentrated in the greater
mid-south area.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out (FIFO) basis.
(c) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of
the respective assets ranging from 5 to 39 years. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense as incurred
and additions and improvements that significantly extend the lives of assets
are capitalized. Upon sale or other retirement of depreciable property, the
cost and accumulated depreciation are removed from the related accounts and any
gain or loss is reflected in operations.
(d) Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed as
an S corporation under the provisions of Section 1362 of the Internal Revenue
Code. The stockholders are personally liable for their proportionate share of
the Company's federal taxable income; therefore, no provision or liability for
federal income taxes is reflected in these financial statements. The company is
a taxable entity for state income tax purposes.
State income taxes are computed based on the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
tax assets and liabilities, if significant, are recognized for the estimated
future tax effects attributed to temporary differences between the book and tax
bases of assets and liabilities and for carryforward items. The measurement of
current and deferred tax assets and liabilities is based on enacted law.
Deferred tax assets are reduced, if necessary, by a valuation allowance for the
amount of tax benefits that may not be realized.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1,
1996. The statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the mount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
F-35
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(f) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(g) Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with the presentation of the 1997 financial statements.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 19,
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Raw materials and supplies......................... $129,757 78,689 144,759
Work in process.................................... 326,128 130,903 384,787
Finished goods.....................................
-------- ------- -------
$455,885 209,592 529,546
======== ======= =======
</TABLE>
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 19,
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures.................. $ 488,346 488,346 557,135
Equipment............................... 9,256,658 10,814,416 10,824,630
Leasehold improvements.................. 181,463 187,973 253,034
Vehicles................................ 119,505 126,196 126,196
----------- ---------- ----------
10,045,972 11,616,931 11,760,995
Less accumulated depreciation......... (5,580,747) (6,214,797) (6,578,684)
----------- ---------- ----------
$ 4,465,225 5,402,134 5,182,311
=========== ========== ==========
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 19,
1995 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
7.2% revolving line of credit, unused and
available balance as of June 19, 1997 was
$1,150,000................................. $ -- -- 350,000
7.8% note payable, with monthly payments of
$21,430 including interest, with the final
payment of $539,228 due November 30,
2000....................................... 1,775,000 1,475,000 1,356,570
8.5% note payable, with monthly payments of
$15,000 for payments 1-27, $31,667 for
payments 28-59, with the entire unpaid
balance due October 1, 1997................ 2,021,667 1,601,667 1,431,333
---------- --------- ---------
3,796,667 3,076,667 3,137,903
Less current portion...................... 637,160 1,858,827 1,688,493
---------- --------- ---------
$3,159,507 1,217,840 1,449,410
========== ========= =========
</TABLE>
F-36
<PAGE>
LITHOGRAPH PRINTING COMPANY OF MEMPHIS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective June 19, 1997, substantially all of the Company's long-term debt was
refinanced as a part of the acquisition of the outstanding common stock of the
Company by Master Graphics, Inc.
(5) LEASES
The Company leases its office and manufacturing space and certain vehicles
under operating lease arrangements which expire at various dates through July
2004. The office and manufacturing space is leased from the Company's majority
stockholder; the lease has two consecutive five-year renewal periods. The
Company leases various equipment and vehicles under leases determined to be
operating leases.
Future minimum lease payments under operating leases as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $ 281,127
1999........................................................... 281,127
2000........................................................... 281,127
2001........................................................... 273,900
2002........................................................... 272,400
2003-04........................................................ 408,600
----------
Total future minimum lease payments............................ $1,798,281
==========
</TABLE>
Rent expense totaled $300,446 for 1995, $293,638 for 1996, and $153,496 for
1997.
(6) EMPLOYEE BENEFIT PLAN
The Company has a Section 401(k) deferred salary reduction plan under which
substantially all employees of the Company are eligible. The plan provides for
the Company to match employee contributions, subject to certain limitations.
The Company's contribution to the plan totaled $108,741 for 1995, $117,497 for
1996, and $106,704 for 1997.
The Company has a stock bonus plan in which certain key employees
participate. Awards are made to the participants, in stock and/or cash, based
on annual results exceeding targeted results. The plan also provides for the
repurchase of shares issued upon termination and other events based on a book
value formula. There were no awards under the plan in 1995; in 1996, awards
aggregating approximately $70,000 were accrued and paid primarily in shares of
stock in 1997; and in 1997, awards aggregating approximately $190,000 were
accrued and paid in cash.
(7) SUBSEQUENT EVENT
Effective June 19, 1997, Master Graphics, Inc. acquired all of the
outstanding common stock of the Company and contemporaneously refinanced
substantially all of the then outstanding debt of the Company.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Blackwell Lithographers, Inc:
We have audited the accompanying balance sheet of Blackwell Lithographers,
Inc. as of June 19, 1997, and the related statements of operations,
shareholders' equity and cash flows for the period from January 1, 1997 to June
19, 1997. 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 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Blackwell Lithographers, Inc.
as of June 19, 1997, and the results of its operations and its cash flows for
the period from January 1, 1997 through June 19, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 18, 1998
F-38
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
BALANCE SHEET
JUNE 19, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 201,160
Accounts receivable, net.......................................... 423,797
Inventories....................................................... 184,550
Prepaid expenses and other current assets......................... 78,358
----------
Total current assets............................................ 887,865
Property, plant and equipment, net.................................. 1,696,121
Total assets.................................................... $2,583,986
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................. 327,742
Accounts payable.................................................. 111,885
Accrued expenses.................................................. 44,484
----------
Total current liabilities....................................... 484,111
Long-term debt, net of current maturities........................... 59,900
Commitments and contingencies
Shareholders' equity:
Common stock, $10 par value; 5,000 share authorized; 4,400 shares
issued and outstanding........................................... 44,000
Retained earnings................................................. 1,995,975
----------
Total shareholders' equity...................................... 2,039,975
----------
Total liabilities and shareholders' equity...................... $2,583,986
==========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<S> <C>
Net sales........................................................... $1,921,544
Cost of sales....................................................... 1,213,424
----------
Gross profit...................................................... 708,120
Selling, general and administrative expenses........................ 465,607
----------
Income from operations............................................ 242,513
Other income (expense):
Interest income................................................... 2,663
Interest expense.................................................. (12,143)
Other income...................................................... 279
----------
Net income.......................................................... $ 233,312
==========
</TABLE>
See accompanying to financial statements.
F-40
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance, December 31, 1996...................... 44,000 2,132,663 2,176,663
Distributions................................. -- (370,000) (370,000)
Net income.................................... -- 233,312 233,312
------ --------- ---------
Balance, June 19, 1997.......................... 44,000 1,995,975 2,039,975
====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 19, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 233,312
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 103,701
Loss on disposal of equipment..................................... 2,455
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable.............................................. 367,366
Inventories...................................................... (75,143)
Prepaid expenses and other current assets........................ (46,678)
Increase (decrease) in-
Accounts payable................................................. (118)
Accrued expenses................................................. (43,859)
---------
Net cash provided by operating activities...................... 541,036
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......................... (140,627)
---------
Net cash used in investing activities.......................... (140,627)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt................................ (93,064)
Shareholder distributions........................................... (370,000)
---------
Net cash used in financing activities.......................... (463,064)
Net (decrease) in cash and cash equivalents.......................... (62,655)
Cash and cash equivalents, beginning of period....................... 263,815
---------
Cash and cash equivalents, end of period............................. $ 201,160
=========
Cash paid for interest............................................... --
---------
Cash paid for taxes.................................................. --
---------
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 19, 1997
1. BUSINESS AND ORGANIZATION
Blackwell Lithographers, Inc. (the Company) is primarily engaged in the
business of full service printing with customers in the southeastern region of
the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Revenue Recognition
Revenue is recognized upon shipment of products.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method. The Company uses a job order cost
accumulation system whereby substantially all direct materials, labor, and
overhead are charged to a specific job and are included in work-in-process
inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the remaining lease-term or the estimated life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement of disposition of property, plant or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Income Taxes
The shareholders of the Company have elected to be taxed for federal tax
purposes as an S Corporation whereby the shareholder's respective equitable
shares in the taxable income of the Company are reportable on their individual
tax returns. The Company will make distributions to the shareholders each year
at least in amounts necessary to pay personal income taxes payable on the
Company's taxable income.
F-43
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials and supplies......................................... $102,468
Work in process.................................................... 82,082
--------
Total............................................................ $184,550
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The principal categories and estimated useful lives of property, plant and
equipment at June 19, 1997 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Land.............................................. -- $ 61,495
Building.......................................... 30 years 544,229
Machinery and equipment........................... 5-11 years 2,388,669
Furniture and fixtures............................ 5-10 years 133,075
Automotive equipment.............................. 3-5 years 126,329
-----------
3,253,797
Less: accumulated depreciation.................... $(1,557,676)
-----------
Total........................................... $ 1,696,121
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to a bank payable in monthly installments of
$5,533, including interest, final payment due on September 20,
1997; variable interest rate of 0.75% above the bank's prime
rate (rate at June 19, 1997 was 8.5%); secured by land, build-
ing and certain equipment, a life insurance policy on a stock-
holder, and the personal guaranty of a stockholder............. $ 138,482
Capital lease obligation for four-color press, with monthly pay-
ments of $15,100 including interest, through October 1998...... 249,160
---------
387,642
Less current maturities....................................... (327,742)
---------
$ 59,900
</TABLE>
Effective June 19, 1997, the Company was acquired by Master Graphics, Inc.
Concurrent with the acquisition, the debt of the Company was refinanced and the
bargain purchase option on the capital lease was exercised.
6. EMPLOYEE BENEFIT PLAN
All full-time employees who meet certain age and length of service
requirements are eligible to participate in the Company's Profit-Sharing
Retirement Plan. The plan provides for contributions by the Company in such
amounts as the Board of Directors may annually determine. Profit-sharing
retirement plan contributions and administrative charges were approximately
$15,000 for the period ended June 19, 1997.
F-44
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Company may be involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheet approximates their fair value.
9. ACQUISITION OF COMPANY
Effective June 20, 1997, Master Graphics, Inc. acquired all of the
outstanding shares of the Company for a combination of cash, notes payable and
common stock warrants; the outstanding debt of the Company was also refinanced
as a part of the transaction.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Argus Press, Inc.:
We have audited the accompanying balance sheets of The Argus Press, Inc. as
of December 31, 1996 and September 22, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1996 and the period from January 1, 1997 to September 22, 1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Argus Press, Inc. as of
December 31, 1996 and September 22, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the period from January
1, 1997 through September 22, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 5, 1998
F-46
<PAGE>
THE ARGUS PRESS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 22, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 22,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ -- $ 100,676
Accounts receivable, net.......................... 4,206,680 4,067,491
Inventories....................................... 1,162,886 1,199,582
Prepaid expenses and other current assets......... 151,758 223,797
---------- ----------
Total current assets............................ 5,521,324 5,591,546
Property and equipment, at cost, less accumulated
depreciation of
$3,112,061 and $3,638,161.......................... 1,853,551 1,809,794
---------- ----------
Total assets.................................... $7,374,875 $7,401,340
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft.................................... $ 306,744 $ --
Borrowings under lines of credit.................. -- 300,000
Current maturities of long-term bank debt......... 342,000 478,000
Accounts payable.................................. 1,632,196 1,744,510
Accrued expenses.................................. 1,243,985 957,166
---------- ----------
Total current liabilities....................... 3,524,925 3,479,676
---------- ----------
Long-term bank debt, net of current maturities.... 364,000 --
---------- ----------
Commitments and contingencies.......................
Shareholders' equity:
Common stock, $1 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding.. 1,000 1,000
Additional paid in capital........................ 199,000 199,000
Retained earnings................................. 3,285,950 3,721,664
---------- ----------
Total shareholders' equity...................... 3,485,950 3,921,664
---------- ----------
Total liabilities and shareholders' equity...... $7,374,875 $7,401,340
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
THE ARGUS PRESS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
JANUARY 1, 1997 THROUGH SEPTEMBER 22, 1997
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 22,
1996 1997
------------ -------------
<S> <C> <C>
Net sales........................................... $24,662,538 $17,610,727
Cost of sales....................................... 18,991,178 13,762,026
----------- -----------
Gross profit...................................... 5,671,360 3,848,701
Selling, general and administrative expenses........ 3,775,978 2,714,390
----------- -----------
Income from operations............................ 1,895,382 1,134,311
Other income (expense):
Interest expense.................................. (127,876) (34,872)
Interest income................................... 2,837 9,400
Gain (loss) on disposal of assets................. (22,637) 5,000
Other............................................. 55,171 39,787
----------- -----------
Income before income tax provision.............. 1,802,877 1,153,626
Provision for state income taxes.................... 31,609 17,912
----------- -----------
Net income...................................... $ 1,771,268 $ 1,135,714
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
THE ARGUS PRESS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
JANUARY 1, 1997 THROUGH SEPTEMBER 22, 1997
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........ $1,000 $199,000 $ 3,098,682 $ 3,298,682
Distributions to shareholders..... -- -- (1,584,000) (1,584,000)
Net income........................ -- -- 1,771,268 1,771,268
------ -------- ----------- -----------
Balance, December 31, 1996........ 1,000 199,000 3,285,950 3,485,950
Distributions to shareholders..... -- -- (700,000) (700,000)
Net income........................ -- -- 1,135,714 1,135,714
------ -------- ----------- -----------
Balance, September 22, 1997....... $1,000 $199,000 $ 3,721,664 $ 3,921,664
====== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
THE ARGUS PRESS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
JANUARY 1, 1997 THROUGH SEPTEMBER 22, 1997
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 22,
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,771,268 $1,135,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 579,488 424,153
(Gain) loss on disposal of equipment............. 22,637 (5,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable....... (520,026) 139,189
Increase in inventories.......................... (30,440) (36,696)
Increase in prepaid expenses and other current
assets.......................................... (44,502) (72,039)
(Decrease) increase in accounts payable.......... (273,755) 112,314
Increase (decrease) in accrued expenses.......... 331,980 (286,819)
----------- ----------
Net cash provided by operating activities..... 1,836,650 1,410,816
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (346,774) (380,396)
Proceeds from sales of property and equipment...... 45,450 5,000
----------- ----------
Net cash used in investing activities......... (301,324) (375,396)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft..................................... 306,744 (306,744)
Net borrowings on (repayments of) lines of credit.. (200,000) 300,000
Payments on bank debt.............................. (342,000) (228,000)
Shareholder distributions.......................... (1,584,000) (700,000)
----------- ----------
Net cash used in financing activities......... (1,819,256) (934,744)
----------- ----------
Net increase (decrease) in cash and cash
equivalents.................................. (283,930) 100,676
Cash and cash equivalents, beginning of year........ 283,930 --
----------- ----------
Cash and cash equivalents, end of year.............. $ -- $ 100,676
----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid...................................... $ 127,876 $ 34,873
=========== ==========
State taxes paid................................... $ 14,622 $ 32,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
THE ARGUS PRESS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 22, 1997
(1) NATURE OF BUSINESS
The Argus Press, Inc. is engaged in the business of high quality sheet fed
commercial printing, including advanced electronic pre-press services. Primary
markets include pharmaceutical, industrial and advertising customers located
primarily in the greater Chicagoland area.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market as determined using the
first-in, first out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line or accelerated methods over the useful lives of the assets.
Income Taxes
With the consent of its shareholders, the Company elected under the Internal
Revenue Code to be taxed as an S Corporation. In lieu of corporation income
taxes, the shareholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. The Company continues to pay state
replacement income taxes.
(3) PROPERTY AND EQUIPMENT
The principal categories and estimated useful lives of property and equipment
are as follows:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 22,
USEFUL LIVES 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Machinery and equipment........... 5-10 years $ 4,705,924 $ 5,188,267
Furniture and Fixtures............ 5 years 25,000 25,000
Vehicles.......................... 3-5 years 195,410 195,410
Leasehold improvements............ Term of lease 39,278 39,278
----------- -----------
4,965,612 5,447,955
Less accumulated depreciation..... (3,112,061) (3,638,161)
----------- -----------
$ 1,853,551 $ 1,809,794
=========== ===========
</TABLE>
F-51
<PAGE>
THE ARGUS PRESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) LINE OF CREDIT
On December 31, 1996, the Company maintained two lines of credit with a bank.
These lines of credit provided maximum borrowings of $550,000 and $450,000 and
bore interest at the bank's prime rate plus .75% (9.00% at December 31, 1996).
Borrowings under the lines were subject to certain restrictions and were
secured by substantially all of the Company's assets. There were no borrowings
outstanding under these lines of credit at December 31, 1996.
On March 31, 1997, the Company restructured its two lines of credit with a
bank. The two previous lines of credit were consolidated into a new $1,000,000
line of credit. The new line bears interest at the bank's prime rate plus .75%
and expires on March 31, 1998. Borrowings under the line are subject to certain
restrictions and are secured by eligible accounts receivable and inventory of
the Company. At September 22, 1997, the Company's outstanding borrowings under
the line of credit totaled $300,000 and bore interest at 9.25%.
(5) LONG-TERM DEBT
On December 31, 1996, the Company's long-term debt consisted of an
installment note payable to a bank. This note called for monthly principal
payments of $28,500 plus interest at the bank's prime rate (8.25% at December
31, 1996). The note was secured by substantially all of the assets of the
Company. A final balloon payment of $649,000 was to have been due on March 31,
1997; however, on that date, the Company signed a new installment note that
extended the due date for the final balloon payment to March 31, 1998. The
total unpaid balance of $706,000 at December 31, 1996 has been segregated
between current and long-term liabilities based on the terms of the new
installment note.
The Company's March 31, 1997 installment note for $649,000 calls for monthly
principal payments of $28,500 plus interest at the bank's prime rate (8.50% at
September 22, 1997) and is secured by eligible machinery and equipment of the
Company. A final balloon payment of $250,000 is due on March 31, 1998. The
total unpaid balance of $478,000 at September 22, 1997 has been classified as a
short-term liability.
(6) RETIREMENT PLANS
The Company maintains a qualified profit sharing and a cash deferred 401(k)
plan that covers substantially all employees. Contributions to the profit
sharing plan are determined by the Board of Directors at their discretion. The
401(k) matching contributions to the plan are equal to 25% of the first 5% of
substantially all the employees annual contributions. Profit sharing
contributions for the year ended December 31, 1996 and for the period from
January 1, 1997 to September 22, 1997 were $160,000 and $63,750, respectively
and the 401(k) matching contribution for the year ended December 31, 1996 and
for the period from January 1, 1997 to September 22, 1997 were $60,654 and
$51,144, respectively.
(7) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 22,
1996 1997
------------ -------------
<S> <C> <C>
Raw materials..................................... $ 231,479 $ 255,487
Work in progress.................................. 822,907 821,125
Finished goods.................................... 108,500 122,970
---------- ----------
$1,162,886 $1,199,582
========== ==========
</TABLE>
F-52
<PAGE>
THE ARGUS PRESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) SALES TO SIGNIFICANT CUSTOMERS
During the year ended December 31, 1996 and the period from January 1, 1997
to September 22, 1997, sales to one customer accounted for approximately 13%
and 17%, respectively, of the Company's net sales.
(9) LEASE COMMITMENTS
The Company leases its building and certain equipment under operating lease
arrangements which expire at various dates through June 2003. Rent expense for
the year ended December 31, 1996 and for the period from January 1, 1997 to
September 22, 1997 was $269,128 and $364,125, respectively. Future minimum
lease payments under operating leases as of September 22, 1997 are as follows:
<TABLE>
<S> <C>
Period from September 23, 1997 to December 31, 1997.............. $ 130,749
Year ended December 31,
1998........................................................... 555,753
1999........................................................... 555,753
2000........................................................... 555,753
2001........................................................... 555,753
2002........................................................... 555,753
Thereafter..................................................... 411,752
----------
Total future minimum rentals................................. $3,321,266
==========
</TABLE>
(10) SUBSEQUENT EVENT
On September 22, 1997, all of the Company's outstanding shares were
purchased for $12.25 million by Master Graphics, Inc. The Company has merged
into Premier Graphics, Inc. (Premier), a 100% owned subsidiary of Master
Graphics Inc., whereby Premier does business as The Argus Press, Inc.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Phoenix Communications, Inc.:
We have audited the accompanying balance sheet of Phoenix Communication,
Inc. (a Georgia corporation) as of January 31, 1997 and the related statements
of operations and retained earnings and cash flows for each of the two years
in the period ended January 31, 1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Phoenix Communications,
Inc. as of January 31, 1997 and the results of its operations and its cash
flows for each of the two years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
April 30, 1997
F54
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Phoenix Communications, Inc.:
We have audited the accompanying balance sheet of Phoenix Communication,
Inc. as of December 16, 1997 and the related statements of income and retained
earnings and cash flows for the period from February 1, 1997 through December
16, 1997. 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 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Phoenix Communications,
Inc. as of December 16, 1997 and the results of its operations and its cash
flows for the period from February 1, 1997 through December 16, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 6, 1998
F-55
<PAGE>
PHOENIX COMMUNICATIONS, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND DECEMBER 16, 1997
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 16,
ASSETS 1997 1997
------ ----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................... $ 2,277 $ 1,080,318
Accounts receivable, less allowance for doubtful
accounts of $210,000 at January 31, 1997 and
$200,000 at December 16, 1997, respectively....... 6,122,124 3,368,481
Current notes receivable........................... 77,305 72,805
Receivables from affiliates........................ 107,939 --
Inventories (note 2)............................... 1,060,260 1,780,077
Prepaid expenses and other......................... 29,221 20,215
Income taxes receivable............................ 205,766 --
----------- -----------
Total current assets............................. 7,604,892 6,321,896
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements............................. 571,115 573,507
Machinery and equipment............................ 8,890,179 9,079,261
Computer equipment................................. -- 154,966
Vehicles........................................... 255,768 255,768
Furniture and fixtures............................. 434,450 434,450
----------- -----------
10,151,512 10,497,952
Less accumulated depreciation and amortization..... (7,014,368) (7,938,854)
----------- -----------
Property and equipment, net...................... 3,137,144 2,559,098
----------- -----------
OTHER ASSETS:
Deferred income taxes.............................. 242,000 253,542
Unearned compensation, net......................... 37,500 25,000
Notes receivable................................... 108,621 97,212
Goodwill and other intangible assets, net of
accumulated amortization of $756,888 and
$1,431,947 at January 31, 1997 and December 16,
1997, respectively................................ 3,934,535 3,213,676
Deposits and other................................. 57,574 42,942
----------- -----------
4,380,230 3,632,372
----------- -----------
$15,122,266 $12,513,366
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and obligations
under capital leases.............................. $ 1,300,989 $ 2,255,576
Line of credit..................................... 2,540,843 2,071,145
Bank overdraft..................................... 277,290 --
Accounts payable................................... 1,275,522 838,329
Accrued expenses................................... 1,276,373 1,397,780
Due to affiliates.................................. 25,000 25,000
----------- -----------
Total current liabilities........................ 6,696,017 6,587,830
----------- -----------
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT PORTION................................ 7,450,894 5,191,309
----------- -----------
NOTES PAYABLE TO AFFILIATES.......................... 903,505 903,505
----------- -----------
COMMITMENTS (NOTES 6, 8 AND 9)
Stockholders' equity:
Common stock, no par value; 500 shares authorized,
287 shares issued................................. 65,463 66,182
Additional paid-in capital......................... 39,166 39,166
Retained earnings.................................. 293,153 51,306
----------- -----------
397,782 156,654
Less treasury stock, at cost; 135 shares........... (325,932) (325,932)
----------- -----------
71,850 (169,278)
----------- -----------
$15,122,266 $12,513,366
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
PHOENIX COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED JANUARY 31, 1996 AND 1997 AND THE
PERIOD FROM FEBRUARY 1 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1
YEARS ENDED JANUARY 31, THROUGH
------------------------ DECEMBER 16,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Sales.................................. $20,093,171 $25,859,099 $21,786,132
Cost of sales.......................... 15,287,985 19,522,995 15,034,356
----------- ----------- -----------
Gross profit....................... 4,805,186 6,336,104 6,751,776
Selling, general and administrative
expenses.............................. 5,208,585 6,087,935 5,940,267
----------- ----------- -----------
Income (loss) from operations...... (403,399) 248,169 811,509
----------- ----------- -----------
Other (expense) income:
Interest expense..................... (758,037) (1,406,115) (1,168,696)
Other income, net.................... 75,308 231,078 115,340
----------- ----------- -----------
(682,729) (1,175,037) (1,053,356)
----------- ----------- -----------
Loss before income taxes........... (1,086,128) (926,868) (241,847)
Benefit for income taxes............... 410,000 123,000 --
----------- ----------- -----------
Net loss........................... (676,128) (803,868) (241,847)
Retained earnings, beginning of
period................................ 1,773,149 1,097,021 293,153
----------- ----------- -----------
Retained earnings, end of period....... $ 1,097,021 $ 293,153 $ 51,306
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
PHOENIX COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1996 AND 1997 AND THE
PERIOD FROM FEBRUARY 1 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1
YEARS ENDED JANUARY 31, THROUGH
------------------------ DECEMBER 16,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (676,128) $ (803,868) $ (241,847)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization........ 944,369 1,689,274 1,645,345
Deferred income taxes................ (250,000) -- --
Changes in operating assets and
liabilities:
Receivables......................... 2,236,432 (423,881) 2,753,643
Inventories......................... 360,814 392,243 (719,817)
Prepaid expenses and other.......... 69,506 155,739 323,669
Bank overdraft...................... (71,629) (258,846) (277,290)
Accounts payable and accrued
expenses........................... (482,322) 86,596 (315,786)
Due to affiliates................... (4,122) (33,779) --
Income taxes........................ (228,238) (25,233) --
----------- ----------- -----------
Total adjustments.................. 2,574,810 1,582,113 3,409,764
----------- ----------- -----------
Net cash provided by operating
activities........................ 1,898,682 778,245 3,167,917
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business and related
intangibles.......................... (2,347,500) -- --
Purchase of property and equipment,
net.................................. (207,516) (515,387) (346,440)
Decrease in deposits and other........ 136,315 69,611 14,632
----------- ----------- -----------
Net cash used in investing
activities........................ (2,418,701) (445,776) (331,808)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (payments) under line-
of-credit agreement.................. (2,627,677) 871,582 (469,698)
Net proceeds (disbursements) under
notes receivable..................... -- -- 15,909
Proceeds from borrowings on long-term
debt................................. 6,761,438 266,076 --
Repayments of long-term debt and
obligations under capital leases..... (3,711,710) (1,597,402) (1,304,998)
Issuance of common stock.............. -- -- 719
Net (payments) borrowings on notes
payable to affiliates................ 222,944 (1,924) --
----------- ----------- -----------
Net cash (used in) provided by
financing activities.............. 644,995 (461,668) (1,758,068)
----------- ----------- -----------
Net (decrease) increase in cash.... 124,976 (129,199) 1,078,041
Cash, at beginning of period............ 6,500 131,476 2,277
----------- ----------- -----------
Cash, at end of period.................. $ 131,476 $ 2,277 $ 1,080,318
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for
interest............................. $ 758,000 $ 1,381,000 $ 1,168,696
=========== =========== ===========
Cash paid during the year for income
taxes................................ $ 133,000 $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996 AND 1997 AND DECEMBER 16, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Phoenix Communications, Inc. (the "Company") was incorporated on December
17, 1975 under the laws of the state of Georgia. The Company is a commercial
printer specializing in high-quality lithographic printing for colleges and
universities, corporations, and nonprofit associates located in the
southeastern region of the United States.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Inventories
Inventories are valued at the lower of cost (first-in, first-out basis) or
market. The Company uses a job order cost accumulation system whereby
substantially all direct materials, labor, and overhead are charged to a
specific job and are included in work-in-process inventory. Market is defined
as replacement cost for raw materials and as net realizable value for work in
process.
Property and Equipment
Property and equipment are depreciated over the estimated useful lives of
the individual assets using the straight-line method. Equipment under capital
leases is amortized over the estimated useful lives of the assets or the lease
terms, as appropriate, on a straight-line basis. The estimated useful lives
are as follows:
<TABLE>
<S> <C>
Machinery and equipment................................ Five to ten years
Vehicles............................................... Three to five years
Furniture and fixtures................................. Five to seven years
</TABLE>
Leasehold improvements are amortized over the lesser of the remaining lease
terms or the service lives of the improvements using the straight-line method.
Revenue Recognition
Revenue is recognized at the time the products are shipped.
Income Taxes
The benefit for income taxes is based on the net loss reported in the
accompanying financial statements, net of appropriate valuation allowance.
Deferred income taxes are recognized on timing differences between amounts
reported for financial reporting and income tax purposes.
Significant Customer
For the year ended January 31, 1997, the Company sold a substantial portion
of its products to one customer, accounting for approximately 15% of the
Company's total fiscal 1997 sales and 6% of the Company's total accounts
receivable at January 31, 1997.
F-59
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) OTHER FINANCIAL DATA
Inventories at January 31, 1997 and December 16, 1997 were as follows:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 16,
1997 1997
----------- ------------
<S> <C> <C>
Raw materials....................................... 608,654 654,998
Work in progress.................................... 451,606 1,125,079
--------- ---------
1,060,260 1,780,077
========= =========
</TABLE>
(3) ACQUISITION
Effective January 1, 1996, the Company acquired substantially all the
operating assets and business of the Cunningham Group, Inc. ("CGI") for
$5,247,000, plus the assumption of liabilities of $656,000. The acquisition
was financed with proceeds from a note payable issued to a credit corporation
and notes issued to the shareholders of CGI of $3,247,000 (Note 4). The
acquisition has been accounted for as a purchase, and accordingly, the
acquired assets and liabilities have been recorded at their estimated fair
values at the date of acquisition. This allocation resulted in goodwill of
approximately $2,011,000, which is being amortized over 20 years.
Additionally, the Company entered into noncompete agreements with the
shareholders of CGI. Amounts paid to the shareholders of CGI in connection
with these agreements of $2,492,000 have been capitalized in the accompanying
balance sheets and are being amortized over four years. The operating results
of the acquired business are included in the Company's results of operations
from the date of the acquisition. The acquisition did not have a material pro
forma impact on the results of operations for fiscal 1996.
(4) LINE OF CREDIT, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
On January 22, 1996, the Company entered into a revolving line of credit
with a credit corporation which provides for borrowings through January 2001
of up to $5,700,000. As of December 16, 1997, available borrowings under this
agreement totaled $3,628,855. Outstanding borrowings under the line of credit
bear interest at the prime rate (8.25% at December 16, 1997) plus 1%. The line
of credit is secured by substantially all assets of the Company not otherwise
encumbered.
Long-term debt and obligations under capital leases of the Company at
January 31, 1997 and December 16, 1997 are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 16,
1997 1997
----------- ------------
<S> <C> <C>
Note payable to credit corporation; interest due
monthly at a variable rate based on the prime
rate; due in monthly installments of principal
of $103,794 through January 2000 and $49,107
from February 2000 through January 2001, with a
final installment due January 2001; secured by
substantially all assets of the Company......... $ 5,270,784 $ 4,080,544
Note payable to shareholders of CGI; interest
payable quarterly at 14%; due in varying annual
installments beginning March 1998, ranging from
$997,260 to $1,212,500 through March 2000....... 3,247,262 3,212,262
Other notes payable and obligations under capital
leases.......................................... 233,837 154,079
----------- -----------
8,751,883 7,446,885
Less current portion............................. 1,300,989 2,255,576
----------- -----------
$ 7,450,894 $ 5,191,309
=========== ===========
</TABLE>
F-60
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The line-of-credit agreement and note payable to credit corporation
agreement contain certain restrictive covenants and conditions, which, among
other matters, require the Company to maintain a minimum net worth, as
defined, and to meet certain minimum cash flow ratios, as defined. The
agreement also restricts changes in the Company's ownership as well as mergers
or acquisitions (Note 11). As of January 31, 1997, the Company was not in
compliance with certain of these restrictive covenants. Subsequent to January
31, 1997, the Company received a waiver of certain violations under these
agreements and certain covenants were amended to place the Company into
compliance. The Company, however, continues to be subject to these restrictive
covenants, as amended, on an ongoing basis, and management anticipates future
compliance with those covenants.
Principal maturities of long-term debt and obligations under capital leases,
net of imputed interest, at December 16, 1997 were as follows:
<TABLE>
<S> <C>
Fiscal year:
1998............................................................. $2,255,576
1999............................................................. 2,639,559
2000............................................................. 1,606,233
2001............................................................. 945,517
2002............................................................. --
----------
$7,446,885
==========
</TABLE>
(5) RELATED-PARTY TRANSACTIONS
The Company leases its main office and operating facility under an operating
lease agreement with a limited partnership (the "Partnership") of which the
Company is the general partner with approximately 4% ownership (Note 7).
Certain stockholders of the Company are the limited partners with
approximately 96% ownership and personal guarantees of the long-term debt of
the Partnership. The Company accounts for its investment in the Partnership
using the equity method. Summarized financial information of the Partnership
as of December 31, 1997 and 1996 and for the years then ended is as follows
(unaudited):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current assets......................................... $ 787 $ 15,208
Current liabilities.................................... (92,160) (92,160)
--------- ---------
Net working capital deficit........................ (91,373) (76,952)
Long-term assets....................................... 549,602 604,857
Long-term debt......................................... (263,341) (355,501)
--------- ---------
Partners' capital...................................... $ 194,888 $ 172,404
========= =========
Rental income.......................................... $ 233,000 $ 240,000
General and administrative expenses.................... (55,255) (54,903)
Interest expense....................................... (35,461) (37,808)
--------- ---------
Net income............................................. $ 142,284 $ 147,289
========= =========
</TABLE>
The Company provides printing services to a company which was affiliated
through common ownership. At January 31, 1996, the Company had a receivable of
approximately $708,000, due from the affiliate. Subsequent to January 31,
1996, the affiliated company was sold to a third party and management
determined that amounts due from the affiliated company were not fully
collectible. As such, the Company recorded a provision of $398,000 during
fiscal 1996 which is included as a component of selling, general, and
administrative expenses in the accompanying statement of operations and
retained earnings for the year ended January 31, 1996 to reserve
F-61
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
for the uncollectible amounts. At January 31, 1997, the Company had additional
receivables of $80,000 due on demand from companies affiliated through common
ownership.
The Company performs certain administrative functions for an affiliate
related through common ownership. Fees earned from such services approximated
$21,000 annually. The Company also purchases direct mail services from this
affiliate. During fiscal 1996, 1997 and 1998 such purchases were approximately
$376,000, $234,000 and $231,000, respectively. At January 31, 1997 and
December 16, 1997 approximately $25,000 was payable to this affiliate.
Notes payable to affiliates at January 31, 1997 and December 16, 1997
represent amounts due under informal arrangements to officers, stockholders,
and other related parties. Certain notes bear interest at the prime rate plus
2%, are unsecured, and are due on demand. At December 16, 1997, such notes
have been classified as noncurrent, as the holders of the notes have informed
the Company that they do not intend to demand payment during 1998. Interest
expense incurred related to the notes totaled approximately $83,000, $99,000
and $89,000 during fiscal years 1996, 1997 and 1998, respectively.
(6) INCOME TAXES
The Company records deferred income taxes using enacted tax laws and rates
for the years in which taxes are expected to be paid. Deferred income tax
assets and liabilities are recorded based on the differences between the
financial accounting and tax accounting bases of assets and liabilities.
The income tax benefit for fiscal years 1996 and 1997 and the period from
February 1, 1997 through December 16, 1997 consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, DECEMBER 16,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Federal................................. $140,000 $ 123,000 $ --
State................................... 20,000 -- --
-------- --------- -----
Current income tax benefit............ 160,000 123,000 --
Deferred income tax benefit............. 250,000 465,000 --
Valuation allowance..................... -- (465,000) --
-------- --------- -----
$410,000 $ 123,000 $ --
======== ========= =====
</TABLE>
The benefit for income taxes differs from the federal statutory rate of 34%
due to state income taxes, life insurance premiums, alternative minimum taxes,
provision for valuation allowance on deferred income tax assets, and certain
other nondeductible expenses.
F-62
<PAGE>
Components of the net deferred income tax asset at January 31, 1997 and
December 16, 1997 were as follows:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 16,
1997 1997
----------- ------------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation and amortization..................... $ 13,000) $ (57,000)
Other............................................. (74,000) (50,458)
--------- ---------
Subtotals......................................... (287,000) (107,458)
--------- ---------
Deferred income tax assets:
Accounts receivable and inventory reserves........ 84,000 76,000
Alternative minimum tax credit carryover.......... 92,000 80,000
Net operating loss carryforward................... 613,000 465,000
Other............................................. 205,000 205,000
Valuation allowance............................... (465,000) (465,000)
--------- ---------
Subtotals......................................... 529,000 361,000
--------- ---------
Total........................................... $ 242,000 $ 253,542
========= =========
</TABLE>
(7) OPERATING LEASES
The Company leases the main office and operating facility from the
Partnership (Note 5) under a noncancelable agreement accounted for as an
operating lease. The lease, including extension options, expires in April 2001
and is subject to annual escalation based on the consumer price index. Rent
expense under this lease was approximately $240,000, $249,000 and $231,000 in
1996, 1997 and 1998, respectively, and is included in the cost of sales in the
accompanying statements of operations and retained earnings.
Aggregate future minimum rental payments under all noncancelable operating
lease agreements at December 16, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $260,000
1999................................................................ 264,000
2000................................................................ 272,000
2001................................................................ 92,000
2002................................................................ --
</TABLE>
(8) STOCKHOLDERS' EQUITY
Shares of common stock of the Company have been issued pursuant to various
stockholder, redemption, and option agreements. These agreements generally
contain restrictions on the sale or transfer of the shares and require
repurchase by the Company in the event of death, disability, or termination of
employment. The repurchase price under the various agreements will be
determined in accordance with specified criteria contained in the agreements.
(9) EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing and 401(k) savings plan (the "Plan") which
covers substantially all full-time employees. Under the Plan, participants may
contribute a portion of their salaries, which is matched by the Company using
a ratio determined annually at the discretion of the board of directors. In
addition, the Company may make discretionary contributions to the Plan. No
discretionary contributions were made during fiscal years 1996, 1997 and 1998.
Matching contributions of $30,000, $30,000 and $47,415 were made during fiscal
years 1996, 1997 and 1998, respectively.
F-63
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(10) COMMITMENTS
In connection with the Company's purchase of common stock from an employee
(note 7), the Company entered into noncompete and trade secret protection
agreements with the employee. Under the terms of the agreements, the Company
will pay the employee a total of approximately $405,000 through April 2000 in
varying monthly installments of $2,001 to $7,488. The amounts paid to the
employee are being expensed as paid.
In connection with the Company's fiscal year 1992 acquisition of Oak Tree
Printing Co. ("Oak Tree"), the Company entered into an employment agreement
with an officer of Oak Tree which provides for employment with the Company and
minimum annual compensation for an eight-year period ending on August 5, 1999.
Additionally, the Company made an interest-free loan in the amount of $120,000
to an officer of Oak Tree. The loan is due on August 5, 1999. If the officer
remains with the Company through the maturity of the loan, the loan will be
forgiven. If employment is terminated, the loan must be repaid within 90 days.
The loan is being amortized to expense on a straight-line basis over the term
of the agreement and is classified as unearned compensation in the
accompanying balance sheets. Effective June 30, 1991, the Company entered into
an indemnification agreement with the officer of Oak Tree which indemnifies
the Company against any loss or liability not expressly assumed in the
purchase agreement. Should the Company incur any loss or liability not
assumed, the officer must reimburse the Company within 30 days. If the Company
does not receive payment within 30 days, the loss or liability may be deducted
from any amounts due to the officer under the terms of the employment
agreement. During fiscal years 1998, 1997 and 1996, no losses or liabilities
were incurred or assumed applicable to this agreement.
During February 1996, the Company entered into a purchase agreement with a
supplier whereby the supplier agreed to advance the Company $240,000 in order
to buy out a previous supply agreement and to purchase equipment. Under the
agreement, the Company agreed to purchase a minimum of $450,521 per year
through February 2001. The advance is payable over the term of the agreement,
with 10.5% of each eligible purchase being used to reduce amounts outstanding.
(11) SUBSEQUENT EVENT
On December 16, 1997, Master Graphics, Inc. acquired all of the outstanding
common stock of the Company. In connection with the acquisition, Master
Graphics repaid the outstanding debt of the Company.
F-64
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Jones Printing Company, Inc.:
We have audited the accompanying balance sheet of Jones Printing Company,
Inc. as of December 31, 1996 and the related statements of income and retained
earnings and cash flows for each of the years in the two-year period ended
December 31, 1996. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jones Printing Company,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Joseph Decosimo and Company, LLP
Chattanooga, Tennessee
February 17, 1997
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Jones Printing Company, Inc.:
We have audited the accompanying balance sheet of Jones Printing Company,
Inc. as of December 16, 1997 and the related statements of income and retained
earnings and cash flows for the period from January 1, 1997 through December
16, 1997. 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 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Jones Printing Company,
Inc. as of December 16, 1997 and the results of its operations and its cash
flows for period from January 1, 1997 through December 16, 1997, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 6, 1998
F-66
<PAGE>
JONES PRINTING COMPANY, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND DECEMBER 16, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 549,076 $ 413,001
Trade receivables, less allowance for doubtful accounts
of $234,266 and $90,771, respectively................. 1,698,852 1,257,308
Notes receivable (primarily due from stockholder), net
of allowances of $200,000............................. 148,565 --
Inventories............................................ 604,036 360,802
Other.................................................. 19,000 42,693
---------- ----------
Total current assets................................. 3,019,529 2,073,804
Equipment and leasehold improvements, net.............. 2,213,053 2,318,777
Other assets........................................... 55,300 64,741
---------- ----------
Total assets......................................... $5,287,882 $4,457,322
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand notes--related party............................ $ 40,000 $ --
Current portion of long-term debt...................... 454,846 516,338
Accounts payable....................................... 291,827 98,810
Accrued expenses....................................... 563,981 298,233
---------- ----------
Total current liabilities............................ 1,350,654 913,381
---------- ----------
Long-term debt, net of current portion................... 1,864,628 1,400,833
---------- ----------
Deferred state income tax liability...................... 49,600 49,600
---------- ----------
Stockholders' equity:
Common stock--no par value--2,000 shares authorized;
76 shares issued and outstanding...................... 15,707 15,707
Additional paid-in capital............................. 19,908 19,908
Retained earnings...................................... 1,987,385 2,057,893
---------- ----------
Total stockholders' equity........................... 2,023,000 2,093,508
---------- ----------
Total liabilities and stockholders' equity........... $5,287,882 $4,457,322
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-67
<PAGE>
JONES PRINTING COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $6,983,554 $7,952,136 $6,075,634
Cost of sales............................. 4,809,936 5,863,704 4,834,475
---------- ---------- ----------
Gross profit.......................... 2,173,618 2,088,432 1,241,159
Selling, general and administrative
expenses................................. 1,471,240 1,482,197 1,035,723
---------- ---------- ----------
Income from operations................ 702,378 606,235 205,436
---------- ---------- ----------
Other income (expense):
Service charge income................... 55,549 58,618 52,251
Gain (loss) on sale of assets........... (8,209) 11,182 8,500
Interest expense........................ (225,591) (207,597) (191,679)
---------- ---------- ----------
(178,251) (137,797) (130,928)
---------- ---------- ----------
Income before state income taxes...... 524,127 468,438 74,508
Provision for state income taxes.......... 16,000 20,408 4,000
---------- ---------- ----------
Net income............................ 508,127 448,030 70,508
Retained earnings--beginning of period.... 1,031,228 1,539,355 1,987,385
---------- ---------- ----------
Retained earnings--end of period.......... $1,539,355 $1,987,385 $2,057,893
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-68
<PAGE>
JONES PRINTING COMPANY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income................................. $ 508,127 $ 448,030 $ 70,508
Depreciation and amortization.............. 409,732 418,180 420,129
Provision for doubtful accounts............ 167,000 74,124 --
Deferred income taxes...................... 4,000 4,600 --
(Gain) loss on sale of assets.............. 8,209 (11,182) (8,500)
Other...................................... -- 35,059 --
Changes in operating assets and
liabilities:
Decrease (increase) in receivables........ (599,252) 272,158 590,109
Decrease (increase) in inventories........ (225,653) (129,007) 243,234
Decrease (increase) in other.............. (12,861) 12,861 (35,848)
Increase (decrease) in accounts payable
and accrued expenses..................... 185,566 158,617 (458,765)
Increase (decrease) in customer advances.. (60,939) 104,121 --
--------- --------- ---------
Net cash provided by operating
activities.............................. 383,929 1,387,561 820,867
--------- --------- ---------
Cash flows from investing activities:
Advances to stockholders................... (9,168) (121,054) --
Capital expenditures....................... (259,902) (330,588) (524,977)
Proceeds from sale of equipment............ 13,100 14,116 8,500
Collections of notes receivable............ 7,374 -- --
Cash surrender value of life insurance..... (3,374) (2,817) 1,838
--------- --------- ---------
Net cash used in investing activities.... (251,970) (440,343) (514,639)
--------- --------- ---------
Cash flows from financing activities:
Bank overdraft............................. $ 141,491 $(141,491) $ --
Net short-term borrowings (repayments)..... 66,985 (302,888) --
Issuance of long-term debt................. -- 445,000 23,438
Repayment of long-term debt................ (392,826) (421,179) (425,741)
Repayment of related party demand note..... (135,882) -- (40,000)
--------- --------- ---------
Net cash used in financing activities.... (320,232) (420,558) (442,303)
--------- --------- ---------
Net increase (decrease) in cash.......... (188,273) 526,660 (136,075)
Cash--beginning of period.................... 210,689 22,416 549,076
--------- --------- ---------
Cash--end of period.......................... $ 22,416 $ 549,076 $ 413,001
========= ========= =========
Cash paid for interest....................... $ 226,707 208,049 167,361
========= ========= =========
Cash paid for taxes.......................... $ 19,420 $ 8,850 $ 24,267
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-69
<PAGE>
JONES PRINTING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND DECEMBER 16, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the Company
are as follows:
(a) Description of Business
The Company provides a full line of superior quality print services and
products to retailers, manufacturers, ad agencies and other users of printed
materials. The majority of the Company's sales are concentrated in
southeastern Tennessee and north Georgia.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out (FIFO) basis.
(c) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of
the respective assets ranging from 5 to 12 years. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense as incurred
and additions and improvements that significantly extend the lives of assets
are capitalized. Upon sale or other retirement of depreciable property, the
cost and accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in operations.
(d) Goodwill
The excess of cost of a purchased business over the fair value of the net
assets acquired is being amortized on the straight-line method over a forty-
year period.
(e) Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed
as an S corporation under the provisions of Section 1362 of the Internal
Revenue Code. The stockholders are personally liable for their proportionate
share of the Company's federal taxable income; therefore, no provision or
liability for federal income taxes is reflected in these financial statements.
The company is a taxable entity for state income tax purposes.
State income taxes are computed based on the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
tax assets and liabilities, if significant, are recognized for the estimated
future tax effects attributed to temporary differences between the book and
tax bases of assets and liabilities and for carryforward items. The
measurement of current and deferred tax assets and liabilities is based on
enacted law. Deferred tax assets are reduced, if necessary, by a valuation
allowance for the amount of tax benefits that may not be realized.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. The statement requires that long-lived assets
F-70
<PAGE>
JONES PRINTING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the mount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with the presentation of the 1997 financial statements.
(2) INVENTORIES
Inventories consist of the following at December 31, 1996 and December 16,
1997:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Raw materials and supplies................................. $212,668 $155,738
Work in process............................................ 391,368 205,064
-------- --------
$604,036 $360,802
======== ========
</TABLE>
(3) EQUIPMENT AND LEASHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at December
31, 1996 and December 16, 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Furniture and fixtures............................. $ 500,887 $ 515,988
Equipment.......................................... 4,537,870 4,639,355
Leasehold improvements............................. 541,762 680,149
Vehicles........................................... 92,701 100,615
----------- -----------
5,673,220 5,936,107
Less accumulated depreciation...................... (3,460,167) (3,617,330)
----------- -----------
$ 2,213,053 $ 2,318,777
=========== ===========
</TABLE>
F-71
<PAGE>
JONES PRINTING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and December
16, 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
8.55% note payable, with monthly payments of $31,337
including interest, through January, 2002............ $1,545,772 $1,314,142
8.75% machinery and equipment note payable, with
monthly payments of $9,211 including interest,
through June, 2001................................... 408,847 335,256
Prime plus 1.25% bank note, with monthly payments of
$3,600 including interest, through December, 1999.... 111,497 80,674
Capital lease obligation for graphics plotter, with
monthly payments of $6,006 including interest,
through October, 1999................................ 173,828 120,830
Other................................................. 79,530 66,269
---------- ----------
2,319,474 1,917,171
Less current portion................................ 454,846 516,338
---------- ----------
$1,864,628 $1,400,833
========== ==========
</TABLE>
The Company has a revolving line of credit with a local bank under which it
may borrow up to $500,000. Borrowings under this arrangement accrued interest
at 1.25% above the bank's base commercial rate. Any outstanding principal
balance is due within 120 days of demand for payment. The line of credit is
collateralized by accounts receivable, inventories, certain life insurance
policies and a personal guaranty of the major stockholder. There was no
balance outstanding under the revolving line of credit as of December 31, 1996
and December 16, 1997.
Effective December 16, 1997, substantially all of the Company's long-term
debt was refinanced as a part of the acquisition of the outstanding common
stock of the Company by Master Graphics, Inc.
(5) LEASES
The Company leases its office and plant facilities under a five year
operating lease with its majority stockholder. The Company also leases certain
computer and typesetting equipment under capital lease agreements.
Future minimum lease payments under the capital leases and the noncancelable
operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING: CAPITAL OPERATING
------------ -------- ---------
<S> <C> <C>
December 31, 1998........................................ $ 82,483 $134,000
December 31, 1999........................................ 60,059 134,000
December 31, 2000........................................ -- 134,000
-------- --------
Total minimum lease payments............................. 142,542 $402,000
========
Less amounts representing interest....................... (11,712)
--------
Present value of net minimum lease payments.............. $130,830
========
</TABLE>
Rent expense totaled $95,520 for 1995, $137,712 for 1996, and $121,600 for
1997, the majority of which was with related parties.
F-72
<PAGE>
JONES PRINTING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) EMPLOYEE BENEFIT PLAN
The Company has a Section 401(k) deferred salary reduction plan under which
substantially all employees of the Company are eligible. The plan provides for
the Company to match employee contributions, subject to certain limitations.
The Company's contribution to the plan totaled $12,757 for 1995, $15,054 for
1996, and $12,064 for 1997.
(7) MAJOR CUSTOMERS
Two customers accounted for $3,613,901 or 51.8% of net sales for 1995,
$4,852,151 or 61% of sales for 1996 and $2,821,878 or 46.4% of net sales for
1997. One customer accounted for $603,592 (33%) of trade receivables at
December 31, 1996 and $501,249 (34%) at December 16, 1997.
(8) SUBSEQUENT EVENT
Effective June 16, 1997, Master Graphics, Inc. acquired all of the
outstanding common stock of the Company and contemporaneously refinanced
substantially all of the then outstanding debt of the Company.
F-73
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors McQuiddy Printing Company:
We have audited the accompanying balance sheets of McQuiddy Printing Company
as of June 30, 1996 and 1997, and the related statements of earnings,
stockholders' equity, and cash flows for the years ended June 30, 1995, 1996
and 1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of McQuiddy Printing Company,
as of June 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the years ended June 30, 1995, 1996 and 1997 in conformity
with generally accepted accounting principles.
Marlin & Edmondson, P.C.
Nashville, Tennessee
August 8, 1997, except for Note 11, which is April 6, 1998
F-74
<PAGE>
MCQUIDDY PRINTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
AUDITED UNAUDITED
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 1)........ $ 240,548 37,759 301,250
Receivables:
Trade accounts, less allowance for
doubtful accounts...................... 2,768,626 3,327,517 3,162,831
Inventories (notes 1 and 2)............... 1,379,486 1,022,100 1,197,844
Prepaid expenses and deposits............. 184,328 127,980 35,242
Income taxes receivable (note 6).......... 109,765 31,057 --
Deferred income taxes--current (note 6)... 55,312 110,721 126,326
---------- ---------- ----------
Total current assets.................. 4,738,065 4,657,134 4,823,493
---------- ---------- ----------
Property, plant and equipment, net (notes 1,
4 and 5)................................... 3,340,244 5,589,759 5,950,346
Other assets:
Notes receivable.......................... 3,584 3,584 --
Investment in joint venture (notes 1 and
3)....................................... 67,448 34,951 --
Cash surrender value of officers' life
insurance (note 10)...................... 335,445 396,513 372,579
---------- ---------- ----------
Total other assets.................... 406,477 435,048 372,579
---------- ---------- ----------
$8,484,786 10,681,941 11,146,418
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note
5)....................................... $ 528,625 867,242 1,043,876
Accounts payable.......................... 445,816 601,273 914,264
Accrued liabilities....................... 325,641 356,879 303,924
Income taxes payable...................... -- -- 72,540
---------- ---------- ----------
Total current liabilities............. 1,300,082 1,825,394 2,334,604
---------- ---------- ----------
Deferred income taxes (note 6).............. 192,412 270,261 309,184
Long-term debt (note 5)..................... 2,349,742 3,655,679 3,305,902
Stockholder's equity:
Common stock.............................. 841,310 841,310 841,310
Additional paid-in capital................ 230,229 230,229 230,229
Retained earnings......................... 5,991,292 6,119,341 6,305,388
---------- ---------- ----------
7,062,831 7,190,880 7,376,927
---------- ---------- ----------
Less reduction in stockholders' equity for
note payable of 401(k) and Employee Stock
Ownership Plan (notes 5 and 7)........... 773,332 613,324 533,250
Less treasury stock, at cost.............. 1,646,949 1,646,949 1,646,949
---------- ---------- ----------
Total stockholders' equity............ 4,642,550 4,930,607 5,196,728
---------- ---------- ----------
$8,484,786 10,681,941 11,146,418
========== ========== ==========
</TABLE>
F-75
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS DEC. 31,
---------------------------------- --------------------
1995 1996 1997 1996 1997
----------- ---------- ---------- --------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Sales................... $15,680,821 15,574,308 16,583,201 8,252,215 9,186,337
Cost of sales........... 12,176,152 12,558,905 13,145,115 6,595,351 7,234,506
----------- ---------- ---------- --------- ---------
Gross profit........ 3,504,669 3,015,403 3,438,086 1,656,864 1,951,831
Selling, general and
administrative
expenses............... 2,589,315 2,605,816 2,741,593 1,322,387 1,481,950
----------- ---------- ---------- --------- ---------
Earnings from
operations......... 915,354 409,587 696,493 334,477 469,881
Other income (expenses),
net.................... 466,367 (170,451) (483,848) (268,187) (165,920)
----------- ---------- ---------- --------- ---------
Earnings before
provision for
income taxes....... 1,381,721 239,136 212,645 66,290 303,961
Income taxes (note 6):
Current provision..... 563,949 52,416 62,156 19,157 94,597
Deferred benefit...... 6,470 87,107 22,440 7,951 23,319
----------- ---------- ---------- --------- ---------
Total income taxes.. 570,419 139,523 84,596 27,108 117,916
----------- ---------- ---------- --------- ---------
Net earnings........ $ 811,302 99,613 128,049 39,182 186,045
=========== ========== ========== ========= =========
</TABLE>
F-76
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED DEC.
YEAR ENDED JUNE 30, 31,
----------------------------------- ----------------------
1995 1996 1997 1996 1997
----------- ---------- ---------- ---------- ----------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Beginning balance:
Common Stock.......... $ 841,310 841,310 841,310 841,310 841,310
Additional Paid-in
Capital.............. 230,229 230,229 230,229 230,229 230,229
Retained Earnings..... 5,122,780 5,900,158 5,991,292 5,991,292 6,119,341
Less: Treasury stock.. (1,646,949) (1,646,949) (1,616,949) (1,646,949) (1,646,949)
Less: Reduction in
Equity for ESOP
note................. -- -- (773,332) (773,332) (613,324)
----------- ---------- ---------- ---------- ----------
4,547,370 5,324,748 4,642,550 4,642,550 4,930,607
Changes:
Net earnings.......... 811,302 99,613 128,049 39,182 186,045
Increase (reduction)
in Equity for ESOP
note................. -- (773,332) 160,008 80,004 80,076
Dividends paid........ (33,924) (8,479) -- -- --
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,761,736 5,196,728
=========== ========== ========== ========== ==========
Ending balance:
Common stock.......... $ 841,310 841,310 841,310 841,310 841,310
Additional Paid-in
Capital.............. 230,229 230,229 230,229 230,229 230,229
Retained Earnings..... 5,900,158 5,991,292 6,119,341 6,630,474 6,305,388
Less: Treasury stock.. (1,646,949) (1,646,949) (1,646,949) (1,646,949) (1,646,949)
Less: Reduction in
Equity for ESOP
note................. -- (773,332) (613,324) (693,328) (533,250)
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,761,736 5,196,728
=========== ========== ========== ========== ==========
</TABLE>
F-77
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS DEC. 31,
--------------------------------- ---------------------
1995 1996 1997 1996 1997
---------- --------- ---------- ---------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings........... $ 811,302 99,613 128,049 39,182 186,045
---------- --------- ---------- ---------- ---------
Adjustments to
reconcile net earnings
to net cash provided
by operating
activities:
Depreciation........... 844,216 735,348 788,839 360,706 425,678
Amortization of
financing costs....... 1,506 -- -- -- --
Amortization of
noncorporate
agreements income..... (22,500) -- -- -- --
Increase in deposits... (10,458) -- -- -- --
Increase in deferred
income taxes.......... 136,627 124,050 22,440 -- 23,318
Gain on sale of
property.............. (638,314) (2,601) (8,700) 600 --
(Increase) decrease in
accounts receivable... 329,057 (465,139) (558,891) 226,411 164,686
(Increase) decrease in
investment in joint
venture............... (61,950) (5,498) 32,497 44,804 34,951
(Increase) decrease in
income taxes
receivable............ -- (109,765) 78,708 35,383 31,057
(Increase) decrease in
inventory............. (924,607) 276,487 357,386 313,637 (175,744)
(Increase) decrease in
prepaid expenses and
deposits.............. (729) (122,011) 56,348 169,150 92,738
Increase (decrease) in
accounts payable...... (209,647) 73,293 155,457 (18,519) 312,991
Increase (decrease) in
accrued liabilities... 121,540 (62,464) 31,238 (46,299) (52,955)
Increase (decrease) in
income taxes payable.. 346,605 (359,240) -- -- 72,540
---------- --------- ---------- ---------- ---------
Total adjustments..... (88,654) 82,460 955,322 1,085,873 929,260
---------- --------- ---------- ---------- ---------
Net cash provided by
operating
activities........... 722,648 182,073 1,083,371 1,125,055 1,115,305
---------- --------- ---------- ---------- ---------
Cash flows from
investing activities:
(Increase) decrease in
cash surrender value
of officers' life
insurance............. (8,161) (57,639) (61,068) (30,534) 23,934
Purchase of property,
plant and equipment... (757,137) (512,970) (3,038,354) (2,720,878) (786,264)
Proceeds from sale of
property, plant and
equipment............. 732,750 2,601 8,700 -- --
(Increase) decrease of
notes receivable...... 5,700 (3,584) -- -- 3,584
---------- --------- ---------- ---------- ---------
Net cash used in
investing
activities........... (26,848) (571,592) (3,090,722) (2,751,412) (758,746)
---------- --------- ---------- ---------- ---------
Cash flows from
financing activities:
Proceeds from the
issuance of ESOP
note.................. -- 800,000 -- -- --
Increase (reduction) in
equity for ESOP note
payable............... -- (773,332) 160,008 80,004 80,074
Proceeds from the
issuance of long term
debt.................. -- -- 2,218,900 2,218,900 248,676
Retirement of long-term
debt.................. (710,211) (523,510) (574,346) (283,428) (421,818)
Dividends paid......... (33,923) (8,479) -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
(used in) financing
activities........... (744,134) (505,321) 1,804,562 2,015,476 (93,068)
---------- --------- ---------- ---------- ---------
Net increase (decrease)
in cash................ (48,334) (894,840) (202,789) 389,119 263,491
Cash and cash equivalent
beginning.............. 1,183,722 1,135,388 240,548 240,548 37,759
---------- --------- ---------- ---------- ---------
Cash and cash equivalent
ending................. $1,135,388 240,548 37,759 629,667 301,250
========== ========= ========== ========== =========
Supplemental disclosures
of cash flows
information:
Cash paid (received)
during the year for:
Interest............... $ 208,972 186,892 314,585 147,123 162,038
Income taxes........... 211,179 496,490 (98,020) -- --
========== ========= ========== ========== =========
</TABLE>
F-78
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company was organized in 1908 to carry on the business of commercial
printing. The Company serves customers nationally and in the normal course of
its business grants credit to those customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable
estimates and assumptions that may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates; however, management believes the estimates to be conservative and
no significant adjustment to the estimates are anticipated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(see note 2).
Investment in Joint Venture
The Company records its investment in a joint venture using the "Equity"
method of accounting, due to the significant ownership and influence over the
investee. In applying the "Equity" method of accounting, the value of the
investment is increased or decreased based on the Company's share of the
investee's net earnings or losses and dividends paid to the Company (see note
3).
Property, Plant and Equipment
Property, plant and equipment is stated in the accounts at cost. The Company
provides for depreciation on such assets principally using accelerated
methods.
The following is a summary of the estimated useful lives used for computing
depreciation.
<TABLE>
<S> <C>
Building and improvements...................................... 20 - 40 years
Machinery and equipment........................................ 5 - 10 years
Furniture and fixtures......................................... 5 - 10 years
Vehicles....................................................... 5 years
</TABLE>
Expenditures for maintenance and repairs are charged against earnings.
Expenditures for improvements and major renewals are capitalized. Cost and
accumulated depreciation for properties sold or retired are removed from the
accounts with any gain or loss included in earnings in the year of disposition
(See note 4).
Income Taxes
Income taxes are provided for the tax effect of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to differences between the basis of financial transactions for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences which will
either be taxable or deductible when assets and liabilities are recovered or
settled. (See note 6).
F-79
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) INVENTORIES
Inventories (first-in, first-out), consisted of the following:
<TABLE>
<CAPTION>
AUDITED UNAUDITED
-------------------- ------------
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
---------- --------- ------------
<S> <C> <C> <C>
Raw materials:
Paper.................................... $ 969,993 549,400 674,398
Bindery materials........................ 6,509 2,965 2,709
Litho materials.......................... 6,160 6,775 9,690
Ink...................................... 517 1,854 15,478
Indigo................................... -- -- 10,079
---------- --------- ---------
983,179 560,994 712,354
Manufactured stock....................... 37,593 49,367 47,756
Work in process.......................... 291,603 379,135 312,580
Finished goods........................... 67,111 32,604 125,154
---------- --------- ---------
$1,379,486 1,022,100 1,197,844
========== ========= =========
</TABLE>
(3) INVESTMENT IN JOINT VENTURE/SUBSEQUENT EVENT
In May 1995, the Company along with Capital Engraving Company, formed a
joint venture known as Digital Spectrum, LLC. Each investor was to retain a
50% interest in the new company, which commenced business in June 1995.
Digital Spectrum primarily handles small, "short-run", on demand printing jobs
using state-of-the-art digital printing technology. The amount recorded in the
balance sheet represents McQuiddy's investment at cost, decreased with it's
share of losses. As of June 30, 1997 the Company's portion of Digital
Spectrum's accumulated operating losses was $256,024.
In March of 1997 Capital Engraving Company withdrew from the joint venture.
The management of McQuiddy Printing Company had not determined the future of
Digital Spectrum, LLC., at June 30, 1997. McQuiddy Printing Company and
Capital Engraving Company had guaranteed a lease of certain equipment. The
balance due on the lease at June 30, 1997 was $299,684 of which the investors
had joint and several liability.
On December 31, 1997 McQuiddy Printing Company decided to terminate the LLC.
The assets and liabilities were assumed by McQuiddy Printing Company.
Following is a summarized unaudited financial statement of Digital Spectrum,
LLC.
BALANCE SHEET JUNE 30, 1997
<TABLE>
<S> <C>
Cash............................................................ $ 9,254
Accounts Receivable............................................. 62,982
Inventory....................................................... 12,778
Other current assets............................................ 432
Furniture and equipment, net.................................... 322,602
--------
$408,048
========
Accounts payable................................................ $ 65,115
Notes payable and long-term debt................................ 299,496
Members equity.................................................. 43,437
--------
$408,048
========
</TABLE>
F-80
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STATEMENT OF LOSS JANUARY 1, 1997 THROUGH JUNE 30, 1997
<TABLE>
<S> <C>
Sales.......................................................... $259,559
Cost of sales.................................................. 73,744
--------
Gross profit................................................... 185,815
Selling and general expense.................................... 221,903
Interest expense............................................... 10,498
--------
Net loss................................................... $(46,586)
========
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
AUDITED
------------------------
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
UNAUDITED
<S> <C> <C> <C>
Land.................................. $ 110,000 110,000 110,000
Building.............................. 1,447,408 1,447,408 1,447,408
Building improvements................. 247,547 247,547 240,856
Machinery and equipment............... 9,691,511 12,223,333 12,872,978
Furniture and fixtures................ 374,658 405,569 532,945
Automobiles and trucks................ 87,629 54,779 54,779
----------- ----------- ----------
11,958,753 14,488,636 15,258,966
Less accumulated depreciation......... (8,618,509) (8,898,877) 9,308,620
----------- ----------- ----------
$ 3,340,244 5,589,759 5,590,346
=========== =========== ==========
</TABLE>
Depreciation expense was $844,216, $735,348 and $788,839 for June 30, 1995,
1996 and 1997, respectively using principally accelerated methods.
Depreciation expense was $360,706 and $425,677 for the six months ended
December 31, 1996 and 1997, respectively using principally accelerated methods.
(5) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
AUDITED
--------------------
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
---------- --------- ------------
UNAUDITED
<S> <C> <C> <C>
SunTrust Bank Equipment note............. $ -- 2,218,900 2,095,629
SunTrust Bank--ESOP note payable......... 773,332 613,324 533,250
Capital lease obligation--Fleet Credit
Corporation............................. -- -- --
Capital lease obligation--NationsBanc
Leasing Corporation..................... 2,105,035 1,690,697 1,472,224
PBCC lease............................... -- -- 248,675
---------- --------- ---------
2,878,367 4,522,921 4,349,778
Less current maturities.................. 528,625 867,242 1,043,876
---------- --------- ---------
$2,349,742 3,655,679 3,305,902
========== ========= =========
</TABLE>
F-81
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Equipment note payable with SunTrust Bank dated August 20, 1996, was
used to fund the purchase of equipment. The interest rate is based on a
varying rate of interest which is equal to the lesser of 150 basis points
above the 30-day LIBOR Rate as defined in the note or 135 basis points below
the bank's base rate and requires monthly payments of $30,818 plus interest.
The interest rate at June 30, 1997 and December 31, 1997 was 7.15%. The note
is secured by equipment. The note is due August 2003.
The ESOP note payable with SunTrust Bank dated April 23, 1996, is to fund
the purchase of 6,400 shares of the Company's outstanding stock for the
Company's 401(k) and Employee Stock Ownership Plan. At June 30, 1997 SunTrust
Bank held the 5,547 shares as collateral on the loan. As principal payments
are made the bank will release a pro-rata amount of shares held as collateral.
The interest rate is based on a varying rate of interest which is equal to 180
basis points above the 30-day LIBOR Rate as defined in the note and requires
monthly payments of $9,524 plus interest. The interest rate at June 30, 1996
and 1997 was 7.49%. The interest rate at December 31, 1997 was 7.52%. The note
is due April 2003 (See note 7).
The capital lease obligation with NationsBanc Leasing Corporation dated
March 26, 1992, is a financing lease for the acquisition of printing
equipment. The fixed rate lease bears interest at 7.06% and requires monthly
payments of $45,832. The lease matures in August 1999.
The PBCC lease obligation dated March 30, 1995, is a financing lease for the
acquisition of printing equipment. The fixed rate lease bears interest at
9.97% and requires monthly payments of $10,019. The lease matures in May of
2000.
Current maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1997
---------- ------------
AUDITED UNAUDITED
<S> <C> <C>
1998................................................. $ 867,242 1,043,876
1999................................................. 961,331 1,605,001
2000................................................. 1,252,795 524,433
2001................................................. 484,102 484,126
2002................................................. 484,102 445,941
Thereafter........................................... 473,349 246,401
---------- ---------
$4,522,921 4,349,778
========== =========
</TABLE>
Notes payable are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
SunTrust Bank--Line of credit................................. $-- -- --
==== === ===
</TABLE>
The Company has available a $750,000 line of credit, with an interest rate
of 8.50% at June 30, 1997.
(6) INCOME TAXES
The Company adopted FASB Statement 109 as of July 1, 1993 and there was no
significant cumulative effect adjustment.
The Company has previously accounted for the credit carryforwards when used.
A deferred tax liability has been provided for the tax and book depreciation
differences and a deferred tax benefit has been recorded for the allowances
for doubtful accounts.
F-82
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, JUNE 30, JUNE 30, ---------------
1995 1996 1997 1996 1997
-------- -------- -------- ------ -------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Federal:
Current......................... $471,886 46,127 56,093 22,823 77,461
Deferred........................ 5,423 74,167 49,836 6,694 19,633
State:
Current......................... 92,063 (379) 6,063 (3,666) 17,136
Deferred........................ 1,047 19,608 (27,396) 1,257 3,686
-------- ------- ------- ------ -------
$570,419 139,523 84,596 27,108 117,916
======== ======= ======= ====== =======
</TABLE>
A reconciliation of the "expected" tax expense computed at the federal
statutory rate of 34% to actual expense is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, JUNE 30, JUNE 30, ---------------
1995 1996 1997 1996 1997
-------- -------- -------- ------ -------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Computed "expected" tax expense.. $469,786 81,306 72,300 22,539 103,347
State income tax (benefit), net
of federal income tax benefits
and industrial excise tax
credit........................ 61,453 12,691 (29,983) (2,420) 11,550
Other, net..................... 39,180 45,526 42,279 6,989 3,019
-------- ------- ------- ------ -------
Actual tax expense............... $570,419 139,523 84,596 27,108 117,916
======== ======= ======= ====== =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability, are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
--------- -------- ------------
AUDITED UNAUDITED
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts--cur-
rent.................................. $ 55,312 66,252 81,857
Industrial machinery credit
carryforward--current................. -- 44,469 44,469
--------- -------- --------
55,312 110,721 126,326
Deferred tax liabilities:
Depreciation--long-term................ 192,412 270,261 309,184
--------- -------- --------
Net deferred tax liability........... $(137,100) (159,540) (182,858)
========= ======== ========
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) and Employee Stock Ownership Plan. The plan is
contributory and employees are eligible to participate after service and age
requirements are satisfied. Plan costs are funded as they accrue. Contributions
and expenses under the plan amounted to $97,718, $104,736 and $211,941 for the
years ended June 30, 1995, 1996 and 1997, respectively. Expenses of the Plan
for the six months ended December 31, 1996 and 1997 were $95,484 and $102,620,
respectively.
F-83
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has guaranteed the bank debt of the plan. The balance
outstanding at June 30, 1996 and 1997 was $773,332 and $613,324. The balance
outstanding at December 31, 1997 was $533,250. Accordingly such debt has been
shown in the accompanying financial statements as a long-term liability (see
note 5) with a corresponding reduction in stockholders' equity.
(8) CONCENTRATIONS OF CREDIT RISK
The Company maintains its checking and investment accounts with financial
institutions in the middle Tennessee area. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
The carrying amounts of cash, receivables and accounts payable approximate
fair value due to the short-term nature of those items.
The carrying amount of other financial instruments is a reasonable estimate
of their fair value.
The fair value of all debt obligations is estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rate. Based
on the analyses, the carrying amounts approximate fair value.
(10) CASH SURRENDER VALUE OF LIFE INSURANCE
The components of cash surrender value of life insurance are as follows:
<TABLE>
<CAPTION>
AUDITED UNAUDITED
-------------------------------------- ------------
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
-------- -------- ------------
<S> <C> <C>
$335,445 396,513 372,578
</TABLE>
- --------
(A) The Company is the owner of six policies with The New England which have a
face value of $1,450,000.
(B) The Company pays premiums on split dollar life insurance policies of seven
executives. These policies are with The New England.
(C) The Company pays premiums on a policy for one of the executives through
American General. The Company owns the policy which has a face value of
$25,000.
(D) The Company pays premiums on a split dollar life insurance policy for one
of the executives through National Life of Vermont. The Company owns the
policy which has a face value of $500,000.
Total premiums paid on all above policies for the year ended June 30,
1995, 1996 and 1997, respectively, were $110,601, $116,026 and $116,026.
Total premiums paid on all the above policies for the six months ended
December 31, 1996 and 1997, respectively, were $96,206 and $84,106.
F-84
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(11) CONTINGENCIES
The Company is a defendant in a lawsuit filed by a former employee. On April
2, 1998 the Company, the former employee and Master Graphics, Inc. have entered
into an agreement to settle the litigation in the amount of $228,120. The
settlement is contingent upon Master Graphics, Inc. completing its acquisition
of the Company.
F-85
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Phillips Litho Co., Inc.
Springdale, Arkansas
We have audited the accompanying balance sheets of Phillips Litho Co., Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
retained earnings, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the management of Phillips Litho Co., Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Phillips Litho Co., Inc.
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
S.F. Fiser & Company, P.A.
Springdale, Arkansas
February 19, 1998
F-86
<PAGE>
PHILLIPS LITHO CO., INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash............................................... $ 126,541 $ 1,670
Trade accounts receivable, less allowances of
$41,647 in 1996 and $73,810 in 1997............... 2,410,370 2,751,733
Accounts receivable stockholder.................... 63,387 351,191
Note receivable stockholder........................ 175,141
Inventories........................................ 673,273 772,348
Income taxes refundable............................ 58,850
Deferred income tax asset.......................... 171,909 14,288
Other.............................................. 72,927 38,722
----------- -----------
Total current assets............................. 3,577,257 4,105,093
----------- -----------
Property, plant and equipment, at cost
Land............................................... 192,450 192,450
Buildings.......................................... 1,289,298 1,406,684
Equipment.......................................... 7,631,526 7,991,147
Vehicles........................................... 381,315 270,405
Office furniture and equipment..................... 287,345 400,860
----------- -----------
9,781,934 10,261,546
Less accumulated depreciation...................... 2,740,798 3,356,044
----------- -----------
Total property, plant and equipment.............. 7,041,136 6,905,502
----------- -----------
$10,618,393 $11,010,595
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt............... $ 797,415 $ 886,296
Notes payable...................................... 655,998 971,261
Accounts payable................................... 1,020,790 981,930
Income taxes currently payable..................... 180,000
Accrued expenses................................... 76,724 68,224
----------- -----------
Total current liabilities........................ 2,550,927 3,087,711
----------- -----------
Noncurrent deferred income taxes..................... 541,367 596,397
----------- -----------
Long-term debt less current maturities............... 5,407,557 4,344,136
----------- -----------
Stockholder's equity
Common stock, no par value 1,000 shares authorized
100 shares issued................................. 300 300
Retained earnings.................................. 2,347,726 3,211,535
Less 25 treasury shares, at cost................... (229,484) (229,484)
----------- -----------
Total stockholder's equity....................... 2,118,542 2,982,351
----------- -----------
$10,618,393 $11,010,595
=========== ===========
</TABLE>
See notes to financial statements.
F-87
<PAGE>
PHILLIPS LITHO CO., INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................... $12,162,315 $11,661,188 $12,726,710
Cost of sales........................... 8,776,481 9,013,436 8,639,791
----------- ----------- -----------
Gross profit............................ 3,385,834 2,647,752 4,086,919
Selling and general and administrative
expenses............................... 2,597,722 2,771,707 2,870,507
----------- ----------- -----------
Operating income (loss)................. 788,112 (123,955) 1,216,412
----------- ----------- -----------
Other income (expenses)
Loss on disposition of airplane....... (54,845)
Proceeds in settlement of lawsuit..... 150,000
Miscellaneous......................... 14,789 3,877 42,365
----------- ----------- -----------
Total other income.................. 14,789 3,877 137,520
----------- ----------- -----------
Income (loss) before income taxes....... 802,901 (120,078) 1,353,932
Provision for income taxes (benefit).... 282,431 (43,137) 490,123
----------- ----------- -----------
Net income (loss)....................... $ 520,470 $ (76,941) $ 863,809
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-88
<PAGE>
PHILLIPS LITHO CO., INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<S> <C>
Balance January 1, 1995............................................. $1,904,197
Net income........................................................ 520,470
----------
Balance December 31, 1995........................................... 2,424,667
Net loss.......................................................... (76,941)
----------
Balance December 31, 1996........................................... 2,347,726
Net income........................................................ 863,809
----------
Balance December 31, 1997........................................... $3,211,535
==========
</TABLE>
See notes to financial statements.
F-89
<PAGE>
PHILLIPS LITHO CO., INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)...................... $ 520,470 $ (76,941) $ 863,809
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities
Depreciation......................... 350,051 524,119 631,630
Proceeds in settlement of lawsuit.... (150,000)
Increase (decrease) in deferred
income taxes........................ 96,533 (43,137) 212,651
Net change in income taxes refundable
and currently payable............... (18,782) (118,311) 238,850
Decrease (increase) in accounts
receivable.......................... (1,358,216) 662,654 (629,167)
Decrease (increase) in inventories... (308,747) 317,830 (99,075)
Increase (decrease) in accounts
payable............................. 300,948 36,453 (38,860)
Other................................ (148,023) 8,049 80,550
----------- ----------- ----------
Cash provided (used) by operating
activities.............................. (565,766) 1,310,716 1,110,388
----------- ----------- ----------
Cash flows from investing activities
Loan to stockholder.................... (175,141)
Purchase of property and equipment..... (1,136,070) (3,633,587) (473,822)
Disposition of equipment............... 44,995 72,981
----------- ----------- ----------
Cash used by investing activities........ (1,091,075) (3,633,587) (575,982)
----------- ----------- ----------
Cash flows from financing activities
Net change in notes payable............ 598,544 (474,000) 315,263
Long-term borrowings................... 1,332,450 6,346,547 17,500
Repayments of long-term debt........... (353,056) (3,432,297) (992,040)
----------- ----------- ----------
Cash provided (used) by financing
activities.............................. 1,577,938 2,440,250 (659,277)
----------- ----------- ----------
Increase (decrease) in cash.............. (78,903) 117,379 (124,871)
Cash at beginning of year................ 88,065 9,162 126,541
----------- ----------- ----------
Cash at end of year...................... $ 9,162 $ 126,541 $ 1,670
=========== =========== ==========
Supplemental information
Cash payments for
Interest............................. $ 268,927 $ 480,473 $ 510,200
Income taxes......................... 204,680 116,355 40,000
Noncash transaction
Equipment received in settlement of
lawsuit............................. 150,000
</TABLE>
See notes to financial statements.
F-90
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
NOTE 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business activity--
Phillips Litho Co., Inc. is an Arkansas corporation specializing in the
production of printed materials. The Company's sales are primarily to
commercial customers throughout Northwest Arkansas and surrounding areas.
Settlement of lawsuit--
During 1996 the Company experienced severe operating problems with certain
new printing equipment. Due to excessive waste and lack of product quality,
these problems had a significant negative impact on the Company's gross
margins and established customer relationships. Ultimately, the Company sued
the manufacturer of the equipment. In 1997 the lawsuit was settled in favor of
Phillips Litho Co., Inc. The settlement agreement required the manufacturer to
deliver and install certain additional equipment having an estimated fair
value of $150,000. These alterations to the original equipment eliminated the
problems experienced in 1996.
Restatement of 1996 financial statements--
Due to the problems experienced in 1996 as detailed above, the Company lost
a significant customer for failure to produce printed material of a desired
quality. In order to salvage the relationship, Phillips Litho Co., Inc.
entered into a binding commitment to print the 1997 product for the amount
previously paid by the customer in 1996. This commitment was not originally
recorded in the 1996 financial statements.
The 1996 financial statements have been restated to reflect the effect of
the above described commitment resulting in a decrease in net income before
income taxes of $252,917 and in net income of $170,015.
Depreciation--
Depreciation is provided for using the straight-line method. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
YEARS
---------
Buildings.......................................................... 30-31 1/2
Equipment.......................................................... 5-10
Vehicles........................................................... 5-7
Office furniture and equipment..................................... 5-7
</TABLE>
Income taxes--
Deferred income taxes are provided based upon the asset-and-liability method
of accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Allowance for uncollectible accounts--
The Company uses the allowance method of accounting for bad debts. This
allowance, as of the end of each year, is determined by management based upon
a review of all individual account balances comprising total accounts
receivable. Management considers past credit history, customer's financial
condition, subsequent payment of account balances, and other facts as
appropriate.
F-91
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest--
Total interest expense was $291,518, $481,377 and $494,046 in 1995, 1996 and
1997, respectively. No interest expense was capitalized in any year.
Cash--
Checks outstanding in excess of related cash balances totaling approximately
$162,000 and $79,000 at December 31, 1996 and 1997, respectively, were
included in trade accounts payable.
Cash equivalents--
For purposes of the statement of cash flows, the Company considers all
highly liquid short-term securities purchased with a maturity of three months
or less to be cash equivalents. However, no such securities were owned by the
Company during 1996 or 1997.
Advertising cost--
The Company expenses all advertising cost as incurred. Total advertising
cost for the years ended December 31, 1995, 1996 and 1997, was $33,269,
$54,805 and $39,735, respectively.
Estimates and assumptions--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2) INVENTORIES:
Inventories are valued at the lower of cost (first-in first-out) or market
and were composed of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Paper...................................................... $382,054 $405,782
Supplies................................................... 83,632 103,678
Work in process............................................ 207,587 262,888
-------- --------
$673,273 $772,348
======== ========
</TABLE>
NOTE 3) NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
8.5% note payable to a bank, collateralized by accounts
receivable, inventory, furniture and fixtures, and
equipment............................................... $625,998 $790,998
9.5% note payable to an individual, unsecured............ 30,000 30,000
8.875% note payable to a bank, unsecured................. 150,263
-------- --------
$655,998 $971,261
======== ========
</TABLE>
F-92
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4) BANK LINE OF CREDIT:
The Company has a $2,250,000 line of credit through a commercial bank, which
expires April 15, 1998. At December 31, 1997, $790,998 had been advanced
through this agreement.
NOTE 5) LONG-TERM DEBT:
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
7.35% to 7.625% notes payable to a bank, payable
$57,676 monthly and $50,000 quarterly including
interest, collateralized by accounts receivable,
inventory, furniture and fixtures, equipment and real
estate............................................... $5,928,650 $5,217,721
10% note payable to a bank, payable $563 monthly
including interest, collateralized by a certain
vehicle.............................................. 12,711
8.75% to 9.0% notes payable to a bank, payable $7,980
monthly including interest, collateralized by
equipment, vehicles and a certain airplane........... 276,322
---------- ----------
6,204,972 5,230,432
Less current maturities............................... 797,415 886,296
---------- ----------
$5,407,557 $4,344,136
========== ==========
</TABLE>
Long-term debt matures as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 886,296
1999.............................................................. 1,109,895
2000.............................................................. 596,741
2001.............................................................. 450,000
2002.............................................................. 450,000
Thereafter........................................................ 1,737,500
</TABLE>
NOTE 6) RELATED PARTY TRANSACTIONS:
From time to time, the Company may loan funds to, or borrow funds from, its
stockholder and members of his immediate family at prevailing market interest
rates. Such amounts are generally unsecured and due on demand. These amounts
are disclosed in the balance sheets as "Note receivable stockholder" and as
part of "Notes Payable" (see Note 3). Interest expense on affiliated
borrowings was $11,791 in 1995, and $2,850 in 1996 and 1997. Interest earned
on loans to stockholder was $13,059 in 1997.
NOTE 7) MAJOR CUSTOMERS:
The Company's gross sales to one major customer were $3,120,909 or 25.7% of
sales for the year ended December 31, 1995. Gross sales to two major customers
were $3,520,365 and $4,033,360 or 29.5% and 31.7% of sales for the years ended
December 31, 1996 and 1997, respectively.
F-93
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8) INCOME TAXES:
The income tax provision for the years ended December 31, 1995, 1996 and
1997, is composed of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current
Federal........................................ $146,804 $237,000
State.......................................... 39,094 40,472
-------- --------
185,898 277,472
-------- --------
Deferred
Federal........................................ 77,354 $(36,873) 170,284
State.......................................... 19,179 (6,264) 42,367
-------- -------- --------
96,533 (43,137) 212,651
-------- -------- --------
$282,431 $(43,137) $490,123
======== ======== ========
</TABLE>
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Statutory tax rate................................... 34.0 % (34.0)% 34.0 %
State income taxes, net of federal income tax
benefit............................................. 4.3 (3.4) 4.0
Other items, net..................................... (3.1) 1.5 (1.8)
---- ----- ----
Effective tax rate................................... 35.2 % (35.9)% 36.2 %
==== ===== ====
</TABLE>
Deferred tax liabilities (assets) are composed of the following:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net operating loss and alternative minimum tax credit
carryovers.......................................... $(171,909) $(14,288)
Depreciation......................................... 541,367 596,397
--------- --------
$ 369,458 $582,109
========= ========
</TABLE>
Net deferred income taxes are disclosed in the accompanying balance sheets
as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current assets
Deferred income tax asset............................... $171,909 $ 14,288
Noncurrent deferred income taxes.......................... 541,367 596,397
-------- --------
$369,458 $582,109
======== ========
</TABLE>
NOTE 9) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash--
The carrying amount of cash is its fair value.
F-94
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Note receivable--
The terms of the Company's note receivable from stockholder are reset
periodically to reflect current market conditions. Consequently, the carrying
value of such assets approximates fair value.
Notes payable--
The interest rates on the Company's notes payable are reset periodically to
reflect current market rates. Consequently, the carrying value of such
liabilities approximates fair value.
NOTE 10) EMPLOYEE BENEFIT PLAN:
The Company maintains a 401(k) plan with profit-sharing features in which
its employees are eligible to participate after they complete one year of
service. Contributions to the plan are made each year by the Company in
discretionary amounts determined by its Board of Directors. Contributions were
$46,471 in 1995, $25,082 in 1996, and $26,534 in 1997.
F-95
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors Hederman Brothers, Inc.:
We have audited the accompanying balance sheets of Hederman Brothers, Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 conducted our audits 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hederman Brothers, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 27, 1998
F-96
<PAGE>
HEDERMAN BROTHERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 78,669 $ 87,852
Accounts receivable, net.......................... 1,209,418 1,335,750
Inventories....................................... 351,198 433,970
Prepaid expenses and other current assets......... 221,429 191,168
---------- -----------
Total current assets............................ 1,860,714 2,048,740
---------- -----------
Property, plant and equipment, net.................. 6,961,821 7,788,259
Cash surrender value of life insurance less policy
loan of $178,928 in 1997 and $143,863 in 1996...... 144,411 156,098
Other assets........................................ 7,799 12,032
---------- -----------
Total assets.................................... $8,974,745 $10,005,129
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash Overdraft.................................... 0 112,373
Current maturities of long-term debt.............. 786,494 872,437
Accounts payable.................................. 364,366 476,615
Accrued expenses.................................. 232,298 320,860
---------- -----------
Total current liabilities....................... 1,383,158 1,782,285
---------- -----------
Long-term debt, net of current maturities........... 5,309,347 6,281,090
Long-term debt to stockholders...................... 1,788,000 1,807,000
Commitments and contingencies
Shareholders' equity:
Common stock, $100 par value; 50,000 shares
authorized;
7,421 shares issued and outstanding.............. 721,400 721,400
Additional paid in capital........................ 831,852 831,852
Retained earnings (deficit)....................... (1,059,012) (1,418,498)
---------- -----------
Total shareholders' equity...................... 494,240 134,754
---------- -----------
Total liabilities and shareholders' equity...... $8,974,745 $10,005,129
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE>
HEDERMAN BROTHERS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Net sales................................ $8,556,102 $9,359,500 $10,458,663
Cost of sales............................ 6,491,668 6,850,953 8,104,057
---------- ---------- -----------
Gross profit........................... 2,064,434 2,508,547 2,354,606
Selling, general and administrative
expenses................................ 1,860,712 2,030,855 2,032,217
---------- ---------- -----------
Income from operations................. 203,722 477,692 322,389
Other income (expense):
Interest expense....................... (670,585) (688,906) (732,827)
Interest income........................ 7,008 18,476 11,888
Gain on disposal of assets............. 99,966 12,387 8,145
Other.................................. 50,305 4,832 30,919
---------- ---------- -----------
Other expense, net................... (513,306) (653,211) (681,875)
---------- ---------- -----------
Net income............................... $ (309,584) $ (175,519) $ (359,486)
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE>
HEDERMAN BROTHERS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
-------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994..... $650,000 $ 3,252 $ (573,909) $ 79,343
Issuance of 714 shares of
common stock upon conversion
of stockholders' notes....... 71,400 828,600 -- 900,000
Distributions--1995........... -- -- -- --
Net income--1995.............. -- -- (309,584) (309,584)
-------- -------- ----------- ---------
Balances, December 31, 1995..... 721,400 831,852 (883,493) 669,759
Distributions--1996........... -- -- -- --
Net income--1996.............. -- -- (175,519) (175,519)
-------- -------- ----------- ---------
Balances, December 31, 1996..... 721,400 831,852 (1,059,012) 494,240
Distributions--1997........... -- -- -- --
Net income--1997.............. -- -- (359,486) (359,486)
-------- -------- ----------- ---------
Balances, December 31, 1997..... $721,400 $831,852 $(1,418,498) $ 134,754
======== ======== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE>
HEDERMAN BROTHERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (309,584) $ (175,519) $ (359,486)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 631,740 673,110 787,297
(Gain) loss on disposal of
equipment........................... (99,966) (12,387) (8,145)
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable................. 193 (57,713) (126,332)
Inventories......................... 19,340 19,335 (82,772)
Prepaid expenses and other current
assets............................. (70,415) 30,472 30,261
Increase (decrease) in:
Accounts payable.................... (176,464) 37,170 112,249
Accrued expenses.................... (12,918) 124,351 88,562
----------- ----------- -----------
Net cash provided by (used in)
operating activities............. (18,074) 638,819 441,634
----------- ----------- -----------
Cash flows from investing activities:
Decrease (increase) in non-current
receivables........................... (5,080) 112,281 (4,233)
Purchases of property, plant and
equipment............................. (1,563,668) (320,776) (1,614,790)
Proceeds from sales of property, plant
and equipment......................... 721,877 19,800 9,200
Decrease (increase) in cash surrender
value of life insurance............... (10,777) 858 (11,687)
----------- ----------- -----------
Net cash used in investing
activities....................... (857,648) (187,837) (1,621,510)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt........... 1,785,700 1,311,770 4,111,500
Principal payments on installment
debt.................................. (1,091,528) (1,653,400) (3,053,814)
Proceeds from stockholder loans........ 100,000 0 19,000
Book overdraft in bank account......... 44,261 (44,261) 112,373
----------- ----------- -----------
Net cash used in financing activi-
ties............................. 838,433 (385,891) 1,189,059
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (37,289) 65,091 9,183
Cash and cash equivalents, beginning of
year................................... 50,867 13,578 78,669
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 13,578 $ 78,669 $ 87,852
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Hederman Brothers, Inc. (The Company) was organized in June 1982. Its
principal business activity is commercial printing.
(b) Property, Plant, and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided
over the estimated useful lives of the assets using straight-line and
accelerated methods.
(c) Inventories
Inventories are stated at the lower of cost or market on a specific
identification basis.
(d) Income Taxes
The stockholders of the Company have elected, under the S Corporation
provisions of the Internal Revenue Code and similar provisions of Mississippi
law, for earnings and losses to be taxed directly to the stockholders.
(e) Cash Equivalents
The Company considers money market accounts, and certificates of deposit
with an original maturity of three months or less, to be cash equivalents.
(f) Use of Estimates
Management of the Company has made estimates and assumptions relating to the
reporting of assets and liabilities and the disclosures of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(g) Pension Plan
The Company has a defined benefit pension plan (the Plan) covering
substantially all of its employees. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for Federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future. Plan assets are invested primarily in equity and fixed income
securities. The Company accounts for the Plan under Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions."
(h) Trade Receivables
The Company's trade receivables are primarily concentrated with its printing
customers in the Mid-South area. The Company performs on-going credit
evaluations of its customers and generally does not require collateral on
trade receivables. The Company believes that adequate allowances are
maintained for any uncollectible accounts.
(i) Long-lived Assets
Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Long-lived assets and certain identifiable intangibles to be
disposed are reported at the lower of carrying amount or fair value less cost
to sell.
F-101
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVENTORIES
Inventories as of December 31, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Raw materials.............................................. $171,633 $219,242
Work in-process............................................ 133,911 174,720
Finished goods............................................. 45,654 40,008
-------- --------
Total.................................................... $351,198 $433,970
======== ========
</TABLE>
3. PENSION PLAN
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,510,574 and $1,452,461............. $1,527,211 $1,469,095
---------- ----------
Projected benefit obligation for service rendered
to date........................................... $1,804,752 $1,733,504
Plan assets at fair value.......................... 1,875,911 2,515,458
---------- ----------
Plan assets in excess of projected benefit obliga-
tion.............................................. 71,159 781,954
Unrecognized net (gain) or loss from past experi-
ence different from that assumed.................. 276,508 (489,143)
Unrecognized net transition asset.................. (174,542) (152,724)
---------- ----------
Prepaid pension cost included in prepaid expenses.. $ 173,125 $ 140,087
---------- ----------
</TABLE>
The present value of the projected benefit obligation at December 31, 1996
and 1997 was determined using discount rates of 7.25% and 7.00%, respectively,
and an assumed rate of increase in compensation of 5.00% for both years.
Net pension cost included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the
year.................................... $ 46,172 $ 53,148 $ 66,203
Interest cost on projected benefit
obligation.............................. 97,240 111,044 127,691
Actual (return)/loss on Plan assets...... (546,126) 20,287 (755,304)
Net amortization and deferral............ 415,996 (185,880) 602,378
--------- --------- ---------
Net periodic pension cost.............. $ 13,282 $ (1,401) $ 40,968
========= ========= =========
</TABLE>
Assumptions used in developing the net periodic costs were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.50% 7.25% 7.25%
Rate on increase in compensation........................... 5.00% 5.00% 5.00%
Expected long-term rate of return of plan assets........... 8.00% 8.00% 8.00%
</TABLE>
F-102
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
ESTIMATED ------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Land................................. -- $ 350,000 $ 350,000
Building............................. 39 years 4,439,190 4,439,190
Printing machinery and equipment..... 5-10 years 5,053,678 6,210,351
Office equipment..................... 5-7 years 391,145 410,586
Automotive equipment................. 5 years 207,379 194,323
----------- -----------
$10,441,392 $11,604,450
Accumulated depreciation............. (3,479,571) (3,816,191)
----------- -----------
$ 6,961,821 $ 7,788,259
=========== ===========
</TABLE>
5. NOTES PAYABLE TO BANK
The Company has a revolving credit agreement for loans up to $500,000, with
a variable interest rate based on prime. At December 31, 1996 and 1997, there
were no balances outstanding under this line. The line expires on May 17, 1998
and is secured by inventories and accounts receivable.
6. LONG-TERM DEBT TO STOCKHOLDERS
Long-term notes payable to stockholders were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
8% unsecured note due January 1, 1999................. $ 588,000 $ 607,000
8% unsecured note due January 1, 1999................. 1,200,000 1,200,000
---------- ----------
$1,788,000 $1,807,000
========== ==========
</TABLE>
Notes in the principal amount of $900,000 were converted to 714 shares of
common stock in 1995. Interest paid on the above stockholders' notes amounted
to $216,000, $152,000 and $147,510 in 1995, 1996 and 1997, respectively.
7. OTHER LONG-TERM DEBT
A summary of long-term debt, excluding notes to stockholders, follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
--------- -----------
<S> <C> <C>
Notes payable to bank in monthly installments of
$20,944, including interest at 7.0%, due January
1 2004; secured by printing machinery............ $ -- $ 1,229,502
Note payable to bank in monthly installments of
$12,812; including interest at 7.5%, due March
15, 1999; secured by printing machinery.......... 317,581 183,312
Note payable to February 1, 1998, interest at 7.56
% secured by printing machinery. The Company has
a bank commitment to refinance on February 1,
1998............................................. -- 2,380,000
Note payable to bank in monthly installments of
$35,416, including interest at 8.0%, due January
1, 2004; secured by land and building............ 3,253,695 3,086,453
</TABLE>
F-103
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Note payable to January 1, 1997, interest at 7.93%,
secured by printing machinery; refinanced January
1, 1997........................................... 1,285,700 --
Note payable to bank in monthly installments of
$11,792, plus interest at 7%, due August 15, 2000,
secured by printing machinery..................... 518,865 --
Note payable to bank in monthly installments of
$10,785, including interest at 8.0%, due April 15,
2000; secured by equipment........................ -- 274,260
Note payable to bank in monthly installments of
$15,000, plus interest at prime, due December 31,
2000, secured by accounts receivable and
inventory......................................... 720,000 --
---------- ----------
6,095,841 7,153,527
Less current portion............................... 786,494 872,437
---------- ----------
$5,309,347 $6,281,090
========== ==========
</TABLE>
Interest paid to non-related parties was $450,955, $425,542 and $512,593 in
1995, 1996, and 1997, respectively. Future maturities of long-term debt at
December 31, 1997 follow:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ----------
<S> <C>
1998............................................................. $ 872,437
1999............................................................. 848,402
2000............................................................. 784,936
2001............................................................. 800,979
2002............................................................. 863,554
Thereafter....................................................... 2,983,219
----------
$7,153,527
==========
</TABLE>
8. SUBSEQUENT EVENT
As of March 4, 1998, Master Graphics, Inc. acquired all of the outstanding
common stock of the Company and simultaneously refinanced the Company's
outstanding debt. Prior to the closing, the Company's land and building and
the related mortgage debt were sold to the Company's previous stockholders,
who have entered into a lease agreement with Premiere Graphics, Inc., a
subsidiary of Master Graphics, for the use of the facility.
F-104
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
HARPERPRINTS, INC.
We have audited the accompanying Balance Sheets of HARPERPRINTS, INC. (the
"Company") as of December 31, 1996 and 1997, and the related Statements of
Income, Changes in Stockholders' Equity and Cash Flows for the years then
ended. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the Company's financial position as of December 31,
1996 and 1997, and the results of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Becker & Company, P.C.
February 26, 1998, except for Note 14, which is as of March 25, 1998
Lanham, Maryland
F-105
<PAGE>
HARPERPRINTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $ 268,200 $ 5,768
Trade accounts receivable, net of allowance for doubtful
accounts of $8,027 in 1996 and $12,396 in 1997.......... 1,211,432 1,430,976
Current portion of employee notes receivable............. 2,199 275
Raw materials inventory.................................. 158,426 139,677
Unbilled receivables..................................... 137,275 490,013
Prepaid expenses......................................... 15,416 14,871
Prepaid income taxes..................................... 121,360 27,404
Current portion of mortgage note receivable.............. 2,453 2,657
Current portion of stockholder note receivable........... 76,667 153,333
Stockholder loan (see Note 9)............................ 199,631 8,569
Other receivables........................................ -- 10,956
---------- ----------
Total Current Assets.................................... 2,193,059 2,284,499
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated amortization
and depreciation (see Note 3)........................... 2,789,378 3,155,114
---------- ----------
LEASED PROPERTY UNDER CAPITAL LEASES, net of accumulated
amortization (see Note 4)............................... 686,406 531,224
---------- ----------
OTHER ASSETS
Deposits................................................. 25,919 33,809
Mortgage note receivable (see Note 5).................... 97,204 94,547
Stockholder note receivable, noncurrent portion (see Note
9)...................................................... 153,334 76,667
Employee notes receivable, noncurrent portion............ 780 --
Life insurance cash surrender value, net of policy loans
of $20,382 in 1996 and $16,150 in 1997.................. 279,255 297,051
---------- ----------
Total Other Assets...................................... 556,492 502,074
---------- ----------
TOTAL ASSETS............................................ $6,225,335 $6,472,911
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations............. $ 161,298 $ 118,844
Current portion of long-term debt........................ 786,672 872,966
Trade accounts payable................................... 374,748 805,741
Advance billings......................................... 258,347 156,807
Payroll and sales taxes payable.......................... 11,736 15,561
Accrued expenses......................................... 313,992 246,332
---------- ----------
Total Current Liabilities............................... 1,906,793 2,216,251
---------- ----------
NONCURRENT LIABILITIES
Capital lease obligations, net of current portion (see
Note 4)................................................. 209,884 98,548
Long-term debt, net of current portion (see Note 7)...... 1,215,232 1,077,476
---------- ----------
Total Noncurrent Liabilities............................ 1,425,116 1,176,024
---------- ----------
DEFERRED INCOME TAXES (see Note 8)....................... 424,281 439,578
---------- ----------
Total Liabilities...................................... 3,756,190 3,831,853
---------- ----------
STOCKHOLDERS' EQUITY
Common stock............................................. 48,031 48,031
Retained earnings........................................ 2,472,994 2,644,907
---------- ----------
2,521,025 2,692,938
Less Treasury stock, at cost............................. 51,880 51,880
---------- ----------
Total Stockholders' Equity............................. 2,469,145 2,641,058
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $6,225,335 $6,472,911
========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-106
<PAGE>
HARPERPRINTS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
SALES, net............................................ $10,428,129 $10,904,116
Manufacturing costs................................... 7,512,931 8,296,689
----------- -----------
GROSS PROFIT.......................................... 2,915,198 2,607,427
Administrative expenses............................... 846,751 968,304
Selling expenses...................................... 900,548 952,657
Profit sharing and incentives (see Note 10)........... 199,996 111,500
----------- -----------
OPERATING EXPENSES.................................... 1,947,295 2,032,461
----------- -----------
OPERATING INCOME...................................... 967,903 574,966
Other income (expenses), net.......................... 20,848 (100,887)
Interest (expense).................................... (223,388) (177,296)
----------- -----------
INCOME BEFORE INCOME TAXES............................ 765,363 296,783
Income tax expense (see Note 8)....................... 306,585 124,870
----------- -----------
NET INCOME............................................ $ 458,778 $ 171,913
=========== ===========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-107
<PAGE>
HARPERPRINTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ($100 PAR VALUE) TREASURY STOCK
---------------------------------- --------------- TOTAL
SHARES SHARES RETAINED SHARES STOCKHOLDERS
AUTHORIZED ISSUED AMOUNT EARNINGS HELD AMOUNT EQUITY
----------------------- ---------- ---------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at December 31,
1995................... 1,000 480.3082 $ 48,031 $2,014,216 60 $(51,880) $2,010,367
NET INCOME............ -- -- -- 458,778 -- -- 458,778
-------- ----------- ---------- ---------- --- -------- ----------
BALANCE at December 31,
1996................... 1,000 480.3082 48,031 2,472,994 60 (51,880) 2,469,145
NET INCOME............ -- -- -- 171,913 -- -- 171,913
-------- ----------- ---------- ---------- --- -------- ----------
BALANCE at December 31,
1997................... 1,000 480.3082 $ 48,031 $2,644,907 60 $(51,880) $2,641,058
======== =========== ========== ========== === ======== ==========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-108
<PAGE>
HARPERPRINTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 458,778 $171,913
Adjustment to reconcile net income to net cash provided
by operating activities
Depreciation and amortization............................ 713,329 820,142
(Gain) on sale of assets................................. (21,932) (24,392)
Deferred taxes........................................... 73,786 15,651
Deposits................................................. 166,129 --
Trade accounts receivable, net........................... 95,310 (219,544)
Raw materials inventory and unbilled receivables......... 58,210 (333,990)
Other current assets..................................... (5,265) (18,846)
Trade accounts payable................................... 74,925 430,993
Income taxes payable..................................... (401,196) 93,602
Other current liabilities................................ 123,305 (168,275)
--------- --------
Net Cash Provided By Operating Activities................ 1,335,379 767,254
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................... (421,361) (282,984)
Proceeds from sale of assets............................. 55,695 55,500
Cash surrender value of life insurance, net of loans..... (14,116) (17,796)
Stockholder loan repayment............................... (429,632) 178,163
--------- --------
Net Cash (Used for) Investing Activities................. (809,414) (67,117)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments from mortgage note receivable......... 2,266 2,453
Principal payments on long-term debt and capital leases.. (854,012) (967,726)
Principal payments from employee loans................... 5,559 2,704
--------- --------
Net Cash (Used for) Financing Activities................. (846,187) (962,569)
--------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS.............. (320,222) (262,432)
Beginning of year........................................ 588,422 268,200
--------- --------
End of year.............................................. $ 268,200 $ 5,768
========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid interest of $215,983 and $172,855 for the years ending
December 31, 1996 and 1997, respectively.
The Company paid income taxes of $636,796 and $15,617 for the years ending
December 31, 1996 and 1997, respectively.
The Company incurred capital lease and notes payable obligations for new
equipment of $1,157,369 and $762,475 for the years ended December 31, 1996 and
1997, respectively.
See Independent Auditors' Report and Notes to Financial Statements
F-109
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND PURPOSE
HARPERPRINTS, INC. (the "Company") was incorporated on May 31, 1974 under
the laws of the State of North Carolina. The Company manufactures and sells
printed products from its location in Henderson, North Carolina. The Company
grants credit to customers, substantially all of whom are commercial
establishments located in North Carolina and Southern Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's financial statements are prepared on the accrual basis of
accounting. Therefore, revenues and related assets are recognized when earned,
and expenses and related liabilities are recognized when the obligations are
incurred.
Investments
Investments are stated at amortized cost which approximates market value.
Raw Materials Inventory
Inventories of paper and materials are stated at the lower of cost or market
on a first-in, first-out (FIFO) basis.
Unbilled Receivables
Unbilled receivables represent direct costs, estimated overhead recovery and
estimated profit on printing jobs in process, and approximates revenue
recognition on the percentage of completion basis.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the
estimated losses that will be incurred on current year sales. Direct write
offs are made to the allowance when an account is determined to be
uncollectible.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged against operations. Renewals and betterments that
materially extend the life of the assets are capitalized.
The cost of assets sold, retired, or otherwise disposed of, and the related
allowance for depreciation and amortization are eliminated from the accounts,
and any resulting gain or loss is included in income.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated useful lives on the
straight-line basis, ranging from 3 to 12 years. Assets purchased under
capital lease obligations are amortized over their estimated lives on the
straight-line basis, ranging from 5 to 10 years.
Depreciation and amortization expenses totaled $713,329 and $820,142 for the
years ended December 31, 1996 and 1997, respectively.
F-110
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three
months or less to be cash equivalents, allowing for reasonable comparisons of
cash flows. The Company maintains balances which at times may exceed federally
insured limits. Management monitors the soundness of the financial
institution(s) and feels the risk is negligible.
Income Taxes
Deferred income taxes reflect timing differences which occur when income and
expense items are reported for financial and tax purposes in different
periods. These differences are attributable to accelerated depreciation
methods used for income tax purposes, versus straight-line depreciation used
for financial statement purposes.
Use of Estimates
These financial statements have been prepared in accordance with generally
accepted accounting principles and necessarily include amounts based on
estimates and assumptions by management. Actual results could differ from
these amounts.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Leasehold improvements................................ $ 69,599 $ 101,066
Machinery and equipment............................... 5,632,096 6,203,359
Furniture and fixtures................................ 157,810 224,675
Vehicles.............................................. 59,836 64,176
---------- ----------
5,919,341 6,593,276
Less accumulated amortization and depreciation........ 3,129,963 3,438,162
---------- ----------
$2,789,378 $3,155,114
========== ==========
</TABLE>
4. CAPITAL LEASES
Equipment financed by capital leases at December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Machinery and equipment............................... $1,424,429 $1,455,322
Less accumulated amortization......................... 738,023 924,098
---------- ----------
$ 686,406 $ 531,224
========== ==========
</TABLE>
Future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998............................................................... $131,485
1999............................................................... 50,495
2000............................................................... 33,198
2001............................................................... 28,778
--------
Total minimum lease payments....................................... $243,956
Less amount representing interest.................................. 26,564
--------
Present value of net minimum lease payments........................ $217,392
========
</TABLE>
F-111
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. MORTGAGE NOTE RECEIVABLE
The Company's majority stockholders are indebted under a second mortgage
note (see Note 9), bearing interest at 8%, collectible in monthly payments of
$861, including interest, with the final payment due June 1, 2015.
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Total mortgage note receivable.............................. $99,657 $97,204
Less current portion........................................ 2,453 2,657
------- -------
Noncurrent portion of note receivable..................... $97,204 $94,547
======= =======
</TABLE>
6. REVOLVING LOAN
The Company maintains a Line of Credit ("LOC") at NationsBank (the "Bank")
with a $1,000,000 principal ceiling. The LOC is payable on demand with an
expiration date of May 31, 1998. It is secured by the Company's accounts
receivable and inventory, and bears interest at the Bank's 30-day libor rate
plus 2.75%. There were no balances outstanding as of December 31, 1996 and
1997. This LOC is subject to the following covenants:
1. Debt to equity ratio not to exceed 2.4 to 1
2. Debt service coverage ratio not less than 1.2 to 1
The Company was in compliance with the covenants as of December 31, 1996.
The Company was not in compliance with the debt service covenant as of
December 31, 1997 and received a waiver from the Bank.
F-112
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT UNDER NOTES PAYABLE
Long-term debt at December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Notes payable (2) to CIT Group; secured by printing
presses and guaranteed by the majority stockholders;
refinanced November 1993; secured by equipment
costing $2,887,085; beginning December 24, 1993,
payable in monthly payments of $56,774, including
interest at 8.5%; final payment due November 24,
1998................................................. $1,201,072 $ 598,768
Note payable to Estate of Elizabeth Harper (a related
party); payable in monthly payments of $801,
including interest at 9.5%; final payment made April
1, 1997.............................................. 2,365 --
Note payable to CIT Group; secured by equipment
costing $222,080; payable in monthly payments of
$4,556, including interest at 8.5%; final payment due
February 17, 1999.................................... 107,849 60,524
Notes payable (2) to Bobst Equipment Finance Co.;
secured by bindery equipment costing $849,000;
monthly payments of $15,658, including interest at
8.45%; final payment due May 2001.................... 690,618 544,196
Notes payable (2) to Phoenixcor; secured by equipment
costing $939,960; monthly payments of $11,813,
including interest at 8.5%; final payment due October
21, 2004............................................. -- 732,855
Note payable to NationsBank; secured by a van costing
$23,515; monthly payments of $527, including interest
at 9%; final payment due June 30, 2000............... -- 14,099
---------- ----------
2,001,904 1,950,442
Less current portion.................................. 786,672 872,966
---------- ----------
$1,215,232 $1,077,476
========== ==========
</TABLE>
Notes payable maturities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998........................................................... $ 872,966
1999........................................................... 264,114
2000........................................................... 274,317
2001........................................................... 183,210
2002........................................................... 115,963
Thereafter..................................................... 239,872
----------
$1,950,442
==========
</TABLE>
8. INCOME TAXES
The income tax provision at December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Federal and state income taxes, current year.............. $232,799 $117,475
Income tax expense, deferred.............................. 73,786 7,395
-------- --------
$306,585 $124,870
======== ========
</TABLE>
F-113
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes are provided for temporary differences between income
tax and financial statement recognition of revenues and expenses. Deferred tax
liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
GROSS DEFERRED TAX LIABILITIES
Depreciation and amortization................................ $485,405 $485,298
-------- --------
GROSS DEFERRED TAX ASSETS
Items deductible in future years............................. -- 7,116
Alternative minimum tax credit............................... 61,124 38,604
-------- --------
61,124 45,720
-------- --------
NET DEFERRED TAX LIABILITY................................... $424,281 $439,578
======== ========
</TABLE>
The income tax rate on earnings differed from the federal statutory rate are
as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net federal statutory rate...................................... 34.0% 33.4%
State income and franchise taxes, net of federal tax benefits... 5.6 6.9
Other adjustments............................................... .5 1.8
---- ----
EFFECTIVE RATE.................................................. 40.1% 42.1%
==== ====
</TABLE>
9. LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS
On May 31, 1994, the Company entered into a sale and leaseback agreement
with the majority stockholders for the purchase of land and building for its
offices and manufacturing operations. The land and building were sold for
$530,000 (the estimated fair value at that time). First Deed of Trust
financing in the amount of $425,000 was provided by NationsBank of North
Carolina and the Company took back a Second Deed of Trust note in the amount
of $105,000 (see Note 5). At the same time, the Company entered into a lease
agreement for the rental of the land and building under a noncancelable 5-year
lease expiring May 31, 1999. During 1997, the majority stockholders completed
a major expansion and renovation of their facility to accommodate Company
growth. Rent on the new facilities is $24,979 per month (which approximates
fair market value) beginning August 1, 1996 with an annual escalation of 2.5%.
The Company has the option of extending the lease agreement for an additional
five years with written notice before the expiration of the fourth year of the
term of the lease. Rent expense charged to operations was $130,703 and
$304,121 for the years ended December 31, 1996 and 1997, respectively.
Future minimum lease payments under this lease are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998............................................................. $311,724
1999............................................................. 131,219
</TABLE>
The Company advanced the majority stockholders $465,851 for plant addition
and renovation construction costs. The stockholders repaid $227,282 in 1997;
$230,000 is payable under a note agreement in annual principal payments of
$76,667, plus quarterly interest payments of 7.08%, with the final payment due
by December 31, 1999 (the "Note Agreement"); and a balance remains of $8,569.
Future principal payment receipts under the Note Agreement are as follows:
<TABLE>
<S> <C>
1998................................................................ $153,333
1999................................................................ 76,667
--------
Total............................................................. $230,000
========
</TABLE>
F-114
<PAGE>
HARPERPRINTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The December 31, 1997 payment under the Note Agreement was not received by
the Company. The overdue payment of $76,667 and the remaining balance of
$8,569 are expected to be paid by the end of the first quarter of 1998.
The Company maintains various operating leases for equipment and vehicles.
Future minimum monthly rentals and service contract commitments under these
equipment leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $188,748
1999................................................................ 170,462
2000................................................................ 59,485
2001................................................................ 11,102
</TABLE>
On December 20, 1993, the Company entered into a deferred compensation
agreement with a retired employee. Beginning in January 1994, the Company is
required to make 15 annual payments of $5,600. The required payments were made
in 1996 and 1997.
10. PROFIT SHARING PLAN AND INCENTIVES
The Company maintains a 401(k) profit sharing plan, effective January 1,
1987, for all employees who (1) elect to be covered, (2) are at least 18 years
of age, and (3) work at least 1,000 hours per year. The participating
employees may contribute from 2% to 12% of eligible compensation.
The Company's contribution is discretionary and is determined annually by
the Board of Directors. The provision for the discretionary contribution to
the 401(k) profit sharing plan was $27,500 and $11,125 for the years ended
December 31, 1996 and 1997, respectively.
In addition, the Company awarded bonuses of $172,496 and $100,375 for the
years ended December 31, 1996 and 1997, respectively.
11. CONTINGENCY
The Company maintains a self-insurance program for its employees' health
care costs. The Company is liable for losses on claims up to $15,000 per
employee per year. The Company has third party insurance coverage for any
losses in excess of such amounts. Self-insurance costs are accrued based upon
claims reported as of the Balance Sheet date as well as an estimated liability
for claims incurred, but not reported.
12. CONCENTRATION OF RISK
The Company made sales to a single customer that were approximately 45% of
total sales in 1997.
13. RECLASSIFICATION OF FINANCIAL DATA
During 1997, the Company reclassified the presentation of various expense
line items. These reclassifications had no effect on net income.
14. RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements were reformatted and additional income tax
disclosure was provided in conjunction with a proposed S-1 filing with the
Securities and Exchange Commission.
F-115
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCK-
HOLDER OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Historical, Combined and Pro Forma Financial Data............... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Industry Overview........................................................ 27
Business................................................................. 28
Management............................................................... 35
Certain Transactions..................................................... 41
Principal and Selling Shareholders....................................... 43
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 53
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,600,000 SHARES
MASTER GRAPHICS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MORGAN KEEGAN & COMPANY, INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses of the
Registrant in connection with the Offering described in the Registration
Statement.
