<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-49861
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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. [_]
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 MAY 15, 1998
PROSPECTUS
LOGO
[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 offered 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 Common Stock has been approved
for quotation on The Nasdaq Stock Market's National Market ("The Nasdaq
National Market") under the symbol "MAGR." After the Offering, the officers and
directors of the Company will beneficially own approximately 54.1% of the
outstanding shares of Common Stock.
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)
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<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.
SUNTRUST EQUITABLE SECURITIES
, 1998.
<PAGE>
[THE LOGOS OF THE MASTER GRAPHICS DIVISIONS ARRANGED IN A CIRCULAR PATTERN
AROUND THE MASTER GRAPHICS' LOGO. THE GRAPHICS ARE ABOVE THE NAMES OF THE
MASTER GRAPHICS DIVISIONS, CITIES IN WHICH THEY ARE LOCATED, AND THE YEARS IN
WHICH THEY WERE ESTABLISHED.]
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."
<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 effected in May 1998; (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 (the "Lender 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 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 10 high quality, market leading, general commercial
printing companies (which, together with B&M Printing, are hereinafter
collectively called the "Acquired Companies"), each of which operates as a
separate division of the Company and provides a full range of general
commercial printing services. The Acquired 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's pro
forma consolidated revenue and operating income for the three months ended
March 31, 1998 were $ 38.5 million and $ 2.4 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
3
<PAGE>
1995. There are approximately 25,000 general commercial printing companies in
the United States according to the PIA.
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 arrangements 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>
it 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 public offering price
equal to the Mid-Point) issuable for nominal consideration upon the
exercise of the Lender Warrant. Does not include (i) 1,524,037 shares of
Common Stock (assuming an initial public offering price equal to the Mid-
Point) issuable at the initial public offering price per share upon the
exercise of warrants (the "Seller Warrants") issued in connection with the
Company's acquisition of the Acquired Companies; (ii) 603,636 shares of
Common Stock (assuming an initial public offering price equal to the Mid-
Point) issuable at the initial public offering price per share upon the
exercise of outstanding stock options held by directors and employees of
the Company; (iii) 108,333 shares of Common Stock (assuming an initial
public offering price equal to the Mid-Point) issuable at the initial
public offering price per share upon the exercise of rights granted to
former B&M Printing shareholders; and (iv) 83,333 shares of Common Stock
(assuming an initial public offering price equal to the Mid-Point) issuable
at the initial public offering price per share 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(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
--------------------------------------------
YEAR ENDED THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED MARCH 31, ENDED MARCH 31,
1997 1997 1998
------------ --------------- ---------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue......................... $153,971 $35,126 $38,462
Gross profit.................... 38,790 8,907 9,343
Operating income................ 8,545 2,292 2,415
Net earnings.................... 893 156 370
Net earnings applicable to
common shares.................. 663 98 279
Net earnings per common share
Basic......................... $ 0.09 $ 0.01 $ 0.04
Diluted....................... $ 0.09 $ 0.01 $ 0.04
OTHER DATA:
EBITDA(2)....................... $ 13,991 $ 3,405 $ 3,975
<CAPTION>
PRO FORMA
AS ADJUSTED
AS OF
MARCH 31,
1998
------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 24,807
Property, plant and equipment,
net............................ 52,251
Total assets.................... 138,680
Long-term debt, including
current installments........... 82,265
Redeemable preferred stock...... 1,350
Shareholders' equity............ 37,164
</TABLE>
- --------
(1) The summary pro forma financial data presents certain information for the
Company, as adjusted for (i) the effects of the acquisitions of the
Acquired Companies, (ii) the effects of certain pro forma adjustments which
are directly related to such 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, as if the foregoing had occurred on January 1, 1997, with
respect to income statement data, and March 31, 1998, with respect to
balance sheet data. See the Unaudited Pro Forma Condensed Consolidated
Financial Statements and notes thereto contained elsewhere in this
Prospectus. The conversion of the Series A Preferred Stock into 177,776
shares of Common Stock and the exercise of the Lender Warrant have not been
assumed in the pro forma balance sheet data; however their assumed
conversion and exercise, respectively, have been considered in computing
pro forma diluted net earnings per share. The pro forma adjustments
reflect, among other things, a reduction in interest expense and interest
rates on the Company's credit facilities as a result of the application of
the net proceeds of the Offering. The summary pro forma financial data do
not purport to represent what the Company's results of operations or
financial position actually would have been had the foregoing 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 ACQUIRED COMPANIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Master Graphics, Inc.(1)
Revenue......................................... $ 11,426 $ 13,244 $ 13,433
Gross profit.................................... 2,498 3,289 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 $ 24,663 $ 23,277
Gross profit.................................... 3,755 5,671 4,765
Operating income................................ 831 1,895 1,147
Phoenix Communications, Inc.(2)(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 2,088 1,318
Operating income................................ 702 606 311
Hederman Brothers, Inc.
Revenue......................................... $ 8,556 $ 9,360 $ 10,459
Gross profit.................................... 2,064 2,509 2,355
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 2,915 2,607
Operating income................................ 1,625 968 575
McQuiddy Printing Company(3)
Revenue......................................... $ 15,681 $ 15,574 $ 16,583
Gross profit.................................... 3,505 3,015 3,438
Operating income................................ 915 410 696
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 Printing
Company ("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 10 general commercial printing companies since June
1997. 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 Acquired Companies successfully and achieve
expected operating efficiencies and economies of scale. The pro forma and
combined historical financial results of the Acquired Companies cover periods
during which the Acquired 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 Acquired 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. For the foreseeable future, the Company will rely on
the separate accounting, information and operating systems of the Acquired
Companies. The Company eventually plans to implement and integrate certain
centralized information and operating systems, policies and procedures for the
Acquired 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 Acquired 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 and policies, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Operating Strategy" and "--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 its
printing capacity more efficiently.
AVAILABILITY OF DEBT FINANCING; SUBSTANTIAL LEVERAGE
At March 31, 1998, on a pro forma basis as adjusted for the Offering and
application of the net proceeds therefrom, the Company's indebtedness was
approximately $82.3 million, net of $3.0 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 no additional borrowing capacity
available under the Senior
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Credit Facility but, upon closing of the Offering, the application of the net
proceeds therefrom, and the increase of the available credit under the Senior
Credit Facility, the Company will have approximately $30.0 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 $6.5 million
of additional borrowing capacity available under the Revolving Credit Facility
and, upon closing of the Offering, the application of the net proceeds
therefrom and the increase of the available credit under the Revolving Credit
Facility, the Company will have approximately $14.0 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 increases in both the Revolving Credit Facility and
Senior Credit Facility are subject to the execution of definitive loan
documents and other conditions, some or all of which may not be met. There can
be no assurance that the Company and its lenders will agree on such definitive
loan documents, all such conditions will be met or the increases in available
credit under the Credit Facilities will be obtained.
The Company expects to fully utilize available credit under the Credit
Facilities, 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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 and
successfully negotiate the acquisitions of existing general commercial
printing companies 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 Acquired 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
acquisition strategy 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."
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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 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."
RISKS RELATED TO NATURE OF GENERAL COMMERCIAL PRINTING BUSINESS; FLUCTUATION
IN QUARTERLY OPERATING RESULTS; PRIOR OPERATING LOSSES
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. Such fluctuations
may be caused by underutilization of plant capacity, lost business due to lack
of plant capacity, or higher direct costs. Although the Company's Master
Central equipment utilization and marketing process is designed to smooth
capacity utilization and expand production capabilities, there can be no
assurance that Master Central will have this desired effect. 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 certain of the last several years. See "Prospectus Summary--Summary
Financial Information for the Company and Individual Acquired 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' businesses 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.
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AVAILABILITY OF TECHNICIANS AND SALESPEOPLE
The Company's ability to provide high-quality finished printed products in a
timely fashion is dependent 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 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 on a timely basis to accommodate changing
technology, to address the increasingly sophisticated needs of its customers
and to keep pace with 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 Acquired 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 "--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 Companies. There can be no assurance that the consideration paid
by the Company for the Acquired Companies accurately reflects the value of
these companies and subsequent acquisitions will accurately reflect the values
of companies acquired in the future. If the fair market values of the Acquired
Companies, 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 has recorded $39
million of goodwill in connection with its acquisition of the Acquired
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 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
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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.
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,
including John P. Miller, Chairman of the Board, Chief Executive Officer and
President, Lance T. Fair, Senior Vice President-- Acquisitions and Chief
Financial Officer, Robert J. Diehl, Chief Operating Officer, P. Melvin Henson,
Jr., Senior Vice President--Finance and Administration and Chief Accounting
Officer, and James B. Duncan, Senior Vice President--Sales and Marketing. The
Company has no key man life insurance on the lives of any of its executive
officers or key managers. 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, except where the
failure to obtain any permit or approval or file any registration would not
have a material adverse effect on the Company's business, financial condition
and results of operations. 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 Acquired 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 or business
operations, nor is the Company aware of any other material environmental
condition with respect to any of its properties or arising out of its business
operations at any other location. However, in connection with the ownership
and operation of its properties (including locations to which the Company may
have sent waste in the past) 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
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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.
NO PRIOR MARKET; VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation 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 representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. See
"Underwriting" for factors 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 pro forma net tangible book value of
their shares of Common Stock in the amount of $12.19 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.
Moreover, the issuance of additional shares of Common Stock (the aggregate
number of which is 1,715,703, assuming an initial public offering price equal
to the Mid-Point) upon the exercise of Seller Warrants, rights granted to
former B&M Printing shareholders or pursuant to the Company's deferred
compensation plan could have a substantial dilutive impact on the Company's
earnings per share.
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 "--Series A 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, 8,027,773 shares of Common Stock will be
outstanding, including 177,776 shares issuable upon conversion of the
outstanding Series A Preferred Stock and 183,333 shares (assuming an initial
public offering price equal to the Mid-Point) issuable upon exercise of the
Lender Warrant. 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 of Common Stock outstanding may be resold only pursuant to an
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,
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the 4,000,000 shares of Common Stock owned by Mr. Miller are eligible for
resale pursuant to Rule 144. The remaining 427,773 shares of Common Stock are
"restricted" within the meaning of Rule 144 and are not currently eligible for
resale under Rule 144. The earliest point in time when any such restricted
shares of Common Stock are eligible for resale pursuant to Rule 144, subject
to the volume, manner of sale and other limitations thereof, is March 1999.
Upon the closing of the Offering, the Company also will have granted to
employees and directors options to purchase up to a total of 603,636 shares of
Common Stock (assuming an initial public offering price equal to the Mid-
Point) at the initial public offering price per share, of which 221,721 shares
may be acquired immediately after the closing of the Offering. The remaining
options are excercisable beginning one year after the date of grant. 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 Acquired Companies, the Company
issued the Seller Warrants to purchase 1,524,037 shares of Common Stock
(assuming an initial public offering price equal to the Mid-Point) at an
exercise price per share equal to the initial public offering price. All
Seller Warrants may be exercised immediately after the closing of the
Offering. The Seller Warrants were issued in individually negotiated
transactions with the Acquired Companies. As a result of such negotiations,
the holders of Seller Warrants to purchase an aggregate of 491,666 shares of
Common Sock have piggyback registration rights.