<TABLE>
<S> <C>
Registration fee to the SEC..................................... $ 15,877
NASD fee........................................................ 5,882
Nasdaq Stock Market application fee............................. 69,375
Accounting fees and expenses.................................... 500,000*
Legal fees and expenses......................................... 200,000*
Printing and engraving expenses................................. 100,000*
Blue sky fees and expenses...................................... 10,000*
Transfer agent and registrar fees............................... 4,500
Miscellaneous fees and expenses................................. 10,000*
--------
Total......................................................... $915,634
========
</TABLE>
- --------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any director or officer against liability incurred in connection
with a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interests, and, in all other cases, that his or her conduct
was not opposed to the best interests of the corporation, and (iii) the
director or officer in connection with any criminal proceeding had no
reasonable cause to believe that his or her conduct was unlawful. In actions
brought by or in the right of the corporation, however, the TBCA provides that
no indemnification may be made if the director or officer is adjudged liable
to the corporation. Similarly, the TBCA prohibits indemnification in
connection with any proceeding charging improper personal benefit to a
director or officer, if such director or officer is adjudged liable on the
basis that a personal benefit was improperly received. In cases where the
director or officer is wholly successful, on the merits or otherwise, in the
defense of any proceeding instigated because of his or her status as a
director or officer of a corporation, the TBCA mandates that the corporation
indemnify the director or officer against reasonable expenses incurred in the
proceeding. Notwithstanding the foregoing, the TBCA provides that a court of
competent jurisdiction, upon application, may order that a director or officer
be indemnified for reasonable expense if, in consideration of all relevant
circumstances, the court determines that such individual is fairly and
reasonably entitled to indemnification, whether or not the standard of conduct
set forth above was met.
The Company's bylaws (the "Bylaws") provide that the Company will indemnify
from liability, and advance expenses to, any present or former director or
officer of the Company to the fullest extent allowed by the TBCA The Bylaws
also provide for mandatory indemnification of a director or officer who was
wholly successful, on the merits or otherwise, against reasonable expenses
incurred by the director or officer.
The Company's charter (the "Charter") states that, to the fullest extent
permitted by the TBCA, the directors will not be liable to the Company or its
shareholders for monetary damages for breach of their fiduciary duty as a
director. The Charter provides for the indemnification of a director or
officer made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
she is or was a director or officer of the Company, against all expense,
liability and loss actually and reasonably incurred to the fullest extent
permitted by applicable law.
II-1
<PAGE>
The proposed form of the Underwriting Agreement filed as Exhibit 1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company, its
controlling persons and the Selling Shareholder.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to certain note modification agreements, on May 20, 1997 the
Company issued to Jack Gammon and Harold Martin, former B&M Printing
shareholders, rights to purchase 50,000 and 16,666 shares of Common Stock,
respectively (assuming an initial offering price equal to the Mid-Point). In
addition, pursuant to a third note modification agreement, on May 22, 1997 the
Company issued to Carl Nelson, also a former B&M Printing shareholder, the
right to purchase 41,666 shares of Common Stock (assuming an initial offering
price equal to the Mid-Point).
In connection with the formation of the Company on June 19, 1997 the Company
issued 100 shares of Common Stock to John P. Miller for $1.00 per share. In
connection with the redomestication of the Company from the State of Delaware
to the State of Tennessee on March 26, 1998, the 100 shares of the Delaware
corporation were converted into 100 shares of the Tennessee corporation. Both
of such transactions were completed without registration under the Securities
Act of 1933, as amended (the "Securities Act") in reliance upon the exemption
provided by Section 4(2) of the Securities Act.
On June 19, 1997, the Company issued to Sirrom Capital Corporation a warrant
to purchase 6% of the Common Stock at an exercise price of $.01 per share in
connection with the extension of a $4.3 million loan from Sirrom Capital
Corporation to the Company. The sale was completed without registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act.
On December 19, 1997, the Company issued to General Electric Capital
Corporation a warrant to purchase 3.8674 shares of Common Stock for an
aggregate exercise price of $100 and a warrant to purchase .57704 shares of
Common Stock for an aggregate purchase price of $100. The lender exercised the
warrant on March 27, 1998 and exchanged the Common Stock for 177,776 (assuming
a 40,000 to one stock split) shares of Series A Preferred Stock. Moreover, in
connection with the financing of an acquisition the lender was issued a
warrant to purchase 183,333 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) for nominal value. Each sale was
completed without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act.
In connection with the acquisition of the Acquired Companies, the Company
has issued warrants to purchase an aggregate of 1,506,597 shares of Common
Stock at an exercise price equal to the initial public offering price of the
Common Stock. Moreover, the Company has issued to the former owners of the
acquired companies promissory notes in the aggregate principal amount of $15.4
million, which bear interest at 12% per annum. Each sale was completed without
registration under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act. The following table indicates the
purchaser, the securities offered, and the date of the offering.
<TABLE>
<CAPTION>
DOLLAR
VALUE OF DOLLAR VALUE
HOLDER WARRANTS(1) OF NOTES DATE OF GRANT
- ------ ----------- ------------ ------------------
<S> <C> <C> <C>
William J. and Brenda M. Blackwell $1,000,000 $1,000,000 June 19, 1997
Walter P. McMullen 3,750,000 3,750,000 June 19, 1997
David Sutherland, III 325,000 1,090,000 June 19, 1997
Joseph M. Jensen 1,875,000 1,875,000 September 22, 1997
Allan R. Bartel 1,875,000 1,875,000 September 22, 1997
Joseph Segal 2,325,000 557,750 December 16, 1997
Cary Rosenthal 2,325,000 557,750 December 16, 1997
Wendell Burns 1,117,105 1,217,105 December 16, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
DOLLAR
VALUE OF DOLLAR VALUE
HOLDER WARRANTS(1) OF NOTES DATE OF GRANT
- ------ ----------- ------------ -----------------
<S> <C> <C> <C>
Robert Rymer 132,895 32,895 December 16, 1997
Phil Phillips, Jr. 854,219 854,219 March 6, 1998
Scott Diamond -- 11,500 December 16, 1997
Ross Lenhart -- 11,500 December 16, 1997
Richard Roberts -- 11,500 December 16, 1997
H. Henry Hederman 9,604 9,604 March 1, 1998
Hap Hederman 703,500 703,500 March 1, 1998
H. Henry Hederman Grandchild
Trust No. 1 U/A dated 12/31/87 43,448 43,448 March 1, 1998
H. Henry Hederman Grandchild
Trust No. 2 U/A dated 12/31/87 43,448 43,448 March 1, 1998
H. Henry Hederman, Jr.
Trust U/A 12/31/75 1,200,000 1,200,000 March 1, 1998
Michael G. Harper 250,000 1,125,000 March 31, 1998
Lynn H. Harper 250,000 -- March 31, 1998
</TABLE>
- --------
(1) Each warrant holder is entitled to purchase a maximum number of shares
equal to the Dollar Value of Warrants granted divided by the initial public
offering price of the shares. The exercise price is the initial public
offering price (i.e., if the Dollar Value of the warrant is $1,000,000 and
the initial public offering price is $12.00, the holder is entitled to
purchase 83,333 shares at the exercise price of $12.00 per share).
II-3
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1 Charter of Master Graphics, Inc.
3.2* Certificate of Incorporation of Premier Graphics, Inc.
3.3 Bylaws of Master Graphics, Inc.
3.4 Bylaws of Premier Graphics, Inc.
4.1* Form of Common Stock Certificate
4.2* Form of 5% Series A Cumulative Redeemable Preferred Stock
Certificate
4.3* Articles of Amendment to the Charter of Master Graphics, Inc.
Designating and Fixing the Rights and Preferences of a Series and
Preferred Shares of Stock
4.4* Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and Sirrom Capital Corporation
4.5 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and William J. Blackwell and Brenda M. Blackwell
4.6 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and Walter P. McMullen
4.7 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and David Sutherland, III
4.8* Stock Purchase Warrant dated September 22, 1997 between Master
Graphics, Inc., John P. Miller and Joseph M. Jensen
4.9* Stock Purchase Warrant dated September 22, 1997 between Master
Graphics, Inc., John P. Miller and Allan R. Bartel
4.10 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Joseph Segal
4.11 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Cary Rosenthal
4.12 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Wendell Burns
4.13 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Robert Rymer
4.14 Stock Purchase Warrant dated March 6, 1998 between Master Graphics,
Inc., John P. Miller and Phil Phillips, Jr.
4.15 Stock Purchase Warrant dated March 31, 1998 between Master Graphics,
Inc., John P. Miller and Michael G. Harper
4.16 Stock Purchase Warrant dated March 31, 1998 between Master Graphics,
Inc., John P. Miller and Lynn H. Harper
4.17 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and H. Henry Hederman
4.18 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Martha Dean Hederman, Trustee of the H.
Henry Hederman Grandchild Trust No. 1 U/A dated 12/31/87
4.19 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Martha Dean Hederman, Trustee of the H.
Henry Hederman Grandchild Trust No. 2 U/A dated 12/31/87
4.20 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and H. Henry Hederman, Jr. and Zach T.
Hederman, as Trustees of the H. Henry Hederman, Jr. Trust U/A dated
December 31, 1975
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
4.21 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Hap Hederman, Jr.
4.22* Form of Stock Purchase Warrant
4.23* Form of Option Grant
4.24* Stock Purchases Warrant dated April 1, 1998 between Master Graphics,
Inc. and General Electric Capital Corporation
4.25* Note Modification Agreement dated May 20, 1997 between Harold Martin
and Master Printing, Inc.
4.26* Note Modification Agreement dated May 22, 1997 between Carl Nelson
and Master Printing, Inc.
4.27* Note Modification Agreement dated May 20, 1997 between Jack Garmon
and Master Printing, Inc.
4.28* Registration Rights Agreement dated March 30, 1998 between Master
Graphics, Inc. and General Electric Capital Corporation
4.29* Exchange Agreement dated March 30, 1998 between General Electric
Capital Corporation and Master Graphics, Inc.
5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation regarding legality of securities being registered
10.1* Agreement and Plan of Merger dated as of June 18, 1997 by and
between B&M Printing Company, Inc. and Premier Graphics, Inc.
10.2* Agreement for Sale and Purchase of Corporate Stock dated as of June
17, 1997, between William J. Blackwell and Brenda M. Blackwell and
Master Graphics, Inc.
10.3 Agreement and Plan of Merger dated as of June 18, 1997 by and
between Blackwell Lithographers, Inc. and Premier Graphics, Inc.
10.4* Stock Purchase Agreement dated as of June 4, 1997 among Master
Graphics, Inc. and Walter P. McMullen
10.5* First Amendment to Stock Purchase Agreement dated as of June 19,
1997 by and between Master Graphics, Inc. and Walter P. McMullen
10.6 Agreement and Plan of Merger dated as of June 18, 1997 between
Lithograph Printing Company of Memphis and Premier Graphics, Inc.
10.7* Asset Purchase Agreement dated as of May 20, 1997 among Sutherland
Printing Company, Inc., David Sutherland, III and Master Printing,
Inc.
10.8 Assignment of Asset Purchase Agreement dated June 19, 1997 between
Master Printing, Inc. and Premier Graphics, Inc.
10.9* Agreement for Sale and Purchase of Corporate Stock dated September
22, 1997 between The Argus Press, Inc., Joseph M. Jensen, Allan R.
Bartel and Master Graphics, Inc.
10.10 Agreement and Plan of Merger dated as of September 22, 1997, between
The Argus Press, Inc. and Premier Graphics, Inc.
10.11 Stock Purchase Agreement dated as of December 15, 1997 by Master
Graphics, Inc., Cary Rosenthal, Joseph Segal, Ross Lenhart, Richard
Roberts and Scott Diamond.
10.12 Agreement and Plan of Merger dated as of December 16, 1997, between
Phoenix Communications, Inc. and Premier Graphics, Inc.
10.13 Agreement and Plan of Merger dated as of December 16, 1997, between
King Mailing Services, Inc. and Premier Graphics, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
10.14 Stock Purchase Agreement dated December 16, 1997 between Master
Graphics, Inc. and Wendell Burns and Robert Rymer
10.15 Agreement and Plan of Merger dated as of December 16, 1997, between
Jones Printing Company, Inc. and Premier Graphics, Inc.
10.16 Stock Purchase Agreement dated as of March 1, 1998 between Master
Graphics, Inc. and H. Henry Hederman, H. Henry Hederman, Jr., and
Martha Dean Hederman, as Trustee of the H. Henry Hederman Grandchild
Trust No. 1 U/A dated 12/31/87, and Martha Dean Hederman, as Trustee
of the H. Henry Hederman Grandchild Trust No. 2 U/A dated 12/31/87
10.17 Agreement and Plan of Merger dated as of March 1, 1998 between
Hederman Brothers, Inc. and Premier Graphics, Inc.
10.18 Stock Purchase Agreement dated March 1, 1998 between Master
Graphics, Inc., Premier Graphics, Inc., John P. Miller and Phil
Phillips, Jr.
10.19 Stock Purchase Agreement dated March 31, 1997 between Master
Graphics, Inc. and Michael G. Harper, individually and as custodian
for Emily Hines Harper, a minor, and Lynn H. Harper, individually
and as custodian for Davis Hillman Harper, a minor
10.20* Agreement and Plan of Merger between Harperprints, Inc. and Premier
Graphics, Inc.
10.21* Merger Agreement dated April 8, 1998 between Master Graphics, Inc.,
Master Acquisitionsub, Inc., and McQuiddy Printing Company
10.22* Agreement and Plan of Merger between McQuiddy Printing Company and
Premier Graphics, Inc.
10.23* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and John P. Miller
10.24* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and Robert J. Diehl
10.25* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and P. Melvin Henson, Jr.
10.26* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and Lance T. Fair
10.27* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and James B. Duncan
10.28* Noncompetition Agreement dated as of June 19, 1997 between Premier
Graphics, Inc. and David Sutherland, III, and Sutherland Printing
Company, Inc.
10.29 Noncompetition Agreement dated as of December 16, 1997 between
Master Graphics, Inc. and Joseph Segal
10.30* Noncompetition Agreement dated as of December 16, 1997 between
Master Graphics, Inc. and Cary Rosenthal
10.31 Noncompetition Agreement dated as of December 16, 1997 by and
between Master Graphics, Inc. and Wendell Burns
10.32 Noncompetition Agreement dated as of March 1, 1998 by and between
Master Graphics, Inc. and H. Henry Hederman, Jr.
10.33* Noncompetition Agreement by and between David L. McQuiddy, III and
Master Graphics, Inc.
10.34 Noncompetition Agreement dated as of March 31, 1998 by and between
Master Graphics, Inc. and Lynn H. Harper
10.35 Noncompetition Agreement dated as of March 1, 1998 by and between
Master Graphics, Inc. and Phil Phillips, Jr.
10.36 Commercial Lease Agreement dated December 4, 1992 between John P.
Miller, as Lessor and B&M Printing Company, as Lessee, Memphis,
Tennessee
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
10.37 Amended and Restated Lease Agreement--Office, Commercial Printing
and Commercial Warehouse Facility dated as of June 16, 1997 between
Graphic Development Company, L.P. and Lithograph Printing Company of
Memphis, Memphis, Tennessee
10.38* Industrial Building Lease Agreement dated June 1, 1971 and assigned
by The Argus Press, Inc. to Premier Graphics, Inc. as of September
26, 1997, by and between LaSalle National Bank as Trustee of Trust
#42560, as Lessor and Premier Graphics, Inc., as Lessee, Niles,
Illinois
10.39* Lease Agreement dated May 1, 1995 by and between RFTA Associates,
LLC, a Georgia limited liability company, and Phoenix
Communications, Inc., Chamblee, Georgia
10.40* Standard Industrial Lease Agreement dated October 17, 1994 by and
between RSH Properties, L.L.C., as Lessor and King Mailing Services,
Inc., as Lessee, Chamblee, Georgia
10.41* Commercial Lease Agreement dated as of December 16, 1997 by and
between Wendell H. Burns and Premier Graphics, Inc., Chattanooga,
Tennessee
10.42* Commercial Lease Agreement for Hederman Brothers, Inc.--Ridgeland,
Mississippi
10.43* Standard Industrial Lease Agreement dated October 14, 1997 by and
between Fl Corp, as Lessor and Hederman Brothers, Inc, as Lessee,
Little Rock, Arkansas
10.44* Commercial Lease Agreement dated March 1, 1998 by and between Phil
Phillips, Jr. and Premier Graphics, Inc., Springdale, Arkansas
10.45* Commercial Lease Agreement dated January 8, 1998 by and between
Crescent Center Limited Partnership, as Lessor and Master Graphics,
Inc., as Lessee, Memphis, Tennessee
10.46 Commercial Lease Agreement dated March 1, 1998 between Arrowhead
Real Estate, LLC and Premier Graphics, Inc.
10.47 Loan Agreement by and between Sirrom Capital Corporation and Master
Graphics, Inc. and Premier Graphics, Inc. dated June 19, 1997
10.48 Loan and Security Agreement by and between First American National
Bank and Master Graphics, Inc. and Premier Graphics, Inc. dated June
19, 1997
10.49 Amended and Restated Loan and Security Agreement by and between
General Electric Capital Corporation and Premier Graphics, Inc.
dated December 16, 1997
10.50 Noncompetition Agreement dated as of March 31, 1998 by and between
Master Graphics, Inc. and Michael G. Harper
10.51 Bill of Sale dated December 31, 1997 between B & M Printing Company
and John P. Miller
10.52 Promissory Note dated December 31, 1997 between John P. Miller and
Premier Graphics, Inc.
10.53 Promissory Note dated December 10, 1992 between John P. Miller and B
& M Printing Company
10.54 Noncompetition Agreement dated as of March 1, 1998 between Master
Graphics, Inc. and H. Henry Hederman
10.55 Commercial Lease Agreement dated March 31, 1998 by and between
Michael G. and Lynn H. Harper and Harperprints, Inc.
11.1 Statement re: computation of per share earnings
21.1* List of subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Marlin & Edmondson, P.C.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
23.4 Consent of Joseph Decosimo and Company
23.5 Consent of Thompson Dunavant PLC
23.6 Consent of S. F. Fiser & Company, P.A.
23.7 Consent of Becker & Company, P.C.
23.8* Consent of Baker, Donelson, Bearman & Caldwell, a professional
corporation (included in its opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on signature page of Registration
Statement).
27.1* Financial Data Schedule
</TABLE>
- --------
<TABLE>
<S> <C>
* To be filed by amendment
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, its
Bylaws, the Underwriting Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MEMPHIS, TENNESSEE ON APRIL 8,
1998.
Master Graphics, Inc.
a Tennessee corporation
/s/ John P. Miller
By: _________________________________
JOHN P. MILLER,
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John P. Miller and Lance T. Fair, and each or either of them, with full power
to act without the other, his true and lawful attorney-in-fact with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (until revoked in writing), to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto) and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing whatsoever requisite or desirable to be done, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-
fact and agents, or either of them, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John P. Miller Chief Executive April 8, 1998
- ------------------------------------- Officer, President
JOHN P. MILLER and Chairman of the
Board of Directors
/s/ Lance T. Fair Senior Vice April 8, 1998
- ------------------------------------- President--
LANCE T. FAIR Acquisitions; Chief
Financial Officer
/s/ Robert J. Diehl Chief Operating April 8, 1998
- ------------------------------------- Officer
ROBERT J. DIEHL
/s/ P. Melvin Henson, Jr. Senior Vice April 8, 1998
- ------------------------------------- President--Finance
P. MELVIN HENSON, JR. and Administration;
Chief Accounting
Officer
<PAGE>
SIGNATURE TITLE DATE
/s/ James. B. Duncan Senior Vice April 8, 1998
- ------------------------------------- President--Sales
JAMES B. DUNCAN and Marketing
/s/ H. Henry Hederman, Jr. Director, President April 8, 1998
- ------------------------------------- Hederman Brothers
H. HENRY (HAP) HEDERMAN, JR. Division
/s/ Walter P. McMullen Director, Chairman April 8, 1998
- ------------------------------------- of Lithograph
WALTER P. MCMULLEN Printing Division
/s/ Cary Rosenthal Director, President April 8, 1998
- ------------------------------------- Phoenix Division
CARY ROSENTHAL
/s/ Frederick F. Avery Director April 8, 1998
- -------------------------------------
FREDERICK F. AVERY
/s/ Donald L. Hutson Director April 8, 1998
- -------------------------------------
DONALD L. HUTSON
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1 Charter of Master Graphics, Inc.
3.2* Certificate of Incorporation of Premier Graphics, Inc.
3.3 Bylaws of Master Graphics, Inc.
3.4 Bylaws of Premier Graphics, Inc.
4.1* Form of Common Stock Certificate
4.2* Form of 5% Series A Cumulative Redeemable Preferred Stock Certificate
4.3* Articles of Amendment to the Charter of Master Graphics, Inc.
Designating and Fixing the Rights and Preferences of a Series and
Preferred Shares of Stock
4.4* Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and Sirrom Capital Corporation
4.5 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and William J. Blackwell and Brenda M. Blackwell
4.6 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and Walter P. McMullen
4.7 Stock Purchase Warrant dated June 19, 1997 between Master Graphics,
Inc. and David Sutherland, III
4.8* Stock Purchase Warrant dated September 22, 1997 between Master
Graphics, Inc., John P. Miller and Joseph M. Jensen
4.9* Stock Purchase Warrant dated September 22, 1997 between Master
Graphics, Inc., John P. Miller and Allan R. Bartel
4.10 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Joseph Segal
4.11 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Cary Rosenthal
4.12 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Wendell Burns
4.13 Stock Purchase Warrant dated December 16, 1997 between Master
Graphics, Inc., John P. Miller and Robert Rymer
4.14 Stock Purchase Warrant dated March 6, 1998 between Master Graphics,
Inc., John P. Miller and Phil Phillips, Jr.
4.15 Stock Purchase Warrant dated March 31, 1998 between Master Graphics,
Inc., John P. Miller and Michael G. Harper
4.16 Stock Purchase Warrant dated March 31, 1998 between Master Graphics,
Inc., John P. Miller and Lynn H. Harper
4.17 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and H. Henry Hederman
4.18 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Martha Dean Hederman, Trustee of the H. Henry
Hederman Grandchild Trust No. 1 U/A dated 12/31/87
4.19 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Martha Dean Hederman, Trustee of the H. Henry
Hederman Grandchild Trust No. 2 U/A dated 12/31/87
4.20 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and H. Henry Hederman, Jr. and Zach T. Hederman,
as Trustees of the H. Henry Hederman, Jr. Trust U/A dated December 31,
1975
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
4.21 Stock Purchase Warrant dated March 1, 1998 between Master Graphics,
Inc., John P. Miller and Hap Hederman, Jr.
4.22* Form of Stock Purchase Warrant
4.23* Form of Option Grant
4.24* Stock Purchases Warrant dated April 1, 1998 between Master Graphics,
Inc. and General Electric Capital Corporation
4.25* Note Modification Agreement dated May 20, 1997 between Harold Martin
and Master Printing, Inc.
4.26* Note Modification Agreement dated May 22, 1997 between Carl Nelson and
Master Printing, Inc.
4.27* Note Modification Agreement dated May 20, 1997 between Jack Garmon and
Master Printing, Inc.
4.28* Registration Rights Agreement dated March 30, 1998 between Master
Graphics, Inc. and General Electric Capital Corporation
4.29* Exchange Agreement dated March 30, 1998 between General Electric
Capital Corporation and Master Graphics, Inc.
5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation regarding legality of securities being registered
10.1* Agreement and Plan of Merger dated as of June 18, 1997 by and between
B&M Printing Company, Inc. and Premier Graphics, Inc.
10.2* Agreement for Sale and Purchase of Corporate Stock dated as of June
17, 1997, between William J. Blackwell and Brenda M. Blackwell and
Master Graphics, Inc.
10.3 Agreement and Plan of Merger dated as of June 18, 1997 by and between
Blackwell Lithographers, Inc. and Premier Graphics, Inc.
10.4* Stock Purchase Agreement dated as of June 4, 1997 among Master
Graphics, Inc. and Walter P. McMullen
10.5* First Amendment to Stock Purchase Agreement dated as of June 19, 1997
by and between Master Graphics, Inc. and Walter P. McMullen
10.6 Agreement and Plan of Merger dated as of June 18, 1997 between
Lithograph Printing Company of Memphis and Premier Graphics, Inc.
10.7* Asset Purchase Agreement dated as of May 20, 1997 among Sutherland
Printing Company, Inc., David Sutherland, III and Master Printing,
Inc.
10.8 Assignment of Asset Purchase Agreement dated June 19, 1997 between
Master Printing, Inc. and Premier Graphics, Inc.
10.9* Agreement for Sale and Purchase of Corporate Stock dated September 22,
1997 between The Argus Press, Inc., Joseph M. Jensen, Allan R. Bartel
and Master Graphics, Inc.
10.10 Agreement and Plan of Merger dated as of September 22, 1997, between
The Argus Press, Inc. and Premier Graphics, Inc.
10.11 Stock Purchase Agreement dated as of December 15, 1997 by Master
Graphics, Inc., Cary Rosenthal, Joseph Segal, Ross Lenhart, Richard
Roberts and Scott Diamond.
10.12 Agreement and Plan of Merger dated as of December 16, 1997, between
Phoenix Communications, Inc. and Premier Graphics, Inc.
10.13 Agreement and Plan of Merger dated as of December 16, 1997, between
King Mailing Services, Inc. and Premier Graphics, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
10.14 Stock Purchase Agreement dated December 16, 1997 between Master
Graphics, Inc. and Wendell Burns and Robert Rymer
10.15 Agreement and Plan of Merger dated as of December 16, 1997, between
Jones Printing Company, Inc. and Premier Graphics, Inc.
10.16 Stock Purchase Agreement dated as of March 1, 1998 between Master
Graphics, Inc. and H. Henry Hederman, H. Henry Hederman, Jr., and
Martha Dean Hederman, as Trustee of the H. Henry Hederman Grandchild
Trust No. 1 U/A dated 12/31/87, and Martha Dean Hederman, as Trustee
of the H. Henry Hederman Grandchild Trust No. 2 U/A dated 12/31/87
10.17 Agreement and Plan of Merger dated as of March 1, 1998 between
Hederman Brothers, Inc. and Premier Graphics, Inc.
10.18 Stock Purchase Agreement dated March 1, 1998 between Master Graphics,
Inc., Premier Graphics, Inc., John P. Miller and Phil Phillips, Jr.
10.19 Stock Purchase Agreement dated March 31, 1997 between Master Graphics,
Inc. and Michael G. Harper, individually and as custodian for Emily
Hines Harper, a minor, and Lynn H. Harper, individually and as
custodian for Davis Hillman Harper, a minor
10.20* Agreement and Plan of Merger between Harperprints, Inc. and Premier
Graphics, Inc.
10.21* Merger Agreement dated April 8, 1998 between Master Graphics, Inc.,
Master Acquisitionsub, Inc., and McQuiddy Printing Company
10.22* Agreement and Plan of Merger between McQuiddy Printing Company and
Premier Graphics, Inc.
10.23* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and John P. Miller
10.24* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and Robert J. Diehl
10.25* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and P. Melvin Henson, Jr.
10.26* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and Lance T. Fair
10.27* Employment Agreement dated as of March 1, 1998 by and between Master
Graphics, Inc. and James B. Duncan
10.28* Noncompetition Agreement dated as of June 19, 1997 between Premier
Graphics, Inc. and David Sutherland, III, and Sutherland Printing
Company, Inc.
10.29 Noncompetition Agreement dated as of December 16, 1997 between Master
Graphics, Inc. and Joseph Segal
10.30* Noncompetition Agreement dated as of December 16, 1997 between Master
Graphics, Inc. and Cary Rosenthal
10.31 Noncompetition Agreement dated as of December 16, 1997 by and between
Master Graphics, Inc. and Wendell Burns
10.32 Noncompetition Agreement dated as of March 1, 1998 by and between
Master Graphics, Inc. and H. Henry Hederman, Jr.
10.33* Noncompetition Agreement by and between David L. McQuiddy, III and
Master Graphics, Inc.
10.34 Noncompetition Agreement dated as of March 31, 1998 by and between
Master Graphics, Inc. and Lynn H. Harper
10.35 Noncompetition Agreement dated as of March 1, 1998 by and between
Master Graphics, Inc. and Phil Phillips, Jr.
10.36 Commercial Lease Agreement dated December 4, 1992 between John P.
Miller, as Lessor and B&M Printing Company, as Lessee, Memphis,
Tennessee
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
10.37 Amended and Restated Lease Agreement--Office, Commercial Printing
and Commercial Warehouse Facility dated as of June 16, 1997 between
Graphic Development Company, L.P. and Lithograph Printing Company of
Memphis, Memphis, Tennessee
10.38* Industrial Building Lease Agreement dated June 1, 1971 and assigned
by The Argus Press, Inc. to Premier Graphics, Inc. as of September
26, 1997, by and between LaSalle National Bank as Trustee of Trust
#42560, as Lessor and Premier Graphics, Inc., as Lessee, Niles,
Illinois
10.39* Lease Agreement dated May 1, 1995 by and between RFTA Associates,
LLC, a Georgia limited liability company, and Phoenix
Communications, Inc., Chamblee, Georgia
10.40* Standard Industrial Lease Agreement dated October 17, 1994 by and
between RSH Properties, L.L.C., as Lessor and King Mailing Services,
Inc., as Lessee, Chamblee, Georgia
10.41* Commercial Lease Agreement dated as of December 16, 1997 by and
between Wendell H. Burns and Premier Graphics, Inc., Chattanooga,
Tennessee
10.42* Commercial Lease Agreement for Hederman Brothers, Inc.--Ridgeland,
Mississippi
10.43* Standard Industrial Lease Agreement dated October 14, 1997 by and
between Fl Corp, as Lessor and Hederman Brothers, Inc, as Lessee,
Little Rock, Arkansas
10.44* Commercial Lease Agreement dated March 1, 1998 by and between Phil
Phillips, Jr. and Premier Graphics, Inc., Springdale, Arkansas
10.45* Commercial Lease Agreement dated January 8, 1998 by and between
Crescent Center Limited Partnership, as Lessor and Master Graphics,
Inc., as Lessee, Memphis, Tennessee
10.46 Commercial Lease Agreement dated March 1, 1998 between Arrowhead
Real Estate, LLC and Premier Graphics, Inc.
10.47 Loan Agreement by and between Sirrom Capital Corporation and Master
Graphics, Inc. and Premier Graphics, Inc. dated June 19, 1997
10.48 Loan and Security Agreement by and between First American National
Bank and Master Graphics, Inc. and Premier Graphics, Inc. dated June
19, 1997
10.49 Amended and Restated Loan and Security Agreement by and between
General Electric Capital Corporation and Premier Graphics, Inc.
dated December 16, 1997
10.50 Noncompetition Agreement dated as of March 31, 1998 by and between
Master Graphics, Inc. and Michael G. Harper
10.51 Bill of Sale dated December 31, 1997 between B & M Printing Company
and John P. Miller
10.52 Promissory Note dated December 31, 1997 between John P. Miller and
Premier Graphics, Inc.
10.53 Promissory Note dated December 10, 1992 between John P. Miller and B
& M Printing Company
10.54 Noncompetition Agreement dated as of March 1, 1998 between Master
Graphics, Inc. and H. Henry Hederman
10.55 Commercial Lease Agreement dated March 31, 1998 by and between
Michael G. and Lynn H. Harper and Harperprints, Inc.
11.1 Statement re: computation of per share earnings
21.1* List of subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Marlin & Edmondson, P.C.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
------- -----------
<C> <S>
23.4 Consent of Joseph Decosimo and Company
23.5 Consent of Thompson Dunavant PLC
23.6 Consent of S. F. Fiser & Company, P.A.
23.7 Consent of Becker & Company, P.C.
23.8* Consent of Baker, Donelson, Bearman & Caldwell, a professional
corporation (included in its opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on signature page of Registration
Statement).
27.1* Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
Exhibit 3.1
CHARTER
OF MASTER GRAPHICS, INC.
The undersigned natural person, having the capacity to contract and acting
as the incorporator of a corporation under the Tennessee Business Corporation
Act, adopts the following charter for the corporation:
1. Corporate Name. The name of the corporation (which is hereinafter
--------------
called the "Corporation") is Master Graphics, Inc.
2. For Profit. The Corporation is for profit.
----------
3. Principal Office. The address of the Corporation's principal office in
----------------
the State of Tennessee is 6075 Poplar Avenue, Suite 401, Memphis, Tennessee
38119.
4. Initial Registered Agent and Office. The name of the Corporation's
-----------------------------------
initial registered agent is John P. Miller. The street address, zip code and
county of the Corporation's registered office and registered agent in the State
of Tennessee shall be:
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Shelby County
5. Corporate Purpose. The purpose of the Corporation is to engage in
-----------------
any lawful act or activity for which a corporation may now or hereafter be
organized under the Tennessee Business Corporation Act (the "TBCA").
6. Incorporator. The name and address of the incorporator is Robert J.
------------
DelPriore, 165 Madison Avenue, Suite 2100, Memphis, Tennessee 38103.
7. Capital Stock.
-------------
7.1 Authorized Amount. The Corporation shall be authorized to issue One
-----------------
Hundred Ten Million (110,000,000) shares of capital stock, of which One Hundred
Million (100,000,000) shares shall be Common Stock, par value $0.001 per share,
and Ten Million (10,000,000) shares shall be Preferred Stock, par value $0.001
per share.
7.2 Common Stock.
------------
(a) Voting Rights. Except as otherwise required by law or as provided by
the Board of Directors with respect to any class or series of Preferred Stock,
<PAGE>
the entire voting power and all voting rights shall be vested exclusively in the
Common Stock. Each holder of shares of Common Stock shall be entitled to one
vote per share on each matter to be decided by the shareholders. The shares of
Common Stock do not have cumulative voting rights.
(b) Dividends. Subject to the preferential rights of the holders of shares
of any class or series of Preferred Stock as provided by the Board of Directors
with respect to any such class or series of Preferred Stock, the holders of the
Common Stock shall be entitled to receive, as and when declared by the Board of
Directors out of the funds of the Corporation legally available therefor, such
dividends (payable in cash, stock or otherwise) as the Board of Directors may
from time to time determine, payable to shareholders of record on such dates, as
shall be fixed for such purpose by the Board of Directors in advance of payment
of each particular dividend.
(c) Liquidation. In the event of liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of all of the Company's debts and obligations and any
preferential distributions to holders of Preferred Stock and any series or class
of the Company's stock hereafter issued that ranks senior as to liquidation
rights to the Common Stock, if any, the holders of the Common Stock will be
entitled to share ratably in proportion to the number of shares of Common Stock
held by them respectively in the Corporation's remaining assets.
7.3 Authority of Board to Fix Terms of Preferred Stock. The Board of
--------------------------------------------------
Directors of the Corporation is hereby expressly authorized at any time and from
time to time to provide for the issuance of all or any shares of the Preferred
Stock in one or more series, and to fix for each such series such voting powers,
full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such series and to the fullest extent as may now
or hereafter be permitted by the TBCA, including, without limiting the
generality of the foregoing, the authority to provide that any such series may
be (i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; or (iv) convertible
into, or exchangeable for, shares of any other class or classes of stock, or of
any other series of the same or any other class or classes of stock, or other
securities or property, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments, all as may be stated in such
resolution or resolutions. Unless otherwise provided in such resolution or
resolutions, shares of Preferred Stock of any series which shall be issued and
thereafter acquired by the Corporation through purchase, redemption, exchange,
conversion or otherwise shall return to the status of authorized but unissued
Preferred Stock.
2
<PAGE>
7.4 No Preemptive Rights. No shareholder of the Corporation will, solely
--------------------
by reason of holding shares of any class, have any preemptive or preferential
right to purchase or subscribe for any shares of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other securities
convertible into or carrying warrants, rights or options to purchase shares of
any class, now or hereafter to be authorized, whether or not the issuance of any
such shares or such notes, debentures, bonds or other securities would adversely
affect the dividend, voting or any other rights of such shareholder. The Board
of Directors may authorize the issuance of, and the Corporation may issue,
shares of any class of capital stock of the Corporation, or any notes,
debentures, bonds or other securities convertible into or carrying warrants,
rights or options to purchase any such shares, without offering any shares of
any class to the existing holders of any class of stock of the Corporation.
8. Board of Directors.
------------------
8.1 Number. Subject to the rights of the holders of any series of
------
Preferred Stock to elect directors under specified circumstances, the Board of
Directors shall consist of not less than three (3) nor more than fifteen (15)
members unless otherwise determined from time to time by resolution adopted by
the affirmative vote of at least eighty percent (80%) of the members of the
Board of Directors. However, the number of directors shall never be less than
the minimum number required by the TBCA. A director need not be a shareholder.
Directors shall be divided into three (3) classes as nearly equal in number as
possible. The initial term of Class I directors shall expire at the annual
shareholder meeting in 1999; the initial term of Class II directors shall expire
at the annual shareholder meeting in 2000; and the initial term of the Class
III directors shall expire at the annual shareholder meeting in 2001. At each
annual shareholder meeting, the shareholders shall elect one or more directors
to serve a three-year term of the class of directors whose term is expiring at
such annual meeting and until their successors are elected and qualify.
8.2 Vacancies. Subject to applicable law and any rights of the holders of
---------
any series of Preferred Stock with respect to such series of Preferred Stock,
and unless the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors. The directors chosen to fill vacancies shall hold office for a term
expiring at the end of the next annual meeting of shareholders at which the term
of the class to which they have been elected expires. At all times all classes
of Directors shall be as nearly equal in number as possible. If, consistent
with the concept that the three classes of Directors shall be as nearly equal in
number as possible, any newly-created directorship may be allocated to more than
one class, the Board of Directors shall allocate it to the available class whose
term is due to expire at the earliest date following such allocation.
8.3 Removal. Any director of the Corporation may be removed from office
-------
but only for cause and only by (a) the affirmative vote of the holders of a
3
<PAGE>
majority of the voting power of the shares entitled to vote for the election of
directors, considered for this purpose as one class, unless a vote of a special
voting group is otherwise required by law or (b) the affirmative vote of a
majority of the entire Board of Directors then in office.
9. Special Meetings of Shareholders. Subject to any rights of the holders
--------------------------------
of any series of Preferred Stock with respect to such series of Preferred Stock,
the Corporation shall hold a special meeting of shareholders only in the event
(a) of a call of the Board of Directors of the Corporation or the officers
authorized to do so by the Bylaws of the Corporation or (b) the holders of at
least fifty percent (50%) of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting sign, date, and
deliver to the Corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held, including
all statements necessary to make any statement of such purpose not incomplete,
false or misleading, and include any other information specified in Schedule
14A, Rule 14a-3, Rule 14a-8, or Rule 14a-11 of the Rules and Regulations of the
Securities and Exchange Commission. Only business within the purpose or
purposes described in the meeting notice may be conducted at a special
shareholders' meeting.
10. Liability of Directors. To the fullest extent permitted by the TBCA, a
----------------------
director of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages (including, without limitation, any judgment,
amount paid in settlement, fine, penalty, punitive damages, excise tax assessed
with respect to an employee benefit plan, or expense of any nature, including
attorneys' fees) for breach of fiduciary duty as a director. If the TBCA or any
successor statute is amended after adoption of this provision to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the TBCA, as so amended
from time to time. Neither the amendment nor repeal of this Article 10 nor the
adoption of any provision of this Charter inconsistent with this Article 10
shall eliminate or reduce the effect of this Article 10 in respect of any matter
arising or relating to any actions or omissions occurring prior to such
amendment, repeal or adoption of an inconsistent provision.
11. Indemnification of Directors. The Corporation shall indemnify every
----------------------------
person who is or was a party or is or was threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he or she is or was a director or
officer or is or was service at the request of the Corporation as a director,
officer, employee, agent or trustee of another corporation or partnership, joint
venture, trust, employee benefit plan, limited liability company or other
enterprise, including service on a committee formed for any purpose (and, in
each case, his or her heirs, executors, and administrators), against all
expense, liability, and loss (including counsel fees, judgments, fines, ERISA
excise taxes, penalties, and amounts paid in settlement) actually and reasonably
incurred or suffered in connection with such action, suit or proceeding, to the
fullest extent permitted by applicable law, as in effect on the date hereof and
4
<PAGE>
as hereafter amended. Such indemnification may include advancement of expenses
in advance of final disposition of such action, suit or proceeding, subject to
the provisions of any applicable statute.
12. Amendment. Except as otherwise provided in this Article 12, this
---------
Charter may be amended in the manner now or hereafter prescribed by statute;
provided, however, that unless such action has been recommended by a vote of a
majority of the directors then in office at a meeting at which a quorum is
present, the provisions set forth in Articles 8, 9, 10, 11, 12 and 13 hereof may
not be repealed or amended in any respect and the provisions set forth in
Articles 10 and 11 hereof may not be amended or repealed in any respect so as to
adversely affect the rights therein conferred upon directors (or such other
persons who may be entitled to the rights provided thereunder) of the
Corporation, unless in any of such cases such action is approved by the
affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class; provided, however, that in no event shall the last sentence of
Article 10 be amended so as to adversely affect the rights herein conferred upon
directors.
13. Amendment of Bylaws. In furtherance and not in limitation of the
-------------------
powers conferred by statute, the Board of Directors of the Corporation is
expressly authorized from time to time to make, adopt, alter, amend, supplement
and repeal the bylaws of the Corporation in any respect, subject to the right of
the shareholders entitled to vote with respect thereto to adopt, alter, amend
and repeal bylaws made by the Board of Directors; provided, however, that bylaws
shall not be made, adopted, altered, amended or repealed by the shareholders of
the Corporation except by the vote of the holders of not less than sixty-six and
two-thirds percent (66-2/3%) of the outstanding shares of stock of each class
and series entitled to vote upon such matter.
14. Tennessee Business Combination Act. The Corporation expressly elects
----------------------------------
not to be governed by the provisions of Section 48-103-205 and Section 48-103-
206 of the Tennessee Code Annotated.
Dated: March 26, 1998 /s/Robert J. DelPriore
----------------------
Robert J. DelPriore
Sole Incorporator
5
<PAGE>
Exhibit 3.3
BYLAWS
OF
MASTER GRAPHICS, INC.
(THE "CORPORATION")
ARTICLE I
OFFICES, FISCAL YEAR AND RECORDS
1.1 Registered Office. The registered office of the Corporation shall be
-----------------
in the City of Memphis, County of Shelby, State of Tennessee until otherwise
established by resolution of the Board of Directors and a certificate certifying
the change is filed in the manner provided by statute.
1.2 Other Offices. The Corporation may also have offices at such other
-------------
places within or without the State of Tennessee as the Board of Directors may
from time to time determine or the business of the Corporation may require.
1.3 Fiscal Year. The fiscal year of the Corporation shall end on the 31st
-----------
of December in each year unless the Board of Directors shall authorize another
fiscal year end.
ARTICLE II
SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the shareholders of the
--------------
Corporation for the election of Directors and the transaction of any business as
may properly be brought before the meeting shall be held on such date and at
such place and time as may be fixed by resolution of the Board of Directors.
Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate act. At the annual meeting,
the shareholders shall consider only such business as shall have been proposed
by the board of directors for consideration at such meeting or shall have been
proposed by a shareholder pursuant to the terms and conditions of Section 2.7.
-----------
2.2 Special Meeting. Subject to any rights of the holders of any series
---------------
of Preferred Stock with respect to such series of Preferred Stock, the
Corporation shall hold a special meeting of shareholders only in the event (a)
the Board of Directors of the Corporation or the President of the Corporation
shall call same or (b) the holders of at least fifty percent (50%) of all the
votes entitled to be cast on any issue proposed to be considered at the proposed
special meeting shall sign, date, and deliver to the Corporation's secretary one
or more written demands for the meeting describing the purpose or purposes for
which it is to be held, including all statements necessary to make any statement
of such purpose not incomplete, false or misleading, and include any other
information specified in Schedule 14A, Rule 14a-3, Rule 14a-8, or Rule 14a-11 of
<PAGE>
the Rules and Regulations of the Securities and Exchange Commission. Only
business within the purpose or purposes described in the meeting notice may be
conducted at a special shareholders' meeting.
2.3 Place of Meeting. The Board of Directors may designate the place of
----------------
meeting for any annual meeting or for any special meeting of the shareholders
called by the Board of Directors or the President. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.
2.4 Notice of Meeting; Waiver.
-------------------------
(a) Notice. Written or printed notice, stating the place, day and
------
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be delivered by the Corporation not less than 10 days nor more than 60
days before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law. Meetings may be held without notice
if all shareholders entitled to vote are present, or if notice is waived by
those not present in accordance with Section 7.1 of these Bylaws.
-----------
(b) Waiver. A shareholder may waive any notice required by law, the
------
Corporation's Charter (the "Charter") or these bylaws before or after the date
and time stated in such notice. Except as provided in the next sentence, the
waiver must be in writing, be signed by the shareholder entitled to the notice
and be delivered to the Corporation for inclusion in the minutes or filing with
the corporate records. A shareholder's attendance at a meeting: (1) waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting (or promptly upon his arrival)
objects to holding the meeting or transacting business at the meeting; and (2)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
2.5 Shareholders' List. After the record date for a meeting has been
------------------
fixed, the Corporation shall prepare an alphabetical list of the names of all
shareholders who are entitled to notice of a shareholders' meeting. Such list
will show the address of and number of shares held by each shareholder. The
shareholders' list will be available for inspection by any shareholder,
beginning two (2) business days after notice of the meeting is given for which
the list was prepared and continuing through the meeting, at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder or his agent or attorney is
entitled on written demand to inspect and, subject to the requirements of the
Tennessee Business Corporation Act (the "TBCA"), to copy the list, during
regular business hours and at his expense, during the period it is available for
inspection.
2
<PAGE>
2.6 Voting of Shares. Unless otherwise provided by the TBCA or the
----------------
Charter, each outstanding share of Common Stock is entitled to one (1) vote on
each matter voted on at a shareholders' meeting. Unless otherwise provided in
the Charter, directors are elected by a plurality of the votes cast by the
shares of Common Stock entitled to vote in the election at a meeting at which a
quorum is present.
2.7 Proxies. A shareholder may vote his or her shares in person or by
-------
proxy. A shareholder may appoint a proxy to vote or otherwise act for him or
her by signing an appointment either personally or through an attorney-in-fact.
An appointment of a proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. An appointment is valid for
eleven (11) months unless another period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
2.8 Acceptance of Shareholder Documents. If the name signed on a
-----------------------------------
shareholder document (a vote, consent, waiver or proxy appointment) corresponds
to the name of a shareholder, the Corporation, if acting in good faith, is
entitled to accept such shareholder document and give it effect as the act of
the shareholder. If the name signed on such shareholder document does not
correspond to the name of a shareholder, the Corporation, if acting in good
faith, is nevertheless entitled to accept such shareholder document and to give
it effect as the act of the shareholder if:
(a) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) the name signed purports to be that of a fiduciary representing
the shareholder and, if the Corporation requests, evidence of fiduciary status
acceptable to the Corporation has been presented with respect to such
shareholder document;
(c) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence
acceptable to the Corporation of the signatory's authority to sign for the
shareholder has been presented with respect to such shareholder document;
(d) the name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the Corporation requests,
evidence acceptable to the Corporation of the signatory's authority to sign for
the shareholder has been presented with respect to such shareholder document; or
(e) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one (1) of
the co-owners and the person signing appears to be acting on behalf of all the
co-owners.
3
<PAGE>
The Corporation is entitled to reject a shareholder document if the
Secretary or other officer or agent authorized to tabulate votes, acting in good
faith, has a reasonable basis for doubt about the validity of the signature on
such shareholder document or about the signatory's authority to sign for the
shareholder.
2.9 Action Without a Meeting. Action required or permitted by the TBCA
------------------------
to be taken at a shareholders' meeting may be taken without a meeting. If all
shareholders entitled to vote on the action consent to taking such action
without a meeting, the affirmative vote of the number of shares that would be
necessary to authorize or take such action at such meeting is the act of the
shareholders.
The action must be evidenced by one (1) or more written consents describing
the action taken, at least one of which is signed by each shareholder entitled
to vote on the action in one (1) or more counterparts, indicating such signing
shareholder's vote or abstention on the action and delivered to the Corporation
for inclusion in the minutes or for filing with the corporate records.
If the TBCA or the Charter requires that notice of a proposed action be
given to nonvoting shareholders and the action is to be taken by consent of the
voting shareholders, then the Corporation shall give its nonvoting shareholders
written notice of the proposed action at least ten (10) days before such action
is taken. Such notice shall contain or be accompanied by the same material that
would have been required to be sent to nonvoting shareholders in a notice of a
meeting at which the proposed action would have been submitted to the
shareholders for action.
Notwithstanding the foregoing, if the rules of any securities exchange or
market on which the Corporation's shares or securities are traded shall not
permit the taking of action without a meeting, then, for so long as such rules
shall apply to the Corporation, the provisions of this Section 2.9 shall be of
no force and effect.
2.10 Presiding Officer and Secretary. At every meeting of the
-------------------------------
shareholders, the Chairman of the Board, if there be one, shall conduct the
meeting or, in the case of vacancy in office or absence of the Chairman of the
Board, one of the following officers present shall conduct the meeting in the
order stated: the Vice-Chairman of the Board, if there be one, the President,
the Vice Presidents in their order of rank and seniority, or a Chairman chosen
by the shareholders entitled to cast a majority of the votes which all
shareholders present in person or by proxy are entitled to cast, shall act as
Chairman, and the Secretary or, in his absence, an assistant secretary, or in
the absence of both the Secretary and assistant secretaries a person appointed
by the Chairman shall act as secretary of the meeting.
2.11 Notice of Nominations. Nominations for the election of directors
---------------------
may be made by the Board of Directors or a committee appointed by the Board of
Directors authorized to make such nominations or by any shareholder entitled to
vote in the election of directors generally. However, any such shareholder
4
<PAGE>
nomination may be made only if written notice of such nomination has been given,
either by personal delivery or the United States mail, postage prepaid, to the
Secretary of the Corporation not later than (a) with respect to an election to
be held at an annual meeting of shareholders, one hundred twenty (120) days in
advance of the anniversary date of the proxy statement for the previous year's
annual meeting, and (b) with respect to an election to be held at a special
meeting of shareholders for the election of directors called other than by
written request of a shareholder, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
shareholders, and (c) in the case of a special meeting of shareholders duly
called upon the written request of a shareholder to fill a vacancy or vacancies
(then existing or proposed to be created by removal at such meeting), within ten
(10) business days of such written request. In the case of any nomination by
the Board of Directors or a committee appointed by the Board of Directors
authorized to make such nominations, compliance with the proxy rules of the
Securities and Exchange Commission shall constitute compliance with the notice
provisions of the preceding sentence.
In the case of any nomination by a shareholder, each notice shall set
forth: (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address, and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies with
respect to nominees for election as directors, pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including, without limitation,
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director, if elected); and (b) as to the shareholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such shareholder, and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder; and (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder. The President,
Chief Executive Officer, or chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
2.12 Notice of New Business. At any annual meeting of the shareholders
----------------------
only such new business shall be conducted, and only such proposals shall be
acted upon, as have been properly brought before the meeting. To be properly
brought before the annual meeting, such new business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a shareholder. For a proposal to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation and the
proposal and the shareholder must comply with Rule 14a-8 under the Securities
Exchange Act of 1934, as amended. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation within the time limits specified by Rule 14a-8.
5
<PAGE>
A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any financial interest of the
shareholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.13. The President, Chief Executive Officer, or chairman
------------
of the meeting shall, if the facts warrant, determine and declare to the meeting
that new business or any shareholder proposal was not properly brought before
the meeting in accordance with the provisions of this Section 2.13, and if he or
------------
she should so determine, he or she shall so declare to the meeting and any such
business or proposal not properly brought before the meeting shall not be acted
upon at the meeting. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
2.13 Conduct of Meetings. Meetings of the shareholders shall follow
-------------------
accepted rules of parliamentary procedure subject to the following:
(a) The Chairman of the Board, Vice Chairman of the Board, the President,
the Vice President, or chairman of the meeting shall have absolute authority
over the matters of procedure, and there shall be no appeal from the ruling of
such individual. If, in his or her absolute discretion, the chairman of the
meeting deems its advisable to dispense with the rules of parliamentary
procedure as to any meeting of shareholders or part thereof, he or she shall so
state and shall state the rules under with the meeting or appropriate part
thereof shall be conducted.
(b) If disorder should arise which prevents the continuation of the
legitimate business of the meeting, the chairman of the meeting may quit the
chair and announce the adjournment of the meeting, and upon so doing, the
meeting will immediately be adjourned.
(c) The chairman of the meeting may ask or require that anyone not a bona
fide shareholder or proxy leave the meeting.
(d) The resolution or motion shall be considered for a vote only if
proposed by a shareholder or a duly authorized proxy and seconded by a
shareholder or duly authorized proxy other than the individual who proposed the
resolution or motion.
6
<PAGE>
(e) Except as the chairman of the meeting may permit, no matter shall be
presented to the meeting which has not been submitted for inclusion in the
agenda at least thirty (30) days prior to the meeting.
2.14. Inspectors. At any meeting of shareholders, the Chairman of the
----------
meeting may, or upon the request of any shareholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
-----
facie evidence thereof.
- -----
ARTICLE III
BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be
--------------
managed under the direction of the Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon it, the Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Charter or by these Bylaws
required to be exercised or done by the shareholders.
3.2 Number, Tenure and Qualification. Subject to the rights of the
--------------------------------
holders of any series of Preferred Stock to elect directors under specified
circumstances, the Board of Directors shall consist of not less than three (3)
nor more than fifteen (15) members unless otherwise determined from time to time
by resolution adopted by the affirmative vote of at least eighty percent (80%)
of the members of the Board of Directors. However, the number of directors
shall never be less than the minimum number required by the TBCA. A director
need not be a shareholder. Directors shall be divided into three (3) classes as
nearly equal in number as possible. The initial term of Class I directors shall
expire at the annual shareholder meeting in 1999; the initial term of Class II
directors shall expire at the annual shareholder meeting in 2000; and the
initial term of the Class III directors shall expire at the annual shareholder
meeting in 2001. At each annual shareholder meeting, the shareholders shall
elect one or more directors to serve a three-year term of the class of directors
whose term is expiring at such annual meeting and until their successors are
elected and qualify.
3.3 Changes in Number; Vacancies. Subject to applicable law and the
----------------------------
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
7
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disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of shareholders at which the term of the class to which they
have been elected expires. At all times all classes of Directors shall be as
nearly equal in number as possible. If, consistent with the concept that the
three classes of Directors shall be as nearly equal in number as possible, any
newly-created directorship may be allocated to more than one class, the Board of
Directors shall allocate it to the available class whose term is due to expire
at the earliest date following such allocation.
3.4 Removal of Directors. Any director of the Corporation may be removed
--------------------
from office but only for cause and only by (a) the affirmative vote of the
holders of a majority of the voting power of the shares entitled to vote for the
election of directors, considered for this purpose as one class, unless a vote
of a special voting group is otherwise required by law or (b) the affirmative
vote of a majority of the entire Board of Directors then in office.
3.5 Regular Meetings. A regular meeting of the Board of Directors shall
----------------
be held without other notice than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders, or at such other place or time as
the Board of Directors may determine by resolution and without other notice than
such resolution. The Board of Directors may, by resolution, provide the time
and place for the holding of additional regular meetings without other notice
than such resolution.
3.6 Special Meetings. Special meetings of the Board of Directors shall
----------------
be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
3.7 Notice. Notice of any special meeting of directors shall be given to
------
each director at his business or residence in writing by first-class or
overnight mail or courier service, telegram or facsimile transmission, orally by
telephone or by hand delivery. If mailed by first class mail, such notice shall
be deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, overnight mail or courier service, such notice shall
be deemed adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail or courier service
company at least twenty-four (24) hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least twelve (12) hours prior to the time set for the meeting.
If by telephone or by hand delivery, the notice shall be given at least twelve
(12) hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws, as provided under Section 7.9. A meeting may be
-----------
8
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held at any time without notice if all the directors are present or if those not
present waive notice of the meeting.
3.8 Action by Consent of Board of Directors. Any action required or
---------------------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, sign, in one or more counterparts, one or more
written consents to taking such action without a meeting, stating the action so
taken, and indicating each signing director's vote or abstention on the action,
and the writing or writings are filed with the minutes of proceedings of the
Board or committee.
3.9 Conference Telephone Meetings. Members of the Board of Directors, or
-----------------------------
any committee thereof, may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
3.10 Quorum. Except as otherwise required by the Charter, a whole number
------
of directors equal to at least a majority of the total number of directors then
in office shall constitute a quorum for the transaction of business, but if at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of the directors present may adjourn the meeting from time to time
without further notice. Except as otherwise required by the Charter or these
Bylaws, the act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. The directors
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
3.11 Committees. The Board of Directors may create one (1) or more
----------
committees, each consisting of one (1) or more members. All members of
committees of the Board of Directors which exercise powers of the Board of
Directors must be members of the Board of Directors and serve at the pleasure of
the Board of Directors. The creation of a committee and the appointment of a
member or members to it must be approved by the greater of (i) a majority of all
directors in office when the action is taken or (ii) the number of directors
required by the Charter or these Bylaws to take action. Unless otherwise
provided by the TBCA, to the extent specified by the Board of Directors, each
committee may exercise the authority of the Board of Directors. All such
committees and their members shall be governed by the same statutory
requirements and requirements contained in these Bylaws regarding meetings,
action without meetings, notice and waiver of notice, quorum and voting
requirements as are applicable to the Board of Directors and its members.
3.12. Compensation of Directors. Unless otherwise restricted by the
-------------------------
Charter, the Board of Directors shall have the authority to fix the compensation
of directors.
9
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ARTICLE IV
OFFICERS
4.1 Number, Qualifications and Designation. The officers of the
--------------------------------------
Corporation shall be chosen by the Board of Directors and shall be a Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers as may be appointed in accordance with the provisions of Section 4.3
------------
of this Article. Any number of offices may be held by the same person, except
as otherwise set forth in the TBCA. Except as otherwise set forth herein,
officers may, but need not, be directors or shareholders of the Corporation.
The Board of Directors may elect from among the members of the Board a Chairman
of the Board and a Vice Chairman of the Board who may be officers of the
Corporation if so designated by the Board. All officers elected by the Board of
Directors shall each have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of this Article IV. Such
officers shall also have such powers and duties as from time to time may be
conferred by the Board of Directors or by any committee thereof.
4.2 Appointment and Term of Office. The officers of the Corporation,
------------------------------
except those appointed by delegated authority pursuant to Section 4.3 of this
-----------
Article, shall be appointed annually by the Board of Directors, and each such
officer shall hold office until the next annual meeting of directors and until a
successor is appointed and qualified, or until his or her earlier resignation or
removal.
4.3 Subordinate Officers, Committees and Agents. The Board of Directors
-------------------------------------------
may from time to time appoint such other officers and appoint such committees,
employees or other agents as it deems necessary, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as are
provided in these Bylaws, or as the Board of Directors may from time to time
determine. The Board of Directors may delegate to any officer or committee the
power to appoint subordinate officers and to retain or appoint employees or
other agents, or committees thereof, and to prescribe the authority and duties
of such subordinate officers, committees, employees or other agents.
4.4 Removal. Any officer or agent appointed by the Board of Directors may
-------
be removed by the affirmative vote of a majority of the total number of
directors then in office whenever, in their judgment, the best interests of the
Corporation would be served thereby. Any officer or agent appointed by another
officer by delegated authority pursuant to Section 4.3 may be removed by him
-----------
whenever, in his judgment, the best interests of the Corporation would be served
thereby. No appointed officer shall have any contractual rights against the
Corporation for compensation by virtue of such appointment beyond the date of
the appointment of his successor, his death, his resignation or his removal,
whichever event shall first occur, except as otherwise provided in an employment
contract or under an employee deferred compensation plan.
4.5 Vacancies. A newly created elected office and a vacancy in any elected
---------
office because of death, resignation, or removal may be filled by the Board of
10
<PAGE>
Directors for the unexpired portion of the term at any meeting of the Board of
Directors. Any vacancy in an office appointed by another officer by delegated
authority pursuant to Section 4.3 because of death, resignation, or removal may
-----------
be filled by such other officer.
4.6 The Chairman and Vice Chairman of the Board. The Chairman of the
-------------------------------------------
Board, if there be one, or in the absence of the Chairman, the Vice Chairman of
the Board, if there be one, shall preside at all meetings of the shareholders
and of the Board of Directors, and shall perform such other duties as may from
time to time be assigned to them by the Board of Directors. To be eligible to
serve, the Chairman of the Board and the Vice Chairman must be directors of the
Corporation.
4.7 The Chief Executive Officer. The Chief Executive Officer shall
---------------------------
have responsibility for implementation of the policies of the Corporation, as
determined and directed by the Board of Directors and for the administration of
the business affairs of the Corporation.
4.8 The Chief Operating Officer. The Chief Operating Officer will have
---------------------------
the responsibilities and duties in respect of the operation of the business of
the Corporation as set forth by the Board of Directors or the Chief Executive
Officer.
4.9 The Chief Financial Officer. The Chief Financial Officer will have
---------------------------
responsibility for the financial affairs of the Corporation, including the
financing of the Corporation's business, accounting for its assets, liabilities
and operations, and the implementation and maintenance of internal accounting
controls, subject to direction and control by the Chief Executive Officer and
the Board of Directors (including any audit committee).
4.10 The President. The President shall have responsibility for general
-------------
supervision over the business, operations and affairs of the Corporation,
subject, however, to the supervision by the Chief Executive Officer (if other
than the President) and control of the Board of Directors. The President shall,
in general, perform all duties incident to the office of president, and such
other duties as from time to time may be assigned by the Chief Executive Officer
and/or Board of Directors.
4.11 The Vice Presidents. The Vice Presidents shall perform such duties
-------------------
as may from time to time be assigned to them by the Board of Directors or by the
Chief Executive Officer or the President.
4.12 The Secretary. The Secretary, or an Assistant Secretary, shall
-------------
attend all meetings of the shareholders and of the Board of Directors and shall
record the proceedings of the shareholders and of the directors and of
committees of the Board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the Corporation as required by law; shall be the custodian of the seal of the
Corporation and see that it is affixed to all documents to be executed on behalf
of the Corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the Board of Directors, the Chairman thereof, or the Chief
Executive Officer.
11
<PAGE>
4.13 The Treasurer. The Treasurer, or an Assistant Treasurer, shall have
-------------
or provide for the custody of the funds or other property of the Corporation;
shall collect and receive or provide for the collection and receipt of moneys
earned by or in any manner due to or received by the Corporation; shall deposit
all funds in his or her custody as treasurer in such banks or other places of
deposit as the Board of Directors may from time to time designate; whenever so
required by the Board of Directors, shall render an account showing his or her
transactions as treasurer and the financial condition of the Corporation; and,
in general, shall discharge such other duties as may from time to time be
assigned by the Board of Directors, the Chief Executive Officer, or the Chief
Financial Officer.
4.14 Officers' Bonds. No officer of the Corporation need provide a bond
---------------
to guarantee the faithful discharge of the officer's duties unless the Board of
Directors shall by resolution so require a bond in which event such officer
shall give the Corporation a bond (which shall be renewed if and as required) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of office.
4.15 Salaries. The salaries of the officers and agents of the Corporation
--------
appointed by the Board of Directors shall be fixed from time to time by the
Board of Directors.
ARTICLE V
CERTIFICATES OF SHARES, TRANSFER, ETC.
5.1 Form and Issuance.
-----------------
(a) Issuance. The shares of the Corporation shall be represented by
--------
certificates unless the Board of Directors shall by resolution provide that some
or all of any class or series of shares shall be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Notwithstanding the adoption of
any resolution providing for uncertificated shares, every holder of shares
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or Vice President, and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form.
(b) Form and Records. Share certificates of the Corporation shall be
----------------
in such form as approved by the Board of Directors. The share record books and
the blank share certificate books shall be kept by the Secretary or by any
agency designated by the Board of Directors for that purpose. The share
certificates of the Corporation shall be numbered and registered in the share
ledger and transfer books of the Corporation as they are issued.
(c) Signatures. Any of or all the signatures upon the share
----------
certificates of the Corporation may be a facsimile. In case any officer,
12
<PAGE>
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any stock certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be issued
with the same effect as if the signatory were such officer, transfer agent or
registrar at the date of its issue.
5.2 Transfer. The Corporation may appoint from time to time a transfer
--------
agent, who may, among other things, maintain any share register and transfer
books and effect transfers of the Corporation's shares. Transfers of shares
shall be made on the share register or transfer books of the Corporation upon
surrender of the certificate therefor, endorsed by the person named in the
certificate or by an attorney lawfully constituted in writing, with signature
guarantees to the extent required by law or in the sole discretion of the
Corporation or any transfer agent. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Tennessee Uniform
Commercial Code.
5.3 Lost, Stolen, Destroyed or Mutilated Certificates. The Board of
-------------------------------------------------
Directors may direct a new certificate of share or uncertificated shares to be
issued in place of any certificate theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of share to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or uncertificated
shares, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the legal representative of the owner,
to give the Corporation a bond sufficient to indemnify against any claim that
may be made against the Corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate or
uncertificated shares.
5.4 Record Holder of Shares. The Corporation shall be entitled to
------------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner. The Corporation shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the TBCA.
5.5 Determination of Shareholders of Record.
---------------------------------------
(a) Meetings of Shareholders. In order that the Corporation may
------------------------
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than seventy (70) days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A record date
fixed for a shareholders' meeting is effective for any adjournment of such
13
<PAGE>
meeting unless the Board of Directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than four (4) months after the date
fixed for the original meeting.
(b) Dividends. In order that the Corporation may determine the
---------
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the shareholders entitled to exercise any rights
in respect of any change, conversion or exchange of shares, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining shareholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
6.1. Civil Proceedings. The Corporation shall indemnify to the fullest
-----------------
extent permitted by Tennessee law, any individual made a party to a proceeding
because such individual is or was a director, officer, employee or agent of the
Corporation against liability incurred in any civil proceeding if the individual
conducted himself or herself in good faith and in the case of conduct in his or
her official capacity with the Corporation, the individual reasonably believed
that his or her conduct was in the best interest of the Corporation, or in all
other cases such individual reasonably believed that his or her conduct was at
least not opposed to the best interest of the Corporation.
6.2 Criminal Proceedings. The Corporation shall indemnify to the fullest
--------------------
extent permitted by Tennessee law, any individual made a party to a criminal
proceeding because such individual is or was a director, officer, employee or
agent of the Corporation against any liability incurred in any criminal
proceeding if such individual had no reasonable cause to believe his conduct
was unlawful.
6.3 Employee Benefit Plan. The Corporation shall indemnify to the fullest
---------------------
extent permitted by Tennessee law, any individual made a party to any proceeding
because such individual is or was a director, officer, employee or agent of the
Corporation against any liability incurred in any proceeding relating to any
employee benefit plan maintained by the Corporation if his or her conduct with
respect to said employee benefit plan was for a purpose he or she reasonably
believed to be in the interests of the participants and the beneficiaries of the
plan and his or her conduct was not opposed to the best interests of the
Corporation.
6.4 Limitations. The termination of any proceeding by judgment, order,
-----------
settlement, conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director, officer, employee or agent did
not meet the standard of conduct required in this Article. However, the
Corporation will not indemnify a director, officer, employee or agent if in
connection with a proceeding by or in the right of the Corporation in which the
14
<PAGE>
director, officer, employee or agent was adjudged liable to the Corporation, or
in connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. The Corporation will indemnify a director, officer, employee or agent who
is wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director, officer,
employee or agent of the Corporation against reasonable expenses incurred by him
in connection with the proceeding.
6.5 Mandatory Indemnification. The Corporation shall indemnify a
-------------------------
director, officer, employee or agent who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the director, officer,
employee or agent was a party because the director, officer, employee or agent
is or was a director, officer, employee or agent of the Corporation against
reasonable expenses incurred by the director, officer, employee or agent in
connection with the proceeding.
6.6 Advance for Expenses. The Corporation shall pay for or reimburse the
--------------------
reasonable expenses incurred by a director, officer, employee or agent who is a
party to a proceeding in advance of final disposition of the proceeding if the
director, officer, employee or agent furnishes the Corporation a written
affirmation of his good faith belief that he has met the standard of conduct
required in this Article, furnishes the Corporation a written undertaking,
executed personally or on his behalf, secured or unsecured, to repay the advance
if it is ultimately determined that he did not meet the required standard of
conduct, and a determination is made that the facts then known to those making
the determination would not preclude indemnification of said director, officer,
employee or agent.
6.7 Authorization. A majority vote of the Board of Directors shall
-------------
determine whether or not indemnification of a director, officer, employee or
agent is permissible under the circumstances because he has met the required
standard of conduct. Alternatively, a majority vote of the Board of Directors
may appoint an independent special legal counsel to determine whether or not
indemnification of a director, officer, employee or agent is permissible under
the circumstances because he has met the required standard of conduct.
6.8 Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of an individual who is or was a director, officer, employee or agent of
the Corporation, or who, while a director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against liability asserted against or incurred by him in that capacity or
arising from his status as a director, officer, employee or agent, whether or
not the Corporation would have power to indemnify him against the same liability
under applicable state law.
15
<PAGE>
6.9 Interpretation. This Article shall be interpreted to allow
--------------
indemnification of directors, officers, employees or agents to the fullest
extent allowable under Title 48 of the Tennessee Code Annotated as amended from
time to time.
6.10 Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against the
person and incurred by the person in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power or the
obligation to indemnify such person against such liability under the provisions
of this Article.
6.11 Scope of Article. The indemnification of authorized representatives
----------------
and advancement of expenses, as authorized by the preceding provisions of this
Article, shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office. The indemnification and advancement of expenses provided by
or granted pursuant to this Article shall continue as to a person who has ceased
to be an authorized representative and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6.12 Reliance on Provisions. Each person who shall act as an authorized
----------------------
representative of the Corporation shall be deemed to be doing so in reliance
upon rights of indemnification provided by this Article.
ARTICLE IX
GENERAL PROVISIONS
7.1 Dividends. Subject to the restrictions contained in the TBCA and any
---------
restrictions contained in the Charter, the Board of Directors may declare and
pay dividends upon the shares of capital stock of the Corporation.
7.2 Contracts. Except as otherwise required by law, the Charter, or these
---------
Bylaws, any contracts or other instruments may be executed and delivered in the
name and on the behalf of the Corporation by such officer or officers of the
Corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. The Chairman of the Board, if an executive officer, the President or
any Vice President may execute bonds, contracts, deeds, leases, and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors, the Chairman of the
Board, if an executive officer, the President or any Vice President of the
16
<PAGE>
Corporation may delegate contractual powers to others under his jurisdiction, it
being understood, however, that any such delegation of power shall not relieve
such officer of responsibility with respect to the exercise of such delegated
power.
7.3 Corporate Seal. The Corporation shall have a corporate seal, which
--------------
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Tennessee". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
7.4 Deposits. All funds of the Corporation shall be deposited from time to
--------
time to the credit of the Corporation in such banks, trust companies, or other
depositories as the Board of Directors may approve or designate, and all such
funds shall be withdrawn only upon checks signed by such one or more officers or
employees as the Board of Directors shall from time to time determine.
7.5 Corporate Records.
-----------------
(a) Examination by Shareholders. Every shareholder shall, upon
---------------------------
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the share ledger, list of shareholders, books or records of
account, and records of the proceedings of the shareholders and directors of the
Corporation, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a shareholder.
In every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the shareholder. The demand under oath shall be directed
to the Corporation at its registered office in Tennessee or at its principal
place of business. Where the shareholder seeks to inspect the books and records
of the Corporation, other than its share ledger or list of shareholders, the
shareholder shall first establish (1) that the shareholder has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents; and (2) that the inspection sought is for a proper
purpose. Where the shareholder seeks to inspect the stock ledger or list of
shareholders of the Corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the Corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors. Any director shall have the right to
------------------------
examine the Corporation's share ledger, a list of its shareholders and its other
books and records for a purpose reasonably related to the person's position as a
director.
7.6 Resignations. Any director or any officer, whether elected or
------------
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board, the Chief Executive Officer, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the Chief
Executive Officer, or the Secretary, or at such later time as is specified
17
<PAGE>
therein. No formal action shall be required of the Board of Directors or the
shareholders to make any such resignation effective.
7.7 Proxies. Unless otherwise provided by resolution adopted by the Board
-------
of Directors, the Chairman of the Board, the President or any Vice President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he may deem necessary or proper
in the premises.
7.8 Amendment of Bylaws. In furtherance and not in limitation of the
-------------------
powers conferred by statute, the Board of Directors of the Corporation is
expressly authorized from time to time to make, adopt, alter, amend, supplement
and repeal the bylaws of the Corporation in any respect, subject to the right of
the shareholders entitled to vote with respect thereto to adopt, alter, amend
and repeal bylaws made by the Board of Directors; provided, however, that bylaws
shall not be made, adopted, altered, amended or repealed by the shareholders of
the Corporation except by the vote of the holders of not less than sixty-six and
two-thirds percent (66b%) of the outstanding shares of stock of each class and
series entitled to vote upon such matter.
18
<PAGE>
Exhibit 3.4
BYLAWS
OF
PREMIER GRAPHICS, INC.
ARTICLE I. OFFICES AND REGISTERED AGENTS
SECTION 1.1 PRINCIPAL OFFICE. The principal office of this Corporation is
----------------
at 2500 Lamar Avenue, Memphis, Shelby County, Tennessee, as provided in the
Certificate of Incorporation. The Board of Directors may, by Resolution, amend
the Certificate of Incorporation to change the address of the principal office
in the State of Tennessee.
SECTION 1.2 REGISTERED AGENT. The Corporation has designated and shall
----------------
continue to have a registered agent in the State of Tennessee. If the
registered agent resigns or is for any reason unable to perform his duties, the
Corporation shall promptly designate another registered agent. The Corporation
may, by Resolution of the Board of Directors, appoint such other agents for the
service of process in such other jurisdictions as the Board of Directors may
determine.
ARTICLE II. STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of stockholders shall be
--------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of stockholders for any
----------------
purpose or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors that has been duly designated by the Board
of Directors and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
SECTION 2.3 NOTICE OF MEETINGS. Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these bylaws, the written notice of any meeting shall be given not less than ten
nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stock holder at his address as it appears on the records of the corporation.
<PAGE>
SECTION 2.4 ADJOURNMENTS. Any meeting of stockholders, annual or special,
------------
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjournment meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder or record entitled to vote at the meeting.
SECTION 2.5 QUORUM. Except as otherwise provided by law, the certificate
------
of incorporation or these bylaws, at each meeting of stockholders the presence
in person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 2.4 of these bylaws until a quorum shall attend. Shares of its own stock
belonging to the corporation or to another corporation, if a majority of the
shares entitled to vote in the election or directors of such other corporation
is held, directly or indirectly, by the corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
SECTION 2.6 ORGANIZATION. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in his absence of the forgoing persons by a chairman
designated by the Board of Directors, or in the absence of such designated by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting shall announce at the
meeting of stockholders the date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote.
SECTION 2.7 VOTING; PROXIES. Except as otherwise provided by the
---------------
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stockholders need not be by written ballot and, unless otherwise
required by law, need not be conducted by inspectors of election unless so
determined by the holders of shares of stock having a majority of the votes
which could be cast by the holders of all outstanding shares of stock entitled
to vote thereon which are present in person or by proxy at such meeting. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All
-2-
<PAGE>
other elections and questions shall, unless otherwise provided by law, the
certificate of incorporation or these bylaws, be decided by the vote which could
be cast by the holders of all shares of stock outstanding and entitled to vote
thereon.
SECTION 2.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
-------------------------------------------------------
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stock holders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed; (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 2.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
-------------------------------------
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be opened
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger,
-3-
<PAGE>
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
SECTION 2.10 ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise
---------------------------------
restricted by the certificate of incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered (by hand or by certified or registered mail, return receipt requested)
to the corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the books in which proceedings of minutes of
stockholders are recorded. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.11 CONDUCT OF MEETINGS. The Board of Directors of the
-------------------
corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitations, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.1 NUMBER; QUALIFICATIONS. The Board of Directors shall consist
----------------------
of one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
SECTION 3.2 ELECTION: RESIGNATION: REMOVAL: VACANCIES. The Board of
-----------------------------------------
Directors shall initially consist of the persons named as directors by the
incorporator, and each director shall hold office until the first annual meeting
of stockholders or until his successor is elected and qualified. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term of
one year or until his successor is elected and qualified. Any director may
resign any time upon written notice to the corporation. Any newly created
directorship or any vacancy occurring in the Board of Directors for any cause
may be filed
-4-
<PAGE>
by a majority of the remaining members of the Board of Directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stockholders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he has replaced or until
his successor is elected and qualified.
SECTION 3.3 REGULAR MEETINGS. Regular meetings of the Board of Directors
----------------
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the board of directors
----------------
may be held at such time or place within or without the State of Delaware
whenever called by the President, any Vice President, the Secretary, or by any
member of the Board of Directors. Notice of a special meeting of the Board of
Directors shall be given by the person or persons calling the meeting at least
twenty-four hours before the special meeting.
SECTION 3.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of
-----------------------------
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this by-
law shall constitute presence in person at such meeting.
SECTION 3.6 QUORUM: VOTE REQUIRED FOR ACTION. At all meetings of the
--------------------------------
Board of Directors, a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
certificate of incorporation or these bylaws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. If less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice until a quorum shall be
present.
SECTION 3.7 ORGANIZATION. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 3.8 INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by
----------------------------
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
-5-
<PAGE>
ARTICLE IV. COMMITTEES
SECTION 4.1 COMMITTEES. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, or may unanimously appoint another member of the Board of Directors to
act at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation.
SECTION 4.2 COMMITTEE RULES. Unless the Board of Directors otherwise
---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE V. OFFICERS
SECTION 5.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
-------------------------------------------------------------
RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a President
- -------------------------------
and Secretary, and it may, if it so determines, choose a Chairman of the Board
and a Vice Chairman of the Board from among its members. The Board of Directors
may also choose one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
SECTION 5.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the
---------------------------------------
Corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
ARTICLE VI. STOCK
-6-
<PAGE>
SECTION 6.1 CERTIFICATES. Every holder of stock shall be entitled to have
------------
a certificate signed by or in the name of the corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation certifying the number of shares owned
by him in the corporation. Any of or all the signatures on the certificate may
be a facsimile.
SECTION 6.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
-------------------------------------------------------------
CERTIFICATES. The corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VII. INDEMNIFICATION
SECTION 7.1 RIGHT TO INDEMNIFICATION. The corporation shall indemnify and
------------------------
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director of officer of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding (or part thereof) initiated by such person only if the proceeding (or
part thereof) was authorized by the Board of Directors of the corporation.
SECTION 7.2 PREPAYMENT OF EXPENSES. The corporation may, in its
----------------------
discretion, pay the expenses (including attorneys' fees) incurred in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
indemnified under this Article or otherwise.
SECTION 7.3 CLAIMS. If a claim for indemnification or payment of expenses
------
under this Article is not paid in full within sixty days after a written claim
therefor has been received by the corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
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<PAGE>
SECTION 7.4 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
-------------------------
by this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the certificate of
incorporation, these bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 7.5 OTHER INDEMNIFICATION. The corporation's obligation, if any,
---------------------
to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
SECTION 7.6 AMENDMENT OR REPEAL. Any repeal or modification of the
-------------------
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1 FISCAL YEAR. The fiscal year of the corporation shall end
-----------
December 31 of each year unless otherwise determined by resolution of the Board
of Directors.
SECTION 8.2 SEAL. The corporation shall not have a corporate seal.
----
SECTION 8.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
-----------------------------------------------------------
COMMITTEES. Any written waiver of notice, signed by the person entitled to
- ----------
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders, directors, or members of a committee
of directors need be specified in any written waiver of notice.
ADOPTED as of June 3, 1997.
/s/Nancy Miller
---------------
Nancy Miller, Secretary
-8-
<PAGE>
Exhibit 4.5
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 19th day of June, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company"), to WILLIAM J. BLACKWELL and BRENDA
M. BLACKWELL (WILLIAM J. BLACKWELL and BRENDA M. BLACKWELL and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the option to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the option to purchase to be determined as
follows:
$1,000,000 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price of comparable capital stock of the same
class of the Company.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
--------
only on the conditions hereinafter set forth) as to all or any increment or
increments upon delivery of written notice of intent to exercise to the Company
at the following address: 2500 Lamar Avenue, Memphis, Tennessee 38114 or such
other address as the Company shall designate in a written notice to the Holder
hereof, together with this Warrant and payment to the Company of the aggregate
Exercise Price of the Shares being purchased. The Exercise Price shall be
payable by delivery of a certified check. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event with
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are requested
by such Holder. If this Warrant shall be exercised with respect to less than
all of the Shares, a new warrant shall be issued by the Company for the
remaining Shares covered by this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this
<PAGE>
Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Neither Shareholder nor Company shall enter into any transaction
that would result in the merger or acquisition of the Company or an
Affiliated Entity unless prior to such sale Shareholder and/or the
Companyshall give notice to Holder of its intention to effect such sale in
order that Holder may exercise its rights under this Section 7 as
hereinafter described. Such notice shall set forth the principal terms of
the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder and/or the Company
receives shares of stock of any other company (the "Surviving Entity")
during the ten (10) year period commencing with the date hereof, Holder
shall have the option to acquire from Shareholder or the Company for a
purchase price per share equal to the price per share determined in
connection with such acquisition or merger, a maximum number of shares up
to that number pursuant to which the purchase price would equal $1,000,000,
with the maximum number of shares which Holder shall have the option to
purchase to be determined as follows:
$1,000,000 divided by Price Per Share of Surviving Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO at the time of the merger or acquisition.
8. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
9. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: William J. Blackwell
Brenda M. Blackwell
with a copy to: Rimmer, Rawlings, MacInnis & Hedglin, P.A.
210 E. Capital Street
<PAGE>
1290 Deposit Guaranty Plaza
Jackson, MS 39201-2302
Attention: Stephen W. Rimmer
The Address of Company is: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
10. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
11. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
12. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
13. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
14. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above
<PAGE>
written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
-------------------
Title: President
HOLDER: /s/ William J. Blackwell
------ ------------------------
William J. Blackwell
/s/ Brenda M. Blackwell
-----------------------
Brenda M. Blackwell
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purposes of agreeing to
the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.6
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 19th day of June, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company"), to WALTER P. MCMULLEN (WALTER P.
MCMULLEN and any subsequent assignee or transferee hereof are hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
years from the date hereof, Holder shall have the option to acquire from the
Company the number of shares up to that number pursuant to which the purchase
price would equal Three Million Seven Hundred and Fifty Thousand Dollars
($3,750,000), with the maximum number of shares which Holder shall have the
option to purchase to be determined as follows:
$3,750,000 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable within ten (10) years from the date of and
in conjunction with the IPO, provided that there has been no acquisition or
merger of the Company at the time of the IPO. The exercise of, or the failure
to exercise, this Warrant in conjunction with an IPO shall terminate all other
rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
--------------
Share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be the IPO price of comparable capital stock of the
Company.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
--------
on the conditions hereinafter set forth) as to all or any increment or
increments upon delivery of written notice of intent to exercise to the Company
at the following address: 2500 Lamar Avenue, Memphis, Tennessee 38114 or such
other address as the Company shall designate in a written notice to the Holder
hereof, together with this Warrant and payment to the Company of the aggregate
Exercise Price of the Shares being purchased. The Exercise Price shall be
payable by delivery of a certified check. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event with
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are requested
by such Holder. If this Warrant shall be exercised with respect to less than
all of the Shares, the remaining Shares covered by this Warrant shall be null
and void.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
<PAGE>
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an Affiliated Entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described. Such notice shall set
forth the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company whose stock is traded on any exchange (the "Surviving
Entity") during the ten year period commencing with the date hereof, Holder
shall have the option to acquire from Shareholder for a purchase price per
share equal to the price per share determined in connection with such
acquisition or merger, a maximum number of shares up to that number
pursuant to which the purchase price would equal $3,750,000, with the
maximum number of shares which Holder shall have the option to purchase to
be determined as follows:
$3,750,000 divided by Price Per Share of Surviving Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be exercisable
at within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO at the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
9. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
<PAGE>
The Address of Holder is: Mr. Walter P. McMullen
350 South Yates Road
Memphis, Tennessee 38120
with a copy to: The Bogatin Law Firm
860 Ridge Lake Boulevard, #360
Memphis, Tennessee 38120
Attention: Irvin Bogatin and Matthew P. Cavitch
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
10. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
11. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
12. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
13. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
14. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Walter P. McMullen
------ ----------------------
Walter P. McMullen
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purposes of agreeing to
the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.7
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 19th day of June, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company"), to DAVID SUTHERLAND, III (DAVID
SUTHERLAND, III and any subsequent assignee or transferee hereof are hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
years from the date hereof, Holder shall have the option to acquire from the
Company the number of shares up to that number pursuant to which the purchase
price would equal Three Hundred Twenty-Five Thousand Dollars ($325,000), with
the maximum number of shares which Holder shall have the option to purchase to
be determined as follows:
$325,000 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable within ten (10) years from the date of and
in conjunction with the IPO, provided that there has been no acquisition or
merger of the Company at the time of the IPO. The exercise of, or the failure
to exercise, this Warrant in conjunction with an IPO shall terminate all other
rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price of comparable capital stock of the Company.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
--------
only on the conditions hereinafter set forth) as to all or any increment or
increments upon delivery of written notice of intent to exercise to the Company
at the following address: 2500 Lamar Avenue, Memphis, Tennessee 38114 or such
other address as the Company shall designate in a written notice to the Holder
hereof, together with this Warrant and payment to the Company of the aggregate
Exercise Price of the Shares being purchased. The Exercise Price shall be
payable by delivery of a certified check. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event with
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are requested
by such Holder. If this Warrant shall be exercised with respect to less than
all of the Shares, the remaining Shares covered by this Warrant shall be null
and void.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
<PAGE>
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would result
in the merger or acquisition of the Company or an Affiliated Entity unless
prior to such sale such Shareholder shall give notice to Holder of its
intention to effect such sale in order that Holder may exercise its rights
under this Section 7 as hereinafter described. Such notice shall set forth
the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company whose stock is traded on any exchange (the "Surviving
Entity") during the ten year period commencing with the date hereof, Holder
shall have the option to acquire from Shareholder for a purchase price per
share equal to the price per share determined in connection with such
acquisition or merger, a maximum number of shares up to that number
pursuant to which the purchase price would equal $325,000, with the maximum
number of shares which Holder shall have the option to purchase to be
determined as follows:
$325,000 divided by Price Per Share of Surviving Entity = Maximum Number of
Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO at the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
9. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: David Sutherland, III
<PAGE>
with a copy to: The Bogatin Law Firm
860 Ridge Lake Boulevard, #360
Memphis, Tennessee 38120
Attention: Irvin Bogatin and Matthew P. Cavitch
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
10. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
11. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
12. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
13. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
14. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ David Sutherland, III
------ -------------------------
David Sutherland, III
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purposes of agreeing to
the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.10
STOCK PURCHASE WARRANT
This Warrant is issued this 16th day of December, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to JOSEPH SEGAL (Joseph Segal, his heirs and personal representatives of his
estate, and any subsequent assignee or transferee hereof is hereinafter referred
to as "Holder").
AGREEMENT:
1. CERTAIN DEFINITIONS. For purposes hereof:
(a) an acquisition, by merger or otherwise, of all or substantially all of
the assets of a Successor Organization or a Substitute Organization
is:
(i) a "Successor Acquisition" if (x) the acquired organization is a
Successor Organization and (y) more than half of the value of
the consideration for such acquisition consists of stock which
is not publicly traded;
(ii) a "Substitution Acquisition" if (x) the acquired organization is
a Successor Organization and (y) more than half of the value of
the consideration for such acquisition consists of stock which
is publicly traded; or
(iii) a "Final Acquisition" if it is neither a Successor Acquisition
nor a Substitution Acquisition;
(b) a "Successor Organization" means (i) the Company, (ii) the acquiring
organization in any Successor Acquisition; and (iii) all affiliates of
any Successor Organization;
(c) a "Substitute Organization" means an issuer of publicly traded stock
shares of which are included in the consideration for a Substitution
Acquisition;
(d) the "Trigger Transaction" means the first to occur of:
(i) an initial public offering (an "IPO") of a class or series of
stock of a Successor Organization;
(ii) a Substitution Acquisition; or
(iii) a Final Acquisition of a Successor Organization;
in any case, however, if and only if such transaction occurs within
ten (10) years from the date hereof; and
<PAGE>
(e) "stock" and "shares" includes, when applicable, other equity interests
in organizations.
2. NATURE OF WARRANT. Holder shall have options to acquire shares of
stock as more particularly described herein, and the Company and Shareholder
shall cause each optionor of such shares to honor Holder's exercises of this
Warrant.
(a) If the Trigger Transaction is an IPO: (i) Holder's options hereunder
shall extend to shares of the Successor Organization of the class which is the
subject of the IPO; (ii) such Successor Organization shall be considered the
optionor of such options; and (iii) subject to subsection (e), Holder shall be
entitled to exercise this Warrant at any time and from time to time on or before
the tenth (10th) anniversary of the successful completion of such IPO, each such
exercise to be at an exercise price equal to the Exercise Price (as hereinafter
defined) for a number of such shares not in excess of the Available Number (as
hereinafter defined).
(b) If the Trigger Transaction is a Substitution Acquisition: (i) Holder's
options hereunder shall extend to the publicly traded shares which are included
in the consideration for such Substitution Acquisition; (ii) the Shareholder and
each other organization which (x) is directly or indirectly controlled by the
Shareholder and (y) receives any such shares in such Substitution Acquisition
shall be considered the optionors of such options; and (iii) subject to
subsection (e), Holder shall be entitled to exercise this Warrant at any time
and from time to time on or before the tenth (10th) anniversary of such
Substitution Acquisition, each such exercise to be at an exercise price equal to
the Exercise Price for a number of such shares not in excess of the Available
Number.
(c) If the Trigger Transaction is a Final Acquisition of a Successor
Organization: Holder's options hereunder shall extend to the shares of the
Successor Organization which is being acquired; (ii) the Shareholder and each
other organization which (x) is directly or indirectly controlled by the
Shareholder and (y) holds any such shares at the time of such Final Acquisition
shall be considered the optionors of such options; and (iii) subject to
subsection (e), Holder shall be entitled to exercise this Warrant immediately
prior to such Final Acquisition at an exercise price equal to the Exercise Price
for a number of such shares not in excess of the Available Number.
(d) For purposes hereof:
(i) the "Exercise Price" means:
(x) if the Trigger Transaction is an IPO, the per-share price paid
for the subject stock in the IPO;
(y) if the Trigger Transaction is a Substitution Acquisition, the
per-share price at which the optioned shares are trading
immediately following such Substitution Acquisition; and
(z) if the Trigger Transaction is a Final Acquisition of a Successor
Organization, the per-share value of the optioned shares as
determined by such Final Acquisition; and
<PAGE>
(ii) the "Available Number" means the number of shares which could be
purchased for $2,325,000 at the Exercise Price, appropriately reduced
for previous option exercises of this Warrant;
in all cases, however, appropriately adjusted for stock dividends, stock splits,
reverse stock splits, recapitalizations and similar transactions.
(e) Notwithstanding any other provision hereof, this Warrant shall not be
exercisable after a Final Acquisition.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
on the conditions hereinafter set forth) as to all or any part upon delivery of
written notice of intent to exercise to the Company (or any other applicable
optionor) at the following address: 2500 Lamar Avenue, Memphis, Tennessee 38114
or such other address as the Company (or such other applicable optionor) shall
designate in a written notice to the Holder hereof, together with this Warrant
and payment to the Company (or such other applicable optionor) of the aggregate
Exercise Price of the shares being purchased. The Exercise Price shall be
payable by delivery of a certified check. Upon exercise of this Warrant as
aforesaid, the Company (or such other applicable optionor) shall as promptly as
practicable, and in any event with fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder and shall return this
Warrant to such Holder, marked to reflect such exercise.
4. COVENANTS AND CONDITIONS. The Company and the Shareholder shall cause
all shares issuable on each exercise of this Warrant (and payment therefor) by
the Holder to be (a) legally and validly issued and outstanding, fully paid and
nonassessable, and (b) free from all taxes, charges and preemptive rights, if
any, with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance (and the Company and the
Shareholder shall cause each other Successor Organization to reserve and keep
available for issuance) upon the exercise of this Warrant such number of
authorized but unissued shares as will be sufficient to permit the exercise in
full of this Warrant.
5. TRANSFER OF WARRANT. Neither this Warrant nor the Shares have been
registered under the Securities Act of 1933, as amended ("Securities Act") or
any state securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may not be
sold or otherwise transferred without (i) an effective registration statement
for such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not required
under the Securities Act or under any applicable Blue Sky Laws. Transfer of the
Shares issued upon the exercise of this Warrant shall be restricted in the same
manner and to the same extent as the Warrant and the certificates representing
such Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
<PAGE>
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER
THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN
THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
Subject to the restrictions set forth above, this Warrant may be
transferred, in whole or in part, to any person or business entity, by
presentation of the Warrant to the Company (or other applicable optionor) with
written instructions for such transfer. Upon such presentation for transfer,
the Company (or such other optionor) shall promptly execute and deliver a new
Warrant or Warrants in the form hereof in the name of the assignee or assignees
and in the denominations specified in such instructions. The Company (or such
other optionor) shall pay all expenses incurred by it in connection with the
preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company or of anyone else.
7. NOTIFICATION DUTIES. Neither the Company nor the Shareholder
shall enter into, or permit any other organization shares of which may be
deliverable on exercise of this Warrant to enter into, any Trigger Transaction
or other sale or other disposition of all or substantially all of the assets of
the Company or any such other organization unless prior to such transaction
Shareholder shall have given sufficient advance notice to Holder of such
transaction to enable Holder to exercise its rights hereunder. Such notice shall
set forth the principal terms of the subject transaction.
8. REGISTRATION. (a) The Company and the holders of the Shares agree
------------
that if at any time after the date hereof the Company, a Successor Organization
or a Substitute Organization (collectively a "Registrant") shall propose to file
a registration statement with respect to any of its Common Stock, it will give
notice in writing to such effect to the registered holder(s) of the Shares at
least thirty (30) days prior to such filing, and, at the written request of any
such registered holder, made within ten (10) days after the receipt of such
notice, will include therein at the Registrant's cost and expense (including the
fees and expenses of counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares included
therein) such of the Shares as such holder(s) shall request; provided, however,
that if the offering being registered by the
<PAGE>
Registrant is underwritten and if the representative of the underwriters
certifies in writing that the inclusion therein of the Shares would materially
and adversely effect the sale of the securities to be sold by the Registrant
thereunder, then the Registrant shall be required to include in the offering
only that number of securities, including the Shares, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among all
selling shareholders according to the total amount of Shares included in the
offering).
(b) Whenever a Registrant undertakes to effect the registration of any of
the Shares, the Registrant shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement covering such Shares and use its best
efforts to cause such registration statement to be declared effective by the
Commission as expeditiously as possible and to keep such registration effective
until the earlier of (A) the date when all Shares covered by the registration
statement have been sold or (B) two hundred seventy (270) days from the
effective date of the registration statement; provided, that before filing a
registration statement or prospectus of any amendment or supplements thereto,
the Registrant will furnish to each Holder of Shares covered by and the holder
of this Warrant such registration statement and the underwriters, if any, copies
of all such documents proposed to be filed (excluding exhibits, unless any such
person shall specifically request exhibits), which documents will be subject to
the review of such Holder and underwriters, and the Registrant will not file
such registration statement or any amendment thereto or any prospectus of any
supplement thereto (including any documents incorporated by reference therein)
with the Commission if (A) the underwriters, if any, shall reasonably object to
such filing or (B) if information in such registration statement or prospectus
concerning a particular selling Holder has changed and such Holder or the
underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement, and
cause the prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to Rule 424
under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus, (each supplement
thereto and such other documents as they may reasonably request in order to
facilitate the disposition of the Shares owned by them.
(iv) Use its best efforts to register and qualify under such other
securities laws of such jurisdiction as shall be reasonably requested by any
selling Holder and do any and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to consummate the
disposition of the Shares owned by such Holder, in such jurisdictions; provided,
however, that the Registrant shall not be required in connection therewith or as
a condition thereto to qualify to transact business or to file a general consent
to service or process in any such states or jurisdictions.
<PAGE>
(v) Promptly notify each selling Holder of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein no misleading and, at the request of any such
Holder, the Registrant will prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Shares, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
(vi) Provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration and statement.
(vii) Enter into such customary agreement (including underwriting
agreements in customary form for a primary offering) and take all such other
actions as the underwriters, if any, reasonably request in order to expedite of
facilitate the disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling Holder or any
underwriter participating in any disposition pursuant to such registration
statement and any attorney accountant or other agent retained by any such
selling Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Registrant, and cause the officers,
directors, employees and independent accountants of the Registrant to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
(ix) Promptly notify the selling Holder (s) and the underwriters, if
any, of the following events and (if requested by any such person) confirm such
notification in writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement or any post
effective amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or supplements to
the registration statement or the prospectus or for additional information, (C)
the issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement of the initiation of
any proceedings for that purpose and (D) the receipt by the Registrant of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and obtain at the
earliest possible moment the withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters, if any,
to facilitate the timely preparation an delivery of certificates representing
the Shares to be sold and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the underwriters may
request at least two(2) business days prior to any delivery of the Shares to the
underwriters.
<PAGE>
(xii) Provide a CUSIP number for all the Shares not later than the
effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement and any
post effective amendment thereto and at each closing of an underwritten
offering, (A) make such representations and warranties to the selling Holder (s)
and the underwriters, if any, with respect to the Shares and the registration
statement as are customarily made by issuers in primarily underwritten
offerings; (B) use its best efforts to obtain "cold comfort" letters and updates
there of from the Registrant's independent certified public accountants
addressed to the selling Holders and the underwriters, if any, such letters to
be in customary form and covering matters of customarily covered in "cold
comfort" letters by underwriters in connection with primary underwritten
offerings; (C) deliver such documents and certificates as may be reasonably
requested (1) by the holders of majority of the Shares being sold, and (2) by
the underwriters, if any, to evidence compliance with class (A) above and with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Registrant; and (D) obtain opinions of counsel to
the Registrant and updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, in any), covering the matters
customarily covered in opinions requested by the selling Holders and under
writers or their counsel. Such counsel shall also state that no facts have come
to the attention of such counsel which cause them to believe that such
registration statement, the prospectus contained therein, or any amendment or
supplement thereto, as of their respective effective or issue dates, contains
any untrue statement of any material fact or omits to state any material fact
necessary to make the statements therein not misleading (except that no
statement need be made with respect to any financial statement, notes thereto or
other financial data or other expertized material contained therein). If for any
reason the Registrant shall so notify the Holders of the Shares and shall use
its best efforts to remove expeditiously all impediments to the rendering of
such opinion.
(xiv) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than forty-five (45) days after the end of any
twelve-month period (or ninety (90) days , if such period is a fiscal year) (A)
commencing at the end of any fiscal quarter in which the Shares are sold to
underwriters in such an offering, beginning with the first month of the first
fiscal quarter of the Company commencing after the effective date of the
registration statement, which statements shall cover such twelve-month periods.
(c) The Company's obligation under Section 8(a) above with respect to
each holder of Shares are expressly conditioned upon such holder's furnishing to
the Registrant in writing such information concerning such holder and the terms
of such holder's proposed offering as the Registrant shall reasonably request
for inclusion in the registration statement. If any registration statement
including any of the Shares is filed, then the Registrant shall indemnify each
holder thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter for such holder ad each person, if any, who
controls such underwriter within the meaning of the Securities Act) from any
loss, claim, damage or liability arising out of, based upon or tin any way
relating to any untrue statement of a material fact contained in such
registration statement or any omission to state therein
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except for any such statement or omission
based on information furnished in writing by such holder of the Shares expressly
for use in connection with such registration statement; and such holder shall
indemnify the Registrant (and each of its officers and directors who has signed
such registration statement, each director, each person, if any, who controls
the Registrant within the meaning of the Securities Act, each underwriter for
the Registrant and each person, if any, who controls such underwriter within the
meaning of the Securities Act) and each other such holder against any loss,
claim, damage, or liability arising from any such statement or omission which
was made in reliance upon information furnished in writing to the Registrant by
such holder of the Shares expressly for use in connection with such registration
statement.
(d) For purpose of this Section 8, all of the Shares shall be deemed to be
issued and outstanding.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally or sent
by certified mail or overnight via nationally recognized courier service (such
as Federal Express), to the other party at the address set forth below, or at
such other address as may be supplied in writing by the other party to the
transmitting party. The date of personal delivery or two (2) business days after
the date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Joseph Segal
c/o Phoenix Communications, Inc.
5664 New Peachtree Road
Atlanta, Georgia 30341
with a copy to: Holt Ney Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339
Attention: Sanford H. Zatcoff, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
<PAGE>
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant among the Company, Shareholder and
Holder represents the entire agreement among the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Georgia applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
jurisdiction of the courts of the State of Georgia and the United States
District Court for the Northern District of Georgia, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC., a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER:
/s/ Joseph Segal
----------------
Joseph Segal
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the obligations expressly described herein as applicable to him.
SHAREHOLDER: /s/ John P. Miller
------------------
John P. Miller
<PAGE>
Exhibit 4.11
STOCK PURCHASE WARRANT
This Warrant is issued this 16th day of December, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to Cary Rosenthal ( Cary Rosenthal and any subsequent assignee or transferee
hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten(10)
years from the date hereof, Holder shall have the option to acquire from the
Company Common Stock of the Company at a price equal to the IPO price, with the
maximum number of shares which Holder shall have the option to purchase to be
determined as follows:
$2,325,000 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable at the time of and in conjunction with the
IPO, provided that there has been no acquisition or merger of the Company prior
to the time of the IPO. The exercise of, or the failure to exercise, this
Warrant in conjunction with an IPO shall terminate all other rights of Holder
hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price of comparable capital stock of the Company.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
--------
on the conditions hereinafter set forth) as to all or any part upon delivery of
written notice of intent to exercise to the Company at the following address:
2500 Lamar Avenue, Memphis, Tennessee 38114 or such other address as the Company
shall designate in a written notice to the Holder hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
being purchased. The Exercise Price shall be payable by delivery of a certified
check. Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event with fifteen (15) days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder. If this
Warrant shall be exercised with respect to less than all of the Shares, the
remaining Shares covered by this Warrant shall be null and void.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
-------------------
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the
Company shall promptly execute and deliver a new Warrant or Warrants in the form
hereof in the name of the assignee or assignees and in the denominations
specified in such instructions. The Company shall pay all expenses incurred by
it in connection with the preparation, issuance and delivery of Warrants under
this Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this
<PAGE>
Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an Affiliated Entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described. Such notice shall set
forth the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company whose stock is traded on any exchange (the "Surviving
Entity") during the ten year period commencing with the date hereof, Holder
shall have the option to acquire from Shareholder for a purchase price per
share equal to the price per share determined in connection with such
acquisition or merger, a maximum number of shares up to that number
pursuant to which the purchase price would equal $2,325,000, with the
maximum number of shares which Holder shall have the option to purchase to
be determined as follows:
$2,325,000 divided by Price Per Share of Surviving Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be
exercisable within ten (10) years from the date of a merger or acquisition,
provided there has been no IPO at the time of the merger or acquisition.
The exercise of, or the failure to exercise, this Warrant in conjunction
with an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
9. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Cary Rosenthal
____________________________
____________________________
<PAGE>
with a copy to: ____________________________
____________________________
____________________________
Attention:__________________
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
10. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
11. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
12. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
13. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
14. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Cary Rosenthal
------ ------------------
Cary Rosenthal
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------------
John P. Miller
<PAGE>
Exhibit 4.12
STOCK PURCHASE WARRANT
This Warrant is issued this 16th day of December, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to Wendell Burns (Wendell Burns and any subsequent assignee or transferee hereof
is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$1,117,105 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
--------
on the conditions hereinafter set forth) as to all or any part upon delivery of
written notice of intent to exercise to the Company at the following address:
2500 Lamar Avenue, Memphis, Tennessee 38114 or such other address as the Company
shall designate in a written notice to the Holder hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
being purchased. The Exercise Price shall be payable by either (a) delivery of
a certified check, or (b) cancellation of an amount equal to the Exercise Price
of amounts otherwise due Wendell Burns from the Company under that certain
promissory note of even date herewith in the original principal amount of
$1,217,105.00. Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event with fifteen (15) days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this
<PAGE>
Warrant is being exercised in such names and denominations as are requested by
such Holder. If this Warrant shall be exercised with respect to less than all of
the Shares, the Company shall issue a new warrant for the remaining Shares
covered by this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such
<PAGE>
number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an Affiliated Entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described. Such notice shall set
forth the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $1,250,000, with the maximum number of shares which Holder
shall have the option to purchase to be determined as follows:
$1,117,105 divided by Price Per Share of Surviving Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO at the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. REGISTRATION.
------------
<PAGE>
(a) The Company and Holder agree that if at any time after the date hereof
the Company shall propose to file a registration statement with respect to
any of its Common Stock, it will give notice in writing to such effect to
the Holder at least thirty (30) days prior to such filing, and, at the
written request of Holder, made within ten (10) days after the receipt of
such notice, will include therein at the Company's cost and expense
(including the fees and expenses of counsel to such holder(s), but
excluding underwriting discounts, commissions and filing fees attributable
to the Shares included therein) such of the Shares as such holder(s) shall
request; provided, however, that if the offering being registered by the
Company is underwritten and if the representative of the underwriters
certifies in writing that the inclusion therein of the Shares would
materially and adversely effect the sale of the securities to be sold by
the Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares, which
the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among all selling shareholders according to the total amount of Shares
included in the offering be less than the number of securities included in
the offering by any other single selling shareholder unless all of the
Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration of any
of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering such
Shares and use its best efforts to cause such registration statement
to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of
(A) the date when all Shares covered by the registration statement
have been sold or (B) two hundred seventy (270) days from the
effective date of the registration statement; provided, that before
filing a registration statement or prospectus of any amendment or
supplements thereto, the Company will furnish to each Holder of Shares
covered by such registration statement and the underwriters, if any,
copies of all such documents proposed to be filed (excluding exhibits,
unless any such person shall specifically request exhibits), which
documents will be subject to the review of such Holder and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus of any supplement
thereto (including any documents incorporated by reference therein)
with the Commission if (A) the underwriters, if any, shall reasonably
object to such filing or (B) if information in such registration
statement or prospectus concerning a particular selling Holder has
changed and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section
<PAGE>
10(b)(i) and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement, and cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed
with the Commission pursuant to Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus, (each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdiction as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Sellers owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service or process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of
any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein no
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration and statement.
(vii) Enter into such customary agreement (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite of facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney accountant or other agent
retained by any such selling
<PAGE>
Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the
Company to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
(ix) Promptly notify the selling Holder (s) and the
underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement of the initiation of any proceedings for that
purpose and (D) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation an delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least
two(2) business days prior to any delivery of the Shares to the
underwriters .
(xii) Provide a CUSIP number for all the Shares not later than
the effective date of the registration statement.
<PAGE>
(xiii) Prior to the effectiveness of the registration statement
and any post effective amendment thereto and at each closing of an
underwritten offering, (A) make such representations and warranties to
the selling Holder (s) and the underwriters, if any, with respect to
the Shares and the registration statement as are customarily made by
issuers in primarily underwritten offerings; (B) use its best efforts
to obtain "cold comfort"letters and updates there of from the
Company's independent certified public accountants addressed to the
selling Holders and the underwriters, if any, such letters to be in
customary form and covering matters of customarily covered in "cold
comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with class (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company; and (D) obtain opinions of counsel to the Company
and updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, in any), covering the
matters customarily covered in opinions requested by the selling
Holders and under writers or their counsel. Such counsel shall also
state that no facts have come to the attention of such counsel which
cause them to believe that such registration statement, the prospectus
contained therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue statement of
any material fact or omits to state any material fact necessary to
make the statements therein not misleading (except that no statement
need be made with respect to any financial statement, notes thereto or
other financial data or other expertized material contained therein).
If for any reason the Company shall so notify the Holders of the
Shares and shall use its best efforts to remove expeditiously all
impediments to the rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than forty
five (45) days after the end of any twelve-month period (or ninety
(90) days , if such period is a fiscal year) (A) commencing at the end
of any fiscal quarter in which the Shares are sold to underwriters in
such an offering, beginning with the first month of the first fiscal
quarter of the Company commencing after the effective date of the
registration statement, which statements shall cover such twelve-month
periods.
(c) The Company's obligation under this Section 8 above with respect
to each holder of Shares are expressly conditioned upon such holder's
furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the registration
<PAGE>
statement. If any registration statement including any of the Shares is
filed, then the Company shall indemnify each holder thereof (and each
underwriter for such holder and each person, if any, who controls such
underwriter for such holder ad each person, if any, who controls such
underwriter within the meaning of the Securities Act) from any loss, claim,
damage or liability arising out of, based upon or tin any way relating to
any untrue statement of a material fact contained in such registration
statement or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except for any such statement or omission based on information furnished in
writing by such holder of the Shares expressly for use in connection with
such registration statement; and such holder shall indemnify the Company
(and each of its officers and directors who has signed such registration
statement, each director, each person, if any, who controls the Company
within the meaning of the Securities Act, each underwriter for the Company
and each person, if any, who controls such underwriter within the meaning
of the Securities Act) and each other such holder against any loss, claim,
damage, or liability arising from any such statement or omission which was
made in reliance upon information furnished in writing to the Company by
such holder of the Shares expressly for use in connection with such
registration statement.
(d) For purpose of this Section 8, all of the Shares shall be deemed
to be issued and outstanding.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Wendell Burns
1907 Crutchfield Street
Chattanooga, Tennessee 37406
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
<PAGE>
Chattanooga, TN 37450-1800
Attention: Kenneth C. Beckman, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above
<PAGE>
written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Wendell Burns
------ -----------------
Wendell Burns
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.13
STOCK PURCHASE WARRANT
This Warrant is issued this 16th day of December, 1997, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to Robert Rymer (Robert Rymer and any subsequent assignee or transferee hereof
is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$132,895 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
--------
on the conditions hereinafter set forth) as to all or any part upon delivery of
written notice of intent to exercise to the Company at the following address:
2500 Lamar Avenue, Memphis, Tennessee 38114 or such other address as the Company
shall designate in a written notice to the Holder hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
being purchased. The Exercise Price shall be payable by either (a) delivery of
a certified check, or (b) cancellation of an amount equal to the Exercise Price
of amounts otherwise due Robert Rymer from the Company under that certain
promissory note of even date herewith in the original principal amount of
$32,895.00 Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event with fifteen (15) days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder. If this
Warrant shall be exercised with respect to less than all of the Shares, the
Company shall issue a new warrant for the remaining Shares covered by this
Warrant.
<PAGE>
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form
<PAGE>
hereof in the name of the assignee or assignees incurred by it in connection
with preparation, issuance and deliver of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an Affiliated Entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described. Such notice shall set
forth the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $132,895, with the maximum number of shares which Holder
shall have the option to purchase to be determined as follows:
$132,895 divided by Price Per Share of Surviving Entity = Maximum Number of
Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO at the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. REGISTRATION.
------------
(a) The Company and Holder agree that if at any time after the date hereof
the Company shall propose to file a registration statement with respect to
any of its Common Stock, it will give notice in writing to such effect to
the Holder at least thirty (30) days prior to such filing, and, at the
written request of Holder, made within ten (10) days after the receipt of
such notice, will include therein at the Company's cost and expense
(including the fees and expenses of counsel to such holder(s), but
excluding underwriting discounts, commissions and filing fees attributable
to the Shares included therein) such of the Shares as such holder(s) shall
request; provided, however, that if the offering being registered by the
Company is underwritten and if the representative of the underwriters
certifies in writing that the inclusion therein of the Shares would
materially and adversely effect the sale of the securities to be sold
<PAGE>
by the Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares, which
the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among all selling shareholders according to the total amount of Shares
included in the offering be less than the number of securities included in
the offering by any other single selling shareholder unless all of the
Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration of any
of the Shares, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering such
Shares and use its best efforts to cause such registration statement
to be declared effective by the Commission as expeditiously as
possible and to keep such registration effective until the earlier of
(A) the date when all Shares covered by the registration statement
have been sold or (B) two hundred seventy (270) days from the
effective date of the registration statement; provided, that before
filing a registration statement or prospectus of any amendment or
supplements thereto, the Company will furnish to each Holder of Shares
covered by such registration statement and the underwriters, if any,
copies of all such documents proposed to be filed (excluding exhibits,
unless any such person shall specifically request exhibits), which
documents will be subject to the review of such Holder and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus of any supplement
thereto (including any documents incorporated by reference therein)
with the Commission if (A) the underwriters, if any, shall reasonably
object to such filing or (B) if information in such registration
statement or prospectus concerning a particular selling Holder has
changed and such Holder or the underwriters, if any, shall reasonably
object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 10(b)(i) and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to
Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus, (each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdiction as shall be reasonably
requested by any selling
<PAGE>
Holder and do any and all other acts and things which may be
reasonably necessary or advisable to enable such selling Holder to
consummate the disposition of the Sellers owned by such Holder, in
such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify
to transact business or to file a general consent to service or
process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of
any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein no
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration and statement.
(vii) Enter into such customary agreement (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite of facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney accountant or other agent
retained by any such selling Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and independent
accountants of the Company to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(ix) Promptly notify the selling Holder (s) and the
underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement of the initiation of any proceedings for that
purpose and (D) the receipt by the Company of any notification with
respect to the
<PAGE>
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation an delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least
two(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later than
the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement
and any post effective amendment thereto and at each closing of an
underwritten offering, (A) make such representations and warranties to
the selling Holder (s) and the underwriters, if any, with respect to
the Shares and the registration statement as are customarily made by
issuers in primarily underwritten offerings; (B) use its best efforts
to obtain "cold comfort"letters and updates there of from the
Company's independent certified public accountants addressed to the
selling Holders and the underwriters, if any, such letters to be in
customary form and covering matters of customarily covered in "cold
comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with class (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company; and (D) obtain opinions of counsel to the Company
and updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, in any), covering the
matters customarily covered in opinions requested by the selling
Holders and under writers or their counsel. Such counsel shall also
state that no facts have come to the attention of such counsel which
cause them to believe that such registration statement, the prospectus
contained therein, or
<PAGE>
any amendment or supplement thereto, as of their respective effective
or issue dates, contains any untrue statement of any material fact or
omits to state any material fact necessary to make the statements
therein not misleading (except that no statement need be made with
respect to any financial statement, notes thereto or other financial
data or other expertized material contained therein). If for any
reason the Company shall so notify the Holders of the Shares and shall
use its best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than forty
five (45) days after the end of any twelve-month period (or ninety
(90) days , if such period is a fiscal year) (A) commencing at the end
of any fiscal quarter in which the Shares are sold to underwriters in
such an offering, beginning with the first month of the first fiscal
quarter of the Company commencing after the effective date of the
registration statement, which statements shall cover such twelve-month
periods.
(c) The Company's obligation under this Section 8 above with respect
to each holder of Shares are expressly conditioned upon such holder's
furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the registration statement. If
any registration statement including any of the Shares is filed, then the
Company shall indemnify each holder thereof (and each underwriter for such
holder and each person, if any, who controls such underwriter for such
holder ad each person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim, damage or liability
arising out of, based upon or tin any way relating to any untrue statement
of a material fact contained in such registration statement or any omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
holder of the Shares expressly for use in connection with such registration
statement; and such holder shall indemnify the Company (and each of its
officers and directors who has signed such registration statement, each
director, each person, if any, who controls the Company within the meaning
of the Securities Act, each underwriter for the Company and each person, if
any, who controls such underwriter within the meaning of the Securities
Act) and each other such holder against any loss, claim, damage, or
liability arising from any such statement or omission which was made in
reliance upon information furnished in writing to the Company by such
holder of the Shares expressly for use in connection with such registration
statement.
(d) For purpose of this Section 8, all of the Shares shall be deemed
to be issued and outstanding.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this
<PAGE>
Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Robert Rymer
1907 Crutchfield Street
Chattanooga, Tennessee 37406
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, TN 37450-1800
Attention: Kenneth C. Beckman, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced
<PAGE>
under the laws of the State of Tennessee applicable to contracts to be wholly
performed in such State. No amendment or modification hereof shall be effective
except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Robert Rymer
------ ----------------
Robert Rymer
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.14
------------
STOCK PURCHASE WARRANT
This Warrant is issued this 6th day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to PHIL PHILLIPS, JR. ( Phil Phillips, Jr. and any subsequent assignee or
transferee hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten(10)
years from the date hereof, Holder shall have the option to acquire from the
Company Common Stock of the Company at a price equal to the IPO price, with the
maximum number of shares which Holder shall have the option to purchase to be
determined as follows:
$854,219 divided by IPO Price Per Share = Maximum Number of Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be the IPO price of the capital stock of the Company.