In connection with a financing transaction, the Company issued to its senior
lender the Lender Warrant to purchase 183,333 shares of Common Stock (assuming
an initial public 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 refinancing of debt incurred as a
result of the acquisition of B&M Printing, the Company granted rights to
purchase 108,333 shares of Common Stock (assuming an initial public offering
price equal to the Mid-Point) at a price per share equal to the initial public
offering price to certain former shareholders of B&M Printing, which rights
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 (assuming an initial public offering price equal
to the Mid-Point) at a price per share equal to the initial public offering
price, which are exercisable immediately after the closing of the Offering.
See "Shares Eligible for Future Sale -- Warrants and Rights."
The Company, the Selling Shareholder, the Company's senior lender and the
Company's 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. and SunTrust
Equitable Securities Corporation for a period of 180 days after the date of
this Prospectus (the "lock-up period"), except for (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. After the Offering, the officers and directors
of the Company will beneficially own approximately 54.1% of the outstanding
shares of Common Stock.
The effect, if any, of the availability for sale, or sale, of 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 55.2% of the outstanding
Common Stock (or approximately 51.7% 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
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of any matters submitted to the Company's shareholders for approval. In
addition, although there is no current 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. The concerted efforts of existing
shareholders could effect transactions such as mergers and combinations without
the approval of minority shareholders. 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 Mid-Point) 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 (approximately
$29.7 million or, if the Underwriters' over-allotment option is exercised in
full, approximately $35.8 million) 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 after the Offering and
application of the net proceeds therefrom 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. Moreover, the Company is dependent upon the cash flow of and
transfer of funds from Premier Graphics, which under the Credit Facilities is
subject to restrictions on its ability to pay dividends to the Company. See
"Risk Factors -- Restriction on Dividends."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an historical basis including the 40,000 for 1 stock split
effected in May 1998; (ii) on a pro forma basis to reflect the acquisition of
McQuiddy and the financing thereof; 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 estimated offering expenses payable by the
Company). For a description of the adjustments, see Notes to 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 and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
----------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- ------------
<S> <C> <C> <C>
Current portion of long-term debt............ $ 4,127 $ 4,127 $ 4,127
Long-term debt, net of current portion and
unamortized discount........................ 99,732 109,092 78,138
Redeemable common stock warrant.............. 2,026 2,026 --
5% Series A Cumulative Convertible Redeemable
Preferred Stock, $.001 par value per share,
177,776 shares issued and outstanding ...... 1,350 1,350 1,350
Shareholders' equity:
Preferred stock, $.001 par value per share,
9,822,224 shares authorized, no shares
issued and outstanding..................... -- -- --
Common Stock, $.001 par value per share;
100,000,000 shares authorized; 4,000,000
shares issued and outstanding (historical)
4,266,664 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.................. 6,744 6,796 45,818
Retained earnings (deficit) ................ (5,006) (5,006) (8,662)
-------- -------- --------
Total shareholders' equity................... 1,742 1,794 37,164
-------- -------- --------
Total capitalization......................... $108,977 $118,389 $120,779
======== ======== ========
</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 public offering price
equal to the Mid-Point) issuable for nominal consideration upon the
exercise of the Lender Warrant; (iii) 1,524,037 shares of Common Stock
(assuming an initial public offering price equal to the Mid-Point)
issuable at the initial public offering price per share upon the exercise
of the Seller Warrants; (iv) 603,636 shares of Common Stock (assuming an
initial public offering price equal to the Mid-Point) issuable at the
initial public offering price per share upon the exercise of outstanding
stock options held by directors and employees of the Company; (v) 108,333
shares of Common Stock (assuming an initial public offering price equal to
the Mid-Point) issuable at the initial public offering price per share
upon the exercise of rights granted to former B&M Printing shareholders;
and (vi) 83,333 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable at the initial public
offering price per share pursuant to the Company's deferred compensation
plan.
DILUTION
The pro forma net tangible book value of the Company at March 31, 1998,
after giving effect to the acquisition of the Acquired 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 issuance
of 183,333 shares of Common Stock (assuming an initial public offering price
equal to the Mid-Point) upon exercise
17
<PAGE>
of the Lender Warrant as if each had occurred as of that date, but before
giving effect to the Offering, was $(35.0) million or $(7.57) 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. Pro
forma dilution per share to new investors 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 March 31, 1998 was approximately $(1.5 million) or $(0.19)
per share. This represents an immediate increase in pro forma net tangible
book value of approximately $7.38 per share to the existing shareholders and
an immediate dilution in pro forma net tangible book value of approximately
$12.19 per share to purchasers of Common Stock in this Offering. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... 12.00
Pro forma net tangible book value (deficit) per share before
the Offering............................................... (7.57)
Increase per share attributable to the Offering............. 7.38
-----
Pro forma as adjusted net tangible book value deficit after
the Offering................................................. (0.19)
-----
Pro forma dilution per share to new investors................. 12.19
=====
</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 payable by the Company.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 4,627,773 57.6% $ 2,200,000 5.1% $ .48
New investors........... 3,400,000 42.4% 40,800,000 94.9% $12.00
--------- ------ ----------- ------ ------
Total................. 8,027,773 100.0% $43,000,000 100.0%
========= ====== =========== ======
</TABLE>
The foregoing table assumes the conversion of the Series A Preferred Stock
into 177,776 shares of Common Stock and the issuance of 183,333 shares of
Common Stock (assuming an initial public offering price equal to the Mid-
Point) upon exercise of the Lender Warrant, in each case for nominal
consideration. In addition to the foregoing, upon closing of the Offering,
there will be (i) 1,524,037 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable at the initial public offering
price per share upon the exercise of the Seller Warrants; (ii) 603,636 shares
of Common Stock (assuming an initial public offering price equal to the Mid-
Point) issuable at the initial public offering price per share upon the
exercise of outstanding stock options held by directors and employees of the
Company; (iii) 108,333 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) issuable at the initial public offering
price per share upon the exercise of rights granted to former B&M Printing
shareholders; and (iv) 83,333 shares of Common Stock (assuming an initial
public offering price equal to the Mid-Point) issuable at the initial public
offering price per share pursuant to the Company's deferred compensation plan.
18
<PAGE>
SELECTED HISTORICAL, PRO FORMA AND COMBINED FINANCIAL DATA
The following historical financial data and balance sheet data of the
Company and combined historical income statement data of the Company and the
Acquired Companies have been derived from the historical consolidated
financial statements of the Company, and the separate historical financial
statements of the Company and the Acquired Companies, respectively. The
consolidated financial statements of the Company and certain of the separate
financial statements of the Acquired 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 income statement data for the Company and the
Acquired 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 would have been if the operations of such businesses had
actually been combined during the periods indicated or to project the
Company's results of operations for any period. Such presentation is not
intended to be, and is not, in accordance with GAAP, since the Acquired
Companies were not owned or controlled by the Company prior to their
respective acquisitions. Additionally, the Acquired 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 financial data are derived from the unaudited pro forma
condensed consolidated financial statements of the Company as of March 31,
1998 and for the year ended December 31, 1997 and the three month periods
ended March 31, 1997 and March 31, 1998, respectively, which statements are
included elsewhere in this Prospectus. Such pro forma financial statements
give effect to acquisitions consummated in 1997 and 1998, and the financing
thereof, as if those transactions had occurred as of January 1, 1997 in the
case of the pro forma income statement data, and as if those transactions had
occurred as of March 31, 1998 in the case of the pro forma balance sheet data.
The pro forma 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 income statement 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 financial information should be read in conjunction with the historical
financial statements of the Company and certain of the Acquired Companies, and
the pro forma condensed consolidated financial statements of the Company,
including the related notes thereto, included elsewhere herein.
19
<PAGE>
<TABLE>
<CAPTION>
1993
-------
<S> <C>
COMPANY:
INCOME STATEMENT
DATA:
Revenue............ $10,514
Cost of revenue.... 8,339
-------
Gross profit...... 2,175
Selling, general
and administrative
expenses.......... 2,231
Amortization of
goodwill.......... --
-------
Operating income
(loss)........... (56)
Other income
(expense):
Redeemable warrant
valuation
adjustment....... --
Interest income... 102
Interest expense.. (365)
Other, net........ 85
-------
Other income
(expense),
net............ (178)
-------
Income (loss)
before income
taxes............ (234)
Income tax expense
(benefit)......... (43)
-------
Net earnings
(loss)........... $ (191)
=======
Net earnings
(loss) applicable
to common
shares........... N/A
=======
Earnings per share:
Basic............. ($0.05)
=======
Diluted........... ($0.05)
=======
Weighted average
shares
outstanding....... 4,000
OTHER DATA:
EBITDA(3)......... $ 1,610
Depreciation and
amortization..... 1,480
Cash flows
provided by (used
in):
Operating
activities...... 441
Investing
activities...... (2,077)
Financing
activities...... (99)
<CAPTION>
PRO FORMA THREE MONTHS ENDED MARCH 31,
AS ADJUSTED ----------------------------------------
YEARS ENDED JUNE 30,(1) SIX MONTHS EPRO FORMANDEPRO FORMAD YEAR ENDED
----------------------------------- DECEMBER AS ADJUSTED3AS ADJUSTED1, DECEMBER 31,
1994 1995 1996 1997 1997(1) 1997(2) 1997 1998 1997 1998
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY:
INCOME STATEMENT
DATA:
Revenue............ $10,804 $11,426 $13,244 $13,433 $32,394 $153,971 $3,161 $28,020 $ 35,126 $38,462
Cost of revenue.... 8,098 8,928 9,955 11,312 26,528 115,181 2,691 20,654 26,219 29,119
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
Gross profit...... 2,706 2,498 3,288 2,121 5,866 38,790 470 7,366 8,907 9,343
Selling, general
and administrative
expenses.......... 2,587 2,570 2,691 3,021 5,990 29,223 552 4,669 6,360 6,686
Amortization of
goodwill.......... -- -- -- -- 98 1,022 84 196 255 242
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
Operating income
(loss)........... 119 (72) 597 (900) (222) 8,545 (166) 2,501 2,292 2,415
Other income
(expense):
Redeemable warrant
valuation
adjustment....... -- -- -- -- (1,635) -- -- -- -- --
Interest income... 84 67 68 68 48 135 17 85 37 96
Interest expense.. (403) (334) (376) (439) (2,181) (6,987) (157) (2,248) (2,115) (1,982)
Other, net........ 83 44 44 23 191 (126) 46 101 59 120
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
Other income
(expense),
net............ (236) (223) (264) (348) (3,578) (6,978) (94) (2,062) (2,019) (1,766)
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
Income (loss)
before income
taxes............ (117) (295) 334 (1,248) (3,799) 1,567 (260) 439 273 649
Income tax expense
(benefit)......... (25) (86) 161 25 20 674 (11) (4) 117 279
-------- -------- -------- -------- ---------------- ------------ ------- -------- ----------- -----------
Net earnings
(loss)........... $ (92) $ (209) $ 172 $(1,273) $(3,819) $ 893 $ (249) $ 443 $ 156 $ 370
======== ======== ======== ======== ================ ============ ======= ======== =========== ===========
Net earnings
(loss) applicable
to common
shares........... N/A N/A N/A N/A N/A $ 663 N/A N/A 98 $ 312
======== ======== ======== ======== ================ ============ ======= ======== =========== ===========
Earnings per share:
Basic............. ($0.02) ($0.05) 0.04 ($0.32) ($0.95) $ 0.09 ($0.06) $ 0.11 $ 0.01 $ 0.04
======== ======== ======== ======== ================ ============ ======= ======== =========== ===========
Diluted........... ($0.02) ($0.05) 0.04 ($0.32) ($0.95) $ 0.09 ($0.06) $ 0.10 $ 0.01 $ 0.04
======== ======== ======== ======== ================ ============ ======= ======== =========== ===========
Weighted average
shares
outstanding....... 4,000 4,000 4,000 4,000 4,000 7,667 4,000 4,000 7,667 7,667
OTHER DATA:
EBITDA(3)......... $ 1,152 $ 795 $ 1,315 $ (186) $ (205) $ 13,991 $ 48 $ 3,678 $ 3,405 $ 3,975
Depreciation and
amortization..... 867 757 605 623 1,413 5,437 151 1,174 1,344 1,048
Cash flows
provided by (used
in):
Operating
activities...... 795 (52) 628 (80) 2,493 N/A 1,076 (1,613) N/A N/A
Investing
activities...... (248) (47) (364) (17,543) (28,840) N/A (132) (31,379) N/A N/A
Financing
activities...... (397) (211) (563) 18,550 27,023 N/A (733) 36,661 N/A N/A
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------------- -------------------------
AT JUNE 30, AT AT AT AS ADJUSTED AT
------------------------------- DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1998 1998 1998
----- ----- ----- ------ ------ ------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 738 $ 866 $ 765 $1,286 $3,056 $6,691 $18,541 $19,202 $24,807
Property, plant and
equipment, net....... 2,458 2,276 1,934 2,007 20,472 29,550 45,117 52,251 52,251
Total assets.......... 8,902 6,330 6,102 6,426 37,215 86,384 127,355 139,290 138,680
Long-term obligations,
including current
installments......... 5,886 3,566 3,382 2,794 30,612 69,317 103,859 113,219 82,265
Redeemable common
stock warrants....... -- -- -- -- 638 3,376 2,026 -- --
Redeemable preferred
stock................ -- -- -- -- -- -- 1,350 1,350 1,350
Shareholders' equity
(deficit)............ 1,972 1,880 1,671 1,843 780 (1,596) 1,742 3,820 37,164
</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 ACQUIRED 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.