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only
--------
on the conditions hereinafter set forth) as to all or any part upon delivery of
written notice of intent to exercise to the Company at the following address:
2500 Lamar Avenue, Memphis, Tennessee 38114 or such other address as the Company
shall designate in a written notice to the Holder hereof, together with this
Warrant and payment to the Company of the aggregate Exercise Price of the Shares
being purchased. The Exercise Price shall be payable by delivery of a certified
check. Upon exercise of this Warrant as aforesaid, the Company shall as promptly
as practicable, and in any event with fifteen (15) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the remaining Shares
covered by this Warrant shall be null and void.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
<PAGE>
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid
and nonassessable, free from all taxes, charges and preemptive rights,
if any, with respect thereto or to the issuance thereof. The Company
shall at all times reserve and keep available for issuance upon the
exercise of this Warrant such number of authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full
of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
-------------------
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided
------------------------------
herein, this
<PAGE>
Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an Affiliated Entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described. Such notice shall set
forth the principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company whose stock is traded on any exchange (the "Surviving
Entity") during the ten year period commencing with the date hereof, Holder
shall have the option to acquire from Shareholder for a purchase price per
share equal to the price per share determined in connection with such
acquisition or merger, a maximum number of shares up to that number
pursuant to which the purchase price would equal $854,219, with the maximum
number of shares which Holder shall have the option to purchase to be
determined as follows:
$854,219 divided by Price Per Share of Surviving Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be
exercisable within ten (10) years from the date of a merger or acquisition,
provided there has been no IPO at the time of the merger or acquisition.
The exercise of, or the failure to exercise, this Warrant in conjunction
with an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
9. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Phil Phillips, Jr.
c/o Phillips Litho
<PAGE>
807 Old Missouri Road
Springdale, Arkansas 72764
with a copy to: Lax, Vaughan, Pender & Evans
400 West Capital Avenue, 24/th/ Floor
Little Rock, Arkansas 72201
Attention: Michael F. Lax, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
10. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
11. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
12. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Arkansas applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
13. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
14. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly
<PAGE>
waives any and all objections it may have as to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
PREMIER GRAPHICS, INC.,
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Phil Phillips, Jr.
------ ----------------------
Phil Phillips, Jr.
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------------
John P. Miller
<PAGE>
Exhibit 4.15
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 31/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Tennessee corporation (the "Company") and JOHN P. MILLER
("Shareholder"), to MICHAEL G. HARPER (Michael G. Harper and any subsequent
assignee or transferee hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$559,125 / Initial IPO Price Per Share = Maximum Number of Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any,
<PAGE>
filed by the Company during its current fiscal year. Holder shall have until the
thirtieth (30/th/) day from the date of the Holder Notice to rescind such
notice. If Holder does not elect to rescind the Holder Notice, then on or within
five (5) days after such thirtieth (30/th/) day, Holder shall deliver to Company
(the "Exercise Delivery"): (i) this Warrant, (ii) a signed statement indicating
the number of Shares to be purchased, and (iii) either (A) a certified check in
the amount of the Exercise Price or (B) that certain promissory note dated of
even date herewith in the original principal amount of $559,125 between the
Company and Holder, along with a signed statement directing the Company to
cancel that portion of such promissory note which is equal to the Exercise
Price. Upon receipt of the Exercise Delivery, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver, or cause to be executed and delivered to Holder a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised. If this Warrant is exercised with respect to less than all of
the Shares, (i) the Company shall issue a new warrant for the remaining shares
covered by this Warrant and (ii) if the Promissory Note is used to fund the
Exercise Price, the Company shall issue a replacement promissory note with an
appropriate adjustment to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the
<PAGE>
issuance of this Warrant and any Shares upon exercise hereof with
applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
-------------------
hereof, this Warrant may only be transferred, in whole or in part, to a spouse
or lineal descendent of the original holder hereof or to a trust or other entity
owned by or directly benefitting the original holder hereof, his spouse or a
lineal descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an affiliated entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described or under any other
provision of this Agreement. Such notice shall set forth the principal
terms of the merger or acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share of the acquiring entity determined in connection with such
acquisition or merger, a maximum number of shares of the surviving entity
up to that number pursuant to which the purchase price would equal
$559,125, with the maximum number of shares which Holder shall have the
option to purchase to be determined as follows:
$559,125 / Price Per Share of Acquiring Entity = Maximum Number of Option
Shares
This option shall be exercised in the same manner as provided under Section
3.
<PAGE>
(c) The option described in this Section 7 shall only be
exercisable within ten (10) years from the date of a merger or acquisition,
provided there has been no IPO prior to the time of the merger or
acquisition. The exercise of, or the failure to exercise, this Warrant
during such ten (10) year period shall terminate all other rights of Holder
hereunder.
8. REGISTRATION.
------------
(a) The Company and Holder agree that if at any time after the date
hereof the Company shall propose to file a registration statement with
respect to any of its Common Stock, it will give notice in writing to such
effect to the Holder at least thirty (30) days prior to such filing, and,
at the written request of Holder, made within ten (10) days after the
receipt of such notice, will include therein at the Company's cost and
expense (including the fees and expenses of counsel to such holder(s), but
excluding underwriting discounts, commissions and filing fees attributable
to the Shares included therein) such of the Shares as such Holder(s) shall
request; provided, however, that if the offering being registered by the
Company is underwritten and if the representative of the underwriters
certifies in writing that the inclusion therein of the Shares would
materially and adversely effect the sale of the securities to be sold by
the Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares, which
the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among all selling shareholders according to the total amount of Shares
included in the offering be less than the number of securities included in
the offering by any other single selling shareholder unless all of the
Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration of any
of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and
use its best efforts to cause such registration statement to be
declared effective by the Commission as expeditiously as possible and
to keep such registration effective until the earlier of (A) the date
when all Shares covered by the registration statement have been sold
or (B) two hundred seventy (270) days from the effective date of the
registration statement; provided, that before filing a registration
statement or prospectus of any amendment or supplements thereto, the
Company will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of all
such documents proposed to be filed (excluding exhibits, unless any
such person shall specifically request exhibits), which documents will
be subject to the review of such Holder and underwriters, and the
Company will not file such registration statement or any amendment
thereto or any prospectus of any supplement thereto (including any
documents incorporated by reference therein) with the Commission if
(A) the underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or prospectus
concerning a particular selling Holder has changed and such Holder or
the underwriters, if any, shall reasonably object.
<PAGE>
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 10(b)(i) and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to
Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus, each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them).
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdiction as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service or process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein no
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such
Shares not later than the effective date of such registration and
statement.
(vii) Enter into such customary agreement (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite of facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or
any underwriter participating in any disposition pursuant to such
registration statement and any attorney accountant or other agent
retained by any such selling
<PAGE>
Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the
Company to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
(ix) Promptly notify the selling Holder (s) and the
underwriters,if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement of the initiation of any proceedings for that
purpose and (D) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation an delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least
two(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later
than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement
and any post effective amendment thereto and at each closing of an
underwritten offering,
<PAGE>
(A) make such representations and warranties to the selling Holder
(s) and the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in primarily
underwritten offerings; (B) use its best efforts to obtain "cold
comfort"letters and updates there of from the Company's independent
certified public accountants addressed to the selling Holders and the
underwriters, if any, such letters to be in customary form and
covering matters of customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; (C)
deliver such documents and certificates as may be reasonably requested
(1) by the holders of majority of the Shares being sold, and (2) by
the underwriters, if any, to evidence compliance with class (A) above
and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (D)
obtain opinions of counsel to the Company and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to the
underwriters, in any), covering the matters customarily covered in
opinions requested by the selling Holders and under writers or their
counsel. Such counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that such
registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or
issue dates, contains any untrue statement of any material fact or
omits to state any material fact necessary to make the statements
therein not misleading (except that no statement need be made with
respect to any financial statement, notes thereto or other financial
data or other expertized material contained therein). If for any
reason the Company shall so notify the Holders of the Shares and shall
use its best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve-month period (or
ninety (90) days , if such period is a fiscal year) (A) commencing at
the end o f any fiscal quarter in which the Shares are sold to
underwriters in such an offering, beginning with the first month of
the first fiscal quarter of the Company commencing after the effective
date of the registration statement, which statements shall cover such
twelve-month periods.
(c) The Company's obligation under this Section 8 above with respect
to each holder of Shares are expressly conditioned upon such holder's
furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the registration statement. If
any registration statement including any of the Shares is filed, then the
Company shall indemnify each holder thereof (and each underwriter for such
holder and each person, if any, who controls such underwriter for such
holder ad each person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim, damage or liability
arising out of, based upon or tin any way relating to any untrue statement
of a material fact contained in such registration statement or any omission
to state therein a
<PAGE>
material fact required to be stated therein or necessary to make the
statements therein not misleading, except for any such statement or
omission based on information furnished in writing by such holder of the
Shares expressly for use in connection with such registration statement;
and such holder shall indemnify the Company (and each of its officers and
directors who has signed such registration statement, each director, each
person, if any, who controls the Company within the meaning of the
Securities Act, each underwriter for the Company and each person, if any,
who controls such underwriter within the meaning of the Securities Act) and
each other such holder against any loss, claim, damage, or liability
arising from any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration statement.
(d) For purpose of this Section 8, all of the Shares shall be deemed
to be issued and outstanding.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
----------------------------
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Michael G. Harper
P. O. Drawer 1596
Henderson, NC 27536
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Kenneth C. Beckman, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
<PAGE>
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan, Esq.
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
[END OF PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
------- a Tennessee corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Michael G. Harper
------ ---------------------
Michael G. Harper
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.16
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 31/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Tennessee corporation (the "Company") and JOHN P. MILLER
("Shareholder"), to LYNN H. HARPER (Lynn H. Harper and any subsequent assignee
or transferee hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$565,875 / Initial IPO Price Per Share = Maximum Number of Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30/th/) day
<PAGE>
from the date of the Holder Notice to rescind such notice. If Holder does not
elect to rescind the Holder Notice, then on or within five (5) days after such
thirtieth (30/th/) day, Holder shall deliver to Company (the "Exercise
Delivery"): (i) this Warrant, (ii) a signed statement indicating the number of
Shares to be purchased, and (iii) either (A) a certified check in the amount of
the Exercise Price or (B) that certain promissory note dated of even date
herewith in the original principal amount of $565,875 between the Company and
Holder, along with a signed statement directing the Company to cancel that
portion of such promissory note which is equal to the Exercise Price. Upon
receipt of the Exercise Delivery, the Company shall as promptly as practicable,
and in any event within fifteen (15) days thereafter, execute and deliver, or
cause to be executed and delivered to Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised. If
this Warrant is exercised with respect to less than all of the Shares, (i) the
Company shall issue a new warrant for the remaining shares covered by this
Warrant and (ii) if the Promissory Note is used to fund the Exercise Price, the
Company shall issue a replacement promissory note with an appropriate adjustment
to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state securities laws.
<PAGE>
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may only be transferred, in whole or in part, to a spouse or lineal
descendent of the original holder hereof or to a trust or other entity owned by
or directly benefitting the original holder hereof, his spouse or a lineal
descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company or an affiliated entity
unless prior to such sale such Shareholder shall give notice to Holder of
its intention to effect such sale in order that Holder may exercise its
rights under this Section 7 as hereinafter described or under any other
provision of this Agreement. Such notice shall set forth the principal
terms of the merger or acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share of the acquiring entity determined in connection with such
acquisition or merger, a maximum number of shares of the surviving entity
up to that number pursuant to which the purchase price would equal
$565,875, with the maximum number of shares which Holder shall have the
option to purchase to be determined as follows:
$565,875 / Price Per Share of Acquiring Entity = Maximum Number of Option
Shares
This option shall be exercised in the same manner as provided under Section
3.
(c) The option described in this Section 7 shall only be exercisable
within ten (10)
<PAGE>
years from the date of a merger or acquisition, provided there has been no
IPO prior to the time of the merger or acquisition. The exercise of, or the
failure to exercise, this Warrant during such ten (10) year period shall
terminate all other rights of Holder hereunder.
8. REGISTRATION.
------------
(a) The Company and Holder agree that if at any time after the date
hereof the Company shall propose to file a registration statement with
respect to any of its Common Stock, it will give notice in writing to such
effect to the Holder at least thirty (30) days prior to such filing, and,
at the written request of Holder, made within ten (10) days after the
receipt of such notice, will include therein at the Company's cost and
expense (including the fees and expenses of counsel to such holder(s), but
excluding underwriting discounts, commissions and filing fees attributable
to the Shares included therein) such of the Shares as such Holder(s) shall
request; provided, however, that if the offering being registered by the
Company is underwritten and if the representative of the underwriters
certifies in writing that the inclusion therein of the Shares would
materially and adversely effect the sale of the securities to be sold by
the Company thereunder, then the Company shall be required to include in
the offering only that number of securities, including the Shares, which
the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro
rata among all selling shareholders according to the total amount of Shares
included in the offering be less than the number of securities included in
the offering by any other single selling shareholder unless all of the
Shares are included in the offering).
(b) Whenever the Company undertakes to effect the registration of any
of the Shares, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and
use its best efforts to cause such registration statement to be
declared effective by the Commission as expeditiously as possible and
to keep such registration effective until the earlier of (A) the date
when all Shares covered by the registration statement have been sold
or (B) two hundred seventy (270) days from the effective date of the
registration statement; provided, that before filing a registration
statement or prospectus of any amendment or supplements thereto, the
Company will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of all
such documents proposed to be filed (excluding exhibits, unless any
such person shall specifically request exhibits), which documents will
be subject to the review of such Holder and underwriters, and the
Company will not file such registration statement or any amendment
thereto or any prospectus of any supplement thereto (including any
documents incorporated by reference therein) with the Commission if
(A) the underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or prospectus
concerning a particular selling Holder has changed and such Holder or
the underwriters, if any, shall reasonably object.
<PAGE>
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 10(b)(i) and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to
Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus, (each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them).
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdiction as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service or process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein no
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration and
statement.
(vii) Enter into such customary agreement (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite of facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or
any underwriter participating in any disposition pursuant to such
registration statement and any attorney accountant or other agent
retained by any such selling
<PAGE>
Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the
Company to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
(ix) Promptly notify the selling Holder (s) and the
underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement of the initiation of any proceedings for that
purpose and (D) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation an delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least
two(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later
than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post effective amendment thereto and at each closing
of an underwritten offering,
<PAGE>
(A) make such representations and warranties to the selling Holder (s)
and the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in primarily
underwritten offerings; (B) use its best efforts to obtain "cold
comfort"letters and updates there of from the Company's independent
certified public accountants addressed to the selling Holders and the
underwriters, if any, such letters to be in customary form and
covering matters of customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; (C)
deliver such documents and certificates as may be reasonably requested
(1) by the holders of majority of the Shares being sold, and (2) by
the underwriters, if any, to evidence compliance with class (A) above
and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (D)
obtain opinions of counsel to the Company and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to the
underwriters, in any), covering the matters customarily covered in
opinions requested by the selling Holders and under writers or their
counsel. Such counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that such
registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or
issue dates, contains any untrue statement of any material fact or
omits to state any material fact necessary to make the statements
therein not misleading (except that no statement need be made with
respect to any financial statement, notes thereto or other financial
data or other expertized material contained therein). If for any
reason the Company shall so notify the Holders of the Shares and shall
use its best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve-month period (or
ninety (90) days , if such period is a fiscal year) (A) commencing at
the end o f any fiscal quarter in which the Shares are sold to
underwriters in such an offering, beginning with the first month of
the first fiscal quarter of the Company commencing after the effective
date of the registration statement, which statements shall cover such
twelve-month periods.
(c) The Company's obligation under this Section 8 above with respect
to each holder of Shares are expressly conditioned upon such holder's
furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the registration statement. If
any registration statement including any of the Shares is filed, then the
Company shall indemnify each holder thereof (and each underwriter for such
holder and each person, if any, who controls such underwriter for such
holder ad each person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim, damage or liability
arising out of, based upon or tin any way relating to any untrue statement
of a material fact contained in such registration statement or any omission
to state therein a
<PAGE>
material fact required to be stated therein or necessary to make the
statements therein not misleading, except for any such statement or
omission based on information furnished in writing by such holder of the
Shares expressly for use in connection with such registration statement;
and such holder shall indemnify the Company (and each of its officers and
directors who has signed such registration statement, each director, each
person, if any, who controls the Company within the meaning of the
Securities Act, each underwriter for the Company and each person, if any,
who controls such underwriter within the meaning of the Securities Act) and
each other such holder against any loss, claim, damage, or liability
arising from any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares expressly for use in connection with such registration statement.
(d) For purpose of this Section 8, all of the Shares shall be deemed
to be issued and outstanding.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
----------------------------
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Lynn H. Harper
P. O. Drawer 1596
Henderson, NC 27536
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Kenneth C. Beckman, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
<PAGE>
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan, Esq.
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Western District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
[END OF PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
------- a Tennessee corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Lynn H. Harper
------ ------------------
Lynn H. Harper
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.17
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 1/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to H. HENRY HEDERMAN (H. Henry Hederman and any subsequent assignee or
transferee hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$9,604 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
--------------
Share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30/th/) day
<PAGE>
from the date of the Holder Notice to rescind such notice. If Holder does not
elect to rescind the Holder Notice, then on or within five (5) days after such
thirtieth (30/th/) day, Holder shall deliver to Company (the "Exercise
Delivery"): (i) this Warrant, (ii) a signed statement indicating the number of
Shares to be purchased, and (iii) either (A) a certified check in the amount of
the Exercise Price or (B) that certain promissory note dated of even date
herewith in the original principal amount of __________________ between the
Company and Holder, along with a signed statement directing the Company to
cancel that portion of such promissory note which is equal to the Exercise
Price. Upon receipt of the Exercise Delivery, the Company shall as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute and
deliver, or cause to be executed and delivered to Holder a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised. If this Warrant is exercised with respect to less than all of
the Shares, (i) the Company shall issue a new warrant for the remaining shares
covered by this Warrant and (ii) if the Promissory Note is used to fund the
Exercise Price, the Company shall issue a replacement promissory note with an
appropriate adjustment to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon
<PAGE>
exercise of this Warrant will, upon issuance and payment therefor, be
legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, charges and preemptive rights, if any, with respect
thereto or to the issuance thereof. The Company shall at all times reserve
and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may only be transferred, in whole or in part, to a spouse or lineal
descendent of the original holder hereof or to a trust or other entity owned by
or directly benefitting the original holder hereof, his spouse or a lineal
descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would result
in the merger or acquisition of the Company unless prior to such sale such
Shareholder shall give notice to Holder of its intention to effect such
sale in order that Holder may exercise its rights under this Section 7 as
hereinafter described. Such notice shall set forth the principal terms of
the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $9,604, with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$9,604 divided by Price Per Share of Acquiring Entity = Maximum Number of
Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO prior to the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ANTI-DILUTION PROVISIONS.
------------------------
<PAGE>
(a) If the Company shall at any time subdivide its outstanding shares of
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
subject to this Warrant immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section shall be effective at the close of business on the effective date
of such subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Whenever the number of shares of Common stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section, the Exercise
Price shall be adjusted to the nearest cent by multiplying such Exercise Price
immediately prior to such adjudstment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
----------------------------
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: H. Henry Hederman
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
<PAGE>
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Mississippi applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the State of
Mississippi and the United States District Court for the Western District of
Tennessee and the Southern District of Mississippi, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ H. Henry Hederman
------ ---------------------
H. Henry Hederman
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 4.18
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 1/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to MARTHA DEAN HEDERMAN, as Trustee of the H. Henry Hederman Grandchild Trust
No. 1 U/A 12/31/87 (Martha Dean Hederman, as Trustee of the H. Henry Hederman
Grandchild Trust No. 1 U/A 12/31/87 and any subsequent assignee or transferee
hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$43,448 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if
<PAGE>
any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30/th/) day from the date of the
Holder Notice to rescind such notice. If Holder does not elect to rescind the
Holder Notice, then on or within five (5) days after such thirtieth (30/th/)
day, Holder shall deliver to Company (the "Exercise Delivery"): (i) this
Warrant, (ii) a signed statement indicating the number of Shares to be
purchased, and (iii) either (A) a certified check in the amount of the Exercise
Price or (B) that certain promissory note dated of even date herewith in the
original principal amount of __________________ between the Company and Holder,
along with a signed statement directing the Company to cancel that portion of
such promissory note which is equal to the Exercise Price. Upon receipt of the
Exercise Delivery, the Company shall as promptly as practicable, and in any
event within fifteen (15) days thereafter, execute and deliver, or cause to be
executed and delivered to Holder a certificate or certificates for the total
number of whole Shares for which this Warrant is being exercised. If this
Warrant is exercised with respect to less than all of the Shares, (i) the
Company shall issue a new warrant for the remaining shares covered by this
Warrant and (ii) if the Promissory Note is used to fund the Exercise Price, the
Company shall issue a replacement promissory note with an appropriate adjustment
to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the
<PAGE>
issuance of this Warrant and any Shares upon exercise hereof with
applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
-------------------
hereof, this Warrant may only be transferred, in whole or in part, to a spouse
or lineal descendent of the original holder hereof or to a trust or other entity
owned by or directly benefitting the original holder hereof, his spouse or a
lineal descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company unless prior to such
sale such Shareholder shall give notice to Holder of its intention to
effect such sale in order that Holder may exercise its rights under this
Section 7 as hereinafter described. Such notice shall set forth the
principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $43,448, with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$43,448 divided by Price Per Share of Acquiring Entity = Maximum Number of
Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO prior to the
<PAGE>
time of the merger or acquisition. The exercise of, or the failure to
exercise, this Warrant in conjunction with an acquisition or merger of the
Company or an Affiliated Entity shall terminate all other rights of Holder
hereunder.
8. ANTI-DILUTION PROVISIONS.
------------------------
(a) If the Company shall at any time subdivide its outstanding shares of
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
subject to this Warrant immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section shall be effective at the close of business on the effective date
of such subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Whenever the number of shares of Common stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section, the Exercise
Price shall be adjusted to the nearest cent by multiplying such Exercise Price
immediately prior to such adjudstment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Martha Dean Hederman, Trustee
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
<PAGE>
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Mississippi applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the State of
Mississippi and the United States District Court for the Western District of
Tennessee and the Southern District of Mississippi, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above
<PAGE>
written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/John P. Miller
-----------------
Title: President
HOLDER: /s/Martha Dean Hederman
------ -----------------------
Martha Dean Hederman, as Trustee of the H. Henry
Hederman Grandchild Trust No. 1 U/A 12/31/87
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: By: /s/John P. Miller
------------ -----------------
John P. Miller
<PAGE>
Exhibit 4.19
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 1st day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to MARTHA DEAN HEDERMAN, as Trustee of the H. Henry Hederman Grandchild Trust
No. 2 U/A 12/31/87 (Martha Dean Hederman, as Trustee of the H. Henry Hederman
Grandchild Trust No. 2 U/A 12/31/87 and any subsequent assignee or transferee
hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$43,448 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
--------------
Share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if
<PAGE>
any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30th) day from the date of the
Holder Notice to rescind such notice. If Holder does not elect to rescind the
Holder Notice, then on or within five (5) days after such thirtieth (30th)
day, Holder shall deliver to Company (the "Exercise Delivery"): (i) this
Warrant, (ii) a signed statement indicating the number of Shares to be
purchased, and (iii) either (A) a certified check in the amount of the Exercise
Price or (B) that certain promissory note dated of even date herewith in the
original principal amount of __________________ between the Company and Holder,
along with a signed statement directing the Company to cancel that portion of
such promissory note which is equal to the Exercise Price. Upon receipt of the
Exercise Delivery, the Company shall as promptly as practicable, and in any
event within fifteen (15) days thereafter, execute and deliver, or cause to be
executed and delivered to Holder a certificate or certificates for the total
number of whole Shares for which this Warrant is being exercised. If this
Warrant is exercised with respect to less than all of the Shares, (i) the
Company shall issue a new warrant for the remaining shares covered by this
Warrant and (ii) if the Promissory Note is used to fund the Exercise Price, the
Company shall issue a replacement promissory note with an appropriate adjustment
to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the
<PAGE>
issuance of this Warrant and any Shares upon exercise hereof with
applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may only be transferred, in whole or in part, to a spouse or lineal
descendent of the original holder hereof or to a trust or other entity owned by
or directly benefitting the original holder hereof, his spouse or a lineal
descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company unless prior to such
sale such Shareholder shall give notice to Holder of its intention to
effect such sale in order that Holder may exercise its rights under this
Section 7 as hereinafter described. Such notice shall set forth the
principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $43,448 , with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$43,448 divided by Price Per Share of Acquiring Entity = Maximum Number of
Option Shares
(c) The option described in this Section 7 shall only be
exercisable within ten (10) years from the date of a merger or acquisition,
provided there has been no IPO prior to the
<PAGE>
time of the merger or acquisition. The exercise of, or the failure to
exercise, this Warrant in conjunction with an acquisition or merger of the
Company or an Affiliated Entity shall terminate all other rights of Holder
hereunder.
8. ANTI-DILUTION PROVISIONS.
------------------------
(a) If the Company shall at any time subdivide its outstanding shares of
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
subject to this Warrant immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section shall be effective at the close of business on the effective date
of such subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Whenever the number of shares of Common stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section, the Exercise
Price shall be adjusted to the nearest cent by multiplying such Exercise Price
immediately prior to such adjudstment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Martha Dean Hederman, Trustee
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
<PAGE>
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Mississippi applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the State of
Mississippi and the United States District Court for the Western District of
Tennessee and the Southern District of Mississippi, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above
<PAGE>
written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
-----------------------
Title: President
HOLDER: /s/ Martha Dean Hederman
------ ---------------------------
Martha Dean Hederman, as Trustee of the H. Henry
Hederman Grandchild Trust No. 2 U/A 12/31/87
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ---------------------------
John P. Miller
<PAGE>
Exhibit 4.20
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 1/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to H. HENRY HEDERMAN, JR. and ZACH T. HEDERMAN, as Trustees of the H. Henry
Hederman, Jr. Trust U/A 12/31/75 (H. Henry Hederman, Jr. and Zach T. Hederman,
as Trustees of the H. Henry Hederman, Jr. Trust U/A 12/31/75 and any subsequent
assignee or transferee hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$1,200,000 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if
<PAGE>
any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30/th/) day from the date of the
Holder Notice to rescind such notice. If Holder does not elect to rescind the
Holder Notice, then on or within five (5) days after such thirtieth (30/th/)
day, Holder shall deliver to Company (the "Exercise Delivery"): (i) this
Warrant, (ii) a signed statement indicating the number of Shares to be
purchased, and (iii) either (A) a certified check in the amount of the Exercise
Price or (B) that certain promissory note dated of even date herewith in the
original principal amount of __________________ between the Company and Holder,
along with a signed statement directing the Company to cancel that portion of
such promissory note which is equal to the Exercise Price. Upon receipt of the
Exercise Delivery, the Company shall as promptly as practicable, and in any
event within fifteen (15) days thereafter, execute and deliver, or cause to be
executed and delivered to Holder a certificate or certificates for the total
number of whole Shares for which this Warrant is being exercised. If this
Warrant is exercised with respect to less than all of the Shares, (i) the
Company shall issue a new warrant for the remaining shares covered by this
Warrant and (ii) if the Promissory Note is used to fund the Exercise Price, the
Company shall issue a replacement promissory note with an appropriate adjustment
to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state
<PAGE>
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may only be transferred, in whole or in part, to a spouse or lineal
descendent of the original holder hereof or to a trust or other entity owned by
or directly benefitting the original holder hereof, his spouse or a lineal
descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company unless prior to such
sale such Shareholder shall give notice to Holder of its intention to
effect such sale in order that Holder may exercise its rights under this
Section 7 as hereinafter described. Such notice shall set forth the
principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $1,200,000, with the maximum number of shares which Holder
shall have the option to purchase to be determined as follows:
$1,200,000 divided by Price Per Share of Acquiring Entity = Maximum Number
of Option Shares
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO prior to the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in
<PAGE>
conjunction with an acquisition or merger of the Company or an Affiliated
Entity shall terminate all other rights of Holder hereunder.
8. ANTI-DILUTION PROVISIONS.
------------------------
(a) If the Company shall at any time subdivide its outstanding shares of
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
subject to this Warrant immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section shall be effective at the close of business on the effective date
of such subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Whenever the number of shares of Common stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section, the Exercise
Price shall be adjusted to the nearest cent by multiplying such Exercise Price
immediately prior to such adjudstment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: H. Henry Hederman, Jr.
Gail Hederman Wallace
Zach T. Hederman
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
<PAGE>
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Mississippi applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the State of
Mississippi and the United States District Court for the Western District of
Tennessee and the Southern District of Mississippi, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
-------------------
Title: President
HOLDER: /s/ H. Henry Hederman,Jr.
------ ------------------------
H. Henry Hederman, Jr., Trustee
/s/ Zach T. Hederman
--------------------
Zach T. Hederman, Trustee
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ -------------------
John P. Miller
<PAGE>
Exhibit 4.21
NEITHER THE STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THE STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR
UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
STOCK PURCHASE WARRANT
This Warrant is issued this 1/st/ day of March, 1998, by MASTER GRAPHICS,
INC., a Delaware corporation (the "Company") and JOHN P. MILLER ("Shareholder"),
to HAP HEDERMAN, JR. (Hap Hederman and any subsequent assignee or transferee
hereof is hereinafter referred to as "Holder").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. In the event that (a) Company or any of
-------------------------
Company's successors or assigns (an "Affiliated Entity") shall cause to be made
or shall be involved in a public offering of its stock (an "IPO") within ten
(10) years from the date hereof, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO as described in Paragraph 7
hereunder, Holder shall have the right to acquire from the Company Common Stock
of the Company at a price equal to the IPO price, with the maximum number of
shares which Holder shall have the right to purchase to be determined as
follows:
$703,500 divided by Initial IPO Price Per Share = Maximum Number of Option
Shares
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." The option described pursuant to this
Paragraph 1 shall only be exercisable during the ten (10) year period commencing
with the date of the successful completion of the IPO (the "Exercise Period").
The exercise of, or the failure to exercise, this Warrant during the Exercise
Period shall terminate all other rights of Holder hereunder.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per Share
--------------
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be the IPO price.
3. EXERCISE. Prior to the exercise of all or any part of this Warrant,
--------
Holder shall give thirty (30) days prior written notice ("Holder Notice") of his
intent to exercise to the Company at 6075 Poplar Avenue, Memphis, Tennessee
38119, or such other address as the Company shall designate in a written notice
to the Holder hereof. Within five (5) days after receipt of such notice, the
Company shall deliver to Holder: any Prospectus used by the Company during the
year in which the Holder Notice is received, together with all supplemental
information required to insure that such prospectus does not omit to state or
misstate a material fact; its Annual Reports on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports on Form 10-
Q, if
<PAGE>
any, filed by the Company during its current fiscal year; and all Current
Reports on Form 8-K, if any, filed by the Company during its current fiscal
year. Holder shall have until the thirtieth (30/th/) day from the date of the
Holder Notice to rescind such notice. If Holder does not elect to rescind the
Holder Notice, then on or within five (5) days after such thirtieth (30/th/)
day, Holder shall deliver to Company (the "Exercise Delivery"): (i) this
Warrant, (ii) a signed statement indicating the number of Shares to be
purchased, and (iii) either (A) a certified check in the amount of the Exercise
Price or (B) that certain promissory note dated of even date herewith in the
original principal amount of __________________ between the Company and Holder,
along with a signed statement directing the Company to cancel that portion of
such promissory note which is equal to the Exercise Price. Upon receipt of the
Exercise Delivery, the Company shall as promptly as practicable, and in any
event within fifteen (15) days thereafter, execute and deliver, or cause to be
executed and delivered to Holder a certificate or certificates for the total
number of whole Shares for which this Warrant is being exercised. If this
Warrant is exercised with respect to less than all of the Shares, (i) the
Company shall issue a new warrant for the remaining shares covered by this
Warrant and (ii) if the Promissory Note is used to fund the Exercise Price, the
Company shall issue a replacement promissory note with an appropriate adjustment
to the principal amount.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
------------------------
following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be sold or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws. Transfer of the Shares issued upon the exercise
of this Warrant shall be restricted in the same manner and to the same
extent as the Warrant and the certificates representing such Shares shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments
<PAGE>
as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any Shares upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, charges and preemptive rights, if any,
with respect thereto or to the issuance thereof. The Company shall at all
times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
-------------------
this Warrant may only be transferred, in whole or in part, to a spouse or lineal
descendent of the original holder hereof or to a trust or other entity owned by
or directly benefitting the original holder hereof, his spouse or a lineal
descendant. Transfer in accordance with this Section 5 must be made by
presentation of the Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Holder shall pay all expenses incurred by the Company in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. RIGHTS UPON SALE OR MERGER.
--------------------------
(a) Shareholder shall not enter into any transaction that would
result in the merger or acquisition of the Company unless prior to such
sale such Shareholder shall give notice to Holder of its intention to
effect such sale in order that Holder may exercise its rights under this
Section 7 as hereinafter described. Such notice shall set forth the
principal terms of the merger of acquisition.
(b) In the event of any acquisition or merger of Company or an
Affiliated Entity, pursuant to which the Shareholder receives shares of
stock of any company (the "Surviving Entity") during the ten year period
commencing with the date hereof, Holder shall have the option to acquire
from Shareholder for a purchase price per share equal to the price per
share determined in connection with such acquisition or merger, a maximum
number of shares up to that number pursuant to which the purchase price
would equal $703,500, with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$703,500 divided by Price Per Share of Acquiring Entity = Maximum Number of
Option Shares
<PAGE>
(c) The option described in this Section 7 shall only be exercisable
within ten (10) years from the date of a merger or acquisition, provided
there has been no IPO prior to the time of the merger or acquisition. The
exercise of, or the failure to exercise, this Warrant in conjunction with
an acquisition or merger of the Company or an Affiliated Entity shall
terminate all other rights of Holder hereunder.
8. ANTI-DILUTION PROVISIONS.
------------------------
(a) If the Company shall at any time subdivide its outstanding shares of
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
subject to this Warrant immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section shall be effective at the close of business on the effective date
of such subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Whenever the number of shares of Common stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section, the Exercise
Price shall be adjusted to the nearest cent by multiplying such Exercise Price
immediately prior to such adjudstment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
9. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
----------------------------
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. NOTICE. Any and all notices, elections or demands permitted or
------
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery or telecopy or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purpose of this Warrant:
The Address of Holder is: Hap Hederman
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
<PAGE>
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
The Address of Company is: Master Printing Holding Co.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
11. SEVERABILITY. If any provisions(s) of this Warrant or the application
------------
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted bylaw.
12. ENTIRE AGREEMENT. This Warrant between the Company and Holder
----------------
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
----------------------------
enforced under the laws of the State of Mississippi applicable to contracts to
be wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. COUNTERPARTS. This Warrant may be executed in any number of
------------
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. JURISDICTION AND VENUE. The Company hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the State of
Mississippi and the United States District Court for the Western District of
Tennessee and the Southern District of Mississippi, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MASTER GRAPHICS, INC.,
-------
a Delaware corporation
By: /s/ John P. Miller
-----------------
Title: President
HOLDER: /s/ Hap Hederman
------ ----------------
Hap Hederman
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the date first above written for the purpose of agreeing only
to the terms and conditions of Section 7 hereof.
SHAREHOLDER: /s/ John P. Miller
------------ ------------------
John P. Miller
<PAGE>
Exhibit 10.3
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 18th day of June, 1997,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 79-4-1101 of the Business Corporation Act of the State of
Mississippi, between Premier Graphics, Inc. ("Premier" or "Surviving
Corporation"), a Delaware corporation and Blackwell Lithographers, Inc.
("Blackwell" or "Merged Corporation"), a Mississippi corporation.
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself Blackwell and Blackwell shall
be and hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately
<PAGE>
certified as, the Certificate of Incorporation, as amended, of the Surviving
Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Blackwell
shall surrender the same to the Surviving Corporation and said shares shall
be cancelled, since at the effective time of the merger all of the issued
and outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the
2
<PAGE>
same shall be altered, amended and repealed as therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Mississippi.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
3
<PAGE>
SIXTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Mississippi. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State, provided
that an amendment made subsequent to the adoption of the Agreement by the
stockholders of any constituent corporation shall not (1) alter or change the
amount of kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of such constituent corporation, (2) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the merger, or (3) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of any class or series thereof of such constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 18th day of June, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
BLACKWELL LITHOGRAPHERS, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
4
<PAGE>
I, Carl E. Norman, Assistant Secretary of Premier Graphics, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary that the Agreement and Plan of Merger to which
this Certificate is attached, after having been first duly signed on behalf of
the said corporation and having been signed on behalf of Blackwell
Lithographers, Inc., a corporation of the State of Mississippi, was duly adopted
pursuant to Section 228 of Title 8 of the Delaware Code by the unanimous written
consent of the stockholders holding 100 shares of the capital stock of Premier
Graphics, Inc. same being of the shares issued and outstanding having voting
power, which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Premier Graphics, Inc., and the duly adopted agreement and
act of the said corporation.
WITNESS my hand on this 18th day of June, 1997.
/s/ Carl E. Norman
------------------
Assistant Secretary
I, Carl E. Norman, Secretary of Blackwell Lithographers, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary that the Agreement and Plan of Merger to which
this Certificate is attached, after having been first duly signed on behalf of
the said corporation and having been signed on behalf of Premier Graphics, Inc.,
a corporation of the State of Delaware, was duly adopted pursuant to Section 228
of Title 8 of the Delaware Code by the unanimous written consent of the
stockholders holding 4,400 shares of the capital stock of Blackwell
Lithographers, Inc. same being of the shares issued and outstanding having
voting power, which Agreement and Plan of Merger was thereby adopted as the act
of the stockholders of said Blackwell Lithographers, Inc., and the duly adopted
agreement and act of the said corporation.
WITNESS my hand on this 18th day of June, 1997.
/s/ Carl E. Norman
------------------
Secretary
5
<PAGE>
Exhibit 10.6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 18th day of June, 1997,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 48-21-102 of Tennessee Code Annotated, between Premier Graphics,
Inc. ("Premier" or "Surviving Corporation"), a Delaware corporation and
Lithograph Printing Company of Memphis, Inc. ("Lithograph" or "Merged
Corporation"), a Tennessee corporation (the "Agreement").
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier hereby merges into itself Lithograph and Lithograph,
shall be and hereby is merged into Premier, which shall be the Surviving
Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately
<PAGE>
certified as, the Certificate of Incorporation, as amended, of the Surviving
Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of Premier, which shall be issued and
outstanding on the effective date of this Agreement, shall remain issued
and outstanding.
(b) Each share of common stock of Lithograph which shall be
outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Lithograph
shall surrender the same to the Surviving Corporation and said shares shall
be cancelled, since at the effective time of the merger all of the issued
and outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the same shall be altered, amended and repealed
as therein provided.
2
<PAGE>
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Tennessee.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
3
<PAGE>
SIXTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Tennessee. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State of
Delaware and Tennessee, provided that an amendment made subsequent to the
adoption of the Agreement by the stockholders of any constituent corporation
shall not (1) alter or change the amount of kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such constituent
corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the merger, or (3) alter or change
any of the terms and conditions of the Agreement if such alteration or change
would adversely affect the holders of any class or series thereof of such
constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 18th day of June, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------------
John P. Miller, President
LITHOGRAPH PRINTING COMPANY
OF MEMPHIS, INC.
By: /s/ John P. Miller
-------------------------
John P. Miller, President
4
<PAGE>
I, Carl E. Norman, Assistant Secretary of Premier Graphics, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary that the Agreement and Plan of Merger to which
this Certificate is attached, after having been first duly signed on behalf of
the said corporation and having been signed on behalf of Lithograph Printing
Company of Memphis, Inc., a corporation of the State of Tennessee, was duly
adopted pursuant to Section 228 of Title 8 of the Delaware Code by the unanimous
written consent of the stockholders holding 100 shares of the capital stock of
the corporation, same being of the shares issued and outstanding having voting
power, which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Premier Graphics, Inc., and the duly adopted agreement and
act of the said corporation.
WITNESS my hand on this 18th day of June, 1997.
/s/ Carl E. Norman
------------------
Assistant Secretary
I, Carl E. Norman, Secretary of Lithograph Printing Company of Memphis,
Inc., a corporation organized and existing under the laws of the State of
Tennessee, hereby certify, as such Secretary that the Agreement and Plan of
Merger to which this Certificate is attached, after having been first duly
signed on behalf of the said corporation and having been signed on behalf of
Premier Graphics, Inc., a corporation of the State of Delaware, was duly adopted
pursuant to Section 228 of Title 8 of the Delaware Code by the unanimous written
consent of the stockholders holding ________ shares of the capital stock of the
corporation, same being of the shares issued and outstanding having voting
power, which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Lithograph Printing Company of Memphis, Inc., and the duly
adopted agreement and act of the said corporation.
WITNESS my hand on this 18th day of June, 1997.
/s/ Carl E. Norman
------------------
Secretary
5
<PAGE>
Exhibit 10.8
ASSIGNMENT OF ASSET PURCHASE AGREEMENT
--------------------------------------
FOR VALUE RECEIVED the undersigned, Master Printing, Inc., a Tennessee
corporation ("Assignor"), hereby assigns, conveys, transfers, and quit claims,
and delegates, any and all of its rights and obligations under that certain
Asset Purchase Agreement executed as of the 20/th/ day of May, 1997 by among and
between Sutherland Printing Company, Inc., an Iowa corporation ("Seller"), David
Sutherland, III, ("Sutherland") and Assignor (hereinafter the "Agreement") to
Premier Graphics, Inc., a Delaware corporation, incorporated as of the 3rd day
of June, 1997; provided, however, that the obligation to pay the Purchase Price,
and the obligation under paragraph 8.5 of the Agreement, shall remain the
obligation of Assignor or its successor Master Graphics, Inc., a Delaware
corporation, with whom Assignor shall be merged.
Executed this the 19th day of June, 1997.
MASTER PRINTING, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
APPROVAL AND ACKNOWLEDGMENT
---------------------------
FOR VALUE RECEIVED, Sutherland Printing Company, Inc., an Iowa corporation
("Seller") and David Sutherland, III ("Sutherland") hereby approve of, consent
to and acknowledge the assignment and delegation Premier Graphics, Inc. Further,
Seller and Sutherland consent to, approve, and acknowledge, the merger of
Assignor into Premier Graphics, Inc., a Delaware Corporation, which shall assume
the obligation to pay the Purchase Price and the obligations of Assignor under
paragraph 8.5 of the Asset Purchase Agreement.
Executed this the 19th day of June, 1997.
SUTHERLAND PRINTING COMPANY, INC.
By: /s/ David Sutherland, III
-------------------------
David Sutherland, III, President
By: /s/ David Sutherland, III
-------------------------
David Sutherland, III
<PAGE>
Exhibit 10.10
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (HEREINAFTER THE "AGREEMENT"), dated this
22th day of September, 1997, pursuant to Section 252 of the General Corporation
Law of the State of Delaware and 805 Illinois Compiled Statutes Annotated
5/11.05 et seq. between Premier Graphics, Inc., a Delaware corporation
("Premier" or "Surviving Corporation"),and The Argus Press, Inc., an Illinois
corporation, ("Argus" or "Merged Corporation"), (the "Agreement").
WITNESSETH that:
WHEREAS, all issued and outstanding shares of both of the merging
corporations, Argus and Premier, (hereinafter the "Constituent Corporations"),
are wholly owned by Master Graphics, Inc.; and
WHEREAS, the Constituent Corporations desire to merge into a single
corporation;
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself Argus and Argus shall be and
hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and,
<PAGE>
from and after the effective date of the merger and until further amended as
provided by law, said Exhibit A, separate and apart from this Agreement and Plan
of Merger shall be, and may be separately certified as, the Certificate of
Incorporation, as amended, of the Surviving Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be canceled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Argus shall
surrender the same to the Surviving Corporation and said shares shall be
canceled since at the effective time of the merger, all of the issued and
outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be canceled as provided herein, may be treated by
the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares canceled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on the
effective
<PAGE>
date of this Agreement shall be and remain the Bylaws of the Surviving
Corporation until the same shall be altered, amended and repealed as
therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigns to secure and
deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
<PAGE>
SIXTH: Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State. This Agreement may be amended by the Board of
Directors of its constituent corporations at any time prior to the date of
filing this Agreement with the Secretary of State, provided that an amendment
made subsequent to the adoption of the Agreement by the stockholders of any
constituent corporation shall not (1) alter or change the amount of kind of
shares, securities, cash, property and/or rights to be received in exchange for
or on conversion of all or any of the shares of any class or series thereof of
such constituent corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the merger, or (3)
alter or change any of the terms and conditions of the Agreement if such
alteration or change would adversely affect the holders of any class or series
thereof of such constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 26th day of September, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
THE ARGUS PRESS, INC.
By: /s/ John P. Miller
------------------
President
<PAGE>
I, Carl E. Norman, Assistant Secretary of Premier Graphics, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary that the Agreement and Plan of Merger to which
this Certificate is attached, after having been first duly signed on behalf of
the said corporation and having been signed on behalf of The Argus Press, Inc.,
a corporation of the State of Illinois, was duly adopted pursuant to Section 228
of Title 8 of the Delaware Code by the unanimous written consent of the
stockholders holding 100 shares of the capital stock of the corporation, same
being of the shares issued and outstanding having voting power, which Agreement
and Plan of Merger was thereby adopted as the act of the stockholders of said
Premier Graphics, Inc., and the duly adopted agreement and act of the said
corporation.
WITNESS my hand on this 22nd day of September, 1997.
/s/ Carl E. Norman
------------------
Assistant Secretary
I,Carl E. Norman, Secretary of The Argus Press, Inc., a corporation
organized and existing under the laws of the State of Illinois, hereby certify,
as such Secretary that the Agreement and Plan of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Premier Graphics, Inc., a
corporation of the State of Delaware, was duly adopted pursuant to Illinois
corporate law by the unanimous written consent of the stockholders holding 1000
shares of the capital stock of the corporation, same being of the shares issued
and outstanding having voting power, which Agreement and Plan of Merger was
thereby adopted as the act of the stockholders of said The Argus Press, Inc.,
and the duly adopted agreement and act of the said corporation.
WITNESS my hand on this 22nd day of September, 1997.
/s/ Carl E. Norman
------------------
Secretary
<PAGE>
Exhibit 10.11
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of December 15, 1997, by
MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), CARY ROSENTHAL, an
individual residing in Atlanta, Georgia ("Rosenthal"), JOSEPH SEGAL, an
individual residing in Atlanta, Georgia ("Segal"), ROSS LENHART, an individual
residing in Atlanta, Georgia ("Lenhart"), RICHARD ROBERTS, an individual
residing in Atlanta, Georgia ("Roberts"), and SCOTT DIAMOND, an individual
residing in Atlanta, Georgia ("Diamond")(Rosenthal, Segal, Lenhart, Roberts and
Diamond shall hereinafter be collectively referred to as "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Phoenix Communications,
Inc., a Georgia corporation ("Phoenix"), and King Mailing Services, Inc., a
Georgia corporation ("King"), for the consideration and on the terms set forth
in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"-the independent certified public accountants utilized by the Buyer
- -------------
to audit the financial statements of the Acquired Companies as of the Closing
Date.
"ACQUIRED COMPANIES"-Phoenix Communications, Inc. and King Mailing Services,
- --------------------
Inc.
"ADJUSTED NET WORTH"-The sum of:
- --------------------
(a) the aggregate stockholders' equity of the Acquired Companies as of the
Closing Date determined in accordance with GAAP;
(b) Crouch Overrides which have accrued through the Closing Date; and
(c) the reduction (if any) in such stockholders' equity which results from the
accrual of the Success Fee.
"ADJUSTMENT AMOUNT"--as defined in Section 2.5.
- -------------------
"APPLICABLE CONTRACT"--any Contract (a) under which either Acquired Company has
- ---------------------
or may acquire
<PAGE>
any rights, (b) under which either Acquired Company has or may become subject to
any obligation or liability, or (c) by which either Acquired Company or any of
the assets owned or used by it is or may become bound.
"BALANCE SHEETS"--as defined in Section 3.4.
- ----------------
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving a result
- --------------
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
- --------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any inaccuracy
in or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision, and the term "Breach" means
any such inaccuracy, breach, failure, claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
- -------
"CASH AMOUNT"-as defined in Section 2.2.
- -------------
"CLOSING"--as defined in Section 2.3.
- ---------
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
- --------------
"CLOSING FINANCIAL STATEMENTS"-as defined in Section 2.6.
- ------------------------------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
- ---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"-the following transactions contemplated by this
- ---------------------------
Agreement:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution and delivery of the Fixed Notes, the Earnout Notes, the
Employment Agreements, the Noncompetition Agreements, and the Sellers' Releases;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement to be performed at or before Closing; and
(d) Buyer's acquisition of the Shares and the commencement of Buyer's ownership
of the Shares and exercise of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
- ----------
(whether written or oral and whether express or implied) that is legally
binding.
2
<PAGE>
"CROUCH OVERRIDES"-amounts accrued and to accrue after August 31, 1997 under the
- ------------------
portion of section 2 of that certain Employment Agreement between Phoenix and A.
Bruce Crouch dated July 19, 1991 effective August 5, 1991 designated "Override";
provided, however, the annualized amount of the Crouch Override shall in no
event be greater than $300,000.
"DAMAGES"--as defined in Section 10.2.
- ---------
"EARNOUT AMOUNT"-as defined in Section 2.2.
- ----------------
"EARNOUT NOTES"-as defined in Section 2.4.
- ---------------
"EBITDA"--pre-tax income plus (i) interest expense, (ii) Crouch Overrides and
- --------
(iii) Whitmire Payments deducted in computing pre-tax income, minus interest
income included in pre-tax income, plus or minus any extraordinary items of
expense or income, respectively, deducted or included in computing pre-tax
income, plus or minus any losses or gains from the sale of capital assets,
respectively, deducted or included in computing pre-tax income, plus
depreciation and amortization deducted in computing pre-tax income, all as
determined in accordance with GAAP by the Accountants. In computing pre-tax
income one-half (1/2) of the Net Value Added generated from orders generated by
the division in question but processed by a separate division shall be included
in the originating division's pre-tax income.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(iii).
- -----------------------
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
- -------------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
- -------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
- -----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including on-
site or off-site contamination, occupational safety and health, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for
3
<PAGE>
cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions ("Cleanup")
required by applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
- -------------------
(a) advising appropriate authorities, employees, and the public of intended or
actual releases of pollutants or hazardous substances or materials, violations
of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
- -------
law, and regulations and rules issued pursuant to that Act or any successor law.
"EXISTING NOTES"-the promissory notes from Phoenix dated January 22, 1996 and
- ----------------
payable in the amounts and to the individuals set forth below:
4
<PAGE>
<TABLE>
<CAPTION>
Name of Payee Principal Amount of Note
------------- ------------------------
as of Date of this Agreement
----------------------------
<S> <C>
Joseph Segal $ 400,000
Mendel Segal 259,500
Bernice Alter 50,000
Mynette Segal 70,000
Segal Services 124,000
Jon Cunningham 95,000
The Cunningham Group, Inc. 1,599,812.50
Clyde Powell 157,363.20
Harriett Knight 116,772.32
Bart Knight 116,772.32
Scott Diamond 482,089.30
</TABLE>
"FACILITIES"--any real property, real property leaseholds, or other real
- ------------
property interests currently owned or operated by either Acquired Company and
any buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently owned or operated by either Acquired Company.
"FIXED NOTE AMOUNT"-as defined in Section 2.2.
- -------------------
"FIXED NOTES"-as defined in Section 2.4.
- -------------
"FLEET PREPAYMENT PENALTY"-the prepayment penalty charged by Fleet Capital
- --------------------------
Corporation for the payment in full of all amounts due and owing Fleet Capital
Corporation by Phoenix as of the Closing Date
"GAAP"--generally accepted accounting principles, applied on a basis consistent
- ------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4(b) were prepared.
"GMA CLAIM"-a claim by Green, Morris & Associates, Inc. (or a Person related
- -----------
thereto) for a brokerage or finder's or agent's commission, fee or other similar
payment in connection with the Contemplated Transactions.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
- ----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
- -------------------
(a) nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
5
<PAGE>
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"GUARANTIES"--as defined in Section 2.4(b)(ii).
- ------------
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
- --------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) in each case in violation of Environmental Laws, of
Hazardous Materials in, on, under, about, or from the Facilities or any part
thereof into the Environment.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
- ---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
- ------------------------------
"INTERIM BALANCE SHEETS"--as defined in Section 3.4.
- ------------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
- -----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
- -----
to the extent relevant, the United States Department of the Treasury.
"KING"-as defined in the Recitals.
- ------
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
- -----------
fact or matter if and only if such individual has actual knowledge thereof,
whether or not (a) such individual could obtain knowledge of such fact or matter
by conducting an examination or (b) any other individual or other Person has or
had knowledge of such fact or matter. "Knowledge" does not include constructive
knowledge. An individual does have "Knowledge" of a fact or matter to the extent
of information regarding such fact or matter which has been delivered in writing
to such individual regardless of whether or not such individual acted on such
information, but (except as aforesaid in
6
<PAGE>
this sentence) an individual does not have "Knowledge" of a fact or matter which
such individual could or should know or have known but does not actually know..
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or matter if and only if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or matter; provided, however, that an Acquired Company will be deemed
to have "Knowledge" of a particular fact or matter if and only if Rosenthal or
Segal has Knowledge of such fact or matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
- -------------------
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"NET VALUE ADDED"-the Value Added from orders where the sale is generated by the
- -----------------
Phoenix Communications Division and the work is performed by a separate division
of Premier less the Value Added from orders where the sale is generated by a
separate division of Premier and the work is performed by the Phoenix
Communications Division, all as (a) determined by Premier Graphic, Inc.'s
estimating department, acting reasonably and in good faith, and (b) approved by
Sellers, acting reasonably and in good faith after conducting (by themselves or
through others selected by them) such review of all relevant books and records
as they may determine to be desirable. In no event shall the Net Value Added be
less than zero.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iv).
- ---------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
- ------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
- -------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
- -----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority)
and is not required to be specifically authorized by the parent company (if any)
of such Person; and
7
<PAGE>
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
- --------------------------
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
- --------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PHOENIX"-as defined in the Recitals.
- ---------
"PHOENIX COMMUNICATIONS DIVISION"-contemporaneous with the closing on the
- ---------------------------------
purchase of the Shares, the Acquired Companies will be merged into Premier. The
Acquired Companies will then operate as a separate division of Premier Graphics,
Inc. known as the Phoenix Communications Division.
"PLAN"--as defined in Section 3.13.
- ------
"POST-CLOSING THIRD PARTY RECOVERIES"-recoveries from Tracey Mosley as a result
- -------------------------------------
of criminal restitution, and other recoveries of claims of the Acquired
Companies in existence at the time of the Closing but not reflected on the
Closing Financial Statements (Buyer being obliged to pursue such recoveries or
to cause others to pursue such recoveries if and only if so determined by Buyer,
acting reasonably and in good faith).
"PREMIER"-Premier Graphics, Inc., a Delaware corporation which is a wholly owned
- ---------
subsidiary of Buyer.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
- ------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROMISSORY NOTES"-the Earnout Notes and the Fixed Notes.
- ------------------
"RELATED PERSON"--with respect to a particular individual:
- ----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual or
one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
8
<PAGE>
(d) any Person with respect to which such individual or one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a general
partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
- ---------
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
- ----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"SALESPERSONS CAPITAL APPRECIATION PLAN"-the compensation plan of Phoenix
- ----------------------------------------
effected by Exhibit 1 hereto.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
- ----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
- ---------
9
<PAGE>
"SELLERS' RELEASES"--as defined in Section 2.4.
- -------------------
"SHARES"--as defined in the Recitals of this Agreement.
- --------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
- ------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"SUCCESS FEE"-collectively (i) a bonus of $25,000 payable to Duane Dobler for
- -------------
his assistance in consummating the Contemplated Transactions, and (ii) a bonus
of $15,000 to Randolph Kirk for his assistance in consummating the Contemplated
Transactions
"TAX RETURN"--any return (including any information return), report, statement,
- ------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
- -------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
- ------------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"VALUE ADDED"-revenue generated from a particular job less the cost of paper,
- -------------
film plates, all direct material costs and outside services associated with such
job.
"WHITMIRE PAYMENTS"-payments to be made after the date hereof in the aggregate
- -------------------
amount of $202,333 to Mackey Whitmire relating to deferred compensation.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE
10
<PAGE>
(a) The purchase price (the "Purchase Price") for the Shares will be equal to
the excess of:
(i) the sum of
(A) $8,300,000, and
(B) the lesser (the "Earnout Amount") of
(1) $1,260,000 or
(2) 45% of the sum of the excesses, if any, for each of the
calendar years 1998, 1999 and 2000, of
(a) the EBITDA of the Phoenix Communications Division for
such year over
(b) $3,720,000; over
(ii) the sum of the Adjustment Amount, Fleet Prepayment Penalty, Whitmire
Payments and the Success Fee.
(b) Of the Purchase Price:
(i) $7,150,000 less the Success Fee, Whitmire Payments and the Fleet
Prepayment Penalty (the "Cash Amount") will be paid in cash at Closing;
(ii) $1,150,000 (the "Fixed Note Amount") will be paid pursuant to the
Fixed Notes (as defined in Clause 2.4(b)(ii); and
(iii) the Earnout Amount will be paid pursuant to the Earnout Notes (as
defined in Clause 2.4(b)(iii).
(c) Of the total Purchase Price $102,000 shall be allocated to the purchase of
the Shares of King with the remaining portion of the Purchase Price being
allocated to the purchase of the Shares of Phoenix.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, 530 Oak Court Drive,
Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on a date in 1997
mutually agreed to, or at such other time and place as the parties may agree.
Absent termination of this Agreement in accordance with the provisions of
Section 9, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.3 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
11
<PAGE>
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers), for transfer to Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii) executed by each Seller
(collectively, "Sellers' Releases");
(iii) employment agreements in the form of Exhibit 2.4(a)(iii), executed by
Rosenthal and Segal (collectively, "Employment Agreements");
(iv) noncompetition agreements in the form of Exhibit 2.4(a)(iv), executed by
each Seller (collectively, the "Noncompetition Agreements"); and
(v) a certificate executed by Sellers representing and warranting to Buyer
that, except as otherwise stated in such certificate, each of Sellers'
representations and warranties in this Agreement is accurate in all material
respects as of the Closing Date as if made on the Closing Date; and
(b) Buyer will deliver to Sellers:
(i) the Cash Amount, by wire transfer to accounts specified by Sellers;
(ii) promissory notes ("Fixed Notes") in the form of Exhibit 2.4(b)(ii)(A)
aggregating to the Fixed Notes Amount which will be personally guaranteed by
John P. Miller pursuant to guaranty agreements in the form of Exhibit
2.4(b)(ii)(B) (the "Guaranties");
(iii) promissory notes ("Earnout Notes") in the form of Exhibit 2.4(b)(iii);
(iv) a certificate executed by Buyer to the effect that, except as otherwise
stated in such certificate, each of Buyer's representations and warranties in
this Agreement is accurate in all material respects as of the Closing Date as if
made on the Closing Date; and
(v) the Employment Agreements, executed by Buyer.
2.5 ADJUSTMENT AMOUNT
In the event the Adjusted Net Worth is less than $450,000, the Adjustment Amount
will be equal to the excess, if any, of (a) $450,000, over (b) the Adjusted Net
Worth. In the event the Adjusted Net Worth is equal to or greater than
$450,000, there will be no Adjustment Amount.
12
<PAGE>
2.6 ADJUSTMENT PROCEDURE
(a) Buyer and Sellers will jointly prepare financial statements ("Closing
Financial Statements") of the Acquired Companies as of the Closing Date and for
the period from the date of the beginnings of the Acquired Companies' respective
current fiscal years through the Closing Date, including a computation of the
Adjusted Net Worth. Buyer and Sellers agree to complete the Closing Financial
Statements within sixty days after the Closing Date. If within thirty days
following completion of the Closing Financial Statements, neither Buyer nor
Sellers have objected to the Closing Financial Statements (such objection must
contain a statement of the basis of the objection), then the Adjusted Net Worth
reflected in the Closing Financial Statements will be used in computing the
Adjustment Amount. If Buyer or Sellers give notice of objection, or if Buyer
and Sellers are unable to agree on how the Closing Financial Statements should
be prepared, then the issues in dispute will be submitted to the Accountants for
resolution. If issues in dispute are submitted to the Accountants for
resolution, (i) each party will furnish to the Accountants such workpapers and
other documents and information relating to the disputed issues as the
Accountants may request and are available to that party (or its independent
public accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the Accountants,
as set forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties; and (iii) Buyer will bear the fees of the
Accountants for such determination.
(b) On the tenth business day following the final determination that there is
an Adjustment Amount and the amount of the Adjustment Amount, Sellers will pay
the amount of the Adjustment Amount to Buyer. Payments to Buyer must be made by
wire transfer to such bank account as Buyer will specify.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, represent and warrant to Buyer as follows as of
the date hereof, in each case subject to the matters described in any Schedule
referred to in this Section 3:
3.1 ORGANIZATION AND GOOD STANDING
(a) Schedule 3.1 contains a complete and accurate list for each Acquired
Company of its name, its jurisdiction of incorporation, other jurisdictions in
which it is authorized to do business, and its capitalization (including the
identity of each stockholder and the number of shares held by each). Each
Acquired Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Each
Acquired Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents of
each Acquired
13
<PAGE>
Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) Subject to the qualifications which appear in Exhibit 7.4(a), this
Agreement constitutes the legal, valid, and binding obligation of Sellers,
enforceable against Sellers in accordance with its terms. Upon the execution and
delivery by Sellers of the Employment Agreements, the Sellers' Releases, and the
Noncompetition Agreements (collectively, the "Sellers' Closing Documents"), the
Sellers' Closing Documents will, subject to the qualifications which appear in
Exhibit 7.4(a), constitute the legal, valid, and binding obligations of Sellers,
enforceable against Sellers in accordance with their respective terms. Sellers
have the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and the Sellers' Closing Documents and to
perform their obligations under this Agreement and the Sellers' Closing
Documents.
(b) To the Knowledge of the Acquired Companies, except as set forth in
Schedule 3.2, neither the execution and delivery of this Agreement by Sellers
nor the consummation or performance by Sellers of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any provision
of the Organizational Documents of the Acquired Companies, or (B) any resolution
adopted by the board of directors or the stockholders of either Acquired
Company;
(ii) materially contravene, materially conflict with, or result in a material
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any material
remedy or obtain any material relief under, any Legal Requirement or any Order
to which either Acquired Company or either Seller, or any of the assets owned or
used by either Acquired Company, may be subject;
(iii) materially contravene, materially conflict with, or result in a material
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or materially modify,
any Governmental Authorization that is held by either Acquired Company or that
otherwise relates to the business of, or any of the assets owned or used by,
either Acquired Company;
(iv) materially contravene, material conflict with, or result in a material
violation or breach of any provision of, or give any Person the right to declare
a material default or exercise any material remedy under, or to materially
accelerate the maturity or performance of, or to cancel, terminate, or
materially modify, any material Applicable Contract; or
(v) result in the imposition or creation of any material Encumbrance upon or
with respect to any of the assets owned or used by either Acquired Company.
Except as set forth in Schedule 3.2, no Seller or Acquired Company is or will be
required to give any
14
<PAGE>
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement by Sellers or the consummation or performance by
Sellers of any of the Contemplated Transactions.
(c) Sellers are acquiring the Promissory Notes for their own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of Phoenix consist of 500 shares of common
stock without par value of which 100 shares are issued and outstanding. The
authorized equity securities of King consist of 100,000 shares of common stock,
par value $1.00 per share, of which 680 shares are issued and outstanding.
Sellers are and will be on the Closing Date the record and beneficial owners and
holders of all of the Shares, free and clear of all Encumbrances. Set forth in
Schedule 3.3 is the division of ownership of the Shares by and among the
Sellers. No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of either Acquired Company. All
of the outstanding equity securities of each Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of either Acquired Company. None of the outstanding equity
securities or other securities of either Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than Acquired Companies) or any direct or
indirect equity or ownership interest in any business not presently conducted by
an Acquired Company.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) audited balance sheets of Phoenix as of
January 31, 1995, 1996 and 1997, and the related audited statements of income,
changes in stockholders' equity, and cash flow for each of the fiscal years then
ended (the audited balance sheet of Phoenix as of January 31, 1997 shall
hereinafter be referred to as the "Balance Sheet") and (b) unaudited balance
sheets of the Acquired Companies as of September 30, 1997 (the "Interim Balance
Sheets") and the related unaudited statements of income, changes in
stockholders' equity, and cash flow for (x) in the case of Phoenix the eight
months then ended and (y) in the case of King, the nine months then ended,
including in each case the notes thereto. To the Knowledge of the Acquired
Companies: such financial statements and notes fairly present in all material
respects the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Acquired Companies as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with the historical accounting methods used by the
Acquired Companies, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Balance Sheets); the financial statements referred to in this Section 3.4
reflect the consistent application of such accounting methods throughout the
periods involved, except as disclosed in the notes to such financial statements;
and
15
<PAGE>
no financial statements of any Person other than the Acquired Companies are
required by GAAP to be included in the consolidated financial statements of the
Company.
3.5 BOOKS AND RECORDS
The Acquired Companies have no Knowledge of any fact or matter which would
produce a material adverse effect as a result of: (a) the failure of the books
of account, minute books, stock record books, and other records of the Acquired
Companies, all of which have been made available to Buyer, to be complete and
correct or to have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls; (b) the
failure of the minute books of the Acquired Companies to contain accurate and
complete records of all meetings held of, and corporate action requiring
stockholder or board approval taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Acquired Companies;
or (c) the holding of meetings of any such stockholders, Board of Directors, or
committee has been held for which minutes (i) have not been prepared or (ii) are
not contained in such minute books. At the Closing, all of those books and
records will be in the possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 contains a complete and accurate list of all real property, real
property leaseholds, or other interests in real property owned by either
Acquired Company. Sellers have delivered or made available to Buyer copies of
the deeds and other instruments (as recorded) by which the Acquired Companies
acquired such real property and interests, and copies of all title insurance
policies, opinions, abstracts, and surveys in the possession of Sellers or the
Acquired Companies and relating to such property or interests. The Acquired
Companies own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that they purport to own located in the facilities operated by the
Acquired Companies or reflected as owned in the books and records of the
Acquired Companies, including all of the properties and assets reflected in the
Balance Sheet and the Interim Balance Sheets (except for assets held under
capitalized leases and personal property sold since the date of the Balance
Sheet and the Interim Balance Sheets, as the case may be, in the Ordinary Course
of Business. All of the properties and assets purchased or otherwise acquired
by the Acquired Companies since the date of the Balance Sheet other than in the
Ordinary Course of Business (except for personal property acquired and
subsequently sold since the date of the Balance Sheets in the Ordinary Course of
Business and consistent with past practice), which subsequently purchased or
acquired properties and assets (other than inventory and short-term investments)
are listed in Schedule 3.6. All material properties and assets reflected in the
Balance Sheet and the Interim Balance Sheets are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Balance Sheet or the
Interim Balance Sheets as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance
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Sheets (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (c) liens
for current taxes not yet due, (d) other matters described in materials made
available to Buyer, and (e) with respect to real property, (i) other
Encumbrances, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto, or
impairs the present operations of either Acquired Company, and (ii) zoning laws
and other land use restrictions that do not impair the present use of the
property subject thereto.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
To the Knowledge of the Acquired Companies the buildings, plants, structures,
and equipment of the Acquired Companies which are material to the ongoing
operations of the Acquired Companies are in operating condition and repair, and
are adequate for the uses to which they are being put, and no material
maintenance or repairs of such buildings, plants, structures, or equipment has
been deferred except for ordinary, routine maintenance and repairs that are not
material in nature or cost. To the Knowledge of the Acquired Companies the
building, plants, structures, and equipment of the Acquired Companies are
sufficient for the continued conduct of the Acquired Companies' businesses after
the Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired Companies that are reflected on the
Balance Sheets or the Interim Balance Sheets or on the accounting records of the
Acquired Companies (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. To the Knowledge of the
Acquired Companies, there is no contest, claim, or right of set-off, other than
returns in the Ordinary Course of Business, under any Contract with any obligor
of an Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Schedule 3.8 contains a complete and accurate list of all Accounts
Receivable as of the date of the Interim Balance Sheets, which list sets forth
the aging of such Accounts Receivable.
3.9 INVENTORY
Except as described on Schedule 3.9: all inventory of the Acquired Companies,
whether or not reflected in the Balance Sheets or the Interim Balance Sheets,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the
Balance Sheets or the Interim Balance Sheets or on the accounting records of the
Acquired Companies; and all inventories not written off have been priced at the
lower of cost or net realizable value on a first in, first out basis.
3.10 NO UNDISCLOSED LIABILITIES
To the Knowledge of the Acquired Companies, except as set forth in Schedule
3.10, the Acquired
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Companies have no material liabilities or obligations of any nature (whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheets or the Interim
Balance Sheets and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
3.11 TAXES
(a) The Acquired Companies have filed or caused to be filed (on a timely basis
since 1995) all Tax Returns that are or were required to be filed by or with
respect to either of them. Sellers have delivered or made available to Buyer
copies of, and Schedule 3.11 contains a complete and accurate list of, all such
Tax Returns relating to income or franchise taxes filed since 1994. The Acquired
Companies have paid, or made provision for the payment of, all Taxes that have
or may have become due pursuant to those Tax Returns or otherwise, or pursuant
to any assessment received by Sellers or either Acquired Company, except such
Taxes, if any, as are listed in Schedule 3.11 and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Balance Sheet and the Interim Balance Sheets.
(b) Schedule 3.11 contains a complete and accurate list of all audits of all
federal and state Income Tax Returns commenced after December 31, 1994,
including a reasonably detailed description of the nature and outcome of each
audit. All deficiencies proposed as a result of such audits have been paid,
reserved against, settled, or, as described in Schedule 3.11, are being
contested in good faith by appropriate proceedings. Schedule 3.11 describes all
adjustments to the United States federal income Tax Returns filed by either
Acquired Company or any group of corporations including either Acquired Company
for all taxable years since 1995, and the resulting deficiencies proposed by the
IRS. Except as described in Schedule 3.11, no Seller or Acquired Company has
given or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of either Acquired Company or for
which either Acquired Company may be liable.
(c) To the Knowledge of the Acquired Companies, the charges, accruals, and
reserves with respect to Taxes on the respective books of each Acquired Company
are adequate (determined in accordance with GAAP) and are at least equal to that
Acquired Company's liability for Taxes; there exists no proposed tax assessment
against either Acquired Company except as disclosed in the Balance Sheets or in
Schedule 3.11; no consent to the application of Section 341(f)(2) of the IRC has
been filed with respect to any property or assets held, acquired, or to be
acquired by either Acquired Company; and all Taxes that either Acquired Company
is or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) either
Acquired Company are true, correct, and complete in all material respects. There
is no tax sharing agreement that will require any payment by either Acquired
Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
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To the Knowledge of the Acquired Companies, since January 31, 1997 there has not
been any material adverse change in the business, operations, properties,
personnel, assets, or condition of either Acquired Company, and no event has
occurred or circumstance exists that may result in such a material adverse
change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all pension,
retirement, stock option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, incentive, welfare
or any other contracts, plans or arrangements providing for employee
compensation or benefits (the "Plans"), and all trust agreements relating
thereto, to which the Acquired Companies are a party or to which the Acquired
Companies contribute or by which it is bound. Copies of each of the foregoing
have been or promptly will be furnished or made available to Purchaser. The only
Plans which individually or collectively would constitute an "employee pension
benefit plan" as defined in Section 3(2) of ERISA are identified in Schedule
3.13, and are hereinafter referred to as the "Pension Plans." No Plan
constitutes a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
Neither of the Acquired Companies currently maintains or has previously
maintained any Pension Plan that is subject to Title IV of ERISA.
(b) To the Knowledge of the Acquired Companies, each Plan that is intended to
be qualified under Section 401(a) of the Code is so qualified, and each trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. Copies of all Internal Revenue Service determination letters relating to
such Plans have been or promptly will be provided to Purchaser.
(c) To the Knowledge of Acquired Companies: each Plan has been maintained in
substantial compliance with the materials requirements prescribed by any and all
statutes, orders, rules and regulations, including, but not limited to, ERISA
and the Code, that are applicable to such Plans; and no Plan nor any trust
created thereunder, nor any trustee or administrator thereof, has engaged in a
"prohibited transaction" as such term is defined in Section 4975 of the Code,
which could subject such Plans or any of them, any such trust, or any such
trustee or administrator thereof, or any party dealing with such employee
benefit plans or any such trust, to any tax or penalty on prohibited
transactions imposed by such Section 4975.
(d) All contributions and payments accrued through September 30, 1997 under
each Plan, determined in accordance with prior funding and accrual practices as
adjusted to the extent required to include proportional contribution and payment
accruals for the period from the last funding date to the date hereof, have been
recorded as a liability on the Interim Balance Sheets or Schedule 3.13. Except
as otherwise set forth in Schedule 3.13, neither the Acquired Companies nor, to
the Knowledge of the Acquired Companies, any employee, agent or representative
thereof has taken any actions, made any statements or given any representations,
in writing or orally, that will result in any increase in the rate of benefit
accrual or contributions under any Pension Plan, or the creation of additional
benefits under any Plan.
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3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
To the Knowledge of the Acquired Companies:
(a) except as set forth in Schedule 3.14:
(i) each Acquired Company is, and at all times has been, in substantial
compliance with each material Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a material violation by either
Acquired Company of, or a failure on the part of either Acquired Company to
comply substantially with, any material Legal Requirement, or (B) may give rise
to any material obligation imposed by any Legal Requirement on the part of
either Acquired Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) neither Acquired Company has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of either Acquired Company to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature;
(b) Schedule 3.14 contains a complete and accurate list of each Governmental
Authorization (other than those applicable to businesses generally) that is held
by either Acquired Company or that otherwise relates to the business of, or to
any of the assets owned or used by, either Acquired Company; each Governmental
Authorization listed or required to be listed in Schedule 3.14 is valid and in
full force and effect; except as set forth in Schedule 3.14:
(i) each Acquired Company is, and at all times has been, in substantial
compliance with all of the material terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 3.14;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
material violation of or a failure to comply substantially with any material
term or requirement of any Governmental Authorization listed or required to be
listed in Schedule 3.14, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any material
modification to, any Governmental Authorization listed or required to be listed
in Schedule 3.14;
(iii) neither Acquired Company has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any
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Governmental Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 3.14
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies; and
(c) the Governmental Authorizations listed in Schedule 3.14 collectively
constitute all of the Governmental Authorizations necessary to permit the
Acquired Companies to lawfully conduct and operate their businesses in the
manner they currently conduct and operate such businesses and to permit the
Acquired Companies to own and use their assets in the manner in which they
currently own and use such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
To the Knowledge of the Acquired Companies
(a) except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against either Acquired Company or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, either Acquired Company; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions;
(1) no such Proceeding has been Threatened, and (2) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding; Sellers have delivered or made available to
Buyer copies of all pleadings, correspondence, and other documents relating to
each Proceeding listed in Schedule 3.15; the Proceedings listed in Schedule 3.15
will not have a material adverse effect on the business, operations, assets or
condition of either Acquired Company.
(b) except as set forth in Schedule 3.15:
(i) there is no Order to which any of the Acquired Companies, or any of the
assets owned or used by either Acquired Company, is subject;
(ii) no Seller is subject to any Order that relates to the business of, or any
of the assets owned or used by, either Acquired Company; and
(iii) no officer, director, agent, or employee of either Acquired Company is
subject to any Order that
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prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of either
Acquired Company.
(c) except as set forth in Schedule 3.15:
(i) each Acquired Company is, and at all times has been, in substantial
compliance with all of the material terms and requirements of each Order to
which it, or any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a material violation of or failure
to comply substantially with any material term or requirement of any material
Order to which either Acquired Company, or any of the assets owned or used by
either Acquired Company, is subject; and
(iii) no Acquired Company has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which either Acquired
Company, or any of the assets owned or used by either Acquired Company, is or
has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since January 31, 1997, the Acquired
Companies have conducted their businesses only in the Ordinary Course of
Business and there has not been any:
(a) change in either Acquired Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of either
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by either Acquired Company of any shares of any such capital stock;
or declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of either Acquired Company;
(c) payment of or agreement to pay any bonus by either Acquired Company, or
increase of more than $5,000 per year by either Acquired Company of any
salaries, or other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of either Acquired
Company;
(e) damage to or destruction of any asset or property of either Acquired
Company, not covered by
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insurance, materially and adversely affecting the properties, assets, business
or financial condition of the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction, other than purchase
orders placed or received in the Ordinary Course of Business, involving a total
remaining commitment by or to either Acquired Company of at least $25,000;
(g) sale, lease, or other disposition of any asset or property of either
Acquired Company (other than sales, retirements and collections of personal
property in the Ordinary Course of Business) or mortgage, pledge, or imposition
of any lien or other encumbrance on any material asset or property of either
Acquired Company;
(h) cancellation or waiver of any claims or rights with a value to either
Acquired Company in excess of $25,000;
(i) material change in the accounting methods used by Phoenix; or
(j) agreement, whether oral or written, by either Acquired Company to do any of
the foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers have
delivered or made available to Buyer true and complete copies, of (in each case
excluding purchase orders placed or received in the Ordinary Course of Business
and Contracts which to the Knowledge of the Acquired Companies have been fully
performed, where for this purpose a Contract will be considered to have been
fully performed if the only remaining performance thereunder is payment to an
Acquired Company of amounts included in such Company's accounts receivable):
(i) each Applicable Contract that involves performance of services or delivery
of goods or materials by one or more Acquired Companies of an amount or value in
excess of $10,000;
(ii) each Applicable Contract that involves performance of services or delivery
of goods or materials to one or more Acquired Companies of an amount or value in
excess of $10,000;
(iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of one or more Acquired
Companies in excess of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $5,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks,
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copyrights, or other intellectual property, including agreements with current or
former employees, consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract to or
with any labor union or other employee representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by either
Acquired Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way purport to
restrict the business activity of either Acquired Company or any Affiliate of an
Acquired Company or limit the freedom of either Acquired Company or any
Affiliate of an Acquired Company to engage in any line of business or to compete
with any Person;
(ix) each Applicable Contract providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments for goods;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express undertaking by either
Acquired Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by either Acquired Company other
than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.
Schedule 3.17(a) sets forth information adequate to identify such Contracts,
including the date of and parties to the Contracts and the Acquired Companies'
office where details relating to the Contracts are located.
(b) Except as set forth in Schedule 3.17(b):
(i) no Seller (and no Related Person of either Seller, other than the Acquired
Companies) has or may acquire any rights under, and no Seller has or may become
subject to any obligation or liability under, any Contract that relates to the
business of, or any of the assets owned or used by, either Acquired Company; and
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(ii) to the Knowledge of the Acquired Companies, no officer, director, agent,
employee, consultant, or contractor of either Acquired Company is bound by any
Contract that purports to limit the ability of such officer, director, agent,
employee, consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of either Acquired Company, or
(B) assign to either Acquired Company or to any other Person any rights to any
invention, improvement, or discovery.
(c) Except as set forth in Schedule 3.17(c), each Contract identified or
required to be identified in Schedule 3.17(a) is in full force and effect and is
valid and enforceable in accordance with its terms (subject to the qualification
which appear in Exhibit 7.4(a)).
(d) Except (x) as respects purchase orders placed or received in the Ordinary
Course of Business and Contracts which to the Knowledge of the Acquired
Companies have been fully performed (where for this purpose a Contract will be
considered to have been fully performed if the only remaining performance
thereunder is payment to an Acquired Company of amounts included in such
Company's accounts receivable) and (y) as set forth in Schedule 3.17(d):
(i) To the Knowledge of the Acquired Companies, each Acquired Company is in
substantial compliance with all applicable material terms and requirements of
each Contract under which such Acquired Company has any obligation or liability
or by which such Acquired Company or any of the assets owned or used by such
Acquired Company is bound;
(ii) to the Knowledge of the Acquired Companies each other Person that has any
material obligation or liability under any Contract under which an Acquired
Company has any rights is in substantial compliance with all applicable material
terms and requirements of such Contract;
(iii) to the Knowledge of the Acquired Companies no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
materially contravene, materially conflict with, or result in a material
violation or breach of, or give either Acquired Company or other Person the
right to declare a default or exercise any material remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
materially modify, any Applicable Contract; and
(iv) to the Knowledge of the Acquired Companies, no Acquired Company has given
to or received from any other Person, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential material
violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to either Acquired
Company under current or completed Contracts with any Person and, to the
Knowledge of the Acquired Companies, no such Person has made written demand for
such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision of
products or services by the Acquired Companies have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any
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consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which either
Acquired Company is a party or under which either Acquired Company is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies of
insurance; and
(iii) any statement by the auditor of either Acquired Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement (other than deductibles and copayment
arrangements described in insurance policies delivered to Buyer) by or affecting
either Acquired Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by either Acquired Company.
(c) [Intentionally Omitted]
(d) Except as set forth on Schedule 3.18(d):
(i) To the Knowledge of the Acquired Companies all policies to which either
Acquired Company is a party or that provide coverage to any Seller or either
Acquired Company:
(A) are valid, outstanding, and enforceable (subject to the qualification which
appear in Exhibit 7.4(a));
(B) are sufficient for material compliance with all Legal Requirements and
Contracts to which either Acquired Company is a party or by which any of them is
bound;
(C) will (assuming timely payment of premiums) continue in full force and effect
immediately following the consummation of the Contemplated Transactions; and
(D) do not provide for any retrospective premium adjustment or other
experienced-based liability on the part of either Acquired Company.
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(ii) No Acquired Company has received (A) any refusal of coverage or any notice
that a defense will be afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy is no longer in
full force or effect or will not be renewed or that the issuer of any policy is
not willing or able to perform its obligations thereunder.
(iii) To the Knowledge of the Acquired Companies, the Acquired Companies have
paid all premiums due, and have otherwise performed all of their respective
obligations, under each policy to which either Acquired Company is a party or
that provides coverage to either Acquired Company or director thereof.
(iv) To the Knowledge of the Acquired Companies, the Acquired Companies have
given notice to the insurer of all claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
To the Knowledge of the Acquired Companies, except as set forth in Schedule
3.19:
(a) each Acquired Company is, and at all times has been, in substantial
compliance with, and has not been and is not in material violation of or
materially liable under, any Environmental Law; no Seller or Acquired Company
has any basis to expect, nor has any of them received, any actual or Threatened
order, notice, or other communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any actual or potential violation or failure to
comply with any Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which either Acquired Company has had an interest,
or with respect to any property or Facility at or to which Hazardous Materials
were generated, manufactured, refined, transferred, imported, used, or processed
by either Acquired Company;
(b) there are no pending or Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which either Acquired Company has or had
an interest;
(c) neither Acquired Company has any basis to expect any citation, directive,
inquiry, notice, Order, summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which either Acquired Company had an interest, or with respect to any
property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used, or processed either Acquired Company have
been transported, treated, stored, handled, transferred, disposed, recycled, or
received.
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(d) no Seller or Acquired Company has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or with respect to any other
properties and assets (whether real, personal, or mixed) in which either
Acquired Company (or any predecessor), has or had an interest.
(e) there are no Hazardous Materials present on or in the Environment at the
Facilities including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facilities
or incorporated into any structure therein or thereon, in any case in violation
of Legal Requirements; no Seller or Acquired Company has permitted or conducted,
or is aware of, any Hazardous Activity conducted with respect to the Facilities
or any other properties or assets (whether real, personal, or mixed) in which
either Acquired Company has or had an interest except in substantial compliance
with all applicable material Environmental Laws;
(f) there has been no Release or Threat of Release, of any Hazardous Materials
at or from the Facilities or at any other locations where any Hazardous
Materials were generated, manufactured, refined, transferred, produced,
imported, used, or processed by either Acquired Company from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which either Acquired Company has or had an interest by
either Acquired Company in violation of Environmental Laws; and
(g) Sellers have delivered to Buyer true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed or initiated by
Sellers or either Acquired Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by either Acquired Company with Environmental Laws.
3.20 EMPLOYEES
(a) Schedule 3.20 contains a complete and accurate list of the following
information for each employee or director of the Acquired Companies, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
December 31, 1996; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under either Acquired Company's Plans.
(b) To the Knowledge of the Acquired Companies, no employee or director of
either Acquired Company is a party to, or is otherwise bound by, any agreement
or arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Acquired Companies, or (ii) the ability of either Acquired Company to conduct
its business, including any Proprietary Rights Agreement with Sellers or the
Acquired Companies by any such employee or director. To the Knowledge of the
Acquired Companies, no director, officer, or other key employee of either
Acquired Company intends to terminate his employment with such Acquired Company.
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(c) Schedule 3.20 also contains a complete and accurate list of the following
information for each retired employee or director of the Acquired Companies, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1994, neither Acquired Company has been or is a party to any
collective bargaining or other labor Contract. Since January 1, 1994, there has
not been, there is not presently pending or existing, and to the Knowledge of
the Acquired Companies there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any Proceeding
against or affecting either Acquired Company relating to the alleged violation
of any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting any of the Acquired Companies or their
premises, or (c) any application for certification of a collective bargaining
agent. To the Knowledge of the Acquired Companies no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by either Acquired Company,
and no such action is contemplated by either Acquired Company. To the Knowledge
of the Acquired Companies, each Acquired Company has substantially complied in
all material respects with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing, and no Acquired Company is
liable for the payment of any compensation, damages, taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) The term "Intellectual Property Assets" includes:
(i) the names Phoenix Communications and King Mailing Services, all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications (collectively, "Marks");
(ii) all copyrights in both published works and unpublished works (collectively,
"Copyrights");
(iii) all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and
blue prints (collectively, "Trade Secrets"); owned, used, or licensed by either
Acquired Company as licensee or licensor.
(b) Neither Acquired Company (i) has made any filing with any governmental
agency or taken any other unusual action to obtain or protect its ownership or
use of any Intellectual Property Assets, (ii) is obliged to make future payments
principally for its ownership or use of any Intellectual Property
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Assets, (iii) has received any notice that its use of any Intellectual Property
Assets infringes on the rights of any other person, or (iv) upon the
consummation of the transactions contemplated hereunder will be in violation of
any contracts or agreements relating to the use of any Intellectual Property
Assets.
3.23 CERTAIN PAYMENTS
Since January 1, 1991, no Seller or Acquired Company has directly or indirectly
(a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form,
whether in money, property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special concessions already obtained,
for or in respect of either Acquired Company or any Affiliate of an Acquired
Company, or (iv) in violation of any Legal Requirement, (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Acquired Companies.
3.24 DISCLOSURE
To the Knowledge of the Acquired Companies, no representation or warranty of
Sellers in this Agreement omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as described on Schedule 3.25, no Seller or any Related Person of Sellers
(other than the Acquired Companies) or of either Acquired Company has, or since
the first day of the next to last completed fiscal year of the Acquired
Companies has had, any interest in any property (whether real, personal, or
mixed and whether tangible or intangible), used in or pertaining to the Acquired
Companies' businesses. No Seller or any Related Person of Sellers or of either
Acquired Company is, or since the first day of the next to last completed fiscal
year of the Acquired Companies has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with either Acquired Company other than business dealings or transactions
conducted in the Ordinary Course of Business with the Acquired Companies at
substantially prevailing market prices and on substantially prevailing market
terms, or (ii) engaged in competition with either Acquired Company with respect
to any line of the products or services of such Acquired Company (a "Competing
Business") in any market presently served by such Acquired Company except for
less than five percent of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the over-the-
counter market. Except as set forth in Schedule 3.25, no Seller or any Related
Person of Sellers or of either Acquired Company is a party to any Contract with,
or has any claim or right against, either Acquired Company.
3.26 BROKERS OR FINDERS
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Except for the GMA Claim which shall be the sole responsibility of Sellers,
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.27 HART-SCOTT-RODINO
Neither Acquired Company is a person (or a constituent of a person) with total
assets or annual net sales of $100,000,000 or more (all within the meaning of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended).
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows as of the date hereof, in
each case subject to the matters described in any Schedule referred to in this
Section 4:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements and the Promissory
Notes (collectively, the "Buyer's Closing Documents"), the Buyer's Closing
Documents will constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms. Buyer has
the absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and the Buyer's Closing Documents and to perform its obligations
under this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery of
this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from
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any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
4.6 HART-SCOTT-RODINO
Buyer is not a person (or a constituent of a person) with total assets or annual
net sales of $100,000,000 or more (all within the meaning of the Hart-Scott-
Rodino Antitrust Improvements Acts of 1976, as amended).
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Subject to Section 12.3, between the date of this Agreement and the Closing Date
(or if applicable, termination of this Agreement pursuant to Section 9), Sellers
will, and will cause each Acquired Company and its Representatives to, (a)
afford Buyer and its Representatives and prospective lenders and their
Representatives (collectively, "Buyer's Advisors") reasonable access to each
Acquired Company's personnel, properties (including subsurface testing),
contracts, books and records, and other documents and data, (b) furnish Buyer
and Buyer's Advisors with copies of all such contracts, books and records, and
other existing documents and data as Buyer may reasonably request, and (c)
furnish Buyer and Buyer's Advisors with such additional financial, operating,
and other data and information as Buyer may reasonably request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date (or, if applicable,
termination of this
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Agreement pursuant to Section 9), Sellers will, and will
cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary Course
of Business;
(b) use their Best Efforts to preserve intact the current business organization
of such Acquired Company, keep available the services of the current officers,
employees, and agents of such Acquired Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with such Acquired Company;
(c) confer with Buyer concerning operational matters of a material nature; and
(d) otherwise respond to inquiries from Buyer concerning the status of the
business, operations, personnel changes and finances of such Acquired Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date (or, if applicable, termination of this
Agreement pursuant to Section 9) Sellers will not, and will cause each Acquired
Company not to, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause each Acquired Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date (or, if
applicable, termination of this Agreement pursuant to Section 9, Sellers will,
and will cause each Acquired Company to, (a) cooperate with Buyer with respect
to all filings that Buyer elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b) cooperate with
Buyer in obtaining all consents identified in Schedules 3.2 or 4.2, provided
that this Agreement will not require Sellers to cause either Acquired Company
tot dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date (or, if applicable,
termination of this Agreement pursuant to Section 9), each of Segal and
Rosenthal agrees to notify Buyer in writing if he becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any of Sellers' representation or warranties contained herein had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, each Seller will promptly
notify Buyer of the occurrence of any Breach of any covenant of Sellers in this
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Section 5 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to an Acquired Company by either Seller or any Related Person
of either Seller to be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause each Acquired Company and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any non-
public information to, or consider the merits of any unsolicited inquiries or
proposals from, any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of either Acquired Company, or any of the capital stock of either
Acquired Company, or any merger, consolidation, business combination, or similar
transaction involving either Acquired Company.
5.8 BEST EFFORTS
Except as set forth in the proviso to Section 5.4, between the date of this
Agreement and the Closing Date (or, if applicable, termination of this Agreement
pursuant to Section 9), Sellers will use their Best Efforts to cause the
conditions in Section 7 to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date (or, if applicable,
termination of this Agreement pursuant to Section 9), Buyer will, and will cause
each Related Person to, (a) cooperate with Sellers with respect to all filings
that Sellers elect to make or are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b) cooperate with Sellers in
obtaining all consents identified in Schedules 3.2 or 4.2; provided that this
Agreement will not require Buyer to dispose of or make any change in any portion
of its business or to incur any other burden to obtain a Governmental
Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date (or, if applicable, termination of this Agreement
pursuant to Section 9), Buyer will use its Best Efforts to cause the conditions
in Section 8 to be satisfied.
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7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must be accurate in all material respects as of the Closing Date
as if made on the Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered by Sellers pursuant to Section 2.4
must have been delivered.
7.3 CONSENTS
Each of the Consents identified in Schedule 3.2, and each Consent identified in
Schedule 4.2, must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
There must have been delivered to Buyer:
(a) an opinion of Holt Ney Zatcoff & Wasserman, LLP, dated the Closing Date, in
the form of Exhibit 7.4(a);
(b) such other documents as Buyer and Sellers agree are reasonable and
necessary for the purpose of (i) enabling Buyer's counsel to provide the opinion
referred to in Section 8.4(a), (ii) evidencing the accuracy of any of Sellers'
representations and warranties, (iii) evidencing the performance by Sellers of,
or the compliance by Sellers with, any covenant or obligation required to be
performed or complied with by Sellers, (iv) evidencing the satisfaction of any
condition referred to in this Section 7, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
7.5 NO PROCEEDINGS
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Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, any Seller, any Acquired Company or any Person
affiliated with any of the foregoing, any Proceeding (a) involving any challenge
to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person (other than Sellers)
any claim asserting that such Person (a) is the holder or the beneficial owner
of, or has the right to acquire or to obtain beneficial ownership of, any stock
of, or any other voting, equity, or ownership interest in, any of the Acquired
Companies, or (b) is entitled to all or any portion of the Purchase Price
payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, (a) any applicable Legal Requirement or Order, or (b) any Legal
Requirement or Order that has been published, introduced, or otherwise proposed
by or before any Governmental Body.
7.8 SUBSTITUTION FOR EXISTING NOTES
At the Closing, the holders of the Existing Notes must have delivered to the
Buyer the Existing Notes marked "satisfied in full" in exchange for new
promissory notes from Buyer containing terms and conditions satisfactory to both
Buyer and the holders of the Existing Notes.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must be accurate in all material respects as of the Closing Date
as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants
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and obligations (considered individually), must have been performed and complied
with in all material respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to Section 2.4 and must have made the cash payments required to
be made by Buyer pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 or Schedule 4.2 must have been
obtained and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused to be delivered to Sellers:
(a) an opinion of Black Bobango & Morgan, a Professional Corporation, dated the
Closing Date, in the form of Exhibit 8.4(a); and
(b) such other documents as Sellers and Buyer agree are reasonable and
necessary request for the purpose of (i) enabling Sellers' counsel to provide
the opinion referred to in Section 7.4(a), (ii) evidencing the accuracy of any
representation or warranty of Buyer, (iii) evidencing the performance by Buyer
of, or the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, (ii) evidencing the satisfaction of any
condition referred to in this Section 8, or (v) otherwise facilitating the
consummation of any of the Contemplated Transactions.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
8.6 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, any Seller, any Acquired Company, or any Person
affiliated with any of the foregoing, any Proceeding (a) involving any challenge
to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
8.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly
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or indirectly (with or without notice or lapse of time), materially contravene,
or conflict with, or result in a material violation of, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
cured or waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied
in all material respects as of the Closing Date or if satisfaction in all
material respects of such a condition is or becomes impossible (other than
through the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or before the Closing
Date; or (ii) by Sellers, if any of the conditions in Section 8 has not been
satisfied in all material respects as of the Closing Date or if satisfaction in
all material respects of such a condition is or becomes impossible (other than
through the failure of Sellers to comply with their obligations under this
Agreement) and Sellers have not waived such condition on or before the Closing
Date; or
(c) by mutual consent of Buyer and Sellers.
9.2 EFFECT OF TERMINATION
If this Agreement is terminated pursuant to Section 9.1, all further obligations
of the parties under this Agreement will terminate, except that the obligations
in Sections 12.1 and 12.3 will survive; provided, however, that if this
Agreement is terminated by a party because of the material Breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied in all
material respects as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired, subject to Section
10.6.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations and warranties in the certificate delivered pursuant to
Sections 2.4(a)(v) and 2.4(b)(iv), will survive the Closing for the applicable
period described in Section 10.4, but no other representations or warranties in
this Agreement are in any other certificate or document delivered pursuant to
this Agreement will survive the Closing, nor shall any Person have any liability
with respect to any such representations or warranties. If the Closing occurs,
there shall not exist any right to indemnification, payment of Damages or other
remedy based on any representation, warranty,
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covenant, or obligation which is Known to be untrue, inaccurate or unsatisfied
at the time of the Closing by the Person who or which (but for this sentence)
would have such rights.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Subject to all other provisions of this Section 10, Sellers, jointly and
severally, will indemnify and hold harmless Buyer, the Acquired Companies, and
their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(a) any material Breach of any representation or warranty made by Sellers in
the certificate delivered pursuant to Section 2.4(a)(v);
(b) any material Breach by any Seller of any covenant or obligation of such
Seller in this Agreement; or
(c) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either Seller or either Acquired Company (or any
Person acting on their behalf) in connection with any of the Contemplated
Transactions.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any material Breach of any representation or warranty made by Buyer in
the certificate delivered pursuant to Section 2.4(b)(iv), (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions, or (d) any matter arising out of the post-Closing
activities of Buyer, Premier Graphics, Inc. or any other Person related to Buyer
or Premier Graphics, Inc. which are contemplated under this Agreement.
10.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11 and 3.13, unless at or before the expiration of
eighteen (18) months following the Closing Date, Buyer notifies Sellers of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Buyer. A claim with respect to Section 3.3 or a claim for
indemnification or reimbursement not based upon any
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representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time within the
applicable statutes of limitation; a claim with respect to Section 3.11 may be
made only on or before the fourth (4/th/) anniversary of the Closing; and a
claim with respect to Section 3.13 may be made only on or before the third
(3/rd/) anniversary of the Closing. If the Closing occurs, Buyer will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, unless at or before the expiration of eighteen (18) months
following the Closing Date, Sellers notify Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Sellers.
10.5 LIMITATIONS ON AMOUNT--SELLERS
(a) Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in of Section 10.2 until the total of all
Damages with respect to such matters exceeds $25,000, and then only for the
amount by which such Damages exceed $25,000.
(b) Subject to subsection (c), Buyer's right to recovery against Sellers will
be limited to an amount equal to the Purchase Price. In the event, Buyer's right
to recovery against Sellers is in excess of the amount payable under the
Promissory Notes, Buyer shall be immediately entitled to payment of that part of
the Cash Amount retained by Sellers after payment of state and federal taxes.
Any additional amounts due Buyer shall be paid to Buyer after Sellers receive
any income tax refund due Sellers due to the indemnification obligations
contained herein.
(c) Subsections (a) and (b) will not apply to any Breach by any Seller which
constitutes fraud or intentional misconduct by such Seller.
(d) Amounts otherwise recoverable from Sellers hereunder shall be reduced by
all amounts realized from Post-Closing Third Party Recoveries. Amounts so
realized (i) shall increase the amount payable under the Promissory Notes, to
the extent of previous reductions of such amounts pursuant to Section 10.7 which
have not previously been taken into account under this subsection or (ii) be
remitted to Sellers, to the extent of other previous recoveries from Sellers
hereunder which have not previously been taken into account under this
subsection. The foregoing notwithstanding, any Third Party Recoveries received
by Buyer at a time when no amounts are owing to Buyer pursuant to this Section
10 shall be promptly paid by Buyer one-half (1/2) to Segal and one-half (1/2)
to Rosenthal.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $25,000, and then only for the
amount by which such Damages exceed $25,000. However, this Section 10.6 will
not apply to any Breach of any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such Breaches.
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10.7 OBLIGATION OF SET-OFF
In the event that it is determined that amounts are due Buyer from Sellers
pursuant to this Agreement, Buyer shall first reduce the amount payable under
the Promissory Notes by the amount due Buyer under this Agreement prior to
seeking monetary indemnification from Seller. In the event the amount due Buyer
under this Agreement exceeds the amount payable under the Promissory Notes,
Buyer shall have the right to proceed against the Sellers for such excess,
subject to all other provisions of this Section 10. The exercise of such set-off
by Buyer in good faith, whether or not ultimately determined to be justified,
will not constitute an event of default under the Promissory Notes or any
instrument securing a Promissory Note.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3,
of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim. The failure to notify the indemnifying party will relieve the
indemnifying party of any liability that it may have to any indemnified party,
unless such failure does not impair the indemnifying party's administration of
the action (including but not limited to the defense or settlement thereof).
(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to the indemnified party under
this Section 10 for any fees of other counsel or any other expenses with respect
to the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (x) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; (y) except as
otherwise provided in the last sentence in this subsection (b), the indemnifying
party will have no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does not,
within ten days after the indemnified party's notice is given, give notice to
the indemnified party of
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its election to assume the defense of such Proceeding, the indemnifying party
will be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party. If notice is given to an
indemnifying party of the commencement of any Proceeding and within ten days
after the indemnifying party's notice is given the indemnifying party gives
notice to the indemnified party of its election to assume the defense of such
Proceeding, but refuses a request of the indemnified party for an admission that
the claims made in the Proceeding are within the scope of and subject to
indemnification, the indemnified party shall be entitled to participate in the
defense at its own expense, and the indemnifying party shall be bound not to
unreasonably withhold its consent to any compromise or settlement agreed to by
the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) Each party hereby consent to the non-exclusive jurisdiction of any court in
which a Proceeding is brought against any Indemnified Person for purposes of any
claim that an Indemnified Person may have under this Agreement with respect to
such Proceeding or the matters alleged therein, and agree that process may be
served on such party with respect to such a claim anywhere in the world.
10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
11. CERTAIN MATTERS
11.1 ACCOUNTS RECEIVABLE
Sellers' responsibilities with respect to the Acquired Companies' accounts
receivable are as (and only as) described in Section 3.8 and this Section 11.1.
On the day which is six months after the Closing Date:
(a) the aggregate of the amounts of the Fixed Notes shall be reduced by the
excess, if any, of
(i) the sum of the then (six months after the Closing Date) still
outstanding balances of all accounts receivable of the Acquired Companies
which were more than 120 days old as of the Closing Date, over
(ii) the sum of the accounts receivable reserves taken into account in
determining Adjusted
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Net Worth; and
(b) Buyer shall cause ownership of accounts receivable having balances which in
the aggregate equal the amount of the reduction of the Fixed Notes as set forth
above to be transferred to Sellers. For purposes of this Section payments
received after Closing from obligors of the accounts receivable referred to in
Clause (a)(i) above shall be applied first towards satisfaction of such accounts
receivable unless designated otherwise by the account debtor.
11.2 PERMITTED PRE-CLOSING TRANSFERS
Notwithstanding any other provision hereof to the contrary, each Acquired
Company shall be entitled at or before the Closing:
(a) to sell to the Sellers at book value any and all life insurance policies on
the life or lives of any of the Sellers owned (in whole or in part) by such
Acquired Company; and
(b) with respect to each automobile which is owned by an Acquired Company and
used primarily by a Seller, to sell such automobile to such Seller for an amount
equal to the greater of the net book value of such automobile or the amount of
the indebtedness secured by such automobile. Any Seller acquiring an automobile
hereunder agrees to assume the indebtedness secured by such automobile as part
of the consideration described above. No conveyance permitted under this
Section 11.2 shall constitute a Breach.
11.3 CERTAIN INCENTIVE COMPENSATION
(a) After the Closing, Buyer shall from time to time cause incentive
compensation, in the forms described in subsection (b), to be paid to employees
of the Phoenix Communications Division (potentially including Rosenthal and
Segal) selected from time to time by Rosenthal and Segal (or if neither
Rosenthal or Segal is not then employed by Buyer or a Person related to Buyer,
by the chief executive officer of the successor of the Acquired Companies).
(b) Subject to subsection (c), the incentive compensation described in this
section (b) means: (i) one-ninth (1/9) of the amounts payable under Earnout
Notes, such amounts to be paid simultaneously with payments under the Earnout
Notes, and (ii) one ninth (1/9) of the warrants to be issued under the
Employment Agreements, such warrants to be granted immediately after the
Closing.
(c) Amounts described in clause (i) of subsection (b) which, but for this
subsection (c), would be payable to a Person who is no longer employed by the
Phoenix Communications Division, shall instead be paid to Persons selected as
described in subsection (a) (or, failing any such selection, equally to
Rosenthal and Segal). It is contemplated that a portion of the Warrants granted
to Rosenthal and Segal as described in Section 11.3(b)(ii) above will be
assigned to key employees of the Acquired Companies provided certain criteria
and conditions are met.
11.4 SUCCESS FEE
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At Closing, Buyer shall cause the Success Fee to be paid.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as provided in the following sentence, Buyer will pay all expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Sellers will be responsible
for their own legal and accounting fees in connection with this Agreement, and
for the GMA Claim, and will cause the Acquired Companies not to incur any out-
of-pocket expenses therefor, and the Acquired Companies will be responsible for
all other costs incurred by Sellers or by the Acquired Companies in connection
with this Agreement.
12.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing (or termination hereof)
Sellers shall, and shall cause the Acquired Companies to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person other than Sellers' advisers, including but not limited to lawyers and
accountants, assisting in the preparation and/or administration and/or
consummation of this Agreement. Sellers and Buyer will consult with each other
concerning the means by which the Acquired Companies' employees, customers, and
suppliers and others having dealings with the Acquired Companies will be
informed of the Contemplated Transactions, and Buyer will have the right to be
present for any such communication.
12.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date (or, if the Closing does
not occur, December 31, 2000), Buyer and Sellers will maintain in confidence,
and will cause the directors, officers, employees, agents, and advisors of Buyer
and the Acquired Companies to maintain in confidence, and not use to the
detriment of another party or an Acquired Company any written, oral, or other
information obtained in confidence from another party or an Acquired Company in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is required by or necessary or appropriate in connection with
legal proceedings.
If the Contemplated Transactions are not consummated: (a) each party will return
or destroy as much of such written information as the other party may reasonably
request; (b) prior to January 1, 2001,
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Buyer shall not, and shall assure that no Person Related to Buyer will directly
or indirectly, either for itself or any other Person,
(i) induce or attempt to induce any Person known to Buyer or any Related
Person to be an employee of either Acquired Company to leave the employ of
such Acquired Company,
(ii) in any way interfere with the relationship between either Acquired
Company and any Person known to Buyer or any Related Person to be an
employee of either Acquired Company, or
(iii) employee, or otherwise engaged as an employee, independent
contractor, or otherwise, any Person known to Buyer or any Related Person
to be an employee of either Acquired Company; or
(iv) solicit the business of any Person known to Buyer or any Related
Person to be a customer of either Acquired Company, unless Buyer or any
Related Person (or a predecessor thereof) had a business relationship with
such Person prior to the date of this Agreement.
12.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand or (b) received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses set forth below (or to such other addresses as a party may designate
by notice to the other parties):
Sellers: [Name of Seller]
Phoenix Communications, Inc.
5664 New Peachtree Road
Atlanta, Georgia 30341
with a copy to: Holt Ney Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339-5511
Attention: Sanford H. Zatcoff, Esq.
Buyer: Master Graphic, Inc.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John P. Miller
with a copy to: Black Bobango & Morgan
A Professional Corporation
530 Oak Court Drive
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Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
12.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Georgia, County of DeKalb, or, if it has or can
acquire jurisdiction, in the United States District Court for the Northern
District of Georgia, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
12.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
12.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent between Buyer and Sellers
dated October 6, 1997) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may
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not be amended except by a written agreement executed by the party to be charged
with the amendment.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
12.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
12.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Georgia without
regard to conflicts of laws principles.
12.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
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12.15 STANDARD OF CONDUCT
Except to the extent (if any) expressly provided herein to the contrary, each
party shall act hereunder, and shall exercise all discretion afforded it
hereunder, reasonably and in good faith.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: Master Graphics, Inc.
By: /s/ John P. Miller
------------------
Its: President
SELLERS: /s/ Cary Rosenthal
------------------
Cary Rosenthal
/s/ Joseph Segal
----------------
Joseph Segal
/s/ Ross Lenhart
----------------
Ross Lenhart
/s/ Richard Roberts
-------------------
Richard Roberts
/s/ Scott Diamond
-----------------
Scott Diamond
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EXHIBIT 10.12
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 16th day of December 1997,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 14-2-1101 of the Georgia Business Corporations Code, between Premier
Graphics, Inc. ("Premier" or "Surviving Corporation"), a Delaware corporation
and Phoenix Communications, Inc. ("Phoenix" or "Merged Corporation"), a Georgia
corporation (the "Agreement").
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself Phoenix and Phoenix shall be
and hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately certified as, the Certificate of Incorporation, as
amended, of the Surviving Corporation.
<PAGE>
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Phoenix
shall surrender the same to the Surviving Corporation and said shares shall
be cancelled since at the effective time of the merger, all of the issued
and outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the same shall be altered, amended and repealed
as therein provided.
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(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Georgia.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
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SIXTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Georgia. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State of
Delaware and Georgia, provided that an amendment made subsequent to the adoption
of the Agreement by the stockholders of any constituent corporation shall not
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such constituent corporation, (2)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the merger, or (3) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of such constituent
corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 16th day of December, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
PHOENIX COMMUNICATIONS, INC.
By: /s/ John P. Miller
------------------
John P. Miller, President
4
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I, Lance Fair, Secretary of Premier Graphics, Inc., a corporation organized
and existing under the laws of the State of Delaware, hereby certify, as such
Secretary that the Agreement and Plan of Merger to which this Certificate is
attached, after having been first duly signed on behalf of the said corporation
and having been signed on behalf of Phoenix Communications, Inc., a corporation
of the State of Georgia, was duly adopted pursuant to Section Section 228 of
Title 8 of the Delaware Code by the unanimous written consent of the
stockholders holding all of the issued and outstanding shares of the capital
stock of the corporation, same being of the shares issued and outstanding having
voting power, which Agreement and Plan of Merger was thereby adopted as the act
of the stockholders of said Premier Graphics, Inc., and the duly adopted
agreement and act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
I, Lance Fair, Secretary of Phoenix Communications, Inc., a corporation
organized and existing under the laws of the State of Delaware, hereby certify,
as such Secretary that the Agreement and Plan of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Premier Graphics, Inc., a
corporation of the State of Delaware, was duly adopted pursuant to 14-2-704 of
the Georgia Business Corporations Code by the unanimous written consent of the
stockholders holding all of the issued and outstanding shares of the capital
stock of the corporation, same being of the shares issued and outstanding having
voting power, which Agreement and Plan of Merger was thereby adopted as the act
of the stockholders of said Phoenix Communications, Inc., and the duly adopted
agreement and act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
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Exhibit 10.13
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 16/th/ day of December, 1997,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 14-2-1101 of the Georgia Business Corporations Code, between Premier
Graphics, Inc. ("Premier" or "Surviving Corporation"), a Delaware corporation
and King Mailing Services, Inc. ("King" or "Merged Corporation"), a Georgia
corporation (the "Agreement").
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself King and King shall be and
hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately
<PAGE>
certified as, the Certificate of Incorporation, as amended, of the Surviving
Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of King shall
surrender the same to the Surviving Corporation and said shares shall be
cancelled since at the effective time of the merger, all of the issued and
outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the
2
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same shall be altered, amended and repealed as therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Georgia.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
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<PAGE>
SIXTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Georgia. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State of
Delaware and Georgia, provided that an amendment made subsequent to the adoption
of the Agreement by the stockholders of any constituent corporation shall not
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such constituent corporation, (2)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the merger, or (3) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of such constituent
corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 16th day of December, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
John P. Miller, President
KING MAILING SERVICES, INC.
By: /s/ John P. Miller
-------------------
John P. Miller, President
4
<PAGE>
I, Lance Fair, Secretary of Premier Graphics, Inc., a corporation organized
and existing under the laws of the State of Delaware, hereby certify, as such
Secretary that the Agreement and Plan of Merger to which this Certificate is
attached, after having been first duly signed on behalf of the said corporation
and having been signed on behalf of King Mailing Services, Inc., a corporation
of the State of Georgia, was duly adopted pursuant to Section 228 of Title 8 of
the Delaware Code by the unanimous written consent of the stockholders holding
all of the issued and outstanding shares of the capital stock of the
corporation, same being of the shares issued and outstanding having voting
power, which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Premier Graphics, Inc., and the duly adopted agreement and
act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
I, Lance Fair, Secretary of King Mailing Services, Inc., a corporation
organized and existing under the laws of the State of Delaware, hereby certify,
as such Secretary that the Agreement and Plan of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Premier Graphics, Inc., a
corporation of the State of Delaware, was duly adopted pursuant to Section 14-2-
704 of the Georgia Business Corporations Code by the unanimous written consent
of the stockholders holding all of the issued and outstanding shares of the
capital stock of the corporation, same being of the shares issued and
outstanding having voting power, which Agreement and Plan of Merger was thereby
adopted as the act of the stockholders of said King Mailing Services, Inc., and
the duly adopted agreement and act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
5
<PAGE>
Exhibit 10.14
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of December 16, 1997, by
MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and WENDELL BURNS, an
individual resident in Chattanooga, Tennessee ("Burns"), and ROBERT RYMER, an
individual resident in Chattanooga, Tennessee ("Rymer")(collectively the
"Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Jones Printing Company,
Inc., a Tennessee corporation (the "Company"), for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"-KPMG Peat Marwick LLP, the Buyer's independent certified public
- -------------
accountants.
"ADJUSTMENT AMOUNT"--as defined in Section 2.5.
- -------------------
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
- ---------------------
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
- ---------------
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
- --------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
- -------
"CASH AMOUNT"-as defined in Section 2.2.
- -------------
"CLOSING"--as defined in Section 2.3.
- ---------
<PAGE>
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
- --------------
"COMPANY"--as defined in the Recitals of this Agreement.
- ---------
"COMPANY ACCOUNTANTS"-as defined in Section 2.6.
- ---------------------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
- ---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
- ---------------------------
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Promissory Note, the
Employment Agreement, the Noncompetition Agreement and the Sellers' Release;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of control over
the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
- ----------
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES"--as defined in Section 10.2.
- ---------
"EARNOUT AMOUNT"-as defined in Section 2.2.
- ----------------
"EARNOUT NOTES"-as defined in Section 2.4.
- ---------------
"EBITDA"--pre-tax income plus interest expense deducted in computing pre-tax
- --------
income, minus interest income included in pre-tax income, plus or minus any
extraordinary items of expense or income, respectively, deducted or included in
computing pre-tax income, plus or minus any losses or gains from the sale of
capital assets, respectively, deducted or included in computing pre-tax income,
plus depreciation and amortization deducted in computing pre-tax income, all as
determined in accordance with GAAP. In computing pre-tax income one-third (1/3)
of the Net Value Added shall be included in the originating division's pre-tax
income.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(iii).
- -----------------------
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
- -------------
equitable interest, lien,
2
<PAGE>
option, pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
- -------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
- -----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including on-
site or off-site contamination, occupational safety and health, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
- -------------------
(a) advising appropriate authorities, employees, and the public of intended or
actual releases of pollutants or hazardous substances or materials, violations
of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated;
3
<PAGE>
(d) assuring that products are designed, formulated, packaged, and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
- -------
law, and regulations and rules issued pursuant to that Act or any successor law.
"FIXED NOTE AMOUNT"-as defined in Section 2.2.
- -------------------
"FIXED NOTES"-as defined in Section 2.4.
- -------------
"FACILITIES"--any real property, leaseholds, or other interests currently or
- ------------
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"GAAP"--generally accepted accounting principles, applied on a basis consistent
- ------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4(b) were prepared.
"GUARANTIES"--as defined in Section 2.4(b)(ii).
- ------------
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
- ----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
- -------------------
(a) nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency,
4
<PAGE>
branch, department, official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
- --------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
- ---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INDEBTEDNESS"-as defined in Section 2.2(a)(ii).
- --------------
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
- ------------------------------
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
- -----------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
- -----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
- -----
to the extent relevant, the United States Department of the Treasury.
"JONES PRINTING DIVISION"-contemporaneous with the acquisition of the Company it
- -------------------------
will be merged into Premier. After the merger the Company will be operated as
the Jones Printing Division.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
- -----------
fact or other matter if such individual is actually aware of such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
5
<PAGE>
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
- -------------------
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"NET VALUE ADDED"-the Value Added from orders where the sale is generated by the
- -----------------
Jones Printing Division and the work is performed by a separate division of
Premier less the Value Added from orders where the sale is generated by a
separate division of Premier and the work is performed by the Jones Printing
Division; provided, however, in no event shall the Net Value Added be less than
zero.
"NONCOMPETITION AGREEMENT"--as defined in Section 2.4(a)(iv).
- --------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
- ------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
- -------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
- -----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority);
and
(c) such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
- --------------------------
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
- --------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
6
<PAGE>
"PLAN"--as defined in Section 3.13.
- ------
"PREMIER"-Premier Graphics, Inc., a Delaware corporation which is wholly owned
- ---------
by Buyer.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
- ------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROMISSORY NOTES"-the Earnout Notes and the Fixed Notes.
- ------------------
"RELATED PERSON"--with respect to a particular individual:
- ----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual or
one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a general
partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse [and former spouses], (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting
7
<PAGE>
interests representing at least 20% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least 20% of the
outstanding equity securities or equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
- ---------
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
- ----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
- ----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
- ---------
"SELLERS' RELEASES"--as defined in Section 2.4.
- -------------------
"SHARES"--as defined in the Recitals of this Agreement.
- --------
"STOCK PURCHASE WARRANTS"-as defined in Section 2.4(b)(iii).
- -------------------------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
- ------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
- ------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
- -------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
- ------------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other
8
<PAGE>
matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future.
"VALUE ADDED"-revenue generated from a particular job less the cost of paper,
- -------------
film plates, all direct material costs and outside services associated with such
job.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE
(a) The purchase price (the "Purchase Price") for the Shares will be equal to:
(i) the sum of:
(A) $6,000,000; plus
(B) the sum of:
(1) the first $150,000 of the EBITDA over $1,200,000 for the
Jones Printing Division for each of the calendar years 1998, 1999
and 2000; and
(2) to the extent EBITDA of the Jones Printing Division exceeds
$1,350,000, 10% of such excess EBITDA for each of the calendar
years 1998, 1999 and 2000 (the "Earnout Amount"); minus
(ii) the amount of the indebtedness of the Company as of the Closing Date
which is identified on Schedule 2.2(a)(ii) (the "Indebtedness"); plus or
minus
(iii) the Adjustment Amount.