(2) The pro forma financial information presents certain information for the
Company, as adjusted for (i) the effects of the acquisitions of the
Acquired Companies, (ii) the effects of certain pro forma adjustments to
the historical financial statements of the Acquired 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, as if the foregoing had occurred on January 1, 1997, with
respect to income statement data, and March 31, 1998, with respect to
balance sheet data. See the Unaudited Pro Forma Condensed Consolidated
Financial Statements and notes thereto contained elsewhere in this
Prospectus. The conversion of the Series A Preferred Stock into 177,776
shares of Common Stock and the exercise of the Lender Warrant have not
been assumed in the pro forma balance sheet data; however their assumed
conversion and exercise, respectively, have been considered in computing
pro forma diluted earnings per share. The pro forma adjustments reflect,
among other things, a reduction in interest expense and interest rates on
the Credit Facilities as a result of the application of the net proceeds
of the Offering. The pro forma financial data do not purport to represent
what the Company's results of operations or financial position actually
would have been had the foregoing 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) 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 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 Acquired 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 10 high quality, market leading
general commercial printing companies. Each of the Acquired Companies was
acquired with a combination of cash, notes and warrants. The Company financed
the cash portion of the purchase price primarily with debt. See Note 1 in
"Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements" for
information regarding the consideration paid for the Acquired Companies. 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 Acquired 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
arrangements 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 charges for increases
in the value of redeemable warrants issued to the Company's lenders in the
amounts of approximately $1.6 million during the six months ended. 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.
PRO FORMA RESULTS OF OPERATIONS FOR THE COMBINED COMPANIES
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
The following table sets forth certain unaudited pro forma financial data
for the periods indicated (dollars in millions) and such results as a
percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
1997 1998
----------- -----------
<S> <C> <C> <C> <C>
Revenue............................................... $35.1 100.0% $38.5 100.0%
Gross profit.......................................... 8.9 25.3 9.3 24.2
Selling, general and administrative expenses.......... 6.4 18.2 6.7 17.4
Operating income...................................... 2.3 6.5 2.4 6.2
Interest expense...................................... 1.9 5.4 2.0 4.7
</TABLE>
Revenue. Revenue increased 9.7% from $35.1 million for the three months
ended March 31, 1997 to $38.5 million for the three months ended March 31,
1998. The increase in revenue was attributable primarily to increased volume
at nine of the Company's 11 divisions. Included in the revenue for the 1998
period was $600,000 generated through Master Central.
22
<PAGE>
Gross Profit. Gross profit increased 4.5% from $8.9 million for the three
months ended March 31, 1997 to $9.3 million for the three months ended March
31, 1998. The increase in gross profit was primarily attributable to increased
revenue but was partially offset by a decrease in gross margin from 25.3% to
24.2%. The gross margin decrease was primarily attributable to temporary
operating inefficiencies at two divisions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 4.7% from $6.4 million for the three months
ended March 31, 1997 to $6.7 million for the three months ended March 31,
1998. However, as a percentage of revenue, selling, general and administrative
expenses decreased from 18.2% to 17.4% primarily due to increased sales
volume. The overall increase in selling, general and administrative expenses
was partially due to increased selling commissions resulting from increased
sales volume. In addition, general corporate overhead increased substantially
in the 1998 period on account of the development of corporate infrastructure,
including the addition of senior management and information systems to support
the execution of the Company's internal and external growth strategies.
Interest Expense. Interest expense declined 5.0% from $1.9 million for the 3
months ended March 31, 1997 to $1.8 million for the 3 months ended March 31,
1998. The decrease in interest expense was primarily attributable to principal
payments made from cash flow to reduce overall indebtedness of the Company.
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) PRO FORMA
---------------------------------------- CALENDAR
1995 1996 1997(2) YEAR 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $134.3 100.0% $142.6 100.0% $151.8 100.0% 154.0 100.0%
Gross profit............ 34.1 25.4 35.3 24.8 35.0 23.1 38.8 25.2
Selling, general and
administrative
expenses............... 29.4 21.9 28.9 20.3 28.4 18.7 29.2 19.0
Operating income........ 4.7 3.5 6.4 4.5 6.6 4.3 8.5 5.6
</TABLE>
- --------
(1) The Company and several of the Acquired 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 Acquired 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.
The combined results of operations of the Company and the Acquired Companies
for the periods presented do not represent combined results of operations
presented in accordance with GAAP, 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 Acquired Companies were 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 Acquired 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
Acquired 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.
23
<PAGE>
Pro Forma Calendar Year 1997 Compared to Combined Fiscal Year 1997
Revenue on a pro forma calendar year basis was $2.2 million (1.4%) greater
than the combined fiscal year basis, as a result of the timing of revenue for
the non-calendar year companies (Master Graphics, Phoenix and McQuiddy). Gross
profit increased for the reason stated above, along with the impact of less
depreciation on a pro forma basis reflecting accelerated methods used by
certain of the Acquired Companies. Selling, general and administrative expense
were relatively unchanged as a percentage of revenue.
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 Acquired 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 the 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 Acquired 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 1995 to
fiscal year 1996.
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.
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.
24
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------
SIX MONTHS
ENDED DECEMBER
1995 1996 1997 31, 1997
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $11.4 100.0% $13.2 100.0% $13.4 100.0% $32.4 100.0%
Gross profit............ 2.5 21.9 3.3 25.0 2.1 15.7 5.9 18.1
Selling, general and
administrative
expenses............... 2.6 22.8 2.7 20.5 3.0 22.4 6.0 18.5
Operating income
(loss)................. (.1) (.9) .6 4.5 (.9) (6.7) (.2) 6.7
Interest expense........ (.3) (2.6) (.4) (3.0) (.4) (3.0) (2.2) (6.7)
Income tax expense
(benefit).............. (.1) (0.8) .2 1.2 -- 0.2 -- .1
Net earnings (loss)..... (.2) (1.8) .2 1.3 (1.3) (9.5) (3.8) (11.8)
</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 25.0% to 15.7% from the year ended 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.
Six Months Ended December 31, 1997 compared to Year Ended June 30, 1997.
Revenue increased by 242%, which primarily reflects the addition of three
acquisitions for the full six months and one acquisition for three months. The
increase in gross margin reflects higher margins realized at certain of the
Acquired Companies; the decrease in selling, general and administrative
expense as a percentage of revenue reflects the mix of such expenses from
Acquired Companies. The increase in interest expense reflects increased debt
resulting from acquisitions during the period. The net loss for the six months
ended December 31, 1997 was increased by $1.6 million due to the change in the
fair value of redeemable Common Stock purchase warrants issued to lenders
during that period. Income tax benefits were not recorded on the loss incurred
during the period because the Company has not concluded that realization of
such loss is more likely than not to occur.
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.
25
<PAGE>
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 the year ended 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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company and the Acquired 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, the six-month period ended December 31, 1997 and the three month
periods ended March 31, 1997 and 1998, the Company's capital expenditures
amounted to an aggregate of approximately $349,000, $4.1 million, $328,000,
$132,000 and $173,000, respectively. Fiscal year 1997 expenditures include
approximately $2.6 million related to the financing of a web press. See
"Certain Transactions". 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
26
<PAGE>
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 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. Master Graphics, Inc.
is dependent upon the cash flow of and the transfer of funds from its
subsidiary, Premier
27
<PAGE>
Graphics, which, under the Credit Facilities is subject to restrictions on its
ability to pay dividends to Master Graphics, Inc.
The Company believes its exposure to Year 2000 issues is limited to the
purchase of computer hardware at certain locations. The Company anticipates
that the cost of such computer hardware will be approximately $525,000.
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.
The Company does not believe that any recently issued accounting standards
will have a material impact on the Company's consolidated financial
statements.
28
<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 access the financial capital
and other operating strengths the Company has to offer to grow the business,
increase their personal financial liquidity or facilitate retirement.
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.
29
<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 10 high quality, market leading, general commercial
printing companies, each of which operates as a separate division of the
Company, providing a full range of general commercial printing services. The
Acquired 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's pro forma consolidated revenue and
operating income for the three months ended March 31, 1998 were $38.5 million
and $2.4 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 arrangements 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
30
<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 it 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.