(b) Of the Purchase Price:
(i) $4,750,000 less the sum of (A) the amount of the Indebtedness of the
Company as of the Closing Date, and (B) the face amount of the note
receivable from Knotch Bradley will be paid in cash (the "Cash Amount") at
Closing;
(ii) $1,250,000 (the "Fixed Note Amount") will be paid pursuant to the
Fixed Notes (as defined in Clause 2.4(b)(ii); and
(iii) the Earnout Amount will be paid pursuant to the Earnout Notes (as
defined in Clause
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<PAGE>
2.4(b)(iii).
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, at 530 Oak Court
Drive, Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on December 16,
1997, or at such other time and place as the parties may agree. Subject to the
provisions of Section 9, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock powers) for transfer to Buyer;
(ii) a release in the form of Exhibit 2.4(a)(ii) executed by each Seller (the
"Sellers' Releases");
(iii) an employment agreement in the form of Exhibit 2.4(a)(iii), executed by
each Seller (the "Employment Agreements");
(iv) a noncompetition agreement in the form of Exhibit 2.4(a)(iv), executed by
Burns (the "Noncompetition Agreement"); and
(v) a certificate executed by Sellers representing and warranting to Buyer that
each of Sellers' representations and warranties in this Agreement was accurate
in all material respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date; and
(b) Buyer will deliver to Sellers:
(i) the Cash Amount, by wire transfer to accounts specified by Sellers;
(ii) promissory notes ("Fixed Notes") in the form of Exhibit 2.4(b)(ii)(A)
aggregating to the Fixed Notes Amount which will be personally guaranteed by
John P. Miller pursuant to guaranty agreements in the form of Exhibit
2.4(b)(ii)(B) (the "Guaranties");
(iii) promissory notes ("Earnout Notes") in the form of Exhibit 2.4(b)(iii);
(iv) stock purchase warrants in the form of Exhibit 2.4 (b)(iv) executed by
Buyer and John P. Miller
10
<PAGE>
(the "Stock Purchase Warrants");
(v) the note receivable from Knotch Bradley duly endorsed to the order of
Sellers;
(vi) a certificate executed by Buyer to the effect that, except as otherwise
stated in such certificate, each of Buyer's representations and warranties in
this Agreement is accurate in all material respects as of the Closing Date as if
made on the Closing Date; and
(vii) the Employment Agreements, executed by Buyer.
2.5 ADJUSTMENT AMOUNT
In the event the stockholders' equity of the Company as of the Closing Date
determined in accordance with GAAP is either less than $2,115,162 or more than
$2,585,198, the Adjustment Amount will be equal to the amount by which the
stockholders' equity of the Company as of the Closing Date determined in
accordance with GAAP is less than $2,115,162 or more than $2,585,198, as the
case may be. In the event the stockholders' equity of the Company as of the
Closing Date determined in accordance with GAAP is equal to or greater than
$2,115,162 but not greater than $2,585,198, there will be no Adjustment Amount.
For purposes of calculating the stockholders' equity of the Company as of the
Closing Date the bad debt reserve shall be deemed to be $290,771.
2.6 ADJUSTMENT PROCEDURE
(a) Buyer and Sellers will jointly prepare financial statements ("Closing
Financial Statements") of the Company as of the Closing Date and for the period
from the date of the Balance Sheet through the Closing Date, including a
computation of stockholders' equity as of the Closing Date. Buyer and Sellers
agree to complete the Closing Financial Statements within sixty days after the
Closing Date. If within thirty days following completion of the Closing
Financial Statements, neither Buyer nor Sellers have objected to the Closing
Financial Statements (such objection must contain a statement of the basis of
the objection), then the stockholders' equity reflected in the Closing Financial
Statements will be used in computing the Adjustment Amount. If Buyer or Sellers
give notice of objection, or if Buyer and Sellers are unable to agree on how
the Closing Financial Statements should be prepared, then the issues in dispute
will be submitted to the Accountants and the independent certified public
accountants utilized by the Company (the "Company Accountants") for resolution.
If issues in dispute are submitted to the Accountants and the Company
Accountants for resolution, (i) each party will furnish to the respective
accounting firms such workpapers and other documents and information relating to
the disputed issues as the respective accounting firms may request and are
available to that party (or its independent public accountants), and will be
afforded the opportunity to present to the respective accounting firms any
material relating to the determination and to discuss the determination with the
respective accounting firms; (ii) the determination by the two accounting firms,
as set forth in a notice delivered to both parties by the two accounting firms,
will be binding and conclusive on the parties; and (iii) Buyer and Sellers will
each bear 50% of the fees of the two accounting firms for such determination.
In the event the two accounting firms are unable to agree on how the Closing
Financial Statements should be prepared then the issues and dispute will be
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submitted to a third accounting firm chosen by the Accountants and the Company
Accountants for resolution. The determination by the third accounting firm will
be binding and conclusive on the parties. Buyer and Sellers will each bear 50%
of the fees of the third accounting firm for such determination.
(b) On the tenth business day following the final determination that there is an
Adjustment Amount and the amount of the Adjustment Amount, Sellers will pay the
amount of the Adjustment Amount to Buyer. Payments to Buyer must be made by
wire transfer to such bank account as Buyer will specify.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. The Company
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents of
the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Employment Agreements, the Sellers'
Releases, and the Noncompetition Agreements (collectively, the "Sellers' Closing
Documents"), the Sellers' Closing Documents will constitute the legal, valid,
and binding obligations of Sellers, enforceable against Sellers in accordance
with their respective terms. Sellers have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Sellers' Closing Documents and to perform his obligations under this Agreement
and the Sellers' Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any provision of
the Organizational Documents of the Company, or (B) any resolution adopted by
the board of directors or the
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stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or Sellers, or any of the assets
owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by the Company or that otherwise relates to the business of, or any of the
assets owned or used by, the Company;
(iv) cause any of the assets owned by the Company to be reassessed or revalued
by any taxing authority or other Governmental Body;
(v) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.
To Sellers' Knowledge and except as set forth in Schedule 3.2, neither Sellers
nor the Company are or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(c) Sellers are acquiring the Promissory Notes for their own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 2000 shares of common
stock, no par value, of which 76 shares are issued and outstanding and
constitute the Shares and 98,000 shares of Preferred Stock none of which shares
are issued and outstanding. Sellers are and will be on the Closing Date the
record and beneficial owners and holders of the Shares, free and clear of all
Encumbrances. No legend or other reference to any purported Encumbrance appears
upon any certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
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3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) unaudited (or audited if available) balance
sheets of the Company as of December 31 in each of the years 1994 through 1996,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flow for each of the fiscal years then ended (the December 31,
1996 balance sheet of the Company shall hereinafter be referred to as the
"Balance Sheet"), (b) an unaudited balance sheet of the Company as of October 31
(the "Interim Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity, and cash flow for the ten months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Company as at the respective dates of
and for the periods referred to in such financial statements, all in accordance
with GAAP, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the Balance
Sheet); the financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements. No
financial statements of any Person other than the Company are required by GAAP
to be included in the financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company, and no
meeting of any such stockholders, Board of Directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be in the possession
of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by the Company. Other than as shown
on Schedule 3.6, the Company owns (with good and marketable title in the case of
real property, subject only to the matters permitted by the following sentence)
all the properties and assets (whether real, personal, or mixed and whether
tangible or intangible) that they purport to own located in the facilities owned
or operated by the Company or reflected as owned in the books and records of the
Company, including all of the properties and assets reflected in the Balance
Sheet and the Interim Balance Sheet (except for assets held under capitalized
leases disclosed or not required to be disclosed in Schedule 3.6 and personal
property sold since the date of the Balance Sheet and the Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the Company since the
date of the Balance Sheet (except for personal property acquired and sold since
the date of
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the Balance Sheet in the Ordinary Course of Business and consistent with past
practice), which subsequently purchased or acquired properties and assets (other
than inventory and short-term investments) are listed in Schedule 3.6. Except
for matters disclosed on the surveys prepared by David W. Barnes dated December
12, 1997 or on the title commitment issued by Lawyer's Title Insurance
Corporation dated November 9, 1997, all material properties and assets reflected
in the Balance Sheet and the Interim Balance Sheet are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Balance Sheet or the
Interim Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance Sheet (such mortgages and security interests being limited
to the property or assets so acquired), with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, and (d) with respect to real
property, (i) minor imperfections of title, if any, none of which is substantial
in amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company, and (ii) zoning laws
and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are in normal
operating condition and repair, and are adequate for the uses to which they are
being put, and to Sellers' Knowledge none of such buildings, plants, structures,
or equipment is in need of substantial deferred maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost.
3.8 [INTENTIONALLY OMITTED]
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Balance Sheet or
the Interim Balance Sheet, consists of a quality and quantity usable and salable
in the Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date, as the case may be.
All inventories not written off have been priced at the lower of cost or net
realizable value on a first in, first out basis. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
To Sellers' Knowledge and except as set forth in Schedule 3.10, the Company has
no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet
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or the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since 1994)
all Tax Returns that are or were required to be filed by it pursuant to
applicable Legal Requirements. Sellers have delivered or made available to Buyer
copies of, and Schedule 3.11 contains a complete and accurate list of, all such
Tax Returns relating to income or franchise taxes filed since 1994. The Company
has paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by Sellers or the Company, except such Taxes, if any, as are
listed in Schedule 3.11 and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
Balance Sheet and the Interim Balance Sheet.
(b) Schedule 3.11 contains a complete and accurate list of all audits of all
such Tax Returns, including a reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in Schedule 3.11, are
being contested in good faith by appropriate proceedings. Schedule 3.11
describes all adjustments to the United States federal income Tax Returns filed
by the Company for all taxable years since 1994, and the resulting deficiencies
proposed by the IRS. Except as described in Schedule 3.11, neither the Sellers
nor the Company has given or been requested to give waivers or extensions (or is
or would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of the Company or for
which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the books of
the Company are adequate (determined in accordance with GAAP) and are at least
equal to the Company's liability for Taxes. There exists no proposed tax
assessment against the Company except as disclosed in the Balance Sheet or in
Schedule 3.11. No consent to the application of Section 341(f)(2) of the IRC has
been filed with respect to any property or assets held, acquired, or to be
acquired by the Company. All Taxes that the Company is or was required by Legal
Requirements to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete in all material respects. There is no
tax sharing agreement that will require any payment by the Company after the
date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, to Sellers' Knowledge, other than ordinary
business and market conditions, there has not been any material adverse change
in the business, operations, properties, prospects, assets, or condition of the
Company, and no event has occurred or circumstance exists that
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may result in such a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all pension,
retirement, stock option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, incentive, welfare
or any other contracts, plans or arrangements providing for employee
compensation or benefits (the "Plans"), and all trust agreements relating
thereto, to which the Company is a party or to which the Company contributes or
by which it is bound. Copies of each of the foregoing have been or promptly will
be furnished or made available to Purchaser. The only Plans which individually
or collectively would constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA are identified in Schedule 3.13, and are hereinafter
referred to as the "Pension Plans." No Plan constitutes a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
(b) Each Plan that is intended to be qualified under Section 401(a) of the Code
is so qualified, and each trust forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. Copies of all Internal Revenue Service
determination letters and audit reports relating to such Plans have been or
promptly will be provided to Purchaser. Requests for determination letters
relating to amendments required to cause such Plans to be in compliance with the
Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of
1984, and the Retirement Equity Act of 1984, were timely filed and have been
received or are currently pending.
(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, that are applicable to such
Plans. No "accumulated funding deficiency" within the meaning of ERISA has been
incurred with respect to any Pension Plan, whether or not waived. No reportable
event (as described in Section 4043(b) of ERISA) has occurred with respect to
any Plan. No Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction" as such term is
defined in Section 4975 of the Code, which could subject such Plans or any of
them, any such trust, or any such trustee or administrator thereof, or any party
dealing with such employee benefit plans or any such trust, to any tax or
penalty on prohibited transactions imposed by such Section 4975; as of the date
of this Agreement, the fair market value of the assets of any Pension Plan that
is subject to Title IV of ERISA (excluding for these purposes any accrued but
unpaid contributions) exceeded the present value of all benefits accrued under
any such Plan, determined on a termination basis using the assumptions
established by the Pension Benefit Guaranty Corporation ("PBGC") as in effect on
such date. The Company has not incurred any liability under Title IV of ERISA
arising in connection with the termination of, or complete or partial withdrawal
from, any plan covered or previously covered by Title IV of ERISA.
(d) All contributions and payments accrued under each Plan, determined in
accordance with prior funding and accrual practices as adjusted to the extent
required to include proportional contribution and payment accruals for the
period from the last funding date to the Closing Date, will be discharged and
paid on or prior to the Closing Date except to the extent that any such amount
is recorded as a
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liability on either the Interim Balance Sheet. Except as set forth in Schedule
3.13, there has been no amendment to, written interpretation or announcement
(whether or not written) relating to, or change in employee participation or
coverage under any Plan that would increase materially the expense of
maintaining such Plan above the level of expense incurred in respect thereof for
the preceding fiscal year.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.14:
(i) to Sellers' Knowledge the Company is, and at all times has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;
(ii) to Sellers' Knowledge no event has occurred or circumstance exists that
(with or without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of the Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature; and
(iii) the Company has not received any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Schedule 3.14 contains a complete and accurate list of each Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or to any of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be listed in Schedule 3.14 is
valid and in full force and effect. Except as set forth in Schedule 3.14:
(i) to Sellers' Knowledge the Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 3.14;
(ii) to Sellers' Knowledge no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be listed in Schedule
3.14, or (B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in Schedule 3.14;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or
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written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Governmental Authorization;
and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 3.14
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.14 collectively constitute
all of the Governmental Authorizations necessary to permit the Company to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit the Company to own and use its assets
in the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against the Company or that otherwise relates
to or may affect the business of, or any of the assets owned or used by, the
Company; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Sellers and the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Sellers
have delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 3.15. The Proceedings
listed in Schedule 3.15 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
(b) Except as set forth in Schedule 3.15:
(i) there is no Order to which any of the Acquired Companies, or any of the
assets owned or used by the Company, is subject;
(ii) no Seller is subject to any Order that relates to the business of, or any
of the assets owned or used by, the Company; and
(iii) to the Knowledge of Sellers and the Company, no officer, director, agent,
or employee of the Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company.
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(c) Except as set forth in Schedule 3.15:
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is subject; and
(iii) the Company has not received at any time any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which the Company, or
any of the assets owned or used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Balance Sheet, the
Company has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the Company,
taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $25,000;
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(g) sale (other than sales in the Ordinary Course of Business), lease, or other
disposition of any asset or property of the Company or mortgage, pledge, or
imposition of any lien or other encumbrance on any material asset or property of
the Company, including the sale, lease, or other disposition of any of the
Intellectual Property Assets;
(h) material change in the accounting methods used by the Company; or
(i) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers have
delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in excess of
$10,000;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in excess of
$10,000;
(iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of the Company in excess
of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract to or
with any labor union or other employee representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way purport to
restrict the business activity of the Company or any Affiliate of the Company or
limit the freedom of the Company or any Affiliate of the Company to engage in
any line of business or to compete with any Person;
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(ix) each Applicable Contract providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments for goods;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract for capital expenditures in excess of $10,000;
(xii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by the Company other than in the
Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.
Schedule 3.17(a) sets forth information adequate to identify such Contracts,
including the date and parties to the Contracts, and the Company's office where
details relating to the Contracts are located.
(b) [Intentionally Deleted]
(c) Except as set forth in Schedule 3.17(c), each Contract identified or
required to be identified in Schedule 3.17(a) is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.17(d):
(i) to Sellers' Knowledge the Company is, and at all times has been, in full
compliance with all applicable terms and requirements of each Contract under
which the Company has or had any obligation or liability or by which the Company
or any of the assets owned or used by the Company is or was bound;
(ii) to Sellers' Knowledge each other Person that has or had any obligation or
liability under any Contract under which the Company has or had any rights is,
and at all times has been, in full compliance with all applicable terms and
requirements of such Contract;
(iii) to Sellers' Knowledge no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Company or other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(iv) the Company has not given to or received from any other Person at any time
any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company under
current or completed Contracts with any Person and, to the Knowledge of Sellers
and the Company, no such Person has made written demand for such renegotiation.
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3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies of
insurance; and
(iii) any statement by the auditor of the Company's financial statements with
regard to the adequacy of such entity's coverage or of the reserves for claims.
(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement by or affecting the Company, including any
reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to insurance
(including such obligations under leases and service agreements) and identifies
the policy under which such coverage is provided.
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and each
of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for an amount
in excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and period of
coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-
insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 3.18(d):
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(i) All policies to which the Company is a party or that provide coverage to
either Sellers, the Company, or any director or officer of the Company are
valid, outstanding, and enforceable;
(ii) Neither Sellers nor the Company have received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise performed all of
their respective obligations, under each policy to which the Company is a party
or that provides coverage to the Company or director thereof.
(iv) The Company has given notice to the insurer of all claims that may be
insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.19 and the Phase I Environmental Report
obtained by Buyer:
(a) To Sellers' Knowledge the Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. Neither Sellers nor the Company have any basis to expect,
nor has either of them or any other Person for whose conduct they are or may be
held to be responsible received, any actual or Threatened order, notice, or
other communication from (i) any Governmental Body or private citizen acting in
the public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or the Company have had an interest, or
with respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Sellers, the Company, or any other Person for whose conduct they are or may be
held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and the Company,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which Sellers or the Company have or had an interest.
(c) Neither Sellers nor the Company have Knowledge of any basis to expect, nor
has either of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or potential obligation
to undertake
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or bear the cost of any Environmental, Health, and Safety Liabilities with
respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Sellers or the Company had an interest, or
with respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) To Sellers' Knowledge neither Sellers nor the Company, or any other Person
for whose conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or, to the
Knowledge of Sellers and the Company, with respect to any other properties and
assets (whether real, personal, or mixed) in which Sellers or the Company (or
any predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) To Sellers' Knowledge there are no Hazardous Materials present on or in
the Environment at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in barrels,
above or underground storage tanks, landfills, land deposits, dumps, equipment
(whether moveable or fixed) or other containers, either temporary or permanent,
and deposited or located in land, water, sumps, or any other part of the
Facilities or such adjoining property, or incorporated into any structure
therein or thereon. To the Knowledge of Sellers, neither Sellers, the Company,
nor any other Person for whose conduct they are or may be held responsible, any
other Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Sellers or the Company has or had an
interest except in full compliance with all applicable Environmental Laws.
(f) To Sellers' Knowledge there has been no Release or Threat of Release, of
any Hazardous Materials at or from the Facilities or at any other locations
where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real, personal, or mixed)
in which Sellers or the Company has or had an interest, or to the Knowledge of
Sellers and the Company any geologically or hydrologically adjoining property,
whether by Sellers, the Company, or any other Person.
(g) Sellers have delivered to Buyer true and complete copies and results of
any reports, studies, analyses, tests, or monitoring possessed or initiated by
Sellers or the Company pertaining to Hazardous Materials or Hazardous Activities
in, on, or under the Facilities, or concerning compliance by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Schedule 3.20 contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status:
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employer; name; job title; current compensation paid or payable and any change
in compensation since January 1, 1997; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under the Company's
pension, retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan.
(b) To Sellers' Knowledge no employee or director of the Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee or director and any other Person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of his duties as
an employee or director of the Acquired Companies, or (ii) the ability of the
Company to conduct its business, including any Proprietary Rights Agreement with
Sellers or the Company by any such employee or director. To Sellers' Knowledge,
no director, officer, or other key employee of the Company intends to terminate
his employment with the Company.
(c) Schedule 3.20 also contains a complete and accurate list of the following
information for each retired employee or director of the Company, or their
dependents, receiving benefits or scheduled to receive benefits in the future:
name, pension benefit, pension option election, retiree medical insurance
coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1997, there has not been, there is not presently pending or
existing, and to Sellers' Knowledge there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, or (b) any
Proceeding against or affecting the Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting the Company or their premises. To
Sellers' Knowledge no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by the Company, and no such action is contemplated by
the Company. To Sellers' Knowledge the Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. To Sellers' Knowledge the Company is not liable for
the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
----------------------------
includes:
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(i) the name Jones Printing Company, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all copyrights in both published works and unpublished works
(collectively, "Copyrights"); and
(iii) all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and
blue prints (collectively, "Trade Secrets"); owned, used, or licensed by the
Company as licensee or licensor.
(b) Agreements--Schedule 3.22(b) contains a complete and accurate list and
----------
summary description, including any royalties paid or received by the Company, of
all Contracts relating to the Intellectual Property Assets to which the Company
is a party or by which the Company is bound, except for any license implied by
the sale of a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $5,000 under which the Company is
the licensee. There are no outstanding and, to Sellers' Knowledge, no
Threatened disputes or disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business-- The Intellectual Property Assets are
-----------------------------------
all those necessary for the operation of the Company's business as it is
currently conducted. The Company has the legal right to use such Intellectual
Property Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and without payment to a third
party.
(d) Trademarks-- The Company has no registered Marks.
----------
(e) Copyrights-- The Company owns no Copyrights.
----------
3.23 CERTAIN PAYMENTS
Since January 1, 1991, neither the Company nor any director, officer, agent, or
employee of the Company, or to Sellers' Knowledge any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any Affiliate of the Company, or (iv) in violation
of any Legal Requirement, (b) established or maintained any fund or asset that
has not been recorded in the books and records of the Company.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement omits to state
a material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
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(b) No notice given pursuant to Section 5.5 will contain any untrue statement
or omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Neither Sellers nor any Related Person of Sellers or of the Company has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company except for less than
one percent of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Except as set forth in Schedule 3.25, neither Sellers nor any Related Person of
Sellers or of the Company is a party to any Contract with, or has any claim or
right against, the Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware..
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, and the Promissory
Notes (collectively, the "Buyer's Closing Documents"), the Buyer's Closing
Documents will constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms. Buyer has
the absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and the Buyer's Closing Documents and to perform its obligations
under this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery of
this Agreement by Buyer, nor the consummation or performance of any of the
Contemplated Transactions by Buyer, will
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give any Person the right to prevent, delay, or otherwise interfere with any of
the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
4.6 FINANCIAL STATEMENTS
Buyer has, or will, deliver to Sellers an unaudited consolidated balance sheet
and income statement of Buyer as of October 31, 1997, and the unaudited balance
sheet of Premier as of September 30, 1997. Such financial statements and notes
fairly present the financial condition and the results of operations of the
Buyer as of the applicable dates. No financial statements of any Person other
than the Buyer are required by GAAP to be included in the financial statements
of the Buyer.
4.7 NO UNDISCLOSED LIABILITIES
To Buyer's Knowledge, neither Buyer nor Premier has any liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for
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liabilities or obligations reflected or reserved against in the September 30,
1997 balance sheet of Premier and the October 31, 1997 balance sheet of the
Company, and current liabilities incurred in the Ordinary Course of Business
since September 30, 1997 and October 31, 1997, respectively.
4.8 NO MATERIAL ADVERSE CHANGE
Since September 30, 1997, to Buyer's Knowledge, other than ordinary business and
market conditions, there has not been any material adverse change in the
business, operations, properties, prospects, assets, or condition of the Buyer,
and no event has occurred or circumstance exists that may result in such a
material adverse change.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request. Between the date of this Agreement and the Closing
Date, Buyer will, and will cause Premier and its Representatives to, (a) afford
Sellers and their Representatives (collectively, "Sellers' Advisors") full and
free access to Buyer's and Premier's personnel, properties, contracts, books and
records, and other documents and data, (b) furnish Sellers and Sellers' Advisors
with copies of all such contracts, books and records, and other existing
documents and data as Sellers may reasonably request, and (c) furnish Seller and
Sellers' Advisors with such additional financial, operating, and other data and
information as Sellers may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use their best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material nature; and
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(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
Notwithstanding the foregoing, the Company shall have the right to pay prior to
Closing the amounts owed Kay Burns under that certain promissory note in the
original principal amount of $40,000.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Sellers will promptly
notify Buyer in writing if Sellers or the Company become aware of any fact or
condition that causes or constitutes a Breach of any of Sellers' representations
and warranties as of the date of this Agreement, or if Sellers or the Company
become aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Sellers will promptly notify
Buyer of the occurrence of any Breach of any covenant of Sellers in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by Sellers or any Related Person of Sellers to
be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause the Company and each of their Representatives
not to, directly or indirectly solicit, initiate,
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or encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
best efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will, and will
cause each Related Person to, cooperate with Sellers with respect to all filings
that Sellers are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or
to incur any other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Buyer will use its best efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.3 NEGOTIATION OF NEW LEASES
Immediately upon execution of this Agreement, Buyer agrees to enter into good
faith negotiations with Commercial Properties, the owner of the properties at
which the Company operates, for a multi-year lease for such properties with such
lease containing terms and conditions similar to the leases currently in effect.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
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(a) All of Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
(b) Each of Sellers' representations and warranties in Sections 3.3, 3.4, 3.12,
and 3.24 must have been accurate in all respects as of the date of this
Agreement, and must be accurate in all respects as of the Closing Date as if
made on the Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered, and each of the other covenants and obligations in Sections 5.4
and 5.8 must have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents of Schedule 3.2, and each Consent identified in Schedule
4.2, must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Baker, Donelson, Bearman & Caldwell, dated the Closing Date,
in the form of Exhibit 7.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of (i)
enabling its counsel to provide the opinion referred to in Section 8.4(a), (ii)
evidencing the accuracy of any of Sellers' representations and warranties, (iii)
evidencing the performance by Sellers of, or the compliance by Sellers with, any
covenant or obligation required to be performed or complied with by Sellers,
(iv) evidencing the satisfaction of any condition referred to in this Section 7,
or (v) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the
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Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
7.8 EXECUTION OF NEW LEASES
Buyer shall have entered into new multi-year leases for the properties at which
the Company currently operates, with such leases containing terms and conditions
acceptable to Buyer.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to
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Section 2.4 and must have made the cash payments required to be made by Buyer
pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 must have been obtained and must
be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers:
(a) an opinion of Black Bobango & Morgan, A Professional Corporation, dated the
Closing Date, in the form of Exhibit 8.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose of
(i) enabling their counsel to provide the opinion referred to in Section 7.4(a),
(ii) evidencing the accuracy of any representation or warranty of Buyer, (iii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (ii)
evidencing the satisfaction of any condition referred to in this Section 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
(c) this Agreement, the Employment Agreements, the Lease referenced in Paragraph
6.3 and all other documents required to be delivered by Buyer pursuant to
Section 2.4 shall have been executed by all parties thereto.
(d) any guaranty or other personal obligation of either Seller on or with
respect to any indebtedness of the Company shall have been terminated.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
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(b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date; or
(c) by mutual consent of Buyer and Sellers.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the certificate delivered pursuant to Section 2.4(a)(v), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers will severally, based upon the relative number of Shares sold by each
Seller, indemnify and hold harmless Buyer, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
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(a) any Breach of any representation or warranty made by Sellers in this
Agreement, or any other certificate or document delivered by Sellers pursuant to
this Agreement;
(b) any Breach of any representation or warranty made by Sellers in this
Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by Sellers of any covenant or obligation of Sellers in this
Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either Sellers or the Company (or any Person acting
on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
The remedies provided in the Section 10.3 will not be exclusive of or limit any
other remedies that may be available to Sellers or the other Indemnified
Persons.
10.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or before the second
anniversary of the Closing Date Buyer notifies Sellers of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer. A claim with respect to Section 3.3 may be made at any time. A claim
with respect to Section 3.11 may be made at any time within the applicable
statutes of limitation. A claim with respect to Section 3.13 may be made only
on or before the third anniversary of the Closing. A claim with respect to
Section 3.19 may be made only on or before the fifth anniversary of the Closing.
If the Closing occurs, Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
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obligation to be performed and complied with prior to the Closing Date, unless
on or before second anniversary of the Closing Date Sellers notify Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
10.5 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with respect
to the matters described in clause (a), clause (b) or, to the extent relating to
any failure to perform or comply prior to the Closing Date, clause (c) of
Section 10.2 until the total of all Damages with respect to such matters exceeds
$25,000, and then only for the amount by which such Damages exceed $25,000.
Buyer's right to recovery against each Seller under this Agreement or otherwise
will be limited to the amount of the Purchase Price received by such Seller;
however, this Section 10.5 will not apply to any Breach of any of Sellers'
representations and warranties of which Sellers had Knowledge at any time prior
to the date on which such representation and warranty is made and knowingly did
not disclose such Breach to Buyer or any intentional Breach by Sellers of any
covenant or obligation, and Sellers will be liable for all Damages with respect
to such Breaches.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $25,000, and then only for the
amount by which such Damages exceed $25,000. However, this Section 10.6 will
not apply to any Breach of any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such Breaches.
10.7 OBLIGATION OF SET-OFF
Upon a final non-appealable judicial determination (or the expiration of any
applicable appeal period and the failure to appeal during such period) or
agreement of the parties that amounts are due Buyer under this Section 10, Buyer
will be obligated to first set off any amount to which it may be entitled under
this Section 10 against amounts otherwise payable under the Promissory Notes.
The set-off by Buyer of amounts due, will not constitute an event of default
under the Promissory Notes or any instrument securing the Promissory Notes.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3,
or of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
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(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) Sellers' responsibilities with respect to the Company's accounts receivable
are as described in
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Section 3.8 and this Section 10.11. On May 31, 1998 the aggregate amounts owed
under the Fixed Notes shall be reduced by the excess of the then outstanding
balances of all accounts receivable of the Company that existed as of November
30, 1997 (excluding the Knotch Bradley note transferred to Sellers) over an
assumed reserve for bad debts of $290,771 (without any reduction in the bad debt
reserve as a result of transferring the Knotch Bradley to Sellers).
(b) Buyer shall cause ownership accounts receivable equal to the amount of the
reduction of the Fixed Notes to be transferred to Sellers. The actual accounts
receivables transferred to Sellers shall be the receivables which have been
outstanding for the longest period of time. For purposes of this Section
payments received after Closing from obligors of the accounts receivable
referred to in Clause (a) above shall be applied first towards satisfaction of
such accounts receivable unless designated otherwise by the account debtor.
11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Sellers will cause the Company not to incur any out-
of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Sellers and Buyer mutually agree. Unless consented to by all
parties hereto in advance or required by Legal Requirements, prior to the
Closing the parties shall, and shall cause the Company to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. Sellers and Buyer will consult with each other concerning the means by
which the Company' employees, customers, and suppliers and others having
dealings with the Company will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the Company to maintain in confidence, and not
use to the detriment of another party or the Company any written, oral, or other
information obtained in confidence from another party or the Company in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information
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becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings, or (d) the
furnishing of such information by Buyer to lenders or other institutions
providing financial accommodations to Buyer.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Company to waive, any cause of action, right, or claim
arising out of the access of Buyer or its representatives to any trade secrets
or other confidential information of the Company except for the intentional
competitive misuse by Buyer of such trade secrets or confidential information.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Sellers: Wendell H. Burns
Robert M. Rymer
1907 Crutchfield Street
Chattanooga, Tennessee 37406
Facsimile No.: (423) 622-9084
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Ken Beckman
Facsimile No.: (423) 756-3447
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
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Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan
Facsimile No.: (901) 683-2553
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Tennessee, County of Shelby, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western
District of Tennessee, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
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11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent between Buyer and Sellers
dated October 6, 1997) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee without
regard to conflicts of laws principles.
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11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: MASTER GRAPHICS, INC. SELLERS:
By: /s/ John P. Miller /s/ Wendell Burns
------------------ -----------------
Wendell Burns
Its: President
/s/ Robert Rymer
----------------
Robert Rymer
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Exhibit 10.15
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 16th day of December, 1997,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 48-21-102 of the Tennessee Code Annotated, between Premier Graphics,
Inc. ("Premier" or "Surviving Corporation"), a Delaware corporation and Jones
Printing Company, Inc. ("Jones" or "Merged Corporation"), a Tennessee
corporation (the "Agreement").
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself Jones and Jones shall be and
hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately
<PAGE>
certified as, the Certificate of Incorporation, as amended, of the Surviving
Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Jones shall
surrender the same to the Surviving Corporation and said shares shall be
cancelled since at the effective time of the merger, all of the issued and
outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on the
effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the
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same shall be altered, amended and repealed as therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Tennessee.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
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SIXTH: Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Tennessee. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State of
Delaware and Tennessee, provided that an amendment made subsequent to the
adoption of the Agreement by the stockholders of any constituent corporation
shall not (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such constituent
corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the merger, or (3) alter or change
any of the terms and conditions of the Agreement if such alteration or change
would adversely affect the holders of any class or series thereof of such
constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 16th day of December, 1997.
PREMIER GRAPHICS, INC.
By:/s/ John P.Miller
-----------------
John P. Miller, President
JONES PRINTING COMPANY, INC.
By:/s/ John P.Miller
-----------------
John P. Miller, President
4
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I, Lance Fair, Secretary of Premier Graphics, Inc., a corporation organized
and existing under the laws of the State of Delaware, hereby certify, as such
Secretary that the Agreement and Plan of Merger to which this Certificate is
attached, after having been first duly signed on behalf of the said corporation
and having been signed on behalf of Jones Printing Company, Inc., a corporation
of the State of Tennessee, was duly adopted pursuant to Section 228 of Title 8
of the Delaware Code by the unanimous written consent of the stockholders
holding all of the issued and outstanding shares of the capital stock of the
corporation, same being of the shares issued and outstanding having voting
power, which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Premier Graphics, Inc., and the duly adopted agreement and
act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
I, Lance Fair, Secretary of Jones Printing Company, Inc., a corporation
organized and existing under the laws of the State of Delaware, hereby certify,
as such Secretary that the Agreement and Plan of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Premier Graphics, Inc., a
corporation of the State of Delaware, was duly adopted pursuant to Section
48-17-104 of the Tennessee Code Annotated by the unanimous written consent of
the stockholders holding all of the issued and outstanding shares of the capital
stock of the corporation, same being of the shares issued and outstanding having
voting power, which Agreement and Plan of Merger was thereby adopted as the act
of the stockholders of said Jones Printing Company, Inc., and the duly adopted
agreement and act of the said corporation.
WITNESS my hand on this 16th day of December, 1997.
/s/ Lance Fair
--------------
Secretary
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Exhibit 10.16
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 1, 1998, by
MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and H. HENRY HEDERMAN,
an individual resident of Jackson, Mississippi, H. HENRY HEDERMAN, JR., an
individual resident in Jackson, Mississippi, and MARTHA DEAN HEDERMAN, as
trustee of the H. Henry Hederman Grandchild Trust No. 1 U/A dated 12/31/87 and
the H. Henry Hederman Grandchild Trust No. 2 U/A dated 12/31/87 (collectively
the "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Hederman Brothers, Inc, a
Mississippi corporation (the "Company"), for the consideration and on the terms
set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"-KPMG Peat Marwick LLP, the Buyer's independent certified public
- -------------
accountants.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
- ---------------------
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
- ---------------
"BLACKWELL DIVISION"-the operating division of Premier formally known as
- --------------------
Blackwell Lithographers, Inc.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
- --------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
- -------
<PAGE>
"CLOSING"--as defined in Section 2.3.
- ---------
"CLOSING DATE"--the effective date and time as of which the Closing takes place.
- --------------
"COMPANY"--as defined in the Recitals of this Agreement.
- ---------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
- ---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
- ---------------------------
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Promissory Note, the
Facility Lease, the Employment Agreement, and the Noncompetition Agreements;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of control over
the Company.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
- ----------
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES"--as defined in Section 10.2.
- ---------
"EARNOUT"-as defined in Section 2.2(b)
- ---------
"EBITDA"---pre-tax income plus interest expense deducted in computing pre-tax
- --------
income, minus interest income other than finance charges included in pre-tax
income, plus or minus any extraordinary items of expense or income,
respectively, deducted or included in computing pre-tax income, plus or minus
any losses or gains from the sale of capital assets, respectively, deducted or
included in computing pre-tax income, plus depreciation and amortization
deducted in computing pre-tax income, all as determined in accordance with GAAP
by the Accountants. In computing pre-tax income (a) one-third (1/3) of the Net
Value Added generated from orders generated by the division in question but
processed by a separate division shall be included in the originating division's
pre-tax income, and (b) no allocation of home office overhead shall be taken
into account in computing pre-tax income.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(ii).
- -----------------------
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
- -------------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any
2
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restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
- -------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
- -----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including on-
site or off-site contamination, occupational safety and health, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
- -------------------
(a) advising appropriate authorities, employees, and the public of intended or
actual releases of pollutants or hazardous substances or materials, violations
of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated;
3
<PAGE>
(d) assuring that products are designed, formulated, packaged, and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
- -------
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests currently or
- ------------
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"FACILITY LEASE"-as defined in Section 2.4(a)(v).
- ----------------
"GAAP"--generally accepted accounting principles, applied on a basis consistent
- ------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4(b) were prepared.
"GUARANTIES"--as defined in Section 2.4(b)(ii).
- ------------
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
- ----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
- -------------------
(a) nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal);
(d) multi-national organization or body; or
4
<PAGE>
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
- --------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
- ---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HEDERMAN BROTHERS DIVISION"-contemporaneous with the acquisition of the Company
- ----------------------------
by Buyer the Company will be merged into Premier. Thereafter, the Company will
be operated as the Hederman Brothers Division of Premier.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
- ------------------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
- -----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
- -----
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
- -----------
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise become aware
of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
5
<PAGE>
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
- -------------------
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"NET VALUE ADDED"--the Value Added from orders where the sale is generated by
- -----------------
either the Hederman Brothers Division or the Blackwell Division and the work is
performed by a separate division of Premier less the Value Added from orders
where the sale is generated by a separate division of Premier and the work is
performed by the either the Hederman Brothers Division or the Blackwell
Division, all as (a) determined by Premier's estimating department, acting
reasonably and in good faith, and (b) approved by Sellers, acting reasonably and
in good faith after conducting (by themselves or through others selected by
them) such review of all relevant books and records as they may determine to be
desirable. In no event shall the Net Value Added be less than zero.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iii).
- ---------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
- ------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
- -------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
- -----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority);
and
(c) such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
Notwithstanding anything herein to the contrary, for purposes of this Agreement
the sale of the real estate located at 500 Steed Road, Ridgeland, Mississippi
will be considered a transaction in the Ordinary Course of Business.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation
- --------------------------
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership;
6
<PAGE>
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and (e)
any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
- --------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PLAN"--as defined in Section 3.13.
- ------
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
- ------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PREMIER"-Premier Graphics, Inc., a Delaware corporation, which is a wholly-
- ---------
owned subsidiary of Buyer.
"PROMISSORY NOTES"--as defined in Section 2.4(b)(ii).
- ------------------
"RELATED PERSON"--with respect to a particular individual:
- ----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual or
one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
7
<PAGE>
(e) any Person with respect to which such specified Person serves as a general
partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse [and former spouses], (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 20% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 20% of the outstanding equity securities or
equity interests in a Person.
"REPLACEMENT NOTES"-as defined in Section 2.4(b)(iv).
-------------------
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
- ----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
- ----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
- ---------
"SHAREHOLDER NOTES"-two (2) promissory notes dated December 31, 1997, from the
- -------------------
Company to the H. Henry Hederman Trust and to Hap Hederman in the amounts of
$1,200,000 and $607,000, respectively.
"SHARES"--as defined in the Recitals of this Agreement.
- --------
"STOCK PURCHASE WARRANTS"-as defined in Section 2.4(b)(iii).
- -------------------------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
- ------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
- ------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection,
8
<PAGE>
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
- -------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
- ------------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"VALUE ADDED"--revenue generated from a particular job less the cost of paper,
- -------------
film plates, all direct material costs and outside services associated with such
job.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be:
(a) $1,693,000, of which $100 shall be allocated to the Noncompetition
Agreements and the remainder shall be allocated to the Shares; plus
(b) a potential earnout (the "Earnout") of up to $2,200,000 payable in cash over
a four (4) year period if certain financial goals are met. The EBITDA of the
Blackwell Division and the Hederman Brothers Division will be combined for
calendar years 1998, 1999, 2000 and 2001. Sellers shall collectively be
entitled to an earnout in each of the four (4) years equal to the lesser of (i)
$733,333, or (ii) the excess of the combined EBITDA of the Blackwell Division
and the Hederman Brothers Division over $2,500,000, or (iii) $2,200,000 less the
amount of the Earnout paid in prior years. To the extent the combined EBITDA
exceeds $3,233,333 in any given year, the amount by which the combined EBITDA
exceeds $3,233,333 shall be added to the next year's combined EBITDA calculation
for purposes of determining the amount of the earnout payment for the next year.
For the calendar year 1998 the EBITDA of the Hederman Brothers Division for the
period commencing with the Closing Date and ending December 31, 1998, will be
annualized for purposes of computing the earnout for 1998.
2.3 CLOSING
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<PAGE>
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, at 530 Oak Court
Drive, Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on February 25,
1998, or at such other time and place as the parties may agree, to be effective
as of 12:01 a. m. on March 1, 1998. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;
(ii) an employment agreement in substantially the form of Exhibit 2.4(a)(ii),
executed by H. Henry Hederman, Jr. (the "Employment Agreement");
(iii) a noncompetition agreement in the form of Exhibit 2.4(a)(iii), executed
by H. Henry Hederman, and H. Henry Hederman, Jr. (the "Noncompetition
Agreement");
(iv) the original Shareholder Notes marked "superceded and replaced";
(v) a ten (10) year lease for the facility at which the Company currently
operates in substantially the form of Exhibit 2.4(a)(v) (the "Facility Lease")
executed by the owners of such property; and
(vi) a certificate executed by Sellers representing and warranting to Buyer
that each of Sellers' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date.
(b) Buyer will deliver to Sellers:
(i) $1,500,000 by wire transfer to accounts specified by Sellers;
(ii) promissory notes payable to Sellers in the aggregate principal amount of
$193,000 in the form of Exhibit 2.4(b)(ii)(A) (the "Promissory Notes"), which
will be personally guaranteed by John P. Miller pursuant to guaranty agreements
in the form of Exhibit 2.4(b)(ii)(B) (the "Guaranties");
(iii) stock purchase warrants in the aggregate amount of $2,000,000 issued to
Sellers in the form of Exhibit 2.4 (b)(iii) executed by Buyer and John P. Miller
(the "Stock Purchase Warrant");
(iv) promissory notes payable to H. Henry Hederman, Jr. and the H. Henry
Hederman, Jr. Trust in
10
<PAGE>
the principal amounts of $607,000 and $1,200,000, respectively, and which will
be in the form of Exhibit 2.4(b)(iv) (the "Replacement Notes"), which will be
personally guaranteed by John P. Miller pursuant to guaranty agreements in the
form of Exhibit 2.4(b)(ii)(B);
(v) a certificate executed by Buyer to the effect that, except as otherwise
stated in such certificate, each of Buyer's representations and warranties in
this Agreement was accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made on the Closing
Date;
(vi) the Employment Agreements executed by Buyer; and
(vii) the Facility Lease executed by Premier, which will be personally
guaranteed by John P. Miller pursuant to a guaranty agreement in the form of
Exhibit 2.4(b)(vii)(A) and guaranteed by Buyer pursuant to a guaranty agreement
in the form of Exhibit 2.4(b)(vii)(B).
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. The Company
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents of
the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Employment Agreements, the Sellers'
Releases, and the Noncompetition Agreements (collectively, the "Sellers' Closing
Documents"), the Sellers' Closing Documents will constitute the legal, valid,
and binding obligations of Sellers, enforceable against Sellers in accordance
with their respective terms. Sellers have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Sellers' Closing Documents and to perform their obligations under this Agreement
and the Sellers' Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly
11
<PAGE>
(with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any provision
of the Organizational Documents of the Company, or (B) any resolution adopted by
the board of directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or Sellers, or any of the assets
owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by the Company or that otherwise relates to the business of, or any of the
assets owned or used by, the Company;
(iv) cause Buyer or the Company to become subject to, or to become liable for
the payment of, any Tax;
(v) cause any of the assets owned by the Company to be reassessed or revalued
by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.
Except as set forth in Schedule 3.2, neither Sellers nor the Company is or will
be required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
(c) Sellers are acquiring the Promissory Notes and Replacement Notes for their
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 50,000 shares of
common stock, par value $100 per share, of which 7,214 shares are issued and
outstanding and constitute the Shares. Sellers are and will be on the Closing
Date the record and beneficial owners and holders of the Shares as reflected on
Schedule 3.3, free and clear of all Encumbrances. No legend or other reference
to any purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. There are no Contracts relating to the issuance, sale, or
transfer
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of any equity securities or other securities of the Company. None of the
outstanding equity securities or other securities of the Company was issued in
violation of the Securities Act or any other Legal Requirement. The Company does
not own, or have any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: unaudited balance sheets of the Company as of
December 31 in each of the years 1995 through 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for each of
the fiscal years then ended (the December 31,1997 balance sheet shall
hereinafter be referred to as the "Balance Sheet"), including in each case the
notes thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP; the
financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Company are required by GAAP to be
included in the financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls. The minute
books of the Company contain accurate and complete records of all meetings held
of, and corporate action taken by, the stockholders, the Boards of Directors,
and committees of the Boards of Directors of the Company, and no meeting of any
such stockholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of the
Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by the Company. The Company owns
(with good and marketable title in the case of real property, subject only to
the matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Company or
reflected as owned in the books and records of the Company, including all of the
properties and assets reflected in the Balance Sheet (except for assets held
under capitalized leases disclosed or not required to be disclosed in Schedule
3.6 and personal property sold since the date of the Balance Sheet in the
Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet (except
for personal property acquired and sold since the date of the Balance Sheet in
the Ordinary Course of Business and consistent with past practice), which
subsequently purchased or
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acquired properties and assets (other than inventory and short-term investments)
are listed in Schedule 3.6. All material properties and assets reflected in the
Balance Sheet are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the Balance Sheet as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Balance Sheet (such mortgages and security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(c) liens for current taxes not yet due, and (d) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company, and (ii) zoning laws
and other land use restrictions that do not impair the present or anticipated
use of the property subject thereto. All buildings, plants, and structures owned
by the Company lie wholly within the boundaries of the real property owned by
the Company and do not encroach upon the property of, or otherwise conflict with
the property rights of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment of the Company are sufficient for the
continued conduct of the Company's business after the Closing in substantially
the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Balance Sheet
or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. There is no contest, claim, or right of set-
off, other than returns in the Ordinary Course of Business, under any Contract
with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. Schedule 3.8 contains a complete and accurate list of
all Accounts Receivable as of January 31, 1998, which list sets forth the aging
of such Accounts Receivable.
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Balance Sheet,
consists of a quality and quantity usable and salable in the Ordinary Course of
Business, except for obsolete items and items of below-standard quality, all of
which have been written off or written down to net realizable value in the
Balance Sheet or on the accounting records of the Company as of the Closing
Date, as the case
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may be. All inventories not written off have been priced at the lower of cost or
net realizable value on a first in, first out basis. The quantities of each item
of inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Schedule 3.10, the Company has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
January1,1991) all Tax Returns that are or were required to be filed by it
pursuant to applicable Legal Requirements. Sellers have delivered or made
available to Buyer copies of, and Schedule 3.11 contains a complete and accurate
list of, all such Tax Returns relating to income or franchise taxes filed since
January 1,1991. The Company has paid, or made provision for the payment of, all
Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or the Company,
except such Taxes, if any, as are listed in Schedule 3.11 and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Balance Sheet.
(b) The United States federal and state income Tax Returns of the Company
subject to such Taxes have been audited by the IRS or relevant state tax
authorities or are closed by the applicable statute of limitations for all
taxable years through 1993. Schedule 3.11 contains a complete and accurate list
of all audits of all such Tax Returns, including a reasonably detailed
description of the nature and outcome of each audit. All deficiencies proposed
as a result of such audits have been paid, reserved against, settled, or, as
described in Schedule 3.11, are being contested in good faith by appropriate
proceedings. Schedule 3.11 describes all adjustments to the United States
federal income Tax Returns filed by the Company for all taxable years since
1993, and the resulting deficiencies proposed by the IRS. Except as described in
Schedule 3.11, neither the Sellers nor the Company has given or been requested
to give waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations relating to
the payment of Taxes of the Company or for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the books of
the Company are adequate (determined in accordance with GAAP) and are at least
equal to the Company's liability for Taxes. There exists no proposed tax
assessment against the Company except as disclosed in the Balance Sheet or in
Schedule 3.11. No consent to the application of Section 341(f)(2) of the IRC has
been filed with respect to any property or assets held, acquired, or to be
acquired by the Company.
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All Taxes that the Company is or was required by Legal Requirements to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, there has not been any material adverse
change in the business, operations, properties, prospects, assets, or condition
of the Company, and no event has occurred or circumstance exists that may result
in such a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all pension,
retirement, stock option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, incentive, welfare
or any other contracts, plans or arrangements providing for employee
compensation or benefits (the "Plans"), and all trust agreements relating
thereto, to which the Company is a party or to which the Company contributes or
by which it is bound. Copies of each of the foregoing have been or promptly will
be furnished or made available to Purchaser. The only Plans which individually
or collectively would constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA are identified in Schedule 3.13, and are hereinafter
referred to as the "Pension Plans." No Plan constitutes a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
(b) Each Plan that is intended to be qualified under Section 401(a) of the Code
is so qualified, and each trust forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. Copies of all Internal Revenue Service
determination letters and audit reports relating to such Plans have been or
promptly will be provided to Purchaser. Requests for determination letters
relating to amendments required to cause such Plans to be in compliance with the
Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of
1984, and the Retirement Equity Act of 1984, were timely filed and have been
received or are currently pending.
(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, that are applicable to such
Plans. No "accumulated funding deficiency" within the meaning of ERISA has been
incurred with respect to any Pension Plan, whether or not waived. No reportable
event (as described in Section 4043(b) of ERISA) has occurred with respect to
any Plan. No Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction" as such term is
defined in Section 4975 of the Code, which could subject such Plans or any of
them, any such trust, or any such trustee or administrator thereof, or any party
dealing with such employee
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benefit plans or any such trust, to any tax or penalty on prohibited
transactions imposed by such Section 4975; as of the date of this Agreement, the
fair market value of the assets of any Pension Plan that is subject to Title IV
of ERISA (excluding for these purposes any accrued but unpaid contributions)
exceeded the present value of all benefits accrued under any such Plan,
determined on a termination basis using the assumptions established by the
Pension Benefit Guaranty Corporation ("PBGC") as in effect on such date. The
Company has not incurred any liability under Title IV of ERISA arising in
connection with the termination of, or complete or partial withdrawal from, any
plan covered or previously covered by Title IV of ERISA.
(d) All contributions and payments accrued under each Plan,
determined in accordance with prior funding and accrual practices as adjusted to
the extent required to include proportional contribution and payment accruals
for the period from the last funding date to the Closing Date, will be
discharged and paid on or prior to the Closing Date except to the extent that
any such amount is recorded as a liability on the Balance Sheet. Except as set
forth in Schedule 3.13, there has been no amendment to, written interpretation
or announcement (whether or not written) relating to, or change in employee
participation or coverage under any Plan that would increase materially the
expense of maintaining such Plan above the level of expense incurred in respect
thereof for the preceding fiscal year.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.14:
(i) the Company is, and at all times has been, in full compliance with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation by the Company of,
or a failure on the part of the Company to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of the Company to undertake,
or to bear all or any portion of the cost of, any remedial action of any nature;
and
(iii) the Company has not received any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Schedule 3.14 contains a complete and accurate list of each Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or to any of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be listed in Schedule 3.14 is
valid and in full force and effect. Except as set forth in Schedule 3.14:
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(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Schedule 3.14;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Schedule 3.14, or
(B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule 3.14;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 3.14
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.14 collectively constitute
all of the Governmental Authorizations necessary to permit the Company to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit the Company to own and use its assets
in the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against the Company or that otherwise relates
to or may affect the business of, or any of the assets owned or used by, the
Company; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Sellers and the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Sellers
have delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 3.15. The Proceedings
listed in Schedule 3.15 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
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(b) Except as set forth in Schedule 3.15:
(i) there is no Order to which the Company, or any of the assets owned or used
by the Company, is subject;
(ii) no Seller is subject to any Order that relates to the business of, or any
of the assets owned or used by, the Company; and
(iii) to the Knowledge of Sellers and the Company, no officer, director, agent,
or employee of the Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company.
(c) Except as set forth in Schedule 3.15:
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or failure to comply
with any term or requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is subject; and
(iii) the Company has not received at any time any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which the Company, or
any of the assets owned or used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Balance Sheet, the
Company has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred
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compensation, savings, insurance, pension, retirement, or other employment
benefit plan for or with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the Company,
taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of Business),
lease, or other disposition of any asset or property of the Company other than
the transfer of the real property of the Company, which was transferred to the
Sellers in exchange for the Sellers' assuming the indebtedness secured by such
property, or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the Company
in excess of $25,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers have
delivered to Buyer true and complete copies, of:
(i) each Applicable Contract, other than purchase orders received in the
Ordinary Course of Business, that involves performance of services or delivery
of goods or materials by the Company of an amount or value in excess of $10,000;
(ii) each Applicable Contract, other than purchase orders placed in the
Ordinary Course of Business, that involves performance of services or delivery
of goods or materials to the Company of an amount or value in excess of $10,000;
(iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of the Company in excess
of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and
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with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract to
or with any labor union or other employee representative of a group of
employees;
(vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way purport
to restrict the business activity of the Company or any Affiliate of the Company
or limit the freedom of the Company or any Affiliate of the Company to engage in
any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for goods;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express undertaking by the Company
to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by the Company other than in the
Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or written)
in respect of any of the foregoing.
(b) Except as set forth in Schedule 3.17(b):
(i) No Seller nor any Related Person of a Seller has or may acquire any rights
under, and no Seller nor any Related Person of a Seller has or may become
subject to any obligation or liability under, any Contract that relates to the
business of, or any of the assets owned or used by, the Company; and
(ii) to the Knowledge of Sellers, no officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery.
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(c) Except as set forth in Schedule 3.17(c), each Contract identified or
required to be identified in Schedule 3.17(a) is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.17(d):
(i) to the best of Sellers' Knowledge the Company is, and at all times has
been, in full compliance with all applicable terms and requirements of each
Contract under which the Company has or had any obligation or liability or by
which the Company or any of the assets owned or used by the Company is or was
bound;
(ii) to the best of Sellers' Knowledge each other Person that has or had any
obligation or liability under any Contract under which the Company has or had
any rights is, and at all times has been, in full compliance with all applicable
terms and requirements of such Contract;
(iii) to the best of Sellers' Knowledge no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give the Company or other Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
Applicable Contract; and
(iv) the Company has not given to or received from any other Person at any
time notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company under
current or completed Contracts with any Person and, to the Knowledge of Sellers
and the Company, no such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision of
products or services by the Company have been entered into in the Ordinary
Course of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies of
insurance; and
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(iii) any statement by the accountants of the Company's with regard to the
adequacy of such entity's coverage or of the reserves for claims.
(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement by or affecting the Company, including any
reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to insurance
(including such obligations under leases and service agreements) and identifies
the policy under which such coverage is provided.
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and each
of the two preceding policy years:
(i) a summary of the loss experience under each policy other than group health
insurance policies;
(ii) a statement describing each claim under an insurance policy other than
group health insurance policies for an amount in excess of $10,000, which sets
forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and period of
coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-
insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 3.18(d):
(i) All policies to which the Company is a party or that provide coverage to
either Sellers, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide adequate insurance coverage for the assets and the
operations of the Company for all risks normally insured against by a Person
carrying on the same business or businesses as the Company; and
(C) to the best of Sellers' Knowledge are sufficient for compliance with all
Legal Requirements and Contracts to which the Company is a party or by which it
is bound.
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(ii) Neither Sellers nor the Company have received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise performed all of
their respective obligations, under each policy to which the Company is a party
or that provides coverage to the Company or director thereof.
(iv) The Company has given notice to the insurer of all claims that may be
insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.19:
(a) The Company is, and at all times has been, in compliance in all material
respects with, and has not been and is not in violation of or liable under, any
Environmental Law. Neither Sellers nor the Company have any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held to
be responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law by the Company, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which the Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
the Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and the Company,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which the Company has or had an interest.
(c) Neither Sellers nor the Company have Knowledge of any basis to expect, nor
has either of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure by the
Company to comply with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any Environmental, Health,
and Safety Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company
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had an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by the Company, or any other Person for whose conduct they are or may
be held responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) Neither the Company, or any other Person for whose conduct it may be held
responsible, has any Environmental, Health, and Safety Liabilities with respect
to the Facilities or, to the Knowledge of Sellers and the Company, with respect
to any other properties and assets (whether real, personal, or mixed) in which
the Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the Environment at the
Facilities or to the best of Sellers' Knowledge, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon. Neither Sellers, the Company, nor any other Person for whose
conduct they are or may be held responsible, or to the Knowledge of Sellers and
the Company, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company has
or had an interest except in full compliance with all applicable Environmental
Laws.
(f) There has been no Release or, to the Knowledge of Sellers and the Company,
Threat of Release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which the Company has or had an interest, or to the
Knowledge of Sellers and the Company any geologically or hydrologically
adjoining property, whether by the Company or any other Person.
(g) Sellers have delivered to Buyer true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed or initiated by
Sellers or the Company pertaining to Hazardous Materials or Hazardous Activities
in, on, or under the Facilities, or concerning compliance by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Schedule 3.20 contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1997; and vacation accrued.
(b) No employee or director of the Company is a party to, or is otherwise bound
by, any agreement
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or arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Sellers' Knowledge, no director, officer, or other key
employee of the Company intends to terminate his employment with the Company.
(c) Schedule 3.20 also contains a complete and accurate list of the following
information for each retired employee or director of the Company, or their
dependents, receiving benefits or scheduled to receive benefits in the future:
name, pension benefit, pension option election, retiree medical insurance
coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1994, the Company has not been nor is currently a party to any
collective bargaining or other labor Contract. Since January 1, 1997, there has
not been, there is not presently pending or existing, and to Sellers' Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Company
or their premises, or (c) any application for certification of a collective
bargaining agent. To Sellers' Knowledge no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the Company, and no such action
is contemplated by the Company. The Company has complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) The term "Intellectual Property Assets" includes:
(i) the name Hederman Brothers, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all copyrights in both published works and unpublished works
(collectively, "Copy rights");
(iii) all know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans, drawings, and
blue prints (collectively, "Trade Secrets");
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owned, used, or licensed by the Company as licensee or licensor.
(b) The Company (i) has not made any filing with any governmental agency or
taken any other unusual action to obtain or protect its ownership or use of any
Intellectual Property Assets, (ii) is obliged to make future payments
principally for its ownership or use of any Intellectual Property Assets, (iii)
has received any notice that its use of any Intellectual Property Assets
infringes on the rights of any other person, or (iv) upon the consummation of
the transactions contemplated hereunder will be in violation of any contracts or
agreements relating to the use of any Intellectual Property Assets.
3.23 CERTAIN PAYMENTS
Since January 1, 1992, neither the Company nor any director, officer, agent, or
employee of the Company, or to Sellers' Knowledge any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Company.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
(c) There is no fact known to Sellers that has specific application to Sellers
or the Company (other than general economic or industry conditions) and that
materially adversely affects the assets, business, prospects, financial
condition, or results of operations of the Company (on a consolidated basis)
that has not been set forth in this Agreement.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Neither Sellers nor any Related Person of Sellers or of the Company has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any significant transaction with the Company other than
business dealings or transactions conducted in the Ordinary Course of Business
with the Company
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at terms, or (ii) engaged in competition with the Company in any material
respect with respect to any line of the products or services of the Company (a
"Competing Business") in any market presently served by the Company except for
less than one percent of the outstanding capital stock of any Competing Business
that is publicly traded on any recognized exchange or in the over-the-counter
market. Except as set forth in Schedule 3.25, neither Sellers nor any Related
Person of Sellers or of the Company is a party to any Contract with, or has any
claim or right against, the Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware..
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, the Promissory
Notes and the Stock Purchase Warrants (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal, valid, and
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement and the Buyer's
Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery of
this Agreement by Buyer, nor the consummation or performance of any of the
Contemplated Transactions by Buyer, will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
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(iv) any Contract to which Buyer is a party or by which Buyer may be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Other than fees payable to Asset Services, L. P., Buyer and its officers and
agents have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement and will indemnify and hold Sellers harmless from
any such payment alleged to be due by or through Buyer as a result of the action
of Buyer or its officers or agents.
4.6 FINANCIAL STATEMENTS
Buyer has, or will, deliver to Sellers (a) an unaudited consolidated balance
sheet and income statement of Buyer as of December 31, 1997, (b) an unaudited
balance sheet of Premier as of December 31, 1997, and (c) an unaudited balance
sheet of John P. Miller as of December 31, 1997. Such financial statements and
notes fairly present the financial condition of Buyer, Premier and John P.
Miller as of the applicable dates.
5. COVENANTS OF SELLERS
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may
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reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of Business;
(b) use their Best Efforts to preserve intact the current business organization
of the Company, keep available the services of the current officers, employees,
and agents of the Company, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and others having
business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material nature; and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of Buyer, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Sellers will promptly
notify Buyer in writing if Sellers or the Company become aware of any fact or
condition that causes or constitutes a Breach of any of Sellers' representations
and warranties as of the date of this Agreement, or if Sellers or the Company
become aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Sellers will promptly notify
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Buyer of the occurrence of any Breach of any covenant of Sellers in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by Sellers or any Related Person of Sellers to
be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause the Company and each of their Representatives
not to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of the
Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6. COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will, and will
cause each Related Person to, cooperate with Sellers with respect to all filings
that Sellers are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or
to incur any other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Buyer will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.3 REMOVAL FROM GUARANTIES
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To the extent any of the Sellers have personally guaranteed any obligations of
the Company, Buyer will use its best efforts to have such Seller(s) removed from
such Guaranties as soon as practical after Closing.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
(b) Each of Sellers' representations and warranties in Sections 3.3, 3.4, and
3.12 must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered, and each of the other covenants and obligations in Section 5.4
must have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents of Schedule 3.2, and each Consent identified in Schedule
4.2, must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Sellers' counsel, dated the Closing Date, substantially in the
form of Exhibit 7.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of (i)
enabling its counsel
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to provide the opinion referred to in Section 8.4(a), (ii) evidencing the
accuracy of any of Sellers' representations and warranties, (iii) evidencing the
performance by Sellers of, or the compliance by Sellers with, any covenant or
obligation required to be performed or complied with by Sellers, (iv) evidencing
the satisfaction of any condition referred to in this Section 7, or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
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(a) All of the covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to Section 2.4 and must have made the cash payments required to
be made by Buyer pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 and 4.2 must have been obtained
and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers:
(a) an opinion of Black Bobango & Morgan, A Professional Corporation, dated the
Closing Date, in the form of Exhibit 8.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose of
(i) enabling their counsel to provide the opinion referred to in Section 7.4(a),
(ii) evidencing the accuracy of any representation or warranty of Buyer, (iii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (ii)
evidencing the satisfaction of any condition referred to in this Section 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
8.6 EMPLOYMENT AGREEMENTS WITH KEY EMPLOYEES
Premier will have offered three year employment contracts to the key employees
of the Company containing terms and conditions substantially the same as the
terms and conditions under which they are currently employed. Buyer and Seller
will mutually determine which employees are key employees.
8.7 FINANCIAL CONDITION
There shall not have been a material adverse change in the financial condition
or assets and properties of Buyer or John P. Miller since December 31, 1997.
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9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date; or
(c) by mutual consent of Buyer and Sellers.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the certificate delivered pursuant to Section 2.4(a)(v), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.
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10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Each Seller will severally indemnify and hold harmless Buyer, the Company, and
their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by such Seller in this
Agreement, or any other certificate or document delivered by such Seller
pursuant to this Agreement;
(b) any Breach of any representation or warranty made by such Seller in this
Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by such Seller of any covenant or obligation of such Seller in
this Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either such Seller or the Company (or any Person
acting on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
10.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or before the second
anniversary of the Closing Date Buyer notifies Sellers of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer. Sellers will have no liability (for
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indemnification or otherwise) with respect to a claim with respect to Section
3.13 unless on or before the fourth anniversary of the Closing Date Buyer
notifies Sellers of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer. A claim with respect to
Section 3.3, 3.11 or 3.19, or a claim for indemnification or reimbursement not
based upon any representation or warranty or any covenant or obligation to be
performed and complied with prior to the Closing Date, may be made at any time.
If the Closing occurs, Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before the second anniversary of the Closing Date Sellers notify Buyer of
a claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
10.5 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with respect
to the matters described in clause (a), clause (b) or, to the extent relating to
any failure to perform or comply prior to the Closing Date, clause (c) of
Section 10.2, or clause (a) of Section 10.11 until the total of all Damages with
respect to such matters exceeds $50,000, and then only for the amount by which
such Damages exceed $50,000.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $50,000, and then only for the
amount by which such Damages exceed $50,000.
10.7 RIGHT OF SET-OFF
Upon notice to Sellers specifying in reasonable detail the basis for such set-
off, Buyer may set off any amount to which it may be entitled under this Section
10 against amounts otherwise payable under the Promissory Notes or from the
Earnout. The exercise of such right of set-off by Buyer in good faith, whether
or not ultimately determined to be justified, will not constitute an event of
default under the Promissory Note or hereunder. Neither the exercise of nor the
failure to exercise such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3,
or of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
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(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) Sellers' responsibilities with respect to the Company's accounts receivable
are as described in Section 3.8 and this Section 10.11. On August 31, 1998 the
aggregate amounts owed under the
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Promissory Notes and/or the Replacement Notes shall be reduced by the excess of
(i) the then outstanding balances of all accounts receivable of the Company that
had been outstanding for sixty (60) days or more as of the Closing Date over
(ii) the sum of (A) the reserve for bad debts as the Closing Date, plus (B) the
amount of the unused $50,000 deductible for breaches of representations,
warranties and covenants as set forth in Section 10.5 above.
(b) Buyer shall cause ownership of accounts receivable equal to the amount of
the reduction of the Promissory Notes and/or the Replacement Notes to be
transferred to Sellers. The actual accounts receivables transferred to Sellers
shall be designated by Sellers out of the receivables which had been outstanding
for sixty (60) days or more as of the Closing Date. For purposes of this
Section payments received after Closing from obligors of the accounts receivable
referred to in Clause (a) above shall be applied first towards satisfaction of
the oldest accounts receivable unless designated otherwise by the account
debtor.
11. GENERAL PROVISIONS
11.1 EXPENSES
The Company shall be responsible for up to $50,000 in legal and accounting fees
incurred by Sellers in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions. Otherwise,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, and accountants. Sellers will cause the Company not to incur
any out-of-pocket expenses in connection with this Agreement other than the
legal fees set forth above. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing Sellers shall, and shall
cause the Company to, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person. Sellers and Buyer will consult
with each other concerning the means by which the Company' employees, customers,
and suppliers and others having dealings with the Company will be informed of
the Contemplated Transactions, and Buyer will have the right to be present for
any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the
39
<PAGE>
Company to maintain in confidence, and not use to the detriment of another party
or the Company any written, oral, or other information obtained in confidence
from another party or the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings, or (d) the
furnishing of such information by Buyer to lenders or other institutions
providing financial accommodations to Buyer.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Company to waive, any cause of action, right, or claim
arising out of the access of Buyer or its representatives to any trade secrets
or other confidential information of the Company except for the intentional
competitive misuse by Buyer of such trade secrets or confidential information.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Sellers: H. Henry Hederman
H. Henry Hederman, Jr.
Martha Dean Hederman, Trustee
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
40
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Facsimile No.:(601) 949-4555
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 683-2553
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in (a) the courts of the State of Tennessee, County of Shelby, or (b) the courts
of the State of Mississippi, County of Hinds, or (c) if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
Tennessee, or (d) if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of Mississippi, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other
41
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or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing signed
by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including any Letter of Intent between Buyer and Sellers)
and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
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With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Mississippi without
regard to conflicts of laws principles.
11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
43
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John. P. Miller
-------------------
Its: President
SELLERS: /s/ H. Henry Hederman
---------------------
H. Henry Hederman
/s/ H. Henry Hederman, Jr.
--------------------------
H. Henry Hederman, Jr.
/s/ Martha Dean Hederman
------------------------
Martha Dean Hederman, as trustee of
the H. Henry Hederman Grandchild
Trust No. 1 U/A dated 12/31/87 and the
H. Henry Hederman Grandchild
Trust No. 2 U/A dated 12/31/87
44
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Exhibit 10.17
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated this 1/st/ day of March, 1998,
pursuant to Section 252 of the General Corporation Law of the State of Delaware
and Section 79-4-1101 of the Business Corporation Act of the State of
Mississippi, between Premier Graphics, Inc. ("Premier" or "Surviving
Corporation"), a Delaware corporation and Hederman Brothers, Inc. ("Hederman" or
"Merged Corporation"), a Mississippi corporation.
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a single
corporation; and
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: Premier, hereby merges into itself Hederman and Hederman shall be
and hereby is merged into Premier, which shall be the Surviving Corporation.
SECOND: The Certificate of Incorporation and Bylaws of Premier, as in
effect on the date of merger provided for in this Agreement, shall continue in
full force and effect as the Certificate of Incorporation of the corporation
surviving this merger.
THIRD: The Certificate of Incorporation of Premier, is set forth in its
entirety and attached hereto as Exhibit A, and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and, from and after
the effective date of the merger and until further amended as provided by law,
said Exhibit A, separate and apart from this Agreement and Plan of Merger shall
be, and may be separately
<PAGE>
certified as, the Certificate of Incorporation, as amended, of the Surviving
Corporation.
FOURTH: The manner of converting the outstanding shares of the capital of
each of the constituent corporations into the shares or other securities of the
Surviving Corporation shall be as follows:
(a) Each share of stock of the Surviving Corporation, which shall be
issued and outstanding on the effective date of this Agreement, shall
remain issued and outstanding.
(b) Each share of common stock of the Merged Corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall be cancelled.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of Hederman
shall surrender the same to the Surviving Corporation and said shares shall
be cancelled, since at the effective time of the merger all of the issued
and outstanding shares of the constituent corporations will be owned by the
same shareholder. Until so surrendered, the outstanding shares of stock of
the Merged Corporation to be cancelled as provided herein, may be treated
by the Surviving Corporation for all corporate purposes as evidencing the
ownership of shares of the Surviving Corporation as though said surrender
and exchange had taken place. After the effective date of this Agreement,
each registered owner of any shares of common stock of the Merged
Corporation shall have said shares cancelled.
FIFTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the effective date of this Agreement shall be and remain the Bylaws of the
Surviving Corporation until the
2
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same shall be altered, amended and repealed as therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of stockholders and until
their successors shall have been elected and qualified.
(c) This merger shall become effective upon filing with the Secretary
of State of Delaware and Mississippi.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the Merged Corporation shall
be transferred to, vested in and devolve upon the Surviving Corporation
without further act or deed and all property, rights, and every other
interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of
the Surviving Corporation and the Merged Corporation respectively. The
Merged Corporation hereby agrees from time to time, as and when requested
by the Surviving Corporation or by its successors or assigning, to secure
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the Surviving Corporation title to and possession of any property of the
Merged Corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent and
purposes hereof and the proper officers and directors of the Merged
Corporation and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merged Corporation or
otherwise to take any and all such action.
3
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SIXTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of any
constituent corporation at any time prior to the date of filing this Agreement
with the Secretary of State of Delaware and Mississippi. This Agreement may be
amended by the Board of Directors of its constituent corporations at any time
prior to the date of filing this Agreement with the Secretary of State, provided
that an amendment made subsequent to the adoption of the Agreement by the
stockholders of any constituent corporation shall not (1) alter or change the
amount of kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of such constituent corporation, (2) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the merger, or (3) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of any class or series thereof of such constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors have caused these presents to be executed by the President of each
party hereto as the respective act, deed and agreement of said corporation on
this 1st day of March, 1998.
PREMIER GRAPHICS, INC.
By:/s/ John P. Miller
------------------
John P. Miller, President
HEDERMAN BROTHERS, INC.
By:/s/ John P. Miller
------------------
John P. Miller, President
4
<PAGE>
I, Lance Fair, Secretary of Premier Graphics, Inc., a corporation organized
and existing under the laws of the State of Delaware, hereby certify, as such
Secretary that the Agreement and Plan of Merger to which this Certificate is
attached, after having been first duly signed on behalf of the said corporation
and having been signed on behalf of Hederman Brothers, Inc., a corporation of
the State of Mississippi, was duly adopted pursuant to Section 228 of Title 8 of
the Delaware Code by the unanimous written consent of the stockholders holding
100 shares of the capital stock of Premier Graphics, Inc. same being the shares
issued and outstanding and having voting power, which Agreement and Plan of
Merger was thereby adopted as the act of the stockholders of said Premier
Graphics, Inc., and the duly adopted agreement and act of the said corporation.
WITNESS my hand on this 1st day of March, 1998.
/s/ Lance Fair
--------------
Secretary
I, Lance Fair, Secretary of Hederman Brothers, Inc., a corporation
organized and existing under the laws of the State of Mississippi, hereby
certify, as such Secretary that the Agreement and Plan of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Premier Graphics, Inc., a
corporation of the State of Delaware, was duly adopted pursuant to the Business
Corporation Act of the State of Mississippi by the unanimous written consent of
the stockholders holding 7,214 shares of the capital stock of Hederman Brothers,
Inc. same being of the shares issued and outstanding and having voting power,
which Agreement and Plan of Merger was thereby adopted as the act of the
stockholders of said Hederman Brothers, Inc., and the duly adopted agreement and
act of the said corporation.
WITNESS my hand on this 1st day of March, 1998.
/s/ Lance Fair
--------------
Secretary
5
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Exhibit 10.18
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 1, 1998, by
MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), PREMIER GRAPHICS, INC.,
a Delaware corporation ("Premier"), JOHN P. MILLER ("Miller") (Premier and
Miller join in this Agreement for the limited purposes set forth herein) and
PHIL PHILLIPS, JR., an individual resident of Springdale, Arkansas ("Seller").
RECITALS
Seller desires to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Phillips Litho Co., Inc.,
an Arkansas corporation (the "Company"), for the consideration and on the terms
set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"-KPMG Peat Marwick LLP, the Buyer's independent certified public
- -------------
accountants.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
- ---------------------
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
- ---------------
"BASE EBITDA"--a stipulated amount equal to $2,776,877.00.
- -------------
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
- --------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any material
inaccuracy in or breach of, or any failure to perform or comply with, a material
representation, warranty, covenant, obligation, or other provision.
"BUYER"--as defined in the first paragraph of this Agreement.
- -------
"CASH PORTION"--as defined in Section 2.2(b)(i).
- --------------
<PAGE>
"CLOSING"--as defined in Section 2.3.
- ---------
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
- --------------
"COMPANY"--as defined in the Recitals of this Agreement.
- ---------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
- ---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
- ---------------------------
Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) the execution, delivery, and performance of the Promissory Note, the
Employment Agreement, and the Noncompetition Agreement;
(c) the performance by Buyer and Seller of their respective covenants and
obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of control over
the Company.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking that is
- ----------
legally binding.
"DAMAGES"--as defined in Section 10.2.
- ---------
"EARNOUT PORTION"-- as defined in Section 2.2(b)(ii).
- -----------------
"EBITDA"-- pre-tax income plus interest expense deducted in computing pre-tax
- --------
income, minus interest income included in pre-tax income, plus or minus any
extraordinary items of expense or income, respectively, deducted or included in
computing pre-tax income, plus or minus any losses or gains from the sale of
capital assets, respectively, deducted or included in computing pre-tax income,
plus depreciation and amortization deducted in computing pre-tax income, all as
determined in accordance with GAAP by the Accountants, subject to review and
approval by Seller. The parties agree that (a) any professional fees (i. e.,
legal, accounting, etc.) incurred by the Company in 1998 relating to the
Contemplated Transactions or this Agreement, and (b) any reductions in EBITDA
resulting from the Company forgiving amounts owed it by Seller under shareholder
notes or receivables as otherwise provided in this Agreement, and (c) any
expense charged to the Company as a result of the payoff of the interest rate
swap note with Nations Bank shall be added back to the EBITDA calculation for
1998. The parties further agree that in computing the EBITDA in order to
determine if Seller is eligible for all or any of the Earnout Portion, no items
of expense or overhead of Master, Premier, or any affiliate or subsidiary of
Master or Premier shall be charged to or allocated to the Phillips Litho
Division.
"EMPLOYMENT AGREEMENT"--as defined in Section 2.4(a)(iii).
- ----------------------
2
<PAGE>
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
- -------------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
- -------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), ground waters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
- -----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including on-
site or off-site contamination, occupational safety and health, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement in effect as of the date of this
- -------------------
Agreement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of intended or
actual releases of pollutants or hazardous substances or materials, violations
of discharge limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants or
hazardous substances or materials into the Environment;
3
<PAGE>
(c) reducing the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so that
they do not present unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
- -------
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests currently or
- ------------
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"GAAP"--generally accepted accounting principles, applied on a basis consistent
- ------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
- ----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
- -------------------
(a) nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police,
4
<PAGE>
regulatory, or taxing authority or power of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
- --------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
- ---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
- ------------------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
- -----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
- -----
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
- -----------
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual should be aware of such fact or other matter without
the necessity of conducting an investigation concerning such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time during the previous twelve (12) months served, as a director or
officer, of such Person has, or at any time had, Knowledge of such fact or other
matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
- -------------------
international, multinational, or other administrative order, constitution, law,
ordinance, regulation, statute, or treaty.
"NONCOMPETITION AGREEMENT"--as defined in Section 2.4(a)(iv).
- --------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
- ------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program,
5
<PAGE>
whether governmental or private (including those promulgated or sponsored by
industry associations and insurance companies), designed to provide safe and
healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
- -------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
- -----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors of
such Person; or
(c) such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors in the ordinary course of
the normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
- --------------------------
the bylaws of a corporation; (b) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a Person;
and (c) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
- --------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PHILLIPS LITHO DIVISION"-- the assets and business operations of the Company as
- -------------------------
conducted by Seller as of the Closing Date. Following Closing and any
subsequent merger into Premier, sale, exchange or other reorganization involving
the Company and/or its assets and business operations, the Company assets will
be utilized to operate either a separate subsidiary of Buyer or a separate
division of Premier (or its successor or assigns) known as the Phillips Litho
Division.
"PLAN"--as defined in Section 3.13.
- ------
"PREMIER"-- Premier Graphics, Inc., a Delaware corporation which is a wholly
- ---------
owned subsidiary of Buyer.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
- ------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before any court of law,
or otherwise involving, any Governmental Body or arbitrator.
"PROMISSORY NOTE"--as defined in Section 2.4(b)(ii).
- -----------------
6
<PAGE>
"RELATED PERSON"--with respect to a particular individual:
- ----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual or
one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members of
such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a general
partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse, and (iii) any other natural person
who is related to the individual or the individual's spouse as an ancestor,
descendant or sibling of such individual, and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of voting securities or other voting interests
representing at least 20% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 20% of the
outstanding equity securities or equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
- ---------
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
- ----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
7
<PAGE>
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
- ----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLER"--as defined in the first paragraph of this Agreement.
- --------
"SHARES"--as defined in the Recitals of this Agreement.
- --------
"STOCK PURCHASE WARRANT"-as defined in Section 2.4(b)(iii).
- ------------------------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
- ------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
- ------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any
Tax or in connection with the administration, implementation, or enforcement of
or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
- -------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
- ------------
deemed to have been "Threatened" if any demand or statement has been made in
writing or any notice has been given, or if any other event has occurred or any
other circumstances exist, that would lead a prudent Person to conclude that
such a claim, Proceeding, dispute, action, or other matter is likely to be
asserted, commenced, taken, or otherwise pursued in the future.
"WAREHOUSE LEASE"-- as defined in Section 2.4(a)(vi).
- -----------------
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Seller
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Seller.
2.2 PURCHASE PRICE
8
<PAGE>
(a) The purchase price (the "Purchase Price") for the Shares will be (i)
$13,934,385.00, plus (ii) an earnout amount not to exceed one (1) times Base
EBITDA, plus (iii) an amount not to exceed $119,616, which shall be paid in
accordance with Section 2.2 (b) (iii), less (iv) the outstanding principal and
accrued interest balance as of the Closing Date of the indebtedness listed on
Schedule 2.2(a).
(b) The Purchase Price shall be paid as follows:
(i) Thirteen Million Eighty Thousand One Hundred Sixty-Seven Dollars
($13,080,167.00) less the outstanding principal balance of the indebtedness plus
accrued interest, if any, listed on Schedule 2.2.(a) (the "Cash Portion") will
be paid in cash at Closing by cashier's check or electronic funds transfer to
Seller's account;
(ii) Eight Hundred Fifty-Four Thousand Two Hundred Nineteen Dollars
($854,219.00) will be paid through the issuance of the Promissory Note to be
delivered to Seller at Closing; and
(iii) for a seven year period commencing April 1, 1998, and ending March 31,
2005, Seller shall receive a quarterly payment equal to .4272% of the first
$1,000,000 in sales volume of the Phillips Litho Division. Such payment shall
be made on the first business day of the quarter following the quarter in which
the payment was earned. As an inducement to Buyer to prepay the Promissory
Note, in the event the Promissory Note is prepaid prior to its maturity no
further amounts shall be due under this Section 2.2 (b)(iii) after date on which
the Promissory Note is prepaid.
(iv) the remainder of the Purchase Price shall be in the form of a three-year
cumulative earnout (the "Earnout Portion"), with the maximum to be paid each
year being one-third (1/3) of the Base EBITDA, unless an earnout payment has not
been paid in the prior year(s). The objective of the Earnout Portion is to
assure Buyer that the average EBITDA of the Phillips Litho Division for the
calendar years 1998, 1999 and 2000 equals or exceeds the Base EBITDA. The
earnout each year will be paid only if the average EBITDA of the Phillips Litho
Division for the year in question and the previous year(s), if any, equals or
exceeds the Base EBITDA. Once a year's earnout has been obtained and paid, it
shall be deemed earned and not subject to forfeiture even if the cumulative
EBITDA for the Phillips Litho Division for the calendar years 1998, 1999 and
2000 is less than three times the Base EBITDA. The following illustrates
examples of how the Earnout Portion shall be earned and paid:
Example #1
- ----------
<TABLE>
Year EBITDA Earnout Cumulative Earnout
- ------ ---------- ---------- ------------------
<S> <C> <C> <C>
1998 $2,400,000 $ 0 $ 0
1999 $3,200,000 $1,857,919 $1,857,919
2000 $2,750,000 $ 928,959 $2,786,878
</TABLE>
9
<PAGE>
In Example #1 the cumulative EBITDA in calendar years 1998, 1999 and 2000
exceeded three times the Base EBITDA even though in two of the three years the
EBITDA of the Phillips Litho Division did not equal or exceed the Base EBITDA
goal. Accordingly, Seller was entitled to the full Earnout Portion.
Example #2
- ----------
<TABLE>
Year EBITDA Earnout Cumulative Earnout
- ------ ---------- -------- ------------------
<S> <C> <C> <C>
1998 $3,000,000 $928,959 $928,959
1999 $2,000,000 $ 0 $928,959
2000 $3,000,000 $ 0 $928,959
</TABLE>
In Example #2 the EBITDA for the Phillips Litho Division in calendar year 1998
exceeded the Base EBITDA; therefore, Seller was entitled to one-third (1/3) of
the Earnout Portion. In 1999 and 2000 the cumulative EBITDA for the Phillips
Litho Division did not equal of exceed two times or three times the Base EBITDA,
respectively; therefore, no additional earnout payments were earned or paid in
1999 or 2000.
Example #3
- ----------
<TABLE>
Year EBITDA Earnout Cumulative Earnout
- ------ ---------- ---------- ------------------
<S> <C> <C> <C>
1998 $2,500,000 $ 0 $ 0
1999 $3,000,000 $ 0 $ 0
2000 $3,500,000 $2,786,878 $2,786,878
</TABLE>
In Example #3 neither the annual EBITDA nor cumulative EBITDA of the Phillips
Litho Division met the Base EBITDA goals for years 1998 and 1999; therefore no
earnout payments were earned or paid in those years. However, the cumulative
EBITDA for the Phillips Litho Division for the calendar years 1998, 1999 and
2000 exceeded three times the Base EBITDA; therefore, the full amount of the
Earnout Portion would be paid in the year 2000.
10
<PAGE>
A tentative calculation of the earnout ( the "Tentative Earnout Amount") due
Seller each year shall be made based on Buyer's year end unaudited financial
statements for the Phillips Litho Division and Buyer shall thereafter pay to
Seller an amount equal to eighty percent (80%) of the Tentative Earnout Amount
not later than sixty (60) days after each December 31 during the earnout period.
Within fifteen (15) days after completion of the audit of Buyer's financial
statements during each year of the earnout period, Buyer shall prepare and
deliver to Seller a statement reflecting the financial calculation of the
earnout amount due Seller, if any, for the year. In the event the final
calculation of the earnout exceeds the tentative earnout payment made to Seller,
Buyer shall pay such excess to Seller not later than thirty (30) days after
completion of the audit of Buyer's financial statements for such earnout period.
In the event the final calculation of the earnout is less than the tentative
earnout payment made to Seller, Seller shall pay such difference to Buyer not
later than thirty (30) days after completion of the audit of Buyer's financial
statements for such earnout period. Buyer shall keep a permanent set of books
and records of all revenues collected and funds disbursed in connection with the
Phillips Litho Division. All such books and records shall be retained and
preserved for at least three (3) years following the last day of the last year
Seller is eligible for an earnout payment pursuant to Section 2.2(b) (iii) which
books and records shall be subject to inspection and audit by Seller and its
agents at all reasonable times. In the event of a dispute between the Seller
and Buyer with respect to the computation of EBITDA or any other component part
of the computations required in determining the Earnout Portion, or whether any
earnout payment is due for a given year, either party shall have fifteen (15)
days after the date of delivery by Buyer of the earnout calculation by
delivering a Dispute Notice to the other party. If Buyer and Seller are unable
to resolve any such dispute within thirty (30) days after delivery of a Dispute
Notice, Buyer and Seller shall jointly select a mutually acceptable independent
accountant or accounting firm (the "Arbitrating Accountant") to resolve the
dispute. The decision of the Arbitrating Accountant shall be rendered within
fifteen (15) days after such accountant is retained and shall be final and
binding upon the parties. The nonprevailing party shall pay the fees charged by
the Arbitrating Accountant. In the event either party shall deliver a Dispute
Notice and a dispute with respect to the earnout calculations shall be resolved
either by mutual agreement of Buyer and Seller or by the Arbitrating Accountant,
the earnout payment calculation shall be adjusted to reflect the resolution of
the disputed matters and the appropriate payment shall be made (either by Buyer
or Seller as the case may be) in accordance with the terms of this Paragraph. In
the event a dispute with respect to the earnout calculations shall be resolved
by mutual agreement of Buyer and Seller after hiring the Arbitrating Accountant,
the fees charged by the Arbitrating Accountant shall be split equally between
Buyer and Seller.
In the event the Phillips Litho Division is sold prior to December 31, 2000,
Seller shall be entitled to a prepayment of the Earnout Portion based on the
following:
(A) If the Phillips Litho Division is sold on or before December 31, 1998,
Seller shall be entitled to the entire Earnout Portion;
(B) If the Phillips Litho Division is sold after December 31, 1998 but on or
before December 31, 1999, Seller shall be entitled to payment of an amount equal
to two-thirds (2/3) of the Earnout Portion, without regard to what has or has
not been paid in the prior year; and
11
<PAGE>
(C) If the Phillips Litho Division is sold after December 31, 1999 but on or
before December 31, 2000, Seller shall be entitled to a payment equal to one-
third (1/3) of the Earnout Portion, without regard to amounts that have or have
not been paid in prior years.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, at 530 Oak Court
Drive, Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on March 6,
1998, or at such other time and place as the parties may agree. Subject to the
provisions of Section 9, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement; provided,
Seller may terminate this Agreement without further obligation in the event
closing does not occur on or before March 31, 1998.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;
(ii) [Reserved]
(iii) an employment agreement in the form of Exhibit 2.4(a)(iii), executed by
Seller (the "Employment Agreement");
(iv) a noncompetition agreement in the form of Exhibit 2.4(a)(iv), executed by
Seller (the "Noncompetition Agreement");
(v) a certificate executed by Seller representing and warranting to Buyer
that, except as otherwise stated in such certificate, each of Seller's
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date; and
(vi) a warehouse lease in the form of Exhibit 2.4(a)(vi), executed by Seller
(the "Warehouse Lease").
(b) Buyer, Premier and Miller will deliver to Seller:
(i) the Cash Portion of the Purchase Price by wire transfer to an account
specified by Seller;
(ii) a promissory note payable to Seller in the principal amount of $854,219.00
in the form of Exhibit
12
<PAGE>
2.4(b)(ii)(A) (the "Promissory Note"), which will be personally guaranteed by
John P. Miller pursuant to a guaranty agreement in the form of Exhibit
2.4(b)(ii)(B);
(iii) a stock purchase warrant in the form of Exhibit 2.4 (b)(iii) executed by
Buyer and John P. Miller (the "Stock Purchase Warrant");
(iv) a certificate executed by Buyer representing and warranting to Seller
that, except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in all respects as
of the date of this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date;
(v) the Employment Agreement executed by Premier;
(vi) the Warehouse Lease executed by Premier; and
(vii) an Assumption and Release Agreement [or a Release from any indebtedness of
the Company personally guaranteed by Seller] in the form of Exhibit 2.4(b)(vii).
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. To Seller's
Knowledge without having investigated the laws of each jurisdiction to which
products of the Company are shipped, the Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
(b) Seller has delivered to Buyer copies of the Organizational Documents of the
Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms except to the
extent that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies. Upon the execution and delivery by Seller of the
Employment Agreement, the Noncompetition Agreement and the Warehouse Lease
(collectively, the "Seller's Closing Documents"), the Seller's Closing Documents
will constitute the legal, valid, and binding obligations of Seller, enforceable
13
<PAGE>
against Seller in accordance with their respective terms except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies. Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Seller's
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions by Seller will, directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any provision
of the Organizational Documents of the Company, or (B) any resolution adopted by
the board of directors or the stockholders of the Company;
(ii) to Seller's Knowledge, contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company or either Seller,
or any of the assets owned or used by the Company, may be subject;
(iii) to Seller's Knowledge, contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(iv) to Seller's Knowledge, cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(v) to Seller's Knowledge, contravene, conflict with, or result in a violation
or breach of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; or
(vi) result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by the Company.
To Seller's Knowledge, except as set forth in Schedule 3.2, neither Seller nor
the Company is or will be required to give any notice to or obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of One Thousand (1,000)
shares of common stock, no par value per share, of which seventy-five (75)
shares are issued and outstanding and
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constitute the Shares. Seller is and will be on the Closing Date the record and
beneficial owner and holder of the Shares, free and clear of all Encumbrances.
Other than the standard securities legend, no legend or other reference to any
purported Encumbrance appears upon any certificate representing equity
securities of the Company. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. There are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company. None of
the outstanding equity securities or other securities of the Company was issued
in violation of the Securities Act or any other Legal Requirement. The Company
does not own, or have any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business.
3.4 FINANCIAL STATEMENTS
Seller has previously delivered to Buyer the audited financial statements for
the years 1995 and 1996, and unaudited balance sheets of the Company as of
December 31 for years 1995 through 1997, and the related consolidated statements
of income, changes in stockholders' equity, and cash flow for each of the fiscal
years then ended, (the December 31, 1997 unaudited balance sheet shall
hereinafter be referred to as the "Balance Sheet"). Such financial statements
and notes fairly present the financial position and the results of operations,
changes in stockholders' equity, and cash flow of the Company at the respective
dates of and for the periods referred to in such financial statements, all in
accordance with GAAP. The financial statements referred to in this Section 3.4
reflect the consistent application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such financial statements.
To Seller's Knowledge, no financial statements of any Person other than the
Company are required by GAAP to be included in the financial statements of the
Company.
3.5 BOOKS AND RECORDS
Except as set forth in Schedule 3.5, the books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer, are complete and correct in all material respects and have
been maintained in accordance with sound business practices. Except as set forth
in Schedule 3.5, the minute books of the Company contain accurate and complete
records of all formal meetings held of, and material corporate action taken by,
the stockholders, the Boards of Directors, and committees of the Boards of
Directors of the Company, and no formal meeting of any such stockholders, Board
of Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 and the financial statements and/or the tax return schedules
contain a complete and accurate list of all real property, leaseholds, or other
interests therein owned by the Company. The Company owns (with good and
marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or
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mixed and whether tangible or intangible) that it purports to own located in the
facilities owned, leased or operated by the Company or reflected as owned in the
books and records of the Company, including all of the properties and assets
reflected in the Balance Sheet (except for assets held under capitalized leases
disclosed or not required to be disclosed in Schedule 3.6 and personal property
sold since the date of the Balance Sheet, as the case may be, in the Ordinary
Course of Business). All of the properties, leasehold interests and assets
purchased or otherwise acquired by the Company since the date of the Balance
Sheet (except for personal property acquired and sold since the date of the
Balance Sheet in the Ordinary Course of Business and consistent with past
practice), which subsequently purchased or acquired properties and assets (other
than inventory and short-term investments) are listed in Schedule 3.6. All
material properties and assets reflected in the Balance Sheet are free and clear
of all Encumbrances and are not, in the case of real property, subject to any
rights of way, building use restrictions, exceptions, variances, reservations,
or limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Balance Sheet and/or
the interim unaudited financial statements delivered to Buyer prior to the
execution of this Agreement, as securing specified liabilities or obligations,
with respect to which no material default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (b) mortgages or security
interests incurred in connection with the purchase of property or assets after
the date of the Balance Sheet (such mortgages and security interests being
limited to the property or assets so acquired), with respect to which no
material default (or event that, with notice or lapse of time or both, would
constitute a material default) exists, (c) liens for current taxes not yet due
and payable, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts from
the value or impairs the existing use of the property subject thereto, or
materially impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions that do not materially impair the present use of the
property subject thereto and (iii) items reflected in and/or excepted in the
title commitment obtained for the real property. To Seller's Knowledge, all
buildings, plants, and structures owned by the Company lie wholly within the
boundaries of the real property owned by the Company and do not encroach upon
the property of, or otherwise conflict with the property rights of, any other
Person, except as may be reflected in any title commitment obtained for the real
property in connection with this transaction.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
To Seller's Knowledge, except as disclosed in Schedule 3.7, the buildings,
plants, structures, and equipment of the Company are structurally sound, are in
good operating condition and repair, and are adequate for the uses to which they
are being put, and none of such buildings, plants, structures, or equipment is
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the Balance Sheet
or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") were incurred in the Ordinary Course
of Business for bona fide sales. Unless paid prior to the Closing Date, to
Seller's Knowledge, the Accounts Receivable are or will be as of the Closing
Date collectible
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in accordance with the Company's historical collection percentage and practices.
To Seller's Knowledge, there is no contest, claim, or right of set-off, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Schedule 3.8 contains a list of all Accounts Receivable as
of the date of the Balance Sheet, which list sets forth the aging of such
Accounts Receivable and is complete and accurate in all material respects.
3.9 INVENTORY
To Seller's Knowledge, all inventory of the Company, whether or not reflected in
the Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of below-
standard quality, all of which have been written off or written down to net
realizable value in the Balance Sheet or on the accounting records of the
Company as of the Closing Date, as the case may be. All inventories not written
off have been priced at the lower of cost or net realizable value on a first in,
first out basis consistent with the Company's past business practices. To
Seller's Knowledge, the quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Schedule 3.10, to Seller's Knowledge, the Company has no
material liabilities or material obligations of any nature except for (i)
liabilities or obligations reflected or reserved against in the Balance Sheet
and (ii) any other liabilities incurred in the Ordinary Course of Business since
December 31, 1997.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since January
1, 1992) all Tax Returns that are or were required to be filed by it pursuant to
applicable Legal Requirements, other than Returns due after the Closing Date for
periods which include the Closing Date. Seller has delivered or made available
to Buyer copies of, and Schedule 3.11 contains a complete and accurate list of,
all such Tax Returns relating to income or franchise taxes filed since January
1, 1995. The Company has paid, or made provision for the payment of, all taxes
that have or may have become due pursuant to those Tax Returns or pursuant to
any assessment received by Seller or the Company, except such taxes, if any, as
are listed in Schedule 3.11 and are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been provided
in the Balance Sheet.
(b) Schedule 3.11 contains a complete and accurate list of all audits for
periods after December 31, 1994 of all such Tax Returns, including a reasonably
detailed description of the nature and outcome of each audit. All deficiencies
proposed as a result of such audits have been paid, reserved against, settled,
or, as described in Schedule 3.11, are being contested in good faith by
appropriate proceedings. Schedule 3.11 describes all adjustments to the United
States federal income Tax Returns filed by the Company for all taxable years
since 1994, and the resulting deficiencies proposed by the
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IRS. Except as described in Schedule 3.11, neither the Seller nor the Company
has given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of taxes of the Company or for which the
Company may be liable.
(c) To Seller's Knowledge, the charges, accruals, and reserves with respect to
taxes on the books of the Company are adequate (determined in accordance with
GAAP) and are at least equal to the Company's anticipated liability for taxes.
There exists no proposed tax assessment against the Company except as disclosed
in the Balance Sheet or in Schedule 3.11. No consent to the application of
Section 341(f)(2) of the IRC has been filed with respect to any property or
assets held, acquired, or to be acquired by the Company. All taxes that the
Company is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete. There is no tax sharing agreement that
will require any payment by the Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, to Seller's Knowledge, there has not been
any material adverse change in the business, operations, properties, prospects,
assets, or condition of the Company, and To Seller's Knowledge, no event has
occurred or circumstance exists that may result in such a material adverse
change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all pension,
retirement, stock option, stock purchase, savings, profit-sharing, deferred
compensation, retainer, consultant, bonus, group insurance, incentive, welfare
or any other contracts, plans or arrangements providing for employee
compensation or benefits (the "Plans"), and all trust agreements relating
thereto, to which the Company is a party or to which the Company contributes or
by which it is bound. Copies of each of the foregoing have been made available
to Purchaser. The only Plans which individually or collectively would constitute
an "employee pension benefit plan" as defined in Section 3(2) of ERISA are
identified in Schedule 3.13, and are hereinafter referred to as the "Pension
Plans." No Plan constitutes a "multi employer plan" as defined in Section
4001(a)(3) of ERISA.
(b) Each Plan that is intended to be qualified under Section 401(a) of the Code
is so qualified, and each trust forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. Copies of all Internal Revenue Service
determination letters and audit reports relating to such Plans have been made
available to Purchaser. Requests for determination letters relating to
amendments required to cause such Plans to be in compliance with the Tax Equity
and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984, and
the Retirement Equity Act of 1984, were timely filed and have been received or
are currently pending.
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(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, that are applicable to such
Plans, except for minor deviations, errors or omissions which can be cured by
amendment or other action which do not result in a funding deficiency and/or
substantial penalty. No "accumulated funding deficiency" within the meaning of
ERISA has been incurred with respect to any Pension Plan, whether or not waived.
No reportable event (as described in Section 4043(b) of ERISA) has occurred with
respect to any Plan. No Plan nor any trust created thereunder, nor any trustee
or administrator thereof, has engaged in a "prohibited transaction" as such term
is defined in Section 4975 of the Code, which could subject such Plans or any of
them, any such trust, or any such trustee or administrator thereof, or any party
dealing with such employee benefit plans or any such trust, to any tax or
penalty on prohibited transactions imposed by such Section 4975; as of the date
of this Agreement, the fair market value of the assets of any Pension Plan that
is subject to Title IV of ERISA (excluding for these purposes any accrued but
unpaid contributions) exceeded the present value of all benefits accrued under
any such Plan, determined on a termination basis using the assumptions
established by the Pension Benefit Guaranty Corporation ("PBGC") as in effect on
such date. To Seller's Knowledge, the Company has not incurred any liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA.
(d) All contributions and payments accrued under each Plan, determined in
accordance with prior funding and accrual practices as adjusted to the extent
required to include proportional contribution and payment accruals for the
period from the last funding date to the Closing Date, will be discharged and
paid on or prior to the Closing Date except to the extent that any such amount
is recorded as a liability on either the Balance Sheet or the interim unaudited
financial statements of the Company since the Balance Sheet Date. Except as set
forth in Schedule 3.13, there has been no amendment to, written interpretation
or announcement (whether or not written) relating to, or change in employee
participation or coverage under any Plan that would increase materially the
expense of maintaining such Plan above the level of expense incurred in respect
thereof for the preceding fiscal year.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.14, to the Seller's Knowledge:
(i) the Company is, and at all times has been, in full compliance with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets except where the
failure to be in compliance with any such Legal Requirements would not have a
material adverse effect on the Company;
(ii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a material violation by the
Company of, or a failure on the part of the Company to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part
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of the Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any material nature; and
(iii) the Company has not received any notice or other communication (whether
oral or written) from any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or potential
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any material nature.
(b) Schedule 3.14 contains a complete and accurate list of each Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or to any of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be listed in Schedule 3.14 is
valid and in full force and effect except where the failure to have such
Governmental Authorization in full force and effect would not have a material
adverse effect on the Company. Except as set forth in Schedule 3.14:
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Schedule 3.14 except where the failure to have such
Governmental Authorization in full force and effect would not have a material
adverse effect on the Company;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Schedule 3.14, or
(B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any Governmental
Authorization listed or required to be listed in Schedule 3.14;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of or material failure to comply with any material term or requirement
of any Governmental Authorization which has not been cured or remedied to the
satisfaction of the Governmental Body or Person, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization which has not
been withdrawn, resolved or cured; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 3.14
have been duly filed on a timely basis with the appropriate Governmental Bodies,
and all other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies except where the failure to renew or timely file
such applications would not have a material adverse effect on the Company.
To Seller's Knowledge, the Governmental Authorizations listed in Schedule 3.14
collectively
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constitute all of the Governmental Authorizations necessary to permit the
Company to lawfully conduct and operate its business in the manner it currently
conducts and operates such business and to permit the Company to own and use its
assets in the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.15, to the Knowledge of Seller there is no
pending Proceeding:
(i) that has been commenced by or against the Company or that otherwise relates
to or may materially affect the business of, or any of the assets owned or used
by, the Company; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise materially interfering with, any of the
Contemplated Transactions of Seller.
To the Knowledge of Seller and the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Seller
has delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 3.15. To Seller's
Knowledge, the Proceedings listed in Schedule 3.15 will not have a material
adverse effect on the business, operations, assets, condition, or prospects of
the Company.
(b) Except as set forth in Schedule 3.15, to the Knowledge of Seller:
(i) there is no Order to which the Company, or any of the assets owned or used
by the Company, is subject;
(ii) Seller is not subject to any Order that relates to the business of, or any
of the assets owned or used by, the Company; and
(iii) to the Knowledge of Seller and the Company, no officer, director, agent,
or employee of the Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company.
(c) Except as set forth in Schedule 3.15, to the Knowledge of Seller:
(i) the Company is, and at all times has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a material violation of or failure
to comply with any term or requirement of any Order to which the Company, or any
of the assets owned or used by the Company, is subject; and
(iii) the Company has not received at any time any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible,
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or potential material violation of, or failure to comply with, any material term
or requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Balance Sheet, the
Company has conducted its business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company (except in the Ordinary Course of
Business and as otherwise provided in this Agreement) of any bonuses, salaries,
dividend or other compensation to any stockholder, director, officer, or
employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the Company,
taken as a whole;
(f) with the exception of purchase orders placed or received by the Company,
entry into, termination of, or receipt of notice of termination of (i) any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of Business),
lease, or other disposition of any asset or property of the Company or mortgage,
pledge, or imposition of any lien or other encumbrance on any material asset or
property of the Company, including the sale, lease, or other disposition of any
of the Intellectual Property Assets;
(h) to Seller's Knowledge, cancellation or waiver of any claims or rights with a
value to the Company in excess of $25,000; or
(i) material change in the accounting methods used by the Company;
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(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Seller has made
available to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services or delivery
of goods or materials by the Company of an amount or value in excess of $10,000
which were not purchase orders received in the Ordinary Course of Business;
(ii) each Applicable Contract that involves performance of services or delivery
of goods or materials to the Company of an amount or value in excess of $10,000
which were not purchase orders placed in the Ordinary Course of Business;
(iii) each Applicable Contract that was not entered into in the Ordinary Course
of Business and that involves expenditures or receipts of the Company in excess
of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets that is used in and is material to the business of the Company;
(vi) each collective bargaining agreement and other Applicable Contract to or
with any labor union or other employee representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way purport to
restrict the business activity of the Company or any Affiliate of the Company or
limit the freedom of the Company or any Affiliate of the Company to engage in
any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments for goods in excess
of $10,000.00;
(x) each power of attorney that is currently effective and outstanding;
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(xi) each Applicable Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by the Company to
be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other similar undertaking with
respect to contractual performance extended by the Company other than in the
Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification whether oral or written in
respect of any of the foregoing.
Schedule 3.17(a) sets forth a schedule of such Contracts.
(b) To Seller's Knowledge, except as set forth in Schedule 3.17(b):
(i) Neither Seller nor any Related Person of Seller has or may acquire any
rights under, and neither Seller nor any Related Person of Seller has or may
become subject to any obligation or liability under, any Contract that relates
to the business of, or any of the assets owned or used by, the Company; and
(ii) to the Knowledge of Seller, no officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Schedule 3.17(c), to the Knowledge of Seller, each
Contract identified or required to be identified in Schedule 3.17(a) is in full
force and effect and is valid and enforceable in accordance with its terms
except as may be limited by applicable bankruptcy, reorganization, insolvency or
moratorium laws, or other laws affecting the enforcement of creditor's rights or
by the principles governing the availability of equitable remedies.
(d) Except as set forth in Schedule 3.17(d) to the Knowledge of Seller:
(i) the Company is, and at all times has been, in full compliance with all
applicable terms and requirements of each Contract under which the Company has
or had any obligation or liability or by which the Company or any of the assets
owned or used by the Company is or was bound;
(ii) each other Person that has or had any obligation or liability under any
Contract under which the Company has or had any rights is, and at all times has
been, in full compliance with all applicable terms and requirements of such
Contract;
(iii) no event has occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in a material
violation or breach of, or give the Company or other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
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performance of, or to cancel, terminate, or modify, any Applicable Contract for
amounts in excess of $10,000; and
(iv) the Company has not given to or received from any other Person at any time
any notice or other communication (whether oral or written) regarding any
actual, alleged, possible or potential material violation or breach of, or
default under, any Contract.
(e) To the Knowledge of Seller, except as set forth on Schedule 3.17(e) there
are no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to the Company under current or
completed Contracts with any Person and, to the Knowledge of Seller, no such
Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision of
products or services by the Company have been entered into in the Ordinary
Course of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
Notwithstanding the representations and warranties made in this Section 3.17, no
error or omission shall be deemed a breach hereunder if such error or omission
can be cured or remedied without substantial liability to Buyer.
3.18 INSURANCE
(a) Seller has made available to Buyer as part of its due diligence:
(i) true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies of
insurance; and
(iii) any statement by the outside independent auditor of the Company's
financial statements with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Schedule 3.18(b) describes:
(i) any self-insurance arrangement by or affecting the Company, including any
reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with respect to insurance
(including such obligations under leases and service agreements) and identifies
the policy under which such coverage
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is provided.
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and each
of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for an amount
in excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and period of
coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-
insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d):
(i) Neither Seller nor the Company has received (A) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(ii) The Company has paid all premiums due, and to Seller's Knowledge, the
Company has otherwise performed all of its respective obligations, under each
policy to which the Company is a party or that provides coverage to the Company
or any director thereof.
(iii) The Company has given notice to the insurer of all material claims that
may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.19:
(a) To the Knowledge of Seller, the Company is, and at all times has been, in
full compliance with, and has not been and is not in violation of or liable
under, any Environmental Law other than disclosed on the Phase I audit provided
to Buyer by Seller in connection with this Agreement. To the Knowledge of Seller
there is no basis to expect, nor has any other Person for whose conduct Seller
is or may be held to be responsible received, any actual or Threatened order,
notice, or other communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner or operator of
any Facilities, of any actual or potential violation or failure to comply with
any Environmental Law, or of any actual or Threatened obligation to undertake or
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bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has had an interest, or with respect to
any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by Seller, the
Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received. To Seller's
Knowledge, the Phase I Environmental Audit Reports attached hereto as Exhibit
3.19(a) reflect the current environmental condition of the real property and
improvements referenced therein as of the date each such report was made. To
Seller's Knowledge, no material adverse change in the environmental conditions
of the real estate and improvements has occurred since the date on which the
respective reports were made.
(b) There are no pending or, to the Knowledge of Seller, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which Seller
or the Company has or had an interest.
(c) Seller has no Knowledge of any basis to expect, nor has the Company or any
other Person for whose conduct the Company may be held responsible, received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Seller or the Company had an interest, or
with respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by Seller, the
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) To the Knowledge of Seller, neither Seller nor the Company, or any other
Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the Facilities or,
to the Knowledge of Seller, with respect to any other properties and assets
(whether real, personal, or mixed) in which Seller or the Company (or any
predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) To the Knowledge of Seller, except in compliance with all applicable
Environmental Laws, there are no Hazardous Materials present on or in the
Environment at the Facilities, including any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities, or incorporated into any structure therein or thereon. Neither
Seller, the Company, nor any other Person for whose conduct the Company may be
held responsible, or to the Knowledge of Seller and the Company, any other
Person, has permitted or conducted, or is aware of, any Hazardous Activity
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conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Seller or the Company has or had an
interest except in full compliance with all applicable Environmental Laws. With
respect to asbestos or asbestos containing materials, the mere presence of such
materials shall not constitute a breach of this Section 3.19 unless the mere
presence of the same constitutes noncompliance with applicable Environmental
Laws.
(f) To the Knowledge of Seller and the Company, there has been no Release or
Threat of Release, of any Hazardous Materials at or from the Facilities in which
Seller or the Company has or had an interest in a quantity or manner that
violates applicable Environmental Laws.
(g) Seller has delivered to Buyer true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed or initiated by
Seller or the Company pertaining to Hazardous Materials or Hazardous Activities
in, on, or under the Facilities, or concerning compliance by Seller, the
Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
(h) The disclosure of any matter in Schedule 3.19 shall not constitute an
admission that such matter is a violation of any applicable Environmental Laws.
3.20 EMPLOYEES
(a) Schedule 3.20(a) contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1997; vacation accrued; and service credited for purposes of vesting
and eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan.
(b) To the Knowledge of Seller, no employee or director of the Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee or director and any other Person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of his duties as
an employee or director of the Company, or (ii) the ability of the Company to
conduct its business, including any Proprietary Rights Agreement with Seller or
the Company by any such employee or director. To Seller's Knowledge, except for
those employees set forth on Schedule 3.20(b), no director, officer, or other
key employee of the Company intends to terminate his or her employment with the
Company.
(c) Schedule 3.20(a) also contains a complete and accurate list of the following
information for each retired employee or director of the Company, or their
dependents, receiving benefits or scheduled to receive benefits in the future:
name, pension benefit, pension option election, retiree medical insurance
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coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1994, the Company has not been nor is currently a party to any
collective bargaining or other labor Contract. Since January 1, 1997, there has
not been, there is not presently pending or existing, and to Seller's Knowledge,
there is not Threatened, (a) any strike, slowdown, picketing, or work stoppage,
(b) any Proceeding against or affecting the Company relating to the alleged
violation of any Legal Requirement pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting the Company or their premises, or (c)
any application for certification of a collective bargaining agent. To Seller's
Knowledge, no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any
employees by the Company, and no such action is contemplated by the Company. To
Seller's Knowledge, the Company has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. To Seller's Knowledge, the Company is not liable for
the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
----------------------------
includes:
(i) the name Phillips Litho, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications to the
extent of the Company's interest therein (collectively, "Marks");
(ii) all copyrights in both published works and unpublished works to the extent
of the Company's interest therein (collectively, "Copyrights"); and
(iii) to the extent any exists, all trade secrets, confidential information,
customer lists, proprietary software, proprietary technical information,
proprietary data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by the Company as
licensee or licensor to the extent of the Company's interest therein.
(b) Agreements--To Seller's Knowledge, Schedule 3.22(b) contains a complete and
----------
accurate list and summary description, including any royalties paid or received
by the Company, of all Contracts relating to the Intellectual Property Assets to
which the Company is a party or by which the Company is bound, except for any
license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than $5,000 under
which the Company
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is the licensee. There are no outstanding and, to Seller's Knowledge, no
Threatened disputes or disagreements with respect to any such agreement
concerning Intellectual Property Assets.
(c) Intellectual Property Assets Necessary for the Business-- To Seller's
-------------------------------------------------------
Knowledge, the Intellectual Property Assets are all those reasonably necessary
for the operation of the Company's business as it is currently conducted. To the
Seller's Knowledge, the Company has the right to use each of the Intellectual
Property Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, without payment to a third
party.
(d) Trademarks
(i) Schedule 3.22(d) contains a complete and accurate list and summary
description of all Marks, none of which have been registered with any federal or
state agency. To the Seller's Knowledge the Company has the right to use each
of the Marks, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) To the Seller's Knowledge, all Marks that have been registered with the
United States Patent and Trademark Office are currently in compliance with all
formal legal requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to Seller's Knowledge, no such action is Threatened with the
respect to any of the Marks.
(iv) To Seller's Knowledge, there is no potentially interfering trademark or
trademark application of any third party.
(v) No Mark is infringed or, to Seller's Knowledge, has been challenged or
threatened in any way. To Seller's Knowledge, none of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) To Seller's Knowledge, all products and materials containing a Mark bear
the proper federal registration notice where permitted by law.
(e) Copyrights
(i) Schedule 3.22(e) contains a complete and accurate list and summary
description of all Copyrights. To Seller's Knowledge, the Company is the owner
of all right, title, and interest in and to each of the Copyrights, free and
clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims.
(ii) To Seller's Knowledge, all the Copyrights that have been registered are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees
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or taxes or actions falling due within ninety days after the date of Closing.
(iii) To Seller's Knowledge, no Copyright is infringed or, to Seller's
Knowledge, has been challenged or threatened in any way. To Seller's Knowledge,
none of the subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based on the
work of a third party.
(iv) To Seller's Knowledge, all works encompassed by the Copyrights have been
marked with the proper copyright notice.
(f) Trade Secrets
-------------
(i) To Seller's Knowledge, Seller and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of their Trade
Secrets.
(ii) To Seller's Knowledge, the Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets.
3.23 CERTAIN PAYMENTS
Since January 1, 1992, neither the Company nor any director, officer, agent, or
employee of the Company, or To Seller's Knowledge, any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly made
any illegal contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form,
whether in money, property, or services to obtain favorable treatment in
securing business or to pay for favorable treatment for business secured.
3.24 DISCLOSURE
(a) To Seller's Knowledge, no representation or warranty of Seller in this
Agreement omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading.
(c) Disclosure of or reference to any matter on any exhibit, schedule or
attachment to this Agreement shall be deemed to be disclosure of such matter for
all purposes of this Agreement.
3.25 RELATIONSHIPS WITH RELATED PERSONS
To Seller's Knowledge, except as set forth on Schedule 3.25 Seller nor any
Related Person of Seller or of the Company has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
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in any transaction with the Company other than business dealings or transactions
conducted in the Ordinary Course of Business with the Company at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with the Company with respect to any line of the products
or services of the Company (a "Competing Business") in any market presently
served by the Company except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 3.25, neither Seller nor any Related Person of Seller or of the Company
is a party to any Contract with, or has any claim or right against, the Company.
3.26 BROKERS OR FINDERS
Seller and his agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.27 SECURITIES REPRESENTATIONS
(a) The Stock Purchase Warrant and Promissory Note are being acquired by the
Seller solely for his own account for investment and not with a view to the
distribution or transfer thereof, and Seller acknowledges and understands that
the Stock Purchase Warrant and Promissory Note will bear a legend in
substantially the following form:
(i) For Stock Purchase Warrant:
NEITHER THIS STOCK PURCHASE WARRANT NOR THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THE STOCK PURCHASE WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER SUCH ACTS OR UNLESS EXEMPTIONS FROM
REGISTRATION ARE AVAILABLE.
(ii) For Promissory Note:
THE PROMISSORY NOTES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES ACT AND CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR UNLESS
EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
(b) Seller represents and warrants as follows:
(i) Seller confirms that Buyer has made available to him or to his
representatives the opportunity to
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ask questions of Buyer's officers and directors and to acquire such information
about the Stock Purchase Warrant and the Promissory Note and the business and
financial condition of Buyer as Seller requested, which additional information
has been received.
(ii) In deciding to acquire the Stock Purchase Warrant and Promissory Note
pursuant to this Agreement, each Seller has consulted with his own respective
legal, financial, and tax advisors with respect to the Agreement and the nature
of the investment together with any additional information provided under
subsection (i) above.
(iii) Seller has adequate means of providing for his current needs and
personal contingencies and has no need for liquidity in his investment in Buyer.
Seller, either alone or with his representatives, has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the Agreement.
(iv) Each Seller understands and acknowledges that the investment in the Stock
Purchase Warrants and Promissory Notes is a speculative investment which
involves a high degree of risk of loss of Seller's investment therein; that
there are substantial restrictions on the transferability of the Stock Purchase
Warrant and Promissory Note under the applicable provisions of the Securities
Act and the rules and regulations promulgated thereunder and applicable state
securities or "blue sky" laws; and, accordingly, that it may not be possible to
liquidate an investment in the Stock Purchase Warrant or Promissory Note.
(v) Seller has been advised and understands that (i) the issuance of the Stock
Purchase Warrant and Promissory Note has not been registered under the
Securities Act; (ii) the Stock Purchase Warrant must be held indefinitely and
the Seller must continue to bear the economic risk of the investment in the
Stock Purchase Warrant until the offer or sale of the Stock Purchase Warrant is
subsequently registered under the Securities Act or any "blue sky" laws or an
exemption from such registration is available; (iii) the Promissory Note is
subject to Subordination Agreements and as such must be held until payment on
such Promissory Note is permitted by the Subordination Agreements and the terms
of such Promissory Note and the Seller must continue to bear the economic risk
of the investment in the Promissory Note until such payment on the Promissory
Note is permitted by the Subordination Agreements and the terms of such
Promissory Note; (iv) Rule 144 promulgated under the Securities Act is not
presently available with respect to the sale of any securities of Buyer,
including the Stock Purchase Warrant and Promissory Note, and when and if the
Stock Purchase Warrant or Promissory Note may be disposed of without
registration in reliance on Rule 144, such disposition can be made only in
accordance with the terms and conditions of such Rule; (v) the restrictive
legends described in paragraph (a) shall be placed on the Stock Purchase Warrant
and Promissory Note; and (vi) a notation shall be made in the appropriate
records of Buyer indicating that the Stock Purchase Warrant and Promissory Note
are subject to restrictions on transfer.
4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PREMIER
Buyer and Premier (who joins as a party for purposes of these representations
and warranties and the duties, covenants and obligations of Buyer) represent and
warrant to Seller as follows:
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4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, with full corporate power and authority
to conduct its business as it is now being conducted, including being authorized
to do business as a foreign corporation in the State of Arkansas and each other
jurisdiction where qualification is required.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement together with all other documents referenced herein to be
executed by Buyer, constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreement, and the Promissory
Note (collectively, the "Buyer's Closing Documents"), the Buyer's Closing
Documents will constitute the legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms. Buyer has
the absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and the Buyer's Closing Documents (and any related documents in
connection with this transaction) and to fully perform its obligations under
this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery of
this Agreement by Buyer, nor the consummation or performance of any of the
Contemplated Transactions by Buyer, will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
(iv) any Contract, loan agreement or credit facility to which Buyer is a party
or by which Buyer may be bound; or
(v) any material restriction of any kind or nature to which Buyer is subject;
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act, and will
not dispose of any of the shares in any manner that will cause a violation of
applicable federal or state securities laws.
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4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Seller harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
4.6 REPRESENTATIONS RELIED UPON
There is no understanding, condition, direct or indirect representation or
warranty, to Buyer or upon which it is relying in connection with the purchase
of the shares other than explicitly set forth in this Agreement and the exhibits
and schedules thereto.
4.7 CONSENTS
To the best of Buyer's Knowledge, except for approvals required to be obtained
from Buyer's Board of Directors and the filings, consents, and approvals set
forth in Schedule 4.2, Buyer is not required to make, file give or obtain any
registrations, filings, applications, notices, transfers, consents, approvals,
orders, qualifications, waivers, and other actions of any kind with, to or from
any Persons or Governmental Body or private agencies in connection with the
consummation of this Agreement and the transactions contemplated by this
Agreement. As of the date hereof, Buyer has obtained all of the consents and
approvals necessary for the consummation of this Agreement and the transactions
contemplated by this Agreement.
4.8 LITIGATION
There are no actions, suits or claims or legal, administrative or arbitrable
proceedings or investigations pending, or, to the Knowledge of Buyer,
threatened, against or involving Buyer or any of its properties or assets which,
individually or in the aggregate, could, if decided adversely to Buyer, have a
material adverse effect upon the condition of its business or otherwise on
Buyer's ability to consummate the transactions contemplated by this Agreement.
Buyer is not subject to any continuing court or administrative order, writ,
injunction or decree applicable to it or any of its assets, which has a
material adverse effect on Buyer, its assets or its ability to conduct business.
4.9 REPRESENTATIONS AND WARRANTIES
Neither the representations and warranties of Buyer contained herein nor in any
other writing
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<PAGE>
delivered by Buyer pursuant hereto or in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or, taken
together, omit to state a material fact necessary in order to make the
statements herein and therein not misleading in light of the circumstances in
which made. All statements in the Agreement and any certificate, Schedule,
Exhibit or document delivered in connection herewith shall constitute
representations and warranties by Buyer herein.
4.10 ANTITRUST
To the best of Buyer's Knowledge, the consummation of the transactions
contemplated herein will not violate any federal or state antitrust laws.
Further, consummation of the Contemplated Transactions will not require a pre-
merger or other filing under the Hart-Scott-Rodino Act (15 USC18a).
4.11 ENVIRONMENTAL
Buyer has obtained a Phase I Environmental Audit Report for the real estate
owned by the Company, a copy of which is attached hereto as part of Exhibit
3.19(a), and Buyer accepts the environmental conditions set forth therein. To
Buyer's Knowledge there are no environmental conditions affecting the real
estate owned by the Company other than those reflected in the Phase I
Environmental Audit Report.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Seller will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date (or termination of this
Agreement prior to Closing), Seller will cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of Business;
(b) use his reasonable best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees,
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<PAGE>
agents, and others having business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material nature; and
(d) provide unaudited monthly financial statements to Buyer as well as other
information reasonably requested by Buyer concerning the status of the business,
operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Seller will not, and will cause the Company
not to, without the prior consent of Buyer, take any affirmative action, or fail
to take any reasonable action within their or its control, which will result in
any of the changes or events listed in Section 3.16 occurring.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Seller will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer, at Buyer's expense,
in obtaining all consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Seller will promptly
notify Buyer in writing if Seller or the Company becomes aware of any fact or
condition that causes or constitutes a Breach of any of Seller's representations
and warranties as of the date of this Agreement, or if Seller or the Company
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Seller will promptly notify
Buyer of the occurrence of any Breach of any covenant of Seller in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Seller has caused indebtedness
in the amount of $357,892 which was owed to the Company by Seller to be treated
as a dividend or as additional compensation to Seller prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Seller will not, and will
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cause the Company and each of their Representatives not to, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Buyer) relating to any transaction involving the sale of the business or
assets (other than in the Ordinary Course of Business) of the Company, or any of
the capital stock of the Company, or any merger, consolidation, business
combination, or similar transaction involving the Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will use his
reasonable best efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
6. COVENANTS OF BUYER
(a) Covenants of Buyer Prior to Closing Date.
(i) Approvals of Governmental Bodies. As promptly as practicable after the
---------------------------------
date of this Agreement, Buyer will, and will cause each of its Related Persons
to, make all filings required by Legal Requirements to be made by them to
consummate the Contemplated Transactions. Between the date of this Agreement and
the Closing Date, Buyer will, and will cause each Related Person to, cooperate
with Seller with respect to all filings that Seller is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (ii)
cooperate with Seller in obtaining all consents identified in Schedule 3.2;
provided that this Agreement will not require Buyer to dispose of or make any
material change in any portion of its business or to incur any other burden to
obtain a Governmental Authorization.
(ii) Best Efforts. Except as set forth in the proviso to Section 6(a)(i),
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between the date of this Agreement and the Closing Date, Buyer will use its
reasonable best efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
(b) Covenants of Buyer Following Closing Date.
(i) Merger. Following Closing or simultaneously therewith, Buyer agrees to
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cause the Company to be merged with and into Premier.
(ii) IPO Covenant. As a material inducement for Seller entering into this
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Agreement, Buyer has agreed to grant to Seller at Closing warrants for the
purchase by Seller of stock in Buyer. In this connection, Buyer represents that
it is not aware of any circumstance, restriction or other events that would
prohibit Buyer going forward with and consummating its proposed initial public
offering. Further, Buyer covenants with Seller to use its best efforts in taking
all necessary steps to complete the proposed public offering.
(iii) Phillips Litho Division; Books and Records; Access. Buyer shall cause
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separate books and records to be maintained for the Phillips Litho Division
until all obligations to Seller pursuant to this
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Agreement and the Employment Agreement have been satisfied in full. Seller shall
be given full and complete access to all books and records of Buyer at
reasonable time for purpose of (A) reviewing Buyer's compliance with the terms
of this Agreement and Employment Agreement, (B) preparing for an audit by the
IRS or other taxing authority of the Company's tax returns for periods prior to
the Closing Date, or (C) any reasonable business needs of the Seller.
(iv) Indemnification From Debt. Except as specifically set forth herein, Buyer
-------------------------
acknowledges that one of Seller's conditions to Closing this Agreement requires
Buyer to obtain the release of Seller from any debts, liabilities or obligations
of the Company, including, without limitation, credit arrangements with vendors
and suppliers. As further inducement for Seller entering into this Agreement,
Buyer agrees to indemnify and hold Seller, his heirs and assigns, harmless and
will pay to Seller the amount of any Damages (as defined herein) arising,
directly or indirectly, from or in connection with any liabilities, debts or
obligations with respect to which Seller is to be (or should have been) released
pursuant to this Agreement.
(v) Diversion of Business. Buyer and any Related Party shall not at any time
---------------------
after the Closing Date, either directly or indirectly, divert, steer or attempt
to divert or steer, any business or revenues away from the Phillips Litho
Division during such time period as Seller is eligible for an Earnout Payment or
additional compensation based on Net Value Added pursuant to the Employment
Agreement referred in Section 2.4(a)(iii).
(vi) Post Closing Matters for Company. After Closing, Buyer will cause the
--------------------------------
Company to timely file all state, local and federal Tax Returns and reports due
for periods which include or follow the Closing Date and to timely and properly
remit all taxes due with respect thereto. For purposes of reviewing and
approving the treatment of transactions between January 1, 1998 and the Closing
Date, upon Seller's request Buyer shall provide Seller with a copy of the tax
returns for the first tax year ending after the Closing Date prior to filing
such returns.
(vii) Environmental Matters; Indemnification. Buyer does hereby remise, release
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and forever discharge Seller from any and all claims, demands, liabilities or
causes of action arising under any Environmental Laws unless such claims,
demands, liabilities or causes of action constitute a breach of Seller's
representations or warranties contained herein.
(viii) Position on Board of Advisors. For so long as any amounts are due and
------------------------------
owing by Buyer or any of its affiliates to Seller under this Agreement, the
Promissory Note, the Employment Agreement, or any other instrument, Seller shall
be named as an advisor to the Board of Directors of Buyer and Premier, and shall
be given notice of and an opportunity to attend all meetings of such boards, at
the expense of the Buyer, and shall be entitled to serve as a member of the
Buyer's and Premier's Executive Committee, and shall be given notice of and an
opportunity to attend all such meetings of such Executive Committee, at the
expense of the Buyer.
(ix) Stock Option Plan. Buyer hereby covenants that subsequent to or in
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connection with an initial public offering of its common stock, it will adopt
for the benefit of all of the employees of Buyer and its affiliates a stock
option plan which allows employees of Buyer and its affiliates the
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opportunity to purchase stock in Buyer.
(x) Equipment. Buyer hereby covenants and agrees that for so long as any amount
----------
are due and owing Seller under this Agreement, it will provide and maintain
adequate equipment to the Phillips Litho Division in order for it to operate in
a profitable and efficient manner.
(xi) Right of First Refusal. Buyer hereby covenants and agrees that in the event
-----------------------
it elects to sell the Phillips Litho Division in an isolated transaction which
is not part of a sale of other divisions of Premier, Seller is hereby granted a
right of first refusal to purchase the Phillips Litho Division based on terms
and conditions comparable to those being offered to a third party purchaser.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Seller's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
(b) Each of Seller's representations and warranties in Sections 3.3, 3.4, 3.12,
and 3.24 must have been accurate in all respects as of the date of this
Agreement, and must be accurate in all respects as of the Closing Date as if
made on the Closing Date.
7.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller are required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been duly performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4 must have
been delivered, and each of the other covenants and obligations in Sections 5.4
and 5.8 must have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents of Schedule 3.2, and each Consent identified in Schedule
4.2, must have been obtained and must be in full force and effect.
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7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Lax, Vaughan, Pender and Evans, P.A., dated the Closing Date,
in the form of Exhibit 7.4(a);
(b) estoppel certificates executed on behalf of Lamb Packaging, dated as of the
Closing Date, each in the form of Exhibit 7.4(b); and
(c) such other documents as Buyer may reasonably request for the purpose of (i)
enabling its counsel to provide the opinion referred to in Section 8.4(a), (ii)
evidencing the accuracy of any of Seller's representations and warranties, (iii)
evidencing the performance by Seller of, or the compliance by Seller with, any
covenant or obligation required to be performed or complied with by Seller, (iv)
evidencing the satisfaction of any condition referred to in this Section 7, or
(v) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise materially
interfering with any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
7.8 CHANGE IN STOCKHOLDER'S EQUITY
The Company's stockholder's equity as of the Closing Date computed using the
Company's historical
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accounting practices but without taking into account the impact of the
transactions set forth on Schedule 7.8 will be equal to or greater than the
stockholder's equity as reflected on the Balance Sheet.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions required to
be taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
(a) All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
(b) Each of Buyer's representations in Sections 4.2, 4.3 and 4.10 must have
been accurate in all respects as of the date of this Agreement, and must be
accurate in all respects as of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to Section 2.4 and must have made the cash payments required to
be made by Buyer pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 must have been obtained and must
be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Seller:
(a) an opinion of Black Bobango & Morgan, A Professional Corporation, dated the
Closing Date, in the form of Exhibit 8.4(a); and
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(b) such other documents as Seller may reasonably request for the purpose of
(i) enabling their counsel to provide the opinion referred to in Section 7.4(a),
(ii) evidencing the accuracy of any representation or warranty of Buyer, (iii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (ii)
evidencing the satisfaction of any condition referred to in this Section 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
8.5 NO INJUNCTION
There must not be in effect any Threatened Legal Requirement, Proceeding or any
injunction or other Order that (a) prohibits the sale of the Shares by Seller to
Buyer, and (b) has been adopted or issued, or has otherwise become effective,
since the date of this Agreement.
8.6 EMPLOYMENT AGREEMENTS WITH KEY EMPLOYEES
Premier will have offered three year employment contracts to the key employees
of the Company containing terms and conditions substantially the same as the
Company's existing contracts with such employees. Buyer and Seller will
mutually determine which employees are key employees.
8.7. EBITDA AND RELATED COMPUTATIONS
Seller shall have approved the computations of Base EBITDA and any adjustments
thereto used in determining the Purchase Price or any other amounts due to
Seller hereunder.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Seller if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied
as of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller to
comply with their obligations under this Agreement) and Seller have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
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(d) by lapse of time if the Closing does not occur on or before March 31, 1998.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the certificate delivered pursuant to Section 2.4(a)(v), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing only as provided in Section10.4. The waiver of any condition based on
the accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on other
representations, warranties, covenants, and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Following consummation of the Contemplated Transactions, subject to Section
10.1, Seller will indemnify and hold harmless Buyer, its successors and assigns,
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage, expense (including
costs of investigation and defense and reasonable attorneys' fees) or diminution
of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller in this
Agreement, or any other certificate or document delivered by Seller pursuant to
this Agreement;
(b) any Breach of any representation or warranty made by Seller in this
Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by Seller of any covenant or obligation of such Seller in this
Agreement;
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(d) any product shipped or manufactured by, or any services provided by, the
Company prior to the Closing Date but only to the extent not covered by
insurance and not in excess of the Company's historical claims experience as of
the Closing Date; or
(e) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such Person with either Seller or the Company (or any Person acting
on their behalf) in connection with any of the Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Following consummation of the Contemplated Transactions, Buyer will indemnify
and hold harmless Seller, his heirs and assigns, and will pay to Seller the
amount of any Damages arising, directly or indirectly, from or in connection
with:
(a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate or document delivered by Buyer pursuant to this
Agreement;
(b) any Breach of any representation or warranty made by Buyer, Premier or
Miller or of any covenant or obligation of Buyer, Premier or Miller in this
Agreement;
(c) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by such Person with Buyer (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions;
(d) any material liabilities of the Company unless such material liabilities
are not disclosed under this Agreement and the failure to disclose such
liabilities is a Breach of the representations and warranties contained herein;
or
(e) any claim or liability asserted by a third party against Seller which
arises out of or in connection with the ownership of the Shares or the operation
of the business of the Company by Buyer following Closing.
10.4 TIME LIMITATIONS
If the Closing occurs, Seller will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11 and 3.13, unless on or before the second
anniversary of the Closing Date Buyer notifies Seller of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer; a claim with respect to Sections 3.11
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or 3.13 must be made on or before the third anniversary of the Closing Date; a
claim with respect to Section 3.3, or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant or
obligation to be performed and complied with prior to the Closing Date, may be
made at any time within the applicable limitations period. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before the
second anniversary of the Closing Date Seller notifies Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Seller.
10.5 LIMITATIONS ON AMOUNT--SELLER
Seller will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a), clause (b) or, to the extent relating to
any failure to perform or comply prior to the Closing Date, clause (c) of
Section 10.2 until the total of all Damages with respect to such matters exceeds
$50,000, and then only for the amount by which such Damages exceed $50,000.
However, the preceding sentence will not apply to any claim against Seller for
fraud, willful misconduct or any other intentional material misrepresentation,
and Seller will be liable for all Damages with respect to such claims. In no
event shall Seller's liability for a Breach of representations, warranties,
covenants or undertakings of any type or nature contained in this Agreement
exceed the amount of the Purchase Price.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $50,000, and then only for the
amount by which such Damages exceed $50,000. However, this Section 10.6 will
not apply to any Breach of (i) any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made; (ii) any intentional Breach by Buyer of any
covenant or obligation, (iii) Buyer's and/or Premier's obligations under the
Employment Agreement; or (iv) Buyer's obligation to pay the Purchase Price
(including the Earnout Portion) and to release Seller from all debts and
liabilities of the Company (whether or not personally guaranteed by Seller)
other than those for which Seller has specifically assumed liability for
pursuant to this Agreement, and Buyer will be liable for all Damages with
respect to such Breaches.
10.7 RIGHT OF SET-OFF
Upon a final non-appealable Order that Seller has an obligation to indemnify
Buyer pursuant to Section 10.2 above, Buyer may set off any amount to which it
may be entitled under this Section 10 against amounts otherwise payable under
the Promissory Note. The exercise of such right of set-off by Buyer will not
constitute an event of default under the Promissory Note or any instrument
securing the Promissory Note. Neither the exercise of nor the failure to
exercise such right of set-off will constitute an election of remedies or limit
Buyer in any manner in the enforcement of any other remedies that may be
available to it.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
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(a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3,
or of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves taxes in which case the indemnifying party may participate in the
defense but not as a named party, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party in good faith based on the facts and circumstances involved and the
likelihood of an adverse result absent such compromise or settlement.
(c) Notwithstanding the foregoing, if an indemnified party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld). If the indemnifying party chooses to defend any claim, or needs
additional information to formulate a decision as to how the indemnifying party
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wishes to proceed, the indemnified party shall promptly make available to the
indemnifying party any books, records or other documents within its control, or
which it can reasonably obtain, that are necessary or appropriate for such
defense, as determined by the indemnifying party.
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement (or as set forth in
Schedule 11.1 or any other schedule hereto), each party to this Agreement will
bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the Contemplated Transactions,
including all fees and expenses of agents, representatives, counsel, and
accountants. Except as set forth in Schedule 11.1, Seller will cause the Company
not to incur any out of pocket expenses in connection with this Agreement. In
the event of termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by another party. In the event Seller or Buyer proceed
with an action, suit or proceeding to enforce their rights hereunder, the
prevailing party shall be entitled to be reimbursed for all fees, and expenses
incurred by it in connection with such action, suit or proceeding, including
reasonable attorneys' fees.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer and Seller mutually agree. Unless consented to by Buyer
and Seller in advance, or required by Legal Requirements, prior to the Closing
Buyer and Seller shall, and Seller shall cause the Company to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person except as the parties deem necessary in connection with
assimilating information or complying with the terms of this Agreement. Seller
and Buyer will consult with each other concerning the means by which the
Company's employees, customers, and suppliers and others having dealings with
the Company will be informed of the Contemplated Transactions, and Buyer will
have the right to be present for any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, and consistent with the
terms of the Confidentiality Agreement executed on or about January 24, 1997.
Buyer and Seller will maintain
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in confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer and the Company to maintain in confidence, and not use to the
detriment of another party or the Company any written, oral, or other
information obtained in confidence from another party or the Company in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, (c) the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings, or (d) the furnishing of such information by Buyer to lenders or
other institutions providing financial accommodations to Buyer.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Seller: Phil Phillips, Jr.
c/o Phillips Litho
807 Old Missouri Road
Springdale, Arkansas 72764
Facsimile No.: (501) 751-8130
with a copy to: Lax, Vaughan, Pender & Evans, P.A.
400 West Capital Avenue, 24/th/ Floor
Little Rock, Arkansas 72201
Attention: Michael F. Lax, Esq.
Facsimile No.: (501) 376-6666
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
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Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan
Facsimile No.: (901) 683-2553
11.5 JURISDICTION; SERVICE OF PROCESS
Subject to the arbitration provisions in Section 11.17, any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Tennessee, County of Shelby, the Courts of the State of Arkansas, or, if it
has or can acquire jurisdiction, in the United States District Court for the
Western District of Tennessee or the Eastern or Western District of Arkansas,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative and no one remedy shall be construed as exclusive of any other or of
any remedy provided by law, and the failure of any party to exercise any remedy
at any time shall not operate as a waiver of the right of such party to exercise
any remedy for the same or subsequent default at any time. Neither the failure
nor any delay by any party in exercising any right, power, or privilege under
this Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (b) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided
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in this Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, written or oral, between the
parties with respect to its subject matter (including the Letter of Intent
between Buyer and Seller dated January 19, 1998) and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the Buyer and Seller, and in the event of a waiver, by the waiving party.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
Subsidiary of Buyer with the consent of Seller which shall not be unreasonably
withheld. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors, heirs and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
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11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Arkansas without
regard to conflicts of laws principles.
11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
11.16 FACSIMILE EXECUTION
To facilitate execution of this Agreement, the parties agree that the facsimile
signature of a party shall be sufficient to bind that party to this Agreement
with the original signature to be provided as promptly as possible following
execution. The facsimile signature shall be binding to the same extent as an
original signature, and no party shall have a defense that the facsimile
signature was not authorized.
11.17 ARBITRATION
The rights, duties and obligations of the parties to this Agreement shall be
performed in Little Rock, Arkansas. Any controversy or claim arising out of, or
relating to, this Agreement, or any breach thereof, which the parties are unable
to resolve informally between themselves or by mediation, shall be settled by
arbitration in the City of Little Rock, Arkansas in accordance with the rules
then existing of the American Arbitration Association ("AAA"), and judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
Company and Employee shall each select one person to act as arbitrator, and the
two selected shall select a third arbitrator within ten (10) days of their
appointment. If the arbitrators selected by the parties are unable to fail to
agree upon the third arbitrator, the third arbitrator shall be selected by the
American Arbitration Association.
Each party acknowledges and agrees that by entering into this arbitration
agreement, each party is waiving his, her or its right to have any dispute
covered by this clause heard in court and/or by a jury. The parties agree that
all decisions by an arbitrator under this clause are final and binding, and the
only court action that may be taken on any dispute thereafter is to have an
arbitration award confirmed by a court of competent jurisdiction.
All arbitration proceedings shall be administered by the AAA and be held in
Little Rock, Arkansas. The AAA administrative fee shall be advanced by the party
requesting arbitration, but shall be subject to a contrary assessment of the fee
in the arbitrator's award, depending upon the outcome of the arbitration. More
specifically, the parties agree that the arbitrator may assess the AAA
administrative fee against the party who does not substantially prevail.
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Prior to demanding arbitration, the parties will make a reasonable effort to
settle any dispute in an informal and expeditious manner, but if informal
attempts do not resolve the dispute within ten (10) days, then a formal written
arbitration demand may be made by either of the parties.
The parties shall be entitled to take discovery prior to arbitration, including
depositions, requests for documents and interrogatories. The parties shall not
be bound in discovery by the Arkansas Rules of Civil Procedure; however, the
parties expressly retain all of the privileges, immunities and exemptions from
discovery as provided for under Arkansas law. The parties shall have thirty
(30) days to conduct discovery prior to the commencement of arbitration. Any
discovery disputes shall be submitted to the arbitrator for a final and binding
determination.
During the arbitration, the parties and arbitrators shall not be limited by the
Arkansas Rules of Evidence, but the arbitrator shall be free to admit and
exclude evidence in accordance with his or her judgment on relevance.
Each party shall be entitled to representation by an attorney in any arbitration
proceeding; however, each party shall bear their own costs of attorneys' fees,
provided, however, the parties agree that the party who substantially prevails
may recover his, her or its reasonable attorneys' fees if so awarded by the
arbitrator. If either party commences an action in court to compel arbitration,
enforce an arbitration award or otherwise seek by judicial means to secure
compliance with the arbitration provisions of this Agreement, then the
prevailing party shall be entitled to recover from the losing party a reasonable
attorneys' fee and costs of suit.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
Its: President
SELLER: /s/ Phil Phillips, Jr.
----------------------
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Phil Phillips, Jr.
PREMIER: Premier Graphics, Inc.
By: /s/ John P. Miller
------------------
Its: President
--------------
MILLER: /s/ John P. Miller
------------------
John P. Miller
54
<PAGE>
Exhibit 10.19
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 31/st/, 1997, by
MASTER GRAPHICS, INC., a Tennessee corporation ("Buyer"), and MICHAEL G. HARPER,
an individual resident of Henderson, North Carolina, LYNN H. HARPER, an
individual resident of Henderson, North Carolina, MICHAEL G. HARPER, CUSTODIAN
FOR EMILY HINES HARPER, MINOR, an individual resident of Henderson, North
Carolina, and LYNN H. HARPER, CUSTODIAN FOR DAVIS HILLMAN HARPER, MINOR, an
individual resident of Henderson, North Carolina (collectively the "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of Harperprints, a North
Carolina corporation (the "Company"), for the consideration and on the terms set
forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACCOUNTANTS"--KPMG Peat Marwick LLP, the Buyer's independent certified public
- -------------
accountants.
"ADJUSTMENT AMOUNT"--as defined in Section 2.5.
- -------------------
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
- ---------------------
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
- ---------------
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
- --------
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
- -------
"CASH AMOUNT"--as defined in Section 2.2.
- -------------
<PAGE>
"CLOSING"--as defined in Section 2.3.
- ---------
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
- --------------
"COMPANY"--as defined in the Recitals of this Agreement.
- ---------
"COMPANY ACCOUNTANTS"--as defined in Section 2.6.
- ---------------------
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
- ---------
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
- ---------------------------
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Promissory Note, the
Employment Agreement, the Noncompetition Agreement and the Sellers'
Release;
(c) the performance by Buyer and Sellers of their respective covenants and
obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise of control
over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
- ----------
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES"--as defined in Section 10.2.
- ---------
"EARNOUT AMOUNT"--as defined in Section 2.2.
- ----------------
"EARNOUT GUARANTIES"--as defined in Section 2.4(b)(iii).
- --------------------
"EARNOUT NOTES"--as defined in Section 2.4.
- ---------------
"EBITDA"--pre-tax income plus interest expense deducted in computing pre-tax
- --------
income, minus interest income included in pre-tax income, plus or minus any
extraordinary items of expense or income, respectively, deducted or included in
computing pre-tax income, plus or minus any losses or gains from the sale of
capital assets, respectively, deducted or included in computing pre-tax income,
plus depreciation and amortization deducted in computing pre-tax income, all as
determined in accordance with GAAP utilizing fully-absorbed costing for work-in-
process and finished goods inventory. No allocation of home office overhead
shall be taken into account in computing pre-tax
2
<PAGE>
income. Any dispute concerning the calculation of EBITDA shall be resolved in
accordance with the procedures contained in the Earnout Note.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(iii).
- -----------------------
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
- -------------
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
- -------------
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
- -----------------------------------------------
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
- -------------------
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other
3
<PAGE>
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
- -------
law, and regulations and rules issued pursuant to that Act or any successor law.
"FIXED NOTE AMOUNT"-as defined in Section 2.2.
- -------------------
"FIXED NOTES"-as defined in Section 2.4.
- -------------
"FACILITIES"--any real property, leaseholds, or other interests currently or
- ------------
formerly owned or operated by the Company and any buildings, plants, structures,
or equipment (including motor vehicles, tank cars, and rolling stock) currently
or formerly owned or operated by the Company.
"FIXED NOTE GUARANTIES"--as defined in Section 2.4(b)(ii).
- -----------------------
"GAAP"--generally accepted accounting principles, applied on a basis consistent
- ------
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
- ----------------------------
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
4
<PAGE>
"GOVERNMENTAL BODY"--any:
- -------------------
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any
court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
- --------------------
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
- ---------------------
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INDEBTEDNESS"--as defined in Section 2.2(a)(ii).
- --------------
"INTELLECTUAL PROPERTY ASSETS"--as defined in Section 3.22.
- ------------------------------
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
- -----------------------
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
- -----
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
- -----
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
- -----------
fact or other matter if such individual is actually aware of such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other
5
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matter if any individual who is serving, or who has at any time served, as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
- -------------------
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iv).
- ---------------------------
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
- ------------------------------------
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
- -------
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
- -----------------------------
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority); and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any
Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the
same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
- --------------------------
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
- --------
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PLAN"--as defined in Section 3.13.
- ------
6
<PAGE>
"PREMIER"--Premier Graphics, Inc., a Tennessee corporation which is wholly owned
- ---------
by Buyer.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
- ------------
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROMISSORY NOTES"--the Earnout Notes and the Fixed Notes.
- ------------------
"RELATED PERSON"--with respect to a particular individual:
- ----------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse [and former spouses], (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as
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defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 20% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 20% of the outstanding equity securities or
equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
- ---------
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
- ----------------
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"REPURCHASE CLOSING DATE"--as defined in Section 11.2.
- -------------------------
"REPURCHASE PRICE"--as defined in Section 11.2.
- ------------------
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
- ----------------
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
- ---------
"SELLERS' RELEASES"--as defined in Section 2.4.
- -------------------
"SHARES"--as defined in the Recitals of this Agreement.
- --------
"STOCK PURCHASE WARRANTS"--as defined in Section 2.4(b)(iii).
- -------------------------
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
- ------------
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
- ------------
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any
Tax or in connection with the administration, implementation, or enforcement of
or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
- -------------------
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
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"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
- ------------
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Sellers.
2.2 PURCHASE PRICE
(a) The purchase price (the "Purchase Price") for the Shares will be equal
to:
(i) the sum of:
(A) $7,500,000; plus
(B) the lesser of (I) an amount equal to 4.4829 times the amount
by which EBITDA of the Company for the 12 month period commencing
April 1, 1998 and ending March 31,1999 exceeds $1,500,000, or
(II) $6,724,352 (the "Earnout Amount"); minus
(ii) the amount of the interest bearing debt of the Company on the
Closing Date, exclusive of the Phoenixcor debt, all as more
particularly described on Schedule 2.2(a)(ii) (the "Indebtedness");
plus or minus
(iii) the Adjustment Amount.
(b) Of the Purchase Price:
(i) an amount equal to the Purchase Price less (A) the Fixed Note
Amount, and (B) the amount of the Indebtedness, will be paid in cash
(the "Cash Amount") at Closing;
(ii) $1,125,000 (the "Fixed Note Amount") will be paid pursuant to the
Fixed Notes (as defined in Clause 2.4(b)(ii);
(iii) the Earnout Amount will be paid pursuant to the Earnout Notes
(as defined in Clause 2.4(b)(iii)); and
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(c) the Purchase Price will be allocated among the Sellers in the manner
reflected on Exhibit 2.2(c).
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Black Bobango & Morgan, Attorneys, at 530 Oak Court
Drive, Suite 345, Memphis, Tennessee, at 10:00 a.m. (local time) on or before
March 31, 1998, or at such other time and place as the parties may agree.
Subject to the provisions of Section 9, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.3 will not result in the termination of
this Agreement and will not relieve any party of any obligation under this
Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers) for transfer to Buyer;
(ii) a release in the form of Exhibit 2.4(a)(ii) executed by each
Seller (the "Sellers' Releases");
(iii) employment agreements in the form of Exhibit 2.4(a)(iii),
executed by Michael G. Harper and Lynn H. Harper (the "Employment
Agreements");
(iv) noncompetition agreements in the form of Exhibit 2.4(a)(iv),
executed by Michael G. Harper and Lynn H. Harper (the "Noncompetition
Agreements"); and
(v) a certificate executed by Sellers representing and warranting to
Buyer that each of Sellers' representations and warranties in this
Agreement was accurate in all material respects as of the date of this
Agreement and is accurate in all material respects as of the Closing
Date as if made on the Closing Date; and
(b) Buyer will deliver to Sellers:
(i) the Cash Amount, by wire transfer to accounts specified by
Sellers;
(ii) promissory notes ("Fixed Notes") in the form of Exhibit
2.4(b)(ii)(A) aggregating to the Fixed Notes Amount which will be
personally guaranteed by John P. Miller pursuant to guaranty
agreements in the form of Exhibit 2.4(b)(ii)(B) (the "Guaranties");
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(iii) promissory notes ("Earnout Notes") in the form of Exhibit
2.4(b)(iii)(A) aggregating to the Earnout Amount which will be
guaranteed by Premier pursuant to guaranty agreements in the form of
Exhibit 2.4(b)(iii)(B) (the "Earnout Guaranties");
(iv) stock purchase warrants in the form of Exhibit 2.4 (b)(iv)
executed by Buyer and John P. Miller (the "Stock Purchase Warrants");
(v) a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer's representations
and warranties in this Agreement is accurate in all material respects
as of the Closing Date as if made on the Closing Date;
(vi) the Employment Agreements, executed by Buyer;
(vii) a stock pledge agreement, executed by the Buyer, pursuant to
which the Buyer shall grant to the Sellers a security interest in the
Shares and pledge the Shares to the Sellers, as required under Section
-------
11, which stock purchase agreement shall be in form and substance
--
reasonably satisfactory to Sellers; and
(viii) an agreement executed by the Buyer, the Sellers and General
Electric Capital Corporation, regarding the Sellers' right to exercise
its option to repurchase the Shares under Section 11 and the other
----------
maters set forth in Section 11, which agreement shall be in form and
----------
substance reasonably acceptable to the Sellers.
2.5 ADJUSTMENT AMOUNT
In the event the stockholders' equity of the Company as of the Closing Date
determined in accordance with GAAP is either less than $2,316,815 or more than
$2,831,663, the Adjustment Amount will be equal to the amount by which the
stockholders' equity of the Company as of the Closing Date determined in
accordance with GAAP is either less than $2,316,815 or more than $2,831,663, as
the case may be. In the event the stockholders' equity of the Company as of the
Closing Date determined in accordance with GAAP is equal to or greater than
$2,316,815, but not greater than $2,831,663, there will be no Adjustment Amount.
2.6 ADJUSTMENT PROCEDURE
(a) Buyer and Sellers will jointly prepare financial statements ("Closing
Financial Statements") of the Company as of the Closing Date and for the
period from the date of the Balance Sheet through the Closing Date,
including a computation of stockholders' equity as of the Closing Date.
Buyer and Sellers agree to complete the Closing Financial Statements within
sixty days after the Closing Date. If within thirty days following
completion of the Closing Financial Statements, neither Buyer nor Sellers
have objected to the Closing Financial Statements (such objection must
contain a statement of the basis of the objection), then the stockholders'
equity reflected in the Closing Financial Statements will be used in
computing the Adjustment Amount. If Buyer or Sellers give notice of
objection, or if Buyer and Sellers are unable to
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agree on how the Closing Financial Statements should be prepared, then the
issues in dispute will be submitted to the Accountants and the independent
certified public accountants utilized by the Company prior to the Closing
(the "Company Accountants") for resolution. If issues in dispute are
submitted to the Accountants and the Company Accountants for resolution,
(i) each party will furnish to the respective accounting firms such
workpapers and other documents and information relating to the disputed
issues as the respective accounting firms may request and are available to
that party (or its independent public accountants), and will be afforded
the opportunity to present to the respective accounting firms any material
relating to the determination and to discuss the determination with the
respective accounting firms; (ii) the determination by the two accounting
firms, as set forth in a notice delivered to both parties by the two
accounting firms, will be binding and conclusive on the parties; and (iii)
Buyer and Sellers will each bear 50% of the fees of the two accounting
firms for such determination. In the event the two accounting firms are
unable to agree on how the Closing Financial Statements should be prepared
then the issues and dispute will be submitted to a third accounting firm
chosen by the Accountants and the Company Accountants for resolution. The
determination by the third accounting firm will be binding and conclusive
on the parties. Buyer and Sellers will each bear 50% of the fees of the
third accounting firm for such determination.
(b) On the tenth business day following the final determination that there
is an Adjustment Amount and the amount of the Adjustment Amount, if the
Adjustment Amount results in a reduction to the Purchase Price, Sellers
will pay the amount of the Adjustment Amount to Buyer. If the Adjustment
Amount results in an increase in the Purchase Price, Buyer will pay the
amount of the Adjustment Amount to Sellers, payments of the Adjustment
Amount must be made by wire transfer to such bank accounts as Buyer or
Sellers, as the case may be, will specify.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it purports
to own or use, and to perform all its obligations under Applicable
Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires
such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents
of the Company, as currently in effect.
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3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms. Upon the
execution and delivery by Sellers of the Employment Agreements, the
Sellers' Releases, and the Noncompetition Agreements (collectively, the
"Sellers' Closing Documents"), the Sellers' Closing Documents will
constitute the legal, valid, and binding obligations of Sellers,
enforceable against Sellers in accordance with their respective terms.
Sellers have the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the Sellers' Closing
Documents and to perform his obligations under this Agreement and the
Sellers' Closing Documents.
(b) Except as set forth in Schedule 3.2, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the stockholders of
the Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which the Company
or Sellers, or any of the assets owned or used by the Company, may be
subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or any of the assets owned or
used by, the Company;
(iv) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Body;
(v) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; or
(vi) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company.
To Sellers' Knowledge and except as set forth in Schedule 3.2, neither Sellers
nor the Company are or will be required to give any notice to or obtain any
Consent from any Person in connection with
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the execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
(c) Sellers are acquiring the Promissory Notes for their own account and
not with a view to their distribution within the meaning of Section 2(11)
of the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 1,000 shares of
common stock, $100 par value per share, of which 420.3082 shares are issued and
outstanding and constitute the Shares. Sellers are and will be on the Closing
Date the record and beneficial owners and holders of the Shares, free and clear
of all Encumbrances. No legend or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of the Company. All
of the outstanding equity securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, or have any Contract to
acquire, any equity securities or other securities of any Person or any direct
or indirect equity or ownership interest in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) audited balance sheets of the Company as of
December 31 in each of the years 1994 through 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for each of
the fiscal years then ended (the December 31, 1997 balance sheet of the Company
shall hereinafter be referred to as the "Balance Sheet"), (b) an unaudited
balance sheet of the Company as of February 28, 1998, (the "Interim Balance
Sheet") and the related unaudited statement of income for the first two months
of 1998. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application of
such accounting principles throughout the periods involved, except as disclosed
in the notes to such financial statements. No financial statements of any Person
other than the Company are required by GAAP to be included in the financial
statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in
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accordance with normal business practices. The minute books of the Company
contain accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Boards of Directors, and committees of
the Boards of Directors of the Company, and no meeting of any such stockholders,
Board of Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by the Company. Other than as shown
on Schedule 3.6, the Company owns (with good and marketable title in the case of
real property, subject only to the matters permitted by the following sentence)
all the properties and assets (whether real, personal, or mixed and whether
tangible or intangible) that they purport to own located in the facilities owned
or operated by the Company or reflected as owned in the books and records of the
Company, including all of the properties and assets reflected in the Balance
Sheet and the Interim Balance Sheet (except for assets held under capitalized
leases disclosed or not required to be disclosed in Schedule 3.6 and personal
property sold since the date of the Balance Sheet and the Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the Company since the
date of the Balance Sheet (except for personal property acquired and sold since
the date of the Balance Sheet in the Ordinary Course of Business and consistent
with past practice), which subsequently purchased or acquired properties and
assets (other than inventory and short-term investments) are listed in Schedule
3.6. All material properties and assets reflected in the Balance Sheet and the
Interim Balance Sheet are free and clear of all Encumbrances and are not, in the
case of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the Balance Sheet or the Interim Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Interim Balance Sheet (such mortgages
and security interests being limited to the property or assets so acquired),
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (c) liens for current taxes not yet
due, and (d) with respect to real property, (i) minor imperfections of title, if
any, none of which is substantial in amount, materially detracts from the value
or impairs the use of the property subject thereto, or impairs the operations of
the Company, and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject thereto.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are in normal
operating condition and repair, and are adequate for the uses to which they are
being put, and to Sellers' Knowledge none of such buildings, plants, structures,
or equipment is in need of substantial deferred maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost.
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3.8 [INTENTIONALLY OMITTED]
3.9 INVENTORY
All inventory of the Company, whether or not reflected in the Balance Sheet or
the Interim Balance Sheet, consists of a quality and quantity usable and salable
in the Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date, as the case may be.
All inventories of raw materials not written off have been priced at the lower
of cost or net realizable value on a first in, first out basis. All work-in-
process and finished goods inventory are valued in such a manner so as to take
into account the net realizable value of such inventory in a sale of the
finished goods to the customer. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable in the present circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES
To Sellers' Knowledge except as set forth in Schedule 3.10, the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet or the Interim
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
1994) all Tax Returns that are or were required to be filed by it pursuant
to applicable Legal Requirements. Sellers have delivered or made available
to Buyer copies of, and Schedule 3.11 contains a complete and accurate list
of, all such Tax Returns relating to income or franchise taxes filed since
1994. The Company has paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or the
Company, except such Taxes, if any, as are listed in Schedule 3.11 and are
being contested in good faith and as to which adequate reserves (determined
in accordance with GAAP) have been provided in the Balance Sheet and the
Interim Balance Sheet.
(b) Schedule 3.11 contains a complete and accurate list of all audits of
all such Tax Returns, including a reasonably detailed description of the
nature and outcome of each audit. All deficiencies proposed as a result of
such audits have been paid, reserved against, settled, or, as described in
Schedule 3.11, are being contested in good faith by appropriate
proceedings. Schedule 3.11 describes all adjustments to the United States
federal income Tax Returns filed by the Company for all taxable years since
1994, and the resulting deficiencies proposed by the IRS. Except as
described in Schedule 3.11, neither the Sellers nor the
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Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of the Company or
for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the books
of the Company are adequate (determined in accordance with GAAP) and are at
least equal to the Company's liability for Taxes. There exists no proposed
tax assessment against the Company except as disclosed in the Balance Sheet
or in Schedule 3.11. No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the Company is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the
proper Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Company are true, correct, and complete in all material respects. There is
no tax sharing agreement that will require any payment by the Company after
the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Interim Balance Sheet, to Sellers' Knowledge, other than
ordinary business and market conditions, there has not been any material adverse
change in the business, operations, properties, prospects, assets, or condition
of the Company, and no event has occurred or circumstance exists that may result
in such a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Schedule 3.13 sets forth a true and complete list of all employment
contracts, all collective bargaining or other labor agreements, all
pension, retirement, stock option, stock purchase, savings, profit-sharing,
deferred compensation, retainer, consultant, bonus, group insurance,
incentive, welfare or any other contracts, plans or arrangements providing
for employee compensation or benefits (the "Plans"), and all trust
agreements relating thereto, to which the Company is a party or to which
the Company contributes or by which it is bound. Copies of each of the
foregoing have been or promptly will be furnished or made available to
Purchaser. The only Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA are identified in Schedule 3.13, and are hereinafter referred to as
the "Pension Plans." No Plan constitutes a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA.
(b) Each Plan that is intended to be qualified under Section 401(a) of the
Code is so qualified, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. Copies of all Internal Revenue
Service determination letters and audit reports relating to such Plans have
been or promptly will be provided to Purchaser. Requests for determination
letters relating to amendments required to cause such Plans to be in
compliance with the Tax Equity and Fiscal Responsibility Act of 1982, the
Deficit Reduction Act of 1984,
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and the Retirement Equity Act of 1984, were timely filed and have been
received or are currently pending.
(c) Each Plan has been maintained in substantial compliance with the
requirements prescribed by any and all statutes, orders, rules and
regulations, including, but not limited to, ERISA and the Code, that are
applicable to such Plans. No "accumulated funding deficiency" within the
meaning of ERISA has been incurred with respect to any Pension Plan,
whether or not waived. No reportable event (as described in Section
4043(b) of ERISA) has occurred with respect to any Plan. No Plan nor any
trust created thereunder, nor any trustee or administrator thereof, has
engaged in a "prohibited transaction" as such term is defined in Section
4975 of the Code, which could subject such Plans or any of them, any such
trust, or any such trustee or administrator thereof, or any party dealing
with such employee benefit plans or any such trust, to any tax or penalty
on prohibited transactions imposed by such Section 4975; as of the date of
this Agreement, the fair market value of the assets of any Pension Plan
that is subject to Title IV of ERISA (excluding for these purposes any
accrued but unpaid contributions) exceeded the present value of all
benefits accrued under any such Plan, determined on a termination basis
using the assumptions established by the Pension Benefit Guaranty
Corporation ("PBGC") as in effect on such date. The Company has not
incurred any liability under Title IV of ERISA arising in connection with
the termination of, or complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA.
(d) All contributions and payments accrued under each Plan, determined in
accordance with prior funding and accrual practices as adjusted to the
extent required to include proportional contribution and payment accruals
for the period from the last funding date to the Closing Date, will be
discharged and paid on or prior to the Closing Date except to the extent
that any such amount is recorded as a liability on either the Interim
Balance Sheet. Except as set forth in Schedule 3.13, there has been no
amendment to, written interpretation or announcement (whether or not
written) relating to, or change in employee participation or coverage under
any Plan that would increase materially the expense of maintaining such
Plan above the level of expense incurred in respect thereof for the
preceding fiscal year.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.14:
(i) to Sellers' Knowledge the Company is, and at all times has been,
in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
(ii) to Sellers' Knowledge no event has occurred or circumstance
exists that (with or without notice or lapse of time) (A) may
constitute or result in a violation by the Company of, or a failure on
the part of the Company to comply with, any Legal
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Requirement, or (B) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) the Company has not received any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential obligation on the part of
the Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature.
(b) Schedule 3.14 contains a complete and accurate list of each
Governmental Authorization that is held by the Company or that otherwise
relates to the business of, or to any of the assets owned or used by, the
Company. Each Governmental Authorization listed or required to be listed in
Schedule 3.14 is valid and in full force and effect. Except as set forth in
Schedule 3.14:
(i) to Sellers' Knowledge the Company is, and at all times has been,
in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in
Schedule 3.14;
(ii) to Sellers' Knowledge no event has occurred or circumstance
exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a
failure to comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Schedule 3.14, or (B)
result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed in
Schedule 3.14;
(iii) the Company has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Governmental
Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in
Schedule 3.14 have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to
have been made with respect to such Governmental Authorizations have
been duly made on a timely basis with the appropriate Governmental
Bodies.
To Sellers' Knowledge, the Governmental Authorizations listed in Schedule 3.14
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully
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conduct and operate its business in the manner it currently conducts and
operates such business and to permit the Company to own and use its assets in
the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.15, there is no pending Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, the Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Knowledge of Sellers and the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Sellers
have delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 3.15. The Proceedings
listed in Schedule 3.15 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
(b) Except as set forth in Schedule 3.15:
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
(ii) no Seller is subject to any Order that relates to the business
of, or any of the assets owned or used by, the Company; and
(iii) to the Knowledge of Sellers and the Company, no officer,
director, agent, or employee of the Company is subject to any Order
that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating
to the business of the Company.
(c) Except as set forth in Schedule 3.15:
(i) the Company is, and at all times has been, in full compliance with
all of the terms and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to
which the Company, or any of the assets owned or
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used by the Company, is subject; and
(iii) the Company has not received at any time any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of
any Order to which the Company, or any of the assets owned or used by
the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Interim Balance
Sheet, the Company has conducted its business only in the Ordinary Course of
Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such capital stock;
or declaration or payment of any dividend or other distribution or payment
in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving
a total remaining commitment by or to the Company of at least $25,000;
(g) sale (other than sales in the Ordinary Course of Business), lease, or
other disposition of any asset or property of the Company or mortgage,
pledge, or imposition of any lien or other encumbrance on any material
asset or property of the Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
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(h) material change in the accounting methods used by the Company; or
(i) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Schedule 3.17(a) contains a complete and accurate list, and Sellers
have delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in
excess of $10,000 other than purchase orders received by the Company
in the Ordinary Course of Business;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in
excess of $10,000 other than purchase orders placed by the Company in
the Ordinary Course of Business;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts
of the Company in excess of $10,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract
affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property (except
personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than
$10,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any
of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative
of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any
Affiliate of the Company or limit the freedom of the Company or any
Affiliate of the Company to engage in any line of business or to
compete with any Person;
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(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct
payments for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract for capital expenditures in excess of
$10,000;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the
Company other than in the Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Schedule 3.17(a) sets forth information adequate to identify such Contracts,
including the date and parties to the Contracts, and the Company's office where
details relating to the Contracts are located.
(b) [Intentionally Deleted]
(c) Except as set forth in Schedule 3.17(c), each Contract identified or
required to be identified in Schedule 3.17(a) is in full force and effect
and is valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.17(d):
(i) to Sellers' Knowledge the Company is, and at all times has been,
in full compliance with all applicable terms and requirements of each
Contract under which the Company has or had any obligation or
liability or by which the Company or any of the assets owned or used
by the Company is or was bound;
(ii) to Sellers' Knowledge each other Person that has or had any
obligation or liability under any Contract under which the Company has
or had any rights is, and at all times has been, in full compliance
with all applicable terms and requirements of such Contract;
(iii) to Sellers' Knowledge no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give the
Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Applicable Contract; and
(iv) the Company has not given to or received from any other Person at
any time any notice or other communication (whether oral or written)
regarding any actual, alleged,
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possible, or potential violation or breach of, or default under, any
Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company
under current or completed Contracts with any Person and, to the Knowledge
of Sellers and the Company, no such Person has made written demand for
such renegotiation.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the
Company, is or has been covered at any time within the three years
preceding the date of this Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Schedule 3.18(b) describes any self-insurance arrangement by or
affecting the Company, including any reserves established thereunder;
(c) Schedule 3.18(c) sets forth, by year, for the current policy year and
each of the three preceding policy years:
(i) a summary of the loss experience under each policy other than
health insurance policies;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of $10,000 other than health insurance policies,
which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance,
and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such
claims.
(d) Except as set forth on Schedule 3.18(d):
(i) All policies to which the Company is a party or that provide
coverage to either
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Sellers, the Company, or any director or officer of the Company are
valid, outstanding, and enforceable;
(ii) To Sellers' Knowledge, neither Sellers nor the Company have
received (A) any refusal of coverage or any notice that a defense will
be afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to
which the Company is a party or that provides coverage to the Company
or director thereof.
(iv) The Company has given notice to the insurer of all claims that
may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.19 and the Phase I Environmental Report
obtained by Buyer:
(a) To Sellers' Knowledge the Company is, and at all times has been, in
full compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. Neither Sellers nor the Company have any
basis to expect, nor has either of them or any other Person for whose
conduct they are or may be held to be responsible received, any actual or
Threatened order, notice, or other communication from (i) any Governmental
Body or private citizen acting in the public interest, or (ii) the current
or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual
or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or
mixed) in which Sellers or the Company have had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed
by Sellers, the Company, or any other Person for whose conduct they are or
may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or, to the Knowledge of Sellers and the Company,
Threatened claims, Encumbrances, or other restrictions of any nature,
resulting from any Environmental, Health, and Safety Liabilities or arising
under or pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties and assets (whether real,
personal, or mixed) in which Sellers or the Company have or had an
interest.
(c) Neither Sellers nor the Company have Knowledge of any basis to expect,
nor has either of them or any other Person for whose conduct they are or
may be held responsible, received,
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any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or
any alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which Sellers or the
Company had an interest, or with respect to any property or facility to
which Hazardous Materials generated, manufactured, refined, transferred,
imported, used, or processed by Sellers, the Company, or any other Person
for whose conduct they are or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(d) To Sellers' Knowledge neither Sellers nor the Company, or any other
Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the
Facilities or, to the Knowledge of Sellers and the Company, with respect to
any other properties and assets (whether real, personal, or mixed) in which
Sellers or the Company (or any predecessor), has or had an interest, or at
any property geologically or hydrologically adjoining the Facilities or any
such other property or assets.
(e) To Sellers' Knowledge there are no Hazardous Materials present on or in
the Environment at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in barrels,
above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary
or permanent, and deposited or located in land, water, sumps, or any other
part of the Facilities or such adjoining property, or incorporated into any
structure therein or thereon. To the Knowledge of Sellers, neither Sellers,
the Company, nor any other Person for whose conduct they are or may be held
responsible, any other Person, has permitted or conducted, or is aware of,
any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which
Sellers or the Company has or had an interest except in full compliance
with all applicable Environmental Laws.
(f) To Sellers' Knowledge there has been no Release or Threat of Release,
of any Hazardous Materials at or from the Facilities or at any other
locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which Sellers or the Company has or had an interest,
or to the Knowledge of Sellers and the Company any geologically or
hydrologically adjoining property, whether by Sellers, the Company, or any
other Person.
(g) Sellers have delivered to Buyer true and complete copies and results of
any reports, studies, analyses, tests, or monitoring possessed or initiated
by Sellers or the Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by
Sellers, the Company, or any other Person for whose conduct they are or may
be held responsible, with Environmental Laws.
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3.20 EMPLOYEES
(a) Schedule 3.20 contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
January 1, 1997; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under the Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock
bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan.
(b) To Sellers' Knowledge no employee or director of the Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect (i) the
performance of his duties as an employee or director of the Company, or
(ii) the ability of the Company to conduct its business, including any
Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Sellers' Knowledge, no director, officer, or other
key employee of the Company intends to terminate his employment with the
Company.
(c) Schedule 3.20 also contains a complete and accurate list of the
following information for each retired employee or director of the Company,
or their dependents, receiving benefits or scheduled to receive benefits in
the future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since January 1, 1997 except as disclosed in any schedule attached hereto, there
has not been, there is not presently pending or existing, and to Sellers'
Knowledge there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, or (b) any Proceeding against or
affecting the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting the Company or their premises. To Sellers' Knowledge no event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by the
Company, and no such action is contemplated by the Company. To Sellers'
Knowledge the Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. To Sellers' Knowledge the Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure
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to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
----------------------------
includes:
(i) the name Harperprints, all fictional business names, trading
names, registered and unregistered trademarks, service marks, and
applications (collectively, "Marks");
(ii) all copyrights in both published works and unpublished works
(collectively, "Copyrights"); and
(iii) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by the Company as licensee or licensor.
(b) Agreements--Schedule 3.22(b) contains a complete and accurate list and
----------
summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property Assets to
which the Company is a party or by which the Company is bound, except for
any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less than
$5,000 under which the Company is the licensee. There are no outstanding
and, to Sellers' Knowledge, no Threatened disputes or disagreements with
respect to any such agreement.
(c) Know-How Necessary for the Business-- To Sellers' Knowledge, The
-----------------------------------
Intellectual Property Assets are all those necessary for the operation of
the Company's business as it is currently conducted. To Sellers' Knowledge,
the Company has the legal right to use such Intellectual Property Assets,
free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and without payment to a third party.
(d) Trademarks-- The Company has no registered Marks other than the
----------
trademark "Harperprints Screenless."
(e) Copyrights-- The Company owns no Copyrights.
----------
3.23 CERTAIN PAYMENTS
Since January 1, 1991, neither the Company nor any director, officer, agent, or
employee of the Company, or to Sellers' Knowledge any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly (a)
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form, whether
in money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions
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already obtained, for or in respect of the Company or any Affiliate of the
Company, or (iv) in violation of any Legal Requirement, (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
3.24 DISCLOSURE
(a) To Sellers' Knowledge, no representation or warranty of Sellers in this
Agreement omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made,
not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Neither Sellers nor any Related Person of Sellers or of the Company has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company except for less than
one percent of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Except as set forth in Schedule 3.25, neither Sellers nor any Related Person of
Sellers or of the Company is a party to any Contract with, or has any claim or
right against, the Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
3.27 SECURITIES REPRESENTATIONS
(a) The Stock Purchase Warrants and Promissory Notes are being acquired by the
Sellers solely for their own account for investment and not with a view to the
distribution or transfer thereof, and Sellers acknowledge and understand that
the Stock Purchase Warrants and Promissory Notes will bear a legend in
substantially the following form:
(i) For Stock Purchase Warrants:
NEITHER THIS STOCK PURCHASE WARRANT NOR THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE
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STOCK PURCHASE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
(ii) For Promissory Notes:
THE PROMISSORY NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACT AND CANNOT BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SUCH ACTS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
(b) Sellers represent and warrant as follows:
(i) Sellers confirm that Buyer has made available to him or to his
representatives the opportunity to ask questions of Buyer's officers and
directors and to acquire such information about the Stock Purchase Warrants and
the Promissory Notes and the business and financial condition of Buyer as
Sellers requested, which additional information has been received.
(ii) In deciding to acquire the Stock Purchase Warrants and Promissory Notes
pursuant to this Agreement, each Seller has consulted with his own respective
legal, financial, and tax advisors with respect to the Agreement and the nature
of the investment together with any additional information provided under
subsection (i) above.
(iii) Sellers have adequate means of providing for their current needs and
personal contingencies and has no need for liquidity in his investment in Buyer.
Sellers, either alone or with their representatives, have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the Agreement.
(iv) Each Seller understands and acknowledges that the investment in the Stock
Purchase Warrants and Promissory Notes is a speculative investment which
involves a high degree of risk of loss of Seller's investment therein; that
there are substantial restrictions on the transferability of the Stock Purchase
Warrants and Promissory Notes under the applicable provisions of the Securities
Act and the rules and regulations promulgated thereunder and applicable state
securities or "blue sky" laws; and, accordingly, that it may not be possible to
liquidate an investment in the Stock Purchase Warrants or Promissory Notes.
(v) Sellers have been advised and understand that (i) the issuance of the Stock
Purchase Warrants and Promissory Notes has not been registered under the
Securities Act; (ii) the Stock Purchase Warrants must be held indefinitely and
the Sellers must continue to bear the economic risk of the investment
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in the Stock Purchase Warrants until the offer or sale of the Stock Purchase
Warrants is subsequently registered under the Securities Act or any "blue sky"
laws or an exemption from such registration is available; (iii) the Promissory
Notes are subject to Subordination Agreements and as such must be held until
payment on such Promissory Notes are permitted by the Subordination Agreements
and the terms of such Promissory Notes and the Sellers must continue to bear the
economic risk of the investment in the Promissory Notes until such payment on
the Promissory Notes is permitted by the Subordination Agreements and the terms
of such Promissory Notes; (iv) Rule 144 promulgated under the Securities Act is
not presently available with respect to the sale of any securities of Buyer,
including the Stock Purchase Warrants and Promissory Notes, and when and if the
Stock Purchase Warrants or Promissory Notes may be disposed of without
registration in reliance on Rule 144, such disposition can be made only in
accordance with the terms and conditions of such Rule; (v) the restrictive
legends described in paragraph (a) shall be placed on the Stock Purchase
Warrants and Promissory Notes; and (vi) a notation shall be made in the
appropriate records of Buyer indicating that the Stock Purchase Warrants and
Promissory Notes are subject to restrictions on transfer.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Tennessee.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Employment Agreements, and the
Promissory Notes (collectively, the "Buyer's Closing Documents"), the
Buyer's Closing Documents will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement and the
Buyer's Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery
of this Agreement by Buyer, nor the consummation or performance of any of
the Contemplated Transactions by Buyer, will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
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(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may be
bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.
4.6 FINANCIAL STATEMENTS
Buyer has, or will, deliver to Sellers an unaudited consolidated balance sheet
and income statement of Buyer as of December 31, 1997, and the unaudited balance
sheet of Premier as of December 31, 1997. Such financial statements and notes
fairly present the financial condition and the results of operations of the
Buyer as of the applicable dates. No financial statements of any Person other
than the Buyer are required by GAAP to be included in the financial statements
of the Buyer.
4.7 NO UNDISCLOSED LIABILITIES
To Buyer's Knowledge, neither Buyer nor Premier has any liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for liabilities or obligations
reflected or reserved against in the September 30, 1997 balance sheet of Premier
and the October 31, 1997 balance sheet of the Company, and current liabilities
incurred in the Ordinary Course of Business since September 30, 1997 and October
31, 1997, respectively.
4.8 NO MATERIAL ADVERSE CHANGE
Since December 31, 1997, to Buyer's Knowledge, other than ordinary business and
market
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conditions, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of the Buyer, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company and its Representatives to, (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating, and other data and information as Buyer
may reasonably request. Between the date of this Agreement and the Closing
Date, Buyer will, and will cause Premier and its Representatives to, (a) afford
Sellers and their Representatives (collectively, "Sellers' Advisors") full and
free access to Buyer's and Premier's personnel, properties, contracts, books and
records, and other documents and data, (b) furnish Sellers and Sellers' Advisors
with copies of all such contracts, books and records, and other existing
documents and data as Sellers may reasonably request, and (c) furnish Seller and
Sellers' Advisors with such additional financial, operating, and other data and
information as Sellers may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use their best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations
and good will with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with the Company;
(c) confer with Buyer concerning operational matters of a material nature;
and
(d) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause the
Company not to, without the prior consent of
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Buyer, take any affirmative action, or fail to take any reasonable action within
their or its control, as a result of which any of the changes or events listed
in Section 3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause the Company to, make all filings required by Legal Requirements to be
made by them in order to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Sellers will promptly
notify Buyer in writing if Sellers or the Company become aware of any fact or
condition that causes or constitutes a Breach of any of Sellers' representations
and warranties as of the date of this Agreement, or if Sellers or the Company
become aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Sellers will promptly notify
Buyer of the occurrence of any Breach of any covenant of Sellers in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to the Company by Sellers or any Related Person of Sellers to
be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause the Company and each of their Representatives
not to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of the
Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
best efforts to cause the conditions in Sections 7 and 8 to be satisfied.
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6. COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will, and will
cause each Related Person to, cooperate with Sellers with respect to all filings
that Sellers are required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or
to incur any other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Buyer will use its best efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.3 [INTENTIONALLY OMITTED]
6.4 ASSISTANCE OF BUYER AFTER CLOSING
Buyer acknowledges that Sellers have a significant interest in maximizing the
Company's EBITDA in order to maximize the Earnout Amount and the incentive bonus
under the Employment Agreement of Michael G. Harper. Accordingly, Buyer hereby
agrees that it will assist the Company in whatever manner is reasonable to
maximize the Company's EBITDA, including, but not limited to, providing the
Company with benefits and services comparable to those provided to other
subsidiaries of Buyer and/or divisions of such subsidiaries. In determining the
reasonableness of assistance required by the Buyer, one of the factors which may
be considered is whether such action is consistent with the business plan of
Buyer and whether such assistance would have a detrimental effect on the overall
profitability of Buyer and its subsidiaries it being the intention that both
parties act in a reasonable manner in determining whether such assistance should
be provided.
During the period commencing on the Closing Date and ending on March 31,1999,
Buyer will not, without the consent of Sellers which will not be unnecessarily
withheld, directly or indirectly acquire any company or business which has any
customer which (a) is one of the companies listed on Schedule 6.4, and (b) if
such company has a customer listed on Schedule 6.4 the sales volume with such
customer during the target company's preceding fiscal year exceeded the
Company's sales volume with such customer during the same period.
During the term of the Employment Agreements Buyer agrees that it will allow
Michael G. Harper to pay profit sharing bonuses to the employees of the Company
consistent with the past practices of the Company during the three (3) calendar
years immediately preceding the Closing Date.
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7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Sellers' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects
as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date.
(b) Each of Sellers' representations and warranties in Sections 3.3, 3.4,
3.12, and 3.24 must have been accurate in all respects as of the date of
this Agreement, and must be accurate in all respects as of the Closing Date
as if made on the Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered, and each of the other covenants and obligations in
Sections 5.4 and 5.8 must have been performed and complied with in all
respects.
7.3 CONSENTS
Each of the Consents of Schedule 3.2, and each Consent identified in Schedule
4.2, must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) opinions of Baker, Donelson, Bearman & Caldwell and Maupin Taylor &
Ellis, P. A., dated the Closing Date, in the form of Exhibit 7.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of
(i) enabling its counsel to provide the opinion referred to in Section
8.4(a), (ii) evidencing the accuracy of any of Sellers' representations and
warranties, (iii) evidencing the performance by Sellers of,
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or the compliance by Sellers with, any covenant or obligation required to
be performed or complied with by Sellers, (iv) evidencing the satisfaction
of any condition referred to in this Section 7, or (v) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
7.8 EXECUTION OF NEW LEASE
Buyer shall have entered into a new ten (10) year lease for the property at
which the Company currently operates, with such lease containing terms and
conditions acceptable to Michael G. Harper, Lynn H. Harper and Buyer.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each
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of these representations and warranties (considered individually), must have
been accurate in all material respects as of the date of this Agreement and must
be accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in
all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash
payments required to be made by Buyer pursuant to Section 2.4(b)(i).
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2 must have been obtained and must
be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers:
(a) an opinion of Black Bobango & Morgan, A Professional Corporation, dated
the Closing Date, in the form of Exhibit 8.4(a); and
(b) such other documents as Sellers may reasonably request for the purpose
of (i) enabling their counsel to provide the opinion referred to in Section
7.4(a), (ii) evidencing the accuracy of any representation or warranty of
Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (ii) evidencing the satisfaction of any condition referred
to in this Section 8, or (v) otherwise facilitating the consummation of any
of the Contemplated Transactions.
(c) this Agreement, the Employment Agreements, the Lease referenced in
Paragraph 6.3 and all other documents required to be delivered by Buyer
pursuant to Section 2.4 shall have been executed by all parties thereto.
(d) any guaranty or other personal obligation of either Seller on or with
respect to any indebtedness of the Company shall have been terminated.
8.5 NO INJUNCTION
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There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has
not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of Sellers to comply with their obligations under this
Agreement) and Sellers have not waived such condition on or before the
Closing Date; or
(c) by mutual consent of Buyer and Sellers.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this Agreement,
the certificate delivered pursuant to Section 2.4(a)(v), and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by
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any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers will severally, based upon the relative number of Shares sold by each
Seller, indemnify and hold harmless Buyer, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim, and to the extent not otherwise covered by
insurance (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by Sellers in this
Agreement, or any other certificate or document delivered by Sellers
pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Sellers in this
Agreement as if such representation or warranty were made on and as of the
Closing Date, other than any such Breach that is expressly identified in
the certificate delivered pursuant to Section 2.4(a)(v) as having caused
the condition specified in Section 7.1 not to be satisfied;
(c) any Breach by Sellers of any covenant or obligation of Sellers in this
Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to
have been made by any such Person with either Sellers or the Company (or
any Person acting on their behalf) in connection with any of the
Contemplated Transactions; or
(e) the prior release by the Company of water-based aqueous coating into
the sewer system as described in Schedule 3.19.
The remedies provided in this Section 10.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based
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upon any agreement or understanding alleged to have been made by such Person
with Buyer (or any Person acting on its behalf) in connection with any of the
Contemplated Transactions.
The remedies provided in the Section 10.3 will not be exclusive of or limit any
other remedies that may be available to Sellers or the other Indemnified
Persons.
10.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11, 3.13, 3.19 and 10.2(e), unless on or before
the second anniversary of the Closing Date Buyer notifies Sellers of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer. A claim with respect to Section 3.3 may be made at any
time. A claim with respect to Section 3.11 may be made at any time within the
applicable statutes of limitation. A claim with respect to Section 3.13 may be
made only on or before the third anniversary of the Closing. A claim with
respect to Sections 3.19 or 10.2(e) may be made only on or before the fifth
anniversary of the Closing. If the Closing occurs, Buyer will have no liability
(for indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior to
the Closing Date, unless on or before second anniversary of the Closing Date
Sellers notify Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Sellers.
10.5 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with respect
to the matters described in clause (a), clause (b) or, to the extent relating to
any failure to perform or comply prior to the Closing Date, clause (c) of
Section 10.2 until the total of all Damages with respect to such matters exceeds
$50,000, and then only for the amount by which such Damages exceed $50,000.
Buyer's right to recovery against each Seller under this Agreement or otherwise
will be limited to the amount of the Purchase Price received by such Seller;
however, this Section 10.5 will not apply to any Breach of any of Sellers'
representations and warranties of which Sellers had Knowledge at any time prior
to the date on which such representation and warranty is made and knowingly did
not disclose such Breach to Buyer or any intentional Breach by Sellers of any
covenant or obligation, and Sellers will be liable for all Damages with respect
to such Breaches.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with respect to
the matters described in clause (a) or (b) of Section 10.3 until the total of
all Damages with respect to such matters exceeds $50,000, and then only for the
amount by which such Damages exceed $50,000. However, this Section 10.6 will
not apply to any Breach of any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such Breaches.
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10.7 OBLIGATION OF SET-OFF
Upon a final non-appealable judicial determination (or the expiration of any
applicable appeal period and the failure to appeal during such period) or
agreement of the parties that amounts are due Buyer under this Section 10, Buyer
will be obligated to first set off any amount to which it may be entitled under
this Section 10 against amounts otherwise payable under the Promissory Notes.
The set-off by Buyer of amounts due in accordance with the provisions of this
Section 10.7, will not constitute an event of default under the Promissory Notes
or any instrument securing the Promissory Notes.
10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3, or of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability that it may
have to any indemnified party, except to the extent that the indemnifying
party demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.8(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes, be entitled to participate in such Proceeding and, to
the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith
that joint representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification
with respect to such Proceeding), to assume the defense of such Proceeding
with counsel satisfactory to the indemnified party and, after notice from
the indemnifying party to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will not, as long as
it diligently conducts such defense, be liable to the indemnified party
under this Section 10 for any fees of other counsel or any other expenses
with respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on
any other claims that may be made against the indemnified party, and (B)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected
without its consent. If notice is given to an indemnifying party of the
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commencement of any Proceeding and the indemnifying party does not, within
fifteen days after the indemnified party's notice is given, give notice to
the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the
indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary
damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) Sellers' responsibilities with respect to the Company's accounts
receivable are as described in Section 3.8 and this Section 10.11. On
September 30, 1998 the aggregate amounts owed under the Fixed Notes shall
be reduced by the excess of the then outstanding balances of all accounts
receivable of the Company that were 60 days old or older as of the Closing
Date over the reserve for bad debts of the Company as of the Closing Date.
(b) Buyer shall cause ownership accounts receivable equal to the amount of
the reduction of the Fixed Notes to be transferred to Sellers. The actual
accounts receivables transferred to Sellers shall be the receivables which
have been outstanding for the longest period of time. For purposes of this
Section payments received after Closing from obligors of the accounts
receivable referred to in Clause (a) above shall be applied first towards
satisfaction of such accounts receivable unless designated otherwise by the
account debtor.
11. RIGHT OF REPURCHASE
11.1 REPURCHASE OPTION
In the event Buyer (a) defaults on its payment obligations under the Earnout
Notes, or (b) Buyer defaults in the payment of any indebtedness owed to General
Electric Capital Corporation ("GECC") or under any loan agreement or other loan
document with respect to such indebtedness, and GECC gives Sellers notice of its
intent to foreclosure the liens of GECC on the assets of the Company or the
Shares (or GECC initiates any proceeding or takes any action with respect to
such foreclosures). Sellers shall have the option, but not the obligation, to
repurchase from the Buyer all of the issued
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and outstanding capital stock of the Company. The option to repurchase the stock
following a default described in clause (a) may be exercised by Sellers on or
after July1, 1999, provided the payment default under the Earnout Notes at the
time option is exercised has not been cured. The option to repurchase the stock
contained in clause (b) may be exercised at any time following the occurrence of
the event listed in clause (b) Sellers shall provide written notice to Buyer of
its intent to exercise the option. Once Sellers have provided written notice to
Buyer of its intent to exercise the option, Sellers shall have 180 days from the
date of the notice to close on the repurchase of the stock. In the event Sellers
fail to close on the repurchase of the stock within the 180 day period, Sellers
shall forfeit their option to repurchase the stock. Once Sellers have closed on
the repurchase of the Shares, Sellers shall have no further rights under the
Earnout Note or any other instrument securing the obligations under the Earnout
Note.
Buyer agrees to cause GECC to enter into a letter agreement (the "Tri Party
Agreement") with Sellers and Buyer pursuant to which GECC will acknowledge
Sellers' option to repurchase the Shares and will agree to give Sellers written
notice at least thirty (30) days prior to the initiation by GECC of any
proceeding or the taking of any action by GECC to foreclose its liens on the
assets of the Company or the Shares.
Nothing contained in this Section 11 shall limit Sellers rights to pursue any
right or remedy under the Earnout Note or the Fixed Note or this Agreement.
11.2 REPURCHASE PRICE
The purchase price of such stock (the "Repurchase Price") shall be equal to:
(a) $7,500,000; minus
(b) the difference between the current assets of the Company as of the
Closing Date as reflected in the Closing Financial Statements less the
current assets of the Company as of the closing date of repurchase (the
"Repurchase Closing Date") IF the current assets of the Company as of the
Closing Date as reflected in the Closing Financial Statements is greater
than the current assets of the Company as of the Repurchase Closing Date;
plus
(c) the difference between the current assets of the Company as of the
Repurchase Closing Date less the current assets of the Company as of the
Closing Date as reflected in the Closing Financial Statements IF the
current assets of the Company as of the Repurchase Closing Date is greater
than the current assets of the Company as of the Closing Date; plus
(d) the difference between the current liabilities of the Company as of the
Closing Date as reflected in the Closing Financial Statements less the
current liabilities of the Company as of the Repurchase Closing Date IF the
current liabilities of the Company as of the Closing Date as reflected in
the Closing Financial Statements is greater than the current liabilities of
the Company as of the Repurchase Closing Date; minus
44
<PAGE>
(e) the difference between the current liabilities of the Company as of
the Repurchase Closing Date less the current liabilities of the Company as
of the Closing Date as reflected in the Closing Financial Statements IF the
current liabilities of the Company as of the Repurchase Closing Date is
greater than the current liabilities of the Company as of the Closing Date;
minus
(f) the additional state and federal income taxes paid by Sellers as a
direct result of the sale of the Shares to Buyer hereunder; minus
(g) the sales price of any fixed assets sold by the Company after the
Closing Date and before the Repurchase Closing Date; plus
(h) the book value as of the Repurchase Closing Date of any fixed assets
purchased by the Company after the Closing Date and before the Repurchase
Closing Date.
For purposes of this Section 11.2, current liabilities shall not include (i) the
------------
current portion of any debt incurred by the Company in connection with the
transactions contemplated by this Agreement, (ii) any expenses incurred by the
Company in connection with the transactions contemplated by this Agreement, or
(iii) any debt of the Company to the Buyer or any affiliate of the Buyer.
The Buyer shall cause the Company to not incur any indebtedness or liabilities
of any nature until all payments due on the Earnout Note are paid in full other
than (i) ordinary course trade payable, (ii) indebtedness to General Electric
Capital Corporation in an amount not to exceed $10,000,000 (which indebtedness
shall be canceled in accordance with the Tri-Party Agreement and (iii)
intercompany indebtedness. All indebtedness and other liabilities of any nature
other than ordinary course trade payables shall be canceled and extinguished
prior to or contemporaneously with the Closing of the repurchase pursuant to
this Section 11. Buyer agrees to cause the Company to comply with all covenants
and conditions contained in the Stock Pledge Agreement by and between Buyer and
Sellers.
11.3 PAYMENT OF REPURCHASE PRICE
The Repurchase Price shall be paid by Sellers tendering the Fixed Notes to Buyer
and paying the difference between (a) the Purchase Price, and (b) all accrued
and unpaid principal and interest due Sellers under the Fixed Notes, in cash on
the Repurchase Closing Date by wire transfer to accounts designated by Buyer.
11.4 PURCHASE OR SALE OF FIXED ASSETS
Buyer covenants and agrees that it will not cause the Company to purchase or
sale any fixed assets after the Closing Date and before the Repurchase Closing
Date without the prior consent of Sellers, which consent will not be
unreasonably withheld.
11.5 LIENS
45
<PAGE>
Sellers shall be granted a security interest in the Shares as security for
Buyer's obligations under this Section 11. Such security interest shall be
subordinate only to the security interest of General Electric Capital
Corporation. Buyer covenants and agrees that it will cause all liens against
the assets of the Company or the capital stock of the Company as of the
Repurchase Closing Date to released upon receipt of the Repurchase Price. In
addition, Buyer shall cause all intercompany indebtedness between the Company
and Buyer existing at the time of the Repurchase Closing Date to be eliminated.
Buyer further agrees to cause GECC to enter into a letter agreement with Sellers
and Buyer pursuant to which GECC shall consent to the granting to the Sellers of
the security interest in the shares and GECC shall agree to release and
terminate its security interest in the Shares and the assets of the Company and
to release all indebtedness of the Company to GECC upon receipt by GECC of the
Repurchase Price. All provisions contained in this Section 11 shall be subject
to the terms and conditions of the letter agreement by and among GECC, Buyer and
Sellers.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Sellers will cause the Company not to incur any out-
of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
12.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Sellers and Buyer mutually agree. Unless consented to by all
parties hereto in advance or required by Legal Requirements, prior to the
Closing the parties shall, and shall cause the Company to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. Sellers and Buyer will consult with each other concerning the means by
which the Company' employees, customers, and suppliers and others having
dealings with the Company will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
12.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the Company to maintain in confidence, and not
use to the detriment of another party or the Company any written, oral, or other
information obtained in confidence from another party or the Company in
connection with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information
46
<PAGE>
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings, or (d) the
furnishing of such information by Buyer to lenders or other institutions
providing financial accommodations to Buyer.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Company to waive, any cause of action, right, or claim
arising out of the access of Buyer or its representatives to any trade secrets
or other confidential information of the Company except for the intentional
competitive misuse by Buyer of such trade secrets or confidential information.
12.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Sellers: Michael G. Harper
Lynn H. Harper
P. O. Drawer 1596
Henderson, NC 27536
Facsimile No.: (919) 492-8944
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Ken Beckman
Facsimile No.: (423) 756-3447
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
47
<PAGE>
Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan
Facsimile No.: (901) 683-2553
12.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Tennessee, County of Shelby, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western
District of Tennessee, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
12.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
48
<PAGE>
12.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent between Buyer and Sellers
dated November 17, 1997) and constitutes (along with the documents referred to
in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
12.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, which will not be unreasonably withheld.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
12.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
12.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
12.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee without
regard to conflicts of laws principles.
49
<PAGE>
12.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
[END OF PAGE]
50
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: MASTER GRAPHICS, INC. SELLERS:
By: /s/ John P. Miller /s/ Michael G.Harper
------------------ --------------------
Michael G. Harper
Its: President
/s/ Lynn H. Harper
------------------
Lynn H. Harper
/s/ Michael G. Harper, custodian
--------------------------------
for Emily Hines Harper, minor
-----------------------------
Michael G. Harper, custodian for
Emily Hines Harper, minor
/s/ Lynn H. Harper, custodian
-----------------------------
for Davis Hillman Harper, minor
-------------------------------
Lynn H. Harper, custodian for
Davis Hillman Harper, minor
51
<PAGE>
Exhibit 10.29
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of December 16,
1997, by and between MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"),
and JOSEPH SEGAL, a Georgia resident ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller outstanding shares (the "Shares") of common stock of
Phoenix Communications, Inc. and King Mailing Services, Inc. (the "Acquired
Companies") pursuant to the terms and conditions of a stock purchase agreement
made as of December 15, 1997, (the "Stock Purchase Agreement"). Contemporaneous
with the purchase of the Shares, the Acquired Companies_ will be merged into
Premier Graphics, Inc., a Delaware corporation (the "Company"), which is a
wholly owned subsidiary of Buyer. Section 2.4(a)(iv) of the Stock Purchase
Agreement requires that a noncompetition agreement be executed and delivered by
Seller as a condition to the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with the Acquired Companies prior to the date hereof and has become
familiar with the following, any and all of which constitute confidential
information of the Company, (collectively the "Confidential Information"): (i)
any and all trade secrets concerning the business and affairs of the Company,
product specifications, data, know-how, formulae, compositions, processes,
designs, samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, (b) the business of the Company is
national in scope, (c) its products and services are marketed throughout the
United
<PAGE>
States; (d) the Company competes with other businesses that are or could be
located in any part of the United States; (e) Buyer has required that Seller
make the covenants set forth in Sections 3 and 4 of this Agreement as a
condition to the Buyer's purchase of the Shares owned by Seller; (f) the
provisions of Sections 3 and 4 of this Agreement are reasonable and necessary to
protect and preserve the Acquired Companies' business, and (g) the Company would
be irreparably damaged if Seller were to breach the covenants set forth in
Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, Seller agrees that Seller will not, at any time,
disclose to any unauthorized Persons or use for his own account or for the
benefit of any third party any Confidential Information, whether Seller has such
information in Seller's memory or embodied in writing or other physical form,
without Buyer's written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the public
other than as a result of Seller's fault. Seller agrees to deliver to Buyer at
the time of execution of this Agreement, and at any other time Buyer may
request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) For a period of seven (7) years after the Closing:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company sold or engaged in by the Acquired Companies immediately prior to the
Closing, within the State of Georgia; provided, however, that Seller may
purchase or otherwise acquire up to (but not more than) five percent of any
class of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934. Seller agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any Person known to Seller to be an
employee of the Company to leave the employ of the Company, (B) in any way
interfere with the relationship between the Company and any Person known
<PAGE>
to Seller to be an employee of the Company, (C) employ, or otherwise engage as
an employee, independent contractor, or otherwise, any Person known to Seller to
be an employee of the Company, or (D) induce or attempt to induce any Person
known to Seller to be a customer, supplier, licensee, or business relation of
the Company to cease doing business with the Company, or in any way interfere
with the relationship between the Company and any such Person, customer,
supplier, licensee, or business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company sold or engaged in by the Acquired
Companies immediately prior to Closing;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during or after the seven (7) year period,
disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, for a period of three (3) years after the Closing, within ten
days after accepting any employment, advise Buyer of the identity of any
employer of Seller. Buyer or the Company may serve notice upon each such
employer that Seller is bound by this Agreement and furnish each such employer
with a copy of this Agreement or relevant portions thereof.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller;
(b) To offset under procedures described in Section 10.7 of the Stock Purchase
Agreement which procedures shall apply as though fully set forth herein against
any and all amounts owing to Seller under the Stock Purchase Agreement any and
all amounts which Buyer or the Company claim under Subsection 5(a) of this
Agreement; and
(c) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
(d) The rights and remedies of the parties to this Agreement are cumulative
and not alternative.
6. SUCCESSORS AND ASSIGNS
<PAGE>
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Georgia without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Georgia, County of DeKalb, or, if it has or can
acquire jurisdiction, in the United States District Court for the Northern
District of Georgia, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.
<PAGE>
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand or (b) received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses set forth below (or to such other addresses as a party may designate
by notice to the other parties):
Seller: Joseph Segal
c/o Phoenix Communications, Inc.
5664 New Peachtree Road
Atlanta, Georgia 30341
with a copy to: Holt Ney Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339
Attention: Sanford H. Zatcoff, Esq.
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
<PAGE>
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Its: President
SELLER:
/s/ Joseph Segal
----------------
Joseph Segal
<PAGE>
Exhibit 10.31
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of December 16,
1997, by and between MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"),
and Wendell Burns, residing in Chattanooga, Tennessee ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller certain shares (the "Shares") of common stock of Jones
Printing Company, Inc. (the "Acquired Company") pursuant to the terms and
conditions of a stock purchase agreement made as of December 16, 1997, (the
"Stock Purchase Agreement"). Contemporaneous with the purchase of the Shares,
the Acquired Company will be merged into Premier Graphics, Inc., a Delaware
corporation (the "Company"), which is a wholly owned subsidiary of Buyer.
Section 2.4(a)(iv) of the Stock Purchase Agreement requires that a
noncompetition agreement be executed and delivered by Seller as a condition to
the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with the Acquired Company prior to the date hereof and has become
familiar with the following, any and all of which constitute confidential
information of the Company, (collectively the "Confidential Information"): (i)
any and all trade secrets concerning the business and affairs of the Company,
product specifications, data, know-how, formulae, compositions, processes,
designs, samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, (b) the business of the Company is
national in scope, (c) its products and services are marketed throughout the
United
<PAGE>
States; (d) the Company competes with other businesses that are or could be
located in any part of the United States; (e) Buyer has required that Seller
make the covenants set forth in Sections 3 and 4 of this Agreement as a
condition to the Buyer's purchase of the Shares owned by Seller; (f) the
provisions of Sections 3 and 4 of this Agreement are reasonable and necessary to
protect and preserve the Acquired Companies' business, and (g) the Company would
be irreparably damaged if Seller were to breach the covenants set forth in
Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, during the period in which the non-compete provisions
set forth in Section 4 below are in force, Seller will not disclose to any
unauthorized Persons or use for his own account or for the benefit of any third
party any Confidential Information, whether Seller has such information in
Seller's memory or embodied in writing or other physical form, without Buyer's
written consent, unless and to the extent that the Confidential Information is
or becomes generally known to and available for use by the public other than as
a result of Seller's fault or the fault of any other Person bound by a duty of
confidentiality to Buyer or the Company. Seller agrees to deliver to Buyer at
the time of execution of this Agreement, and at any other time Buyer may
request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) For so long as Seller is employed by Buyer or any affiliate, but for a
minimum period of seven (7) years after the Closing:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, within the State of Tennessee and all contiguous states; provided,
however, that Seller may purchase or otherwise acquire up to (but not more than)
one percent of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934. Seller agrees that
this covenant is reasonable with respect to its duration, geographical area, and
scope.
<PAGE>
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) in any way interfere with the relationship between
the Company and any employee of the Company, (C) employ, or otherwise engage as
an employee, independent contractor, or otherwise, any employee of the Company,
or (D) induce or attempt to induce any customer, supplier, licensee, or business
relation of the Company to cease doing business with the Company, or in any way
interfere with the relationship between any customer, supplier, licensee, or
business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during or after the seven (7) year period,
disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, for a period of three (3) years after the Closing, within ten
days after accepting any employment, advise Buyer of the identity of any
employer of Seller. Buyer or the Company may serve notice upon each such
employer that Seller is bound by this Agreement and furnish each such employer
with a copy of this Agreement or relevant portions thereof.
(e) In the event Buyer defaults in the payment of amounts due under the Fixed
Notes and such default is not cured within the applicable cure periods, all
restrictions on Seller's activities shall cease.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller; and
(b) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
In the event Buyer receives an award of damages against Seller for a breach of
the covenants set forth in Sections 3 or 4 of this Agreement, the amount of the
award shall reduce the amount owed under the Fixed Note payable to Seller.
Should the award be in excess of the amount owed under the Fixed Note payable to
Seller, Buyer may pursue collection of such excess from Seller. The rights and
remedies of the parties to this Agreement are cumulative and not alternative.
<PAGE>
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Tennessee, County of Shelby, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western
District of Tennessee, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such
<PAGE>
lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
Seller: Wendell Burns
1907 Crutchfield Street
Chattanooga, Tennessee 37406
Facsimile No.: (423) 622-9084
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Ken Beckman
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
<PAGE>
Facsimile No.:(901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.:(901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Its: President
SELLER:
/s/ Wendell Burns
-----------------
Wendell Burns
<PAGE>
Exhibit 10.32
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of March 1, 1998, by
and between MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and H.
Henry Hederman, Jr. ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller outstanding shares (the "Shares") of common stock of
Hederman Brothers, Inc. ("Hederman") pursuant to the terms and conditions of a
stock purchase agreement made as of _________, 1998, (the "Stock Purchase
Agreement"). Contemporaneous with the purchase of the Shares, Hederman_ will be
merged into Premier Graphics, Inc., a Delaware corporation (the "Company"),
which is a wholly owned subsidiary of Buyer. Section 2.4(a)(iv) of the Stock
Purchase Agreement requires that a noncompetition agreement be executed and
delivered by Seller as a condition to the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with Hederman_ prior to the date hereof and has become familiar with
the following, any and all of which constitute confidential information of the
Company, (collectively the "Confidential Information"): (i) any and all trade
secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by
<PAGE>
or for the Company containing or based, in whole or in part, on any information
included in the foregoing, (b) the business of the Company is national in scope,
(c) its products and services are marketed throughout the United States; (d) the
Company competes with other businesses that are or could be located in any part
of the United States; (e) Buyer has required that Seller make the covenants set
forth in Sections 3 and 4 of this Agreement as a condition to the Buyer's
purchase of the Shares owned by Seller; (f) the provisions of Sections 3 and 4
of this Agreement are reasonable and necessary to protect and preserve the
Acquired Companies' business, and (g) the Company would be irreparably damaged
if Seller were to breach the covenants set forth in Sections 3 and 4 of this
Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, Seller agrees that Seller will not, at any time,
disclose to any unauthorized Persons or use for his own account or for the
benefit of any third party any Confidential Information, whether Seller has such
information in Seller's memory or embodied in writing or other physical form,
without Buyer's written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the public
other than as a result of Seller's fault or the fault of any other Person bound
by a duty of confidentiality to Buyer or the Company. Seller agrees to deliver
to Buyer at the time of execution of this Agreement, and at any other time Buyer
may request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) During the time Seller is employed by the Company and for a period of seven
(7) years after Seller's employment with the Company is terminated:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, within Mississippi; provided, however, that Seller may purchase or
otherwise acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
Securities
<PAGE>
Exchange Act of 1934. Seller agrees that this covenant is reasonable with
respect to its duration, geographical area, and scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) in any way interfere with the relationship between
the Company and any employee of the Company, (C) employ, or otherwise engage as
an employee, independent contractor, or otherwise, any employee of the Company,
or (D) induce or attempt to induce any customer, supplier, licensee, or business
relation of the Company to cease doing business with the Company, or in any way
interfere with the relationship between any customer, supplier, licensee, or
business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during the period set forth in paragraph (a)
above, disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, for a period of seven (7) years after the termination of
Seller's employment with the Company, within ten days after accepting any
employment, advise Buyer of the identity of any employer of Seller. Buyer or the
Company may serve notice upon each such employer that Seller is bound by this
Agreement and furnish each such employer with a copy of this Agreement or
relevant portions thereof.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller;
(b) To offset against any and all amounts owing to Seller under the Stock
Purchase Agreement any and all amounts which Buyer or the Company claim under
Subsection 5(a) of this Agreement; and
(c) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an
<PAGE>
inadequate remedy for such breach.
(d) The rights and remedies of the parties to this Agreement are cumulative and
not alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Mississippi without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in (a) the courts of the State of Tennessee, County of Shelby, or (b) the courts
of the State of Mississippi, County of Hinds, or (c) if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
Tennessee, or (d) if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of Mississippi, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to
<PAGE>
be effective and valid but if any provision or term of this Agreement is held to
be prohibited by or invalid, then such provision or term will be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
affecting in any manner whatsoever the remainder of such provision or term or
the remaining provisions or terms of this Agreement. If any of the covenants set
forth in Section 4 of this Agreement are held to be unreasonable, arbitrary, or
against public policy, such covenants will be considered divisible with respect
to scope, time, and geographic area, and in such lesser scope, time and
geographic area, will be effective, binding and enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
Seller: H. Henry Hederman
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.: (601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
<PAGE>
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
Facsimile No.:(601) 949-4555
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee
Attention: John P. Miller
Facsimile No.: (901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By:/s/ John P. Miller
------------------
Its: President
SELLER:
/s/ H. Henry Hederman, Jr.
--------------------------
H. Henry Hederman, Jr.
<PAGE>
Exhibit 10.34
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of March 31/st/,
1998, by and between MASTER GRAPHICS, INC., a Tennessee corporation ("Buyer"),
and LYNN H. HARPER, residing in Henderson, North Carolina ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller certain shares (the "Shares") of common stock of
Harperprints, Inc. (the "Company") pursuant to the terms and conditions of a
stock purchase agreement made as of March 31/st/, 1998, (the "Stock Purchase
Agreement"). Section 2.4(a)(iv) of the Stock Purchase Agreement requires that a
noncompetition agreement be executed and delivered by Seller as a condition to
the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with the Company prior to the date hereof and has become familiar
with the following, any and all of which constitute confidential information of
the Company, (collectively the "Confidential Information"): (i) any and all
trade secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, (b) the business of the Company is
national in scope, (c) its products and services are marketed throughout the
United States; (d) the Company competes with other businesses that are or could
be located in any part of the United States; (e) Buyer has required that Seller
make the covenants set forth in Sections 3 and
<PAGE>
4 of this Agreement as a condition to the Buyer's purchase of the Shares
owned by Seller; (f) the provisions of Sections 3 and 4 of this Agreement are
reasonable and necessary to protect and preserve the Acquired Companies'
business, and (g) the Company would be irreparably damaged if Seller were to
breach the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, during the period in which the non-compete provisions
set forth in Section 4 below are in force, Seller will not disclose to any
unauthorized Persons or use for his own account or for the benefit of any third
party any Confidential Information, whether Seller has such information in
Seller's memory or embodied in writing or other physical form, without Buyer's
written consent, unless and to the extent that the Confidential Information is
or becomes generally known to and available for use by the public other than as
a result of Seller's fault or the fault of any other Person bound by a duty of
confidentiality to Buyer or the Company. Seller agrees to deliver to Buyer at
the time of execution of this Agreement, and at any other time Buyer may
request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) For so long as Seller is employed by Buyer or any affiliate, but for a
minimum period of five (5) years after the Closing:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, within the State of North Carolina and all contiguous states; provided,
however, that Seller may purchase or otherwise acquire up to (but not more than)
one percent of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934. Seller agrees that
this covenant is reasonable with respect to its duration, geographical area, and
scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) in any way
<PAGE>
interfere with the relationship between the Company and any employee of the
Company, (C) employ, or otherwise engage as an employee, independent contractor,
or otherwise, any employee of the Company, or (D) induce or attempt to induce
any customer, supplier, licensee, or business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any customer, supplier, licensee, or business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during or after the five (5) year period,
disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, at any time during the five (5) year period, within ten days
after accepting any employment, advise Buyer of the identity of any employer of
Seller. Buyer or the Company may serve notice upon each such employer that
Seller is bound by this Agreement and furnish each such employer with a copy of
this Agreement or relevant portions thereof.
(e) In the event Buyer defaults in the payment of amounts due under the Fixed
Notes, Earnout Note or the Lease Agreement of even date herewith by and among
Michael G. Harper, Lynn H. Harper and the Company and such default is not cured
within the applicable cure periods, all restrictions on Seller's activities
shall cease.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller; and
(b) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
In the event Buyer receives an award of damages against Seller for a breach of
the covenants set forth in Sections 3 or 4 of this Agreement, the amount of the
award shall reduce the amount owed under the Fixed Note and Earnout Note payable
to Seller. Should the award be in excess of the amount owed under the Fixed
Note and Earnout Note payable to Seller, Buyer may pursue collection of such
excess from Seller. The rights and remedies of the parties to this Agreement
are cumulative and not
<PAGE>
alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Tennessee, County of Shelby, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western
District of Tennessee, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such
<PAGE>
covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
Seller: Lynn H. Harper
P.O. Drawer 1596
Henderson, NC 27536
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Ken Beckman, Esq.
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
<PAGE>
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
[END OF PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Its: President
SELLER:
/s/ Lynn Harper
---------------
Lynn Harper
<PAGE>
Exhibit 10.35
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of March 1, 1998, by
and between MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and PHIL
PHILLIPS, JR., residing in Springdale, Arkansas ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller all of the outstanding shares (the "Shares") of common
stock of Phillips Litho, Inc., an Arkansas corporation ("Phillips") pursuant to
the terms and conditions of a stock purchase agreement made as of March 1, 1998,
(the "Stock Purchase Agreement"). It is contemplated that after the purchase of
the Shares, Phillips will be merged into Premier Graphics, Inc., a Delaware
corporation ("Premier"), which is a wholly owned subsidiary of Buyer (Premier
and Phillips shall hereinafter be collectively referred to as the "Company").
Section 2.4(a)(iv) of the Stock Purchase Agreement requires that a
noncompetition agreement be executed and delivered by Seller as a condition to
the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with Phillips prior to the date hereof and has become familiar with
the following, any and all of which constitute confidential information of the
Company, (collectively the "Confidential Information"): (i) any and all trade
secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis,
<PAGE>
compilations, studies, summaries, and other material prepared by or for the
Company containing or based, in whole or in part, on any information included in
the foregoing, (b) the business of the Company is national in scope, (c) its
products and services are marketed throughout the United States; (d) the Company
competes with other businesses that are or could be located in any part of the
United States; (e) Buyer has required that Seller make the covenants set forth
in Sections 3 and 4 of this Agreement as a condition to the Buyer's purchase of
the Shares owned by Seller; (f) the provisions of Sections 3 and 4 of this
Agreement are reasonable and necessary to protect and preserve Phillips'
business, and (g) the Company could be irreparably damaged if Seller were to
breach the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that Seller claims no interest in the
Confidential Information. Seller agrees that, provided Buyer and/or the Company
are not in default of any of the obligations set forth in the Stock Purchase
Agreement, the Promissory Note or the Employment Agreement, Seller will not, at
any time Seller is employed by the Company and for a period of five (5) years
after Seller's employment is terminated, except as may be necessary in
connection with discharging his duties pursuant to the Employment Agreement or
as otherwise required by law, disclose to any unauthorized Persons or use for
his own account or for the benefit of any third party any Confidential
Information, without Buyer's written consent, unless and to the extent that the
Confidential Information is or becomes generally known to and available for use
by the public other than as a result of Seller's fault or the fault of any other
Person bound by a duty of confidentiality to Buyer or the Company. Seller agrees
to deliver to Buyer at the time of execution of this Agreement, and at any other
time Buyer may request, all documents, memoranda, notes, plans, records,
reports, and other documentation, models, components, devices, or computer
software, whether embodied in a disk or in other form (and all copies of all of
the foregoing), relating to the businesses, operations, or affairs of the
Company and any other Confidential Information that Seller may then possess or
have under Seller's control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement, and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement, Seller agrees that:
(a) During the time Seller is employed by the Company and for a period of five
(5) years after Seller's employment with the Company is terminated, provided
Buyer and /or the Company are not in default of any of the obligations set forth
in the Stock Purchase Agreement, the Promissory Note or the Employment
Agreement:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or
<PAGE>
control of, be employed by, associated with, or in any manner connected with,
lend Seller's name or any similar name to, or render services or advice to, any
business within the states of Arkansas, Missouri and Oklahoma whose products or
activities compete directly with the printing lines Seller is involved with
during Seller's employment with Buyer; provided, however, that Seller may
purchase or otherwise acquire up to (but not more than) five percent (5%) of any
class of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934. Seller agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) intentionally interfere with the relationship
between the Company and any employee of the Company, (C) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of the
Company, (unless the Company has terminated such employee), or (D) induce or
attempt to induce any customer, supplier, licensee, or business relation of the
Company to cease doing business with the Company, or in any way intentionally
interfere with the relationship between any customer, supplier, licensee, or
business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
printing lines Seller is involved with during Seller's employment with Buyer;
(b) In the event of a material breach by Seller of any covenant set forth in
Subsection 4(a) of this Agreement, the term of such covenant will be extended by
the period of the duration of such breach.
(c) Seller will not at any time during the period set forth in paragraph (a)
above make disparaging remarks regarding the Company, its shareholders
,directors, officers, employees or agents if the intent of such remarks is to
inflict serious damage to the reputation of the Company or to alienate the
Company's customers or employees.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
upon a showing of proper proof, Buyer and the Company will be entitled to the
following remedies:
(a) Damages from Seller; and
<PAGE>
(b) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns, and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Arkansas without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Subject to the arbitration clause in Section 11.17 of the Stock Purchase
Agreement which is specifically incorporated herein by reference, any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against any of the parties in the courts
of the State of Tennessee, County of Shelby, the State of Arkansas or, if it has
or can acquire jurisdiction, in the United States District Court for the Eastern
or Western District of Arkansas, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
<PAGE>
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
electronic confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
Seller: Phil Phillips, Jr.
c/o Phillips Litho
807 Old Missouri Road
Springdale, Arkansas 72764
Facsimile No.: (501) 751-8130
<PAGE>
with a copy to: Lax, Vaughan, Pender & Evans, P.A.
400 West Capital Avenue, 24/th/ Floor
Little Rock, Arkansas 72201
Attention: Michael F. Lax, Esq.
Facsimile No.: (501) 376-6666
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee
Attention: John P. Miller
Facsimile No.:(901) 744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by Buyer and Seller.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Its: President
SELLER: /s/ Phil Phillips, Jr.
----------------------
Phil Phillips, Jr.
<PAGE>
Exhibit 10.36
COMMERCIAL LEASE AGREEMENT
--------------------------
THIS LEASE AGREEMENT (the "Lease"), made and entered into as of the 4th day
of December, 1992, by and between JOHN P. MILLER, an individual presently
residing in Baton Rouge, Louisiana ("Lessor"), and B&M PRINTING COMPANY, a
Tennessee corporation doing business in Shelby County, Tennessee ("Lessee").
W I T N E S S E T H:
Lessor, for and in consideration of Lessee's payment of the Rent and the
performance of the covenants herein contained, does by these presents lease and
demise unto Lessee, the following described property located in the City of
Memphis, Shelby County, Tennessee, to wit:
Real Property and improvements municipally known as 2500 Lamar Avenue,
Memphis, Tennessee 38114 (the "Premises").
1. BUSINESS PURPOSES. The business to be conducted on the Premises shall
-----------------
be to purchase, sell and install insulation materials and related goods and
services.
2. TERM. The term of this Lease shall be ten (10) years, commencing on
----
December 4, 1992, and ending on November 30, 2002 (the "Term"), unless sooner
terminated as herein provided.
Should the Lessee hold over and remain in possession of the Premises after
the expiration of the Term of this Lease without the Lessor's consent, it shall
not be deemed or construed to be a renewal or extension of this Lease, but shall
only operate to created a month-to-month tenancy which may be terminated by the
Lessor at the end of any month upon thirty (30) days prior written notice to the
Lessee.
3. RENT. Lessee shall pay Lessor rent for the Premises as follows:
----
A. During the Term of the Lease, Lessee shall pay to the Lessor
basic rent in lawful money of the United States, in equal monthly
installments of Eleven Thousand Six Hundred Sixty-Six Dollars and Sixty
Seven Cents($11,666.67) in advance, on the first day of each month. If the
first day of the Term is other than the beginning of a calendar month, the
basic rent for the first month shall be prorated.
<PAGE>
B. All Rent shall be payable at Lessor's place of business or at
such other place as Lessor may designate in writing.
C. As additional rent, it is the intention of the Lessor and the
Lessee that the rent herein specified shall be net to the Lessor in each
year during the Term of this Lease, that all costs, expenses, taxes,
charges and obligations of every kind relating to the Premises, including,
but not limited to the costs of maintaining and repairing the Premises,
which may arise or become due during the Term of this Lease shall be paid
by the Lessee, and that the Lessor shall be indemnified by the Lessee
against such costs, taxes, expenses, charges and other obligations.
D. All taxes, charges, costs, expenses and other obligations which
the Lessee is required to pay hereunder, together with all interest and
penalties that may accrue thereon in the event of the Lessee's failure to
pay such amounts when due, and all damages, costs, and expenses which the
Lessor may incur by reason of any default of the Lessee or failure on the
Lessee's part to comply with the terms of this Lease, shall be deemed to be
additional rent, and in the event of nonpayment by the Lessee, the Lessor
shall have all the rights and remedies with respect thereto as the Lessor
has for the nonpayment of the basic rent.
4. INCREASE IN REAL PROPERTY TAXES. The Lessee shall pay during the Term
-------------------------------
of this Lease all taxes assessed and levied against the Premises, when due and
payable, and prior to the time any such tax shall become delinquent, and shall
provide Lessor with evidence of such payment. The Lessee shall also pay any
special assessment imposed upon such property for any purpose whatsoever during
such Term.
5. REPAIR AND MAINTENANCE. The Lessee shall, at its own expense, make all
----------------------
necessary repairs and replacements to the Premises and to the pipes, heating
system, plumbing system, window glass, fixtures, and all other appliances and
appurtenances belonging thereto, all equipment used in connection with the
Premises, and the sidewalks, curbs, adjoining or appurtenant to the leased
property. Such repairs and replacements, interior and exterior, ordinary as well
as extraordinary, structural as well as nonstructural, shall be made promptly,
as and when necessary. All repairs and replacements shall be in quality and
class at least equal to the original work in the condition as of the date of
this Lease. On the fault of the Lessee in making such repairs or replacements,
the Lessor may, but shall not be required to, make such repairs and replacements
for the Lessee's account, and the expense thereof shall constitute and be
collectable as additional rent.
2
<PAGE>
6. LAWFUL USES. The Lessee agrees that neither the within Premises nor
-----------
any part thereof shall be used for any purpose in violation of the law of the
United States, of the State of Tennessee, nor of the ordinances and the laws of
the City of Memphis or the County of Shelby, and agrees to hold the Lessor
harmless from any violation of said laws and ordinances.
7. WASTE AND NUISANCES. The Lessee agrees not to commit nor to permit to
-------------------
be committed any waste whatever and that it will allow no nuisance to exist on
said Premises and will, when required by the property authorities, abate all
nuisances at its own expense.
8. INSURANCE. Throughout the Term of this Lease, the Lessee shall
---------
maintain insurance coverage on the Premises, including fire and windstorm
insurance in such amounts as now maintained by the Lessor. In the event the rate
of the insurance on the said Premises is increased for any reason, the Lessee
shall pay the increased cost of the insurance at the time the bill is presented
to it for same.
9. DESTRUCTION BY FIRE. Should the buildings upon the within Premises be
-------------------
totally destroyed by fire or other cause or so damaged that the restoration or
repair of same cannot be completed within one hundred twenty (120) days from the
date of the happening of any such casualty, this Lease shall terminate, and the
Lessee shall be allowed an abatement of rent from the date of such damage or
destruction, and shall be relieved of the liability for the payment of any rent
installments falling due thereafter, and in the event notes are given for said
installments, said notes shall be delivered to the Lessee; however, if the
damage is such that rebuilding or repairs can be completed within ninety (90)
days, the Lessor agrees to rebuild and to make such repairs with reasonable
promptness and dispatch, and to allow the Lessee an abatement in the rent for
such time as the building is untenable, and as soon as the building is restored
and repairs completed, the Lessee agrees to take possession of the same and to
resume the payment of the rent upon the same terms and conditions set forth for
the unexpired Term of this Lease.
10. LESSOR HELD HARMLESS. The Lessee covenants that it will hold harmless
--------------------
Lessor for all liability for loss or damages to persons, property, or things,
both real or asserted, accruing from any cause or causes in or connected with or
about the within Premises, or on the sidewalk area adjacent thereunto, during
the Term of this Lease.
11. RIGHT OF ENTRY AND OBLIGATION TO MAKE REPAIRS. The Lessor reserves the
---------------------------------------------
right during the Term of this Lease to enter the said premises at reasonable
hours to show the same to other persons who may be interested in renting or
buying the property, and for the purpose of inspecting the premises and to make
such repairs, additions, or improvements as the Lessor may deemed necessary for
the protection and preservation of the said building and Premises; but the
Lessor is not bound to make any repairs whatever except as hereinafter stated,
nor to be held liable for any damage in consequence of leaks, nor for the
3
<PAGE>
stoppage of water, sewer, gas or drain pipes by reason of freezing or any other
cause or obstructions, nor for any other defects about the building and
premises, the Lessee having examined the same and being satisfied therewith, but
should such leaks, obstructions, freezings, stoppages, or other defects about
the building and Premises occur during the Term of this Lease, or while the
Lessee is occupying the premises, then the Lessee shall remedy the same promptly
at the Lessee's expense, unless the Lessor by written instrument undertakes to
do the same promptly. The Lessee shall maintain the Premises in good order and
repair, both inside and outside.
In the event that the Lessee shall fail to make repairs as aforesaid, the
Lessor reserves the right to enter said Premises at any time and make such
repairs at the expenses of the Lessee, which expenses shall be considered
additional rent. The Lessor further reserves the right at any time within three
(3) months prior to the expiration of this Lease to affix to any part of the
within Premises and leased building a notice for rent of sale of the same and
may keep the said notice so affixed without hindrance or molestation by the
Lessee.
12. IMPROVEMENTS BY LESSEE. All improvements, additions, and repairs made
----------------------
to the Premises and building during the Term of this Lease shall, at the
expiration of the same, become the property of the Lessor, or its assigns,
without cost to it; it is agreed, however, that all trade fixtures installed by
the Lessee or its assigns for the business conducted by it shall remain the
property of the Lessee, and that such trade fixtures may be removed during the
Term of this Lease or at its expiration, provided any damage caused by such
removal shall be required by the Lessee at its own expense and the Premises left
in good conditions.
13. DELIVERY AT END OF LEASE. The Lessee agrees to deliver to the said
------------------------
Lessor, assigns, or legal representatives the within leased Premises at the
expiration of this Lease in the same good order and condition as they were when
received and to make good all damages to said Premises, except the usual wear
and proper use of the same, and also to remain liable for the rent until all of
the Premises with keys to the same, are returned to the Lessor, its legal
representative, or assigns, in like good order, and no demand or notice of such
delivery shall be necessary.
14. PROOF OF PAYMENT. No set-off in the payment of the rent herein
----------------
reserved shall be allowed unless signed by the Lessor, its legal representative
or assigns, and the proof of the payment of the rent shall be on the Lessee in
all controversies.
15. LIEN ON LEASEHOLD, ETC. A first lien is hereby expressly reserved by
----------------------
the Lessor and granted by the Lessee upon the terms of this Lease and upon all
interest of the Lessee in this leasehold, and upon all buildings, improvements,
water fixtures, gas fixtures, and all other fixtures (fixtures are any fixtures
that cannot be removed
4
<PAGE>
without material damage to building or surrounding area) erected or put into
place or that may be erected or put into place upon the Premises by or through
the Lessee or other occupants, which are or may be put upon the Premises by or
through the Lessee or other occupants for the payment of rent and also for the
satisfaction of any causes of action which may accrue to the Lessor by the
provision of this instrument; provided, however that its lien shall not apply to
goods, wares and merchandise held by the Lessee for sale to customers in the
ordinary course of business, nor to stock in trade, nor equipment.
16. COLLECTION COSTS. The Lessee agrees to pay all costs of collection,
----------------
including reasonable attorney fees if all or any part of the rent reserved
herein is collected after maturity with the aid or any attorney; also to pay
reasonable attorney fees in the event it becomes necessary for the Lessor to
employ an attorney to force the Lessee to comply with any of the obligations,
conditions, or requirements imposed by this Lease.
17. INSOLVENCY, ETC. OF LESSEE AND PROHIBITION OF ASSIGNMENT AND
------------------------------------------------------------
SUBLETTING . It is further agreed and made part of this contract that if the
- ----------
said Lessee becomes a bankrupt, either voluntarily or involuntarily, or makes or
causes to be made a partial or general assignment of its business, goods, wares,
or merchandise for the benefit of a creditor or creditors, or if by operation of
law or any legal process this Lease be transferred, assigned, or sold, or the
whole or any part of the Premises be sublet without the written consent of the
Lessor, this Lease may, at the option of the Lessor, be declared null and void.
18. WAIVER OF BREACH. The waiver by the Lessor of any breach of any
----------------
covenant or covenants of this Lease shall be limited to the particular instance,
and shall not operate nor be deemed to waive any future breaches of the same
covenant or covenants nor of any other covenant or covenants.
19. DEFAULT OF RENT, ETC. These presents are on the expressed condition
--------------------
that if the Lessee shall fail or neglect to pay when due any of the rent herein
reserved or fail or neglect to observe any of the covenants, agreements, or
requirements herein contained which are to be observed and performed by the
Lessee, then, and in any and all of said events, or for violations of any one or
more of said covenants, requirements, or agreements on the part of the Lessee,
this Lease may, at the option of the Lessor, be declared null and void and
forfeited, and the Lessor may, after written notice, lawfully enter into and
upon the said building and Premises, or any part thereof, in the name of the
whole, and repossess and have the same as of its former estate and expel the
Lessee or its assigns and any and all persons who may be in possession of the
same. Lessor shall be entitled to receive from the Lessee the difference in
rental, if any, between the rental herein reserved for the unexpired portion of
the Term and any lesser amount which Lessor, in the exercise of reasonable
diligence, is able to procure for the unexpired portion of the Term, each
monthly difference being a separate cause of action. This right so reserved by
the
5
<PAGE>
Lessor, and granted by the Lessee, constitutes an essential part of the
consideration for the Lessor's agreement to lease the said Premises to the said
Lessee, and the said reserved right may be exercised in any of the contingencies
above set forth, that is to say, for the violation and nonobservance of any of
the undertakings to be kept, observed, or performed by the Lessee, its
successors or assigns.
20. RIGHT TO TERMINATE. It is further agreed that in the event the Lessor
------------------
terminates this Lease for any reason herein set forth that the said termination
shall not relieve the Lessee of any liability to the Lessor for failure to
fulfill, perform, or observe the obligations, agreements, and covenants imposed
on the said Lessee by this contract, and that the said Lessor shall at any time
after the termination of this Lease have the right of action against the said
Lessee, its successors, or assigns for any breach of this contract.
21. COVENANTS RUN TO HEIRS, ETC. It is agreed by the parties to this
---------------------------
contract that all covenants, agreements, and undertakings contained in this
Lease shall extend to and be binding on their respective heirs, executors,
administrators, successors, and assigns of the respective parties hereto the
same as if they were in every case named and expressed; also that the terms
"Lessor" and "Lessee" shall be construed in the singular or plural number
according as they respectively represent one or more than one person, and, in
the event the Lessor or Lessee is a corporation, the pronouns and other words
referring to the Lessor or Lessee herein shall be considered as changed to the
proper pronouns or words to indicate the Lessor or Lessee is a corporation.
22. ASSIGNMENTS. The Lessee agrees that it will not sell nor assign this
-----------
Lease or sublease the said Premises or any part of the same or in any manner
transfer this Lease of leasehold without the written consent of the Lessor or
its legal representative.
23. RENEWAL. No renewal or extension of this Lease shall be binding on
-------
either party unless it be in writing and signed by the Lessor and the Lessee.
24. WATER, GAS, TELEPHONE AND ELECTRICITY RATES. Lessee agrees to pay all
-------------------------------------------
water, gas, telephone and electricity charges, for water, gas, telephone
services and electricity used on said Premises during the Term of this Lease.
25. ALL CONDITIONS CONTAINED HEREIN. This Lease contains all of the
-------------------------------
agreements and conditions made between the parties hereto, and no
representations or statements claimed to have been made and not herein contained
shall vary or modify this Lease Agreement in any way.
26. SUPERSEDES PRIOR AGREEMENTS. This Lease supersedes all prior
---------------------------
agreements between the parties regarding the leasing of the Premises.
6
<PAGE>
IN TESTIMONY WHEREOF, the said Lessor and Lessee hereunto set their hands
or have caused this Lease to be executed by their duly authorized officers.
LESSOR:
/s/ John P. Miller
------------------
JOHN P. MILLER
LESSEE:
B&M PRINTING COMPANY
By: /s/ Lawrence B. Lee
-------------------
Its: Secretary
STATE OF Georgia
COUNTY OF Cobb
Personally appeared before me, Laura C. Smith, Notary Public of the state
and county aforesaid, John P. Miller, with whom I am personally acquainted, and
who acknowledged that _he executed the within instrument for the purposes
therein contained.
WITNESS my hand, at office, this 10th day of December, 1992.
/s/ Laura C. Smith
------------------
Notary Public
My commission expires:
Notary Public, Cobb County, Georgia
My Commission Expires Aug. 15, 1995
7
<PAGE>
STATE OF Georgia
COUNTY OF Cobb
Personally appeared before me, Laura C. Smith, Notary Public of the state
and county aforesaid, Lawrence B. Lee, with whom I am personally acquainted, and
who acknowledged that _he executed the within instrument for the purposes
therein contained, and who further acknowledged that _he is the Secretary of the
maker or a constituent of the maker and is authorized by the maker or by its
constituent, the constituent being authorized by the maker, to execute this
instrument on behalf of the maker.