ACQUIRED COMPANIES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
1997 REVENUE YEAR SHEET FED WEB
ACQUIRED COMPANY (IN THOUSANDS) (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 1947 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 Acquired Companies had fiscal
years that differed from December 31, which is the year end the Company
will use effective January 1, 1998.
31
<PAGE>
The Acquired Companies were acquired with a combination of cash, promissory
notes and warrants. The aggregate consideration that was paid by the Company
to acquire the Acquired Companies consists of (i) approximately $52 million in
cash, (ii) approximately $15 million in aggregate principal amount of notes to
the former owners of the Acquired Companies and (iii) warrants to purchase
1,524,037 shares of Common Stock (assuming an initial public offering price
equal to the Mid-Point) at an exercise price equal to the initial public
offering price per share. Former owners of several Acquired Companies have the
opportunity to receive additional amounts of consideration up to a maximum of
approximately $15 million, payable in cash, contingent upon meeting certain
cash flow or earnings targets. See Note 1 in "Notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements" for detailed information
regarding the consideration paid for each of the Acquired Companies.
The consideration paid by the Company for each Acquired Company was the
result of arm's length negotiations between representatives of the Company and
representatives of the Acquired Company and was based generally on the
Company's evaluation of the 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. Master Central currently operates via facsimile,
telephone and electronic mail; however, the Company is currently evaluating
high speed electronic data transfer systems which will facilitate
communications and data transfers between 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.
32
<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 those finishing
operations which required substantial capital investments. Because some of the
Acquired 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
On March 31, 1998, the Company employed 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
33
<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 than smaller, locally-owned general commercial printing
companies, the Company believes it 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 believes it will be 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 pricing
arrangements with five paper suppliers which provide for discounts and rebates
based on volume.
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.
34
<PAGE>
FACILITIES
The Company's principal facilities are described in the table below. All of
the listed facilities contain office, production and storage space. The
Company's facilities are suitable and adequate for the current needs of the
Company. 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.
35
<PAGE>
The Company has obtained all permits and approvals and filed all
registrations required for the conduct of its business, except where the
failure to obtain any permit or approval or file any registration would not
have a material adverse effect on the Company's business, financial condition
or result of operations. 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 Acquired 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 or its business operations, nor is the Company aware of any
other material environmental condition with respect to any of its properties
or arising out of its business operations at any other location. However, in
connection with the ownership and operation of its properties (including
locations to which the Company may have sent waste in the past) 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.
36
<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, Class III Director
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 Class I Director, President Hederman Brothers
Jr. ..................... Division
Donald L. Hutson.......... 52 Class I Director
Walter P. McMullen........ 73 Class II Director, Chairman Lithograph Printing
Division
Frederick F. Avery........ 67 Class II Director
Cary Rosenthal............ 58 Class III Director, President Phoenix Division
</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 (Hap) 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
37
<PAGE>
as the 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.
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.
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).
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.
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.
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. Avery, Hutson and Miller.
38
<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 1,666 shares of Common
Stock (assuming an initial public offering price equal to the Mid-Point) at a
purchase price per share equal to the initial public offering price.
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 per share of Common
Stock.
The Company has employment agreements with each of the above Named Executive
Officers, P. Melvin Henson, Jr. and James B. Duncan each effective as of March
31, 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
39
<PAGE>
the discretion of the Board of Directors, 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 of 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's employment is terminated
without cause or the officer suffers a constructive termination of his
employment 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 years. In the event the officer's employment 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's employment is terminated
without cause or the officer suffers a constructive termination of his
employment 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 13.8% $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 601,970 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 exercise price per share. 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>
40
<PAGE>
EQUITY COMPENSATION PLAN
The Company's 1998 Equity Compensation Plan (the "Plan") provides for grants
of (i) stock options, (ii) stock appreciation rights ("SARs") 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 601,970 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 Options
and Benefits Committee). 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 to so qualify ("NQSOs"), (iii) stock appreciation rights, or (iv)
shares of restricted stock. Awards may be granted to any employee (including
officers) of the Company and consultants and advisers who perform services for
the Company.
In the event of any change of corporate capitalization (such as a stock
split), the number of shares of Common Stock covered by each outstanding
option or SAR and the purchase price thereof will be proportionately adjusted
to take into account any increase or decrease in the number of issued and
outstanding shares of Common Stock.
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.
SARs 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 an SAR has been exercised, the related portion of the stock
option underlying the SAR will terminate. Upon the exercise of an SAR, 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 SARs being exercised.
41
<PAGE>
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.
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
shareholder approval will be required for certain amendments pursuant to
Section 162(m) of the Code. 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 to take into
account 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.
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CERTAIN TRANSACTIONS
Premier Graphics, through the B&M Printing division, on December 10, 1992
loaned Mr. Miller $950,000, which bears interest at a rate of 7% per annum and
matures on December 10, 2002. Mr. Miller intends to repay this amount in full
contemporaneously with 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. For
the years ended December 31, 1995, 1996, and 1997, respectively, the Company
paid Mr. Miller $260,000, $108,333 and $162,567, respectively, under the
lease, and expects to pay Mr. Miller $140,000 for the year ending December 31,
1998.
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 intends to repay this amount in full
contemporaneously with 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
approximately 6.2% of the Company's outstanding Common Stock prior to the
Offering, 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 the Selling Shareholder a warrant to purchase for nominal value shares of
the Company's capital stock outstanding on the date of exercise, with the
number of shares being based on a formula designed to provide the Selling
Shareholder with a 6% ownership interest in the Company's outstanding Common
Stock on a fully-diluted basis. The warrant also provided that the Selling
Shareholder would have been entitled to purchase, for nominal value, up to an
additional 15.7% of the Company's outstanding capital stock in the event any
amounts were owed to Sirrom on certain dates set forth in the warrant. The
Company intends to utilize a portion of the net proceeds of the Offering to
repay in full all amounts owed to the Selling Shareholder and currently does
not intend to borrow any additional amounts from the Selling Shareholder;
therefore, the Company expects that this right will be extinguished by the
Offering and application of the net proceeds therefrom. On April 8, 1998, the
Selling Shareholder exercised the warrant and acquired 266,664 shares of
Common Stock for nominal consideration, which represented approximately 6.2%
of the issued and outstanding capital stock of the Company on the date of
exercise. Assuming an initial public offering price equal to the Mid-Point,
the Selling Shareholder may receive up to $2.2 million of the net proceeds of
the Offering.
In the Company's acquisition of Hederman in March 1998, Mr. Hederman and
members of his immediate family (or trusts for the benefit of such
individuals) received consideration in the form of $1.5 million cash.
Mr. Hederman and such family members and trusts received warrants to purchase
a total of 166,665 shares of Common Stock (assuming an initial public offering
price equal to the Mid-Point) at a price per share equal to the initial public
offering price. Mr. Hederman and such family members and trusts 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. in
December 1997, Mr. Rosenthal received consideration in the form of
approximately $3.3 million cash, a warrant to purchase 193,750 shares of
Common Stock (assuming an initial public offering price equal to the Mid-
Point) at a price per share equal to the initial public offering price, and a
promissory note in the principal amount of $557,750 which matures on
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December 16, 2004 and bears interest at a rate of 12% per annum. Moreover, the
acquisition documents provide up to $611,100 in contingent consideration to be
paid to Mr. Rosenthal in the event the Phoenix division achieves certain
annual earnings targets specified in the acquisition agreement. 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 in June 1997, Mr. McMullen and
certain members of his immediate family received consideration in the form of
approximately $6.7 million cash, property valued at approximately $374,273, a
warrant to purchase 312,500 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) at a price per share equal to the
initial public offering price, 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.
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
public offering price equal to the Mid-Point) for nominal consideration. The
Company has agreed to pay $3 million in advisory fees to GECC for GECC's
advice and assistance in structuring and negotiating the acquisitions of the
Acquired Companies, payable at the earlier of June 30, 1998 or successful
completion of the Offering. In addition, GECC is the Senior Credit Facility
lender. See "Management Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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<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 93.8% -- 4,000,000 52.2%
General Electric Capital 361,109(2) 7.8 -- 361,109(2) 4.5
Corporation............
977 Long Ridge Road
Building B, First Floor
Stamford, Connecticut
06927
Walter P. McMullen...... 312,500(3) 6.8 -- 312,500(3) 3.9
4222 Pilot Drive
Memphis, Tennessee
Sirrom Capital 266,664 6.2 200,000 66,664 *
Corporation............
P. O. Box 30378
Memphis, Tennessee
38118
Cary Rosenthal.......... 193,750(4) 4.3 -- 193,750(4) 2.5
H. Henry (Hap) Hederman,
Jr..................... 158,625(5) 3.6 -- 158,625(5) 2.0
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) *
Frederick F. Avery...... -- -- -- -- --
Donald L. Hutson........ -- -- -- -- --
All Named Executive
Officers and directors
of the Company as a
group (10 persons)..... 4,748,207 94.7 -- 4,748,207 54.1
</TABLE>
- --------
* Less than 1%
(1) Applicable percent of ownership is based on 4,266,664 shares of Common
Stock outstanding prior to the Offering 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 177,776 shares of Common Stock issuable upon conversion of the
outstanding Series A Preferred Stock and 183,333 shares of Common Stock
(assuming an initial public offering price equal to the Mid-Point)
issuable upon exercise of the Lender Warrant.
(3) 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.
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<PAGE>
(4) 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.
(5) 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.
(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 held of record by one shareholder. 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
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<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 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. 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
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<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.
50
<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
OUTSTANDING SHARES OF COMMON STOCK
Upon the Closing of the Offering, 8,027,773 shares of Common Stock will be
outstanding (8,567,773 shares if the Underwriters' over-allotment option is
exercised in full), including 177,776 shares issuable upon conversion of the
outstanding Series A Preferred Stock and 183,333 shares (assuming an initial
public offering price equal to the Mid-Point) issuable upon exercise of the
Lender Warrant. The Series A Preferred Stock is immediately convertible and
the Lender Warrant is immediately exercisable for nominal consideration upon
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 (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. 4,000,000 shares of Common Stock
owned by Mr. Miller are eligible for resale under Rule 144. See "--
Restrictions on Resale of Restricted Stock; Rule 144." The remaining 427,773
shares of Common Stock outstanding are "restricted" within the meaning of Rule
144 and are not currently eligible for resale under Rule 144. The earliest
point in time when any such restricted shares of Common Stock are eligible for
resale pursuant to Rule 144, subject to volume, manner of sale, and other
limitations thereof, is March 1999.,
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.
See "Risk Factors--Potential Effect of Shares Eligible for Future Sale."
OPTIONS
Upon the closing of the Offering, the Company will have outstanding options
to purchase up to a total of 603,636 shares of Common Stock (assuming an
initial public price equal to the Mid-Point), of which 221,721 shares may be
acquired immediately after the closing of the Offering. The remaining options
are exercisable beginning one year after the date of grant. The Company
expects to file a registration statement on Form S-8 under the Securities Act
to register for resale shares of Common Stock issuable upon exercise of
options granted under the Plan. 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 Acquired Companies, the Company
issued the Seller Warrants to purchase 1,524,037 shares of Common Stock
(assuming an initial public offering price equal to the Mid-Point) at a price
per share equal to the initial public offering price. All Seller Warrants may
be exercised immediately after the closing of the Offering.
In connection with a financing transaction, the Company issued to its senior
lender the Lender Warrant to purchase 183,333 shares of Common Stock (assuming
an initial public offering price equal to the Mid-Point) for nominal
consideration. The Lender Warrant may be exercised immediately after the
closing of the Offering.
51
<PAGE>
In connection with the acquisition of B&M Printing, the Company granted
rights to purchase 108,333 shares of Common Stock (assuming an initial public
offering price equal to the Mid-Point) at a price per share equal to the
initial public offering price to certain former B&M Printing shareholders in
return for their modification of certain terms of their notes with the Company
regarding the right of the Company to incur additional indebtedness. Such
rights are exercisable immediately after the closing of the Offering.
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 (assuming an initial public offering
price equal to the Mid-Point) at a price per share equal to the initial public
offering price.
RESTRICTIONS ON RESALE OF RESTRICTED STOCK; RULE 144
Generally, restricted securities, as defined in Rule 144, may be resold only
pursuant to an effective registration under the Securities Act or pursuant to
an exemption available 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 is an "affiliate" of the
Company, who has beneficially owned for at least one year shares of Common
Stock that have not been registered under the Securities Act or who
beneficially owns shares 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 of Common Stock 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.
REGISTRATION RIGHTS
The holder of Series A Preferred Stock, who also holds the Lender Warrant,
has the right to require the Company to include its 177,776 shares of Common
Stock issued upon conversion of such Series A Preferred Stock and its 183,333
shares of Common Stock (assuming an initial public offering price equal to the
Mid-Point) acquired upon exercise of the Lender Warrant, in a registration of
shares of Common Stock subsequent to this Offering which is initiated by the
Company under the Securities Act or to demand the Company to effect a
registration of the offer and sale of such Common 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
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 connection
with 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 (assuming an initial public offering price equal to the
Mid-Point) at a price equal to the initial public offering price per share,
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 registration rights agreements and warrants which contain registration
rights, as applicable, contain customary provisions whereby the Company and
the other parties 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.
52
<PAGE>
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.
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. and SunTrust Equitable Securities
Corporation are acting as representatives (the "Representatives"), 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 and the Selling
Shareholder, 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....................................
SunTrust Equitable Securities Corporation.......................
---
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 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 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 Representatives 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 Representatives 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
Representatives.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
53
<PAGE>
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 shares of Common Stock or securities
convertible into or exchangeable or exercisable for any shares of Common Stock
without the prior written consent of the Representatives for a period of 180
days from the date of this Prospectus, except for (i) issuances of
unregistered Common Stock by the Company in connection with acquiring printing
companies, (ii) 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 (iii) 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 Representatives that they presently
intend to make a market in the Common Stock offered hereby; the
Representatives are 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.
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.
54
<PAGE>
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.
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.
55
<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 March 31, 1998..... F-4
Unaudited Condensed Consolidated Statement of Operations for the year
ended December 31, 1997................................................ F-5
Unaudited Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997............................................
Unaudited Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998............................................
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
Condensed Consolidated Balance Sheet as of March 31, 1998 (unaudited)...
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1998 (unaudited)..............................
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1998 (unaudited)..............................
Notes to Condensed Consolidated Financial Statements (unaudited)........
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
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
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
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 March 31, 1998
(unaudited)........................................................... F-75
Statements of Earnings for the years ended June 30, 1995, 1996 and 1997
and the nine months ended March 31, 1997 and 1998 (unaudited)......... F-76
Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997 and the nine months ended March 31, 1997 and 1998
(unaudited)........................................................... F-77
Statements of Cash Flows for the years ended June 30, 1995, 1996 and
1997 and the nine months ended March 31, 1997 and 1998 (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, 1996 and 1997.... F-107
Statements of Changes In Stockholders' Equity for the years ended
December 31, 1996 and 1997............................................ F-108
Statements of Cash Flows for the years ended December 31, 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 March 31, 1998 gives effect to the May 8, 1998 acquisition of McQuiddy
and the financing thereof as if such transaction had occurred on March 31,
1998. The unaudited pro forma condensed consolidated statement of operations
of the Company for the year ended December 31, 1997 and the three month
periods ended March 31, 1997 and 1998 give 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, McQuiddy and Phillips) 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.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MCQUIDDY 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.................. 4,843 133 -- 4,976 -- 4,976
Trade accounts
receivable, net...... 23,058 2,501 -- 25,559 -- 25,559
Inventories........... 5,822 1,428 60 7,310 -- 7,310
Other current assets.. 2,970 284 -- 3,254 -- 3,254
------- ------ ------ ------- ------- -------
Total current
assets............. 36,693 4,346 60 41,099 -- 41,099
Property, plant and
equipment, net......... 45,117 5,912 1,222 52,251 -- 52,251
Goodwill, net........... 38,682 -- -- 38,862 -- 38,682
Other assets............ 6,863 395 -- 7,258 (610) 6,648
------- ------ ------ ------- ------- -------
127,355 10,653 1,282 139,290 (610) 138,680
======= ====== ====== ======= ======= =======
Current liabilities:
Current installments
of long-term debt.... 4,127 1,055 (1,055) 4,127 -- 4,127
Accounts payable,
trade................ 6,872 788 -- 7,660 -- 7,660
Accrued expenses and
other liabilities.... 7,153 352 -- 7,505 (3,000) 4,505
------- ------ ------ ------- ------- -------
Total current
liabilities........ 18,152 2,195 (1,055) 19,292 (3,000) 16,292
Long-term debt:
Finance companies..... 74,458 -- 7,857 82,315 (30,954) 51,361
Sellers' notes........ 14,723 -- 1,503 16,226 -- 16,226
Other................. 10,551 3,024 (3,024) 10,551 -- 10,551
------- ------ ------ ------- ------- -------
Total long-term
debt............... 99,732 3,024 6,336 109,092 (30,954) 78,138
Other liabilities....... 1,065 -- -- 1,065 -- 1,065
Deferred income tax..... 3,288 309 1,074 4,671 -- 4,671
------- ------ ------ ------- ------- -------
Total liabilities... 122,237 5,528 6,355 136,457 (33,954) 100,166
Redeemable common stock
warrant................ 2,026 -- -- 2,026 (2,026) --
Redeemable preferred
stock.................. 1,350 -- -- 1,350 -- 1,350
Shareholders' equity.... 1,742 5,125 (5,073) 1,794 35,370 37,164
------- ------ ------ ------- ------- -------
127,355 10,653 1,282 139,290 (610) 138,680
======= ====== ====== ======= ======= =======
</TABLE>
F-4
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED 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 ACQUISITIONS ACQUISITIONS (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) $ (1.43) $ 0.09
====== ======= =======
Diluted............. $(1.18) $ (1.43) $ 0.09
====== ======= =======
</TABLE>
F-5
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION OFFERING PRO FORMA
1997 1998 ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
COMPANY ACQUISITIONS ACQUISITIONS (NOTE 5) CONSOLIDATED (NOTE 6) AS ADJUSTED
------- ------------ ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. 3,161 20,695 11,270 -- 35,126 -- 35,126
Cost of revenue......... 2,691 14,750 8,956 (178) 26,219 -- 26,219
------ ------ ------ ------ ------ ----- ------
Gross profit........ 470 5,945 2,314 178 8,907 -- 8,907
Selling, general &
administrative
expenses............... 552 3,979 1,905 (76) 6,360 -- 6,360
Amortization of
goodwill............... 84 90 -- 81 255 -- 255
------ ------ ------ ------ ------ ----- ------
Operating income
(loss)............. (166) 1,876 409 173 2,292 -- 2,292
Other income (expense):
Interest income....... 21 9 7 -- 37 -- 37
Interest expense...... (157) (558) (454) (2,030) (3,199) 1,267(b) (1,932)
Deferred loan cost
amortization......... -- -- -- (274) (274) 91 (b) (183)
Other, net............ 42 (54) 71 -- 59 -- 59
------ ------ ------ ------ ------ ----- ------
Other, net.......... (94) (603) (376) (2,304) (3,377) 1,358 (2,019)
------ ------ ------ ------ ------ ----- ------
Earnings (loss)
before income
taxes.............. (260) 1,273 33 (2,131) (1,085) 1,358 273
Income tax expense
(benefit).............. (11) 23 (24) -- (12) 129(c) 117
------ ------ ------ ------ ------ ----- ------
Net earnings (loss)... (249) 1,250 57 (2,131) (1,073) 1,229 156
====== ====== ====== ====== ====== ===== ======
Net earnings (loss)
per common share:
Basic............... $(0.06) $(0.28) $ 0.01
====== ====== ======
Diluted............. $(0.06) $(0.28) $ 0.01
====== ====== ======
</TABLE>
F-6
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION OFFERING PRO FORMA
1998 ADJUSTMENTS PRO FORMA ADJUSTMENTS CONSOLIDATED
COMPANY ACQUISITIONS (NOTE 5) CONSOLIDATED (NOTE 6) AS ADJUSTED
------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. 28,020 10,442 -- 38,462 38,462
Cost of revenue......... 20,654 8,596 (131) 29,119 29,119
------ ------ ----- ------ ----- ------
Gross profit........ 7,366 1,846 131 9,343 -- 9,343
Selling, general &
administrative
expenses............... 4,669 2,116 (98) 6,686 6,686
Amortization of
goodwill............... 196 -- 46 242 242
------ ------ ----- ------ ----- ------
Operating income
(loss)............. 2,501 (270) 183 2,415 -- 2,415
Other income (expense):
Interest income....... 85 11 -- 96 96
Interest expense...... (2,065) (304) (735) (3,104) 1,305 (1,799)
Deferred loan cost
amortization......... (183) -- -- (183) (183)
Other, net............ 101 (1,180) 1,199 120 120
------ ------ ----- ------ ----- ------
Other, net.......... (2,062) (1,473) 464 (3,071) 1,305 (1,766)
------ ------ ----- ------ ----- ------
Earnings (loss)
before income
taxes.............. 439 (1,743) 647 (656) 1,305 649
Income tax expense
(benefit).............. (4) (157) 161 -- 279 279
------ ------ ----- ------ ----- ------
Net earnings (loss)... 443 (1,586) 486 (656) 1,026 370
====== ====== ===== ====== ===== ======
Net earnings (loss)
per common share:
Basic............... $ 0.11 ($0.18) $ 0.04
====== ====== ======
Diluted............. $ 0.10 ($0.18) $ 0.04
====== ====== ======
</TABLE>
F-7
<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 acquisition of McQuiddy and the financing thereof had occurred on March
31, 1998. The accompanying unaudited pro forma condensed consolidated
statements 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, McQuiddy
and Phillips) and the financings thereof had occurred on January 1, 1997. The
pro forma condensed consolidated balance sheet has been derived from the
historical balance sheets of the Company and McQuiddy as of March 31, 1998;
the pro forma condensed consolidated statements of operations for the year
ended December 31, 1997 and the three month periods ended March 31, 1997 and
1998 have been derived from the historical statements of operations of the
Company and the Acquired Companies prior to their respective acquisitions. The
results of operations of the Acquired Companies subsequent to their
acquisitions have been included in the historical statement of operations of
the Company. The actual acquisition dates of the Acquired Companies are as
follows: 1997--Lithograph, Blackwell, and Sutherland (June 19, 1997), Argus
(September 22, 1997), and Phoenix and Jones (December 16, 1997); 1998--
Hederman (March 1, 1998), Phillips (March 1, 1998), Harperprints (March 31,
1998) and McQuiddy (May 8, 1998).