WITNESS my hand, at office, this 10th day of December, 1992.
/s/ Laura C. Smith
------------------
Notary Public
My commission expires:
Notary Public, Cobb County, Georgia
My Commission Expires Aug. 15, 1995
8
<PAGE>
Exhibit 10.37
AMENDED AND RESTATED
LEASE AGREEMENT - OFFICE,
COMMERCIAL PRINTING AND COMMERCIAL WAREHOUSE FACILITY
THIS AMENDED AND RESTATED LEASE AGREEMENT - OFFICE, COMMERCIAL PRINTING AND
COMMERCIAL WAREHOUSE FACILITY (hereinafter sometimes referred to as the "Lease"
and sometimes as the "Agreement") is made and entered into in duplicate as of
the 16th day of June, 1997, by and between Graphic Development Company, L.P., a
Tennessee limited partnership having its principal place of business at Memphis,
Tennessee 38118, as party of the first part (hereinafter referred to as
"Lessor") and Lithograph Printing Company of Memphis, a Tennessee corporation
maintaining its principal place of business at 4222 Pilot Drive, Memphis,
Tennessee 38118, as party of the second part (hereinafter referred to as
"Tenant").
WITNESSETH:
WHEREAS, pursuant to a certain Lease Agreement dated the 8th day of
January, 1985, as amended (i) by Memorandum of Agreement Regarding Rentals,
dated the 9th day of January, 1990, (ii) by Extension (With Modifications) of
Lease Agreement, dated the 1st day of August, 1994 and (iii) by Memorandum
Pertaining to Extension (With Modifications) of Lease Agreement, dated August 1,
1994 (collectively, said lease agreement and three modifications are referred to
as the "Prior Lease"), Tenant leased from Lessor an office, commercial printing
and warehouse building owned by Lessor; and
1
<PAGE>
WHEREAS, Tenant and Lessor desire to amend and restate the Prior Lease in
its entirety pursuant to this Agreement;
NOW, THEREFORE, in consideration for the mutual considerations hereinafter
set forth, the parties hereby agree that the Prior Lease shall be amended and
restated in its entirety as follows:
1. CONSIDERATION BY TENANT. The said Lessor, for and in consideration of
-----------------------
the rent hereinafter reserved and the covenants, agreements and stipulations
herein contained to be paid, executed and performed by the Tenant, does by these
presents let, lease and demise unto the said Tenant and his assigns, and Tenant
hereby rents, the following below-described real property located in Shelby
County, Tennessee.
2. DESCRIPTION. The premises ("Leased Premises") consists of those real
-----------
properties, including the office, commercial printing and warehouse building
constructed on and occupying said real properties, municipally known as 4222 and
4240 Pilot Drive, Memphis, Tennessee and as more particularly described on
Exhibit A attached hereto.
3. PURPOSE. It is understood and agreed that Tenant is leasing the Leased
-------
Premises in question as an office, commercial printing and warehouse
facility.
4. DURATION. TO HAVE AND TO HOLD the same in accordance with the
--------
following:
(a) The primary term of the Lease of the Leased Premises shall be for
a period of ten (10) years, commencing
2
<PAGE>
upon August 1, 1994 ("Commencement Date") and terminating on July 31, 2004.
(b) Upon the expiration of the primary term hereof, Tenant, provided
it is not in default of any provisions herein contained, shall have two (2)
successive options to renew the Lease under the same terms and conditions
each renewal to be for an additional period of five (5) years except that
the annual rental set forth in Article 6 shall be increased to a mutually
agreed amount to be negotiated by the parties at the time the option is
exercised; provided, however, that, in the event the parties cannot agree,
within a period of 60 days following receipt of Tenant's notice of renewal,
upon the increased rental to be charged during the renewal term, then, in
such event (and notwithstanding Tenant's delivery of notice of its intent
to renew), Tenant's option to renew shall terminate and this Lease shall
terminate upon the expiration of the primary term. Tenant's options to
renew must be exercised separately by Tenant's giving Lessor notice, in
writing, at least one hundred eighty (180) days prior to the expiration of
the primary term (or initial renewal term) that it intends to renew the
same. The second option granted to Tenant shall automatically expire in the
event the Tenant fails to renew the Lease pursuant to its initial option.
(c) The term "lease year" as used herein shall mean a period of
twelve (12) consecutive calendar months. The
3
<PAGE>
preceding to the contrary notwithstanding the first lease year shall begin
on the Commencement Date of the term hereof and shall end on July 31, 1995.
Each succeeding lease year shall commence on August 1st and terminate on
July 31st of the following year.
5. CONSIDERATION BY LESSOR. The Lessor does hereby covenant and agree
-----------------------
that it will keep and secure the Tenant in the peaceful use and possession of
the Leased Premises during the term of this Lease unless the said Tenant
defaults in the payment of rent, or in the fulfillment of any of the
obligations, requirements and conditions of this Lease.
6. RENTAL. The Tenant shall pay as rent for the Leased Premises, for the
------
period from the Commencement Date through the 31st day of July, 1997, an annual
rental of Two Hundred Seventy-Two Thousand Four Hundred Dollars ($272,400]
payable each Lease Year in advance in twelve monthly installments in the amount
of $22,700.00. The first installment shall be due and payable on the
Commencement Date of the term hereof and shall be for the period from the
Commencement Date through the last day of the next succeeding month, and each
succeeding installment shall be due and payable on the 1st day of each month
thereafter. All installments shall be deemed delinquent if not paid within ten
(10) days of the due date thereof. All delinquent payments shall bear interest
from the date the payment was due at the rate of ten percent (10%) per annum, or
the maximum effective fixed contract rate of interest which may be lawfully
charged at the
4
<PAGE>
time of such default, whichever is less.
Any acceptance of delinquent rent installments with interest shall not be
construed as a waiver of any condition set forth in Article 26 of this Lease nor
as a ratification of delinquent payments.
This Lease is what is commonly known as a "Net, Net, Net Lease", it being
understood that Tenant will, in accordance with the terms hereinafter set forth,
pay in addition to the Rent: (1) all taxes and assessments related to the Leased
Premises; (2) premiums for all insurance in an amount sufficient to insure the
Leased Premises for its replacement cost; (3) the cost of all repairs,
replacements and maintenance of the Leased Premises, and (4) any other cost and
expense connected with the Leased Premises. The intent of the parties is that
the rental payable by the Tenant shall, unless otherwise provided hereinbelow,
be net to the Lessor.
7. DELIVERY OF POSSESSION. Having been in possession of 4222 Pilot Drive
----------------------
since 1979 and having fully inspected 4240 Pilot Drive prior to its acquisition
by Lessor, Tenant acknowledges that it has examined the Leased Premises prior to
taking possession thereof and occupying the same, and Tenant agrees that said
Leased Premises have been received by it in good order and condition.
8. GOING BUSINESS. The Tenant shall at all times conduct, during normal
--------------
business hours, an active commercial printing business in the Leased Premises
and shall not keep the doors of
5
<PAGE>
the same closed for a period to exceed thirty (30) days.
9. LAWFUL USES. The Tenant agrees that neither the Leased Premises nor
-----------
any part thereof shall be used for any purpose in violation of the laws of the
United States, of the State of Tennessee, of the County of Shelby, or of any
other governmental body having jurisdiction, and agrees to hold the Lessor
harmless from any violation of said laws and ordinances.
10. WASTE AND NUISANCES. The Tenant agrees not to commit nor to permit to
-------------------
be committed any waste whatever and that it will allow no nuisance to exist on
said Leased Premises and will, when required by the proper authorities, abate
all nuisances at its own expense.
11. INSURANCE.
---------
(a) Cost of Insurance. Tenant shall pay the cost of all insurance
-----------------
required hereunder.
(b) Liability Insurance. Tenant shall, at Tenant's expense obtain
-------------------
and keep in force during the term of this Lease a policy of Combined Single
Limit, Bodily Injury and Property Damage insurance insuring Lessor and
Tenant against liability arising out of the ownership, use, occupancy or
maintenance of the Leased Premises. Such insurance shall be a combined
single limit policy in a primary amount of not less than [$500,000.00] per
occurrence with additional umbrella coverage of not less than [$5,000,000]
per occurrence.
(c) Property Insurance. The Tenant shall obtain and
------------------
6
<PAGE>
keep in force during the term of this Lease a policy or policies of
insurance covering loss or damage to the Leased Premises, including
fixtures and tenant improvements, in the amount of the full replacement
cost thereof, as the replacement cost may be agreed upon from time to time
by the parties) (i.e. coverage which the parties agree shall provide for
100% replacement cost to value with an agreed amount endorsement, as
determined initially, and annually thereafter, by an appraisal system
agreed upon by the parties), which replacement value is now estimated to be
$1,933,000 against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood, earthquake and
special extended perils ("all risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to
Lessor and Tenant as their interests may appear. The Tenant shall, in
addition, obtain and keep in force during the term of this Lease for
benefit of Lessor a loss of rents policy covering a period of six (6)
months, with loss payable to Lessor. If the Tenant shall fail to procure
and maintain said insurance, the Lessor may, but shall not be required to,
procure and maintain the same, but at the expense of the Tenant. If such
insurance coverage has a deductible clause, the deductible amount shall not
exceed [$5,000.00] per occurrence, and Tenant shall be liable for such
deductible amount. All such insurance shall
7
<PAGE>
be with such companies, in such form and content as are approved by Lessor,
which approval shall not be unreasonably withheld.
(d) Insurance Policies. Insurance required hereunder shall be in
------------------
companies holding a "General Policyholders Rating" of at least A plus and a
financial size category of at least Class XIII as set forth in the most
current issue of "Best's Insurance Guide". The Tenant shall deliver to
Lessor duplicate originals of policies of such insurance evidencing the
existence and amounts of such insurance with loss payable clauses as
required by this Article 11. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30)
days' prior written notice to Lessor. Tenant shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewals
or "binders" thereof, or Lessor may order such insurance and charge the
cost thereof to Tenant, which amount shall be payable by Tenant upon
demand.
12. INVALIDATION OF INSURANCE. The Tenant agrees that it will suffer
-------------------------
nothing to remain on or about the Leased Premises which might invalidate the
liability and casualty coverage required to be maintained by Tenant under
Article 11.
13. DESTRUCTION BY FIRE. Should the buildings upon the Leased Premises be
-------------------
totally destroyed by fire or other cause or so damaged that Tenant cannot
reasonably conduct its business
8
<PAGE>
thereon and in the event the restoration or repair of same cannot be completed
within one hundred eighty (180) days from the date of the happening of any such
casualty and in the further event that Tenant is maintaining such insurance,
this Lease shall at Tenant's option terminate (which option must be exercised by
notice to Lessor within sixty (60) days of the occurrence) and the Tenant shall
be allowed an abatement of rent from the date of such damage or destruction, and
shall be relieved of the liability for the payment of any rent installments
falling due thereafter (except Tenant shall remain liable to the extent of any
obligations arising out of the provisions of the last sentence of Article 20);
however, if the damage is such that rebuilding or repairs can be completed
within one hundred eighty (180) days, or if more than one hundred eighty (180)
days and if Tenant has not exercised its option to terminate, the Lessor agrees,
to the extent of the insurance proceeds available therefor, to rebuild and to
make such repairs with reasonable promptness and dispatch, and to allow the
Tenant an abatement in the rent for such time as the building is untenantable
and a fair and proper partial or total abatement of rent for such time as the
building is partially untenantable, and as soon as the building (or portion
thereof) is restored and repairs completed, the Tenant agrees to take possession
of the same and to resume the payment of the rent upon the same terms and
conditions set forth herein for the unexpired term of this lease. All casualty
insurance proceeds relating to the building and improvements
9
<PAGE>
shall be made available to Lessor for either repair and restoration (if repair
and restoration is required hereunder) or compensation for loss of the building.
14. LESSOR HELD HARMLESS. In addition to, and not in limitation of any
--------------------
other provision of this Agreement, including Article 33(i), the Tenant covenants
and agrees to keep and to hold the Lessor harmless from any liability for loss
or damage to persons, property, or things, both real and asserted, accruing from
any cause or causes in connection with or about the Leased Premises (or Tenant's
use thereof), during the term of this Lease. Further, Tenant agrees to defend,
save, indemnify and hold the Lessor harmless against all liability, claims,
demands or judgments for damages arising from accidents to persons or property
occasioned by Tenant, its agents, employees or servants, and against all claims
or demands for damages arising from accidents in which Tenant, its agents,
employees or servants are in any way involved, damaged or injured. Tenant shall
defend any and all suits brought against the Lessor on account of any such
accidents or claims and will pay any judgment rendered in such suits and will
reimburse and indemnify the Lessor for all expenditures or expenses, including
court costs and counsel fees, made or incurred by the Lessor by reason of such
accidents, damages or injuries. Tenant's obligations pursuant to this Article
14 shall survive the termination of this Lease.
15. RIGHT OF ENTRY AND OBLIGATION TO MAKE REPAIRS. The Lessor reserves
---------------------------------------------
the right during the term of this Lease to enter
10
<PAGE>
the Leased Premises at reasonable hours to show the same to the other persons
who may be interested in renting or buying the property, and for the purpose of
inspecting the Leased Premises and, at cost of Tenant, to make such repairs,
additions or improvements as the Lessor may deem necessary for the protection
and preservation of the Leased Premises; but the Lessor is not bound to make any
repairs whatever, nor to be held liable for any damage in consequence of leaks,
nor for the stoppage of water, sewer, gas or drain pipes by reason of freezing
or any cause or obstructions, nor for any other defects about the Leased
Premises, the Tenant having examined the same and being satisfied therewith, and
should leaks, obstructions, freezings, stoppages, or other defects about the
Leased Premises occur during the term of this Lease, or while the Tenant is
occupying the Leased Premises, then the Tenant shall remedy the same promptly at
the Tenant's expense, unless the Lessor by written instrument undertakes to do
the same. The Tenant shall maintain the Leased Premises, in good order and
repair, inside and out, including but not limited to, repair and, if necessary,
replacement of all roofs, walls (interior and exterior), doors, windows,
ceilings, floor coverings, plumbing, electrical fixtures and other systems
within the Leased Premises.
In the event that the Tenant shall fail to make repairs as aforesaid, the
Lessor reserves the right to enter said Leased Premises at any time and make
such repairs at the expense of the Tenant, which expense shall be considered
additional rent. The
11
<PAGE>
Lessor further reserves the right (1) at any time to affix a "For Sale" notice
to any part of the Leased Premises, or (2) at any time within six months prior
to the expiration of this Lease to affix to any part of the Leased Premises a
"For Rent" notice and may keep the said notice so affixed without hindrance or
molestation by the Tenant.
16. REAL PROPERTY TAXES.
-------------------
(a) Payment of Taxes. Tenant shall pay the real property tax, as
----------------
defined in Article 16 (b), applicable to the Leased Premises during the
term of this Lease, prorated during the initial and final years of any term
of this Lease based upon the Tenant's period of occupancy. All such
payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Tenant shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If Tenant shall fail to pay any
such taxes, Lessor shall have the right to pay the same, in which case
Tenant shall repay such amount to Lessor with Tenant's next rent
installment together with interest at the rate of ten percent (10%) per
annum, or the maximum effective fixed contract rate of interest which may
be lawfully charged at the time of such default, whichever is less.
(b) Definition of "Real Property Tax". As used herein, the term
---------------------------------
"real property tax" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license
fee, levy or tax (other
12
<PAGE>
than inheritance, personal income or estate taxes) imposed on the Leased
Premises by any authority having the direct or indirect power to tax,
including the City of Memphis, Shelby County, the State of Tennessee, or
the federal government, as against any legal or equitable interest of
Lessor in the Leased Premises, as against Lessor's right to rent or other
income therefrom, and as against Lessor's business of leasing the Leased
Premises. The term "real property tax" shall also include any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally,
any tax, fee, levy, assessment or charge hereinabove included within the
definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax".
(c) Personal Property Taxes. Tenant shall pay, prior to delinquency,
-----------------------
all lawful taxes and governmental charges of any kind, including without
limiting the generality of the foregoing, any taxes, assessments and
charges of any kind whatsoever lawfully made by any governmental body
against and levied upon trade fixtures, furnishings, machinery, equipment
and all other personal property in connection with or with respect to the
Leased Premises. When possible, Tenant shall cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed and
billed separately.
(d) Right to Contest Impositions. Tenant shall not be
----------------------------
13
<PAGE>
required to pay or discharge or cause to be paid or discharged any tax,
assessment, charge or levy so long as it shall, in good faith, be
concurrently contesting said tax, assessment, charge or levy and shall
have, during the period of such contest or appeal therefrom, secured the
amount being contested by either escrowing an amount satisfactory to Lessor
or posting with Lessor or appropriate court of record a bond in form and
amount satisfactory to Lessor.
17. ADVERTISING ON PREMISES. The Tenant agrees not to use the outside
-----------------------
walls, roofs, or any exterior portion of any building or other improvements that
are now on or that may hereafter be erected on Leased Premises, nor to allow the
same to be used by anyone else, for the purpose of displaying advertising
without the prior written consent of the Lessor, its legal representatives, or
assigns. The above statement to the contrary notwithstanding, the Tenant shall
have the right to erect such exterior advertising as is reasonably necessary to
identify the Leased Premises as Tenant's place of business.
18. CHANGES AND ALTERATIONS. The Tenant further agrees not to make any
-----------------------
changes, alterations, or additions about the Leased Premises without the prior
written consent of the Lessor, and to do nothing whatsoever that shall weaken,
or tend to weaken the buildings or structures now on or that may hereafter be
erected on the Leased Premises.
19. IMPROVEMENTS BY TENANT. All improvements, additions, and repairs made
----------------------
to the Leased Premises during the term of this
14
<PAGE>
Lease shall at the expiration of the same become the property of the Lessor, or
its assigns, without cost to it; it is agreed, however, that all trade fixtures
installed by the Tenant or its assigns for the business conducted by it shall
remain the property of the Tenant, and that such trade fixtures may be removed
during the term of this Lease or at its expiration, provided any damage caused
by such removal shall be repaired by the Tenant, or its assigns, at its own
expense and the Leased Premises left in good condition.
20. DELIVERY AT END OF LEASE. The Tenant agrees to deliver to the said
------------------------
Lessor, its assigns or legal representatives the Leased Premises at the
expiration of this lease in the same good order and condition as they were when
received and to make good all damages to Leased Premises, except for the usual
wear and proper use of the same, and also to remain liable for the rent until
the Leased Premises, with keys to the same, has been cleared of all persons and
property not belonging to the same, and returned to the Lessor, its legal
representative, or assigns, in like good order. No demand or notice for such
delivery shall be necessary. It is agreed, however, that the Tenant shall not
be liable to restore any damage to the Leased Premises caused by fire, wind
storms, or any other casualty beyond its control, except to the extent that any
such loss is not covered by the insurance Tenant is required to maintain
pursuant to Article 11 above.
21. PROOF OF PAYMENT. No setoff in the payment of the rent
----------------
15
<PAGE>
herein reserved shall be allowed unless signed by the Lessor, its legal
representative or assigns, and the proof of the payment of the rent shall be on
the Tenant in all controversies. All payments of rent due hereunder shall be
made by check payable to the order of the Graphic Development Company, L.P.
addressed and mailed to the Graphic Development Company, L.P., c/o Hilliard R.
Crews, Jr., 5321 E. Shelby Drive, Memphis, Tennessee 38118, unless the Lessor
shall, in writing, direct otherwise.
22. LIEN ON LEASEHOLD, ETC. A lien is hereby expressly reserved by the
----------------------
Lessor and granted by the Tenant upon the terms of this lease and upon all
interest of the Tenant in this leasehold, and upon all buildings, improvements,
water fixtures, gas fixtures and all other fixtures erected or put into place or
that may be erected or put into place upon the Leased Premises by or through the
Tenant or other occupant, for the payment of rent and also for the satisfaction
of any causes of action which may accrue to the Lessor by the provision of this
instrument. The above statement to the contrary notwithstanding, the Lessor's
lien upon trade improvements or trade fixtures erected or put upon the Leased
Premises by Tenant shall be subordinate to the lien of the [_________________],
or Tenant's then current lender and Lessor shall execute such documents as may
be reasonably required from time to time by ___________, or Tenant's then
current lender, as further evidence of such subordination.
23. COLLECTION COSTS. The Tenant agrees to pay all costs of collection,
----------------
including reasonable attorney fees, if all or any
16
<PAGE>
part of the rent reserved herein is collected after maturity with the aid of an
attorney; also to pay reasonable attorney fees in the event it becomes necessary
for the Lessor to employ an attorney to force the Tenant to comply with any of
the other obligations, conditions, or requirements imposed by this Lease.
24. INSOLVENCY OF TENANT. In the event of the insolvency of Tenant, or
--------------------
the filing of a proceeding by or against Tenant under the Federal Bankruptcy
Code, or in the event of a partial or general assignment for the benefit of a
creditor or creditors by Tenant, or in the event Tenant should be successfully
proceeded against in any general creditor's bill, or in the event Tenant makes
any offer in or out of court for the compromise of Tenant's debts, or any
substantial part thereof, by reduction in an amount or in preference, or
security, or by postponement of payment date or dates, or in the event any court
proceedings are instituted by, for, or against Tenant in contemplation of any
such offer, Lessor in addition to any rights available to it at law or equity
shall have the right and privilege to immediately terminate this Lease. Lessor
shall have the right to immediately re-enter into possession of the Leased
Premises for the purpose of leasing same.
If Lessor shall not be permitted to terminate this Lease as hereinabove
provided because of the provisions of Title 11 of the United States Code
relating to Bankruptcy, as amended ("Bankruptcy Code"), then Tenant as a debtor-
in-possession or any trustee for Tenant agrees promptly, within no more than
thirty
17
<PAGE>
(30) days upon request by Lessor to the Bankruptcy Court, to assume or reject
this Lease and Tenant on behalf of itself, and any trustee agrees not to seek or
request any extension of adjournment of any application to assume or reject this
Lease by Lessor with such Court. In such event, Tenant nor any trustee for
Tenant may only assume this Lease if (i) it cures or provides adequate assurance
that it (or its trustee) will promptly cure any default hereunder, (ii) it
compensates or provides adequate assurance that its trustee will promptly
compensate Lessor for any actual pecuniary loss to Lessor resulting from
Tenant's defaults, and (iii) it provides adequate assurance of performance
during the fully stated term hereof of all of the terms, covenants, and
provisions of this Lease to be performed by Tenant. In no event after the
assumption of this Lease shall any then-existing default remain uncured for a
period in excess of the earlier of ten (10) days or the time period set forth
herein. Adequate assurance of performance of this Lease, as set forth
hereinabove, shall include, without limitation, adequate assurance (i) of the
source of rent reserved hereunder and (ii) the assumption of this Lease will not
breach any provision hereunder including the obligations for timely payment of
all rents due hereunder. In the event of a filing of a petition under the
Bankruptcy Code, Lessor shall have no obligation to provide Tenant with any
services or utilities as herein required, unless Tenant shall have paid and be
current in all payments of taxes, insurance, maintenance obligations, utilities
or other charges
18
<PAGE>
due hereunder.
25. WAIVER OF BREACH. The waiver by either party of any breach of any
----------------
covenant or covenants of this Lease by the other shall be limited to the
particular instance, and shall not operate as, nor be deemed to be, a waiver of
any future breaches of the same covenant or covenants nor of any other covenant
or covenants.
26. DEFAULT OF RENT, ETC. These presents are on the expressed condition,
---------------------
that if the Tenant shall fail or neglect to pay when due any of the rent herein
reserved or fail or neglect to observe any of the covenants, agreements, or
requirements herein contained which are to be observed and performed by the
Tenant, then and in any and all of said events, or for violations of any one or
more of said covenants, requirements, or agreements on the part of the Tenant,
this Lease may, at the option of the Lessor, be declared null and void and
forfeited, and the Lessor may, without making demand and without notice except
as required below, lawfully enter into and upon the said Leased Premises, or any
part thereof in the name of the whole, and repossess and have the same as of its
former estate and expel the Tenant, or its assigns, and any and all persons who
may be in possession of the same. Lessor shall be entitled to receive from the
Tenant the difference in rental, if any, between the rental herein reserved for
the unexpired portion of the term and any lesser amount which Lessor, in the
exercise of reasonable diligence, is able to procure for the unexpired portion
of the term, together with all
19
<PAGE>
reasonable expenses incurred in the Lessor's reletting of the Leased Premises.
This right to be reserved by the Lessor, and granted by the Tenant, constitutes
an essential part of the consideration for the Lessor's agreement to lease the
Leased Premises to the said Tenant, and the same reserved right may be exercised
in any of the contingencies above set forth, that is to say, for the violation
and the non-observance of any of the undertakings to be kept, observed, or
performed by the Tenant, its successors, or assigns.
The above statements to the contrary notwithstanding, no event, during
the term of this Lease, the occurrence of which would constitute a default by
either party hereunder, shall be deemed a default until (i) the defaulting party
shall have been given notice by the non-defaulting party specifying the default
and stating that such notice is a "Notice of Default" and (ii) the defaulting
party shall have had ten (10) calendar days after receipt of such notice to cure
a monetary default hereunder and thirty (30) calendar days after receipt of such
notice to cure a non-monetary default hereunder and shall not have cured it.
27. RIGHT TO TERMINATE. It is further agreed that in the event the Lessor
------------------
terminates this Lease for any reason herein set forth that the said termination
shall not relieve the Tenant of any liability to the Lessor for failure to
fulfill, perform, or observe the obligations, agreements, and covenants imposed
on the Tenant by this Lease, and that the said Lessor shall at any time after
the termination of this Lease have the right of
20
<PAGE>
against the said Tenant, its successors, or assigns for any breach of this
Lease.
28. COVENANTS RUN TO HEIRS, ETC. It is agreed by the parties to this
----------------------------
Lease that all covenants, agreements, and undertakings contained in this Lease
shall extend to and be binding upon the respective successors and assigns of the
respective parties hereto the same as if they were in every case named and
expressed; also that the terms "Lessor" and "Tenant" shall be construed in the
singular or plural number according as they respectively represent one or more
than one persons, and in the event the Lessor or Tenant is a corporation,
limited liability company or partnership pronouns and other words referring to
the Lessor or Tenant herein shall be considered as changed to the proper
pronouns or words to indicate that the Lessor or Tenant is a corporation,
limited liability company or partnership.
29. ASSIGNMENT AND SUBLETTING. This Lease shall not be assigned,
-------------------------
mortgaged, pledged, encumbered or in any other manner transferred by Tenant,
voluntarily or involuntarily, by operation of law or otherwise, nor shall the
Leased Premises or any part thereof be sublet, licensed, granted to a
concessionaire or used or occupied by anyone other than Tenant without first
obtaining the written consent of Lessor.
A change in the control of Tenant, if its stock is not then publicly
held and traded, including, without limitation, a subsidiary of a publicly held
company, shall be deemed to be an
21
<PAGE>
assignment for all purposes of this Lease; provided, however that an assignment
to a wholly owned subsidiary of Tenant or to its parent corporation for the same
purpose as provided for in Article 3 of the Lease shall not require the consent
of Landlord.
If at any time during the term of this Lease, Tenant shall request
Lessor's consent to assign this Lease, or to sublet all or substantially all of
the Leased Premises, Tenant shall include with such requests the name and
business experience of the proposed transferee, assignee or sublessee, complete
and current financial statements of said transferee, assignee or sublessee, and
the rent and other terms of the proposed assignment, transfer or subletting.
In the event that Lessor consents to said subletting or assignment,
any amounts received by Tenant (other than the reasonable value paid to Tenant
in repayment for trade fixtures and inventory and other personal property of
Tenant) above the amounts payable by Tenant to Lessor hereunder shall be deemed,
"real estate profit" and shall be paid to Lessor.
If Lessor permits any such assignment, change or subletting, Tenant
agrees to pay Lessor's legal fees in connection therewith. IN ANY EVENT, LESSOR
SHALL HAVE THE RIGHT IN LESSOR'S SOLE DISCRETION TO WITHHOLD CONSENT TO AN
ASSIGNMENT OF THIS LEASE OR TO A SUBLETTING OF THE LEASED PREMISES.
If Tenant shall any time during the term of this Lease sublet all or
any part of the Leased Premises or assign this Lease, Tenant shall nevertheless
remain fully liable under all of
22
<PAGE>
the terms, covenants, and conditions of this Lease. If this Lease is assigned,
or if the Leased Premises or any part thereof are subleased or occupied by
anybody other than Tenant, Lessor may collect from the assignee, sublessee or
occupant any rent or other charges payable to Tenant under this Lease and apply
the amount collected to the rent and other charges herein reserved, but such
collection by Lessor shall not be deemed in acceptance of the assignee,
sublessee or occupant as a tenant nor a release of Tenant from the performance
of Tenant under this Lease.
Notwithstanding Lessor's consent to any assignment, subletting,
occupation or use by another person, any subsequent assignment, subletting,
occupation or use by another person shall require Lessor's prior written
consent.
30. RENEWAL. No renewal or extension of this Lease shall be binding upon
-------
either party unless it be in writing and signed by the Lessor and the Tenant,
and effected as set forth in this Agreement.
31. WATER, GAS AND ELECTRICAL RATES. Tenant shall pay for all utility
-------------------------------
services incident to its use of the Leased Premises, including, but not limited
to, all electrical, water and gas charges for electricity, water and gas used on
Leased Premises during the term of this Lease. If Tenant does not pay the same,
Lessor may pay the same and such payment shall be deemed to be additional rental
for the Leased Premises and shall be due and payable within ten (10) days
following receipt of notice from Lessor.
23
<PAGE>
32. MECHANIC'S LIENS. Without Lessor's prior written consent, Tenant
----------------
shall have no authority, express or implied, to create or place any lien or
encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the
interest of Lessor in the Leased Premises or to charge the rentals payable
hereunder for any claim in favor of any person dealing with Tenant, including
those who may furnish materials or perform labor for any construction or
repairs, and each such claim shall affect and each such lien shall attach to, if
at all, only the Leasehold interest granted to Tenant by this instrument. It is
understood and agreed that if Tenant shall make repairs or improvements to the
demised Leased Premises, Tenant shall, in making such repairs or improvements,
act solely for its own benefit and not as an agent of Lessor, and that Lessor's
interest in the demised Leased Premises, shall not be subject to any mechanic's,
furnisher's or materialmen's liens. No contract for material will be entered
into by Tenant except with the express stipulation that any lien arising
therefrom shall not attach to Lessor's fee interest, but only to Tenant's
Leasehold interest, in the demised Leased Premises.
Tenant covenants and agrees that it will pay or cause to be paid all
sums due and payable by it on account of any labor performed or materials
furnished in connection with any work performed on the Leased Premises on which
any lien is or can be validly and legally asserted against its Leasehold
interest in the Leased Premises or the improvements thereon. Tenant will
24
<PAGE>
save and hold Lessor harmless from any and all loss, cost or expense, including
attorney's fees, based on or arising out of asserted claims or liens against the
Leasehold estate or against the rights, title and interest of the Lessor in the
Leased Premises or under the terms of this Lease. Tenant shall discharge by
payment or satisfactory bond pursuant to statutory procedures any lien arising
out of work performed or materials furnished on the demised Leased Premises by,
through or under Tenant within 30 days after the filing of same.
33. SPECIAL PROVISIONS.
------------------
(a) Limitation on Use. It is agreed and understood that the Leased
-----------------
Premises are leased to Tenant for the purpose of engaging in the commercial
printing business. Tenant agrees and binds itself to maintain and operate
the Leased Premises only for such purpose during the term of this Lease.
No other business shall be conducted upon the Leased Premises by Tenant
without the prior written consent of Lessor.
(b) Governing Law/Severability. This Lease shall be construed in
--------------------------
accordance with the laws of the State of Tennessee. If any part hereof is
contrary to, prohibited by or deemed invalid under applicable laws or
regulations of any governing jurisdiction, such provision shall be
inapplicable and deemed deleted but shall not invalidate the remaining
provisions hereof.
(c) Notices. All notices relating hereto shall be
-------
25
<PAGE>
delivered in person to Lessor or Tenant, or shall be delivered in person,
mailed, postage prepaid and certified or registered, to Lessor or Tenant at
their respective addresses as shown below or to any later address last
known to the sender:
LESSOR: TENANT:
Graphic Development Lithograph Printing Company
Company, L.P. of Memphis, Inc.
350 S. Yates 4222 Pilot Drive
Memphis, TN 38119 Memphis, TN 38118
ATTN: Walter P.
McMullen
(d) Condemnation. If the Leased Premises, or any material part
------------
thereof, shall be acquired or condemned by virtue or under threat of
eminent domain and in the further event Lessor, at its cost, is unable to
provide Tenant with a comparable substitute therefor prior to the taking of
the Leased Premises, or any material part thereof, then, in such event,
this Lease term shall terminate from the date of the title divesting from
the Lessor, or the substantial taking, whichever is sooner, and Tenant
shall have no claims against Lessor for the value of any unexpired term,
nor shall the Tenant be entitled to any part of the condemnation award or
private purchase price. For the purposes of this paragraph, a material
taking shall be defined as one which results in a material interference
with the operation of Tenant's business. The above statement to the
contrary notwithstanding, Tenant shall have the right to pursue its
26
<PAGE>
claims against such condemning authority for damages resulting to it as the
result of any required relocation following any such condemnation. In the
event this Lease continues following any immaterial condemnation, Lessor
shall at Lessor's expense restore and reconstruct the portion of the Leased
Premises not taken and the rent payable shall be adjusted to such an extent
as may be fair and reasonable under the circumstances.
(e) Tenant's Leasehold to be Subordinated. This Lease shall be
-------------------------------------
subordinated to any mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the Leased Premises by Lessor and to
any and all advances made on the security thereof and to any renewals,
modifications, consolidations, replacements and extensions thereof.
(f) Advances by Lessor. To the extent not otherwise provided for
------------------
herein, all sums advanced by the Lessor to effect performances required of
Tenant hereunder shall be due with the installment of rent next following
the advancement of any such sum by Lessor together with interest thereon
until paid at the rate of ten percent (10%) per annum or the maximum
effective contract rate of interest which may be lawfully charged at the
time of any such advancement, whichever is less.
(g) Holding Over. In the event of holding over by Tenant after the
------------
expiration or termination of this
27
<PAGE>
Lease, the hold over shall be as a tenant at will and all of the terms and
provisions of this Lease shall be applicable during that period, except
that Tenant shall pay Lessor as rental for the period of such hold over an
amount equal to one and one-half times the rent which would have been
payable by Tenant had the hold over been a part of the original term of
this Lease and except that Tenant shall not be deemed to possess any right
to continue its occupancy of the Leased Premises for any time. Tenant
agrees to vacate and deliver the Leased Premises to Lessor upon Tenant's
receipt of notice from Lessor to vacate. The rental payable during the hold
over period shall be payable to Lessor on demand. No holding over by
Tenant, whether with or without consent of Lessor, shall operate to extend
this Lease except as otherwise expressly provided.
(h) Waiver of Jury Trial. Tenant and Lessor waive any right to trial
--------------------
by jury or to have a jury participate in resolving any dispute, whether
sounding in contract, tort, or otherwise, between Lessor and Tenant arising
out of this Lease or any other instrument, document or agreement executed
or delivered in connection herewith or the transactions related hereto.
(i) Environmental Requirements. Except for Hazardous Material
--------------------------
contained in products used by Tenant in compliance
28
<PAGE>
with applicable law, Tenant shall not permit or cause any party to bring
any Hazardous Material upon the Leased Premises or transport, store, use,
generate, manufacture or release any Hazardous Material in or about the
Leased Premises without Lessor's prior written consent. Tenant, at its sole
cost and expense, shall operate its business in the Leased Premises in
strict compliance with all Environmental Requirements, and shall remediate
in a manner satisfactory to Lessor any Hazardous Material located on,
released on or from the Leased Premises whether by Tenant, its agents,
employees, contractors, subtenants or invitees or others and whether prior
to, or subsequent to, the date of this Lease, Tenant acknowledging that it
has been in possession of 4222 Pilot Drive since 1979 and that it came into
possession of 4240 Pilot Drive concurrent with Lessor's acquisition of
title and therefore, as to each, Tenant has had and will continue to have
complete responsibility for maintaining the Leased Premises in compliance
with all Environmental Requirements, other than, as to 4240 Pilot Drive, to
the extent indemnified by Ecolab, Inc. pursuant to letter agreement dated
August 1, 1994. Tenant shall complete and certify to disclosure statements
as requested by Lessor from time to time relating to Tenant's
transportation, storage, use, generation, manufacture, or release of
Hazardous Material on the Leased Premises. The term "Environmental
Requirements" means all applicable present and future
29
<PAGE>
statutes, regulations, ordinances, rules, codes, judgments, orders or other
similar enactments of any governmental authority or agency regulating or
relating to health, safety, or environmental conditions on, under, or about
the Leased Premises or the environment, including without limitation, the
following: the Comprehensive Environmental Response, Compensation and
Liability Act; the Resource Conservation and Recovery Act; and all state
and local counterparts thereto, and any regulations or policies promulgated
or issued thereunder. The term "Hazardous Material" means and includes any
substance, material, waste, pollutant, or contaminant listed or defined as
hazardous or toxic, under any Environmental Requirements, asbestos and
petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas). As defined in Environmental Requirements, Tenant is and
shall be deemed to be the "operator" of Tenant's "facility" and the "owner"
of all Hazardous Material heretofore or hereafter brought on the Leased
Premises whether by Tenant, its agents, employees, contractors or invitees,
or others and the wastes, by-products, or residues generated, resulting, or
produced therefrom.
Tenant shall indemnify, defend, and hold Lessor harmless from and
against any and all losses (including without limitation, diminution in
value of the Leased
30
<PAGE>
Premises and loss of rental income), claims, demands, actions, suits,
damages (including, without limitation, punitive damages), expenses
(including, without limitation, remediation, removal, repair, corrective
action, or cleanup expenses), and costs (including, without limitation,
actual attorneys' fees, consultant fees or expert fees and including,
without limitation, removal or management of any asbestos brought into the
Leased Premises or disturbed in breach of the requirements of this Article
33(i), regardless of whether such removal or management is required by law)
which are brought or recoverable against, or suffered or incurred by Lessor
as a result of any release of Hazardous Material for which Tenant is
obligated to remediate as provided above or any other breach of the
requirements under this Article 33(i) by Tenant, its agents, employees,
contractors, subtenants, assignees or invitees, regardless of whether
Tenant had knowledge of such noncompliance. The obligations of Tenant under
this Article 33(i) shall survive any termination of this Lease.
Lessor shall have access to, and a right to perform inspections
and tests of, the Leased Premises to determine Tenant's compliance with
Environmental Requirements, its obligations under this Article 33(i), or
the environmental condition of the Leased Premises. Access shall be
granted to Lessor upon Lessor's prior notice to Tenant and at such times so
as to minimize, so far as may be
31
<PAGE>
reasonable under the circumstances, any disturbance to Tenant's operations.
Such inspections and tests shall be conducted at Lessor's expense, unless
such inspections or tests reveal that Tenant has not complied with any
Environmental Requirement, in which case Tenant shall reimburse Lessor for
the cost of such inspection and tests. Lessor's receipt of or satisfaction
with any environmental assessment in no way waives any rights that Lessor
holds against Tenant.
34. ALL CONDITIONS CONTAINED HEREIN. This Lease contains all of the
-------------------------------
agreements and conditions made between the parties relating to the leasing of
the subject Leased Premises, and no representations or statements claimed to
have been made and not herein, or therein, contained shall vary or modify this
Lease in any way. THE PRECEDING TO THE CONTRARY NOTWITHSTANDING, the
obligations of the Tenant to the Lessor whether pursuant to the Prior Lease, or
any other lease agreement predating the Prior Lease, including obligations of
indemnity, shall not be discharged by this Agreement but shall remain in full
force and effect except to the extent specifically modified by the provisions of
this Agreement.
IN WITNESS WHEREOF, the Lessor and Tenant have caused this AMENDED AND
RESTATED LEASE AGREEMENT - OFFICE, COMMERCIAL PRINTING AND COMMERCIAL WAREHOUSE
FACILITY to be executed this 16th day of June, 1997.
LESSOR:
Graphic Development Company,
32
<PAGE>
L.P., A Tennessee limited
partnership
By: /s/ June H. Akers
-----------------
June H. Akers
Title: General Partner
By: /s/ Mary P. McMullen
--------------------
Mary P. McMullen
Title: General Partner
TENANT:
LITHOGRAPH PRINTING OF
MEMPHIS, A Tennessee Corporation
By: /s/ Walter P. McMullen
----------------------
Title: Chairman & CEO
STATE OF TENNESSEE
COUNTY OF SHELBY
BEFORE ME, the undersigned Notary Public in and for the State and County
aforesaid, personally appeared Mary P. McMullen, with who I am personally
acquainted (or proved to me on the basis of satisfactory evidence) and who upon
oath, acknowledged herself to be a general partner of Graphic Development
Company, L.P., the within named bargainor, a limited partnership, and that she
as such general partner, being duly authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name of the limited
partnership by herself as such general partner.
WITNESS my hand and notarial seal at office in Memphis, Tennessee, this 9th
day of June, 1997.
/s/ Mimi Cox
------------
Notary Public
My Commission Expires:
My Commission Expires Oct. 26, 1999
STATE OF TENNESSEE
COUNTY OF SHELBY
BEFORE ME, the undersigned Notary Public in and for the State and County
aforesaid, personally appeared June H. Akers, with who I am personally
acquainted (or proved to me on the basis of satisfactory evidence) and who upon
oath, acknowledged herself to be a general partner of Graphic Development
Company, L.P., the
33
<PAGE>
within named bargainor, a limited partnership, and that she as such general
partner, being duly authorized so to do, executed the foregoing instrument for
the purpose therein contained, by signing the name of the limited partnership by
herself as such general partner.
WITNESS my hand and notarial seal at office in Memphis, Tennessee, this
16th day of June, 1997.
/s/ Martha Jean Mitchell
------------------------
Notary Public
My Commission Expires:
3/25/98
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, the undesigned Notary Public of the State and County aforesaid,
personally appeared Walter P. McMullen, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself to be the Chairman & CEO of Lithograph Printing Company of
Memphis, Inc., the within named bargainor, a corporation, and that he as such
Chairman & CEO, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as such Chairman & CEO.
WITNESS my hand and notarial seal at office in Memphis, Tennessee, this
16th day of June, 1997.
/s/ Martha Jean Mitchell
------------------------
Notary Public
My Commission Expires:
3/25/98
34
<PAGE>
EXHIBIT A
TO
LEASE AGREEMENT -
OFFICE AND COMMERCIAL WAREHOUSE FACILITY
(Description of Leased Property)
35
<PAGE>
Exhibit 10.46
COMMERCIAL LEASE AGREEMENT
--------------------------
THIS COMMERCIAL LEASE AGREEMENT ("Lease") is made and entered into as of
March 1, 1998, by and between ARROWHEAD REAL ESTATE, LLC, a Mississippi limited
liability Company ("Lessor"), and PREMIER GRAPHICS, INC., a Delaware corporation
("Lessee").
1. Term and Premises. Subject to the terms and conditions set forth
-----------------
herein, Lessor hereby leases and lets to Lessee, and Lessee leases and accepts
from Lessor, for a term of ten (10) years, commencing on March 1, 1998, and
expiring on February 28, 2008 (the "Term"), that certain real property with a
municipal address of 500 Steed Road at I-55 North, Ridgeland, Mississippi 39158,
and more particularly described in Exhibit A hereto (the "Premises").
2. Basic Rent. Lessee shall pay Lessor, at the address of Lessor
----------
indicated herein, the annual amounts (the "Basic Rent") set forth below:
<TABLE>
<CAPTION>
<S> <C>
Year 1 $ 300,000.00
Year 2 345,000.00
Year 3 390,000.00
Year 4 435,000.00
Year 5 525,000.00
Year 6 555,000.00
Year 7 585,000.00
Year 8 615,000.00
Year 9 645,000.00
Year 10 645,000.00
-------------
Total Payments $5,040,000.00
</TABLE>
The Basic Rent each year shall be paid to Lessor in equal monthly installments,
which monthly rental payments shall be paid in advance on the first day of each
calendar month during the term of this Lease. If the Term does not commence on
the first day of a calendar month, Lessee will pay in advance, on the first day
of the Term, a pro rata part of the regular monthly rent installment, based on
the number of days of the Term occurring within the calendar month in which the
Term commences; and the rent installment due on the first day of the last
calendar month occurring during the Term shall be similarly prorated. All
rental payments are to be considered "past due" on the fifteenth (15th) of the
month in which they are due, and if said payment has not been received by the
Lessor by such date there will be a late charge of five percent (5.0%) of the
monthly rental on all such "past due rentals," it being agreed that such is the
reasonable additional expense incurred by Lessor in handling such late payments.
All rental payments and other payments by Lessee to Lessor shall be mailed or
delivered to Lessor at the address of Lessor indicated herein or to such other
person or address in such city as Lessor may direct by written notices to
<PAGE>
Lessee. Lessee hereby waives any and all notices and demands for payment of the
monthly rental payments of Basic Rent due under this Lease to Lessor.
3. Additional Rent. In addition to the payment of Basic Rent, Lessee
---------------
shall pay all of the following costs arising from or related to the Premises,
which costs shall be collectively referred to herein as additional rent
("Additional Rent"):
a. Maintenance of Premises. Lessee shall, at its sole expense, take
-----------------------
good care of the Premises and any building now or hereafter erected
thereon, both inside and outside, and keep the same and all parts thereof
in good order and condition, suffering no waste or injury, and shall, at
Lessee's sole expense, promptly make all needed repairs, in and to any
building or structure or equipment now or hereafter erected upon the
Premises, including all fixtures, machinery and equipment now or hereafter
belonging to or connected with the Premises or used in their operation.
All such repairs shall be of first class quality sufficient for the proper
maintenance and operation of the Premises. Lessee shall not obstruct or
permit the obstruction of the street or sidewalk and shall keep the
sidewalk and curb adjoining the Premises clean and free of snow and ice.
If Lessee fails to make such repairs or maintenance promptly, or within
fifteen (15) days of occurrence, Lessor may, at its option, make them, and
Lessee shall repay the cost thereof to Lessor on demand. Notwithstanding
anything to the contrary contained herein, Lessor shall be required to make
all repairs to the Premises that are structural in nature, including
repairs to the roof, and to replace any fixtures, machinery and equipment
which cannot be repaired.
c. Maintenance of Common Areas. Lessee shall pay to Lessor, as
----------------------------
Additional Rent, all costs and expenses of every kind and nature paid or
incurred by Lessor during the term of the Lease (and any renewal term) in
operating, managing, equipping, lighting, repairing, replacing, policing
and maintaining the common parking and ingress and egress areas (herein
"Common Areas") of the Premises (except structural repairs as set forth in
Paragraph 3.a. above). Alternatively, Lessor may require Lessee to perform
(or cause to be performed) such maintenance. Such costs and expenses shall
include, but shall not be limited to: utilities, and lighting the Common
Areas, if any, cleaning costs, expenses of planting, replanting and
replacing flowers, landscaping, water and sewerage charges, premiums for
liability and property damage, and fees for required licenses and permits.
d. Taxes and Utilities.
-------------------
i. Real Property Taxes. Lessee shall pay when due all real
-------------------
property taxes upon the Premises accruing with respect to or allocable
to the term hereof. As used herein, the term "real property taxes"
shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed on the Premises
by any authority having the direct or indirect power to tax, including
any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district
2
<PAGE>
thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as
against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Premises.
ii. Personal Property Taxes.
-----------------------
(1) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained on the Premises or
elsewhere. When possible, Lessee shall cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed
and billed separately from the real property taxes.
(2) If any of Lessee's personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
b. Other Taxes. Lessee shall reimburse Lessor for any commercial
-----------
lease tax, sales tax, gross receipts tax, privilege tax, or similar tax,
howsoever denominated, now or hereafter imposed on, measured by, or
assessed against the Basic Rent and Additional Rent (collectively, the
"Rents") paid by Lessor or received by Lessor pursuant to this Lease (or
any tax imposed or assessed in lieu thereof). Lessee shall pay said sums
to Lessor not later than ten (10) days from the date on which Lessee
receives notice from Lessor of the amount due.
c. Utilities. Lessee shall pay for all water, gas, heat, light,
---------
power, telephone and other utilities and services supplied to the Premises.
d. Insurance.
---------
i. Fire and Casualty. During the entire term hereof, Lessee
-----------------
shall procure and maintain at its sole expense, insurance covering the
Premises, for the full replacement cost thereof, insuring against the
perils of fire, lightening, flood, earthquake, boiler and machinery,
extended coverage, vandalism and malicious mischief, extended by
Special Form Coverage Endorsement to insure against all other risks of
direct physical loss, and business interruption insurance (insuring
Lessor for up to twelve (12) months of Rents), such coverages and
endorsements to be as defined in the standard bureau forms prescribed
by the applicable insurance regulatory authority for the State of
Mississippi for use by insurance companies admitted in Mississippi for
the writing of such insurance on risks located within the state. Such
insurance shall be for the sole benefit of Lessor and under its sole
control. To the extent any mortgage or deed of trust now or hereafter
exists upon the Premises, all such policies shall contain standard
mortgage clauses. Lessee hereby waives, and releases Lessor (its
officers, agents and employees) from, all rights of recovery, claims,
causes of action, and rights of subrogation against them, for any loss
3
<PAGE>
or damage that may occur by reason of any peril listed above, and
accordingly, all of the foregoing policies of insurance shall be
properly endorsed to prevent the invalidation of their coverages by
reason of such waiver and release.
ii. Liability. Lessee shall, at Lessee's expense, obtain and
---------
keep in force during the term of this Lease a policy of Commercial
General Liability Insurance (or policy with equivalent coverage)
insuring Lessee and Lessor against any liability arising out of the
use, occupancy or maintenance of the Premises. Such policies shall be
in amounts and with insurance carriers acceptable to Lessor.
iii. Insurance Policies. The insurance companies issuing all
------------------
policies shall be reputable and responsible companies in the insurance
industry, reasonably acceptable to both Lessor and Lessee. Lessee
shall deliver to Lessor copies of policies of liability insurance
required under this subparagraph or certificates evidencing the
existence and amounts of such insurance. No such policy shall be
cancelable or subject to reduction of coverage or other modification
except after thirty (30) days' prior written notice to Lessee. Lessee
shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof.
4. Indemnification. Lessee shall indemnify, defend and hold Lessor
---------------
harmless from and against any and all actions, claims, demands, costs (including
reasonable attorney's fees), damages or expenses of any kind which may be
asserted against or incurred by Lessor as the result of any occurrence in or
about the Premises or by reason of Lessee's use or occupancy of the Premises, or
by reason of the failure of Lessee to perform any of its obligations under this
Lease.
5. Quiet Enjoyment. Lessor covenants that if Lessee shall keep and
---------------
perform all of its covenants under this Lease, Lessee shall enjoy quiet,
peaceful and uninterrupted possession of the Premises against all persons.
6. Ingress and Egress. Lessor covenants that Lessee shall enjoy full
------------------
ingress and egress to and from the Premises at all times.
7. Condition of Premises. Lessor shall deliver the Premises to Lessee in
---------------------
good condition, clean and free of debris.
8. Assignment and Subletting. The Premises shall be used for commercial
-------------------------
printing, distribution and related activities, and for no other purpose without
the written consent of the Lessor. Further, Lessee will not assign or sublet
all or part of this Lease without the prior written consent of Lessor, which
consent shall not be unreasonably withheld.
9. Legal Use and Violations; Insurance Coverage. Lessee will not occupy,
--------------------------------------------
or use or permit any portion of the Premises to be occupied or used, for any
business or purpose which is unlawful in part or in whole or deemed to be extra
hazardous, or permit anything to be done which will in any way increase the rate
4
<PAGE>
of fire insurance on said building and/or its contents; and in the event that by
reason of acts of Lessee, there shall be any increase in rate of the insurance
on the building or its contents created by Lessee's acts or conduct of business,
then Lessee hereby agrees to pay such increase.
10. Compliance with Laws and Regulations. Lessee shall keep and maintain
------------------------------------
the Premises in a clean and neat condition, and shall comply with all state,
federal, county and municipal laws, ordinances, orders, rules and regulations,
including, but not limited to, all environmental laws and regulations, with
reference to use, conditions or occupancy of the Premises.
11. Entry for Repairs and Inspection. Lessee shall permit Lessor and its
--------------------------------
officers, agents or representatives, the right to enter into and upon any and
all parts of the Premises at all reasonable hours to inspect same or clean or
make repairs or alterations or additions as Lessor may deem necessary or
desirable. Lessee shall not be entitled to any abatement or reduction of rent
by reason thereof.
12. Condemnation. If the Premises or any portion thereof are taken under
------------
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of any building on the Premises, or more than twenty-five percent
(25%) of the land of the Premises which is not occupied by any building, is
taken by Condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor has given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority has taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent shall be reduced in the proportion that the floor area of the building or
the area of unimproved land taken bears to the total floor area of the building
or land, whichever the case may be. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such Condemnation, Lessor shall to the
extent of the award received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such Condemnation; provided,
however, that if such Condemnation has taken more than fifty percent (50%) of
the total floor area of the buildings on the Premises, Lessor may, at Lessor's
option, to be exercised in writing within ten (10) days after Lessor has given
Lessee written notice of such taking (or in the absence of such notice, within
ten (10) days after the condemning authority has taken possession) terminate
this Lease as of the date the condemning authority takes such possession.
5
<PAGE>
13. Holding Over. Any holding after the expiration of this Lease shall
------------
constitute a month-to-month tenancy, and Lessee shall be subject to all of the
terms, covenants and conditions of this Lease during such holdover period.
14. Damage or Destruction. Should the current building upon the Premises
---------------------
be totally destroyed by fire or other casualty, or so damaged thereby that
rebuilding or repairs cannot be completed within thirty (30) days from date of
the fire or casualty, this Lease shall terminate, and Lessee shall be allowed a
total abatement of the rent from the date of occurrence of such damage or
destruction. However, if the damage is such that rebuilding or repairs can be
completed within thirty (30) days, the Lessor covenants and agrees to make such
repairs within thirty (30) days and to allow Lessee an abatement of the rent for
such time as the building is untenantable, in proportion to the floor space
rendered untenable, and the Lessee covenants and agrees that the terms of this
Lease shall not be otherwise affected thereby.
15. Events of Default; Remedies.
---------------------------
a. Default by Lessee. The occurrence of any one or more of the
-----------------
following events shall constitute a default and breach of this Lease
by Lessee:
i. The abandonment of the Premises by Lessee.
ii. The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due
for a period of ten (10) days.
iii. The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in clause (i) and (ii)
above, which failure then continues for a period of fifteen (15) days
after written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's default is such that more than fifteen
(15) days are reasonably required for its cure, then Lessee shall not
be deemed to be in default if Lessee commences such cure within said
fifteen (15) day period and thereafter diligently prosecutes such cure
to completion.
iv. The making by Lessee of any general arrangement or
assignment for the benefit of creditors, or the appointment of a
trustee or receiver to take possession of substantially all of
Lessee's assets or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days.
16. Remedies. In the event of any such default or breach by Lessee,
--------
Lessor may at any time thereafter, after written notice to Lessee as provided
above, and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:
a. Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
6
<PAGE>
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled accelerate all rent due hereunder and to recover
from Lessee all damages incurred by Lessor by reason of Lessee's default
including, but not limited to, the amount by which the unpaid rent for the
balance of the Term exceeds the amount of rent received by Lessor from
another Lessee for the same period.
b. Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee has abandoned the Premises.
In such event, Lessor shall be entitled to enforce all of Lessor's rights
and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
17. Alterations and Additions.
-------------------------
a. Lessee shall not, without Lessor's prior written consent, make any
alterations, improvements, additions, or utility installations in, on or
about the Premises, except for non-structural alterations not exceeding
$10,000 in cumulative costs during the Term of this Lease. In any event,
whether or not in excess of $10,000 in cumulative cost, Lessee shall make
no change or alteration to the exterior of the buildings on the Premises
without Lessor's prior written consent. As used in this Paragraph 17, the
term "utility installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing, and fencing. Lessor may require
that Lessee remove any or all of said alterations, improvements, additions
or utility installations at the expiration of the Term, and restore the
Premises to their prior condition. Should Lessee make any alterations,
improvements, additions or utility installations without the prior approval
of Lessor, Lessor may require that Lessee remove any or all of the same at
any time.
b. Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use
in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. If Lessee
shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse judgment that
may be rendered thereon before the enforcement thereof against the Lessor
or the Premises, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises free from the effect of
such lien or claim.
c. Unless Lessor requires their removal, as set forth in Paragraph
17.a., all alterations, improvements, additions and utility installations
(except utility installations which constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the
term. Notwithstanding the provisions of this Paragraph 17.c., Lessee's
machinery and equipment, other than that which is affixed to the Premises
so that it cannot be removed without material damage to the Premises, shall
remain the property of Lessee and may be removed by Lessee.
7
<PAGE>
18. Waiver. Failure of either party to declare any default immediately
------
upon occurrence thereof or delay in taking any action in connection therewith
shall not waive such default, but either party shall have the right to declare
any such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity.
19. Use of Office Space. Throughout the term of this Lease, H. Henry
-------------------
Hederman, H. Henry Hederman, Jr. and Zach Hederman shall have the right to use
the office space that they currently occupy at no charge. It is hereby
acknowledged by Lessor and Lessee that the items of personal property identified
on Exhibit B attached hereto are the property of H. Henry Hederman, H. Henry
Hederman, Jr. and Zach Hederman, and that such individuals shall have the right
to remove such property from the Premises at any time.
20. Rights of Mortgages. This Lease, and all rights of Lessee hereunder,
-------------------
are and shall be subject and subordinate to all mortgages, which may now or
hereafter affect the Premises, or any portion thereof, whether or not such
mortgages shall also cover portion thereof, whether or not such mortgages shall
also cover other lands and/or buildings and/or leases, to each and every advance
made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extension of such mortgages and all
consolidations of such mortgages. This Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that the holder of any such mortgage or any of their respective
successors in interest may reasonably request to evidence such subordination.
Any mortgage to which this Lease is, at the time referred to, subject and
subordinate, is herein called a "Superior Mortgage" and the holder of a Superior
------------------
Mortgage is herein called the "Superior Mortgage".
-----------------
If any superior Mortgagee or the nominee or designee of any Superior
Mortgagee shall succeed to the rights of Lessor under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed, or
otherwise, then at the request of such party so succeeding to Lessor's rights
(the "Successor Lessor") and upon such Successor Lessor's written agreement to
----------------
accept Lessee's attornment, Lessee shall attorn to and recognize such Successor
Lessor as Lessee landlord under this Lease and shall promptly execute and
delivery any instrument that such Successor Lessor may reasonably request to
evidence such attornment. Upon such attornment, this Lease shall continue in
full force and effect as a direct lease between the Successor Lessor and Lessee
upon all of the terms, conditions and covenants as set forth in this Lease,
except that the Successor Lessor (unless formerly the landlord under this Lease
or its nominee or designee) shall not be (a) liable in any way to Lessee for any
act or omission, neglect or default on the part of Lessor under this Lease, (b)
responsible for any monies owing by or on deposit with Lessor to the credit of
Lessee, (c) subject to any counterclaim or setoff which theretofore accrued to
Lessee against Lessor, (d) bound by any modification of this Lease subsequent to
such Superior Mortgage, or by any previous prepayment of the Rent or the
Additional Rent for more than one (1) month, which was not approved in writing
by the Superior Mortgagee, (e) liable to the Lessee beyond the Successor
Lessor's interest in the Premises and the rents, income, receipts, revenues,
issues and profits issuing from such Premises, (f) responsible for the
performance of any work to be done by the Lessor under this Lease to render the
8
<PAGE>
Premisses ready for occupancy by the Lessee, or (g) required to remove any
person occupying the Premises or any part thereof, except if such person claims
by, through or under the Successor Lessor. Lessee agrees at any time and from
time to time to execute a suitable instrument in confirmation of Lessee's
agreement to attorn, as aforesaid.
21. Miscellaneous Terms.
-------------------
a. Benefit. This Lease shall inure to the benefit of the parties
-------
hereto, and their respective successors and assigns.
b. Integration Clause; Modifications. This Lease and its exhibits
---------------------------------
and attachments contain all of the agreements between Lessor and Lessee
relating to the Lease of the Premises, and this instrument may not be
altered, changed or amended except by an instrument in writing signed by
both parties hereto.
c. Pronouns and Gender. When this Lease is executed by more than one
-------------------
person, it shall be construed as though Lessee were written "Lessees" and
the words in their number were changed to correspond and pronouns of the
masculine gender, whenever used herein shall include persons of the female
sex, and corporations, partnerships and associates of every kind and
character.
d. Notices and Addresses. All notices, offers, acceptances, waivers,
---------------------
and other communications under this Lease shall be in writing, and shall be
deemed to have been both given and received (i) when delivered to the party
in person or, (ii) if mailed, when deposited in the U.S. Mails, by
certified mail, postage prepaid, with return receipt requested, to the
party at the following address:
If to Lessor: Hap Hederman
500 Steed Road
Ridgeland, Mississippi 39158
If to Lessee: Premier Graphics, Inc.
2500 Lamar Avenue
Memphis, TN 38114
or to such other address as any party, by notice to all others, may designate
from time to time.
e. Counterparts. This Lease may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
f. Severability. If any one or more of the provisions contained in
------------
this Lease shall for any reason be held invalid, illegal or unenforceable
for any reason, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Lease, which shall be construed as if
9
<PAGE>
such invalid, illegal or unenforceable provision had never been contained
herein. It is the intention of the parties that if any provision of this
Lease is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid,
then the provision shall have the meaning which renders it valid.
g. No Remedies Exclusive. Unless expressly stated to be exclusive,
---------------------
no remedy conferred herein shall be deemed to be exclusive of any other
remedy conferred herein or any other remedy now or hereafter available at
law or equity. All remedies conferred herein, and all remedies now or
hereafter available at law or equity, shall be deemed to be cumulative and
not alternative, and may be enforced concurrently or successively. The
exercise of (or failure to exercise) any one or more remedies shall not
operate as a waiver of, or constitute a bar to, the exercise of any other
remedies.
h. Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the State of Mississippi.
i. Attorneys' Fees. In the event either party defaults in the
---------------
performance of any of the terms, agreements or conditions contained in this
Lease, and the other party prevails in any legal proceeding against the
defaulting party to enforce this Lease, then the non-defaulting party shall
be additionally entitled to recover court costs and reasonable attorneys'
fees from the defaulting party.
j. Recording. Neither party shall record this Lease without the
---------
prior written consent of the other. However, either party may, at any
time, elect to record a memorandum of this Lease, which sets forth any
terms hereof except the amount of rents payable hereunder, and upon
request, the other party shall duly execute and acknowledge such a
memorandum.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR:
ARROWHEAD REAL ESTATE, LLC
By: /s/ Hap Hederman
----------------
Its: Member-Manager
LESSEE:
PREMIER GRAPHICS, INC.
By:/s/ Jim P. Miller
-----------------
Its: President
11
<PAGE>
EXHIBIT "A"
SEE ATTACHED LEGAL DESCRIPTION
12
<PAGE>
EXHIBIT 10.47
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Agreement"), dated as of the 19th day of June, 1997,
is made and entered into on the terms and conditions hereinafter set forth, by
and between MASTER GRAPHICS, INC., a Delaware corporation ("Borrower") and
PREMIER GRAPHICS, INC., a Delaware corporation ("Guarantor" and with Borrower,
individually, a "Debtor Party" and, collectively, the "Debtor Parties"), and
SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender").
RECITALS:
--------
WHEREAS, Borrowers have requested that Lender make available to Borrower a
term loan in the original principal amount of Four Million Three Hundred
Thousand and No/100ths Dollars ($4,300,000.00) (the "Loan") on the terms and
conditions hereinafter set forth, and for the purpose(s) hereinafter set forth;
and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Debtor
Parties have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Debtor Parties, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are-hereby
acknowledged, Debtor Parties and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
--------
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions hereof, the Lender shall make the Loan to Borrower by wire transfer
in immediately available funds. The Loan shall be evidenced by a Secured
Promissory Note in the original principal amount of Four Million Three Hundred
Thousand and No/100ths Dollars ($4,300,000.00), substantially in the form of
Exhibit A attached hereto and incorporated herein by this reference (the
"Note"), dated as of the date hereof, executed by Borrower, in favor of Lender.
<PAGE>
The Loan shall be payable in accordance with the terms of the Note. The Note,
this Agreement and any other instruments and documents executed by Borrower,
Guarantor, or any shareholder, subsidiary or affiliate of the Debtor Parties,
now or hereafter evidencing, securing or in any way related to the indebtedness
evidenced by the Note are herein individually referred to as a "Loan Document"
and collectively referred to as the "Loan Documents."
1.2 Processing Fee. Borrower shall pay Lender a processing fee of One
--------------
Hundred Seven Thousand Five Hundred Dollars ($107,500.00) of which Twenty Five
Thousand Dollars ($25,000.00) has previously been paid to Lender and Eighty Two
Thousand Five Hundred Dollars ($82,500.00) of which shall be paid on the date
the Loan is funded.
1.3 Partial Prepayment. Borrower may prepay the indebtedness evidenced by
------------------
the Note in whole or in part at any time and from time to time in accordance
with the terms of that certain Subordination Agreement, dated June 19, 1997,
(the "Senior Lender Subordination Agreement"), by and among Debtor Parties,
Lender, General Electric Capital Corporation, a New York corporation, ("GE") and
First American National Bank, a national banking association, ("First American,
and collectively, along with GE, the "Senior Lenders"), without penalty or
premium. The Senior Lenders have made loans to the Debtor Parties pursuant to
the Term and CAPEX Loan and Security Agreement, dated June 19, 1997, between GE
and Guarantor and the Loan and Security Agreement, dated June 19, 1997 by and
among First American and the Debtor Parties, collectively, along with all other
guarantees, instruments or documents delivered thereunder (the "Senior
Indebtedness").
1.4 Purposes of Loan and Use of Proceed. The purpose of the Loan shall be
-----------------------------------
to provide a portion of the financing for the acquisition of the stock of
Lithograph Printing Company of Memphis, Inc.("Lithograph") and Blackwell
Lithographers, Inc.("Blackwell") and the assets of Sutherland Printing Company,
Inc. ("Sutherland") (the "Roll-up") and to provide ongoing working capital.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Debtor Parties' Representations. Each Debtor Party hereby represents
-------------------------------
and warrants to Lender as follows:
(a) Corporate Status. Each Debtor Party is a corporation duly
----------------
organized, validly existing and in good standing under the laws of the
State of Delaware; and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to enter into and
to perform its obligations under this Agreement and the other Loan
Documents to which it is a party. Each Debtor Party is duly qualified to do
-2-
<PAGE>
business and in good standing in each state in which a failure to be so
qualified would have a material adverse effect on Debtor Party's financial
condition or its ability to conduct its business in the manner now
conducted.
(b) Subsidiaries. Schedule 2.1(b) hereto is a complete list of
-------------
each corporation, partnership, joint venture or other business organization
(the "Subsidiary" or, with respect to all such organizations, the
"Subsidiaries") in which any Debtor Party or any Subsidiary owns, directly
or indirectly, any capital stock or other equity interest, or with respect
to which any Debtor Party or any Subsidiary, alone or in combination with
others, is in a control position, which list shows the jurisdiction of
incorporation or other organization and the percentage of stock or other
equity interest of each Subsidiary owned by any Debtor Party. Each
Subsidiary which is a corporation is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation
and is duly qualified to transact business as a foreign corporation and is
in good standing in the jurisdictions listed in Schedule 2.1(b), which are
the only jurisdictions where the properties owned or leased or the business
transacted by it makes such licensing or qualification to do business as a
foreign corporation necessary, and no other jurisdiction has demanded,
requested or otherwise indicated that (or inquired whether) it is required
so to qualify. Each Subsidiary which is not a corporation is duly organized
and validly existing under the laws of the jurisdiction of its
organization. The outstanding capital stock of each Subsidiary which is a
corporation is validly issued, fully paid and nonassessable. Each Debtor
Party and the Subsidiaries have good and valid title to the equity
interests in the Subsidiaries shown as owned by each of them on Schedule
2.1(b), free and clear of all liens, claims, charges, restrictions,
security interests, equities, proxies, pledges or encumbrances of any kind
except as set forth on Schedule 2.1(b). Except where otherwise indicated
herein or unless the context otherwise requires, any reference to Debtor
Parties herein shall include Debtor Parties and all of their Subsidiaries.
(c) Authorization. Each Debtor Party has full legal right, power and
--------------
authority to conduct its business and affairs. Each Debtor Party has full
legal right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity. The execution and
delivery of this Agreement, the borrowing hereunder, the execution and
delivery of each Loan Document to which each Debtor Party is a party, and
the performance by each Debtor Party of its obligations thereunder are
within the corporate powers of each Debtor Party and have been duly
authorized by all necessary corporate action properly taken, have received
all necessary governmental approvals, if any were required, and do not and
will not contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the charter or bylaws of each Debtor Party, or any agreement
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binding upon each Debtor Party or its properties. The officer(s) executing
this Agreement, the Note and all of the other Loan Documents to which each
Debtor Party is a party are duly authorized to act on behalf of each Debtor
Party.
(d) Validity: Binding Effect: Solvency. This Agreement and the other
-----------------------------------
Loan Documents are the legal, valid and binding obligations of each Debtor
Party, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally or the application of
general equitable principles. As of the date hereof and after giving effect
to the Loan made hereunder, each Debtor Party and each Subsidiary will be
Solvent. For the purposes of this Agreement, "Solvent" means with respect
to each Debtor Party and Subsidiary on a particular date, that such Person
(i) has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage and is able to
pay its debts as they mature, (ii) owns property having a value, both at
fair valuation and at present fair saleable value, greater than the amount
required to pay its probable liabilities (including contingencies), and
(iii) does not believe it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they occur.
(e) Capitalization. As of the date hereof, the authorized capital
---------------
stock of the Borrower consists solely of 1,000 shares of common stock, no
par value per share, of which 100 shares ("Common Stock") are issued and
outstanding (the "Shares") and that 5% of the shares are reserved for
issuance upon exercise of the Stock Purchase Warrant dated as of the date
hereof and issued to Lender (the "Warrant"); provided, however, that the
number of shares reserved for issuance upon exercise of the Warrant shall
be increased from time to time in accordance with the term of the Warrant.
As of the date hereof, Borrower does not have outstanding any stock or
securities convertible or exchangeable for any shares of its Common Stock
or containing any profit participation features, and does not have
outstanding any rights or options to subscribe for or to purchase its
Common Stock or any stock appreciation rights or phantom stock plans,
except as set forth on Schedule 2. l(e) and for the Warrant. Schedule
2.1(e) accurately sets forth the following with respect to all outstanding
options and rights to acquire the Borrower's Common Stock from Borrower:
(i) the total number of shares issuable upon exercise of all outstanding
options, (ii) the range of exercise prices for all such outstanding
options, (iii) the number of shares issuable, the exercise price and the
expiration date for each such outstanding option and (iv) with respect to
all outstanding options, warrants and rights to acquire Borrower's capital
stock other than the Warrant, the holder, the number of shares covered, the
exercise price and the expiration date. As of the date hereof, Borrower
shall not be subject to any obligation (contingent or otherwise) to
repurchase, redeem, retire or otherwise acquire any shares of its capital
stock or any warrants, options or other rights to acquire its capital
stock, except as set forth in the Warrant or on Schedule 2.1 (e). As of the
date hereof, all of the outstanding shares of Borrower's capital stock
shall be validly issued, fully paid and nonassessable. Except as set forth
on Schedule 2.1(e), there are no statutory or contractual preemptive
rights, rights of first refusal, anti-dilution rights or any similar
rights, held by stockholders or option holders of Borrower, with respect to
the issuance of the Warrant or the issuance of the Common Stock upon
exercise of the Warrant. All such rights granted in the documents listed on
Schedule 2.1(e) have been effectively waived with regard to the issuance of
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the Warrant, the exercise of the Warrant and the issuance of the Common
Stock upon exercise of the Warrant. Borrower has not violated any
applicable federal or state securities laws in connection with the offer,
sale or issuance of any of its capital stock, and the offer, sale and
issuance of the Warrant hereunder do not require registration under the
Securities Act or any applicable state securities laws. To the best of
Borrower's knowledge, there are no agreements among Borrower's stockholders
with respect to any other aspect of Borrower's affairs, except as set forth
on Schedule 2. l(e). Borrower owns all of the issued and outstanding shares
of Guarantor.
(f) Trademarks Patents. Etc. Schedule 2.1 (f) is an accurate and
------------------------
complete list of all patents, trademarks, trade names, trademark
registrations, service names, service marks, copyrights, licenses, formulas
and applications therefor owned by each Debtor Party or used or required by
each Debtor Party in the operation of it's business, title to each of which
is, except as set forth in Schedule 2.1(f) hereto, held by such Debtor
Party free and clear of all adverse claims, liens, security agreements,
restrictions or other encumbrances. There is no infringement action,
lawsuit, claim or complaint which asserts that any Debtor Party's
operations violate or infringe the rights or the trade names, trademarks,
trademark registration, service name, service mark or copyright of others
with respect to any apparatus or method of such Debtor Party or any
adversely held trademark, trade name, trademark registration, service name,
service mark or copyright, and neither Debtor Party is not in any way
making use of any confidential information or trade secrets of any person
except with the consent of such person.
(g) No Conflicts. Consummation of the transactions hereby contemplated
-------------
and the performance of the obligations of Debtor Parties under and by
virtue of the Loan Documents will not result in any breach of, or
constitute a default under, any mortgage, security deed or agreement, deed
of trust, lease, Bank loan or credit agreement, corporate charter or
bylaws, agreement or certificate of limited partnership, partnership
agreement, license, franchise or any other instrument or agreement to which
any Debtor Party is a party or by which any Debtor Party or its respective
properties may be bound or affected or to which any Debtor Party has not
obtained an effective waiver.
(h) Litigation. Except as set forth on Schedule 2.1(h), there are no
-----------
actions, suits or proceedings pending, or, to the knowledge of Debtor
Parties threatened, against or affecting Debtor Parties or involving the
validity or enforceability of any of the Loan Documents at law or in
equity, or before any governmental or administrative agency; and to each
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Debtor Party's knowledge, such Debtor Party is not in default with respect
to any order, writ, injunction, decree or demand of any court or any
governmental authority.
(i) Financial Statements. The audited income statement and balance
---------------------
sheet of B & M Printing, Inc. ("B&M") as of June 30, 1996, the audited
income statement and balance sheet of Lithograph as of December 31, 1997,
the unaudited balance sheets of Blackwell and Sutherland as of December 31,
1996, and the unaudited financial statements of B&M, Blackwell, Sutherland
and Lithograph through April 30, 1997, which are attached hereto as
Schedule 2.1 (i)(A), are true and correct in all material respects have
been prepared on the basis of generally accepted accounting principles
consistently applied except as noted therein, and fairly present the
financial condition of such entity as of the date(s) thereof. No material
adverse change has occurred in the financial condition of any such entity
since the date(s) thereof, and no additional borrowings have been made by
any Debtor Party since the date(s) thereof other than as set forth on
Schedule 2.1 (i)(B).
(j) Other Agreements: No Defaults. Except as set forth on Schedule
-----------------------------
2.1(j) no Debtor Party is a party to any indenture, loan or credit
agreement, lease or other agreement or instrument, or subject to any
charter or corporate restriction, that could have a material adverse effect
on the business, properties, assets, operations or conditions, financial or
otherwise, of Debtor Party, or the ability of Debtor Party to carry out its
obligations under the Loan Documents to which it is a party. No Debtor
Party is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in
any agreement or instrument material to its business to which it is a
party, including but not limited to this Agreement and the other Loan
Documents, and no other default or event has occurred and is continuing
that with notice or the passage of time or both would constitute a default
or event of default under any of same.
(k) Compliance With Law. Each Debtor Party has obtained all necessary
--------------------
licenses, permits and approvals and authorizations necessary or required in
order to conduct its business and affairs as heretofore conducted and as
hereafter intended to be conducted. To each Debtor Party's knowledge, such
Debtor Party is in compliance with all laws, regulations, decrees and
orders applicable to it (including but not limited to laws, regulations,
decrees and orders relating to environmental, occupational and health
standards and controls, antitrust, monopoly, restraint of trade or unfair
competition), to the extent that noncompliance, in the aggregate, cannot
reasonably be expected to have a material adverse effect on its respective
business, operations, property or financial condition and will not
materially adversely affect such Debtor Party's ability to perform its
obligations under the Loan Documents.
(l) Debt. Schedule 2.1(1) is a complete and correct list of all credit
-----
agreements, indentures, purchase agreements, promissory notes and other
evidences of indebtedness, guaranties, capital leases and other
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<PAGE>
instruments, agreements and arrangements presently in effect providing for
or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in
respect of which the Debtor Parties or any of the properties thereof is in
any manner directly or contingently obligated; and the maximum principal or
face amounts of the credit in question that are outstanding and that can be
outstanding are correctly stated, and all liens of any nature given or
agreed to be given as security therefor are correctly described or
indicated in such Schedule.
(m) Taxes. Each Debtor Party has filed or caused to be filed all tax
------
returns that to its knowledge are required to be filed (except for returns
that have been appropriately extended), and has paid, or will pay when due,
all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings,
for which appropriate amounts have been reserved). No tax liens have been
filed against any Debtor Party or any of the property thereof.
(n) Certain Transactions. Except as set forth on Schedule 2.1 (n)
---------------------
hereto, no Debtor Party is indebted, directly or indirectly, to any of its
shareholders, officers or directors or to their respective spouses or
children, in any amount whatsoever; none of said shareholders, officers or
directors or any members of their immediate families, are indebted to any
Debtor Party or have any direct or indirect ownership interest in any firm
or corporation with which any Debtor Party has a business relationship, or
any firm or corporation which competes with Debtor Party, except that
shareholders, officers and/or directors of each Debtor Party may own no
more than 4.9% of outstanding stock of publicly traded companies which may
compete with any Debtor Party. No shareholder, officer or director or any
member of their immediate families, is, directly or indirectly, interested
in any material contract with Debtor Parties. Except as set forth on
Schedule 2.1(n), no Debtor Party is a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
(o) Statements Not False or Misleading. No representation or warranty
-----------------------------------
given as of the date hereof by Debtor Parties contained in this Agreement
or any schedule attached hereto or any statement in any document,
certificate or other instrument furnished or to be furnished by Debtor
Parties to Lender pursuant hereto, taken as a whole, contains or will (as
of the time so furnished) contain any untrue statement of a material fact,
or omits or will (as of the time so furnished) omit to state any material
fact which is necessary in order to make the statements contained therein
not misleading.
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<PAGE>
(p) Margin Regulations. No Debtor Party is engaged in the business of
------------------
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or
carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(q) Significant Contracts. Schedule 2.1(q) is a complete and correct
----------------------
list of all contracts, agreements and other documents pursuant to which
Debtor Parties receive revenues in excess of $50,000 per fiscal year. Each
such contract, agreement and other document is in full force and effect as
of the date hereof and Debtor Parties know of no reason why such contracts,
agreements and other documents would not remain in full force and effect
pursuant to the terms thereof.
(r) Environment. Each Debtor Party has duly complied with, and its
------------
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state and
local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder. Each Debtor Party has been
issued and will maintain all required federal, state and local permits,
licenses, certificates and approvals relating to (1) air emissions; (2)
discharges to surface water or groundwater; (3) noise emissions; (4) solid
or liquid waste disposal; (5) the use, generation, storage, transportation
or disposal of toxic or hazardous substances or wastes (which shall include
any and all such materials listed in any federal, state or local law, code
or ordinance and all rules and regulations promulgated thereunder as
hazardous or potentially hazardous); or (6) other environmental, health or
safety matters. No Debtor Party has received notice of, or knows of, or
suspects facts which might constitute any violations of any federal, state
or local environmental, health or safety laws, codes or ordinances, and any
rules or regulations promulgated thereunder with respect to its businesses,
operations, assets, equipment, property, leaseholds, or other facilities.
Except in accordance with a valid governmental permit, license, certificate
or approval, there has been no emission, spill, release or discharge into
or upon (1) the air; (2) soils, or any improvements located thereon; (3)
surface water or groundwater; or (4) the sewer, septic system or waste
treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises; and accordingly
the premises of each Debtor Party are free of all such toxic or hazardous
substances or wastes. There has been no complaint, order, directive, claim,
citation or notice by any governmental authority or any person or entity
with respect to (1) air emissions; (2) spills, releases or discharges to
soils or improvements located thereon, surface water, groundwater or the
sewer, septic system or waste treatment, storage or disposal systems
servicing the premises; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation or disposal of
toxic or hazardous substances or waste; or (6) other environmental, health
or safety matters affecting each Debtor Party or its business, operations,
assets, equipment, property, leaseholds or other facilities. Debtor Parties
do not have any indebtedness, obligation or liability (absolute or
contingent, matured or not matured), with respect to the storage,
-8-
<PAGE>
treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
(s) Fees/Commission. No Debtor Party has agreed to pay any finder's
---------------
fee, commission, origination fee (except for the processing and commitment
fees due pursuant to Section 1.2 or other fee or charge to any person or
entity with respect to the Loan and investment transactions contemplated
hereunder.
(t) ERISA. Each Debtor Party is in compliance in all material respect
------
with all applicable provisions of ERISA as defined in Section 3.11 hereof).
Neither a reportable event nor a prohibited transaction (as defined in
ERISA) has occurred and is continuing with respect to any Plan (as defined
in Section 3.11 hereof); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions, the
"PBGC") to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings; no
Debtor Party nor any commonly controlled entity (as defined in ERISA) has
completely or partially withdrawn from a multiemployer plan(as defined in
ERISA); each Debtor Party and each commonly controlled entity has met its
minimum funding requirements under ERISA with respect to all of its Plans
and the present fair market value of all Plan property exceeds the present
value of all vested benefits under each Plan, as determined on the most
recent valuation date of the Plan and in accordance with the provisions of
ERISA and the regulations thereunder for calculating the potential
liability of any Debtor Party or any commonly controlled entity to the PBGC
or the Plan under Title IV or ERISA; and no Debtor Party nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
(u) Title to Properties. Each Debtor Party has good, indefeasible and
-------------------
insurable title to, or valid leasehold interests in, all its real
properties and good title to its other assets, free and clear of all liens
other than Permitted Liens (as defined in Section 3.15 hereof).
(v) Limited Offering of Note and Warrant. No Debtor Party nor anyone
-------------------------------------
acting on its behalf has offered the Note, the Warrant or any similar
securities for sale to, or solicited any offer to buy any of the same from,
or otherwise approached or negotiated in respect thereof, with, any person
other than Lender and not more than 35 other institutional investors. No
Debtor Party nor anyone acting on its behalf has taken, or will take, any
action which would subject the issuance or sale of the Note and Warrant to
Section 5 of the Securities Act of 1933, as amended, or the registration or
qualification provisions of the blue sky laws of any state.
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<PAGE>
(w) Registration Rights. Except as described in the Warrant, no Debtor
-------------------
Party is under any obligation to register under the Securities Act of 1933,
as amended, or the Trust Indenture Act of 1939, as amended, any of its
presently outstanding securities or any of its securities that may
subsequently be issued.
(x) Employees. No Debtor Party has any current labor problems or
----------
disputes which have resulted or any Debtor Party reasonably believes could
be expected to have a material adverse effect.
(y) Issuance Taxes. All taxes imposed on Debtor Parties in connection
--------------
with the issuance, sale and delivery of the Note, the Warrant and the
capital stock issuable upon exercise of the Warrant have been or will be
fully paid, and all laws imposing such taxes have been or will be fully
satisfied by Debtor Parties.
ARTICLE 3
COVENANTS AND AGREEMENTS
------------------------
Debtor Parties covenant and agree, jointly and severally, that during the
term of this Agreement:
3.1 Payment of Obligations. Debtor Parties shall pay the indebtedness
-----------------------
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Debtor Parties to
Lender, direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Debtor Parties, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof subject to the Senior
Lender Subordination Agreement.
3.2 Financial Statements and Reports. Borrower shall furnish to Lender (i)
--------------------------------
as soon as practicable and in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, an audited consolidated and
consolidating balance sheet of Debtor Parties as of the close of such fiscal
year, an audited consolidated and consolidating statement of earnings and
retained earnings of Debtor Parties as of the close of such fiscal year and an
audited consolidated and consolidating statement of cash flows for Debtor
Parties for such fiscal year, prepared in accordance with generally accepted
accounting principles consistently applied and accompanied by an unqualified
audit report prepared by an independent certified public accountant acceptable
to Lender showing the financial condition of Debtor Parties at the close of such
year and the results of its operations during such year and accompanied by a
certificate of the President of Borrower, stating that to the best of the
knowledge of such officer, such Debtor Party has kept, observed, performed and
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<PAGE>
fulfilled each covenant, term and condition of this Agreement and the other Loan
Documents during the preceding fiscal year and that no Event of Default has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action such Debtor Parties propose to take in connection therewith), (ii)
within fifteen (15) days of the end of each calendar month, a status report
indicating the financial performance of each Debtor Party during such month and
the financial position of each Debtor Party as of the end of such month, (iii)
within thirty (30) days of the end of each quarter, a consolidated and
consolidating balance sheet of Debtor Parties as of the close of such quarter
and a consolidated and consolidating statement of earnings and retained earnings
of Debtor Parties as of the close of such quarter, all in reasonable detail, and
prepared substantially in accordance with generally accepted accounting
principles consistently applied (except for the absence of footnotes and subject
to year-end adjustments), and (iv) with reasonable promptness, such other
financial data as Lender may reasonably request. Without Lender's prior written
consent, Debtor Party shall not modify or change any accounting policies or
procedures in effect on the date hereof.
3.3 Maintenance of Books and Records: Inspection. Each Debtor Party shall
---------------------------------------------
maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and after reasonable notice from
Lender permit Lender, its officers and employees and any professionals
designated by Lender in writing, at Debtor Party's expense, to visit and inspect
any of its properties, corporate books and financial records, and to discuss its
accounts, affairs and finances with such Debtor Party or the principal officers
of such Debtor Party during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such inspection shall materially
interfere with the conduct of such Debtor Party's business.
3.4 Insurance. Without limiting any of the requirements of any of the
---------
other Loan Documents, Debtor Parties shall maintain, in amounts customary for
entities engaged in comparable business activities, (i) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts as
are customary in Debtor Parties' business. Debtor Parties will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at a
cost, deemed reasonable to the Debtor Parties' Board of Directors. At the
request of Lender, Debtor Parties will deliver forthwith a certificate
specifying the details of such insurance in effect.
3.5 Taxes and Assessments. Each Debtor Party shall (i) file all tax
----------------------
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon such Debtor
Party upon its income and profits or upon any properties belonging to it, prior
to the date on which penalties attach thereto, and (iii) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become a
lien or charge upon any of its properties; provided, however, that a Debtor
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<PAGE>
Party in good faith may contest any such tax, assessment, governmental charge or
levy described in the foregoing clauses (ii) and (iii) so long as appropriate
reserves are maintained with respect thereto.
3.6 Corporate Existence. Each Debtor Party shall maintain its corporate
--------------------
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which such qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure to
-----------------------------------------
do so would not materially adversely affect a Debtor Party's operations or its
ability to fulfill its obligations under the Loan Documents, each Debtor Party
shall maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which each Debtor Party is a party or by which each
Debtor Party or any of its properties is bound. Without limiting the foregoing,
each Debtor Party shall pay all of its indebtedness promptly in accordance with
the terms thereof.
3.8 Notice of Default. Debtor Parties shall give written notice to Lender
-----------------
of the occurrence of any default, event of default or Event of Default under
this Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Debtor Parties shall give notice, in writing,
--------------------
to Lender of (i) any actions, suits or proceedings, instituted by any persons
whomsoever against either Debtor Party or affecting any of the assets of either
Debtor Party wherein the amount at issue is in excess of Twenty-Five Thousand
and No/100ths Dollars ($25,000.00), and (ii) any dispute, not resolved within
sixty (60) days of the commencement thereof, between a Debtor Party on the one
hand and any governmental regulatory body on the other hand, which dispute might
materially interfere with the normal operations of a Debtor Party.
3.10 Conduct of Business. Debtor Parties will continue to engage in a
-------------------
business of the same general type and manner as conducted by it on the date of
this Agreement.
3.11 ERISA Plan. If any Debtor Party has in effect, or hereafter
-----------
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. 1001 et seq. (1975), as amended
-------
from time to time ("ERISA"), then the following warranty and covenants shall be
applicable during such period as any such plan (the "Plan") shall be in effect:
(i) Debtor Parties hereby warrants that no fact that might constitute grounds
for the involuntary termination of the Plan, or for the appointment by the
appropriate United States District Court of a trustee to administer the Plan,
exists at the time of execution of this Agreement, (ii) Debtor Parties hereby
covenant that throughout the existence of the Plan, Debtor Parties'
contributions under the Plan will meet the minimum funding standards required by
ERISA and Debtor Parties will not institute a distress termination of the Plan,
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and (iii) Debtor Parties covenant that it will send to Lender a copy of any
notice of a reportable event (as defined in ERISA) required by ERISA to be filed
with the Labor Department or the Pension Benefit Guaranty Corporation, at the
time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. No Debtor party shall
--------------------------------------------
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Debtor Parties, or purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in cash or property in respect thereof, nor make any return of
capital of shareholders, nor make any payments in cash or property in respect of
any stock options, stock bonus or similar plan (except as required or permitted
hereunder), nor grant any preemptive rights with respect to the capital stock of
Debtor Parties, without the prior written consent of Lender except for dividends
from Guarantor to Borrower for the sole purpose of (i) making payments under the
Notes in accordance with the Senior Lender Subordination Agreement and payments
as permitted under those certain Subordination Agreements dated June __, 1997 by
and among (i) Lender, Borrower and William J. Blackwell and Brenda M. Blackwell;
(ii) Lender, Borrower and Walter P. McMillan and (iii) Lender, Debtor Parties
and David Sutherland, III (iv) Lender, Borrower and Jack Gammon and (v) Lender,
Borrower and Carl Nelson (collectively, the "Junior Subordination Agreements"),
and (ii) enabling Borrower to pay officers' salaries pursuant to applicable
employment agreements in an aggregate amount not to exceed (x) $250,000.00
during the period from the Closing Date through December 31,1997, (y)
$550,000.00 during the period from January 1, 1998 through December 31, 1998,
and (z) for each fiscal year of a Guarantor thereafter, an amount equal to 105%
of the maximum amount permitted for the immediately preceding fiscal year of the
Guarantor.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
-----------------------------------
written consent, no Debtor Party shall guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to a Debtor Party for deposit or collection in the ordinary course of
business and except for the guaranties executed by Borrower in favor of the
Senior Lenders on the date hereof Without Lender's prior express written
consent, which shall not be unreasonably withheld, no Debtor Party shall (i)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (ii) make any payment on any subordinated debt
except in accordance with the Junior Subordination Agreements.
3.14 Debt. Without the express prior written consent of Lender, no Debtor
-----
Party shall create, incur, assume or suffer to exist indebtedness of any
description whatsoever, excluding:
(a) the indebtedness evidenced by the Note;
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(b) the endorsement of negotiable instruments payable to a Debtor
Party for deposit or collection in the ordinary course of
business;
(c) debts incurred in the ordinary course of business (each of which,
individually, does not exceed $25,000); and
(d) the indebtedness listed on Schedule 2.1 (l) hereto.
3.15 No Liens. No Debtor Party shall create, incur, assume or suffer to
---------
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except the following permitted liens (the "Permitted
Liens"):
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable;
(c) liens in connection with the leasing of equipment in favor of the
Lessor of such equipment in a maximum aggregate amount
outstanding not to exceed Two Hundred Fifty Thousand Dollars
($250,000);
(d) liens described on Schedule 2.1(1) hereto.
3.16 Mergers. Consolidations, Acquisitions and Sales. Without the prior
------------------------------------------------
written consent of Lender, no Debtor Party shall (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in (other than Permitted Liens) or lease all
or any substantial part of its assets, nor (d) create any Subsidiaries nor
convey any of its assets to any Subsidiary.
3.17 Transactions With Affiliates. No Debtor Party shall enter into any
----------------------------
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, or management agreements, service
agreements, lending or borrowing arrangement with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of a Debtor
Party's business and upon fair and reasonable terms no less favorable to such
Debtor Party than such Debtor Party would obtain in a comparable arm's length
transaction with a person not an affiliate; provided, however, (i) Debtor
Parties may extend loans to its officers, directors and employees in a maximum
aggregate principal amount outstanding at any time for all officers, directors
and employees of $100,000.00, except as set forth on Schedule 3.17 which sets
forth such arrangements in effect on the date hereof and (ii) that Guarantor may
extend a loan to Borrower on the date hereof to enable Borrower to make payments
to the Shareholders of Lithograph, Sutherland and Blackwell, which shall be
evidenced by a Promissory Note. For the purposes of this Section 3.17,
"affiliate" shall mean a person, corporation, partnership or other entity
controlling, controlled by or under common control with Debtor Party.
-14-
<PAGE>
3.18 Environment. Each Debtor Party shall be and remain in compliance with
------------
the provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Debtor Partys' expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
---------------------
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on the
--------------------
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the
following conditions:
(a) Debtor Parties shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and conditions
required by this Agreement.
(b) Lender shall have received an opinion of the Debtor Parties'
counsel, Black Bobango & Morgan dated the Closing Date, in form and
substance satisfactory to Lender's counsel, Caldwell & Caldwell, P.C.
(c) Borrower shall have delivered to Lender a Note executed by
Borrower, substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference.
(d) Borrower shall have delivered to Lender a Stock Purchase Warrant
executed by Borrower, substantially in the form of Exhibit B attached
hereto and incorporated herein by this reference.
(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower and a related UCC-1 Financing Statements executed by
Borrower which shall be filed after the financing statements of the Senior
Lenders, each of which is substantially in the form of Exhibit C attached
hereto and incorporated herein by this reference.
-15-
<PAGE>
(f) Guarantor shall have delivered to Lender a Guaranty Agreement
executed by Guarantor, substantially in the form of Exhibit D attached
hereto and incorporated herein by this reference.
(g) Guarantor shall have delivered to Lender a Guaranty Security
Agreement executed by Guarantor and a related UCC- 1 Financing Statements
executed by Guarantor, which shall be filed after the financing statements
of the Senior Lenders, each of which is substantially in the form of
Exhibit E attached hereto and incorporated herein by this reference.
(h) Borrower shall have delivered to Lender a Pledge and Security
Agreement, executed by John Miller and related Stock Powers, substantially
in the form of Exhibit F attached hereto and incorporated herein by this
reference.
(i) Borrower shall have delivered to Lender a Pledge and Security
Agreement, executed by Borrower, substantially in the form of Exhibit G
attached hereto and incorporated by this reference.
(j) Debtor Parties shall have delivered a Landlord's Consent and
Subordination of Lien, executed by each Debtor Parties' Landlords, in
substantially the form attached hereto as Exhibit F and incorporated herein
by this reference.
(k) Lender shall have received copies of the corporate charter and
other publicly filed organizational documents of Debtor Parties, certified
by the Secretary of State or other appropriate public official in the
jurisdiction in which Debtor Parties are incorporated.
(l) Lender shall have received certified (as of the date of this
Agreement) copies of all corporate action taken by Debtor Parties,
including resolutions of their Boards of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(m) Lender shall have received a certificate as to the legal existence
and good standing of the Debtor Parties, issued by the Secretary of State
or other appropriate public official in the jurisdiction in which the
Debtor Parties are incorporated.
(n) Lender shall have received certificates of the Secretaries of
State or other appropriate public officials as to Debtor Parties'
qualification to do business and good standing in each jurisdiction in
which a failure to be so qualified would have a material adverse effect on
their financial condition or its ability to conduct their business in the
manner now conducted and as hereafter intended to be conducted.
-16-
<PAGE>
(o) Lender shall have received an Authorization Agreement for Pre-
Authorized Payments (Debit) executed by Debtor Parties, in substantially
the form of Exhibit I attached hereto and incorporated herein by this
reference.
ARTICLE 5
DEFAULT AND REMEDIES
--------------------
5.1 Events of Default. The occurrence of any of the following shall
------------------
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Note in accordance with the terms of the
Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Debtor Parties, any guarantor of the
Loan, or any shareholder, subsidiary or affiliate of Debtor Party as to any
material matter hereunder or under any of the other Loan Documents, or
delivery by Debtor Parties of any schedule, statement, resolution, report,
certificate, notice or writing to Lender that is untrue in any material
respect on the date as of which the facts set forth therein are stated or
certified;
(c) Failure of Debtor Parties, any guarantor of the Loan, or any
shareholder, subsidiary or affiliate of Debtor Parties to perform any of
their obligations, covenants or agreements under this Agreement, the Note
or any of the other Loan Documents:
(d) Either Debtor Party (i) shall generally not pay or shall be unable
to pay its debts as such debts become due, except to Senior Lenders; or
(ii) shall make an assignment for the benefit of creditors or petition or
apply to any tribunal for the appoint of a custodian, receiver or trustee
for it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or (iv) shall have had any such
petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or an adjudication or appointment
is made; or (v) shall indicate, by any act or intentional and purposeful
omission, its consent to, approval of or acquiescence in any such petition,
application, proceeding or order for relief or the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets;
or (vi) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of sixty (60) days or more;
(e) Either Debtor Party shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire or be revoked;
-17-
<PAGE>
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Debtor Parties shall default in the timely payment or performance
of any obligation now or hereafter owed to Lender in connection with any
other indebtedness of Debtor Parties now or hereafter owed to Lender
(h) Either Debtor Party shall have defaulted and continue to be in
default in the timely payment of or performance of any covenants relating
to any other indebtedness or obligation (except the Senior Indebtedness),
which in the aggregate exceeds Twenty-five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects such Debtor Party's financial
condition; or
(i) Senior Lenders shall have accelerated the Senior Indebtedness;
provided, however, if Senior Lenders shall have rescinded such
acceleration, Lender shall rescind any acceleration made pursuant to this
subsection (i).
(j) In the event that John Miller or Carl Norman is no longer a member
of the executive staff or management of either Debtor Party.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (ten (10) days, if such Curable Default may be cured by
payment of a sum of money) of notice thereof to Debtor Parties given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to Debtor Parties and an opportunity to cure any
Curable Default of which either Debtor Party has had actual knowledge for the
requisite number of days set forth.
5.2 Acceleration of Maturity. Remedies. Upon the occurrence of any Event
------------------------
of Default described in subsection 5.1 (d), the indebtedness evidenced by the
Note as well as any and all other indebtedness of Debtor Parties to Lender shall
be immediately due and payable in full; and upon the occurrence of any other
Event of Default described above, Lender at any time thereafter may at its
option accelerate the maturity of the indebtedness evidenced by the Note as well
as any and all other indebtedness of Debtor Parties to Lender; all without
notice of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by that Note:
-18-
<PAGE>
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the Note
and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
------------------------------
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise
--------------------
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
Subject to the Senior Lender Subordination Agreement, first, to the
costs and expenses, including without limitation reasonable attorney's
fees, incurred by Lender in connection with the exercise of its remedies;
Second, to the expenses of curing the default that has occurred, in the
event that Lender elects, in its sole discretion, to cure the default that has
occurred;
Third, to the payment of the obligations of Debtor Parties under the Loan
Documents (the "Obligations"), including but not limited to the payment of the
principal of and interest on the indebtedness evidenced by the Note, in such
order of priority as Lender shall determine in its sole discretion; and
Fourth, the remainder, if any, to Debtor Parties or to any other person
lawfully thereunto entitled.
-19-
<PAGE>
ARTICLE 6
TERMINATION
-----------
6.1 Termination of this Agreement. This Agreement shall remain in full
-----------------------------
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Debtor Parties of all amounts owed to Lender, at
which time Lender shall cancel the Note and the Guaranty Agreement and deliver
it to Debtor Parties; provided, however, that if at any time Debtor Parties have
satisfied all obligations to Lender, Debtor Parties may terminate this Agreement
by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Performance By Lender. If Debtor Parties shall default in the payment,
----------------------
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Debtor Parties and shall constitute a part of the Obligations. Lender shall be
the sole judge of the necessity for any such actions and of the amounts to be
paid.
7.2 Successors and Assigns Included in Parties. Whenever in this Agreement
-------------------------------------------
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Debtor Parties or by or on behalf of Lender shall bind and
inure to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Debtor Parties agree, jointly and severally, to
------------------
pay all reasonable costs and expenses incurred by Lender in connection with the
making of the Loan, including but not limited to filing fees, recording taxes
and reasonable attorneys' fees, promptly upon demand of Lender. Debtor Parties
further agree, jointly and severally, to pay all premiums for insurance required
to be maintained by Debtor Parties pursuant to the terms of the Loan Documents
and all of the out-of-pocket costs and expenses incurred by Lender in connection
with the collection of the Loan, amendment to the Loan Documents, or prepayment
of the Loan, including but not limited to reasonable attorneys' fees, promptly
upon demand of Lender.
-20-
<PAGE>
7.4 Assignment. The Note, this Agreement and the other Loan Documents may
-----------
be endorsed, assigned and/or transferred in whole or in part by Lender, and any
such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent transferred and
assigned. Lender may grant participations in all or any portion of its interest
in the indebtedness evidenced by the Note, and in such event Debtor Parties
shall continue to make payments due under the Loan Documents to Lender and
Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Debtor Parties shall not assign
any of their rights nor delegate any of their duties hereunder or under any of
the other Loan Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each and
--------------------
every covenant, agreement and obligation of Debtor Parties hereunder and under
all of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the application
-------------
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
---------------------------------------------------------------
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by Debtor
Parties in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
---- ------
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Debtor Parties so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
7.8 Article and Section Headings; Defined Terms. Numbered and titled
-------------------------------------------
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
--------
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
-21-
<PAGE>
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:
<TABLE>
<CAPTION>
<S> <C>
The Address of Lender is: Sirrom Capital Corporation
500 Church Street. Suite 200
Nashville, TN 37219
Attention: Burton Harvey
Telecopy No.: 615/726-1208
with a copy to: Caldwell & Caldwell, P.C.
500 Church Street, Suite 200
Nashville, TN 37219
Attention: Maria-Lisa Caldwell, Esq.
Telecopy No.: 615/256-9958
The Address of Debtor Parties is: Master Graphics, Inc.
Premier Graphics, Inc.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John Miller
Telecopy No.: 901/744-6012
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael P. Morgan
Telecopy No.: 901/683-2553
</TABLE>
7.10 Entire Agreement. This Agreement and the other written agreements
----------------
between Debtor Parties and Lender represent the entire agreement between the
parties concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Debtor Parties were not based upon any fact or material provided by Lender, nor
were the Debtor Parties induced or influenced to enter into this Agreement or
the other Loan Documents by any representation, statement, analysis or promise
by Lender.
-22-
<PAGE>
7.11 Governing Law and Amendments. This Agreement and all of the Loan
----------------------------
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State. No
amendment or modification hereof shall be effective except in a writing executed
by each of the parties hereto.
7.12 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained herein or in any of the Loan Documents or made by or
furnished on behalf of the Debtor Parties in connection herewith or in any Loan
Documents shall survive the execution and delivery of this Agreement and all
other Loan Documents.
7.13 Jurisdiction and Venue. Each Debtor Party hereby consents to the
----------------------
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or any other Loan Documents or with
respect to the transactions contemplated hereby, and expressly waives any and
all objections it may have as to venue in any of such courts.
7.14 Waiver of Trial by Jury . LENDER AND DEBTOR PARTIES HEREBY WAIVE
-----------------------
TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
-------------------------------
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Debtor Parties, Lender and their respective agents have participated in
the preparation hereof
7.17 Senior Lender Subordination Agreement. The parties hereby acknowledge
-------------------------------------
that this Agreement is subject to the terms of the Senior Lender Subordination
Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
-------
SIRROM CAPITAL CORPORATION, a
Tennessee corporation
By: /s/ R. Burton Harvey
----------------------------
Title: Vice President
DEBTOR PARTIES:
---------------
MASTER GRAPHICS, INC.,
a Delaware corporation
By: /s/ John P. Miller
----------------------------
Title: President
PREMIER GRAPHICS, INC.,
a Delaware corporation
By: /s/ John P. Miller
----------------------------
Title: President
-24-
<PAGE>
Exhibit 10.48
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT ("Agreement"), dated as of the 19th day of
June, 1997, is made and entered into on the terms and conditions hereinafter set
forth, by and among PREMIER GRAPHICS, INC., a Delaware corporation with
principal offices in Memphis, Tennessee ("Borrower"), MASTER GRAPHICS, INC., a
Delaware corporation with principal offices in Memphis, Tennessee ("Corporate
Guarantor"), and FIRST AMERICAN NATIONAL BANK, a national banking association
with principal offices in Nashville, Tennessee ("Lender").
WHEREAS, Borrower and Corporate Guarantor requested that Lender make
available to Borrower a line of credit in the original principal amount not
exceeding $7,500,000 (the "Loan") on the terms and conditions hereinafter set
forth, and for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower
and Corporate Guarantor have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower and Corporate Guarantor, has agreed to make the Loan upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower, Corporate Guarantor and Lender hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the indicated
meanings:
"Borrowing Base" shall mean an aggregate amount equal to the sum of (a)
eighty-five percent (85%) of Eligible Receivables (subject to any dilution
reserve that Lender may impose from time to time in its sole and absolute
discretion), plus (b) the lesser of fifty percent (50%) of Eligible Inventory or
the Inventory Borrowing Limit.
"Collection Days" shall mean two (2) banking days.
"Corporate Guarantor" shall have the meaning assigned to such term in the
preamble of this Agreement.
<PAGE>
"Deeds of Trust" shall mean those three (3) certain deeds of trust (or
mortgages, as applicable) executed by Borrower in favor of Lender, covering
certain real property and improvements located at (a) 120 Lake Drive, Ridgeland,
Mississippi 39218; (b) Highway 63 North, Montezuma, Iowa 50171; and (c) 2160
Industrial Court N., Ozark, Missouri 65721.
"Eligible Receivables" shall mean Receivables arising out of the sale or
other disposition of Borrower's Inventory or the rendering of services to
Borrower's customers, excluding (a) all Receivables that have been outstanding
for more than ninety(90) days after the dates of the corresponding invoices, (b)
all Receivables owing from any account debtor if more than 50% of the
Receivables owed to Borrower by such account debtor have been outstanding for
more than ninety (90) days after the dates of the corresponding invoices, (c)
the amount by which Receivables from any account debtor or its affiliates
(excluding Federal Express) exceed twenty-five percent (25%) of Borrower's total
Receivables, (d) all returns, allowances, discounts, credits and contra items,
(e) all amounts owed from employees, officers, shareholders, directors or
affiliates and all intra-company items, (f) any Receivables evidenced by
instruments or chattel paper that have not been endorsed and delivered to Lender
by Borrower, and (g) all other items which Lender in its sole discretion
determines to be ineligible.
"Eligible Inventory" shall mean Borrower's Inventory, valued at the lesser
of cost or market, with such adjustments thereto as Lender in its sole
discretion determines to be appropriate.
"Event of Default" shall have the meaning assigned to such term in Section
-------
7.1 of this Agreement.
- ---
"First American Senior Collateral" shall have the meaning assigned to such
term in the Intercreditor Agreement.
"GE Capital" shall mean General Electric Capital Corporation, a New York
corporation.
"GE Capital Debt" shall mean that certain $20,500,000 term loan and that
certain $5,000,000 asset acquisition term loan from GE Capital to Borrower
evidenced by that certain Term and Capex Loan and Security Agreement of even
date herewith, by and among Borrower, Corporate Guarantor and GE Capital.
"GE Senior Collateral" shall have the meaning assigned to such term in the
Intercreditor Agreement.
"Guarantor" shall mean, collectively, Corporate Guarantor and Individual
Guarantors.
"Guaranties" shall mean, collectively those certain Continuing Guaranties
of even date herewith, executed in favor of Lender by Guarantors.
"Individual Guarantors" shall mean, collectively, John P. Miller and wife,
Nancy Miller.
2
<PAGE>
"Intercreditor Agreement" shall mean that certain Intercreditor Agreement
of even date herewith, by and between Lender and GE Capital.
"Inventory" shall have the meaning assigned to such term in the Uniform
Commercial Code.
"Inventory Borrowing Limit" shall mean $2,000,000.
"Line of Credit Borrowing Limit" shall mean $7,500,000.
"Line of Credit Interest Rate" shall mean an annual rate equal to the
lesser of (a) the maximum contract rate of interest permitted to be charged
under applicable law or (b) the interest rate from time to time designated by
Lender as its "Index Rate", computed on the basis of a 360-day year, actual
number of days elapsed, adjusted daily as the Index Rate changes.
"Line of Credit Termination Date" shall mean March 31, 2000.
"Loan" shall have the meaning assigned to such term in the preamble of this
Agreement.
"Loan Documents" shall mean, collectively, the Security Instruments,
together with the Notes and any other instruments and documents now or hereafter
evidencing, securing or in any way related to the indebtednesses evidenced by
the Notes.
"Note" shall mean that certain Master Secured Promissory Note of even date
herewith, in the principal amount not exceeding the Line of Credit Borrowing
Limit, made and executed by Borrower, payable to the order of Lender, evidencing
the indebtedness of Borrower to Lender in connection with the Loan, together
with any and all extensions, modifications, renewals, restatements and/or
replacements thereof.
"Permitted Encumbrances" shall mean, collectively, (a) the Permitted
Priority Encumbrance, (b) a security interest in favor of GE Capital in the
First American Senior Collateral, subordinated in all respects to the security
interest of Lender therein, (c) a security interest in favor of Sirrom covering
Borrower's equipment, inventory, accounts, and general intangibles, subordinate
in all respects to the security interest of Lender therein, and (d) the liens
described on Schedule 1.0 attached hereto.
------------
"Permitted Priority Encumbrance" shall mean a first priority security
interest in favor of GE Capital in the GE Senior Collateral.
"Pledge Agreement" shall mean, collectively, that certain Pledge and
Security Agreement of even date herewith, executed by Corporate Guarantor in
favor of Lender, pledging to Lender all of the issued and outstanding stock of
Borrower.
3
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"Real Property" shall mean, collectively, the real property and
improvements described in the Deeds of Trust.
"Receivables" shall mean accounts, general intangibles, instruments and
chattel paper, as such terms are defined in the Uniform Commercial Code.
"Secured Obligations" shall have the meaning assigned such term in Section
-------
3.2 of this Agreement.
- ---
"Security Instruments" shall mean, collectively, this Agreement, the Deeds
of Trust, the Guaranties, the Pledge Agreement and any other instruments,
documents or agreements now or hereafter securing the Secured Obligations,
whether by specific or general reference.
"Seller Debt" shall mean the indebtedness evidenced by the promissory notes
described on Schedule 1.1 attached hereto.
------------
"Service Fee" shall mean $15,000, payable on the date hereof and on each
anniversary thereafter.
"Sirrom" shall mean Sirrom Capital Corporation, a Tennessee corporation.
"Sirrom Debt" shall mean that certain subordinated loan from Sirrom to
Corporate Guarantor, in the original principal amount of $4,300,000, evidenced
by that certain Loan Agreement of even date herewith, by and among Borrower,
Corporate Guarantor and Sirrom.
"Uniform Commercial Code" means the Uniform Commercial Code as in effect in
the State of Tennessee from time to time.
ARTICLE II
THE LOAN
--------
2.1 Advances. Prior to the Line of Credit Termination Date and so long as
--------
no Event of Default (or event that with the giving of notice or the passage of
time or both would constitute an Event of Default) has occurred and is in
existence hereunder, Lender shall advance proceeds under the Loan to Borrower
upon Borrower's request in an aggregate amount outstanding at any one time not
to exceed the lesser of (a) the Borrowing Base in effect from time to time, or
(b) the Line of Credit Borrowing Limit, although Lender may in its sole and
absolute discretion permit advances to exceed such amount. Any such excess
advances shall be secured by, and subject to the terms and conditions of, this
Agreement.
2.2 Interest Rate; Repayment. The indebtedness of Borrower to Lender in
------------------------
connection with the Loan shall be evidenced by, and payable in accordance with
the terms of, the Note.
4
<PAGE>
Amounts outstanding under the Loan shall bear interest at the Line of Credit
Interest Rate. In addition, Borrower covenants and agrees to maintain Eligible
Receivables and Eligible Inventory in an aggregate amount sufficient to keep the
aggregate outstanding principal balance of the advances made in respect of the
Loan within the limits specified in Section 2.1 of this Agreement. If at any
-----------
time such limits are exceeded, Borrower shall immediately pay to Lender an
amount sufficient to reduce the aggregate outstanding principal balance of the
Loan to an amount that is within such limits.
2.3 Letters of Credit. If and to the extent that Lender has issued or
-----------------
from time to time hereafter shall issue letters of credit for the account of
Borrower pursuant to applications submitted to Lender by Borrower, it is
understood and agreed that:
(a) the credit availability under the Loan shall be reduced by the
aggregate undrawn amount from time to time available under outstanding
letters of credit, and
(b) any amounts paid by Lender under any such letters of credit shall
be deemed to be advances against the Note, and the indebtedness of Borrower
to Lender in connection therewith shall constitute a part of the Secured
Obligations and shall be secured as hereinafter set forth in the same
manner as all other advances made by Lender against the Note.
Borrower acknowledges and agrees that Lender has made no commitment to Borrower
with respect to the issuance of any such letters of credit.
2.4 Purpose(s). The purpose of the Loan shall be to provide working
----------
capital to Borrower on a revolving basis. The proceeds of the Loan shall be
used for no other purposes.
ARTICLE III
SECURITY
--------
3.1 Security. The Secured Obligations are and shall continue to be
--------
secured by the following:
(a) Personal Property. Borrower hereby grants to Lender a security
-----------------
interest in the following described property and interests in property,
together with all proceeds (including but not limited to insurance
proceeds) and products thereof and all accessions thereto, as applicable:
(i) Equipment. All equipment of Borrower of every kind and
---------
description, whether now owned or hereafter acquired and wherever
located, together with all parts, accessories and attachments and all
replacements thereof and additions thereto;
5
<PAGE>
(ii) Inventory, Accounts, Chattel Paper, Instruments, Documents
----------------------------------------------------------
and General Intangibles. All of Borrower's inventory, whether held
-----------------------
for lease, sale or for furnishing under contracts of service, all
agreements for lease of same and rentals therefrom, and all of
Borrower's accounts, accounts receivable, chattel paper, instruments,
documents and general intangibles (including but not limited to trade
marks, copyrights and patents), whether now in existence or owned or
hereafter acquired, entered into, created or arising, and wherever
located; and
(iii) Books and Records. All of Borrower's right, title and
-----------------
interest to all of the books, records, files and all other data and
documents of Borrower of all kinds in whatever form, whether
computerized or otherwise and including but not limited to computer
disks, tapes and printouts, relating to the above-described
collateral.
(b) Other Security Instruments. The Deeds of Trust, the Guaranties,
--------------------------
the Pledge Agreement and the other Security Instruments.
3.2 Secured Obligations. Without limiting any of the provisions thereof,
------------------
the Security Instruments shall secure:
(a) The full and timely payment of the indebtednesses evidenced by
the Note, together with interest thereon, and any extensions, modifications
and/or renewals thereof and any notes given in payment thereof,
(b) The full and prompt performance of all of the obligations of
Borrower to Lender under the Loan Documents,
(c) The full and prompt payment of all expenses and costs of whatever
kind incident to the collection of the indebtednesses evidenced by the
Note, the perfection, enforcement or protection of the security interests
of the Security Instruments or the exercise by Lender of any rights or
remedies of Lender with respect to the indebtednesses evidenced by the
Note, including but not limited to reasonable attorney's fees and expenses
incurred by Lender, all of which Borrower agrees to pay to Lender upon
demand, and
(d) The full and prompt payment and performance of any and all other
indebtednesses and other obligations of Borrower to Lender, direct or
contingent (including but not limited to obligations incurred as indorser,
guarantor or surety), however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtednesses incurred
pursuant to any present or future commitment of Lender to Borrower,
together with interest thereon, and any extensions, modifications and/or
renewals thereof and any notes given in payment thereof.
All of the foregoing indebtedness and other obligations are herein collectively
referred to as the "Secured Obligations".
6
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower and Corporate Guarantor hereby represent and warrant to Lender as
follows:
4.1 Corporate Status. Borrower is a corporation duly organized, validly
----------------
existing and in good standing under the laws of the State of Delaware.
Corporate Guarantor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Borrower and Corporate
Guarantor have the corporate power to own and operate their properties, to carry
on their business as now conducted and to enter into and to perform their
obligations under this Agreement and the other Loan Documents to which either is
a party. Borrower and Corporate Guarantor are duly qualified to do business and
in good standing in each state in which a failure to be so qualified would have
a material adverse effect on their financial position or their ability to
conduct their business in the manner now conducted.