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 $5 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-8
<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
May 1998 the Company acquired 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.
Following is a summary of consideration given in each of the acquisitions:
<TABLE>
<CAPTION>
NUMBER OF
WARRANT
COMPANY DATE ACQUIRED CASH(1) SELLER NOTE SHARES(2)
------- ------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Lithograph Printing
Company of Memphis...... June 19, 1997 $ 7,433,727 $ 3,750,000 312,500
Blackwell Lithographers,
Inc. ................... June 19, 1997 3,000,000 1,000,000 83,333
Sutherland Printing
Company, Inc............ June 19, 1997 -- 351,053 27,083
The Argus Press, Inc. ... September 23, 1997 8,500,000 3,750,000 312,500
Phoenix Communications,
Inc. ................... December 16, 1997 6,633,030 1,150,000 387,500
Jones Printing Company,
Inc. ................... December 16, 1997 2,672,594 1,250,000 104,166
Hederman Brothers,
Inc. ................... March 1, 1998 1,500,000 193,000 166,665
McQuiddy Printing
Company................. May 8, 1998 5,012,697 1,502,948 17,440
Phillips Litho Co.,
Inc. ................... March 1, 1998 8,113,078 854,219 71,184
Harperprints, Inc. ...... March 31, 1998 4,568,875 1,125,000 41,666
----------- ----------- ---------
Total.................. $47,434,001 $14,926,220 1,524,037
=========== =========== =========
</TABLE>
- --------
(1) In addition to cash consideration paid to sellers, the Company has
incurred, or will incur, other transaction costs which have totaled
approximately $4.6 million.
(2) The respective stock purchase agreements specify a dollar value of Common
Stock which may be acquired by the seller at the Common Stock's initial
public offering price. The number of shares listed above is based on the
mid-point of the range of the estimated offering price.
F-9
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-10
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
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.
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 proceeds from borrowings used to fund the cash portions of
the acquisition (approximately $3.3 million) and refinancing of debt
(approximately $4.6 million),.
b) To record the issuance of notes and warrants issued to sellers as partial
consideration for the acquisitions.
c) To eliminate the historical equity accounts of McQuiddy.
F-11
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
d) To record the purchase of McQuiddy.
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENT
----- ------ ------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash.............................. 7,857 -- -- (7,857) --
Inventory......................... -- -- -- 60 60
Property, plant & equipment....... -- -- -- 1,222 1,222
Goodwill.......................... -- -- (3,622) 3,622 --
Current installments of long-term
debt............................. -- -- -- (1,055) (1,055)
Long-term debt:
Finance company................. 7,857 -- -- -- 7,857
Sellers' notes.................. -- 1,503 -- -- 1,503
Other........................... -- -- -- (3,024) (3,024)
Deferred tax liability............ -- -- -- 1,074 1,074
Shareholders' equity.............. -- (1,503) (3,622) 52 (5,073)
----- ------ ------ ------ ------
Total........................... -- -- -- -- --
===== ====== ====== ====== ======
</TABLE>
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
YEAR ENDED DECEMBER 31, 1997:
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 amortization ($1.0 million annually) 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-12
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
THREE MONTHS ENDED MARCH 31, 1997:
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
(b) below), and (3) changes in estimated useful lives.
b) To record additional rent expense for facilities not acquired, but to be
leased from the former owner of the acquired company as a part of the
acquisition agreement.
c) To record reduction in rent expense related to equipment previously
leased, which was acquired as a part of the acquisition.
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 amortization of goodwill arising as a result of applying
purchase accounting to the acquisitions over a 40-year estimated life, net of
goodwill amortization previously recorded by 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 notes at
12% interest and senior debt at rates ranging from 8.2% to 13.25%.
The following table summarized 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 for the quarter ended
3/31/97:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENT
---- --- ---- --- --- --- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales................... (663) 75 (121) 531 (178)
Selling, general and
administrative expenses........ 22 18 (98) (5)
Other expense................... 2,304 2,304
</TABLE>
F-13
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1998:
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
(b) below), and (3) changes in estimated useful lives.
b) To record additional rent expense for facilities not acquired, but to be
leased from the former owner of the acquired company as a part of the
acquisition agreement.
c) To record the amortization of goodwill arising as a result of applying
purchase accounting to the acquisitions over a 40-year estimated life, net of
goodwill amortization previously recorded by acquired company.
d) To record additional interest expense arising from the financings of the
acquisitions, including interest on seller notes at 12% interest and senior
debt at rates ranging from 8.2% to 13.25%.
e) To record the loss on sale of a building as a result of the acquisition.
f) To eliminate income tax expense, as the Company would have had a
consolidated net loss on a pro forma basis.
The following table summarizes the pro forma statement of operations
adjustments necessary to reflect the 1998 acquisitions and financings thereof
as if they had occurred on January 1, 1998:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------- PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENT
---- --- --- --- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of sales................... (181) 50 (131)
Selling, general and
administrative expenses........ (41) 46 5
Interest expense................ 734 734
Other expense................... (1,199) (1,199)
Income taxes.................... (161) (161)
</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
F-14
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
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.
Following is a reconciliation of the calculation of basic and diluted
earnings per share :
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
-----------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
----------------------- ----------------------- -----------------------
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss)..... $ (5,482) $ 893 $ (1,059) $ 171 $ (656) $ 370
Less preferred stock
dividend requirement... 114 114 29 29 29 29
Less accretion of
preferred stock
discount............... 116 116 29 29 29 29
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders........... $ (5,712) $ 663 $ (1,117) $ 113 $ (714) $ 312
========== ========== ========== ========== ========== ==========
Basic--Average shares
outstanding............ 4,000,000 7,666,664 4,000,000 7,666,664 4,000,000 7,666,664
========== ========== ========== ========== ========== ==========
Basic EPS........... $ (1.43) $ 0.09 $ (0.28) $ 0.01 $ (0.18) $ 0.04
========== ========== ========== ========== ========== ==========
Diluted:
Average shares
outstanding.......... 4,000,000 7,666,664 4,000,000 7,666,664 4,000,000 7,666,664
Assumed exercise of:
Deferred
compensation
contract........... -- 83,333 -- 83,333 -- 83,333
Warrant............. -- 183,333 -- 183,333 -- 183,333
---------- ---------- ---------- ---------- ---------- ----------
4,000,000 7,933,330 4,000,000 7,933,330 4,000,000 7,933,330
========== ========== ========== ========== ========== ==========
Diluted EPS......... $ (1.43) $ 0.09 $ (0.28) $ 0.01 $ (0.18) $ 0.04
========== ========== ========== ========== ========== ==========
</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-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
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.
KPMG Peat Marwick LLP
Memphis, Tennessee
April 7, 1998, except as to the third
paragraph of Note 1, which is as of
May 14, 1998.
F-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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 14, 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-22
<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-23
<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-24
<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 the acquisitions and financings thereof,
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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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>
The allowance for doubtful accounts was $8,500, $195,580, and $661,663, at
June 30, 1996 and 1997, and December 31, 1997, respectively.
(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-31
<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-32
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 4,843
Trade accounts receivable, net.............................. 23,058
Inventories:
Raw materials and supplies................................ 2,903
Work-in-process........................................... 2,919
--------
Total inventories........................................ 5,822
Deferred income taxes....................................... 161
Other current assets........................................ 2,809
--------
Total current assets...................................... 36,693
Property, plant and equipment, net............................ 45,117
Goodwill, net................................................. 38,682
Deferred loan costs, net...................................... 1,822
Due from shareholder.......................................... 4,126
Other......................................................... 915
--------
Total assets.............................................. $127,355
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt...................... 4,127
Accounts payable............................................ 6,872
Accrued expenses............................................ 7,153
--------
Total current liabilities................................. 18,152
Long-term debt, net of current installments................... 99,732
Deferred income taxes......................................... 3,288
Other liabilities............................................. 1,065
Redeemable preferred stock.................................... 1,350
Redeemable common stock warrant............................... 2,026
Commitments and contingencies
Shareholder's equity:
Common stock ($0.001 par value); 100,000,000 shares
authorized; 4,000,000 shares issued and outstanding ....... 4
Additional paid-in capital.................................. 6,744
Retained earnings (deficit)................................. (5,006)
--------
Total shareholder's equity................................ 1,742
--------
$127,355
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Net revenue.............................. $ 3,161 $ 28,020
Cost of revenue.......................... 2,691 20,654
------------- --------------
Gross profit........................... 470 7,366
Selling, general and administrative ex-
penses.................................. 636 4,865
------------- --------------
Operating income (loss)................ (166) 2,501
Other income (expense):
Interest expense....................... (157) (2,248)
Other, net............................. 63 186
------------- --------------
Income (loss) before income taxes...... (260) 439
Income tax expense (benefit)............. (11) (4)
------------- --------------
Net earnings (loss).................... $ (249) $ 443
============= ==============
Earnings per share:
Basic.................................. $(0.06) $ 0.11
============= ==============
Diluted................................ $(0.06) $ 0.10
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
--------------
1997 1998
----- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................... $(198) $ 443
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization................................ 151 1,174
Changes in operating assets and liabilities, net of effect of
business acquisitions:
Trade accounts receivable................................... 390 (3,162)
Inventories................................................. (94) 494
Other assets................................................ 10 (107)
Accounts payable............................................ 656 (372)
Accrued expenses............................................ 161 (83)
----- -------
Net cash provided by (used in) operating activities........ 1,076 (1,613)
----- -------
Cash flows from investing activities:
Business acquisitions, net of cash acquired................... -- (31,322)
Purchases of equipment........................................ (132) (173)
Other......................................................... -- (384)
----- -------
Net cash used in investing activities...................... (132) (31,879)
----- -------
Cash flows from financing activities:
Net borrowings (repayments) on lines of credit................ (692) 169
Proceeds from issuance of long-term debt...................... -- 37,113
Principal payments of long-term debt.......................... (41) (621)
Loan costs incurred........................................... -- 500
----- -------
Net cash provided by (used in) financing activities........ (733) 37,161
----- -------
Net increase (decrease) in cash................................ 211 3,669
Cash (overdraft) at beginning of period........................ (91) 1,174
----- -------
Cash (overdraft) at end of period.............................. $ 120 $ 4,843
===== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Master
Graphics, Inc. and its subsidiaries (collectively "Company") are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto.
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows of the Company as of the dates and for
the periods presented.
Because of the seasonal nature of the Company's business, the results of
operations for the periods presented are not necessarily indicative of the
results of operations for a full fiscal year.
On May 14, 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
condensed consolidated financial statements have been retroactively restated
to reflect the stock split.
The accompanying condensed consolidated financial statements of the Company
include the results of operations of Master Graphics, Inc. and its
subsidiaries, on a consolidated basis. All intercompany balances and
transactions have been eliminated in the consolidation.
(2) ACQUISITIONS AND FINANCINGS
In March, 1998, the Company acquired all of the outstanding common stock of
Harperprints, Inc., Hederman Brothers, Inc., and Phillips Litho Co., Inc. All
of these businesses are engaged in commercial printing. These acquisitions
were paid for with a combination of cash ($14.2 million), notes given to the
sellers ($2.2 million) and warrants to acquire common stock (valued at $.3
million). These acquisitions have been accounted for by the purchase method
and, accordingly, the results of operations of Harperprints, Hederman, and
Phillips have been included in the Company's 1998 condensed consolidated
financial statements from their respective acquisition dates. The excess of
the purchase prices over the fair value of the net identifiable assets
acquired is approximately $10 million, which has been recorded as goodwill and
is being amortized on a straight-line basis over 40 years.
In May, 1998, the Company acquired all of the outstanding common stock of
McQuiddy Printing Company, Inc., a general commercial printer. The acquisition
was paid for with a combination of cash ($5 million), sellers' notes ($1.5
million) and warrants to acquire common stock (valued at $17,000). The
McQuiddy acquisition will be accounted for by the purchase method, and
accordingly the results of operations of McQuiddy will be included in the
Company's 1998 consolidated financial statements from the date of its
acquisition. There was no goodwill recognizable from this acquisition.
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 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-36
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The cash portion of the Phillips acquisition was financed by a $15 million
term note from the Company's 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.
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 effectively entered into an exchange
agreement in March, 1998, whereby the Company issued 177,776 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 ($12.8125 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 seven years, 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. The preferred stock has been classified out of
stockholder's equity because of certain holder put features which are out of
the control of the Company. The preferred stock was initially recorded at its
fair value at the date of issuance (approximately $1.35 million) and will
subsequently be accreted to its mandatory redemption value.
(3) LENDERS' WARRANTS
In connection with the obtaining of the Harperprints acquisition financing,
the Company issued to its Senior Lender a warrant to acquire common stock. The
warrant expires, if unexercised, on September 26, 2007. The Senior Lender was
granted demand and piggyback registration rights. 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.
This instrument was recorded at its fair value at the date of issuance as
additional
F-37
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
paid-in capital in the accompanying consolidated balance sheet. The initial
fair market value of the lender's warrants has been netted against the related
debt and will be amortized as a component of interest expense over the life of
the debt.
In April, 1998, the common stock warrant issued to Sirrom Capital
Corporation ("Sirrom") was exercised and 266,664 shares of common stock were
issued. At the time of exercise, the carrying value of the Sirrom warrant was
reclassified to additional paid-in capital.
(4) LONG-TERM DEBT
Long-term debt at March 31, 1998 consisted of:
<TABLE>
<S> <C>
Term Loans, net of discount..................................... $ 75,101
Sirrom note, net of discount.................................... 3,484
Sellers' notes.................................................. 14,723
Line of credit.................................................. 2,605
Other........................................................... 7,946
--------
Less current installments....................................... 103,859
4,127
--------
Long-term debt, net............................................. $ 99,732
========
</TABLE>
F-38
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1998 was comprised of the
following (in thousands):
<TABLE>
<S> <C>
Land............................................................. $ 376
Building......................................................... 2,193
Leasehold improvements........................................... 1,020
Machinery and equipment.......................................... 43,941
Furniture and fixtures........................................... 2,834
Vehicles......................................................... 947
-------
51,311
Less accumulated depreciation.................................... 6,194
-------
$45,117
=======
</TABLE>
F-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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.
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>
F-53
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-54
<PAGE>
BLACKWELL LITHOGRAPHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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
F-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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:
<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-71
<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-72
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
Management has estimated that due to reversing future taxable differences,
estimated future taxable income exclusive of reversing temporary differences,
and tax-planning strategies to accelerate taxable income, the net deferred tax
asset of $242,000 at January 31, 1997 and $254,000 at December 16, 1997 is
properly stated and realizable under the provisions of SFAS 109.
(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.
F-73
<PAGE>
PHOENIX COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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.
(10) COMMITMENTS
In connection with the Company's purchase of common stock from an employee
(Note 8), 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-74
<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 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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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 December 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-83
<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-84
<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 5).......... 109,765 31,057 --
Deferred income taxes--current (note 5)... 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,
3 and 4)................................... 3,340,244 5,589,759 5,950,346
Other assets:
Notes receivable.......................... 3,584 3,584 --
Investment ............................... 67,448 34,951 --
Cash surrender value of officers' life
insurance (note 9)....................... 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
4)....................................... $ 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 5).............. 192,412 270,261 309,184
Long-term debt (note 4)..................... 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>
See accompanying notes to financial statements.
F-85
<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>
See accompanying notes to financial statements.
F-86
<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>
See accompanying notes to financial statements.
F-87
<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>
See accompanying notes to financial statements.
F-88
<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).
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-89
<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) 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.
F-90
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) 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>
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 6).
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>
F-91
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
(5) 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.
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>
F-92
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
(6) 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.
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 4) with a
corresponding reduction in stockholders' equity.
(7) 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.
(8) 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.
F-93
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) 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.
(10) 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-94
<PAGE>
MCQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-95
<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 accompanying notes to financial statements.
F-96
<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 accompanying notes to financial statements.
F-97
<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 accompanying notes to financial statements.
F-98
<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 accompanying notes to financial statements.
F-99
<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-100
<PAGE>
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-101
<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 $1,682,096 and $1,838,275 or 29.5% of total sales in 1996 and $1,580,377
and $2,452,983 or 31.7% of total sales in 1997.
F-102
<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-103
<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-104
<PAGE>
PHILLIPS LITHO CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-105
<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-106
<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-107
<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-108
<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-109
<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-110
<PAGE>
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-111
<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
</TABLE>
F-112
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
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
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-113
<PAGE>
HEDERMAN BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-114
<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-115
<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-116
<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-117
<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-118
<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-119
<PAGE>
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-120
<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-121
<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-122
<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-123
<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-124
<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........................................................ 28
Business................................................................. 29
Management............................................................... 36
Certain Transactions..................................................... 42
Principal and Selling Shareholders....................................... 44
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 54
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
LOGO
---------------
PROSPECTUS
---------------
MORGAN KEEGAN & COMPANY, INC.
SUNTRUST EQUITABLE SECURITIES
, 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 1,524,037 shares of Common
Stock (assuming an initial public offering price equal to the Mid-Point) 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
Gerald A. Barrick -- 88,984.53 March 1, 1998
Michael G. Harper 250,000 1,125,000 March 31, 1998
Lynn H. Harper 250,000 -- March 31, 1998
David McQuiddy, Jr. -- 1,502,948 May 8, 1998
Coleman Family Trust 104,300 -- May 8, 1998
John S. Frazer 35,000 -- May 8, 1998
Ron L. Martin, Sr. 70,000
</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 Nonqualified Stock Option Agreement
4.24** Stock Purchase Warrant dated March 31, 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 [Intentionally Deleted.]
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 -- dated as of March 1, 1998 by and between Arrowhead
Real Estate, LLC and Premier Graphics, Inc.
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>
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
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 May 14, 1998
- ------------------------------------ Officer, President
JOHN P. MILLER and Chairman of
the Board of
Directors
/s/ Lance T. Fair Senior Vice May 14, 1998
- ------------------------------------ President--
LANCE T. FAIR Acquisitions;
Chief Financial
Officer
* Chief Operating May 14, 1998
- ------------------------------------ Officer
ROBERT J. DIEHL
* Senior Vice May 14, 1998
- ------------------------------------ President--Finance
P. MELVIN HENSON, JR. and
Administration;
Chief Accounting
Officer
* Senior Vice May 14, 1998
- ------------------------------------ President--Sales
JAMES B. DUNCAN and Marketing
<PAGE>
SIGNATURE TITLE DATE
* Director, President May 14, 1998
- ------------------------------------ Hederman Brothers
H. HENRY (HAP) HEDERMAN, JR. Division
* Director, Chairman May 14, 1998
- ------------------------------------ of Lithograph
WALTER P. MCMULLEN Printing Division
* Director, President May 14, 1998
- ------------------------------------ Phoenix Division
CARY ROSENTHAL
* Director May 14, 1998
- ------------------------------------
FREDERICK F. AVERY
* Director May 14, 1998
- ------------------------------------
DONALD L. HUTSON
/s/ Lance T. Fair
*By: _______________________________
(ATTORNEY-IN-FACT FOR THE PERSONS
INDICATED)
<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 Nonqualified Stock Option Agreement
4.24** Stock Purchase Warrant dated March 31, 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 [Intentionally Deleted.]
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 -- dated as of March 1, 1998 by and between Arrowhead
Real Estate, LLC and Premier Graphics, Inc.
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
** Filed herewith
+ Previously filed
<PAGE>
EXHIBIT 3.2
STATE OF DELAWARE
CERTIFICATE OF INCORPORATION
A STOCK CORPORATION
FIRST: The name of this Corporations Premier Graphics, Inc.
SECOND: Its Registered Office in the State of Delaware is to be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, Zip Code 19801. The Registered Agent in charge thereof is
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is Ten Dollars ($10.00) divided into 1000 shares of .01 Dollars
($.01) each. All such shares are to be common stock of one class.
FIFTH: The name and mailing address of the incorporator is as follows:
Michael P. Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
SIXTH: Unless and except to the extent that the by-laws of the corporation
shall so require, the election of directors of the corporation need not be by
written ballot.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the corporation is
expressly authorized to make, alter and repeal the by-laws of the corporation,
subject to the power of the stockholders of the corporation to alter or repeal
any by-law whether adopted by them or otherwise.
EIGHTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the corporation hereunder in
respect of any act or omission occurring prior to the time such amendment,
modification or repeal.
NINTH: The corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or
<PAGE>
inserted, in the manner now or hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the rights reserved in this article.
TENTH: The powers of the incorporator are to terminate upon the filing of
this Certificate of Incorporation. The name and mailing address of the person
who is to serve as the initial director of the corporation until the first
annual meeting of stockholders of the corporation, or until his successor is
elected and qualifies, is John P. Miller. The undersigned incorporator hereby
acknowledges that the foregoing certificate of incorporation is his act and deed
on this 2nd day of June, 1997.
I, THE UNDERSIGNED, for purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 2nd day of June, A.D. 1997.
/s/ Michael P. Morgan
-----------------------------------
Michael P. Morgan, Incorporator
-2-
<PAGE>
EXHIBIT 4.1
[Form of common stock certificate]
[Front of certificate]
Number MASTER GRAPHICS, INC. Shares
MG Leading by Serving
Common Stock Common Stock
Incorporated Under the Laws of the State of Tennessee
CUSIP 576346 10 0
See reverse for certain definitions
This certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE PER
SHARE OF Master Graphics, Inc. (the "Corporation") transferrable on the books of
the Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused the facsimile signatures of
its duly authorized officers and its corporate seal to be affixed hereto.