4.2 Authorization. Borrower and Corporate Guarantor have full legal
-------------
right, power and authority to conduct their business and affairs in the manner
contemplated by the Loan Documents, and to enter into and perform their
obligations thereunder, without the consent or approval of any other person,
firm, governmental agency or other legal entity. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of each Loan
Document to which Borrower or Corporate Guarantor is a party, and the
performance by Borrower and Corporate Guarantor of their obligations thereunder
are within the corporate powers of Borrower and Corporate Guarantor and have
been duly and properly authorized by all necessary corporate action, have
received all necessary governmental approvals, if any were required, and do not
and will not contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental agency,
the charter or by-laws of Borrower or Corporate Guarantor, or any agreement
binding upon Borrower, Corporate Guarantor or their properties. The officer(s)
executing this Agreement and all of the other Loan Documents to which either
Borrower or Corporate Guarantor is a party are duly authorized to act on behalf
of Borrower or Corporate Guarantor, as the case may be.
4.3 Validity and Binding Effect. This Agreement and the other Loan
---------------------------
Documents are the legal, valid and binding obligations of the parties thereto,
enforceable in accordance with their respective terms.
4.4 Other Transactions. Except for the Permitted Priority Encumbrance,
------------------
there are no prior loans, liens, security interests, agreements or other
financings upon which Borrower is obligated or by which Borrower is bound that
will in any way permit any third person to have or obtain priority over Lender
as to any of the security interests or liens granted to Lender pursuant to this
Agreement and the other Security Instruments. Consummation of the transactions
hereby contemplated and the performance of the obligations of Borrower and
Corporate Guarantor under and by virtue of the Loan Documents will not result in
any breach of, or constitute a default
7
<PAGE>
under, any mortgage, security deed or agreement, deed of trust, lease, bank loan
or credit agreement, corporate charter or by-laws, agreement or certificate of
limited partnership, partnership agreement, license, franchise or any other
instrument or agreement to which Borrower or Corporate Guarantor is a party or
by which Borrower, Corporate Guarantor or their properties may be bound or
affected.
4.5 Places of Business. The records with respect to all intangible
------------------
personal property constituting a part of the collateral security for the Secured
Obligations are maintained at Borrower's chief place of business and chief
executive office, which has the address of 2500 Lamar Avenue, Memphis, Tennessee
38114. All tangible personal property constituting a part of the collateral
security for the Secured Obligations is or will be located at Borrower's chief
place of business and chief executive office and/or at any specific locations
set forth in attached Schedule 4.5.
------------
4.6 Litigation. Except as set forth in attached Schedule 4.6, there are
---------- ------------
no actions, suits or proceedings pending, or, to the knowledge of Borrower or
Corporate Guarantor, threatened, against or affecting Borrower or any Guarantor
or involving the validity or enforceability of any of the Loan Documents or the
priority of the liens thereof, at law or in equity, or before any governmental
or administrative agency, except actions, suits and proceedings that are fully
covered by insurance and that, if adversely determined, would not impair the
ability of Borrower and Guarantor to perform each and every one of their
respective obligations under and by virtue of the Loan Documents; and to the
knowledge of Borrower and Corporate Guarantor, neither Borrower nor any
Guarantor is in default with respect to any order, writ, injunction, decree or
demand of any court or any governmental authority.
4.7 Financial Statements. The financial statement(s) of Borrower and each
--------------------
Guarantor heretofore delivered to Lender are true and correct in all respects,
have been prepared in accordance with generally accepted accounting principles
consistently applied, and fairly present the financial condition of the subjects
thereof as of the date(s) thereof. No material adverse change has occurred in
the financial condition of Borrower or any Guarantor since the date(s) thereof,
and no additional borrowings have been made by Borrower or any Guarantor since
the date(s) thereof.
4.8 No Defaults. No default or event of default by Borrower or any
-----------
Guarantor exists under this Agreement or any of the other Loan Documents, or
under any other instrument or agreement to which Borrower or any Guarantor is a
party or by which Borrower, any Guarantor or their properties may be bound or
affected, and no event has occurred and is existing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
4.9 Compliance With Law. Borrower and Corporate Guarantor have obtained
-------------------
all necessary licenses, permits and governmental approvals and authorizations
necessary or proper in order to conduct their business and affairs as heretofore
conducted and as intended to be conducted hereafter. To the knowledge of
Borrower and Corporate Guarantor, Borrower and Corporate Guarantor are in
compliance with all laws, regulations, decrees and orders applicable to
8
<PAGE>
them (including but not limited to laws, regulations, decrees and orders
relating to occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition). Neither Borrower nor Corporate
Guarantor has received, nor expects to receive, any order or notice of any
violation or claim of violation of any law, regulation, decree, rule, judgment
or order of any governmental authority or agency relating to the ownership
and/or operation of its properties, as to which the cost of compliance is or
might be material and the consequences of noncompliance would or might be
materially adverse to its business, operations, property or financial condition,
or which would or might impair its ability to perform its obligations under the
Loan Documents to which it is a party.
4.10 Environmental Matters.
---------------------
(a) As used in this Section 4.10 and in Section 5.12 hereof, the
------------ ------------
following terms shall have the indicated meanings:
"Business" means all of Borrower's assets, both real and personal,
--------
tangible and intangible, now existing or hereafter acquired and wherever
located, and all of Borrower's current and future business operations at
all locations and in all jurisdictions.
"Environmental Authorities" means all federal, state and local
-------------------------
governmental bodies, authorities or agencies and all public corporations
created and/or empowered to administer, regulate and/or enforce
Environmental Laws, including without limitation the U.S. Environmental
Protection Agency.
"Environmental Laws" means any and all federal, state, regional,
------------------
county or local laws, statutes, rules, regulations or ordinances relating
to the generation, recycling, use, reuse, sale, storage, handling,
transport, treatment or disposal of Hazardous Materials, including without
limitation the Comprehensive Environmental Response Compensation Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986, 42 U.S.C. (S)(S)9601 et seq. ("CERCLA"), the Resource Conservation
------
and Recovery Act of 1976, as amended by the Solid and Hazardous Waste
Amendments of 1984, 42 U.S.C. (S)(S)6901 et seq. ("RCRA"), the Tennessee
------
Hazardous Waste Management Act, T.C.A. (S)(S)68-46-101 et seq., and any
------
rules, regulations and guidance documents promulgated or published
thereunder, and any state, regional, county or local statute, law, rule,
regulation or ordinance relating to public health, safety or the discharge,
emission or disposal of Hazardous Materials or Hazardous Wastes in or to
air, water, land or groundwater, to the withdrawal or use of groundwater,
to the use, handling or disposal of asbestos, polychlorinated biphenyls,
petroleum, petroleum derivatives or by-products, other hydrocarbons or urea
formaldehyde, to the treatment, storage, disposal or management of
Hazardous Materials, to exposure to Hazardous Materials, to the
transportation, storage, disposal, management or release of gaseous or
liquid substances, and any regulation, order, injunction, judgment,
declaration, notice or demand issued thereunder.
9
<PAGE>
"Hazardous Materials" means any hazardous, toxic or dangerous
-------------------
materials, substances, chemicals, waste or pollutants that from time to
time are defined by or pursuant to or are regulated under any Environmental
Laws, including without limitation asbestos, polychlorinated biphenyls,
petroleum, petroleum derivatives or by-products, other hydrocarbons, urea
formaldehyde and any material, substance, pollutant or waste that is
defined as a hazardous waste under RCRA or defined as a hazardous substance
under CERCLA.
"Hazardous Wastes" means Hazardous Materials that are or become
----------------
"wastes" or "solid wastes" as such terms are used in RCRA.
"Property" means all real property now or hereafter constituting a
--------
part of, or otherwise used or operated by Borrower in connection with, the
Business.
(b) Borrower represents and warrants to Lender as follows:
(i) The Property is being operated by Borrower in full
compliance with Environmental Laws, and Borrower has obtained,
maintained and is in good standing under all approvals, consents,
certificates, licenses and permits required by Environmental Laws with
respect to the Property.
(ii) To Borrower's knowledge, the Property is free of all
Hazardous Wastes and is free of all Hazardous Materials other than
those maintained therein or thereon in full compliance with
Environmental Laws. Borrower has not caused or permitted the Property
to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process Hazardous Materials
except in full compliance with Environmental Laws.
(iii) Borrower has not received notice, and has no knowledge, of
any noncompliance with or violation of any Environmental Laws with
respect to the Property or the Business.
4.11 No Burdensome Restrictions. No instrument, document or agreement to
--------------------------
which either Borrower or Corporate Guarantor is a party or by which Borrower,
Corporate Guarantor or their properties may be bound or affected materially
adversely affects, or may reasonably be expected so to affect, the business,
operations, property or financial condition of Borrower or Corporate Guarantor.
4.12 Taxes. Borrower and Corporate Guarantor have filed or caused to be
-----
filed all tax returns that to their knowledge are required to be filed (except
for returns that are not yet due), and have paid all taxes shown to be due and
payable on said returns and all other taxes, impositions, assessments, fees or
other charges imposed on them by any governmental authority, agency or
instrumentality, prior to any delinquency with respect thereto (other than
taxes, impositions, assessments, fees and charges currently being contested in
good faith by appropriate
10
<PAGE>
proceedings, for which appropriate amounts have been reserved). No tax liens
have been filed against Borrower, Corporate Guarantor or any of their property.
4.13 Equipment. The equipment constituting a part of the collateral for
---------
the Secured Obligations is owned solely by Borrower, and Borrower has full
right, power and authority to grant to Lender a valid and enforceable security
interest therein. Except for the Permitted Priority Encumbrance, Lender's
security interest in such equipment constitutes a first and prior lien upon and
security interest in such equipment, and, except for the Permitted Encumbrances,
no other person or entity has any right, title, interest, security interest,
claim or lien with respect thereto.
4.14 Inventory. The Inventory constituting a part of the collateral for
---------
the Secured Obligations is owned solely by Borrower, and Borrower has all
necessary right, power and authority to grant to Lender a valid and enforceable
security interest therein. Lender's security interest in such Inventory
constitutes a first and prior lien upon and security interest in such Inventory,
and, except for the Permitted Encumbrances, no other person or entity has any
right, title, interest, security interest, claim or lien with respect thereto.
4.15 Receivables, Etc. With respect to the Receivables, (a) each
----------------
Receivable is a valid and bona fide existing obligation created by or arising
out of the sale and delivery or other disposition of Borrower's Inventory or the
rendition by Borrower of services to Borrower's customers in the ordinary course
of business, (b) the Receivables are owned solely by Borrower and Borrower has
all necessary right, power and authority to grant to Lender a valid and
enforceable security interest therein, (c) Lender's security interest in such
Receivables constitutes a first and prior lien upon and security interest in
such Receivables, and, except for the Permitted Encumbrances, no other person or
entity has any right, title, interest, security interest, claim or lien with
respect thereto; (d) each Receivable constituting an Eligible Receivable will at
all times be unconditionally owed to Borrower and enforceable against the
obligor(s) with respect thereto without dispute of any kind, and (e) each
Receivable constituting an Eligible Receivable is an "account" as defined in the
Uniform Commercial Code and is not evidenced by any instrument or document
(except as specifically disclosed to Lender and accepted by Lender as an
Eligible Receivable) that would in any way change or alter its character as an
account.
4.16 Effect of Request for Advance. Each request by Borrower for an
-----------------------------
advance of proceeds of the Loan shall constitute an affirmation by Borrower and
Corporate Guarantor that the representations and warranties of this Article IV
----------
remain true and correct on and as of the date of such request.
11
<PAGE>
ARTICLE V
COVENANTS AND AGREEMENTS
------------------------
Borrower and Corporate Guarantor covenant and agree that during the term of
this Agreement:
5.1 Payment of Secured Obligations. Borrower shall pay the indebtednesses
------------------------------
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other Secured Obligations.
5.2 Sales of and Encumbrances on Collateral. Except for the Permitted
---------------------------------------
Encumbrances, Borrower will not sell, exchange, lease, negotiate, pledge, assign
or grant any security interest in or otherwise dispose of the collateral
described in the Security Instruments to anyone other than Lender, nor permit
any other lien of any kind to attach thereto, nor permit same to be attached to
or commingled with other goods or property, without Lender's prior written
consent; provided, however, that prior to the occurrence of an Event of Default
hereunder, Borrower shall have the right to process and sell its Inventory in
the ordinary course of business as herein provided.
5.3 Further Assurances. Borrower will take all actions requested by
------------------
Lender to create and maintain in Lender's favor valid liens upon, security
titles to and/or perfected security interests in any collateral described in the
Security Instruments and all other collateral for the Secured Obligations now or
hereafter held by or for Lender. Without limiting the foregoing, Borrower
agrees to execute such further instruments (including financing statements and
continuation statements) as may be required or permitted by any law relating to
notices of, or affidavits in connection with, the perfection of Lender's
security interests or liens, to cooperate with Lender in the filing or recording
and renewal thereof, and, upon Lender's request, to immediately place notations
upon its books of account to disclose Lender's security interest in all
Receivables granted in this Agreement.
5.4 Financial Statements and Reports. Borrower and Corporate Guarantor
--------------------------------
shall furnish to Lender such financial data as Lender may reasonably request.
Without limiting the foregoing, Borrower and Corporate Guarantor shall furnish
to Lender (or cause to be furnished to Lender) the following:
(a) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of Borrower, a balance sheet
of Borrower as of the close of such fiscal year, a statement of earnings
and retained earnings of Borrower as of the close of such fiscal year, and
a statement of cash flows for Borrower for such fiscal year, all in
reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied, audited in accordance with
generally accepted auditing standards by independent certified public
accountants satisfactory to Lender, and accompanied by the unqualified
favorable opinion of such accountants and a certificate of
12
<PAGE>
the chief executive or chief financial officer of Borrower, stating that,
to the best of the knowledge of such officer, Borrower has kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement
and the other Loan Documents during such fiscal year and that no Event of
Default hereunder has occurred and is continuing (or if an Event of Default
has occurred and is continuing, specifying the nature of same, the period
of existence of same and the action Borrower proposes to take in connection
therewith);
(b) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of Corporate Guarantor, a
balance sheet of Corporate Guarantor as of the close of such fiscal year, a
statement of earnings and retained earnings of Corporate Guarantor as of
the close of such fiscal year, and a statement of cash flows for Corporate
Guarantor for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently
applied, audited in accordance with generally accepted auditing standards
by independent certified public accountants satisfactory to Lender, and
accompanied by the unqualified favorable opinion of such accountants and a
certificate of the chief executive or chief financial officer of Corporate
Guarantor, stating that, to the best of the knowledge of such officer,
Corporate Guarantor has kept, observed, performed and fulfilled each
covenant, term and condition of this Agreement and the other Loan Documents
during such fiscal year and that no Event of Default hereunder has occurred
and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same
and the action Corporate Guarantor proposes to take in connection
therewith);
(c) As soon as practicable, and in any event within thirty (30) days
prior to the end of each fiscal year, pro forma financial projections for
each month of the following fiscal year, in form satisfactory to Lender
(including pro forma balance sheets, income statements and statements of
cash flow for each month);
(d) within thirty (30) days of the end of each calendar month, a
balance sheet of Borrower as of the close of such month, a statement of
earnings and retained earnings of Borrower as of the close of such month
and a statement of cash flows for such month, all in reasonable detail, and
prepared substantially in accordance with generally accepted accounting
principles consistently applied, certified by the chief executive or chief
financial officer of Borrower as being true and correct;
(e) within thirty (30) days of the end of each calendar month, a
balance sheet of Corporate Guarantor as of the close of such month, a
statement of earnings and retained earnings of Corporate Guarantor as of
the close of such month and a statement of cash flows for such month, all
in reasonable detail, and prepared substantially in accordance with
generally accepted accounting principles consistently applied, certified by
the chief executive or chief financial officer of Corporate Guarantor as
being true and correct;
13
<PAGE>
(f) within fifteen (15) days of the end of each calendar month,
accounts receivable and accounts payable listings for Borrower, with
agings, and a certification of inventory, all as of the close of such month
and all in form satisfactory to Lender;
(g) on a daily basis, a daily report, an assignment of invoices and a
report of collections and adjustments for Borrower, duly completed, in form
satisfactory to Lender, together with, at Lender's request, copies of
Borrower's customers' invoices or the equivalent, together with original
shipping or delivery receipts for all merchandise sold, and/or the original
of all contracts, mortgages and other documents executed by the customers
and/or all notes, bills, acceptances or other evidences of their
indebtedness, duly endorsed in blank by Borrower, together with any other
information or documents Lender from time to time may request Borrower to
submit, but Lender's failure to request any or all of the foregoing and/or
Borrower's failure to deliver same shall not affect Lender's security
interest in or rights to the Receivables;
(h) promptly upon receipt thereof, copies of all accountants' reports
and accompanying financial reports submitted to Borrower or Corporate
Guarantor by independent accountants in connection with each annual
examination of Borrower or Corporate Guarantor; and
(i) from time to time, personal financial statements of each
Individual Guarantor, in form satisfactory to Lender, such that at all
times Lender shall have personal financial statements of each Individual
Guarantor on file that are not more than one (1) year old.
5.5 Maintenance of Books and Records; Inspection. Borrower and Corporate
--------------------------------------------
Guarantor shall maintain their books, accounts and records in accordance with
generally accepted accounting principles consistently applied, and permit
Lender, their officers and employees and any professionals designated by Lender
in writing, at any time to visit and inspect any of their properties (including
but not limited to the collateral security described in the Security
Instruments), corporate books and financial records, and to discuss their
accounts, affairs and finances with any employee, officer, director or
shareholder of Borrower or Corporate Guarantor, and with any Individual
Guarantor.
5.6 Insurance. Without limiting any of the requirements of any of the
---------
other Loan Documents, Borrower shall maintain, in amounts satisfactory to Lender
(a) public liability insurance, (b) worker's compensation insurance (or maintain
a legally sufficient amount of self insurance against worker's compensation
liabilities, with adequate reserves, under a plan approved by Lender), (c) fire
and "all risk" casualty insurance on its properties (including but not limited
to the collateral security now or hereafter securing payment and performance of
the Secured Obligations), against such hazards and in at least such amounts as
are customary in the type of business in which Borrower is engaged, and (d) rent
or business interruption insurance against loss of income arising out of damage
or destruction by such hazards as presently are included in so called "all risk
coverage". At the request of Lender, Borrower will deliver forthwith a
14
<PAGE>
certificate, executed by a duly authorized representative of the insurer(s),
specifying the details of such insurance in effect.
All policies of insurance shall provide that at least thirty (30) days'
prior written notice of cancellation or modification of the policy shall be
given to Lender by the insurer, and all policies of casualty insurance covering
any tangible security for the Secured Obligations shall be payable to Borrower
and Lender as their respective interests may appear. Borrower agrees that there
shall be no recourse against Lender for the payment of premiums, commissions,
assessments or advances in respect of any such policy, and at Lender's request
shall provide Lender with the agreement of the insurer(s) to this effect.
At the request of Lender, all policies of casualty insurance covering any
tangible security for the Secured Obligations shall be delivered to and held by
Lender. Borrower shall act expeditiously in the adjustment and settlement of
claims under such policies in order to preserve the greatest possible value
reasonably obtainable in respect of such claims. Lender may, at its option, act
as attorney in fact for Borrower in adjusting and settling claims under such
insurance and endorsing any drafts with respect thereto, and this power, being
coupled with an interest, shall be irrevocable prior to payment in full of the
indebtednesses evidenced by the Note and performance of all of the obligations
of Borrower to Lender in connection therewith.
5.7 Taxes and Assessments; Tax Indemnity. Borrower and Corporate
------------------------------------
Guarantor shall (a) file all tax returns and appropriate schedules thereto that
are required to be filed under applicable law, prior to the date of delinquency,
(b) pay and discharge all taxes, assessments and governmental charges or levies
imposed upon Borrower, Corporate Guarantor, either of their income and profits
or upon any properties belonging to either of them, prior to the date on which
penalties attach thereto, and (c) pay all taxes, assessments and governmental
charges or levies that, if unpaid, might become a lien or charge upon any of
their properties; provided, however, that Borrower and Corporate Guarantor in
good faith may contest any such tax, assessment, governmental charge or levy
described in the foregoing clauses (b) and (c) so long as appropriate reserves
are maintained with respect thereto. If any tax is or may be imposed by any
governmental entity in respect of sales of Borrower's Inventory or the
merchandise that is the subject of such sales, or as a result of any other
transaction of Borrower, which tax Lender is or may be required to withhold or
pay, Borrower agrees to indemnify and hold harmless Lender in connection with
such taxes (including penalties and interest), and Borrower shall immediately
reimburse Lender for any such amounts paid by Lender, and such amounts shall be
added to the Secured Obligations pursuant to the terms hereof.
5.8 Corporate Existence. Borrower and Corporate Guarantor shall maintain
-------------------
their corporate existence and good standing in the state of their incorporation,
and their qualification and good standing as foreign corporations in each
jurisdiction in which such qualification is necessary pursuant to applicable
law.
5.9 Compliance with Law and Other Agreements. Borrower and Corporate
----------------------------------------
Guarantor shall maintain their business operations and property owned or used in
connection therewith in
15
<PAGE>
compliance with (a) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (b) all agreements, licenses, franchises, indentures and
mortgages to which either Borrower or Corporate Guarantor are a party or by
which either Borrower or Corporate Guarantor or any of their properties is
bound. Without limiting the foregoing, Borrower and Corporate Guarantor shall
pay all of their indebtedness promptly in accordance with the terms thereof.
5.10 Notice of Default. Borrower and Corporate Guarantor shall give
-----------------
written notice to Lender of the occurrence of any default, event of default or
Event of Default under this Agreement or any other Loan Document promptly upon
the occurrence thereof.
5.11 Notice of Litigation. Borrower and Corporate Guarantor shall give
--------------------
notice, in writing, to Lender of (a) any actions, suits or proceedings
instituted by any persons against Borrower or any Guarantor, or affecting any of
the assets of Borrower or any Guarantor, and (b) any dispute, not resolved
within sixty (60) days of the commencement thereof, between Borrower or
Corporate Guarantor on the one hand and any governmental or regulatory body on
the other hand, which might interfere with the normal operations of Borrower or
Corporate Guarantor.
5.12 Environmental Matters.
---------------------
(a) Borrower will cause the Property to remain free of all Hazardous
Wastes, and to remain free of all Hazardous Materials other than those
maintained therein or thereon in full compliance with Environmental Laws.
Borrower will not cause or permit the Property to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer,
produce or process Hazardous Materials except in full compliance with
Environmental Laws.
(b) Borrower will notify Lender immediately if it receives any notice
or obtains knowledge of any noncompliance with or violation of any
Environmental Laws with respect to the Property or the Business.
(c) In the event that Hazardous Materials unrelated to the Business,
or Hazardous Wastes, are discovered on or are brought onto the Property,
Borrower will cause such Hazardous Materials or Hazardous Wastes to be
removed and disposed of promptly and in full compliance with Environmental
Laws. Borrower will provide Lender prior written notice of such removal
and disposal actions.
(d) Borrower will comply with all Environmental Laws in all
jurisdictions in which Borrower operates, now or in the future, and will
comply with all Environmental Laws that in the future become applicable to
the Property or the Business.
5.13 Mergers, Consolidations, Acquisitions and Sales. Without the prior
-----------------------------------------------
express written consent of Lender and except for the Permitted Encumbrances,
neither Borrower nor Corporate
16
<PAGE>
Guarantor shall (a) be a party to any merger, consolidation or corporate
reorganization, (b) purchase or otherwise acquire all or substantially all of
the assets or stock of, or any partnership or joint venture interest in, any
other person, firm or entity, (c) sell, transfer, convey, grant a security
interest in or lease all or any substantial part of its assets, nor (d) create
any subsidiaries nor convey any of its assets to any subsidiary.
5.14 Management, Ownership. Neither Borrower nor Corporate Guarantor shall
---------------------
permit any significant change in its ownership, executive staff or management
without the prior written consent of Lender. The ownership, executive staff and
management of Borrower and Corporate Guarantor are material factors in Lender's
willingness to institute and maintain a lending relationship with Borrower.
5.15 Dividends, Etc. Neither Borrower nor Corporate Guarantor shall
--------------
declare or pay any dividend of any kind, in cash or in property, on any class of
the capital stock of Borrower or Corporate Guarantor, nor purchase, redeem,
retire or otherwise acquire for value any shares of such stock, nor make any
distribution of any kind in respect thereof, nor make any return of capital to
shareholders, nor make any payments in respect of any pension, profit sharing,
retirement, stock option, stock bonus, incentive compensation or similar plan
(except as required or permitted hereunder), without the prior written consent
of Lender; provided, however, so long as no Event of Default exists hereunder,
nor any event which with the giving of notice, passage of time or both would
constitute an Event of Default hereunder, Borrower may declare and pay cash
dividends to Corporate Guarantor in an amount necessary to enable Corporate
Guarantor to make permitted payments under the Sirrom Debt and that portion of
the Seller Debt with respect to which Corporate Guarantor is the primary
obligor.
5.16 Guaranties; Loans. Neither Borrower nor Corporate Guarantor shall
-----------------
guarantee or be liable in any manner, whether directly or indirectly, or become
contingently liable after the date of this Agreement in connection with the
obligations or indebtedness of any person or persons, except for the guaranty by
Borrower of the Sirrom Debt and except for the indorsement of negotiable
instruments payable to Borrower or Corporate Guarantor for deposit or collection
in the ordinary course of business. Neither Borrower nor Corporate Guarantor
shall make any loan, advance or extension of credit to any person other than in
the normal course of its business.
5.17 Debt. Neither Borrower nor Corporate Guarantor shall create, incur,
----
assume or suffer to exist indebtedness of any description whatsoever in an
aggregate amount in excess of $500,000 (excluding the indebtedness evidenced by
the Note, the GE Capital Debt, the Sirrom Debt, the Seller Debt, trade accounts
payable and accrued expenses incurred in the ordinary course of business and the
indorsement of negotiable instruments payable to Borrower or Corporate Guarantor
for deposit or collection in the ordinary course of business).
5.18 Conduct of Business. Borrower and Corporate Guarantor will continue
-------------------
to engage, in an efficient and economical manner, in a business of the same
general type as conducted by them on the date of this Agreement.
17
<PAGE>
5.19 Maintenance of Collateral. Borrower will maintain all tangible
-------------------------
personal property constituting any part of the collateral described in the
Security Instruments in good condition and repair and will pay all costs and
expenses incurred in the maintenance of same, and will not permit any act or
occurrence that may impair the value thereof. Prior to the occurrence of an
Event of Default, Borrower shall be entitled to possession of such tangible
collateral and to use same in any lawful manner permitted hereunder, provided
that such use does not cause excessive wear and tear to such collateral, nor
cause it to decline in value at an excessive rate, nor violate the terms of any
policy of insurance thereon.
5.20 Sale of Inventory. Borrower will not sell, lease, exchange or
-----------------
otherwise dispose of any of that portion of the collateral that consists of
Inventory, nor remove the same from its place(s) of business as described
herein, without the prior written consent of Lender, except in the ordinary
course of business for cash or on open account or on terms of payment ordinarily
extended to its customers. Upon the sale, exchange or other disposition of said
Inventory, the security interest and lien created and provided for herein,
without break in continuity and without further formality or act, shall continue
in and attach to any proceeds thereof, including but not limited to accounts,
chattel paper, contract rights, shipping documents, documents of title and cash
or non-cash proceeds, and in the event of any unauthorized sale, shall also
continue in said Inventory itself. All chattel paper shall be delivered to
Lender promptly upon receipt.
5.21 Special Agreements of Borrower With Respect to Receivables and
--------------------------------------------------------------
Inventory.
- ---------
(a) By the execution of this Agreement, Lender shall not be obligated
to do or perform any of the acts or things to be done or performed by
Borrower pursuant to any contracts in which Lender has a security interest,
but Lender may, at its election, perform some or all of the obligations
provided in said contracts to be performed by Borrower, and if Lender
incurs any liability or expenses by reason thereof, same shall be payable
by Borrower upon demand and same shall also be secured by this Agreement
and the other Loan Documents. Lender shall be subrogated to all guaranties
and security now or hereafter in Borrower's possession or favor.
(b) If requested by Lender, Borrower shall immediately notify all
account debtors to direct payments to Lender or to a lockbox in accordance
with a Lockbox Service Agreement to be entered into between Borrower and
Lender at Lender's request. Borrower will forthwith on receipt of all
checks, drafts, cash and other remittances in payment of inventory sold, or
in payment on account of Borrower's Receivables, deposit the same in a
special bank account maintained with Lender over which Lender alone has
power of withdrawal. Said proceeds shall be deposited in precisely the
form received, except for the indorsement of Borrower where necessary to
permit collection of items, which indorsement Borrower agrees to make, and
which Lender is also hereby authorized to make on Borrower's behalf.
Pending such deposit, Borrower agrees that it will not commingle any such
checks, drafts, cash or other remittances with any of Borrower's other
funds or property, but will hold them separate and apart therefrom and in
trust for Lender until deposit thereof is made in the special account. The
funds in said account and
18
<PAGE>
any funds collected by Lender under a Lockbox Service Agreement shall be
held by Lender as additional security for the Secured Obligations. Lender
may on a daily basis apply the whole or any part of the collected funds on
deposit in the special account and from the lockbox against the Secured
Obligations, and the amount, order and method of such application shall be
in the discretion of Lender; provided, however, that so long as no Event of
Default (or event that with the giving of notice or the passage of time or
both would constitute an Event of Default) has occurred and is existing,
said collected funds will be applied first to the outstanding principal
balance of, and accrued and unpaid interest on, the Loan, in such order of
priority as Lender shall determine. Any portion of said funds on deposit in
the special account and from the lockbox that Lender elects not to so apply
may be paid over by Lender to Borrower.
(c) Without limiting the provisions of subsection 5.21(b) hereof,
------------------
Borrower acknowledges and agrees that, upon the occurrence of an Event of
Default hereunder, Lender shall have the right to notify the account
debtors obligated on any or all of Borrower's Receivables to make payment
thereof direct to Lender, and to take control of all proceeds of any such
Receivables, and charge the collection costs and expenses to Borrower.
Until Lender gives Borrower other instructions, Borrower shall continue to
make collections of all Receivables for Lender. All payments on account of
Receivables, or as proceeds of any collateral, whether such payments are
made by check, draft, cash, money order, wire transfer, or otherwise, shall
be the specific property of Lender. Borrower shall receive such payments as
trustee for Lender and shall immediately deliver them to Lender in their
original form as received. After allowing the Collection Days, Lender will
credit all such payments to the Loan (other than items which are returned
to Lender unpaid); however, increases in loan availability by virtue of the
deposit of such items will be effective immediately upon deposit.
(d) Lender shall be privileged to enjoy all the rights and remedies of
Borrower as to the Receivables and shall be and become subrogated to all
guaranties and securities possessed by Borrower or due to come into
Borrower's hands, but Lender shall not be liable in any manner for
exercising or refusing to exercise any rights thereby bestowed.
(e) Borrower shall notify Lender promptly of all returns and
recoveries of merchandise and of all disputes and claims, and Borrower
shall settle or adjust disputes and claims directly with customers for
amounts and upon terms it considers advisable and dispose of merchandise
returns as it sees fit, unless Lender directs Borrower to make such
settlements, adjustments and disposals subject to Lender's approval. In
all cases Lender will credit the Loan with only the net amounts received by
Borrower in payment of Receivables.
(f) Borrower hereby appoints the officers of Lender and/or any other
person whom Lender may designate as Borrower's attorney(s)-in-fact with
full power to endorse Borrower's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come in
Lender's possession; to sign Borrower's name on
19
<PAGE>
any invoice or bill of lading relating to any Receivable, on drafts against
customers, on schedules of assignments of Receivables, on notices of
assignment, on financing statements, applications for noting of liens on
certificates of title and other public records or documents of any kind as
necessary or desirable to insure perfection or enforceability of Lender's
security interests in or liens on property of Borrower granted hereunder or
otherwise, on verification of accounts and on notices to customers; to
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender; to receive, open and
dispose of all mail addressed to Borrower; to send requests for
verifications of accounts to customers; and to do all other things Lender
deems necessary to carry out this Agreement. Borrower hereby ratifies and
approves all acts of the attorney(s) and neither Lender nor the attorney(s)
for Lender will be liable for any acts of commission or omission, nor for
any error of judgment or mistake of fact or law. This power, being coupled
with an interest, is irrevocable so long as any money remains owing to
Lender from Borrower.
(g) Borrower shall pay to Lender the Service Fee in order to
compensate Lender for services rendered and to be rendered and the costs
and expenses incurred and to be incurred by Lender's officers and employees
in its routine inspection and verification of the collateral for the Loan
and the collection of Receivables. If for any reason the amount of the
Service Fee should exceed the fair and reasonable cost of such services and
expenses, an appropriate adjustment shall be made and the excess portion of
the Service Fee shall be refunded to Borrower.
(h) Lender will be entitled to hold all sums at any time standing to
Borrower's credit on Lender's books and all of Borrower's property at any
time in Lender's possession, or upon or in which Lender at any time has a
lien or security interest, as security for all of Borrower's obligations at
any time owing to Lender, its parent corporation, subsidiary, co-subsidiary
or affiliate, whether such obligations are direct or indirect, absolute or
contingent, under this Agreement or otherwise. Such obligations shall
include, without limitation, all loans, advances, debts, liabilities,
obligations for purchases made by Borrower from other clients factored or
financed by Lender or from any such parent, subsidiary, co-subsidiary or
affiliate, whether such obligations are absolute or contingent, or under
this Agreement or otherwise, no matter how or when arising and whether due
or to become due, and further including all interest, fees, charges,
expenses and attorney's fees chargeable to Borrower's loan account or
incurred in connection with Borrower's loan account whether provided for
herein or in any other agreement between Borrower and Lender, and Lender
shall have the right to charge to Borrower's loan account the amounts of
all such obligations and pay over such amounts to such parent, subsidiary,
co-subsidiary or affiliate.
(i) Lender shall periodically render to Borrower a statement of
Borrower's loan account which shall be deemed correct and accepted by and
binding upon Borrower unless Lender receives a written statement of
Borrower's exceptions thereto within fifteen
20
<PAGE>
(15) days of the mailing thereof. The monthly statements and books of
account of Lender shall constitute prima facie evidence of the balance in
Borrower's loan account.
5.22 Places of Business; Mobile Goods. Neither Borrower nor Corporate
--------------------------------
Guarantor will change the location of its chief place of business, chief
executive office or any place of business disclosed to Lender pursuant to
Section 4.5 hereof, nor will Borrower move any of the tangible personal property
- -----------
constituting a part of the collateral for the Secured Obligations to any other
location(s) (except during temporary periods in the normal and customary use
thereof), nor will Borrower change the location at which it maintains its
records concerning the intangible collateral for the Secured Obligations,
without thirty (30) days' prior written notice to Lender in each instance. If
any of the tangible collateral for the Secured Obligations constitutes goods of
a type normally used in more than one state (whether or not actually so used),
Borrower will contemporaneously with the execution hereof furnish to Lender a
list of all states in which such goods are or will be used, and hereafter will
notify Lender in writing of any other state(s) in which such goods are or will
be so used.
5.23 ERISA Plan. If Borrower has in effect, or hereafter institutes (with
----------
Lender's consent, as hereinafter provided), a pension plan that is subject to
the requirements of Title IV of the Employee Retirement Income Security Act of
1974, Pub. L. No. 93 406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A. (S) 1001
et seq. (1975), as amended from time to time ("ERISA"), then the following
- ------
warranty and covenants shall be applicable during such period as any such plan
(the "Plan") shall be in effect: (a) Borrower hereby warrants that no fact that
might constitute grounds for the involuntary termination of the Plan, or for the
appointment by the appropriate United States District Court of a trustee to
administer the Plan, exists at the time of execution of this Agreement, (b)
Borrower hereby covenants that throughout the existence of the Plan, Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress termination of the Plan, (c)
Borrower hereby covenants that the Plan's annual financial and actuarial
statements and the Plan's annual Form 5500 information return will be filed with
Lender within thirty (30) days of the preparation thereof, and (d) Borrower
covenants that it will send to Lender a copy of any notice of a reportable event
(as defined in ERISA) required by ERISA to be filed with the Labor Department or
the Pension Benefit Guaranty Corporation, at the time that such notice is so
filed.
No Plan shall be instituted by Borrower unless Lender shall have given its
written consent thereto.
ARTICLE VI
FINANCIAL COVENANTS
-------------------
6.1 Fixed Charge Coverage Ratio. Borrower shall maintain a ratio of
---------------------------
earnings before interest, taxes, depreciation and amortization minus non-
financed capital expenditures to current maturities of long-term debt plus
interest expense plus dividends to Corporate Guarantor to pay
21
<PAGE>
interest on Sirrom Debt and Seller Debt of not less than 1.04 to 1.0 as of June
30, 1998, and as of each September 30, December 31, March 31, and June 30
thereafter (in each case calculated for the then-previous 12-month period), all
determined in accordance with generally accepted accounting principles
consistently applied.
6.2 Minimum EBITDA. Borrower shall maintain minimum earnings before
--------------
interest, taxes, depreciation and amortization of not less than the following
amounts as of the following dates (calculated on a cumulative basis beginning
June 30, 1997), all determined in accordance with generally accepted accounting
principles consistently applied:
<TABLE>
<CAPTION>
EBITDA Date
------ ----
<S> <C>
$3,120,000 December 31, 1997
$4,679,000 March 31, 1998
$6,238,000 June 30, 1998
</TABLE>
6.3 Capital Expenditures. Borrower's capital expenditures shall not
--------------------
exceed $250,000 for the 12-month period ending June 30, 1998; and $750,000 for
the 12-month period ending June 30, 1999, calculated in accordance with
generally accepted accounting principles consistently applied.
6.4 Working Capital. Borrower shall maintain minimum working capital of
---------------
$3,500,000 as of June 30, 1998 and at all times thereafter, calculated in
accordance with generally accepted accounting principles consistently applied.
6.5 Debt to Tangible Net Worth Ratio. Borrower shall maintain a ratio of
--------------------------------
total liabilities to tangible net worth of not more than 3.5 to 1.0 as of June
30, 1998 and at all times thereafter. For purposes of this covenant, "tangible
net worth" shall refer to the excess of Borrower's total assets above the sum of
its intangible assets plus total liabilities (exclusive of any debt subordinated
to indebtedness of Borrower to Lender), all determined in accordance with
generally accepted accounting principles consistently applied.
6.6 Subordinated Debt. The Sirrom Debt and the Seller Debt shall at all
------------------
times be subordinate to the indebtedness of Borrower and Corporate Guarantor to
Lender pursuant to subordination agreement(s) in form and substance satisfactory
to Lender in all respects.
22
<PAGE>
ARTICLE VII
DEFAULT AND REMEDIES
--------------------
7.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default hereunder:
(a) Failure to make payment of interest on the indebtedness evidenced
by the Note within ten (10) days of when due;
(b) Failure to make payment of the principal of the indebtedness
evidenced by the Note in accordance with the terms of the Note;
(c) Any misrepresentation by Borrower or any Guarantor as to any
material matter hereunder or under any of the other Loan Documents, or
delivery by Borrower or any Guarantor of any schedule, statement,
resolution, report, certificate, notice or writing to Lender that is untrue
in any material respect on the date as of which the facts set forth therein
are stated or certified;
(d) Failure of Borrower or Corporate Guarantor to perform any of their
obligations under Sections 5.7, 5.9, 5.12 or 5.19 of this Agreement within
------------ --- ---- ----
the earlier of (i) fifteen (15) days of written notice from Lender to
Borrower or Corporate Guarantor, or (ii) fifteen (15) days after the date
Borrower or Corporate Guarantor becomes aware of such failure to perform;
(e) Failure of Borrower or any Guarantor to perform any other of its
obligations under this Agreement, the Note, any of the Security Instruments
or any of the other Loan Documents;
(f) Borrower or any Guarantor (i) shall generally not pay or shall be
unable to pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any court
or tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets; or (iii) shall commence any proceeding
or case under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or (iv) shall have had any such
petition or application filed or any such proceeding or case commenced
against it in which an order for relief is entered or an adjudication or
appointment is made; or (v) shall indicate, by any act or omission, its
consent to, approval of or acquiescence in any such petition, application,
case, proceeding or order for relief or the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets; or (vi)
shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of thirty (30) days or more;
23
<PAGE>
(g) Borrower or any Guarantor shall die or be liquidated, dissolved,
partitioned or terminated, or the charter or certificate of authority
thereof shall expire or be revoked;
(h) A default or event of default shall occur under any of the other
Loan Documents;
(i) Borrower or any Guarantor shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in connection
with any other indebtedness of Borrower or any Guarantor now or hereafter
owed to Lender;
(j) Borrower or Corporate Guarantor shall default in the timely
payment or performance of any other indebtedness now or hereafter owed by
Borrower or Corporate Guarantor (including but not limited to the GE
Capital Debt, the Sirrom Debt or the Seller Debt);
(k) Lender shall reasonably suspect the occurrence of one or more of
the aforesaid events of default and Borrower or Corporate Guarantor , upon
the written request of Lender, shall fail to provide evidence reasonably
satisfactory to Lender that such event or events of default have not in
fact occurred; or
(l) Lender reasonably and in good faith shall deem itself insecure.
7.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event
----------------------------------
of Default described in subsection 7.1(f) hereof as it relates to Borrower, the
-----------------
indebtednesses evidenced by the Note as well as any and all other indebtedness
of Borrower to Lender shall be immediately due and payable in full; and upon the
occurrence of any other Event of Default described above (including but not
limited to subsection 7.1(f) hereof as it relates to any Guarantor), Lender at
-----------------
any time thereafter may at its option accelerate the maturity of the
indebtednesses evidenced by the Note as well as any and all other indebtedness
of Borrower to Lender; all without notice of any kind. Upon the occurrence of
any such Event of Default and the acceleration of the maturity of the
indebtednesses evidenced by the Note:
(a) any obligation of Lender to advance any proceeds under the Loan
shall immediately cease and be of no further force nor effect, and Lender
shall be immediately entitled to exercise any and all rights and remedies
possessed by Lender pursuant to the terms of the Security Instruments and
all of the other Loan Documents;
(b) Lender shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code in accordance with the
Intercreditor Agreement; and
(c) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
24
<PAGE>
7.3 Right of Setoff. Without limitation of the foregoing, upon the
---------------
occurrence and during the continuance of any Event of Default, Lender is hereby
authorized at any time and from time to time, without notice to Borrower or
Corporate Guarantor (any such notice being expressly waived by Borrower and
Corporate Guarantor), to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by Lender or any
of its affiliates, and any other indebtedness at any time owing by Lender or its
affiliates to or for the credit or the account of Borrower or Corporate
Guarantor, against any and all of the Secured Obligations, irrespective of
whether Lender shall have made any demand under this Agreement or the Note or
any other Loan Document and although such obligations may be unmatured. Lender
agrees to notify Borrower or Corporate Guarantor, as applicable, within a
reasonable time after any such setoff and application; provided that the failure
to give such notice shall not affect the validity of such setoff and
application. The rights of Lender under this Section 7.3 are in addition to any
-----------
other rights and remedies (including, without limitation, other rights of
setoff) that Lender may have.
7.4 Remedies Cumulative; No Waiver. No right, power or remedy conferred
------------------------------
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed necessary by Lender.
7.5 Proceeds of Remedies. Any or all proceeds resulting from the exercise
--------------------
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised and in accordance
with the Intercreditor Agreement; if none is specified, or if the remedy is
provided by this Agreement, then as follows:
First, to the costs and expenses, including attorney's fees and
expenses, incurred by Lender in connection with the exercise of its
remedies;
Second, to the expenses of curing the default that has occurred, in
the event that Lender elects, in its sole discretion, to cure the default
that has occurred;
Third, to the payment of the Secured Obligations, including but not
limited to the payment of the principal of and interest on the
indebtednesses evidenced by the Note, in such order of priority as Lender
shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
25
<PAGE>
ARTICLE VII
MISCELLANEOUS
-------------
8.1 Independence of Covenants. All covenants hereunder shall be given
-------------------------
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or otherwise would be within the limitations of, another covenant shall not
avoid the occurrence of an Event of Default if such action is taken or condition
exists.
8.2 Performance By Lender.
---------------------
(a) Lender may file one or more financing statements disclosing
Lender's security interests under this Agreement and the other Loan
Documents without the signature of Borrower appearing thereon, and Borrower
shall pay the costs of, or incidental to, any recording or filing of any
financing statements concerning the collateral security described in the
Security Instruments. Borrower agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or any other Security
Instrument or of a financing statement is sufficient as a financing
statement.
(b) If Borrower or Corporate Guarantor shall default in the payment,
performance or observance of any covenant, term or condition of this
Agreement, Lender may, at its option, pay, perform or observe the same, and
all payments made or costs or expenses incurred by Lender in connection
therewith (including but not limited to attorney's fees and expenses), with
interest thereon at the highest default rate provided in the Note (if none,
then at the maximum rate from time to time allowed by applicable law),
shall be immediately repaid to Lender by Borrower and shall constitute a
part of the Secured Obligations and be secured hereby until fully repaid.
Lender shall determine at its sole discretion the necessity for any such
actions and of the amounts to be paid.
8.3 Costs and Expenses. Borrower agrees to pay all costs and expenses
------------------
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes and attorney's fees and expenses,
promptly upon demand of Lender. Borrower further agrees to pay all premiums for
insurance required to be maintained pursuant to the terms of the Loan Documents
and all of the out-of-pocket costs and expenses incurred by Lender in connection
with the administration, servicing and/or collection of the Loan, including but
not limited to attorney's fees and expenses, promptly upon demand of Lender.
Lender is authorized to retain possession of collateral or proceeds thereof for
a reasonable period of time of not less than ninety (90) days after payment of
all the Secured Obligations and to apply the same to the payment of such costs
and expenses.
8.4 Assignment. The Note, this Agreement and the other Loan Documents may
----------
be endorsed, assigned and/or
26
<PAGE>
transferred in whole or in part by Lender, and any such holder and/or assignee
of the same shall succeed to and be possessed of the rights and powers of Lender
under all of the same to the extent transferred and assigned. Lender may grant
participations in all or any portion of its interest in the indebtednesses
evidenced by the Note. Neither Borrower nor Corporate Guarantor shall assign any
of its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.
8.5 Successors and Assigns Included in Parties. Subject to the provisions
------------------------------------------
of Section 8.4 hereof, whenever in this Agreement one of the parties hereto is
-----------
named or referred to, the heirs, legal representatives, successors, successors-
in-title and assigns of such parties shall be included, and all covenants and
agreements contained in this Agreement by or on behalf of Borrower or Corporate
Guarantor or by or on behalf of Lender shall bind and inure to the benefit of
their respective heirs, legal representatives, successors-in-title and assigns,
whether so expressed or not.
8.6 Third Party Beneficiaries. This Agreement and the other Loan
-------------------------
Documents are intended for the sole and exclusive benefit of the parties hereto
and their respective successors and permitted assigns, and shall not serve to
confer any rights or benefits in favor of any person not a party hereto. No
other person shall have any right to rely on this Agreement or the other Loan
Documents, or to derive any benefit herefrom.
8.7 Disposition of Records. Any documents, schedules, invoices or other
----------------------
papers delivered to Lender by Borrower or Corporate Guarantor, may be destroyed
or otherwise disposed of by Lender six (6) months after they are delivered to or
received by Lender, unless prior to such destruction or disposal Borrower
requests, in writing, the return of said documents, schedules, invoices or other
papers and makes arrangements, at Borrower's expense, for their delivery.
8.8 Time of the Essence. Time is of the essence with respect to each and
-------------------
every covenant, agreement and obligation of Borrower hereunder and under all of
the other Loan Documents.
8.9 Severability. If any provision(s) of this Agreement or the
------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
8.10 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
--------------------------------------------------------------
Anything in this Agreement, the Note, the Security Instruments or any of the
other Loan Documents to the contrary notwithstanding, in no event whatsoever,
whether by reason of advancement of proceeds of the Loan, acceleration of the
maturity of the unpaid balance of said loans or otherwise, shall the interest
and loan charges agreed to be paid to Lender for the use of the money advanced
or to be advanced hereunder exceed the maximum amounts collectible under
applicable laws in effect from time to time. It is understood and agreed by the
parties that, if for any reason whatsoever the interest or loan charges paid or
contracted to be paid by Borrower in respect of the
27
<PAGE>
indebtednesses evidenced by the Note shall exceed the maximum amounts
collectible under applicable laws in effect from time to time, then ipso facto,
---- -----
the obligation to pay such interest and/or loan charges shall be reduced to the
maximum amounts collectible under applicable laws in effect from time to time,
and any amounts collected by Lender that exceed such maximum amounts shall be
applied to the reduction of the principal balance(s) of the indebtednesses
evidenced by the Note and/or refunded to Borrower so that at no time shall the
interest or loan charges paid or payable in respect of the indebtednesses
evidenced by the Note exceed the maximum amounts permitted from time to time by
applicable law.
8.11 Article and Section Headings; Defined Terms. Numbered and titled
-------------------------------------------
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
8.12 Notices. Any and all notices, elections or demands permitted or
-------
required to be made under this Agreement shall be in writing and shall be
delivered personally, telecopied or sent by certified mail or nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
by the party whose address is being changed and of which receipt has been
acknowledged in writing. The date of personal delivery or telecopy or the date
of mailing (or delivery to such courier service), as the case may be, shall be
the date of such notice, election or demand. For the purposes of this
Agreement:
The address of Lender is:
First American National Bank
6000 Poplar Avenue, Suite 300
Memphis, Tennessee 38119
Attention: Robert L. Van Doren
Telecopy Number: 901/762-5648
with copies to:
First American National Bank
6000 Poplar Avenue, Suite 300
Memphis, Tennessee 38119
Attention: Kim Heathcott
Telecopy Number: 901/762-5632
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: Felix R. Dowsley III
Telecopy Number: 615/742-6293
28
<PAGE>
The address of Borrower is:
Premier Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Telecopy Number: 901/744-6012
The address of Corporate Guarantor is:
Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Telecopy Number: 901/744-6012
8.13 Integration. This Agreement and the Loan Documents contain the entire
-----------
agreement between the parties relating to the subject matter hereof and
supersede all oral statements and prior writings with respect thereto.
8.14 Indemnity. Borrower and Corporate Guarantor hereby agree to defend,
---------
indemnify, and hold Lender harmless from and against any and all claims,
damages, judgments, penalties, costs and expenses (including attorney's fees and
expenses and court costs now or hereafter arising from the aforesaid enforcement
of this clause) arising directly or indirectly from the activities of Borrower
or Corporate Guarantor, their predecessors in interests, or third parties with
whom either has a contractual relationship, or arising directly or indirectly
from the violation of any law, whether such claims are asserted by any
governmental agency or any other person. This indemnity shall survive the
termination of this Agreement.
8.15 Jury Trial Waiver. BORROWER, CORPORATE GUARANTOR AND LENDER HEREBY
-----------------
WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTER-CLAIM, WHETHER
IN CONTRACT IN TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED
TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
8.16 Venue. All actions or proceedings in any way, manner or respect
-----
arising out of or from or related to this Agreement shall be litigated in courts
having situs within the City of Nashville, State of Tennessee. Borrower hereby
consents and submits to the jurisdiction of any local, state or federal courts
located within said city and state.
8.17 Miscellaneous. This Agreement shall be construed and enforced under
-------------
the laws of the State of Tennessee. No amendment, modification, termination or
waiver of any provision of any Loan Document to which Borrower or Corporate
Guarantor is a party, nor consent to any
29
<PAGE>
departure by Borrower Corporate Guarantor from compliance with the terms of any
Loan Document to which either is a party, shall be effective unless the same
shall be in writing and signed on behalf of Lender by a duly authorized officer
of Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
------
FIRST AMERICAN NATIONAL BANK
By:/s/ Kimberly Heathcott
----------------------
Title: Vice-President
BORROWER:
--------
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Title: President
CORPORATE GUARANTOR:
-------------------
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------
Title: President
30
<PAGE>
INDEX OF SCHEDULES *
------------------
Schedule 1.0 Liens
Schedule 1.1 Seller Debt
Schedule 4.5 Places of Business
Schedule 4.6 Litigation
* Schedules Omitted
31
<PAGE>
Exhibit 10.49
-------------
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of December
16, 1997, between PREMIER GRAPHICS, INC., a Delaware corporation (the
"Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
--------
for itself and as agent for certain participants (in such capacity, together
with its successors in such capacity, the "Lender").
------
RECITALS
A. Borrower and Lender entered into that certain Term and CAPEX Loan and
Security Agreement dated as of June 19, 1997, as amended by that certain First
Amendment to Term and CAPEX Loan and Security Agreement dated as of September
26, 1997 (as amended, the "Original Agreement").
------------------
B. Borrower and Lender desire to amend, restate and modify (but not
extinguish) the Original Agreement as set forth herein.
C. Capitalized terms used herein shall have the meanings ascribed to them on
Annex A. All Schedules, Annexes, Attachments and Exhibits hereto, or expressly
- -------
identified to this Agreement, are incorporated herein by reference, and taken
together, shall constitute but a single agreement. Unless otherwise expressly
set forth herein, or in a written amendment referring to such Schedules and
Annexes, all Schedules and Annexes referred to herein shall mean the Schedules
as in effect at the Closing Date. As used herein, the plural shall include the
singular, the singular includes the plural, and pronouns in any gender
(masculine, feminine or neuter) all apply to all genders. These Recitals shall
be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF TERM LOANS AND ACQUISITION LINE
1.1 Term Loans.
-----------
(a) Lender agrees to make (i) a term loan ("Term Loan A") to Borrower on
-----------
the Closing Date in the principal amount of $30,000,000.00 and (ii) a term loan
("Term Loan B") to Borrower on the Closing Date in the principal amount of
-----------
$17,800,000.00 (Term Loan A and Term
<PAGE>
Loan B, collectively, the "Term Loan"). The Term Loan shall be secured
---------
by all of the Collateral. Borrower may not reborrow any amount repaid with
respect to the Term Loan.
(b) Term Loan A made by the Lender shall be evidenced by a single
promissory note of Borrower for the Lender substantially in the form of Exhibit
-------
B-1 hereto, dated the date hereof, payable to such Lender in a principal amount
- ---
equal to the sum of the amount of Term Loan A plus the amount of the Acquisition
----
Line Commitment and otherwise duly completed ("Note A"). The Term Loan B shall
------
be evidenced by a single promissory note of Borrower for the Lender
substantially in the form of Exhibit B-2 hereto, dated the date hereof, payable
-----------
to such Lender in a principal amount equal to the sum of the amount of the Term
Loan B plus the amount of the Acquisition Line Commitment and otherwise duly
----
completed ("Note B"). The date, amount and interest rate of the Term Loan made
------
by the Lender and each payment of principal with respect thereto shall be
recorded on the books and records of the Lender which books and records shall
constitute prima facie evidence of the accuracy of the information therein
----- -----
recorded.
(c) The unpaid principal balance of Term Loan A shall be repayable in
twenty (20) consecutive quarterly installments, the first of which shall be due
on January 1, 1998 in the amount of $640,625.00 and shall be followed by
nineteen (19) equal installments in the amount of $937,500.00 each which shall
be due commencing on April 1, 1998, and shall continue to be due on the first
(1st) day of each calendar quarter thereafter, together with a twenty-first
(21st) and final installment of principal on Term Loan A in the amount equal to
the remaining unpaid principal balance of Term Loan A, which shall be due on the
Termination Date. The unpaid principal balance of Term Loan B shall be
repayable in nineteen (19) equal consecutive quarterly installments in the
amount of $25,000.00 each which shall be due commencing on April 1, 1998, and
shall continue to be due on the first (1st) day of each calendar quarter
thereafter, together with a twentieth (20th) and final installment of principal
on Term Loan B in the amount equal to the remaining unpaid principal balance of
Term Loan B, which shall be due on the Termination Date.
(d) Any full or partial prepayment of principal on the Term Loan shall be
subject to the following terms and conditions:
(i) (x) Any voluntary prepayment in whole or in part of the Term Loan
made prior to the fifth anniversary of the Closing Date will obligate Borrower
to pay the appropriate Prepayment Fee and/or Breakage Cost if applicable as
provided in Annex C and (y) a prepayment of all or any part of the Term Loan
-------
which constitutes a LIBOR Loan may be made without penalty or premium by
Borrower only on the last day of the Interest Period applicable thereto and if
any such prepayment is made on a day that is not the last day of the applicable
Interest Period, Borrower shall be obligated to pay to the Lender any additional
amounts due under Section 1.12 hereof; and
------------
(ii) Any partial prepayment of the Term Loan (whether voluntary or
mandatory) shall be applied to installments of principal due thereon (allocated
among Term Loan A and Term Loan B in proportion to the relative principal amount
of the Term Loan outstanding under each, unless such prepayment is financed with
------
the proceeds of an initial public offering of the capital stock of the Borrower,
in which case it shall be allocated first to the Loans
<PAGE>
outstanding under the Note B and, if the Note B is paid in full, then to
the Loans outstanding under the Note A) in their inverse order of maturity.
(e) The Borrower shall use the proceeds of the Term Loan to refinance
existing indebtedness of the Borrower and to refinance the existing indebtedness
and finance the acquisition of all of the stock of Phoenix Communications, Inc.,
King Mailing Services, Inc. and Jones Printing Company, Inc.
1.2 Acquisition Line Advances.
--------------------------
(a) Upon and subject to the terms and conditions hereof, the Lender
agrees to make available, from time to time, until December 15, 2002, for
Borrower's use and upon the request of Borrower therefor to the Lender, advances
(each, an "Acquisition Line Advance") in an aggregate principal amount up to,
------------------------
but not exceeding, the Acquisition Line Commitment of the Lender to finance
Eligible Acquisitions. The principal amount of each Acquisition Line Advance
shall not exceed (i) with respect to the McQuiddy Acquisition, eighty-four
percent (84%) of the Acquisition Consideration, and (ii) with respect to each
other Eligible Acquisition, seventy-five percent (75%) of the Acquisition
Consideration of the relevant Eligible Acquisition (in each case with the
balance of such Acquisition Consideration to be financed through Subordinated
Notes payable to the Sellers of such Eligible Acquisition). Each Acquisition
Line Advance shall be secured by all of the Collateral. The Lender's
Acquisition Line Commitment shall be permanently reduced by the amount of each
Acquisition Line Advance made by it hereunder, and Borrower may not reborrow any
amount repaid with respect to any Acquisition Line Advance.
(b) Borrower shall give the Lender notice of each borrowing as provided
in Section 1.2(c) and on the dates specified for such borrowing the Lender shall
--------------
make available the amount of the Acquisition Line Advance or Advances to be made
by it on such date to the Borrower, in immediately available funds.
(c) [Intentionally Omitted.]
(d) Each Acquisition Line Advance made by the Lender shall be evidenced
by either Note A or Note B, as Lender shall determine in its sole discretion.
The date, amount and interest rate of each Acquisition Line Advance and whether
such Acquisition Line Advance is allocated to Note A or Note B, made by the
Lender and each payment of principal with respect thereto shall be recorded on
the books and records of the Lender which books and records shall constitute
prima facie evidence of the accuracy of the information therein recorded.
- ----- -----
(e) The unpaid principal balance of each Acquisition Line Advance
allocated to Note A shall be repayable in equal consecutive quarterly
installments in an amount equal to one-thirty-second (1/32) of the principal
amount of such Acquisition Line Advance each which shall be due commencing on
the first day of the calendar quarter immediately following the date of such
<PAGE>
Acquisition Line Advance, and shall continue to be due on the first day of each
calendar quarter thereafter together with a final installment of principal on
each such Acquisition Line Advance which shall be due on the Termination Date in
an amount equal to the entire remaining unpaid principal balance of all
outstanding Acquisition Line Advances. The entire unpaid principal balance of
each Acquisition Line Advance allocated to Note B shall be repayable in a single
installment which shall be due on the Termination Date.
(f) Any full or partial prepayment of principal on any Acquisition Line
Advance shall be subject to the following terms and conditions:
(i) (x) Any voluntary prepayment in whole or in part of any
Acquisition Line Advance made prior to the fifth anniversary of the Closing Date
will obligate Borrower to pay the appropriate Prepayment Fee and/or Breakage
Cost if applicable as provided in Annex C and (y) a prepayment of all or any
-------
part of any Acquisition Line Advance which constitutes a LIBOR Loan may be
made only on the last day of the Interest Period applicable thereto and if any
such prepayment is made on a day that is not the last day of the applicable
Interest Period, Borrower shall be obligated to pay to the Lender any additional
amounts due under Section 1.12 hereof; and
------------
(ii) Any partial prepayment of the Acquisition Line Advances (whether
voluntary or mandatory) shall be applied to installments of principal due
thereon (allocated among Note A and Note B in proportion to the relative
principal amounts of Acquisition Line Advances outstanding under each, unless
------
such prepayment is financed with the proceeds of an initial public offering of
the capital stock of the Borrower, in which case it shall be allocated first to
the Loans outstanding under Note B and, if Note B is paid in full, then to the
Loans outstanding under Note A) in their inverse order of maturity.
1.3 Mandatory Prepayments.
----------------------
(a) Borrower shall prepay the Term Loan and/or the Acquisition Line
Advances in amounts equal to seventy-five percent (75%) of Borrower's Excess
Cash Flow with respect to each Fiscal Year of Borrower during the term hereof,
such prepayments to be made within five (5) Business Days following the due date
for delivery by Borrower to Lender of the annual financial statements required
by Section 4.1 hereof and each such prepayment shall be applied to the
-----------
installments of principal due under Note A and Note B (allocated among Note A
and Note B in proportion to the relative principal amounts of Loans outstanding
under each) in the inverse order of their respective maturities until payment
thereof in full.
(b) If Borrower sells or otherwise disposes of any of its assets or
properties (including without limitation any Collateral) in consideration of Net
Proceeds which, in the aggregate, exceed $500,000, Borrower shall prepay the
Loans as and when received by Borrower as a mandatory prepayment of the Loans an
amount equal to the greater of (i) the Net Proceeds received by
<PAGE>
Borrower from such sale or disposition or (ii) the depreciated value of such
assets or properties according to Lender's internal analysis. Each such
prepayment shall be applied to the installments of principal due under Note A
and Note B (allocated among Note A and Note B in proportion to the relative
principal amounts of Loans outstanding under each) in the inverse order of their
respective maturities until payment thereof in full.
1.4 Interest.
---------
(a) Borrower shall pay interest on the Loans to the Lender in arrears on
the first (1st) day of each calendar month, commencing with the calendar month
following the calendar month in which the Closing Date occurs, and continuing to
be due on the first (1st) day of each succeeding calendar month thereafter;
provided, however, that (i) accrued interest on any LIBOR Loan shall be payable
- --------
by Borrower to Lender in arrears on the last day of the Interest Period
applicable thereto and (ii) in all cases accrued interest on the Term Loan and
all of the Acquisition Line Advances shall be payable by Borrower to Lender on
the Termination Date. If any interest on the Term Loan or any of the
Acquisition Line Advances accrues or remains payable after the Termination Date,
such interest shall be payable by Borrower upon demand.
(b) Borrower shall be obligated to pay interest to the Lender on the
outstanding principal balance of each Loan from the date such Loan is made until
such Loan is repaid in full (i) with respect to Note A, at a floating rate (such
rate, a "Floating Rate") equal, to the sum of the Adjusted LIBOR for the
-------------
applicable Interest Period, plus the Applicable Margin therefor (each such Loan
----
bearing interest based upon the Adjusted LIBOR is hereinafter referred to as a
"LIBOR Loan") and (ii) with respect to Note B, at (x) a fixed rate per annum
- -----------
equal to twelve percent (12%), or, (y) at Lender's option which may be exercised
at any time with respect to all or any portion of Note B upon ten (10) day's
prior written notice to Borrower, at a floating rate equal to the sum of the
Base Rate plus the Applicable Margin therefor; provided, however, that (A) no
---- --------
Interest Period may extend beyond the Termination Date, and (B) any prepayment
of a LIBOR Loan may be made by Borrower only on the last day of the Interest
Period applicable thereto and if any such prepayment is made on a day that is
not the last day of the applicable Interest Period, Borrower shall pay to the
Lender any additional amount due under Section 1.12 below. Upon determining the
------------
Adjusted LIBOR for an Interest Period requested by Borrower, the Lender shall
promptly notify Borrower of such determination, and such determination shall, in
the absence of manifest error, be final, conclusive and binding for all purposes
hereunder.
(c) Provided that no Default or Event of Default has occurred and is then
continuing, and subject to the terms and conditions set forth herein, Borrower
may, by a written notice (or by telephonic notice promptly confirmed in writing)
delivered to the Lender no later than forty-five (45) days after the Closing
Date and not later than 10:00 a.m. (Eastern Standard Time) on the third (3rd)
Business Day prior to the last day of the Interest Period then in effect for
Note A (such notice being herein referred to as a "Notice of Fixed Rate
--------------------
Election"), irrevocably direct that interest accrue on all of the unpaid
principal balance of Note A outstanding from time to time until maturity at a
fixed rate
<PAGE>
per annum (such rate is herein referred to as the "Fixed Rate") equal to the sum
----------
of the Index Rate plus the Applicable Margin therefor (the Loans evidenced by
----
Note A, if bearing interest at a Fixed Rate are hereinafter referred to
collectively as a "Fixed Rate Loan"); provided, however, that upon the
--------------- --------
occurrence and during the continuation of any Default or Event of Default, the
Lender may, in its sole discretion suspend Borrower's right to use the aforesaid
Fixed Rate option.
(d) The Lender shall be entitled to rely upon and shall be fully
protected under this Agreement in relying on any Notice of Fixed Rate Election
believed by the Lender to be genuine and to assume that the persons giving the
same on behalf of Borrower were duly authorized unless the responsible
individual acting thereon for the Lender shall have actual notice to the
contrary.
(e) All computations of interest hereunder or under the other Loan
Documents shall be made by the Lender on the basis of a three hundred and sixty
(360) day year, in each case for the actual number of days occurring in the
period for which such interest is payable. Each determination by the Lender of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(f) So long as any Event of Default shall have occurred and be
continuing, the interest rate applicable to the Loans or other Obligations shall
be increased by the Lender, by two percentage points (2%) per annum above the
then highest rate otherwise applicable to the Loans (the "Default Rate").
------------
(g) Notwithstanding anything to the contrary set forth in this Section
-------
1.4, if, at any time until payment in full of all of the Obligations, the rate
- ---
of interest payable hereunder by Borrower exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
-------------------
such event and so long as the Maximum Lawful Rate would be so exceeded, the rate
of interest payable hereunder by Borrower shall be equal to the Maximum Lawful
Rate; provided, however, that if at any time thereafter the rate of interest
--------
payable by Borrower hereunder is less than the Maximum Lawful Rate, Borrower
shall continue to pay interest hereunder at the Maximum Lawful Rate until such
time as the total interest received by the Lender from the making of advances
hereunder to Borrower is equal to the total interest which the Lender would have
received had the interest rate payable hereunder by Borrower been (but for the
operation of this paragraph) the interest rate payable since the Closing Date as
otherwise provided in this Agreement. Thereafter, the interest rate payable by
Borrower hereunder shall be the rate of interest otherwise provided in this
Section 1.4, unless and until the rate of interest again exceeds the Maximum
- -----------
Lawful Rate, in which event this paragraph shall again apply. In no event shall
the total interest received by the Lender pursuant to the terms of this
Agreement or any other Loan Document exceed the amount which the Lender could
lawfully have received had the interest due hereunder been calculated for the
full term hereof or thereof at the Maximum Lawful Rate. All interest paid by,
charged to or collected from Borrower hereunder or under any other Loan
Document shall, to the maximum extent permitted by applicable law, be amortized,
allocated and spread throughout the full term of the Obligation on which it
accrued. In
<PAGE>
the event the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made. In
the event that a court of competent jurisdiction, notwithstanding the provisions
of this Section 1.4(g), shall make a final determination that the
--------------
Lender has received interest hereunder or under any of the Loan Documents from
Borrower in excess of the Maximum Lawful Rate, the Lender shall, to the extent
permitted by applicable law, promptly apply such excess first to any interest
due from Borrower and not yet paid hereunder, then to the outstanding principal
of the Obligations of Borrower, then to fees and any other unpaid Obligations
owed by Borrower and thereafter shall refund any excess to Borrower or as a
court of competent jurisdiction may otherwise order.
1.5 Fees. As compensation for the Lender's costs, skills, services and
----
efforts incurred and expended in making the Loans available to Borrower,
Borrower agrees to pay to the Lender for the account of Lender the fees set
forth in Annex C.
-------
1.6 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 11:00 a.m. (New York time) on the day when due in
lawful money of the United States of America in immediately available funds to
Banker's Trust account number 50202962 ("Banker's Trust Account"). For purposes
----------------------
of computing interest and fees (a) all payments (including cash sweeps)
consisting of cash, wire, or electronic transfers in immediately available funds
shall be deemed received by the Lender upon deposit in the Banker's Trust
Account and notice to the Lender of such deposit and (b) all payments consisting
of checks, drafts, or similar non-cash items shall be deemed received upon
receipt of good funds following deposit in the Banker's Trust Account (together
with notice to the Lender of such deposit). Each payment received by the Lender
under this Agreement or any of the Notes for the account of the Lender shall be
applied by the Lender to the Term Loan, the Acquisition Line Advances or other
Obligation in respect of which such payment is made.
1.7 Application and Allocation of Payments. Borrower irrevocably waives the
--------------------------------------
right to direct the application of any and all payments at any time or times
hereafter received from or on behalf of Borrower, and Borrower irrevocably
agrees that the Lender shall have the continuing exclusive right to apply any
and all such payments against the then due and payable Obligations of Borrower
and in repayment of the Term Loan and the Acquisition Line Advances as Lender
may deem advisable. In the absence of a specific determination by the Lender
with respect thereto, the same shall be applied in the following order: (i) then
due and payable Fees, expenses and other Obligations owing to the Lender; (ii)
then due and payable Fees and expenses of the Lender; (iii) then due and payable
interest payments on Note A; (iv) then due and payable interest payments on the
Note B; (v) Obligations to the Lender other than Fees, expenses and interest and
principal payments;(vi) then due and payable principal payments on Note A; and
(vii) then due and payable principal payments on Note B.
1.8 Accounting. The Lender will provide a monthly accounting of transactions
----------
under the Loans to Borrower. Each and every such accounting shall (absent
manifest error) be deemed final, binding and conclusive upon Borrower in all
respects as to all matters reflected therein, unless
<PAGE>
Borrower, within 30 days after the date any such accounting is rendered, shall
notify the Lender in writing of any objection which Borrower may have to any
such accounting, describing the basis for such objection with specificity. In
that event, only those items (the "Disputed Items") expressly objected to in
--------------
such notice shall be deemed to be disputed by Borrower. Lender's
determination, based upon the facts available, of any Disputed Item shall
(absent manifest error) be final, binding and conclusive on Borrower.
1.9 Indemnity.
---------
(a) BORROWER SHALL INDEMNIFY AND HOLD THE LENDER AND ITS AFFILIATES,
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS (EACH, AN "INDEMNIFIED
-----------
PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL SUITS, ACTIONS, COSTS, FINES,
- ------
DEFICIENCIES, PENALTIES, PROCEEDINGS, CLAIMS, DAMAGES, LOSSES, LIABILITIES AND
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS AND OTHER COSTS
OF INVESTIGATIONS OR DEFENSE, INCLUDING THOSE INCURRED UPON ANY APPEAL) (EACH, A
"CLAIM") WHICH MAY BE INSTITUTED OR ASSERTED AGAINST OR INCURRED BY SUCH
-----
INDEMNIFIED PERSON AS THE RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THEREUNDER, INCLUDING ANY AND ALL
ENVIRONMENTAL LIABILITIES AND COSTS, PROVIDED, THAT BORROWER SHALL NOT BE LIABLE
--------
FOR ANY INDEMNIFICATION TO SUCH INDEMNIFIED PERSON WITH RESPECT TO ANY PORTION
OF ANY SUCH CLAIM WHICH RESULTS SOLELY FROM SUCH INDEMNIFIED PERSON'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A FINAL JUDGMENT OF A COURT OF
COMPETENT JURISDICTION. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO
ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF
SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
<PAGE>
(b) In any suit proceeding or action brought by the Lender relating to
any Account, Chattel Paper, Contract, General Intangible, Instrument, Equipment
or Document for any sum owing thereunder, or to enforce any provision of any
Account, Chattel Paper, Contract, General Intangible, Instrument or Document,
Borrower shall save, indemnify and keep the Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder
arising out of a breach by Borrower of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to, or in
favor of, such obligor or its successors from Borrower, all such obligations of
Borrower shall be and remain enforceable against, and only against, Borrower and
shall not be enforceable against the Lender.
(c) Borrower hereby acknowledges and agrees that the Lender (as of the
date hereof) (i) is not now or never has been in control of any of the Subject
Property or the affairs of any Loan Party, and (ii) does not have the capacity
through the provisions of the Loan Documents to influence conduct with respect
to the ownership, operation or management of any of the Subject Property.
1.10 Access. Borrower shall, and shall cause each of its Subsidiaries to: (i)
------
provide access during normal business hours to the Lender and any of its
officers, employees and agents, as frequently as the Lender determines to be
appropriate, upon reasonable advance notice (unless a Default shall have
occurred and be continuing, in which event no notice shall be required the
Lender shall have access at any and all times), to the properties and facilities
of Borrower or any of its Subsidiaries; (ii) permit the Lender and any of its
officers, employees and agents to inspect, audit and make extracts from all of
Borrower's records, files and books of account; and (iii) permit the Lender, to
conduct audits to inspect, review and evaluate the Collateral, and Borrower
agrees to render to the Lender at Borrower's cost and expense, such clerical and
other assistance as may be reasonably requested with regard thereto. Borrower
shall, and shall cause each of its Subsidiaries to, make available to the Lender
and its respective counsel, as quickly as practicable under the circumstances,
originals or copies of all books, records, board minutes, contracts, insurance
policies, environmental audits, business plans, files, financial statements
(actual and pro forma), filings with federal, state and local regulatory
agencies, and other instruments and documents which the Lender may request.
Borrower shall deliver any document or instrument reasonably necessary for the
Lender, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for Borrower, and shall maintain
duplicate records or supporting documentation on media, including, without
limitation, computer tapes and discs owned by Borrower. Borrower shall instruct
its certified public accountants and its banking and other financial
institutions to make available to the Lender such information and records as the
Lender may reasonably request.
1.11 Taxes.
-----
(a) Any and all payments by or on behalf of Borrower hereunder or under
the Notes, or any other Loan Document, shall be made, in accordance with this
Section 1.11, free and clear of and without deduction for any and all present or
- ------------
future Taxes. If Borrower shall be required by law
<PAGE>
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note or any other Loan Document to the Lender, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
-------
1.11) the Lender receives an amount equal to the sum it would have
- ----
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
-----------
(c) Borrower shall indemnify and pay, within ten days of demand therefor,
the Lender for the full amount of Taxes or Other Taxes (including without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 1.11) paid by the Lender and any liability (including
------------
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
(d) Within 30 days after the date of any such payment of Taxes or Other
Taxes, Borrower shall furnish to the Lender, at its address referred to in
Section 11.10, the original or a certified copy of a receipt evidencing payment
- -------------
thereof.
(e) If the Lender subsequently receives from a taxing authority a refund
of any Tax or Other Tax previously paid by Borrower and for which Borrower has
indemnified Lender pursuant to this Section 1.11, the Lender shall within 30
------------
days after receipt of such refund, and to the extent permitted by applicable
law, pay to Borrower the net amount of any such refund after deducting taxes and
expenses attributable thereto.
1.12 Additional Provisions.
---------------------
(a) If the Lender determines that the making or maintenance by it of any
LIBOR Loan hereunder would violate any applicable law, rule or regulation or the
interpretation or application thereof (whether or not having the force of law),
then the availability of the Floating Rate and/or any particular Interest Period
therefor may be suspended by the Lender for the new Interest Period until such
time as the Lender determines, in its judgment, that market conditions or legal
considerations permit the same to be reinstated.
(b) In order to induce the Lender to fund and maintain its share of any
LIBOR Loan on the terms provided herein, and in consideration of the Lender's
entering into funding arrangements from time to time in contemplation thereof,
Borrower agrees that if any LIBOR Loan is repaid or prepaid in full or in part
on any day other than the last day of the Interest Period therefor (if such
repayment or prepayment is voluntarily made by Borrower), Borrower shall pay to
the Lender, upon
<PAGE>
the request of the Lender, such amount or amounts as shall compensate the Lender
for any loss, cost or expense incurred by the Lender (as determined by the
Lender in its sole judgment) by reason of the liquidation or re-employment of
funds acquired or committed to be acquired by the Lender to fund or maintain its
share of such LIBOR Loan, pursuant to the Lender's customary funding
arrangements. The amount of any such loss or expense shall include the excess,
if any, of (i) the Lender's cost or deemed cost of obtaining funding for the
amount necessary to fund or maintain its share of such LIBOR Loan for the
Interest Period applicable thereto over (ii) the return the Lender will receive
on it re-employment of such funds, each as determined by the Lender in its sole
judgment. Without limiting the generality of the foregoing, the Lender may
compute such loss or expense on the basis of such funds having been borrowed by
the Lender at a rate equal to the interest rate on United States Treasury bills
or notes with a maturity that most closely approximates the end of the relevant
Interest Period as quoted by Telerate News Service (page 5) at the close of
business on the first (1st) day of the Interest Period in respect of such LIBOR
Loan, and on the reinvestment by the Lender of such funds in United States
Treasury bills or notes with a maturity that most closely approximates the end
of the relevant Interest Period as quoted by Telerate News Service (page 5) at
the close of business on the date of repayment or prepayment of such LIBOR Loan
(or as such United States Treasury bill or note rates are quoted by such other
nationally-recognized quote service as may be specified by the Lender to the
Borrower from time to time). Each such request shall be accompanied by a
certificate of the requesting Lender setting forth in reasonable detail the
basis for computing the amount of such loss or expense, and each such
certificate shall, in the absence of manifest error, be conclusive.
(c) The calculation of all amounts payable to the Lender under this
Agreement with respect to any LIBOR Loan shall be made as though the Lender had
actually funded its share of such LIBOR Loan through the purchase of deposits in
the relevant market and in an amount equal to the amount of the LIBOR Loan and
having a maturity comparable to the relevant Interest Period and through the
transfer of such loan from an offshore office of the Lender to a domestic office
of the Lender in the United States of America; provided, however, that the
--------
Lender may fund its share of each of the LIBOR Loans in any manner it sees fit
and the foregoing assumptions shall be used only for calculation of amounts
which may be payable by Borrower to the Lender under this Agreement with respect
thereto.
1.13 Security Interest in the Collateral. (a) To secure the prompt and
-----------------------------------
complete payment, performance and observance of all of the Obligations, and to
induce Lender to enter into this Agreement and to make the Term Loan and the
Acquisition Line Advances available to the Borrower, Borrower hereby grants to
Lender, a security interest in all of Borrower's right, title and interest in,
to and under the following, whether now owned by or owing to, or hereafter
acquired by or arising in favor of Borrower (including, without limitation,
under any trade names, styles or divisions thereof), and whether owned, leased
or consigned by or to Borrower, and regardless of where located (all of which
being hereinafter collectively referred to as the "Collateral"):
----------
(i) all Accounts;
<PAGE>
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all Equipment;
(ix) all Intellectual Property;
(x) all Investment Property;
(xi) all money, cash or any Cash Equivalents of Borrower;
(xii) all other Goods and interests in property of any kind, nature
or description whatsoever, whether tangible or intangible, whether real or
personal, and whether now or hereafter owned or existing, leased, consigned by
or to, or acquired by, Borrower and wherever located; and
(xiii) to the extent not otherwise included, all Proceeds of any of
the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of, each of the foregoing.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Lender as
aforesaid, Borrower hereby grants to Lender, a security interest in all property
of Borrower held by Lender including, without limitation, all property of every
description now or hereafter in the possession or custody of, or in transit to
Lender for any purpose, including safekeeping, collection or pledge, for the
account of Borrower, or as to which Borrower may have any right or power.
1.14. Rights of Lender, Limitations on Obligations of Lender. (a) It is
------------------------------------------------------
expressly agreed by Borrower that, anything herein to the contrary
notwithstanding, Borrower shall remain liable under each of its Contracts and
each of its Licenses to observe and perform all the conditions and obligations
to be observed and performed by it thereunder and Lender shall have no
obligation or liability under any Contract or License by reason of or arising
out of this Agreement or the granting herein of a security interest herein or
the receipt by Lender of any payment relating to any Contract
<PAGE>
or License pursuant hereto, nor shall Lender be required or obligated in any
manner to perform or fulfill any of the obligations of Borrower under or
pursuant to any Contract or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Contract or License, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
(b) Upon repayment of all obligations to First American National Bank and
termination of the Revolving Credit Facility, Lender may after the occurrence
and during the continuation of any Event of Default and without prior notice to
Borrower, notify Account Debtors, parties to the Contracts, and obligors in
respect of Instruments that the Accounts and the right, title and interest of
Borrower in and under such Contracts and Instruments have been assigned to
Lender and that payments shall be made directly to Lender. Upon the request of
Lender, Borrower shall so notify such Account Debtors, parties to Contracts, and
obligors in respect of Instruments. Upon repayment of all obligations to First
American National Bank and termination of the Revolving Credit Facility, Lender
may notify Account Debtors in respect of Chattel Paper that the right, title and
interest of Borrower in and under such Chattel Paper have been assigned to
Lender and that payments shall be made directly to Lender.
(c) Lender shall have the right from time to time to make test
verifications of the Accounts and physical verifications and appraisals of the
Inventory and other Collateral in any manner and through any medium that it
considers advisable, and Borrower agrees to furnish all such assistance and
information as Lender may require in connection therewith. Lender may at any
time in Lender's own name or in the name of Borrower communicate with Account
Debtors, parties to Contracts and obligors in respect of Instruments to verify
with such Persons, to Lender's satisfaction, the existence, amount and terms of
any Accounts, Contracts, Instruments or Chattel Paper. Upon the occurrence and
continuation of any Event of Default, Borrower, at its own expense, shall cause
the certified independent public accountant then engaged by Borrower, to prepare
and deliver to Lender at any time and from time to time promptly upon Lender's
request the following reports: (i) a reconciliation of all Accounts; (ii) an
aging of all Accounts; (iii) trial balances; and (iv) a test verification of
such Accounts as Lender may request. Borrower, at its own expense, shall cause
its certified independent public accountants to deliver to Lender the results of
any physical verification of all or any portion of its Inventory made or
observed by such accountants when and if such verification is conducted.
1.15 Termination of CAPEX Line Commitment. The CAPEX Line Commitment (as
------------------------------------
defined in the Original Agreement) is hereby terminated.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Term Loan and Initial Acquisition Line Advance.
----------------------------------------------------------------
<PAGE>
Notwithstanding any other provision of this Agreement and without affecting in
any manner the rights of the Lender hereunder, Borrower shall have no rights
under this Agreement (but shall have all applicable obligations hereunder), and
the Lender shall not be obligated to advance the Term Loan, make any Acquisition
Line Advance or to take, fulfill, or perform any other action hereunder, until
the following conditions have been fulfilled to the satisfaction of the Lender:
(a) This Agreement or counterparts thereof shall have been duly executed
by, and delivered to, Borrower and the Lender.
(b) The Lender shall have received all the Loan Documents and such other
documents, instruments, certificates, opinions and agreements as the Lender
shall request in connection with the transactions contemplated by this
Agreement, including without limitation all documents, instruments, agreements
and other materials listed in the Schedule of Documents each in form and
substance satisfactory to the Lender.
(c) Evidence satisfactory to the Lender that Borrower has obtained
consents and acknowledgments of all Persons whose consents and acknowledgments
may be required, including, but not limited to, all requisite Governmental
Authorities, to the terms and to the execution and delivery, of this Agreement
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby.
(d) [Intentionally Omitted.]
(e) Evidence satisfactory to the Lender that the insurance policies
provided for in Section 5.5 and Annex E are in full force and effect, together
----------- -------
with appropriate evidence showing a loss payable and/or additional insured
clauses or endorsements, as appropriate, in favor of the Lender and in form and
substance satisfactory to the Lender.
(f) Payment by Borrower to the Lender, as the case may be, of all Fees,
costs, and expenses of closing (including fees and expenses of consultants and
counsel to the Lender presented as of the Closing Date).
(g) No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain damages
in respect of, or which is related to or arises out of this Agreement or any of
the other Loan Documents or the consummation of the transactions contemplated
hereby and thereby and which, in the Lender's sole judgment, would make it
inadvisable to consummate the transactions contemplated by this Agreement or any
of the other Loan Documents.
(h) The Lender, in its sole judgment, shall not have determined that (i)
Borrower shall have made any Restricted Payment; (ii) any material increase in
liabilities, liquidated or contingent,
<PAGE>
of Borrower, or material decrease in the assets of Borrower, shall have occurred
since its last audited financial statements; or (iii) any Material Adverse
Effect shall have occurred since its last certified and audited financial
statements.
(i) There exists no default or event of default under any of the
Subordinated Notes.
(j) The Lender shall be satisfied, in its sole judgment, with the
corporate, capital, tax, legal and management structure of each Loan Party, and
shall be satisfied, in its sole judgment exercised reasonably, with the nature
and status of all contractual obligations, securities, labor, tax, ERISA,
employee benefit, environmental, health and safety matters, in each case,
involving or affecting any Loan Party.
(k) The Funded Debt of the Borrower and Holdings, on a consolidated
basis, (including this Agreement) as of the Closing Date shall not exceed
$72,000,000.
(l) The Lender shall be satisfied, in its sole judgment, that the
Subordinated Notes in favor of the Phoenix Sellers and the Jones Sellers were
issued and the indebtedness evidenced thereby was advanced on the date hereof.
(m) The Lender shall have determined that immediately after giving effect
to any reduction of principal outstanding under the Revolving Credit Facility,
but without giving effect to the Line of Credit Borrowing Limit (as defined in
the Revolving Credit Facility), the available funds under the Revolving Credit
Facility (computed on the basis of all of the Borrower's current debts,
obligations and accounts payable having been paid in due course) shall not be
less than $10,000,000.00.
(n) Lender shall have received the audited opening balance sheet of
Borrower referred to in paragraph (i) of Annex D.
-------
(o) [Intentionally Omitted.]
(p) Lender shall be satisfied that the acquisition by Holdings of all of
the stock each of Phoenix Communications, Inc., King Mailing Services, Inc., and
Jones Printing Company, Inc., and the Merger shall have been consummated on the
date hereof pursuant to documents in form and substance satisfactory to Lender.
2.2 Further Conditions to each Acquisition Line Advance. It shall be a
---------------------------------------------------
further condition to the funding of the initial and each subsequent Acquisition
Line Advance that the following statements shall be true on the date of each
such funding, advance or occurrence, as the case may be:
(a) Each Loan Party's representations and warranties contained herein or
in any of the Loan Documents shall be true and correct on and as of the Closing
Date and the date on which each such Acquisition Line Advance is made, as though
made on or incurred on and as of such date, except
<PAGE>
to the extent that any such representation or warranty expressly relates to an
earlier date and except for changes therein permitted or contemplated by this
Agreement.
(b) No event shall have occurred and be continuing, or would result from
the making of any Acquisition Line Advance which constitutes a Default.
(c) [Intentionally Omitted.]
(d) Lender, in its sole discretion, shall have determined that the
proposed acquisition constitutes an Eligible Acquisition and Lender shall have
received all documents, instruments, certificates and agreements, and evidence
of all such matters, as Lender shall request in connection with the applicable
Eligible Acquisition; and Lender and Lender's counsel shall have conducted all
such due diligence reviews, audits and investigations as they shall deem
necessary or appropriate in connection therewith and Lender shall be satisfied,
in its sole discretion, with all of the foregoing.
The request and acceptance by Borrower of the proceeds of any Acquisition Line
Advance shall be deemed to constitute, as of the date of such request or
acceptance, (i) a representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a confirmation by Borrower of the
-----------
granting and continuance of the Lender's Liens pursuant to the Collateral
Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents and
warrants to the Lender that:
3.1 Corporate Existence; Compliance with Law. Each Loan Party (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business
and is in good standing in each other jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification; (ii) has
the requisite corporate and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted; (iii) has all licenses, permits, consents or approvals
from or by, and has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (iv) is in compliance with its certificate or
articles of incorporation and by-laws; and (v) is in compliance in all material
respects with all applicable provisions of law.
3.2 Executive Offices; Corporate or Other Names. The current locations of
-------------------------------------------
each Loan Party's executive offices and principal place of business is set forth
in Schedule 3.2, and, except as set forth on Schedule 3.2, such location has not
------------ ------------
changed during the preceding twelve months. During the prior five (5) years,
except as set forth on Schedule 3.2, no Loan Party has been known as or used any
------------
corporate, fictitious or trade name other than the names of the Loan Parties set
forth on Schedule 3.2.
------------
<PAGE>
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
-------------------------------------------------------
delivery and performance by each Loan Party of the Loan Documents and all other
instruments and documents to be delivered by such Loan Party hereunder and
thereunder to the extent it is a party thereto and the creation of all Liens
provided for herein and therein: (i) are within such Loan Party's corporate
power; (ii) have been duly authorized by all necessary corporate and shareholder
action; (iii) are not in contravention of any provision of such Loan Party's
certificates or articles of incorporation or by-laws or other organizational
documents; (iv) will not violate any law or regulation, or any order or decree
of any court or governmental instrumentality; (v) will not conflict with or
result in the breach or termination of, constitute a default under or accelerate
any performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any Loan Party is a party or by which any
Loan Party or any of its property is bound; (vi) will not result in the creation
or imposition of any Lien upon any of the property of any Loan Party other than
those in favor of the Lender, all pursuant to the Loan Documents; and (vii) do
not require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(c), all of which will have been
--------------
duly obtained, made or complied with prior to the Closing Date and which are in
full force and effect. At or prior to the Closing Date, each of the Loan
Documents shall have been duly executed and delivered for the benefit of or on
behalf of each Loan Party which is a party thereto and each shall then
constitute a legal, valid and binding obligation of such Loan Party to the
extent it is a party thereto, enforceable against such Loan Party in accordance
with its terms.
3.4 Financial Statements and Projections. Borrower has delivered the
------------------------------------
financial statements and Projections identified on Schedule 3.4, and each such
------------
financial statement and Projection complies with the description thereof
contained on Schedule 3.4.
------------
3.5 Material Adverse Change. As of the date hereof, neither Borrower nor any
-----------------------
Subsidiary thereof has any material obligations, contingent liabilities, or
liabilities for Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the unaudited consolidated October 31,
1997 balance sheet of Holdings and the unaudited October 31, 1997 balance sheets
of each of Phoenix Communications, Inc., King Mailing Services, Inc. and Jones
Printing Company, Inc. As of the date hereof, there has been no material
deviation from the Projections provided to Lender. Except as otherwise
permitted hereunder or as set forth on Schedule 3.5, no dividends, advances or
------------
other distributions have been declared, paid or made upon any Stock of Borrower
and, since March 31, 1997, no shares of Stock of Borrower have been, or are now
required to be, redeemed, retired, purchased or otherwise acquired for value by
Borrower. Since March 31, 1997, no event has occurred which would result in a
Material Adverse Effect.
3.6 Ownership of Property; Liens. Except as described on Schedule 3.6, the
---------------------------- ------------
real estate listed on Schedule 3.6 constitutes all of the real property owned,
------------
leased, or used in its business by the Loan Parties. Each Loan Party holds (i)
good and marketable fee simple title to all of its real estate described on
Schedule 3.6, (ii) valid and marketable leasehold interests in all of such Loan
- ------------
Party's Leases (both as lessor and lessee, sublessee or assignee) described on
Schedule 3.6 and (iii) good and marketable title to, or valid leasehold
- ------------
interests in, all of its other properties and assets. None of the
<PAGE>
properties and assets of any Loan Party are subject to any Liens, except (x)
Permitted Encumbrances and Liens set forth on Schedule 6.7 and (y) from and
------------
after the Closing Date, the Lien in favor of the Lender pursuant to the
Collateral Documents. Each Loan Party has received all deeds, assignments,
waivers, consents, non-disturbance and recognition or similar agreements, bills
of sale and other documents, and duly effected all recordings, filings and other
actions necessary to establish, protect and perfect such Loan Party's right,
title and interest in and to all such real estate and other assets or property.
Except as described on Schedule 3.6, (i) no Loan Party or, to Borrower's
------------
knowledge, any other party to any such Lease described on Schedule 3.6 is in
------------
default of its obligations thereunder or has delivered or received any notice of
default under any such Lease, and no event has occurred which, with the giving
of notice, the passage of time, or both, would constitute a default under any
such Lease; no Loan Party owns or holds, or is obligated under or a party to,
any option, right of first refusal or any other contractual right to purchase,
acquire, sell, assign or dispose of any real property owned or leased by such
Loan Party except as set forth on Schedule 3.6; and (iii) no portion of any real
------------
property owned or leased by any Loan Party has suffered any material damage by
fire or other casualty loss which has not heretofore been completely repaired
and restored to its original condition. All material permits required to have
been issued or appropriate to enable the real property owned or leased by any
Loan Party to be lawfully occupied and used for all of the purposes for which
they are currently occupied and used, have been lawfully issued and are, as of
the date hereof, in full force and effect.
3.7 Restrictions; No Default; Material Contracts. No contract, lease,
--------------------------------------------
agreement or other instrument to which any Loan Party is a party or by which it
or any of its properties or assets is bound or affected and no provision of any
charter, corporate restriction, applicable law or governmental regulation has
resulted in or will result in a Material Adverse Effect. No Loan Party is in
default and, to Borrower's knowledge, no third party is in default, under or
with respect to any material contract, agreement, lease or other instrument to
which any Loan Party is a party. No Default has occurred and is continuing.
Schedule 3.7, as supplemented from time to time by written disclosures to the
- ------------
Lender, sets forth a complete and accurate list of all Material Contracts of the
Borrower and each of its Subsidiaries.
3.8 Labor Matters. Except as set forth on Schedule 3.8, there are no strikes
------------- ------------
or other labor disputes against any Loan Party that are pending or, to
Borrower's knowledge, threatened. Hours worked by and payment made to employees
of each Loan Party have not been in violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters which would have a Material
Adverse Effect. All material payments due from any Loan Party on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of such Loan Party. Except as set forth on Schedule 3.8, no Loan
------------
Party has any obligation under any collective bargaining agreement, management
agreement, or any employment agreement, and a correct and complete copy of each
agreement listed on Schedule 3.8 has been provided to the Lender. There is no
------------
organizing activity involving any Loan Party pending or, to Borrower's
knowledge, threatened by any labor union or group of employees. Except as set
forth on Schedule 3.14, there are no representation proceedings pending or, to
-------------
Borrower's knowledge, threatened with the National Labor
<PAGE>
Relations Board, and no labor organization or group of employees of any Loan
Party has made a pending demand for recognition, and, there are no complaints or
charges against any Loan Party pending or threatened to be filed with any
federal, state, local or foreign court, governmental agency or arbitrator based
on, arising out of, in connection with, or otherwise relating to the employment
or termination of employment by any Loan Party of any individual.
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth on Schedule 3.9, Borrower has no
------------
Subsidiaries, is not engaged in any joint venture or partnership with any other
Person, and is not an Affiliate of any other Person. The Stock of each Loan
Party owned by each of the stockholders thereof named on Schedule 3.9
------------
constitutes all of the issued and outstanding Stock of such Loan Party. Except
as set forth on Schedule 3.9, there are no outstanding rights to purchase
------------
options, warrants or similar rights or agreements pursuant to which any Loan
Party may be required to issue, sell or purchase any Stock or other equity
security. Schedule 3.9 lists all outstanding Stock of each Loan Party as of the
------------
Closing Date. Schedule 6.3 lists all Indebtedness of each Loan Party as of the
------------
Closing Date.
3.10 Government Regulation. No Loan Party is (i) an "investment company" or
---------------------
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940 as amended; (ii) is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any
other federal or state statute that restricts or limits such Loan Party's
ability to incur Indebtedness, pledge its assets, or to perform its obligations
hereunder, or under any other Loan Document, and the making of the Term Loan and
the Acquisition Line Advances, in each case by Lender, the application of the
proceeds and repayment thereof by each Loan Party, and the consummation of the
transactions contemplated by this Agreement and the other Loan Documents, will
not violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.11 Margin Regulations. No Loan Party is engaged in the business of
------------------
extending credit for the purpose of purchasing or carrying Margin Stock and no
proceeds of the Term Loan or any Acquisition Line Advance will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock. Following application of the
proceeds of each Loan, none of the assets (either of Borrower only or of
Borrower and its Subsidiaries on a consolidated basis) subject to the provisions
of Section 6.3, 6.7 or 6.22 will be Margin Stock. Borrower will not take or
------------------------
permit to be taken any action which might cause any Loan Document or any
document or instrument delivered pursuant hereto or thereto violate any
regulation of the Board of Governors of the Federal Reserve Board.
3.12 Taxes. All federal, state, local and foreign tax returns, reports and
-----
statements, including, but not limited to, information returns (Form 1120-S)
required to be filed by each Loan Party, have been filed with the appropriate
Governmental Authority and all Charges and other impositions shown thereon to be
due and payable have been paid prior to the date on which any fine, penalty,
interest
<PAGE>
or late charge may be added thereto for nonpayment thereof, or any such fine,
penalty, interest, late charge or loss has been paid. Each Loan Party has paid
when due and payable all material Charges required to be paid by it. Proper and
accurate amounts have been withheld by each Loan Party from their respective
employees for all periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid to the
respective Governmental Authorities. Schedule 3.12 sets forth those taxable
-------------
years for which any of the tax returns of each Loan Party are currently being
audited by the IRS or any other applicable Governmental Authority; and any
assessments or threatened assessments in connection with such audit or otherwise
currently outstanding. Except as described in Schedule 3.12, no Loan Party has
-------------
executed or filed with the IRS or any other Governmental Authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. No Loan Party has filed a consent
pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f) (2) apply to
any dispositions of subsection (f) assets (as such term is defined in IRC
Section 341(f)(4)). None of the property owned by any Loan Party is property
which is required to treat as being owned by any other Person pursuant to the
provisions of IRC Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of IRC Section
168(h). No Loan Party has agreed or been requested to make any adjustment under
IRC Section 481 (a) by reason of a change in accounting method or otherwise. No
Loan Party has any obligation under any written tax sharing agreement except as
described on Schedule 3.12.
-------------
3.13 ERISA. Schedule 3.13 lists all Plans maintained or contributed to by
----- -------------
any Loan Party and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. IRS determination letters
regarding the qualified status under Section 401 of the IRC of each Qualified
Plan have been received as of the dates listed on Schedule 3.13. Each of the
-------------
Qualified Plans has subsequently been amended to comply with the Tax Reform Act
of 1986 and to make other necessary or desirable changes. To the knowledge of
Borrower, the Qualified Plans as amended continue to qualify under Section 401
of the IRC, the trusts created thereunder continue to be exempt from tax under
the provisions of Section 501(a) of the IRC, and nothing has occurred which
would cause the loss of such qualification or tax-exempt status. Each Qualified
Plan so amended will be submitted to the IRS for a determination letter as to
the ongoing qualified status of the Plan under the IRC within the applicable IRC
401(b) remedial amendment period for the Tax Reform Act of 1986; and each such
Plan shall be amended, including retroactive amendments, as required during such
determination letter process to maintain the qualified status of such Plans. To
the knowledge of Borrower, each Plan is in compliance in all material respects
with the applicable provisions of ERISA and the IRC, including the filing of all
reports required under the IRC or ERISA which are true and correct as of the
date filed, and all required contributions and benefits have been paid in
accordance with the provisions of each such Plan. No Loan Party or other ERISA
Affiliate, with respect to any Qualified Plan, has failed to make any
contribution or pay any amount due as required by Section 412 of the IRC or
<PAGE>
Section 302 of ERISA. With respect to all Retiree Welfare Plans, the present
value of future anticipated expenses pursuant to the latest actuarial
projections of liabilities does not exceed $100,000.00, and copies of such
latest projections have been provided to the Lender; with respect to Pension
Plans, other than Qualified Plans and the unfunded Pension Plans listed in
Schedule 3.13, the present value of the liabilities for current participants
- -------------
thereunder using interest assumptions described in IRC 411(a)(ii) does not
exceed $100,000.00. No Loan Party has engaged in a prohibited transaction, as
defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with
any Plan which would subject any such Person (after giving effect to any
exemption) to a material tax on prohibited transactions imposed by Section 4975
of the IRC or any other material liability.
Except as set forth on Schedule 3.13: (i) no Title IV Plan has any
-------------
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section
4062 (e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
Borrower, threatened claims, actions or lawsuits (other than claims for benefits
in the normal course), asserted or instituted against (x) any Plan or its
assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party or any
ERISA Affiliate with respect to any Plan; (iv) no Loan Party or any ERISA
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (v) within
the last five years no Loan Party or other ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a
Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment (except as may be required by Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant); (vii) each Loan Party or other ERISA Affiliate have complied with
the notice and continuation coverage requirements of Section 4980B of the IRC
and the proposed or final regulations thereunder; and (viii) no liability under
any Plan has been funded, nor has such obligation been satisfied with, the
purchase of a contract from an insurance company that is not rated AAA by
Standard & Poor's Corporation and the equivalent by each other nationally
recognized rating agency.
3.14 No Litigation. Except as set forth on Schedule 3.14, no action, claim or
------------- -------------
proceeding is now pending or, to the knowledge of Borrower, threatened against
any Loan Party, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, (i) which challenges any such Person's right, power, or competence
to enter into or perform any of its obligations under the Loan Documents, or the
validity or enforceability of any Loan Document or any action taken thereunder
or (ii) which if determined adversely, could have or result in a Material
Adverse Effect. To the knowledge of Borrower, there does not exist a state of
facts which is reasonably likely to give rise to such proceedings.
<PAGE>
3.15 Brokers. Except as set forth on Schedule 3.15, no broker or finder
------- -------------
acting on behalf of any Loan Party brought about the obtaining, making or
closing of the credit extended pursuant to this Agreement or the transactions
contemplated by the Loan Documents and no Loan Party has any obligation to any
Person in respect of any finder's or brokerage fees in connection therewith.
3.16 Patents, Trademarks, Copyrights and Licenses. Except as otherwise set
--------------------------------------------
forth on Schedule 3.16, each Loan Party owns all licenses, patents, patent
-------------
applications, copyrights, service marks, trademarks, trademark applications and
trade names which are necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to be conducted by
it, each of which is listed, together with Patent and Trademark Office
application or registration numbers, where applicable, on Schedule 3.16. Each
-------------
Loan Party conducts business without infringement or claim of infringement of
any license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of others, except where such
infringement or claim of infringement could not have or result in a Material
Adverse Effect. Except as set forth on Schedule 3.16, to Borrower's knowledge,
-------------
there is no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of any Loan Party.
3.17 Full Disclosure. No information contained in this Agreement, the other
---------------
Loan Documents, the Financials or any written statement furnished by or on
behalf of any Loan Party or any Affiliate thereof pursuant to the terms of this
Agreement or any other Loan Document, which has previously been delivered to the
Lender, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. With
respect to all business plans and other forecasts and projections (including,
without limitation, the Projections) furnished by or on behalf of Borrower and
made available to the Lender or the Lender relating to the financial condition,
operations, business, properties or prospects of Borrower or any Subsidiary
thereof (i) all facts stated as such therein are true and complete in all
material respects, (ii) all facts upon which the forecasts or projections
therein contained are based are true and complete in all material respects and
no material fact was omitted therefrom, (iii) all assumptions made on that basis
are reasonable under the circumstances and are disclosed therein, and (iv) the
forecasts or projections are reasonably based on those facts and assumptions.
With respect to any such forecasts or projections made available to the Lender
after the Closing Date, the foregoing clauses (i) through (iv) shall be true and
correct in all respects as of the date of such projections or forecasts.
3.18 Hazardous Materials. Except as set forth on Schedule 3.18 or routine
------------------- -------------
operations in the ordinary course of business in compliance with applicable
permits issued by a Governmental Authority, the Subject Property is free of any
Hazardous Material. In addition, Schedule 3.18 discloses existing or potential
-------------
environmental liabilities of each Loan Party of which Borrower, after due
inquiry, has knowledge, which could constitute or result in a Material Adverse
Effect or Environmental Liabilities and Costs. Except as set forth on Schedule
--------
3.18, no Loan Party has caused or suffered to occur any Release at, under, above
- ----
or within any Subject Property. No Loan Party is
<PAGE>
involved in operations which could lead to the imposition of any liability or
Lien on it, or any owner of any premises which it occupies, under the
Environmental Laws, and no Loan Party has permitted any tenant or occupant of
such premises to engage in any such activity.
3.19 Insurance Policies. Schedule 3.19 lists all insurance of any nature
------------------ -------------
maintained for current occurrences by each Loan Party, as well as a summary of
the terms of such insurance. Borrower covenants that such insurance complies
with and shall at all times comply with the standards set forth on Annex E.
-------
3.20 Deposit and Disbursement Accounts. Schedule 3.20 lists all banks and
--------------------------------- -------------
other financial institutions at which Borrower or any Subsidiary thereof
maintains deposits and/or other accounts and/or post office lock boxes, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number.
3.21 Subordinated Notes. Except as contemplated by Annex C or as
------------------ -------
described in the definition thereof, none of the Subordinated Notes has been
amended or modified in any respect and no provision therein has been waived, and
no default or event of default under the Subordinated Notes has occurred and is
continuing.
3.22 Representations and Warranties Regarding the Collateral.
-------------------------------------------------------
(a) Borrower is the sole owner of each item of the Collateral in which it
purports to grant a security interest hereunder, having good and marketable
title thereto free and clear of any and all Liens except (i) the security
interest granted to Lender under this Agreement and (ii) Permitted
Encumbrances. Borrower will warrant and defend the Collateral against all
claims and demands of all persons at any time claiming the same or any interest
thereon.
(b) No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as have been filed in favor of Lender pursuant to this Agreement or (ii) such as
relate to Permitted Encumbrances.
(c) As a result of the filing of appropriate financing statements in the
jurisdictions listed on Schedule 3.22(c) hereto, this Agreement is effective to
----------------
create a valid and continuing Lien on and perfected security interest in favor
of Lender in the Collateral with respect to which a security interest may be
perfected by filing pursuant to the Code, which Lien and security interest is
prior to all other Liens except those Liens specifically designated on Schedule
--------
6.7 as being prior to the Lien of this Agreement as a matter of law, and is
- ---
enforceable as such as against creditors of and purchasers from Borrower (other
than purchasers of Inventory in the ordinary course of business). All action
(including, without limitation, all filings, registrations and recordings)
necessary or desirable to create,
<PAGE>
protect and perfect the security interest granted to Lender hereby in respect of
each item of the Collateral has been duly accomplished.
(d) Schedule 3.22(d) hereto lists all Instruments of Borrower. All
----------------
action necessary or desirable to protect and perfect the security interest of
Lender granted hereby in each item set forth on Schedule 3.22(d), including the
----------------
delivery of all originals thereof to Lender, has been duly taken. The security
interest of Lender in the Collateral listed on Schedule 3.22(d) hereto is prior
----------------
to all other Liens and is enforceable as such against creditors of and (except
as provided by the Code) purchasers from Borrower.
(e) Borrower's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
or located, and the locations of all of its records concerning the Collateral
are set forth on Schedule 3.22(c). Such Schedule 3.22(c) correctly identifies
---------------- ----------------
any of such facilities or locations that are not owned by Borrower and sets
forth the names of the owners and lessors or collateral of, and the holders of
any mortgages on, such facilities and locations. Borrower shall not change its
chief executive office, principal place of business, corporate offices, or
warehouses or Collateral premises, or the location of its records concerning the
Collateral without giving thirty (30) days prior written notice thereof to
Lender and taking all actions deemed by Lender necessary or appropriate to
protect and perfect Lender's interest in the Collateral.
(f) (i) Each Account represents a bona fide sale of Inventory to
---- ----
customers in the ordinary course of Borrower's business completed in accordance
with the terms and provisions contained in the documents available to Lender
with respect thereto and is not evidenced by either a Document, Instrument or
Chattel Paper; (ii) the amounts shown on any aged receivable trial balance
delivered by Borrower to First American National Bank pursuant to documents
governing the Revolving Credit Facility and on Borrower's books and records and
all invoices and statements which may be delivered to First American National
Bank with respect thereto are actually and absolutely owing to Borrower and are
not in any way contingent; (iii) there are no setoffs, claims or disputes
existing or asserted with respect to any Account and Borrower has not made any
agreement with any Account Debtor for any deduction therefrom except a discount
or allowance allowed by Borrower in the ordinary course of its business for
prompt payment; (iv) to the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement of any
Account or tend to reduce the amount payable thereunder as shown on the
respective aged receivable trial balances, Borrower's books and records and all
invoices and statements delivered to First American National Bank with respect
thereto; (v) to the best of Borrower's knowledge, all Account Debtors have the
capacity to contract; (vi) Borrower has received no notice of proceedings or
actions which are threatened or pending against any Account Debtor which might
result in any material adverse change in such Account Debtor's financial
condition; and (vii) Borrower has no knowledge that any Account Debtor is unable
generally to pay its debts as they become due.
<PAGE>
(g) With respect to any Inventory, (i) such property is located at one of
the locations set forth on Schedule 3.22(c), (ii) Borrower has good,
----------------
indefeasible and marketable title to such property and such property is not
subject to any Lien whatsoever, except for Permitted Encumbrances, (iii) such
property is of good and merchantable quality, free from any defects, (iv) except
as noted on Schedule 3.16, such property is not subject to any licensing,
-------------
patent, royalty, trademark, tradename or copyright agreements with any third
parties, and (v) the completion of manufacture, sale or other disposition of
such property by Lender following a Default shall not require the consent or any
person and shall not constitute a breach or default under any contract or
agreement to which Borrower is a party or to which such property is subject.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. Borrower covenants and agrees that from and after
-------------------
the Closing Date and until the Termination Date, it shall deliver to the Lender
the Financial Statements, Projections and notices at the times and in the manner
set forth on Annex D.
-------
4.2 Communication with Accountants. Borrower (for itself and each Subsidiary
------------------------------
thereof) authorizes to the Lender to communicate directly with its and its
Subsidiaries' independent certified public accountants and tax advisors and
authorizes those accountants to disclose to the Lender any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of Borrower and each Subsidiary thereof. At or
before the Closing Date, Borrower shall deliver a letter addressed to such
accountants and tax advisors instructing them to comply with the provisions of
this Section 4.
---------
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and its Subsidiaries) that, unless
the Lender shall otherwise consent in writing, from and after the date hereof
and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Borrower shall (and
------------------------------------------------
shall cause each of its Subsidiaries to) (a) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and its rights and franchises; (b) continue to conduct its business
substantially as now conducted or as otherwise permitted hereunder; (c) at all
times maintain, preserve and protect all of its Intellectual Property, and
preserve all the remainder of its property, in use or useful in the conduct of
its business and keep the same in good repair, working order and condition
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices, so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; and (d) transact business only under the names set forth on
Schedule 3.2.
- ------------
<PAGE>
5.2 Payment of Charges and Claims. Borrower shall pay and discharge, or
-----------------------------
cause to be paid and discharged in accordance with the terms thereof, (A) all
Charges imposed upon it or any Subsidiary or its or their income and profits, or
any of its property (real, personal or mixed), and (B) lawful claims for labor,
materials, supplies and services or otherwise, which if unpaid might by law
become a Lien on its property; provided, that Borrower or any Subsidiary shall
--------
not be required to pay any such Charge or claim which is being contested in good
faith by proper legal actions or proceedings, so long as at the time of
commencement of any such action or proceeding and during the pendency thereof
(i) no Default shall have occurred and be continuing, (ii) adequate reserves
with respect thereto are established and are maintained in accordance with GAAP,
(iii) such contest operates to suspend collection of the contested Charges or
claims and is maintained and prosecuted continuously with diligence, (iv) none
of the Collateral would be subject to forfeiture or loss or any Lien by reason
of the institution or prosecution of such contest, (v) no Lien shall exist, be
imposed or be attempted to be imposed for such Charges or claims during such
action or proceeding unless the full amount of such Charge or claim is covered
by insurance satisfactory in all respects to the Lender, and (vi) Borrower shall
promptly pay or discharge such contested Charges and all additional charges,
interest penalties and expenses, if any, and shall deliver to the Lender
evidence acceptable to the Lender of such compliance, payment or discharge, if
such contest is terminated or discontinued adversely to Borrower.
5.3 Books and Records. Borrower shall (and shall cause each Subsidiary to)
-----------------
keep adequate records and books of account with respect to its business
activities, in which proper entries, reflecting all of its consolidated and
consolidating financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financials referred to in paragraph I of Schedule 3.4.
------------
5.4 Litigation. Borrower shall notify the Lender in writing, promptly upon
----------
learning thereof, of any litigation, Claim or other action commenced or
threatened against Borrower or any Subsidiary, and of the institution against
any such Person of any suit or administrative proceeding which (i) may involve
an amount in excess of $250,000.00 individually or in the aggregate or (ii)
could have or result in a Material Adverse Effect if adversely determined.
5.5 Insurance.
---------
(a) Borrower shall, at its (or its Subsidiary's) sole cost and expense
maintain or cause to be maintained, the policies of insurance in such amounts
and as otherwise described in Annex E and Section 2.1(d). Borrower shall notify
------- --------------
the Lender promptly of any occurrence causing a material loss or decline in
value of any real or personal property and the estimated (or actual, if
available) amount of such loss or decline, except as specified otherwise on
Annex E. Borrower hereby directs all present and future insurers under its "All
- -------
Risk" policies of insurance to pay all proceeds payable thereunder directly to
the Lender. Borrower irrevocably makes, constitutes and appoints the Lender
(and all officers, employees or agents designated by the Lender) as Borrower's
true and lawful agent and attorney in-fact for the purpose of making, settling
and adjusting claims under the "All Risk" policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item
<PAGE>
of payment for the proceeds of such "All Risk" policies of insurance, and for
making all determinations and decisions with respect to such "All Risk" policies
of insurance. In the event Borrower at any time or times hereafter shall fail to
obtain or maintain (or fail to cause to be obtained or maintained) any of the
policies of insurance required above or to pay any premium in whole or in part
relating thereto, the Lender, without waiving or releasing any Obligations or
Default hereunder, may at any time or times thereafter (but shall not be
obligated to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which the Lender deems
advisable. All sums so disbursed, including attorneys' fees, court costs and
other charges related thereto, shall be payable, on demand, by Borrower to the
Lender and shall be additional Obligations hereunder secured by the Collateral.
(b) The Lender reserves the right at any time, upon review of Borrower's
risk profile, to require additional forms and limits of insurance to, in the
Lender's sole opinion, adequately protect interests of the Lender. Borrower
shall, if so requested by the Lender, deliver to the Lender, as often as the
Lender may request, a report of a reputable insurance broker satisfactory to the
Lender with respect to its insurance policies.
(c) Borrower shall deliver to the Lender endorsements to all of its and
its Subsidiaries' (i) "All Risk" and business interruption insurance naming the
Lender as loss payee, and (ii) general liability and other liability policies
naming the Lender and the Lender as additional insureds.
5.6 Compliance with Laws. Borrower shall (and shall cause each of its
--------------------
Subsidiaries to) comply in all material respects with all federal, state and
local laws, permits and regulations applicable to it, including, without
limitation, those relating to licensing, environmental, ERISA and labor matters.
5.7 Agreements. Borrower shall (and shall cause each of its Subsidiaries to)
----------
perform, within all required time periods (after giving effect to any applicable
grace periods), all of its obligations and enforce all of its rights under each
agreement, contract, instrument or other document to which it is a party,
including, without limitation, any leases and customer contracts to which it is
a party where the failure to so perform and enforce could have or result in a
Material Adverse Effect. Borrower shall not (and shall not permit any of its
Subsidiaries to) terminate or modify any provision of any agreement, contract,
instrument or other document to which it is a party which termination or
modification could have or result in a Material Adverse Effect. Borrower shall
(and shall cause each of its Subsidiaries to) perform and comply with all
obligations in respect of Accounts, Chattel Paper, Contracts, Licenses,
Instruments, Documents and all other agreements constituting or giving rise to
Collateral. Borrower shall not, without the Lender's prior written consent,
with respect to any of the Accounts, Chattel Paper, Instruments or amounts due
under any Contract (i) grant any extension of the time of payment of any
thereof, other than those granted in the ordinary course of business; (ii)
compromise or settle the same for less than the full amount thereof (other than
the compromise or settlement, for adequate consideration, of Accounts in the
ordinary course of business consistent with past practices the aggregate amount
of which Accounts does not exceed $100,000.00 in any Fiscal
<PAGE>
Year); (iii) release, in whole or in part, any Person liable for the payment
thereof; or (iv) allow any credit or discount whatsoever thereon other than
trade discounts granted in the ordinary course of business of Borrower.
5.8 Supplemental Disclosure. At the request of the Lender (in the event that
-----------------------
such information is not otherwise delivered by Borrower to the Lender pursuant
to this Agreement) but not more frequently than every three months, Borrower
will supplement (or cause to be supplemented) each Schedule hereto, or
representation herein or in any other Loan Document with respect to any matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Schedule or as an
exception to such representation or which is necessary to correct any
information in such Schedule or representation which has been rendered
inaccurate thereby; provided however, that such supplement to such Schedule or
-------- -------
representation shall not be deemed an amendment thereof unless expressly
consented to in writing by the Lender, and no such amendments, except as the
same may be consented to in a writing which expressly includes a waiver, shall
be or be deemed a waiver by Lender of any Default disclosed therein. Borrower
shall, if so requested by the Lender, furnish to the Lender as often as it
reasonably requests, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as the
Lender may reasonably request, all in reasonable detail, and, Borrower shall
advise the Lender promptly, in reasonable detail, of (i) any Lien, other than as
permitted pursuant to Section 6.7, attaching to or asserted against any of the
-----------
Collateral, (ii) any material change in the composition of the Collateral and
(iii) the occurrence of any other event which would have a Material Adverse
Effect upon the Collateral and/or the Lender's Lien thereon.
5.9 Environmental Matters. Borrower shall
---------------------
(i) [INTENTIONALLY OMITTED],
(ii) comply with the Environmental Laws and permits applicable to it,
(iii) notify the Lender and the Lender promptly after Borrower
becomes aware of any Release upon any Subject Property, and
(iv) promptly forward to the Lender a copy of any order, notice, permit,
application, or any communication or report received by any Loan Party in
connection with any such Release or any other matter relating to the
Environmental Laws that may affect any Subject Property or any Loan Party. The
provisions of this Section 5.9 shall apply whether or not the Environmental
-----------
Protection Agency, any other federal agency or any state or local environmental
agency has taken or threatened any action in connection with any Release or the
presence of any Hazardous Materials.
5.10 Landlord's and a Mortgagee's Agreements. Borrower shall obtain a
---------------------------------------
landlord's agreement in form and substance acceptable to the Lender from the
lessor of any present or future leased premises of Borrower and mortgagee's
agreement in form and substance acceptable to the Lender
<PAGE>
from each mortgagee of a Loan Party, agreeing (among other things) to waive any
lien any of said entities may have upon the Collateral.
5.11 Certain Obligations Respecting Subsidiaries. Borrower will, and will
-------------------------------------------
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that each of its Subsidiaries is a wholly owned
Subsidiary Borrower will not permit any of its Subsidiaries to enter into, after
the date of this Agreement, any indenture, agreement, instrument or other
arrangement that, directly or indirectly, prohibits or restrains, or has the
effect of prohibiting or restraining, or imposes materially adverse conditions
upon, the incurrence or payment of Indebtedness, the granting of Liens, the
declaration or payment of dividends or other Restricted Payments, the making of
loans, advances or Investments or the sale, assignment, transfer or other
disposition of any property or assets.
5.12 Application of Proceeds. Borrower shall use the proceeds of (i) the Term
-----------------------
Loan as provided in Section 1.1(e); and (ii) the Acquisition Line Advances as
--------------
provided in Section 1.2 (a).
---------------
5.13 Fiscal Year. Borrower shall, and shall cause each Subsidiary to,
-----------
maintain as its Fiscal Year the twelve month period ending on December 31 of
each year.
5.14 Casualty and Condemnation.
-------------------------
(a) Borrower shall promptly notify the Lender of any loss, damage, or
destruction to any Collateral or any real property owned by Borrower whether or
not constituting Collateral (collectively, "Property") or arising from its use,
--------
whether or not covered by insurance. The Lender is hereby authorized to adjust
losses and collect all insurance proceeds (related to the Collateral) directly.
If, notwithstanding the provisions hereof which require that the Lender be the
sole loss payee, a check or other instrument from an insurer is made payable to
Borrower or Borrower and the Lender jointly, the Lender may endorse Borrower's
name thereon and take such other action as the Lender may elect to obtain the
proceeds thereof. After deducting from such proceeds the expenses, if any,
incurred by the Lender in the collection or handling thereof, the Lender may
apply such proceeds to the reduction of the Obligations in the manner set forth
in Section 1.7 or, at the Lender's option in its sole discretion, may permit or
-----------
require Borrower to use such proceeds, or any part thereof, to replace, repair
or restore such Collateral as provided in paragraph (c) below.
(b) Borrower shall promptly upon learning of the institution of any
proceeding for the condemnation or other taking of any of its Property, notify
the Lender of the pendency of such proceeding, and agrees that the Lender may
participate in any such proceeding and Borrower from time to time will deliver
to the Lender all instruments reasonably requested by the Lender to permit such
participation. The Lender shall (and is hereby authorized to) collect any and
all awards, payments or other proceeds of any such condemnation or taking and
apply such proceeds to the reduction of the Obligations in the manner set forth
in Section 1.7 or, at the Lender's option in its sole
-----------
<PAGE>
discretion, may permit or require Borrower to use such proceeds, or any part
thereof, to replace, repair or restore such Collateral as provided in paragraph
(c) below.
(c) Any Collateral which is to be replaced, repaired or restored pursuant
to paragraph (a) or (b) above shall be replaced, repaired or restored pursuant
to such terms and conditions as the Lender may require and with materials and
workmanship of substantially as good a quality as existed before such loss or
taking, and Borrower shall commence such replacement, repair or restoration as
soon as practicable and proceed diligently with it until completion to the
Lender's satisfaction. Borrower shall provide to the Lender written progress
reports, other information and evidence of its compliance with the foregoing.
5.15 Covenants Regarding the Collateral.
----------------------------------
(a) Further Assurances; Pledge of Instruments. At any time and from time
-----------------------------------------
to time, upon the written request of Lender and at the sole expense of Borrower,
Borrower shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Lender may reasonably
deem desirable to obtain the full benefits of this Agreement and of the rights
and powers herein granted, including (i) using its best efforts to secure all
consents and approvals necessary or appropriate for the assignment to or for the
benefit of Lender of any License (including, but not limited to software
licenses) or Contract held by Borrower or in which Borrower has any rights not
heretofore assigned, (ii) filing any financing or continuation statements under
the Code with respect to the liens and security interests granted hereunder or
under any other Loan Document, (iii) transferring Collateral to Lender's
possession (if such Collateral consists of Documents, Instruments or Chattel
Paper or if a security interest in such Collateral can be perfected only by
possession, or if requested by Lender) and (iv) using its best efforts to obtain
waivers of liens from landlords and mortgagees (it being understood that Lender
in its discretion may establish a reasonable reserve against availability under
this Agreement until the same have been obtained). Borrower also hereby
authorizes Lender to file any such financing or continuation statement without
the signature of Borrower to the extent permitted by applicable law. If any
amount payable under or in connection with any of the Collateral is or shall
become evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to Lender immediately upon Borrower's receipt thereof.
(b) Maintenance of Records. Borrower shall keep and maintain, at its own
----------------------
cost and expense, satisfactory and complete records of the Collateral, including
a record of any and all payments received and any and all credits granted with
respect to the Collateral and all other dealings with the Collateral. Borrower
shall mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the security interests granted hereby. All Chattel Paper
shall be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of General
Electric Capital Corporation, for itself and as agent for certain participants."
As further security, Borrower agrees that the Lender shall have a special
property right and security interest in all of Borrower's books and records
pertaining to the Collateral
<PAGE>
and, upon the occurrence and during the continuation of a Default, Borrower
shall deliver and turn over any such books and records to Lender or to its
representatives at any time on demand of Lender. Prior to the occurrence of a
Default and upon reasonable notice from Lender or the Lender, Borrower shall
permit any representative of Lender to inspect such books and records and shall
provide photocopies thereof to Lender as more specifically set forth in Section
-------
1.10 of this Agreement.
- ----
(c) Continuous Perfection. Borrower shall not change its name, identity
---------------------
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code unless Borrower shall have given Lender at least thirty
(30) days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
(d) Provisions Regarding Accounts.
-----------------------------
(i) Borrower shall not re-date any invoice or sale or make sales on
extended dating beyond that customary in Borrower's business or extend or modify
any Account (other than corrections of errors in the ordinary course of
business). If Borrower becomes aware of any matter materially affecting any
Account, including information regarding the Account Debtor's creditworthiness,
and such Account could have a Material Adverse Effect, Borrower will promptly so
advise Lender.
(ii) Borrower shall not release, in whole or in part, the
obligations of any Person liable for payment in respect of any Account nor shall
Borrower, without Lender's written consent, accept any note or other Instrument
(except a check or other Instrument for the immediate payment of money) for an
amount in excess of $75,000.00, individually or in the aggregate, with respect
to any Accounts of one Account Debtor. Any such Instrument shall be considered
as evidence of the Account or Accounts and not payment thereof and (after
termination of the Revolving Credit Facility and payment in full of all
indebtedness thereunder) Borrower will promptly deliver such Instrument to
Lender appropriately endorsed in favor of the Lender. Regardless of the form of
presentment, demand, notice of dishonor, protest, and notice of protest with
respect thereto, the maker thereof will remain liable thereon until such
Instrument is paid in full.
(iii) Borrower shall not, without Lender's prior written
consent, compromise, settle or adjust any Account for less than the full amount
thereof if the reduction in the amounts payable under any Accounts as a result
of any such compromise, settlement or adjustment would exceed $75,000.00 in the
aggregate in any Fiscal Year.
(e) Provisions Regarding Inventory. Borrower agrees that all Inventory
------------------------------
manufactured or processed by Borrower will be manufactured and processed in
accordance with the Federal Fair
<PAGE>
Labor Standards Act of 1938, as amended, and all rules, regulations, and orders
thereunder. Borrower will not, without Lender's written consent, sell any
Inventory on a guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis.
(f) Provisions Regarding Equipment. Borrower represents and warrants to
------------------------------
and agrees with Lender that all of the Equipment is and will be used or held for
use in Borrower's business. Borrower shall keep and maintain the Equipment in
good operating condition and repair (ordinary wear and tear excepted) and shall
make all necessary replacements thereof. Borrower shall promptly inform Lender
of any material additions to or deletions from the Equipment. Borrower shall not
permit any Equipment to become a fixture to real property or an accession to
other personal property, unless Lender has a valid, perfected, and first
priority Lien in such real or personal property. Borrower will not, without
Lender's prior written consent, alter or remove any identifying symbol or number
on the Equipment. Borrower shall not, without the prior written consent of
Lender, sell, lease as a lessor, or otherwise dispose of any of the Equipment.
(g) Provisions Regarding Trademark Collateral.
-----------------------------------------
(i) Borrower shall notify Lender immediately if it knows or has
reason to know that any application or registration relating to any Trademark
that is material to the conduct of Borrower's business may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court)
regarding Borrower's ownership of any Trademark which is material to the conduct
of Borrower's business, its right to register the same, or to keep and maintain
the same.
(ii) In no event shall Borrower, either itself or through any agent,
employee, licensee or designee, file an application for the registration of any
Trademark with the United States Patent or Trademark Office or any similar
office or agency in any other country or any political subdivision thereof
without giving Lender prior written notice thereof, and, upon request of Lender,
Borrower shall execute and deliver any and all agreements, instruments,
documents and papers as Lender may request to evidence Lender's security
interest in such Trademark and the General Intangibles, including the goodwill,
of Borrower relating thereto or represented thereby.
(iii) Borrower shall take all necessary actions to maintain and
pursue each application, to obtain the relevant registration, and to maintain
the registration of each of the Trademarks which is material to the conduct of
Borrower's business, including the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings.
(iv) In the event that any of the Trademark Collateral is infringed
upon, or misappropriated or diluted by a third party, Borrower shall notify
Lender promptly after Borrower learns thereof and shall, unless Borrower shall
reasonably determine that such Trademark Collateral
<PAGE>
is not material to the conduct of Borrower's business, promptly sue for
infringement, misappropriation or dilution and to recover any and all damages
for such infringement, misappropriation or dilution, and shall take such other
actions as Borrower shall reasonably deem appropriate under the circumstances to
protect such Trademark Collateral.
(h) Provisions Regarding Patents and Copyrights.
-------------------------------------------
(i) Borrower agrees not to divest its rights under a Patent or
Copyright, without the prior written approval of Lender, and will take all
action necessary or advisable to maintain each Patent or Copyright.
(ii) Borrower agrees, promptly upon learning of the same, to furnish
Lender in writing with all pertinent information available to Borrower with
respect to any infringement or other violation of Borrower's rights in any
material Patent or Copyright, or with respect to any claim that practice of any
material Patent or Copyright violates any property right of that party. Borrower
further agrees, absent direction of Lender to the contrary, to prosecute any
person infringing any significant Patent or Copyright.
5.16 Lender's Appointment as Attorney-in-Fact. (a) Borrower hereby
----------------------------------------
irrevocably constitutes and appoints Lender and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of Borrower and in
the name of Borrower or in its own name, from time to time in Lender's
discretion, for the purpose of carrying out the terms of this Agreement, to
take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to Lender the power and right, on behalf of Borrower,
without notice to or assent by Borrower, and at any time, to do the following:
(i) in the name of Borrower, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other Instruments for the payment of monies due under any
Collateral;
(ii) continue any insurance existing pursuant to the terms of the
Loan Documents, and pay all or any part of the premiums therefor and the costs
thereof; and
(iii) receive payment of any and all monies, claims, and other
amounts due or to become due at any time arising out of or in respect of any
Collateral.
(b) Borrower hereby irrevocably constitutes and appoints Lender and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Lender's discretion, for the purpose of carrying out the terms
<PAGE>
of this Agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby grants to Lender the power and right, on
behalf of Borrower, without notice to or assent by Borrower, upon the occurrence
and during the continuation of an Event of Default, to do the following:
(i) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any Collateral;
(ii) pay or discharge taxes, liens, security interest, or other
encumbrances levied or placed on or threatened against the Collateral;
(iii) effect any repairs or obtain any insurance called for by the
terms of this Agreement and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in respect of
any of the Collateral to make payment of any and all monies due or to become due
thereunder, directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Lender for the purpose of collecting any and all such monies due under any
Collateral whenever payable;
(viii) commence and prosecute any suits, actions or proceedings of law
or equity in any court of competent jurisdiction to collect the Collateral or
any part thereof and to enforce any other right in respect of any Collateral;
(ix) defend any suit, action or proceeding brought against Borrower
with respect to any Collateral if Borrower does not defend such suit, action or
proceeding or if Lender believes that Borrower is not pursuing such defense in a
manner that will maximize the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable license,
sublicense whether general, specific or otherwise, and whether on an exclusive
or non-exclusive basis, any Patent
<PAGE>
or Trademark throughout the world for such or terms on such conditions and in
such manner as Lender shall, in its sole discretion, determine; and
(xi) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes, and to do, at Lender's
option and Borrower's expense, at any time, or from time to time, all acts and
things which Lender reasonably deems necessary to perfect, preserve, or realize
upon the Collateral and Lender's Lien therein in order to effect the intent of
this Agreement, all as fully and effectively as Borrower might do.
(c) Borrower hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 5.16 is a power coupled with
------------
an interest and shall be irrevocable until the Termination Date.
(d) The powers conferred on Lender hereunder are solely to protect
Lender's security interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and none of
its officers, directors, employees, agents or representatives shall be
responsible to Borrower for any act or failure to act, except for their own
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(e) Borrower also authorizes Lender, at any time and from time to time,
to (i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Borrower in and under the
Contracts and other matters relating thereto and (ii) execute, in connection
with the sale provided for in Section 8.2 hereof, any endorsements, assignments
-----------
or other instruments of conveyance or transfer with respect to the Collateral.
5.17 Maintenance Covenant. Borrower shall duly pay and discharge in
---------------------
accordance with Borrower's customary business practices in respect thereto, all
current debts, obligations and accounts payable as they become due, except for
such debts, obligations and accounts payable the validity of which are being
contested in good faith by appropriate proceedings, diligently pursued and
available to Borrower, with respect to which adequate reserves have been set
aside on its books.
6. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and each Subsidiary) that, without
the Lender's prior written consent, from and after the date hereof and until the
Termination Date:
6.1 Mergers, Subsidiaries, Etc. Borrower shall not (and shall not permit any
---------------------------
of its Subsidiaries to), directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person or form or
acquire any Subsidiary, provided, however, that the foregoing shall not prohibit
--------
a merger
<PAGE>
of a Person with and into Borrower consummated pursuant to an Eligible
Acquisition on the date of an Acquisition Line Advance). Prior to forming any
Subsidiary, Borrower shall (a) provide not less than thirty (30) days prior
written notice to the Lender and the Lender, (b) take all actions requested by
the Lender to protect and preserve the Collateral, and (c) receive the prior
written consent of the Lender.
6.2 Investments. Borrower shall not (and shall not permit any of its
-----------
Subsidiaries to), directly or indirectly, make or maintain any Investment except
(i) as otherwise permitted by Section 6.3 or 6.4; (ii) Investments outstanding
------------------
on the date hereof and listed on Schedule 6.2; and (iii) advances constituting
------------
trade credit representing the purchase price of Inventory or supplies sold to
any Person (other than a Subsidiary or Affiliate of Borrower) in the ordinary
course of business and payable on terms not exceeding 120 days.
6.3 Indebtedness. Borrower shall not (and shall not permit any of its
------------
Subsidiaries to) create, incur, assume or permit to exist any Indebtedness,
except (i) the Obligations; (ii) Deferred Taxes; (iii) the Subordinated Notes;
(iv) Capital Lease Obligations permitted under clause (iv) of Section 6.7 and
-----------
Indebtedness secured by purchase money Liens permitted under clause (iv) of
Section 6.7 in a maximum aggregate amount outstanding not to exceed $250,000.00;
- -----------
(v) Indebtedness under the Revolving Credit Facility, and (vi) other
Indebtedness set forth on Schedule 6.3.
------------
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements.
--------------------------------------------------------------------
Except as otherwise expressly permitted hereunder, Borrower shall not (and shall
not permit any of its Subsidiaries to) enter into any management agreements,
service agreements, lending, borrowing or other commercial transaction with any
of its Subsidiaries, Affiliates, officers, directors or employees, including,
without limitation, payment of any management, consulting, advisory or similar
fee; provided, however, Borrower may (i) on the Closing Date and on the date of
-------- -------
any Acquisition Line Advance, extend a loan to Holdings to enable Holdings to
pay a portion of the amount due to the applicable Sellers, such loan to be
evidenced by a promissory note executed by Holdings and payable to Borrower, and
(ii) extend loans to its officers, directors and employees in a maximum
aggregate principal amount outstanding at any time for all officers, directors
and employees of $100,000.00, except as stated on Schedule 6.4. Set forth on
------------
Schedule 6.4 is a list of all such management agreements, service agreements,
- ------------
lending, borrowing or other commercial transactions existing or outstanding as
of the Closing Date.
6.5 Capital Structure and Business. Except as permitted under Section 5.1,
------------------------------ -----------
Borrower shall not (and shall not permit any of its Subsidiaries to) (i) make
any changes in its business objectives, purposes, or operations which could in
any way adversely affect the repayment of the Obligations or have or result in a
Material Adverse Effect, (ii) make any change in its capital structure as
described on Schedule 3.9 and Schedule 6.3 (including, without limitation, the
------------ ------------
issuance or recapitalization of any shares of Stock or other securities
convertible into Stock or any revision of the terms of its outstanding Stock),
(iii) amend its articles or certificate of incorporation, charter, by-laws or
other
<PAGE>
organizational documents, or (iv) engage in any business other than the business
currently engaged in by such Person.
6.6 Guaranteed Indebtedness. Borrower shall not (and shall not permit any of
-----------------------
its Subsidiaries to) incur any Guaranteed Indebtedness except (i) by endorsement
of instruments or items of payment for deposit to the general account of such
Person or (ii) for Guaranteed Indebtedness incurred for the benefit of Borrower
if the primary obligation is permitted by this Agreement for Borrower to incur
(and such Guaranteed Indebtedness shall be treated as a primary obligation for
all purposes hereof).
6.7 Liens. Borrower shall not (and shall not permit any of its Subsidiaries
-----
to) create or permit to exist any Lien on any of its properties or assets except
for (i) presently existing or hereafter created Liens in favor of the Lender to
secure the Obligations; (ii) Liens set forth on Schedule 6.7 existing on the
------------
Closing Date; (iii) Permitted Encumbrances; (iv) purchase money liens or
purchase money security interests upon or in Equipment acquired by Borrower or
any of its Subsidiaries in the ordinary course of business to secure the
purchase price of such Equipment or to secure Indebtedness or Capital Lease
Obligations permitted under Section 6.3 incurred solely for the purpose of
-----------
financing the acquisition of such Equipment, so long as such Equipment is not a
component, part or accessory installed on, or an accession, addition or
attachment to, any other Equipment or other property of Borrower or any
Subsidiary thereof (except other Equipment on which a security interest exists
under this clause); and (v) extensions, renewals and replacements of Liens
referred to in clauses (ii) and (iv) above, provided that any such extension,
renewal or replacement Lien is limited to the property or assets covered by the
Lien extended, renewed or replaced and does not secure Indebtedness in an amount
greater than the amount of the outstanding Indebtedness secured thereby
immediately prior to such extension, renewal or replacement; provided that
--------
Borrower shall not create or permit any Lien to exist on any of the Stock of
Borrower's Subsidiaries or any of Borrower's Accounts (other than Liens
described in clause (i) above).
6.8 Sale of Assets. Borrower shall not (and shall not permit any of its
--------------
Subsidiaries to) sell, transfer, convey, assign or otherwise dispose of any of
its assets or properties, including, without limitation, any Collateral;
provided, however, that the foregoing shall not prohibit (i) the sale of
- -------- -------
Inventory in the ordinary course of business; (ii) the sale or disposition of
any assets which have become obsolete or surplus to the business of Borrower or
any of its Subsidiaries; or (iii) the sale or disposition of assets which either
(x) give rise to Net Proceeds exceeding, in the aggregate, $500,000, or (y) have
an aggregate depreciated value according to Lender's internal analysis exceeding
$500,000.
6.9 Material Contracts. Borrower shall not (and shall not permit any of its
------------------
Subsidiaries to) cancel or terminate any Material Contract or amend or otherwise
modify any Material Contract, or waive any default or breach any Material
Contract, or take any other action in connection with any Material Contract that
would have a Material Adverse Effect.
<PAGE>
6.10 ERISA. Neither Borrower nor any ERISA Affiliate shall acquire any new
-----
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an "accumulated funding deficiency," as defined in Section
302 of ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a
Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer
Plan. Additionally, neither Borrower nor any ERISA Affiliate shall permit or
suffer any condition set forth on Schedule 3.13 to cease to be met and satisfied
-------------
at any time; terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability to
Borrower; (b) permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; fail to
make any contributions or fail to pay any amounts due and owing as required by
the terms of any Plan before such contributions or amounts become delinquent;
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; at any time fail to provide the Lender and
the Lender with copies of any Plan documents or governmental reports or filings,
if reasonably requested by the Lender.
6.11 Financial Covenants. Borrower shall not breach or fail to comply with
-------------------
any of the following financial covenants, each of which shall be calculated in
accordance with GAAP consistently applied (and based upon the financial
statements delivered hereunder):
(a) INTENTIONALLY OMITTED.
(b) Interest Coverage Ratio. Holdings shall maintain an Interest
-----------------------
Coverage Ratio of not less than the ratio set forth below corresponding to the
applicable Fiscal Quarter set forth below:
Fiscal Quarter Minimum Interest Coverage
Ending Ratio
--------------------- ---------------------------------
31-Dec-97 1.60:1.0
31-Mar-98 1.60:1.0
30-June-98 1.60:1.0
30-Sep-98 1.65:1.0
31-Dec-98 1.70:1.0
31-Mar-99 1.70:1.0
30-June-99 1.70:1.0
30-Sep-99 1.85:1.0
31-Dec-99 2.00:1.0
31-Mar-00 2.00:1.0
30-June-00 2.00:1.0
30-Sep-00 2.25:1.0
31-Dec-00 2.30:1.0
31-Mar-01 2.30:1.0
30-June-01 2.30:1.0
<PAGE>
30-Sep-01 2.45:1.0
31-Dec-01 2.65:1.0
31-Mar-02 2.65:1.0
30-June-02 2.65:1.0
30-Sep-02 2.65:1.0
31-Dec-02 2.65:1.0
(c) Capital Expenditures. Holdings shall not make aggregate Capital
--------------------
Expenditures (excluding (i) any Capital Expenditures made by Borrower pursuant
to Section 5.14 to replace, repair or restore any Property subject to any loss
------------
or taking described therein, or (ii) Capital Expenditures of up to $250,000.00
in connection with the relocation of a web press from the division of Borrower
acquired from B & M Printing, Inc. to the division of Borrower acquired from
Lithograph Printing Co. of Memphis, Inc.) in any Fiscal Year in excess of the
amount set forth below for such Fiscal Year, determined on a consolidated basis
in accordance with GAAP:
Fiscal Year Maximum Amount of
Ending Capital Expenditures
------------------ ---------------------------
1998 $1,500,000
1999 $2,000,000
2000 $2,500,000
2001 $2,500,000
2002 $2,500,000
6.12 Hazardous Materials. Except as set forth in Schedule 3.18, Borrower
------------------- -------------
shall not and shall not permit any of its Subsidiaries or any other Person
within the control of Borrower to (a) cause or permit a Release of Hazardous
Material on, under in or about any Subject Property; (b) use, store, generate,
treat or dispose of Hazardous Materials, except in compliance with Environmental
Laws; or (c) transport any Hazardous Materials to or from any Subject Property,
except in compliance with Environmental Laws.
6.13 Sale-Leasebacks. Borrower shall not (and shall not permit any of its
---------------
Subsidiaries to) engage in any sale-leaseback or similar transaction involving
any of its property or assets.
6.14 Cancellation of Indebtedness. Borrower shall not (and shall not permit
----------------------------
any of its Subsidiaries to) cancel any claim or Indebtedness owing to it, except
for reasonable consideration and in the ordinary course of its business, or
voluntarily prepay any Indebtedness (other than the Obligations).
6.15 Restricted Payments. Borrower shall not make any Restricted Payment to
-------------------
any Person and Borrower shall not permit any Subsidiary to make any Restricted
Payment other than to Borrower, provided, however, that Borrower may pay
-------- -------
dividends or payment of fees to Holdings made solely to
<PAGE>
enable Holdings to pay (i) officers' salaries pursuant to applicable Employment
Agreements and operating expenses (including without limitation rental payments
on leased real property) in an aggregate amount not to exceed (A) $500,000
during the period from the June 19, 1997 through December 31, 1997, (B)
$1,300,000 during the period from January 1, 1998 through December 31, 1998, and
(C) for each Fiscal Year of the Borrower thereafter, an amount equal to 105% of
the maximum amount permitted for the immediately preceding Fiscal Year of the
Borrower, or (ii) interest on the Subordinated Indebtedness payable to Sirrom
Capital Corporation and the Sellers in accordance with the terms of the
Subordination Agreements.
6.16 Real Property Leases. Borrower shall not (and shall not permit any of
--------------------
its Subsidiaries to) enter into or renew (by amendment, modification or
otherwise) any Lease other than renewals of existing Leases upon substantially
the same terms as are in effect on the Closing Date.
6.17 Bank Accounts. Borrower shall not (and shall not permit any of its
-------------
Subsidiaries to) maintain any deposit, operating or other bank accounts except
for those accounts identified on Schedule 3.20.
-------------
6.18 Subordinated Notes. Neither Borrower nor any of its Subsidiaries shall
------------------
purchase, redeem, retire or otherwise acquire for value, or set apart any money
for a sinking, defeasance or other analogous fund for, the purchase, redemption,
retirement or other acquisition of, or make any payment (scheduled, voluntary or
other) of principal of or interest on, or any other amount owing in respect of,
any Subordinated Notes, except that, so long as no Default shall have occurred
and be continuing (or would occur as a result of any such payment), Borrower
may, on regularly scheduled quarterly interest payment dates, make payments of
interest on the Subordinated Notes at the interest rate listed on each
Subordinated Note respectively, subject to satisfaction of the following
conditions: (i) no Default shall have occurred and be continuing (or would
occur as a result of such payment) on the date of such payment; and (ii)
Borrower shall have given the Lender at lease five Business Days prior written
notice of its intention to make any such payment together with evidence
reasonably satisfactory in the judgment of the Lender that the condition set
forth in the foregoing clause (i) will be satisfied on and as of the date of
such payment. Borrower will not consent to any amendment, modification,
supplement or waiver of any of the provisions of the Subordinated Notes.
6.19 No Speculative Transactions. Borrower shall not (and shall not permit
---------------------------
any of its Subsidiaries to) engage in any speculative transaction or any
transaction involving commodity options or futures contracts (other than in the
ordinary course of business consistent with past practice).
6.20 Margin Regulations. Borrower shall not use the proceeds of any Loan to
------------------
purchase or carry any Margin Stock or any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
6.21 Limitation on Negative Pledge Clauses. Borrower shall not (and shall not
-------------------------------------
permit any of its Subsidiaries to), directly or indirectly, enter into any
agreement with any Person other than the
<PAGE>
Lender pursuant to a Loan Document which prohibits or limits the ability of
Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired.
6.22 Accounting Changes. Borrower shall not (and shall not permit any of its
------------------
Subsidiaries to) make, any significant change in accounting treatment and
reporting practices except for changes concurred in by Borrower's independent
public accountants and approved by the Lender.
6.23 EBITDA. Permit the EBITDA of Holdings, determined on a consolidated
------
basis in accordance with GAAP, at the end of each Fiscal Quarter set forth below
to be less than the corresponding amount set forth below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
31-Dec-97 $ 3,700,000
$ 7,000,000
31-Mar-98 $10,200,000
30-June-98 $11,800,000
30-Sep-98 $12,800,000
31-Dec-98 $12,950,000
31-Mar-99 $13,100,000
30-June-99 $13,400,000
30-Sep-99 $13,600,000
31-Dec-99 $13,750,000
31-Mar-00 $13,900,000
30-June-00 $14,300,000
30-Sep-00 $14,700,000
31-Dec-00 $14,900,000
31-Mar-01 $15,100,000
30-June-01 $15,525,000
30-Sep-01 $15,700,000
31-Dec-01 $15,850,000
31-Mar-02 $16,000,000
30-June-02 $16,275,000
30-Sep-02 $16,400,000
31-Dec-02
</TABLE>
6.24 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio of
Holdings, determined on a consolidated basis in accordance with GAAP, at the end
of each Fiscal Quarter forth below to be less than the corresponding ratio set
forth below:
Each Fiscal Quarter Falling
---------------------------
<PAGE>
<TABLE>
<CAPTION>
Between The Following Periods Ratio
----------------------------- -----
<S> <C>
31-Dec-98 1.025:1.0
31-Mar-99 1.025:1.0
30-June-99 1.025:1.0
30-Sep-99 1.025:1.0
31-Dec-99 1.035:1.0
31-Mar-00 1.035:1.0
30-June-00 1.035:1.0
30-Sep-00 1.10:1.0
31-Dec-00 1.10:1.0
31-Mar-01 1.10:1.0
30-June-01 1.10:1.0
30-Sep-01 1.15:1.0
31-Dec-01 1.15:1.0
31-Mar-02 1.15:1.0
30-June-02 1.15:1.0
30-Sep-02 1.20:1.0
31-Dec-02 1.25:1.0
</TABLE>
6.25 Leverage Ratio. Permit the Leverage Ratio at the end of each Fiscal
--------------
Quarter set forth below to be more than the corresponding ratio set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- ----
<S> <C>
31-Dec-97 5.50:1.0
5.40:1.0
31-Mar-98 5.30:1.0
30-June-98 5.10:1.0
30-Sep-98 4.90:1.0
31-Dec-98 4.80:1.0
31-Mar-99 4.70:1.0
30-June-99 4.50:1.0
30-Sep-99 4.30:1.0
31-Dec-99 4.25:1.0
31-Mar-00 4.20:1.0
30-June-00 4.00:1.0
30-Sep-00 3.75:1.0
31-Dec-00 3.70:1.0
31-Mar-01 3.65:1.0
30-June-01 3.50:1.0
30-Sep-01 3.30:1.0
</TABLE>
<PAGE>
<TABLE>
<S> <C>
31-Dec-01 3.25:1.0
31-Mar-02 3.20:1.0
30-June-02 3.10:1.0
30-Sep-02 3.00:1.0
31-Dec-02
</TABLE>
6.26 Total Liabilities. The total liabilities of the Borrower and Holdings,
-----------------
on a consolidated basis (including this Agreement), as of December 31, 1997,
shall not exceed $88,000,000.00.
7. TERM
7.1 Duration. The financing arrangement contemplated hereby shall be in
--------
effect until the Termination Date. On the Termination Date, the Acquisition
Line Commitment shall terminate and the Term Loan, Acquisition Line Advances and
all other Obligations shall immediately become due and payable in full, in cash.
7.2 Survival of Obligations. Except as otherwise expressly provided for in
-----------------------
the Loan Documents, no termination or cancellation (regardless of cause or
procedure) of any financing arrangement under this Agreement shall in any way
affect or impair the Obligations, duties, indemnities, and liabilities of any
Loan Party, or the rights of the Lender or the Lender relating to any
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is not required until after the Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon any Loan Party, and all rights of the Lender,
all as contained in the Loan Documents shall not terminate or expire, but rather
shall survive such termination or cancellation and shall continue in full force
and effect until such time as all of the Obligations have been indefeasibly paid
in full in accordance with the terms of the agreements creating such
Obligations.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
--------
Default" hereunder:
- -------
(a) Borrower shall fail to make any payment in respect of any Obligations
hereunder or under any of the other Loan Documents when due and payable or
declared due and payable, including, without limitation, any payment of
principal of, or interest on, the Term Loan or Acquisition Line Advances, and
the same shall remain unpaid for a period ending three (3) days after the date
such payment was due and payable or declared due and payable.
<PAGE>
(b) Borrower shall fail or neglect to perform, keep or observe any of the
provisions of Section 6, Section 5.9, Section 5.5 or Section 5.1, including,
--------- ----------- ----------- -----------
without limitation, any of the provisions set forth on Annex D.
-------
(c) Any Loan Party shall fail or neglect to perform, keep or observe any
term or provision of this Agreement (other than any such term or provision
referred to in paragraph (a) or (b) above) or of any of the other Loan
Documents, and the same shall remain unremedied for a period ending on the first
to occur of ten (10) days after Borrower shall receive written notice of any
such failure from the Lender or thirty (30) days after any Loan Party shall
become aware thereof.
(d) A default shall occur under any other agreement, document or
instrument to which any Loan Party is a party or by which any such Person or its
property is bound, and such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise) due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) in respect of
any Indebtedness of such Person in an aggregate amount exceeding $100,000.00 or
(ii) causes (or permits any holder of such Indebtedness or a trustee to cause)
such Indebtedness, or a portion thereof in an aggregate amount exceeding
$100,000.00, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment.
(e) Any representation or warranty herein or in any Loan Document or in
any written statement pursuant thereto or hereto, any report, financial
statement or certificate made or delivered to the Lender or the Lender by any
Loan Party shall be untrue or incorrect in any material respect as of the date
when made or deemed made (including those made or deemed made pursuant to
Section 2.2 and Section 4).
- ----------- ---------
(f) Any of the assets of any Loan Party shall be attached, seized, levied
upon or subjected to a writ or distress warrant, or come within the possession
of any receiver, trustee, custodian or assignee for the benefit of creditors of
such Loan Party and shall remain unstayed or undismissed for sixty (60)
consecutive days; or any Person other than a Loan Party shall apply for the
appointment of a receiver, trustee or custodian for any Loan Party's assets and
shall remain unstayed or undismissed for sixty (60) consecutive days; or any
Loan Party shall have concealed, removed or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against any Loan Party
in a court having competent jurisdiction seeking a decree or order (i) under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) appointing a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any Loan Party or of any substantial part
of its properties, or (iii) ordering the winding up or liquidation of the
affairs of any Loan Party and such case or proceeding
<PAGE>
shall remain undismissed or unstayed for sixty (60) consecutive days or such
court shall enter a decree or order granting the relief sought in such case or
proceeding.
(h) Any Loan Party shall (i) file a petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended, or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii)
consent to the institution of proceedings thereunder or to the filing of any
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
of any Loan Party or of any substantial part of any Loan Party's properties,
(iii) fail generally to pay its debts as such debts become due, or (iv) take any
corporate action in furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of $250,000.00 in the
aggregate shall be rendered against any Loan Party, unless the same shall be (i)
fully covered by insurance in accordance with Section 5.5, or (ii) vacated,
-----------
stayed, bonded, paid or discharged within a period of fifteen (15) days from the
date of such judgment.
(j) There shall occur any Material Adverse Effect since the Closing Date
which shall not have been cured (or waived by the Lender) within ten days of
notice thereof from the Lender to Borrower.
(k) Any provision of any Loan Document shall for any reason cease to be
valid, binding and enforceable in accordance with its terms; or any Lien created
under any Collateral Document shall cease to be a valid and perfected Lien
having the first priority in any of the Collateral purported to be covered
thereby.
(l) John P. Miller ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of Borrower.
(m) Dave Sutherland ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from Sutherland and not replaced by an individual
acceptable to Lender within a reasonable period of time.
(n) Bill Blackwell ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from Blackwell Lithographers, Inc. and not replaced by an
individual acceptable to Lender within a reasonable period of time.
(o) Ron McKinney ceases for any reason whatsoever (other than as a result
of his death) to be actively engaged in the management of the division of the
Borrower acquired from B & M Printing, Inc. and not replaced by an individual
acceptable to Lender within a reasonable period of time.
<PAGE>
(p) Either Ed Cox or Russ Gordon ceases for any reason whatsoever (other
than as a result of his death) to be actively engaged in the management of the
division of the Borrower acquired from Lithograph Printing of Memphis, Inc. and
not replaced by an individual acceptable to Lender within a reasonable period of
time.
(q) Cary Rosenthal ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from Phoenix Communications, Inc. and King Mailing
Services, Inc. and not replaced by an individual acceptable to Lender within a
reasonable period of time.
(r) Wendell Burns ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from Jones Printing Company, Inc. and not replaced by an
individual acceptable to Lender within a reasonable period of time.
(s) Holdings ceases for any reason whatsoever to employ individuals
acceptable to Lender in each of the following positions and any such position is
not filled by an individual satisfactory to Lender within sixty (60) days
thereafter: Chief Financial Officer, Senior Vice President -Marketing and,
commencing ninety (90) days after the Closing Date, Chief Operating Officer.
(t) There shall occur a Change of Control.
(u) There shall occur any "Event of Default" under and as defined in the
Subordinated Notes.
(v) An event or condition specified in Section 6.10 hereof shall occur or
------------
exist with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions, Borrower,
any Subsidiary thereof or any ERISA Affiliate shall incur or in the opinion of
the Lender shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing) in excess of
$100,000.00 in the aggregate.
(w) The occurrence of a default under the provisions of any of the other
Loan Documents.
(x) The liquidation, termination or dissolution of the Borrower or
Holdings without the prior written consent of the Lender.
(y) The repudiation of any guaranty of the Obligations by any Guarantor.
(z) Either Joseph M. Jensen, Alan R. Bartel or Victor Giampietro ceases
for any reason whatsoever (other than as a result of his death) to be actively
engaged in the management of
<PAGE>
the division of the Borrower acquired from The Argus Press, Inc. and not
replaced by an individual acceptable to Lender within a reasonable period of
time.
8.2 Remedies. (a) If any Event of Default shall have occurred and be
--------
continuing the rate of interest applicable to the Loans and the other
Obligations may, at the Lender's sole discretion, be increased, effective as of
the date of the occurrence of the Default giving rise to such Event of Default,
to the Default Rate as provided in Section 1.4(g). If any Event of Default
--------------
shall have occurred and be continuing the Lender shall, or may with the consent
of the Lender, without notice, take any one or more of the following actions:
(a) terminate the Acquisition Line Commitment whereupon Lender's obligation to
make further Acquisition Line Advances shall terminate; or (b) declare all or
any portion of the Obligations to be forthwith due and payable whereupon such
Obligations shall become and be due and payable; or (c) exercise any rights and
remedies provided to the Lender under the Loan Documents and/or at law or
equity, including all remedies provided under the Code; provided, however, that
-------- -------
upon the occurrence of an Event of Default specified in Section 8.1 (f), (g) or
-----------------------
(h), the rate of interest applicable to all Obligations shall be increased
- ---
automatically to the Default Rate as provided in Section 1.4(f), and Acquisition
--------------
Line Commitment shall immediately terminate and the Obligations shall become
immediately due and payable, in each case, without declaration, notice or demand
by any Person.
Without limiting the generality of the foregoing, Borrower expressly agrees
that in any such event Lender without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Borrower or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the Code and other applicable law),
may forthwith enter upon the premises of Borrower where any Collateral is
located through self-help, without judicial process, without first obtaining a
final judgment or giving Borrower notice and opportunity for a hearing on
Lender's claim or action, and without paying rent to Borrower, and collect,
receive, assemble, process, appropriate and realize upon the Collateral, or any
part thereof, and may forthwith sell, lease, assign, give an option or options
to purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase for
its benefit the whole or any part of said Collateral so sold, free of any right
or equity of redemption, which equity of redemption Borrower hereby releases.
Such sales may be adjourned or continued from time to time with or without
notice. Lender shall have the right to conduct such sales on Borrower's
premises or elsewhere and shall have the right to use Borrower's premises
without charge for such sales for such time or times as Lender deems necessary
or advisable.
Borrower further agrees, at Lender's request, to assemble the Collateral
and make it available to Lender at places which Lender shall reasonably select,
whether at Borrower's premises or elsewhere. Until Lender is able to effect a
sale, lease, or other disposition of the Collateral, Lender
<PAGE>
shall have the right to use or operate the Collateral on behalf of Lender, or
any part thereof, to the extent that it deems appropriate for the purpose of
preserving the Collateral or its value or for any other purpose deemed
appropriate by Lender. Lender shall have no obligation to Borrower to maintain
or preserve the rights of Borrower as against third parties with respect to the
Collateral while the Collateral is in the possession of Lender. Lender may, if
it so elects, seek the appointment of a receiver or keeper to take possession of
the Collateral and to enforce any of Lender's remedies with respect to such
appointment without prior notice or hearing. Lender shall apply the net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
as provided in this paragraph (d) below, Borrower remaining liable for any
deficiency remaining unpaid after such application, and only after so paying
over such net proceeds and after the payment by Lender of any other amount
required by any provision of law, including section 9-504(1)(c) of the Code (but
only after Lender has received what Lender considers reasonable proof of a
subordinate party's security interest), need Lender account for the surplus, if
any, to Borrower. To the maximum extent permitted by applicable law, Borrower
waives all claims, damages, and demands against Lender arising out of the
repossession, retention or sale of the Collateral except such which may arise
out of the gross negligence or willful misconduct of such party. Borrower agrees
that five (5) days' prior notice by Lender of the time and place of any public
sale or of the time after which a private sale may take place is reasonable
notification of such matters. Borrower shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled, Borrower also being liable for any
attorneys' fees incurred by Lender to collect such deficiency.
(b) Borrower agrees to pay any and all costs of Lender, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(c) Except as otherwise specifically provided herein, Borrower hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon all
or any part of the Collateral shall be distributed by Lender upon receipt, in
the following order of priorities:
First, the payment in full of reasonable expenses of Lender in connection
-----
with such sale, disposition or other realization, including all expenses,
liabilities and advances incurred or made by Lender in connection therewith,
including reasonable attorney's fees;
Second, to the ratable payment of accrued but unpaid interest on the
------
Obligations;
Third, to the ratable payment of unpaid principal of the Obligations;
-----
Fourth, to the ratable payment of all other Obligations until all other
------
Obligations shall have been paid in full; and
<PAGE>
Finally, to payment to Borrower, or its successors or assigns, or as a
-------
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
8.3 Grant of License to Use Patent and Trademark Collateral. For the purpose
-------------------------------------------------------
of enabling Lender to exercise rights and remedies under Section 8.2 hereof
-----------
(including, without limiting the terms of Section 8.2 hereof, in order to take
-----------
possession of, hold, preserve, process, assemble, prepare for sale, market for
sale, sell or otherwise dispose of Collateral) at such time as Lender shall be
lawfully entitled to exercise such rights and remedies, Borrower hereby grants
to Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Borrower) to use, transfer, license or
sublicense any Patent, Trademark, Copyrights or trade secret now owned or
hereafter acquired by Borrower, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
8.4 Waivers by Borrower. Except as otherwise provided for in this Agreement
-------------------
and applicable law to the full extent permitted by applicable law, Borrower
waives (i) presentment, demand and protest and notice of presentment, dishonor,
notice of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all Loan Documents, notes, commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by the
Lender or the Lender on which Borrower may in any way be liable, and Borrower
hereby ratifies and confirms whatever the Lender or the Lender may do in this
regard, (ii) all rights to notice and a hearing prior to the Lender's taking
possession or control of, or to the Lender's replevin, attachment or levy upon,
the Collateral or any bond or security which might be required by any court
prior to allowing the Lender to exercise any of their remedies, and (iii) the
benefit of any right of redemption and all valuation, appraisal and exemption
laws. Borrower acknowledges that it has been advised by counsel of its choice
with respect to this Agreement, the other Loan Documents and the transactions
contemplated by this Agreement and the other Loan Documents.
9. SUCCESSORS AND ASSIGNS
9.1 Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding on and shall inure to the benefit of Borrower, the Lender and
its respective successors and assigns, except as otherwise provided herein or
therein. Borrower may not assign, delegate, transfer, hypothecate or otherwise
convey its rights, benefits, obligations or duties hereunder or under any of the
Loan Documents without the prior express written consent of the Lender. Any
such purported assignment, transfer, hypothecation or other conveyance by
Borrower without such prior express written consent shall be void. The terms
and provisions of this Agreement and the other Loan Documents are for the
purpose of defining the relative rights and obligations of Borrower, the Lender
<PAGE>
with respect to the transactions contemplated hereby and there shall be no third
party beneficiaries of any of the terms and provisions of this Agreement or any
of the other Loan Documents.
10. PARTICIPATIONS AND ASSIGNMENTS
(a) Lender (without Borrower's consent) may assign and grant
participations in all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a part of its Term Loan, its
Acquisition Line Advances, its Acquisition Line Commitment, its Note A and its
Note B) to an Affiliate or to any other Person.
(b) In the case of an assignment by Lender under this Section 10, the
----------
assignee shall have, to the extent of such assignment, the same rights, benefits
and obligations as it would if it were the Lender hereunder. Upon execution by
the assignor and the assignee of an instrument pursuant to which the assignee
assumes such rights and obligations, payment by such assignee to such assignor
of an amount equal to the purchase price agreed between such assignor and such
assignee and delivery to the Lender and Borrower of an executed copy of such
instrument, such assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights and benefits as it would have if it
were the Lender hereunder and the assignor shall be, to the extent of such
assignment (unless otherwise provided therein) released from its obligations
under this Agreement. Borrower hereby acknowledges and agrees that any
assignment will give rise to a direct obligation of Borrower to the assignee and
that the assignee shall be considered to be the "Lender." Upon any such
assignment, Borrower, at its own expense, shall execute and deliver to the
assignee lender in exchange for the surrendered Note A or Note B of the assignor
lender a new Note A or Note B, as the case may be, to the order of the assignee
lender in an amount equal to the Term Loan A or the Term Loan B, as the case may
be, plus the Acquisition Line Commitment. Such new Note A or Note B shall be
----
dated the Closing Date and shall otherwise be in the form of the Note A or Note
B replaced thereby. The Note A or Note B surrendered to the assignee lender
shall be returned by the assignee lender to Borrower marked "canceled". The
Borrower hereby waives and agrees not to assert against any such assignee any
defense, set-off, recoupment or counterclaim which Borrower has or may at any
time have against the Lender or any other Person for any reason whatsoever.
(c) The Borrower acknowledges that it has been advised that the Lender is
acting hereunder for itself and as agent for certain third parties (each being
herein referred to as a "Participant" and, collectively, as the "Participants");
----------- ------------
that the interest of the Lender in this Agreement, the other Loan Documents and
any other related instruments and documents may be conveyed to, in whole or in
part, and may be used as security for financing obtained from, one or more third
parties without the consent of the Borrower (the "Syndication"). The Borrower
-----------
agrees reasonably to cooperate with Lender in connection with the Syndication,
including the execution and delivery of such other documents, instruments,
notices, opinions, certificates and acknowledgments as reasonably may be
required by Lender or such Participant; provided, however, in no event shall the
--------
Borrower be required to consent to any change that would adversely affect any of
the economic terms of the transactions contemplated herein.
<PAGE>
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter thereof and supersede all prior agreements, commitments,
understandings or inducements (oral or written, expressed or implied). Neither
this Agreement nor any other Loan Document nor any terms hereof or thereof may
be changed, waived, discharged or terminated unless such change, waiver,
discharge or termination is in writing signed by the Lender; provided that no
--------
such change, waiver, discharge or termination shall, without the consent of the
Lender, (i) extend the scheduled final maturity of the Term Loan or any
Acquisition Line Advance, or any portion thereof, or reduce the rate or extend
the time of payment of interest (other than as a result of waiving the
applicability of any post-default increase in interest rates) thereon or fees or
reduce the principal amount thereof, or increase the Acquisition Line Commitment
of the Lender over the amount thereof then in effect (it being understood that a
waiver of any Default shall not constitute a change in the terms of any
Acquisition Line Commitment of the Lender), (ii) release all or substantially
all of the Collateral (except as expressly permitted by the Loan Documents),
(iii) amend, modify or waive any provision of this Section 11.1, (iv) reduce any
------------
percentage specified in, or otherwise modify, the definition of the Lender or
(v) consent to the assignment or transfer by Borrower of any of its rights and
obligations under this Agreement. No provision of Section 9 may be amended
---------
without the prior written consent of the Lender.
<PAGE>
11.2 Fees and Expenses.
-----------------
(a) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) of the Lender in
connection with the preparation, negotiation, approval, execution, delivery,
administration, modification, amendment, waiver and enforcement (whether through
negotiations, legal proceedings or otherwise) of the Loan Documents, and
commitments relating thereto, and the other documents to be delivered hereunder
or thereunder and the transactions contemplated hereby and thereby and the
fulfillment or attempted fulfillment of conditions precedent hereunder,
including, without limitation: (i) wire transfer fees and other costs of
forwarding to Borrower or any other Person on behalf of Borrower by the Lender
and the Lender of the proceeds of the Term Loan or Acquisition Line Advances;
(ii) any amendment, modification or waiver of, or consent with respect to, any
of the Loan Documents or advice in connection with the administration of the
advances made pursuant hereto or its rights hereunder or thereunder; (iii) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
the Lender, Borrower or any other Person) in any way relating to the Collateral,
any of the Loan Documents or any other agreements to be executed or delivered in
connection therewith or herewith, whether as party, witness, or otherwise,
including any litigation, contest, dispute, suit, case, proceeding or action,
and any appeal or review thereof, in connection with a case commenced by or
against Borrower or any other Person that may be obligated to the Lender by
virtue of the Loan Documents; (iv) any attempt to enforce any rights of the
Lender against Borrower or any other Person that may be obligated to the Lender
by virtue of any of the Loan Documents; or (v) after the occurrence and during
the continuance of any Default, any effort to (A) evaluate, observe, assess
Borrower or its affairs, or (B) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of the Collateral.
(b) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable counsels' fees) of the Lender and the
Lender in connection with any Default and any enforcement or collection
proceedings resulting therefrom or any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents in connection with any
Default.
(c) Without limiting the generality of clauses (a) and (b) above,
Borrower's obligation to reimburse the Lender and/or the Lender for costs and
expenses shall include the reasonable fees and expenses of counsel (and local,
foreign or special counsel, advisors, consultants and auditors retained by such
counsel), accountants, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram charges;
secretarial overtime charges; expenses for travel, lodging and food; and all
other out-of-pocket costs and expenses of every type and nature paid or incurred
in connection with the performance of such legal or other advisory services.
11.3 No Waiver. No failure on the part of the Lender, at any time or times,
---------
to require strict performance by any Loan Party, of any provision of this
Agreement and any of the other Loan
<PAGE>
Documents shall waive, affect or diminish any right of the Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver of
a Default shall not suspend, waive or affect any other Default whether the same
is prior or subsequent thereto and whether of the same or of a different type.
None of the undertakings, agreements, warranties, covenants and representations
of any Loan Party contained in this Agreement or any of the other Loan Documents
and no Default by any Loan Party shall be deemed to have been suspended or
waived by the Lender, unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized employee of the Lender if
required hereunder and directed to Borrower specifying such suspension or
waiver.
11.4 Remedies. The rights and remedies of the Lender under this Agreement
--------
shall be cumulative and nonexclusive of any other rights and remedies which the
Lender or the Lender may have under any other agreement, including, without
limitation, the Loan Documents, by operation of law or otherwise. Recourse to
the Collateral shall not be required.
11.5 Severability. Wherever possible, each provision of this Agreement shall
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.6 Conflict of Terms. Except as otherwise provided in this Agreement or any
-----------------
of the other Loan Documents by specific reference to the applicable provisions
of this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in any of the other Loan Documents,
the provisions contained in this Agreement shall govern and control.
11.7 Right of Set-off. Subject to Section 1.1(d) and 1.2 (f), upon the
---------------- -------------- -------
occurrence and during the continuance of any Event of Default, the Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Lender to or for the credit or the account of Borrower
against any and all of the Obligations now or hereafter existing irrespective of
whether or not the Lender shall have made any demand under this Agreement or any
other Loan Document and although such Obligations may be unmatured. The Lender
agrees promptly to notify the Lender and Borrower after any such set-off and
application made by the Lender; provided, however, that the failure to give such
-------- -------
notice shall not affect the validity of such set-off and application. The
rights of the Lender under this Section are in addition to the other rights and
remedies (including, without limitation, other rights of set-off) which the
Lender may have.
11.8 Authorized Signature. Until the Lender shall be notified by Borrower the
--------------------
contrary, the signature upon any document or instrument delivered pursuant
hereto and believed by the Lender or any of the Lender's officers, the Lender,
or employees to be that of an officer or duly authorized
<PAGE>
representative of Borrower listed on Schedule 11.8 shall bind Borrower and be
-------------
deemed to be the act of Borrower affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's Board of Directors, and the Lender and
the Lender shall be entitled to assume the authority of each signature and
authority of the person whose signature it is or appears to be unless the person
acting in reliance of such signature shall have actual knowledge of the fact
that such signature is false or the person whose signature or purported
signature is presented is without authority.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
-------------
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER AND LENDER HEREBY
CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK CITY
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK CITY AND,
PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES
ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
----- --- ----------
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON SCHEDULE 11.10 OF THIS
--------------
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
<PAGE>
11.10 Notices. Except as otherwise provided herein, whenever it is provided
-------
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon either of the parties by
the other party, or whenever either of the parties desires to give or serve upon
the other party any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (i) upon the earlier of actual receipt and three (3) days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 11.10, (iii) one (1)
-------------
Business Day after deposit with a reputable overnight courier with all charges
prepaid or (iv) when delivered, if hand-delivered by messenger, all of which
shall be addressed to the party to be notified and sent to the address or
facsimile number indicated below or to such other address (or facsimile number)
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower, the Lender or the Lender) designated below to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
(g) If to the Lender, at:
General Electric Capital Corporation
Capital Funding, Inc.
777 Long Ridge Road
Bldg. B, First Floor
Stamford, Connecticut 06927
Attention: Kim Tanner
Telecopy No.: (203) 316-7989
With copies to:
General Electric Capital Corporation
Capital Funding, Inc.
5400 LBJ Freeway, Suite 1280
Dallas, Texas 75240
Attention: John Hanley
Steve Bellah
Telecopy No.: (972) 419-3289
and
<PAGE>
Patton Boggs, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Larry A. Makel, Esq.
Telecopy No.: (214) 871-2688
(b) If to Borrower, at:
Premier Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: Mr. John P. Miller
Telecopy No.: (901) 744-6012
11.11 Section Titles. The Section titles and Table of Contents contained in
--------------
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of this Agreement.
11.12 Counterparts. This Agreement may be executed in any number of separate
------------
counterparts, each of which shall, collectively and separately, constitute one
agreement.
11.13 Time of the Essence. Time is of the essence of this Agreement and each
-------------------
of the other Loan Documents.
11.14 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
--------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
11.15 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
------------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
11.16 RELEASE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) IT HAS NO CLAIMS,
-------
COUNTERCLAIMS, OFFSETS, CREDITS OR DEFENSES OF ANY KIND OR NATURE WHATSOEVER TO
THE ORIGINAL AGREEMENT AND THE OTHER ORIGINAL LOAN DOCUMENTS AND THE PERFORMANCE
OF ITS OBLIGATIONS THEREUNDER, OR (B) IF IT HAS ANY SUCH CLAIMS, COUNTERCLAIMS,
OFFSETS, CREDITS OR DEFENSES TO THE ORIGINAL LOAN DOCUMENTS AND/OR ANY
TRANSACTION RELATED TO THE ORIGINAL LOAN DOCUMENTS, SAME ARE HEREBY WAIVED,
RELINQUISHED AND RELEASED IN CONSIDERATION OF EACH LENDER'S EXECUTION AND
DELIVERY OF THIS AGREEMENT.
11.17 Amendment and Restatement of Original Agreement. This Agreement and
-----------------------------------------------
the Notes are given in amendment, restatement, renewal and extension (but not in
novation, extinguishment or satisfaction) of the Original Agreement and the
promissory notes executed in connection therewith. All liens and security
interests securing payment of the obligations under the Original Agreement and
such promissory notes are hereby collectively renewed, extended, rearranged,
ratified and brought forward as security for the payment and performance of the
Obligations. With respect to matters relating to the period prior to the date
hereof, all of the provisions of the Original Agreement and the promissory
notes, security agreements and other documents, instruments or agreements
executed in connection therewith are hereby ratified and confirmed and shall
remain in force and effect.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
Borrower:
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
John P. Miller
President
Lender:
------
GENERAL ELECTRIC CAPITAL
CORPORATION
Acquisition Line Commitment: By: /s/ John E. Hanley
- --------------------------- ------------------
$12,200,000 John E. Hanley
Senior Credit Analyst
<PAGE>
- --------------------------------------------------------------------------------
U.S. $60,000,000.00
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of December 16, 1997
between
PREMIER GRAPHICS, INC.
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION,
for itself and as agent for certain participants
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. AMOUNT AND TERMS OF TERM LOANS AND ACQUISITION LINE
1.1 Term Loans...................................................................... 1
1.2 Acquisition Line Advances....................................................... 3
1.3 Mandatory Prepayments........................................................... 4
1.4 Interest........................................................................ 5
1.5 Fees............................................................................ 7
1.6 Receipt of Payments............................................................. 7
1.7 Application and Allocation of Payments.......................................... 7
1.8 Accounting...................................................................... 7
1.9 Indemnity....................................................................... 8
1.10 Access.......................................................................... 9
1.11 Taxes........................................................................... 9
1.12 Additional Provisions........................................................... 10
1.13 Security Interest in the Collateral............................................. 11
1.14 Rights of Lender, Limitations on Obligations of Lender.......................... 12
1.15 Termination of CAPEX Line Commitment............................................ 13
2. CONDITIONS PRECEDENT................................................................... 13
2.1 Conditions to the Term Loan and Initial Acquisition Line Advance................ 13
2.2 Further Conditions to Each Acquisition Line Advance............................. 15
3. REPRESENTATIONS AND WARRANTIES......................................................... 15
3.1 Corporate Existence; Compliance with Law........................................ 16
3.2 Executive Offices; Corporate or Other Names..................................... 16
3.3 Corporate Power; Authorization; Enforceable Obligations......................... 16
3.4 Financial Statements and Projections............................................ 16
3.5 Material Adverse Change......................................................... 17
3.6 Ownership of Property; Liens.................................................... 17
3.7 Restrictions; No Default; Material Contracts.................................... 17
3.8 Labor Matters................................................................... 18
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness....... 18
3.10 Government Regulation........................................................... 18
3.11 Margin Regulations.............................................................. 19
3.12 Taxes........................................................................... 19
3.13 ERISA........................................................................... 19
3.14 No Litigation................................................................... 21
3.15 Brokers......................................................................... 21
3.16 Patents, Trademarks, Copyrights and Licenses.................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.17 Full Disclosure................................................................. 21
3.18 Hazardous Materials............................................................. 22
3.19 Insurance Policies.............................................................. 22
3.20 Deposit and Disbursement Accounts............................................... 22
3.21 Subordinated Notes and Shareholders' Agreement.................................. 22
3.22 Representations and Warranties Regarding the Collateral......................... 22
4. FINANCIAL STATEMENTS AND INFORMATION................................................... 24
4.1 Reports and Notices............................................................. 24
4.2 Communication with Accountants.................................................. 24
5. AFFIRMATIVE COVENANTS.................................................................. 24
5.1 Maintenance of Existence and Conduct of Business................................ 24
5.2 Payment of Charges and Claims................................................... 25
5.3 Books and Records............................................................... 25
5.4 Litigation...................................................................... 25
5.5 Insurance....................................................................... 25
5.6 Compliance with Laws............................................................ 26
5.7 Agreements...................................................................... 26
5.8 Supplemental Disclosure......................................................... 27
5.9 Environmental Matters........................................................... 27
5.10 Landlord's and Mortgagee's Agreements........................................... 27
5.11 Certain Obligations Respecting Subsidiaries..................................... 28
5.12 Application of Proceeds......................................................... 28
5.13 Fiscal Year..................................................................... 28
5.14 Casualty and Condemnation....................................................... 28
5.15 Covenants Regarding the Collateral.............................................. 29
5.16 Lender's Appointment as Attorney-in-Fact........................................ 32
5.17 Maintenance Covenant............................................................ 34
6. NEGATIVE COVENANTS..................................................................... 34
6.1 Mergers, Subsidiaries, Etc...................................................... 34
6.2 Investments..................................................................... 34
6.3 Indebtedness.................................................................... 35
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements............ 35
6.5 Capital Structure and Business.................................................. 35
6.6 Guaranteed Indebtedness......................................................... 36
6.7 Liens........................................................................... 36
6.8 Sale of Assets.................................................................. 36
6.9 Material Contracts.............................................................. 36
6.10 ERISA........................................................................... 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.11 Financial Covenants............................................................. 37
6.12 Hazardous Materials............................................................. 38
6.13 Sale-Leasebacks................................................................. 38
6.14 Cancellation of Indebtedness.................................................... 38
6.15 Restricted Payments............................................................. 38
6.16 Real Property Leases............................................................ 39
6.17 Bank Accounts................................................................... 39
6.18 Subordinated Notes.............................................................. 39
6.19 No Speculative Transactions..................................................... 39
6.20 Margin Regulations.............................................................. 39
6.21 Limitation on Negative Pledge Clauses........................................... 39
6.22 Accounting Changes.............................................................. 39
6.23 EBITDA.......................................................................... 40
6.24 Fixed Charge Coverage Ratio..................................................... 40
6.25 Leverage Ratio.................................................................. 41
6.26 Total Liabilities............................................................... 41
7. TERM................................................................................... 42
7.1 Duration........................................................................ 42
7.2 Survival of Obligations......................................................... 42
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES................................................. 42
8.1 Events of Default............................................................... 42
8.2 Remedies........................................................................ 45
8.3 Grant of Licenses to Use Patent and Trademark Collateral........................ 47
8.4 Waivers by Borrower............................................................. 47
9. SUCCESSOR AND ASSIGNS.................................................................. 48
10 PARTICIPATIONS AND ASSIGNMENTS......................................................... 48
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement................................... 49
11.2 Fees and Expenses............................................................... 50
11.3 No Waiver....................................................................... 50
11.4 Remedies........................................................................ 51
11.5 Severability.................................................................... 51
11.6 Conflict of Terms............................................................... 51
11.7 Right of Set-off................................................................ 51
11.8 Authorized Signature............................................................ 51
11.9 GOVERNING LAW................................................................... 52
11.10 Notices......................................................................... 52
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.11 Section Titles.................................................................. 54
11.12 Counterparts.................................................................... 54
11.13 Time of the Essence............................................................. 54
11.14 WAIVER OF JURY TRIAL............................................................ 54
11.15 NO ORAL AGREEMENTS.............................................................. 54
11.16 Release......................................................................... 54
11.17 Amendment and Restatement of Original Agreement................................. 55
</TABLE>
<PAGE>
INDEX OF ANNEXES, SCHEDULES AND EXHIBITS
Annex A - Definitions
Annex B - Schedule of Closing Documents
Annex C - Schedule of Certain Fees
Annex D - Financial Statements, Projections and Notices
Annex E - Insurance Requirements
Schedule 3.2 - Executive Offices; Trade Names
Schedule 3.4 - Financial Statements and Projections
Schedule 3.5 - Dividends
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Material Contracts
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures, Subsidiaries and Affiliates;
Outstanding Stock
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Disbursement and Deposit Accounts
Schedule 3.22(c) - Schedule of Officers, Locations of Collateral and
Record Concerning Collateral
Schedule 3.22(d) - Schedule of Instruments
Schedule 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4 - Loans to and Transactions with Employees
Schedule 6.7 - Liens
Schedule 11.8 - Authorized Signatures
Exhibit A - [Intentionally Omitted.]
Exhibit B-1 - Form of Note A
Exhibit B-2 - Form of Note B
Exhibit C - Form of Borrower Pledge Agreement
Exhibit D - Form of Subsidiary Guaranty
Exhibit E - Form of Subsidiary Security Agreement
Exhibit F - Form of Parent Guaranty
Exhibit G - Form of Parent Pledge Agreement
Exhibit H - Form of Certificate Regarding Eligible Equipment
Exhibit I - Form of Shareholder Pledge Agreement
Exhibit J - Copy of Purchase Warrant (September 26, 1997)
Exhibit K - Copy of Warrant Purchase Agreement (September 26,
<PAGE>
1997) and First Amendment thereto
Exhibit L - Form of Purchase Warrant (Closing Date)
Exhibit M - Form of Warrant Purchase Agreement (Closing Date)
Exhibit N - Copy of Company Guaranty
<PAGE>
Exhibit 10.47
ANNEXES, SCHEDULES AND EXHIBITS
TO
AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT
Dated as of December 16, 1997
between
PREMIER GRAPHICS, INC.,
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION,
for itself and as agent for certain participants
<PAGE>
INDEX OF ANNEXES, SCHEDULES AND EXHIBITS
----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Annex A - Definitions
Annex B - Schedule of Closing Documents
Annex C - Schedule of Certain Fees
Annex D - Financial Statements, Projections and Notices
Annex E - Insurance Requirements
Schedule 3.2 - Executive Offices; Trade Names
Schedule 3.4 - Financial Statements and Projections
Schedule 3.5 - Dividends
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Material Contracts
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures, Subsidiaries and Affiliates; Outstanding Stock
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Disbursement and Deposit Accounts
Schedule 3.22(c) - Schedule of Offices, Locations of Collateral and Records
Concerning Collateral
Schedule 3.22(d) - Schedule of Instruments
Schedule 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4 - Loans to and Transactions with Employees
Schedule 6.7 - Liens
Schedule 11.8 - Authorized Signatures
Exhibit A - [Intentionally Omitted]
Exhibit B-1 - Form of Note A
Exhibit B-2 - Form of Note B
Exhibit C - Form of Borrower Pledge Agreement
Exhibit D - Form of Subsidiary Guaranty
Exhibit E - Form of Subsidiary Security Agreement
Exhibit F - Form of Parent Guaranty
Exhibit G - Form of Parent Pledge Agreement
Exhibit H - Form of Certificate Regarding Eligible Equipment
Exhibit I - Form of Shareholder Pledge Agreement
Exhibit J - Copy of Purchase Warrant (September 26, 1997)
Exhibit K - Copy of Warrant Purchase Agreement (September 26, 1997)
and First Amendment thereto
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Exhibit L - Form of Purchase Warrant (Closing Date)
Exhibit M - Form of Warrant Purchase Agreement (Closing Date)
Exhibit N - Copy of Company Guaranty
</TABLE>
<PAGE>
Exhibit 10.50
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of March 31/st/,
1998, by and between MASTER GRAPHICS, INC., a Tennessee corporation ("Buyer"),
and MICHAEL G. HARPER, residing in Henderson, North Carolina ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller certain shares (the "Shares") of common stock of
Harperprints, Inc. (the "Company") pursuant to the terms and conditions of a
stock purchase agreement made as of March 31/st/, 1998, (the "Stock Purchase
Agreement"). Section 2.4(a)(iv) of the Stock Purchase Agreement requires that a
noncompetition agreement be executed and delivered by Seller as a condition to
the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with the Company prior to the date hereof and has become familiar
with the following, any and all of which constitute confidential information of
the Company, (collectively the "Confidential Information"): (i) any and all
trade secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, (b) the business of the Company is
national in scope, (c) its products and services are marketed throughout the
United States; (d) the Company competes with other businesses that are or could
be located in any part of the United States; (e) Buyer has required that Seller
make the covenants set forth in Sections 3 and
1
<PAGE>
4 of this Agreement as a condition to the Buyer's purchase of the Shares owned
by Seller; (f) the provisions of Sections 3 and 4 of this Agreement are
reasonable and necessary to protect and preserve the Acquired Companies'
business, and (g) the Company would be irreparably damaged if Seller were to
breach the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, during the period in which the non-compete provisions
set forth in Section 4 below are in force, Seller will not disclose to any
unauthorized Persons or use for his own account or for the benefit of any third
party any Confidential Information, whether Seller has such information in
Seller's memory or embodied in writing or other physical form, without Buyer's
written consent, unless and to the extent that the Confidential Information is
or becomes generally known to and available for use by the public other than as
a result of Seller's fault or the fault of any other Person bound by a duty of
confidentiality to Buyer or the Company. Seller agrees to deliver to Buyer at
the time of execution of this Agreement, and at any other time Buyer may
request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) For so long as Seller is employed by Buyer or any affiliate, but for a
minimum period of five (5) years after the Closing:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, within the State of North Carolina and all contiguous states; provided,
however, that Seller may purchase or otherwise acquire up to (but not more than)
one percent of any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such securities are
listed on any national or regional securities exchange or have been registered
under Section 12(g) of the Securities Exchange Act of 1934. Seller agrees that
this covenant is reasonable with respect to its duration, geographical area, and
scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) in any way
2
<PAGE>
interfere with the relationship between the Company and any employee of the
Company, (C) employ, or otherwise engage as an employee, independent contractor,
or otherwise, any employee of the Company, or (D) induce or attempt to induce
any customer, supplier, licensee, or business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any customer, supplier, licensee, or business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during or after the five (5) year period,
disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, at any time during the five (5) year period, within ten days
after accepting any employment, advise Buyer of the identity of any employer of
Seller. Buyer or the Company may serve notice upon each such employer that
Seller is bound by this Agreement and furnish each such employer with a copy of
this Agreement or relevant portions thereof.
(e) In the event Buyer defaults in the payment of amounts due under the Fixed
Notes, Earnout Notes or the Lease Agreement of even date herewith by and among
Michael G. Harper, Lynn H. Harper and the Company and such default is not cured
within the applicable cure periods, all restrictions on Seller's activities
shall cease.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller; and
(b) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
In the event Buyer receives an award of damages against Seller for a breach of
the covenants set forth in Sections 3 or 4 of this Agreement, the amount of the
award shall reduce the amount owed under the Fixed Note and Earnout Note payable
to Seller. Should the award be in excess of the amount owed under the Fixed
Note and Earnout Note payable to Seller, Buyer may pursue collection of such
excess from Seller. The rights and remedies of the parties to this Agreement
are cumulative and not
3
<PAGE>
alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Tennessee, County of Shelby, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western
District of Tennessee, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such
4
<PAGE>
covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
Seller: Michael G. Harper
P. O. Drawer 1596
Henderson, NC 27536
with a copy to: Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Ken Beckman, Esq.
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
5
<PAGE>
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
[END OF PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By:/s/ John P. Miller
----------------------
Its: President
SELLER:
/s/ Michael G. Harper
---------------------
Michael G. Harper
7
<PAGE>
Exhibit 10.51
BILL OF SALE
Premier Graphics, Inc., a Delaware corporation ("Seller") for and in
consideration of the sum of Two Million Seven Hundred Seventy Four Thousand
Seven Hundred Six and 00/100 Dollars ($2,774,706.00) to be paid in accordance
with the terms of a promissory note of even date herewith from John P. Miller
("Buyer") does hereby bargain, sell, grant and convey unto Buyer all of Seller's
right, title and interest in that certain web press more particularly described
on Exhibit A attached hereto (the "Web Press").
Seller warrants to Buyer that Seller owns all of the right, title and
interest in and to the Web Press; provided, however, Buyer acknowledges that
Seller has granted a security interest in the Web Press to General Electric
Capital Corporation ("GECC") and First American National Bank ("First American")
as collateral for indebtedness owed to GECC and First American by Seller. Buyer
further acknowledges that the transfer of the Web Press to Buyer is subject to
the liens of GECC and First American. Seller covenants and agrees that upon
payment in full of all amounts due and owing under the Promissory Note, Seller
will cause GECC and First American to release their respective liens against the
Web Press.
SELLER MAKES NO OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE WEB PRESS OR ITS CONDITION AND PERFORMANCE; AND SELLER SELLS AND
DELIVERS THE WEB PRESS TO BUYER, AND BUYER ACCEPTS THE WEB PRESS, "AS IS AND
WHERE IS".
This bill of sale will be governed by the law of the State of Tennessee.
IN WITNESS WHEREOF, Seller and Buyer have executed this bill of sale as of
the 31/st/ day of December, 1997.
Premier Graphics, Inc.
By: /s/ John P. Miller
------------------
Its: President
/s/ John P. Miller
------------------
John P. Miller
<PAGE>
Exhibit 10.52
PROMISSORY NOTE
$ 2,774,706.00 Memphis, Tennessee
December 31, 1997
FOR VALUE RECEIVED, the undersigned, John P. Miller, a resident of Memphis,
Tennessee, promises to pay to the order of Premier Graphics, Inc. a corporation
organized and existing under the laws of Delaware, with offices at 2500 Lamar
Avenue, Memphis, Tennessee, the principal sum of Two Million Seven Hundred
Seventy Four Thousand Seven Hundred Six and 00/100 Dollars ($2,774,706.00) and
interest on the outstanding principal balance from the date hereof at the rate
of 3.25% per annum above the LIBOR rate as determined by General Electric
Capital Corporation pursuant to the credit facility provided by General Electric
Capital Corporation to Premier Graphics, Inc. (the "Credit Facility"). The rate
of interest under this note will change as of the effective date of each change
in the LIBOR rate under the Credit Facility.
Subject to the following paragraphs, accrued and unpaid interest shall be
due and payable on December 31, 1998 and thereafter, monthly in arrears until
all principal and other amounts owing under this note have been paid in full.
All principal and accrued and unpaid interest shall be due and payable upon
the earlier to occur of (a) December 31, 2002, (b) 30 days after the completion
of an initial public offering of the common stock of Master Graphics, Inc., a
Delaware corporation, or (c) a sale or transfer of ownership by the undersigned
of the web press described on Exhibit A attached hereto (the "Web Press") which
has been pledged by the undersigned as collateral for the obligations contained
herein. In the event the Web Press is sold by the undersigned and the net sales
proceeds exceed the original principal amount of this note, in addition to the
amounts otherwise due and owing hereunder, the undersigned agrees to pay to
holder an amount equal to such excess as a prepayment penalty.
If any of the following events of default shall occur, the outstanding
principal balance of this note together with accrued interest thereon shall
immediately be due and payable: any amount owing under this note is not paid
when due; a default under any other provision of this note or other agreement
providing security for the payment of this note; a breach of any representation
or warranty under this note; the filing of a petition under a bankruptcy,
insolvency or similar law by the undersigned; the making of any assignment for
the benefit of creditors by the undersigned; the filing of a petition under a
bankruptcy, insolvency or similar law against the undersigned and such petition
not being dismissed within a period of thirty (30) days of the filing.
All payments of principal and interest shall be made in lawful currency of
the United States of America and immediately available funds on the due date
thereof at 6075 Poplar Avenue, Memphis, Tennessee, 38119, or in such other
manner or at such other place as the holder of this note designates in writing.
The undersigned waives presentment for payment, demand, protest and notice
of protest and of nonpayment.
<PAGE>
The failure or delay by the holder of this note in exercising any of its
rights hereunder in any instance shall not constitute a waiver thereof in that
or any other instance. The holder of this note may not waive any of its rights
accept by an instrument in writing signed by the holder.
This note may not be amended without the written approval of the holder.
/s/ John P. Miller
------------------
John P. Miller
<PAGE>
Exhibit 10.53
PROMISSORY NOTE
$950,000.00 Memphis, Tennessee
December 10, 1992
FOR VALUE RECEIVED, the undersigned promises to pay to the order of B & M
PRINTING COMPANY (hereinafter together with any subsequent holder called
"Holder"), in lawful money of the United States, the principal sum of Nine
Hundred Fifty Thousand Dollars ($950,000.00), together with interest on the
unpaid balance thereof from the date hereof at the rate of 7% per annum.
Interest shall be paid semiannually, with the first such payment being due on
June 10, 1993, with subsequent payments being due each December 10 and June 10
thereafter until the entire principal amounts of this Note is paid in full. The
entire principal and all other sums due under this Note shall be due and payable
on December 10, 2002.
Both the principal and interest of the Note shall be paid to Holder at 2500
Lamar Avenue, Memphis, Tennessee 38114 or at such other place as the Holder may
designate in writing in lawful money of the United States of America. The
undersigned shall have the privilege, at any time, of prepaying, in whose or ln
part, the then outstanding principal balance hereunder, together with accrued
interest thereon without penalty or premium. All prepayments made by the
undersigned are to be applied first in reduction of interest then due at the
rate stated herein, and any amount remaining after such payment of said interest
shall be applied in reduction of the unpaid balance of the principal sum.
The occurrence of any of the following events shall constitute an event of
default under the terms of this Note:
(a) The undersigned shall fail to pay any amount of principal or
interest owing under this Note when due; or
(b) The undersigned shall (i) generally not pay (or admit in writing
its inability to pay) its debts as they become due, (ii) file, or consent
by answer or otherwise to the filing against it of, a petition for relief,
reorganization, or arrangement or any other petition in bankruptcy, or for
liquidation, or to take advantage of any bankruptcy, debt relief, or
insolvency law of any jurisdiction, as now constituted or hereafter in
effect, (iii) make an assignment for the benefit of creditors, (iv) consent
to the appointment of a custodian, receiver, trustee or similar officer for
it or for any substantial part of its assets, (v) liquidate or otherwise
transfer substantially all of its assets, (vi) dissolve (if a corporation
or partnership), die (if a natural person), or terminate (if a trust or
other entity), or (vii) take any action for the purpose of effectuating any
of the foregoing; or
<PAGE>
(c) A court, governmental authority, or tribunal or competent
jurisdiction shall enter in order (i) appointing a custodian, receiver,
trustee, or similar officer for the undersigned or for a substantial part
of its assets, or (ii) directing the dissolution, winding-up or liquidation
of the undersigned, or (ii) constituting an order for relief with respect
to the undersigned, or (iv) approving any petition with respect to the
undersigned for relief, reorganization, or arrangement or to take advantage
of any bankruptcy, debt relief or insolvency law of any jurisdiction, as
now constituted or hereafter in effect; or if any such petition (or any
petition seeking any of the foregoing orders) is filed against the
undersigned and not dismissed within thirty (30) days; or
(d) Failure by the undersigned promptly to lift any execution,
distraint, garnishment, attachment, or similar process, of such consequence
as will impair its ability to pay its obligations under this Note when due;
or
(e) The undersigned shall breach any representation, warranty, term,
covenant or condition contained in any mortgage, deed of trust, security
agreement, pledge, assignment or other document now or hereafter securing
the payment or performance of this Note (the provisions of all of which are
incorporated herein by reference).
Upon the occurrence of an event of default, then (i) if the event is one
listed in paragraphs (b)(ii), (c)(iii), or (c)(iv) above, the entire outstanding
indebtedness evidenced by this Note shall automatically become immediately due
and payable, both as to principal and interest, with note or demand, and (ii) if
the event is any other event of default, then the Holder hereof, at its option,
may declare the entire outstanding indebtedness evidenced by this Note
immediately due and payable, both as to principal and interest.
If the undersigned is in default under the terms of this Note and this Note
is placed in the hands of an attorney for collection, by suit or otherwise, the
undersigned will pay all costs of collection, including reasonable attorneys'
fees.
This Note, together with all principal and interest payments due hereunder,
shall bear interest at the maximum contract rate allowable under applicable law,
from and after the maturity date, or the date of default if such default occurs
prior to the maturity date, until payment in full of all principal and interest
due hereunder is made.
The undersigned waives presentment, demand, notice of dishonor and protest,
and agrees that the Holder hereof may, without releasing liability of the
undersigned, grant extensions or renewals hereof from time to time, successively
or otherwise and for any term or terms, and the Holder hereof shall not be
liable for or prejudiced by failure to collect or for lack of diligence in
bringing suit on this Note or any renewals or extensions hereof.
-2-
<PAGE>
No delay or omission on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right. A waiver
or any one occasion shall not be construed as a bar to, or waiver of, any such
right on any future occasions.
This Note shall be governed by and construed in accordance with the laws of
the State of Tennessee, without reference to principles of conflict of laws.
If any one or more of the provisions contained in this Note shall for any
reason be held invalid, illegal or unenforceable for any reason, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, which shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
The use of any gender pronoun, adjective or word herein shall be deemed to
include all other genders, and the use of any singular term herein shall be
deemed to include the plural, and vice versa.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed on
the day first set forth above.
/s/ John P. Miller
------------------
JOHN P. MILLER
-3-
<PAGE>
Exhibit 10.54
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of March 1, 1998, by
and between MASTER GRAPHICS, INC., a Delaware corporation ("Buyer"), and H.
Henry Hederman ("Seller").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller outstanding shares (the "Shares") of common stock of
Hederman Brothers, Inc. ("Hederman") pursuant to the terms and conditions of a
stock purchase agreement made as of _________, 1998, (the "Stock Purchase
Agreement"). Contemporaneous with the purchase of the Shares, Hederman will be
merged into Premier Graphics, Inc., a Delaware corporation (the "Company"),
which is a wholly owned subsidiary of Buyer. Section 2.4(a)(iv) of the Stock
Purchase Agreement requires that a noncompetition agreement be executed and
delivered by Seller as a condition to the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that (a) Seller has occupied a position of trust and
confidence with Hederman prior to the date hereof and has become familiar with
the following, any and all of which constitute confidential information of the
Company, (collectively the "Confidential Information"): (i) any and all trade
secrets concerning the business and affairs of the Company, product
specifications, data, know-how, formulae, compositions, processes, designs,
samples, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, and computer software and programs of the
Company and any other information, however documented, of the Company that is a
trade secret; (ii) any and all information concerning the business and affairs
of the Company (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Company containing or based, in whole or in part, on any
information included in the foregoing, (b) the business of the Company is
national in scope, (c) its products and services are marketed throughout the
United States; (d) the Company
<PAGE>
competes with other businesses that are or could be located in any part of the
United States; (e) Buyer has required that Seller make the covenants set forth
in Sections 3 and 4 of this Agreement as a condition to the Buyer's purchase of
the Shares owned by Seller; (f) the provisions of Sections 3 and 4 of this
Agreement are reasonable and necessary to protect and preserve the Acquired
Companies' business, and (g) the Company would be irreparably damaged if Seller
were to breach the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
the Company. Therefore, Seller agrees that Seller will not, at any time,
disclose to any unauthorized Persons or use for his own account or for the
benefit of any third party any Confidential Information, whether Seller has such
information in Seller's memory or embodied in writing or other physical form,
without Buyer's written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the public
other than as a result of Seller's fault or the fault of any other Person bound
by a duty of confidentiality to Buyer or the Company. Seller agrees to deliver
to Buyer at the time of execution of this Agreement, and at any other time Buyer
may request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information that Seller may then possess or have under Seller's
control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement Seller agrees that:
(a) During the time Seller is employed by the Company and for a period of seven
(7) years after Seller's employment with the Company is terminated:
(i) Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of the
Company, within Mississippi; provided, however, that Seller may purchase or
otherwise acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934. Seller agrees that this covenant is reasonable
with respect to its duration, geographical area, and scope.
(ii) Seller will not, directly or indirectly, either for himself or any other
Person, (A) induce or attempt to induce any employee of the Company to leave the
employ of the Company, (B) in any way
<PAGE>
interfere with the relationship between the Company and any employee of the
Company, (C) employ, or otherwise engage as an employee, independent contractor,
or otherwise, any employee of the Company, or (D) induce or attempt to induce
any customer, supplier, licensee, or business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any customer, supplier, licensee, or business relation of the Company.
(iii) Seller will not, directly or indirectly, either for himself or any other
Person, solicit the business of any Person known to Seller to be a customer of
the Company, whether or not Seller had personal contact with such Person, with
respect to products or activities which compete in whole or in part with the
products or activities of the Company;
(b) In the event of a breach by Seller of any covenant set forth in Subsection
4(a) of this Agreement, the term of such covenant will be extended by the period
of the duration of such breach;
(c) Seller will not, at any time during the period set forth in paragraph (a)
above, disparage Buyer or the Company, or any of their shareholders, directors,
officers, employees, or agents; and
(d) Seller will, for a period of seven (7) years after the termination of
Seller's employment with the Company, within ten days after accepting any
employment, advise Buyer of the identity of any employer of Seller. Buyer or the
Company may serve notice upon each such employer that Seller is bound by this
Agreement and furnish each such employer with a copy of this Agreement or
relevant portions thereof.
5. REMEDIES
If Seller breaches the covenants set forth in Sections 3 or 4 of this Agreement,
Buyer and the Company will be entitled to the following remedies:
(a) Damages from Seller;
(b) To offset against any and all amounts owing to Seller under the Stock
Purchase Agreement any and all amounts which Buyer or the Company claim under
Subsection 5(a) of this Agreement; and
(c) In addition to its right to damages and any other rights it may have, to
obtain injunctive or other equitable relief to restrain any breach or threatened
breach or otherwise to specifically enforce the provisions of Sections 3 and 4
of this Agreement, it being agreed that money damages alone would be inadequate
to compensate the Buyer and the Company and would be an inadequate remedy for
such breach.
(d) The rights and remedies of the parties to this Agreement are cumulative
and not alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, the Company and Seller and will inure
to the benefit of Buyer and the Company and their affiliates, successors and
assigns and Seller and Seller's assigns,
<PAGE>
heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Mississippi without
regard to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in (a) the courts of the State of Tennessee, County of Shelby, or (b) the courts
of the State of Mississippi, County of Hinds, or (c) if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
Tennessee, or (d) if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of Mississippi, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by or invalid, then such provision or term
will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.
11. COUNTERPARTS
<PAGE>
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
Seller: H. Henry Hederman
500 Steed Road
P. O. Box 6100
Ridgeland, Mississippi 39158
Facsimile No.:(601) 853-7332
with a copy to: Butler, Snow, O'Mara, Stevens & Cannada
17/th/ Floor
Deposit Guaranty Plaza
210 East Capitol Street
Jackson, Mississippi 39201
Attention: Don Cannada, Esq.
Facsimile No.:(601) 949-4555
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee
Attention: John P. Miller
Facsimile No.:(901) 744-6012
<PAGE>
with a copy to: Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Michael P. Morgan, Esq.
Facsimile No.: (901) 762-0530
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: MASTER GRAPHICS, INC.
By:/s/ John P. Miller
------------------
Its: President
SELLER:
/s/ H. Henry Hederman
---------------------
H. Henry Hederman
<PAGE>
Exhibit 10.55
COMMERCIAL LEASE AGREEMENT
--------------------------
THIS COMMERCIAL LEASE AGREEMENT ("Lease") is made and entered into as of
March 31st, 1998, by and between MICHAEL G. AND LYNN H. HARPER ("Lessor"), and
HARPERPRINTS, INC., a North Carolina corporation ("Lessee").
1. Term and Premises. Subject to the terms and conditions set forth
-----------------
herein, Lessor hereby leases and lets to Lessee, and Lessee leases and accepts
from Lessor, for a term of ten (10) years, commencing on April 1, 1998, and
expiring on March 31, 2008 (the "Term"), that certain real property with a
municipal address of 1 Industry Drive, Henderson, North, Carolina 27536, and
more particularly described in Exhibit A hereto (the "Premises"), including all
freestanding cubicles and artwork currently located at the Premises.
2. Basic Rent. Lessee shall pay Lessor, at the address of Lessor
----------
indicated herein, the sum of Three Hundred Seven Thousand Two Hundred Forty-
Three and 75/100 Dollars ($307,243.75) per year as rent for the Premises (the
"Basic Rent"). The Basic Rent shall be paid to Lessor in monthly installments
of Twenty Five Thousand Six Hundred Three and 65/100 Dollars per month
($25,603.65), which monthly rental payments shall be paid in advance on the
first day of each calendar month during the term of this Lease. If the Term
does not commence on the first day of a calendar month, Lessee will pay in
advance, on the first day of the Term, a pro rata part of the regular monthly
rent installment, based on the number of days of the Term occurring within the
calendar month in which the Term commences; and the rent installment due on the
first day of the last calendar month occurring during the Term shall be
similarly prorated. All rental payments are to be considered "past due" on the
fifteenth (15th) of the month in which they are due, and if said payment has not
been received by the Lessor by such date there will be a late charge of five
percent (5.0%) of each monthly which is past due, it being agreed that such is
the reasonable additional expense incurred by Lessor in handling such late
payments. All rental payments and other payments by Lessee to Lessor shall be
mailed or delivered to Lessor at the address of Lessor indicated herein or to
such other person or address in such city as Lessor may direct by written
notices to Lessee. Lessee hereby waives any and all notices and demands for
payment of the monthly rental payments of Basic Rent due under this Lease to
Lessor.
3. Additional Rent. In addition to the payment of Basic Rent, Lessee
---------------
shall pay all of the following costs arising from or related to the Premises,
which costs shall be collectively referred to herein as additional rent
("Additional Rent"):
a. Maintenance of Premises. Lessee shall, at its sole expense, take
-----------------------
good care of the Premises and any building now or hereafter erected
thereon, both inside and outside, and keep the same and all parts thereof
in a condition comparable to the condition of the Premises at the inception
of this Lease, ordinary wear and tear excepted (it being the intention of
the parties that the Premises be maintained in a manner comparable to the
<PAGE>
current condition of the property), suffering no waste or injury, and
shall, at Lessee's sole expense, promptly make all needed repairs, in and
to any building or structure or equipment now or hereafter erected upon the
Premises, including all fixtures, machinery and equipment now or hereafter
belonging to or connected with the Premises or used in their operation.
All such repairs shall be of first class quality sufficient for the proper
maintenance and operation of the Premises. Lessee shall not obstruct or
permit the obstruction of the street or sidewalk and shall keep the
sidewalk and curb adjoining the Premises clean and free of snow and ice.
If Lessee fails to make such repairs or maintenance promptly, or within
fifteen (15) days of occurrence, Lessor may, at its option, make them, and
Lessee shall repay the cost thereof to Lessor on demand. Notwithstanding
anything to the contrary contained herein, Lessor shall be required to make
all repairs to the Premises that are structural in nature, including
repairs to the roof, and to replace any fixtures, machinery and equipment
which cannot be repaired.
c. Maintenance of Common Areas. Lessee shall pay to Lessor, as
----------------------------
Additional Rent, all costs and expenses of every kind and nature paid or
incurred by Lessor during the term of the Lease (and any renewal term) in
operating, managing, equipping, lighting, repairing, replacing, policing
and maintaining the common parking and ingress and egress areas (herein
"Common Areas") of the Premises (except structural repairs as set forth in
Paragraph 3.a. above). Alternatively, Lessor may require Lessee to perform
(or cause to be performed) such maintenance. Such costs and expenses shall
include, but shall not be limited to: utilities, and lighting the Common
Areas, if any, cleaning costs, expenses of planting, replanting and
replacing flowers, landscaping, water and sewerage charges, premiums for
liability and property damage, and fees for required licenses and permits.
d. Taxes and Utilities.
-------------------
i. Real Property Taxes. Lessee shall pay when due all real
-------------------
property taxes upon the Premises accruing with respect to or allocable
to the term hereof. As used herein, the term "real property taxes"
shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed on the Premises
by any authority having the direct or indirect power to tax, including
any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as
against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Premises.
ii. Personal Property Taxes.
-----------------------
(1) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained on the Premises or
2
<PAGE>
elsewhere. When possible, Lessee shall cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed
and billed separately from the real property taxes.
(2) If any of Lessee's personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
b. Other Taxes. Lessee shall reimburse Lessor for any commercial
-----------
lease tax, sales tax, gross receipts tax, privilege tax, or similar tax,
howsoever denominated, now or hereafter imposed on, measured by, or
assessed against the Basic Rent and Additional Rent (collectively, the
"Rents") paid by Lessor or received by Lessor pursuant to this Lease (or
any tax imposed or assessed in lieu thereof). Lessee shall pay said sums
to Lessor not later than ten (10) days from the date on which Lessee
receives notice from Lessor of the amount due.
c. Utilities. Lessee shall pay for all water, gas, heat, light,
---------
power, telephone and other utilities and services supplied to the Premises.
d. Insurance.
---------
i. Fire and Casualty. During the entire term hereof, Lessee
-----------------
shall procure and maintain at its sole expense, insurance covering the
Premises, for the full replacement cost thereof, insuring against the
perils of fire, lightening, flood, earthquake, boiler and machinery,
extended coverage, vandalism and malicious mischief, extended by
Special Form Coverage Endorsement to insure against all other risks of
direct physical loss, and business interruption insurance (insuring
Lessor for up to twelve (12) months of Rents), such coverages and
endorsements to be as defined in the standard bureau forms prescribed
by the applicable insurance regulatory authority for the State of
North Carolina for use by insurance companies admitted in North
Carolina for the writing of such insurance on risks located within the
state. Such insurance shall be for the sole benefit of Lessor and
under its sole control. To the extent any mortgage or deed of trust
now or hereafter exists upon the Premises, all such policies shall
contain standard mortgage clauses. Lessee hereby waives, and releases
Lessor (its officers, agents and employees) from, all rights of
recovery, claims, causes of action, and rights of subrogation against
them, for any loss or damage that may occur by reason of any peril
listed above, and accordingly, all of the foregoing policies of
insurance shall be properly endorsed to prevent the invalidation of
their coverages by reason of such waiver and release.
ii. Liability. Lessee shall, at Lessee's expense, obtain and
---------
keep in force during the term of this Lease a policy of Commercial
General Liability Insurance (or policy with equivalent coverage)
insuring Lessee and Lessor against any liability arising out of the
use, occupancy or maintenance of the Premises. Such policies shall be
in amounts and with insurance carriers acceptable to Lessor.
3
<PAGE>
iii. Insurance Policies. The insurance companies issuing all
------------------
policies shall be reputable and responsible companies in the insurance
industry, reasonably acceptable to both Lessor and Lessee. Lessee
shall deliver to Lessor copies of policies of liability insurance
required under this subparagraph or certificates evidencing the
existence and amounts of such insurance. No such policy shall be
cancelable or subject to reduction of coverage or other modification
except after thirty (30) days' prior written notice to Lessee. Lessee
shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof.
4. Indemnification. Lessee shall indemnify, defend and hold Lessor
---------------
harmless from and against any and all actions, claims, demands, costs (including
reasonable attorney's fees), damages or expenses of any kind which may be
asserted against or incurred by Lessor as the result of any occurrence in or
about the Premises or by reason of Lessee's use or occupancy of the Premises, or
by reason of the failure of Lessee to perform any of its obligations under this
Lease.
5. Quiet Enjoyment. Lessor covenants that if Lessee shall keep and
---------------
perform all of its covenants under this Lease, Lessee shall enjoy quiet,
peaceful and uninterrupted possession of the Premises against all persons.
6. Ingress and Egress. Lessor covenants that Lessee shall enjoy full
------------------
ingress and egress to and from the Premises at all times.
7. Condition of Premises. Lessor shall deliver the Premises to Lessee in
---------------------
good condition, clean and free of debris.
8. Assignment and Subletting. The Premises shall be used for commercial
-------------------------
printing, distribution and related activities, and for no other purpose without
the written consent of the Lessor. Further, Lessee will not assign or sublet
all or part of this Lease without the prior written consent of Lessor, which
consent shall not be unreasonably withheld.
9. Legal Use and Violations; Insurance Coverage. Lessee will not occupy,
--------------------------------------------
or use or permit any portion of the Premises to be occupied or used, for any
business or purpose which is unlawful in part or in whole or deemed to be extra
hazardous, or permit anything to be done which will in any way increase the rate
of fire insurance on said building and/or its contents; and in the event that by
reason of acts of Lessee, there shall be any increase in rate of the insurance
on the building or its contents created by Lessee's acts or conduct of business,
then Lessee hereby agrees to pay such increase.
10. Compliance with Laws and Regulations. Lessee shall keep and maintain
------------------------------------
the Premises in a clean and neat condition, and shall comply with all state,
federal, county and municipal laws, ordinances, orders, rules and regulations,
including, but not limited to, all environmental laws and regulations, with
reference to use, conditions or occupancy of the Premises.
4
<PAGE>
11. Entry for Repairs and Inspection. Lessee shall permit Lessor and its
--------------------------------
officers, agents or representatives, the right to enter into and upon any and
all parts of the Premises at all reasonable hours to inspect same or clean or
make repairs or alterations or additions as Lessor may deem necessary or
desirable. Lessee shall not be entitled to any abatement or reduction of rent
by reason thereof.
12. Condemnation. If the Premises or any portion thereof are taken under
------------
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of any building on the Premises, or more than twenty-five percent
(25%) of the land of the Premises which is not occupied by any building, is
taken by Condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor has given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority has taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent shall be reduced in the proportion that the floor area of the building or
the area of unimproved land taken bears to the total floor area of the building
or land, whichever the case may be. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such Condemnation, Lessor shall to the
extent of the award received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such Condemnation; provided,
however, that if such Condemnation has taken more than fifty percent (50%) of
the total floor area of the buildings on the Premises, Lessor may, at Lessor's
option, to be exercised in writing within ten (10) days after Lessor has given
Lessee written notice of such taking (or in the absence of such notice, within
ten (10) days after the condemning authority has taken possession) terminate
this Lease as of the date the condemning authority takes such possession.
13. Holding Over. Any holding after the expiration of this Lease shall
------------
constitute a month-to-month tenancy, and Lessee shall be subject to all of the
terms, covenants and conditions of this Lease during such holdover period.
14. Damage or Destruction. Should the current building upon the Premises
---------------------
be totally destroyed by fire or other casualty, or so damaged thereby that more
than 50% of the Premises are unuseable by Lessee and rebuilding or repairs
cannot be completed within thirty (30) days from date of the fire or casualty,
this Lease shall terminate, and Lessee shall be allowed a total abatement of the
rent from the date of occurrence of such damage or destruction. However, if the
damage is such that rebuilding or repairs can be completed within thirty (30)
days, the Lessor covenants and agrees to make such repairs within thirty (30)
days and to allow Lessee an abatement of the rent for such time as the building
5
<PAGE>
is untenantable, in proportion to the floor space rendered untenable, and the
Lessee covenants and agrees that the terms of this Lease shall not be otherwise
affected thereby.
15. Events of Default; Remedies.
---------------------------
a. Default by Lessee. The occurrence of any one or more of the
-----------------
following events shall constitute a default and breach of this Lease
by Lessee:
i. The abandonment of the Premises by Lessee.
ii. The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due
for a period of ten (10) days.
iii. The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in clause (i) and (ii)
above, which failure then continues for a period of fifteen (15) days
after written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's default is such that more than fifteen
(15) days are reasonably required for its cure, then Lessee shall not
be deemed to be in default if Lessee commences such cure within said
fifteen (15) day period and thereafter diligently prosecutes such cure
to completion, but such cure period shall not exceed ninety (90) days
under any circumstances.
iv. The making by Lessee of any general arrangement or
assignment for the benefit of creditors, or the appointment of a
trustee or receiver to take possession of substantially all of
Lessee's assets or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days.
v. A default under the Fixed Notes or Earnout Notes (as defined
in the Stock Purchase Agreement) which remains uncured after the
applicable cure provisions contained therein.
vi. Lessee shall become insolvent or admit in writing its
inability to pay its debts, file a petition in bankruptcy, or
shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, or if
there shall have been filed any such petition or application, in which
an order for relief is entered or which remains undismissed for period
of sixty (60) days or more.
16. Remedies. In the event of any such default or breach by Lessee,
--------
Lessor may at any time thereafter, after written notice to Lessee as provided
above, and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:
6
<PAGE>
a. Terminate this Lease; provided, however that this Lease shall not
be deemed to have been terminated unless the Lessor shall have
specifically elected in such notice to terminate the Lease) and that no
taking of possession of the Premises by or on behalf of the Lessor and no
other act done by or on behalf of the Lessor shall constitute an acceptance
of surrender of the Premises by the Lessee or reduce the Lessee's
obligations under this Lease, unless otherwise expressly agreed to in a
written document signed by the Lessor; or
b. Whether or not the Lease has been terminated, to the extent
permitted by applicable law, the Lessor may enter upon and take
possession of the Premises by reasonable force, summary ejectment or
otherwise and remove the Lessee and other occupants of the Premises and any
and all property of the Lessee located on the Premises (and immediately
upon notice from the Lessor, the Lessee shall surrender the Premises to the
Lessor).
In addition to the foregoing rights and remedies of the Lessor, upon any
such default or breach by Lessee, the Lessee shall pay to the Lessor all
costs and expenses (including, without limitation reasonable attorneys'
fees and expenses) reasonably incurred by or on behalf of the Lessor as a
result of any such default of breach.
None of (a) the termination of the Lease pursuant to Section 16a, above,
-----------
(b) the eviction of the Lessee or the repossession of Premises, (c) the
failure to inability of the Lessor, notwithstanding reasonable good faith
efforts, to relet the Premises, (d) the reletting of the Premises, or (e)
the failure of the Lessor to receive or collect any rentals due upon such
reletting, shall relieve the Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. In such event the Lessee shall forthwith pay to Lessor all rent
and other amounts due and payable with respect to the Premises to and
including the date of the latest of any such termination, repossession or
eviction. Thereafter, the Lessee shall pay to the Lessor, at the Lessor's
option either:
(i) the sum of (x) the worth (in the manner calculated stated below)
of the amount by which the unpaid rent and other amounts due under this
Lease for the balance of the term of this Lease after the latest to occur
of such termination, repossession or eviction exceeds the fair market
rental value of the Premises for the balance of the term, plus (y) any
other amount necessary to compensate the Lessor for all damage proximately
caused by the Lessee's failure to perform its covenants and obligations
under this Lease or which in the ordinary course would be likely to result
therefrom; or
(ii) each payment of rent and other amounts due under this Lease as
the same would have become due and payable if the Lessee's right of
possession under this Lease had not been terminated, or if the Lessee had
not been evicted, or if the Premises had not been repossessed, which rent
and other amounts, to the extent permitted by law, shall bear interest at
the default rate set forth in the Earnout Notes from the date when due
until the date paid, and the Lessor may enforce any other term of covenant
of this Lease; provided, however, that there shall be credited against the
7
<PAGE>
Lessee's obligation under this clause (ii) amounts actually collected by
the Lessor from another tenant to whom the Premises may have actually been
leased.
For purposes of clause (i) above, the "worth" of unpaid rent and such other
amounts shall be determined by an independent certified public accountant
chosen by the Lessor and reasonably acceptable to the Lessee, using a fair
rate of capitalization based on market conditions at the time of such
determination, and the amount of the Additional Rent shall be deemed to be
the same as the average Additional Rent for the preceding three (3) full
calendar years, or if shorter, the average Additional Rent for the calendar
years or portions thereof since the date the Additional Rent commenced to
accrue.
If the Lease is terminated pursuant to this Section 16, the Lessee waives,
----------
to the extent not prohibited by applicable law, (a) any right of
redemption, re-entry or repossession, (b) any right to trial by jury in the
event of summary proceeding to enforce the remedies set forth in this
Section 16, and (c) the benefit of any laws now or hereafter in force
----------
exempting property from liability for rent or for debt.
17. Alterations and Additions.
-------------------------
a. Lessee shall not, without Lessor's prior written consent, make any
alterations, improvements, additions, or utility installations in, on or
about the Premises, except for non-structural alterations not exceeding
$10,000 in cumulative costs during the Term of this Lease. In any event,
whether or not in excess of $10,000 in cumulative cost, Lessee shall make
no change or alteration to the exterior of the buildings on the Premises
without Lessor's prior written consent. As used in this Paragraph 17, the
term "utility installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing, and fencing. Lessor may require
that Lessee remove any or all of said alterations, improvements, additions
or utility installations at the expiration of the Term, and restore the
Premises to their prior condition. Should Lessee make any alterations,
improvements, additions or utility installations without the prior approval
of Lessor, Lessor may require that Lessee remove any or all of the same at
any time.
b. Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use
in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. If Lessee
shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse judgment that
may be rendered thereon before the enforcement thereof against the Lessor
or the Premises, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises free from the effect of
such lien or claim.
8
<PAGE>
c. Unless Lessor requires their removal, as set forth in Paragraph
17.a., all alterations, improvements, additions and utility installations
(except utility installations which constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the
term. Notwithstanding the provisions of this Paragraph 17.c., Lessee's
machinery and equipment, other than that which is affixed to the Premises
so that it cannot be removed without material damage to the Premises, shall
remain the property of Lessee and may be removed by Lessee.
18. Waiver. Failure of either party to declare any default immediately
------
upon occurrence thereof or delay in taking any action in connection therewith
shall not waive such default, but either party shall have the right to declare
any such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity.
19. [INTENTIONALLY OMITTED]
-----------------------
20. Rights of Mortgages. This Lease, and all rights of Lessee hereunder,
-------------------
are and shall be subject and subordinate to all mortgages, which may now or
hereafter affect the Premises, or any portion thereof, whether or not such
mortgages shall also cover any portion thereof, whether or not such mortgages
shall also cover other lands and/or buildings and/or leases, to each and every
advance made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extension of such mortgages and all
consolidations of such mortgages. This Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that the holder of any such mortgage or any of their respective
successors in interest may reasonably request to evidence such subordination.
Any mortgage to which this Lease is, at the time referred to, subject and
subordinate, is herein called a "Superior Mortgage" and the holder of a Superior
------------------
Mortgage is herein called the "Superior Mortgagee".
------------------
If any superior Mortgagee or the nominee or designee of any Superior
Mortgagee shall succeed to the rights of Lessor under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed, or
otherwise, then at the request of such party so succeeding to Lessor's rights
(the "Successor Lessor") and upon such Successor Lessor's written agreement to
----------------
accept Lessee's attornment, Lessee shall attorn to and recognize such Successor
Lessor as Lessee's landlord under this Lease and shall promptly execute and
delivery any instrument that such Successor Lessor may reasonably request to
evidence such attornment. Upon such attornment, this Lease shall continue in
full force and effect as a direct lease between the Successor Lessor and Lessee
upon all of the terms, conditions and covenants as set forth in this Lease,
except that the Successor Lessor (unless formerly the landlord under this Lease
or its nominee or designee) shall not be (a) liable in any way to Lessee for any
act or omission, neglect or default on the part of Lessor under this Lease, (b)
responsible for any monies owing by or on deposit with Lessor to the credit of
Lessee, (c) subject to any counterclaim or setoff which theretofore accrued to
Lessee against Lessor, (d) bound by any modification of this Lease subsequent to
such Superior Mortgage, or by any previous prepayment of the Rent or the
Additional Rent for more than one (1) month, which was not approved in writing
9
<PAGE>
by the Superior Mortgagee, (e) liable to the Lessee beyond the Successor
Lessor's interest in the Premises and the rents, income, receipts, revenues,
issues and profits issuing from such Premises, (f) responsible for the
performance of any work to be done by the Lessor under this Lease to render the
Premises ready for occupancy by the Lessee, or (g) required to remove any person
occupying the Premises or any part thereof, except if such person claims by,
through or under the Successor Lessor. Lessee agrees at any time and from time
to time to execute a suitable instrument in confirmation of Lessee's agreement
to attorn, as aforesaid.
21. Miscellaneous Terms.
-------------------
a. Benefit. This Lease shall inure to the benefit of the parties
-------
hereto, and their respective successors and assigns.
b. Integration Clause; Modifications. This Lease and its exhibits
---------------------------------
and attachments contain all of the agreements between Lessor and Lessee
relating to the Lease of the Premises, and this instrument may not be
altered, changed or amended except by an instrument in writing signed by
both parties hereto.
c. Pronouns and Gender. When this Lease is executed by more than one
-------------------
person, it shall be construed as though Lessee were written "Lessees" and
the words in their number were changed to correspond and pronouns of the
masculine gender, whenever used herein shall include persons of the female
sex, and corporations, partnerships and associates of every kind and
character.
d. Notices and Addresses. All notices, offers, acceptances, waivers,
---------------------
and other communications under this Lease shall be in writing, and shall be
deemed to have been both given and received (i) when delivered to the party
in person or, (ii) if mailed, when deposited in the U.S. Mails, by
certified mail, postage prepaid, with return receipt requested, to the
party at the following address:
If to Lessor: Michael G. and Lynn H. Harper
P. O. Drawer 1596
Henderson, NC 27536
If to Lessee: Harperprints, Inc.
2500 Lamar Avenue
Memphis, TN 38114
or to such other address as any party, by notice to all others, may designate
from time to time.
e. Counterparts. This Lease may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE>
f. Severability. If any one or more of the provisions contained in
------------
this Lease shall for any reason be held invalid, illegal or unenforceable
for any reason, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Lease, which shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. It is the intention of the parties that if any provision of this
Lease is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid,
then the provision shall have the meaning which renders it valid.
g. No Remedies Exclusive. Unless expressly stated to be exclusive,
---------------------
no remedy conferred herein shall be deemed to be exclusive of any other
remedy conferred herein or any other remedy now or hereafter available at
law or equity. All remedies conferred herein, and all remedies now or
hereafter available at law or equity, shall be deemed to be cumulative and
not alternative, and may be enforced concurrently or successively. The
exercise of (or failure to exercise) any one or more remedies shall not
operate as a waiver of, or constitute a bar to, the exercise of any other
remedies.
h. Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the State of Tennessee.
i. Attorneys' Fees. In the event either party defaults in the
---------------
performance of any of the terms, agreements or conditions contained in this
Lease, and the other party prevails in any legal proceeding against the
defaulting party to enforce this Lease, then the non-defaulting party shall
be additionally entitled to recover court costs and reasonable attorneys'
fees from the defaulting party.
j. Recording. Neither party shall record this Lease without the
---------
prior written consent of the other. However, either party may, at any
time, elect to record a memorandum of this Lease, which sets forth any
terms hereof except the amount of rents payable hereunder, and upon
request, the other party shall duly execute and acknowledge such a
memorandum.
[END OF PAGE]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR:
/s/ Michael G. Harper
- ---------------------
Michael G. Harper
/s/ Lynn Harper
- ----------------------
Lynn H. Harper
LESSEE:
Harperprints, Inc.
By: /s/ Jim P. Miller
-------------------
Its: President
12
<PAGE>
EXHIBIT "A"
SEE ATTACHED LEGAL DESCRIPTION
13
<PAGE>
EXHIBIT 11.1
MASTER GRAPHICS, INC.
COMPUTATION OF NET EARNINGS (LOSS) PER COMMON SHARE (1)(2)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
YEAR SIX MONTHS DECEMBER 31, 1997
ENDED ENDED ------------------------
JUNE 30, DECEMBER 31, PRO FORMA,
1997 1997 PRO FORMA AS ADJUSTED
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss)......... $ (1,273) $ (3,819) $ (5,482) $ 893
Less preferred stock
dividends.................. -- -- 114 114
--------- --------- --------- ---------
Net earnings (loss)
applicable to common
shares.................... $ (1,273) $ (3,819) $ (5,596) $ 779
========= ========= ========= =========
Basic:
Weighed average common
shares outstanding........ 4,000,000 4,000,000 4,000,000(2) 7,666,664(3)
========= ========= ========= =========
Basic earnings (loss) per
share.................... $ (0.32) $ (0.95) $ (1.40) $ 0.10
========= ========= ========= =========
Diluted:
Weighted average common
shares outstanding........ 4,000,000 4,000,000 4,000,000 7,666,664
Assumed conversion of
preferred stock........... -- -- 177,776 177,776
Assumed exercise of
warrants.................. -- 355,552 183,333 183,333
Assumed exercise of the
stock option clause in the
deferred compensation
agreements................ -- -- -- 83,333
--------- --------- --------- ---------
4,000,000 4,355,552 4,361,109(2) 8,111,106(2)
========= ========= ========= =========
Diluted earnings (loss)
per share(4)............. $ (0.32) $ (0.88) $ (1.27) $ 0.11
========= ========= ========= =========
</TABLE>
- --------
Notes:
(1) Computation of net earnings (loss) per common share for the fiscal years
1993 through 1996 is not shown as the Company's capital structure during
those periods consisted solely of 4,000,000 (as adjusted) shares of common
stock and there were no potential equity instruments issued.
(2) Shares are adjusted to reflect an anticipated 40,000 to 1 stock split.
(3) Includes shares issued in connection with the Offering (3,400,000 shares)
and shares issued upon exercise of a warrant (266,664 shares).
(4) Diluted earnings (loss) per share is set forth herein in accordance with
Item 601 of Regulation S-K. The resulting historical diluted earnings
(loss) per share were anti-dilutive and, therefore, are not disclosed in
the statement of operations. Earnings (loss) per share on a pro forma
basis is anti-dilutive due to the preferred stock conversions and the
warrant exercise, and, therefore has not been assumed in the unaudited pro
forma condensed consolidated statement of operations (pro forma column).
Earnings per share on a pro forma as adjusted basis is anti-dilutive due
to the preferred stock conversion, and, therefore, that conversion is not
assumed in the unaudited pro forma condensed consolidated statement of
operations (as adjusted column).
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
We consent to the use of our reports with respect to the: (1) the consolidated
balance sheets of Master Graphics, Inc. as of June 30, 1996 and 1997, and
December 31, 1997 and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the years in the two-year period
ended June 30, 1997 and the six-month period ended December 31,1997; (2) the
balance sheets of Lithograph Printing Company of Memphis as of December 31,1995
and 1996, and June 19, 1997 and the related statements of income, stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1996 and the period from January 1, 1997 through June 19, 1997; (3)
the balance sheet of Blackwell Lithographers, Inc. as of June 19, 1997 and the
related statements of operations, stockholders' equity and cash flows for the
period from January 1, 1997 through June 19, 1997; (4) the balance sheets of The
Argus Press, Inc. as of December 31, 1996 and September 22, 1997 and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31,1996 and the period from January 1, 1997 through September 22, 1997;
(5) the balance sheet of Phoenix Communications, Inc. as of December 16, 1997
and the related statements of operations, stockholders' equity and cash flows
for the period from February 1, 1997 through December 16, 1997; (6) the balance
sheet of Jones Printing Co. as of December 16, 1997 and the related statements
of operations, stockholders' equity and cash flows for the period from January
1, 1997 through December 16, 1997; and (7) the balance sheets of Hederman
Brothers, Inc. as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, all included herein, and to the
references to our firm under the heading of "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Memphis, Tennessee
April 8, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
EXHIBIT 23.2
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
April 6, 1998
<PAGE>
EXHIBIT 23.3
The Board of Directors
McQuiddy Printing Company:
We consent to the use of our report on the financial statements of McQuiddy
Printing Company included in the registration statement of Master Graphics,
Inc. on Form S-1 and to the reference to our firm under the heading "Experts"
in the Prospectus.
Marlin & Edmondson, P.C.
Nashville, Tennessee
April 6, 1998
<PAGE>
EXHIBIT 23.4
The Board of Directors
Jones Printing Company, Inc.:
We consent to the use of our report on the financial statements of Jones
Printing Company, Inc. included in the registration statement of Master
Graphics, Inc. on Form S-1 and to the reference to our firm under the heading
"Experts" in the Prospectus.
Joseph Decosimo and Company, LLP
Chattanooga, Tennessee
April 8, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Master Graphics, Inc.:
We consent to the use of our report on the consolidated financial statements
of Master Printing, Inc. and Subsidiary for the year ended June 30, 1995 in the
Registration Statement of Master Graphics, Inc. on Form S-1, and to the
reference to our firm under the heading "Experts" in the Prospectus.
Thompson Dunavant PLC
Memphis, Tennessee
April 8, 1998
<PAGE>
EXHIBIT 23.6
The Board of Directors
Phillips Litho Co., Inc.:
We consent to the use of our report on the financial statements of Phillips
Litho Co., Inc. included in the registration statement of Master Graphics,
Inc. on Form S-1 and to the reference to our firm under the heading "Experts"
in the Prospectus.
S.F. Fiser & Company, P.A.
Springdale, Arkansas
April 6, 1998
<PAGE>
EXHIBIT 23.7
The Board of Directors
Harperprints, Inc.:
We consent to the use of our report on the financial statements of
Harperprints, Inc. included in the registration statement of Master Graphics,
Inc. on Form S-1 and to the reference to our firm under the heading "Experts"
in the Prospectus.
Becker & Company, P.C.
Lanham, Maryland
April 8, 1998