Dated:
/s/ Lance T. Fair /s/ John P. Miller
Chief Financial Officer and Secretary Chairman of the Board, President
and Chief Executive Officer
Countersigned and registered:
Union Planters Bank, N.A. (Memphis, Tennessee)
Transfer Agent and Registrar
Authorized Signature
<PAGE>
[reverse of certificate]
MASTER GRAPHICS, INC.
MASTER GRAPHICS, INC. will furnish to any shareholder who so requests the
powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof of the
corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the corporation or the
transfer agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws and regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT ________Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to
survivorship and not as Minors Act _______
tenants in common (State)
COM PROP- as community property
(until age ________) UNIF TRF MIN ACT-________Custodian_________
under Uniform Transfer to Minors
Act________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________________ shares
represented by this Certificate, and do hereby irrevocably constitute
and appoint ______________________________________________________ Attorney
to transfer the said shares on the books of the Corporation
before power of substitution and the premises.
Dated:__________
NOTICE:THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed: ______________________________________________
The signatures should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature medallion program), pursuant to S.E.C.
Rule 17Ad-15.
<PAGE>
EXHIBIT 4.2
[Form of 5% Series A Cumulative Redeemable Preferred Stock certificate]
[front of certificate]
Number Shares
MASTER GRAPHICS, INC.
This Corporation is authorized to issue 100,000,000 shares of common stock,
&0.001 per share, 10,000,000 shares of preferred stock, &0.001 per share and
222,220 shares of 5% Series A Cumulative Redeemable Preferred Stock.
A Tennessee Corporation
This certifies that___________________________________________________
is the owner of ___________________________5% Series A Cumulative Redeemable
Preferred Shares of the Capital Stock of
Master Graphics, Inc.
transferrable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation this _____day of ____________, ___________.
Dated:
----------------------- ----------------------
<PAGE>
[reverse of certificate]
The shares represented by this certificate have not been registered under
the Securities Act of 1933. These shares have been acquired for investment and
not with a view to distribution or resale, and may not be mortgaged, pledged,
hypothecated, or otherwise transferred without an effective registration
statement for such shares under the Securities Act of 1933 or an opinion of
counsel for the corporation that registration is not required under such Act.
CERTIFICATE
FOR
----------------
SHARES
OF THE
CAPITAL STOCK
MASTER GRAPHICS, INC.
ISSUED TO:
----------------
DATED:
----------------
<PAGE>
EXHIBIT 4.3
ARTICLES OF AMENDMENT TO THE CHARTER OF
MASTER GRAPHICS, INC.
DESIGNATING AND FIXING THE RIGHTS AND
PREFERENCES OF A SERIES OF SHARES OF PREFERRED STOCK
Master Graphics, Inc., a Tennessee corporation (the "Company"),
-------
certifies to the Tennessee Secretary of State that :
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Company by Section 7.3 of the Company's Charter (the "Charter")
-------
and Section 48-16-102 of the Tennessee Code Annotated, the Board of Directors
has March 30, 1998, by resolution, duly divided and classified 222,220 shares
of the preferred stock of the Company into a series designated 5% Series A
Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
------------------
Stock") and has provided for the issuance of the Series A Preferred Stock.
- -----
SECOND: Section 7 is hereby amended by adding a new Section 7.5 which
provides as follows:
7.5 5% Series A Cumulative Convertible Redeemable Preferred Stock.
-----------------------------------------------------------------
SECTION A. General A series of Preferred Stock, designated the "5%
-------
Series A Cumulative Convertible Redeemable Preferred Stock" (the "Series A
--------
Preferred Stock"), is hereby established. The number of shares of the Series A
- ---------------
Preferred Stock shall be 222,220. The Series A Preferred Stock will, with
respect to dividend rights and rights upon liquidation, dissolution, winding up
of the Company, rank (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 a 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. The Board of Directors is
expressly authorized (within the limit of the authorized amount thereof) to
cause the shares of Series A Preferred Stock to be issued from time to time, and
to determine the consideration to be received thereof in cash, property,
including stock or securities of other entities, or services.
<PAGE>
SECTION B. Dividends.
---------
1. General Obligation. To the extent permitted under the Tennessee
------------------
Business Corporation Act when and as declared by the Board of Directors, the
Company will pay out of funds legally available for the payment of cumulative
preferential dividends to the holders of the Series A Preferred Stock, pari
passu with any other Approved Preferred Stock, as provided in this Section B.
Except as otherwise provided herein, dividends on each share of Series A
Preferred Stock (a "Share") will accrue at a rate of 5% per annum of the
-----
Liquidation Value thereof (the "Dividend Rate") from and including the Date of
-------------
Issuance (as defined below) of such Share to and including the date on which the
Liquidation Value (plus all accrued and unpaid dividends thereon) or Redemption
Price, as applicable, of such Share is paid in full. Such dividends will accrue
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Company legally available for the payment of
dividends. The date on which the Company initially issues any Share shall be
deemed to be its "Date of Issuance" regardless of the number of times a transfer
----------------
of such Share is made on the stock records maintained by or for the Company and
regardless of the number of certificates which may be issued to evidence such
Share.
2. Dividend Payments. The accrued dividends will be payable upon
-----------------
redemption of the Series A Preferred Stock as provided in Section D or upon
conversion of the Series A Preferred Stock under Section H hereof; provided,
however, that if any such payment date is not a business day, then such dividend
will be payable on the preceding business day.
3. Restriction on Payment. No dividends on shares of Series A Preferred
----------------------
Stock shall be declared by the Board of Directors or paid or set apart for
payment by the Company at such time the terms and provisions of any agreement of
the Company, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration or payment shall be
restricted or prohibited by law; provided, however, that the terms of any
agreements which contain a prohibition on payments of dividends on the Series A
Preferred Stock shall have been consented to by the holders of the Series A
Preferred Stock
SECTION C. Liquidation. 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 funds legally available for distribution to shareholders, pari
passu with distribution or payment to any other Approved Preferred Stock, before
any distribution or payment is made upon any of the Junior Securities, an amount
in cash equal to the aggregate Liquidation Value (plus all accrued and unpaid
dividends, but without interest thereon) of all such Series A Preferred Stock
outstanding, and the holders of Series A Preferred Stock will not be entitled to
any further payment. If upon any such liquidation, dissolution or winding up of
the Company, the Company's assets to be distributed among the holders of the
Series A Preferred Stock and any other Approved Preferred Stock are insufficient
to permit payment to such holders of the aggregate amounts to which they are
entitled to be paid, then the entire assets to be distributed shall be
distributed ratably among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends, but without interest thereon) of
2
<PAGE>
the shares held by each such holder. Prior to the time of any liquidation,
dissolution or winding up of the Company, to the extent permitted by applicable
law, the Company shall declare for payment all accrued and unpaid dividends with
respect to the Series A Preferred Stock. The Company will mail written notice
of such liquidation, dissolution or winding up, not less than 10 days prior to
the payment date stated therein, to each record holder of Series A Preferred
Stock. Neither the consolidation or merger of the Company into or with any
other corporation or corporations, nor the reduction of the capital stock of the
Company, will be deemed to be a liquidation, dissolution or winding up of the
Company within the meaning of this Section C.
SECTION D. Redemptions.
-----------
1. Mandatory Redemption. On March 30, 2005 (the "Mandatory
-------------------- ---------
Redemption Date"), the Company will redeem all of the issued and outstanding
- ---------------
Shares of Series A Preferred Stock, at a price per Share equal to the difference
(which shall in no event be less than zero) of (a) the greater of (i) the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon), or
(ii) the Fair Value thereof, calculated as if such Shares had been converted
into Conversion Stock pursuant to Section H hereof, minus (b) an amount equal to
-----
5% of the Liquidation Value thereof, calculated on a per annum basis for the
period commencing on the Date of Issuance thereof and ending on the applicable
Redemption Date (the "Redemption Price"); provided, however, that in no event
----------------
shall the Redemption Price be paid until all amounts owing by the Company under
that certain Secured Promissory Note executed by the Company and payable to the
order of Sirrom Capital Company in the original principal amount of $4,300,000,
dated June 19, 1997, have been paid.
2. Redemption Price. For each Share which is to be redeemed, the
----------------
Company will be obligated on the Redemption Date to pay to the holder thereof
(upon surrender by such holder at the Company's principal office of the
certificate representing such Share) an amount in immediately available funds
equal to the Redemption Price thereof. 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
fourteen percent (14%). If the Company's funds which are legally available for
redemption of Shares on any Redemption Date are insufficient to redeem the total
number of Shares to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of Shares ratably
among the holders of the Shares to be redeemed based upon the aggregate
Redemption Price of such Shares held by each such holder. At any time
thereafter when additional funds of the Company are legally available for the
redemption of Shares, such funds will immediately be used to redeem the balance
of the Shares which the Company has become obligated to redeem on any Redemption
Date but which it has not redeemed. Without limiting any rights of the holders
of Series A Preferred Stock which are set forth in this Certificate or are
otherwise available under law, the balance of the Shares which the Company has
become obligated to redeem on any Redemption Date but which it has not redeemed
shall continue to have all of the powers, designations, preferences and relative
participating, optional, and other special rights (including without limitation,
the rights to accrue dividends) which such Shares had prior to such Redemption
Date, until the aggregate Redemption Price of such Shares has been paid in full.
3
<PAGE>
3. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Company will mail written notice of each redemption of Series A Preferred Stock
to each record holder not more than 60 nor less than 30 days prior to the date
on which such redemption is to be made. In case fewer than the total number of
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares will be issued to the holder
thereof without cost to such holder within 3 business days after surrender of
the certificate representing the redeemed Shares.
4. Dividends After Redemption Date; Rights of Stockholder. No Share is
-------------------------------------------------------
entitled to any dividends accruing after the Redemption Date on which the
Redemption Price of such Share is paid in full. On such Redemption Date, all
rights of the holder of such Share as a holder of such Share will cease, and
such Share will not be deemed to be outstanding.
5. Redeemed or Otherwise Acquired Shares. Any Shares which are redeemed
-------------------------------------
or otherwise acquired by the Company will be canceled and will not be reissued,
sold or transferred.
6. Redemption upon Material Event. If a Material Event has occurred or
------------------------------
if the Company obtains knowledge that a Material Event is proposed to occur, the
Company shall give prompt written notice of such Material Event describing in
reasonable detail the material terms and date of consummation thereof to each
holder of Series A Preferred Stock, but in any event such notice shall not be
given later than 5 days after the occurrence of such Material Event, and the
Company shall give each holder of Series A Preferred Stock prompt written notice
of any material change in the terms or timing of such transactions or events.
Any holder of Series A Preferred Stock may require the Company to redeem all or
any portion of the Series A Preferred Stock owned by such holder at a price per
Share equal to the Redemption Price by giving written notice to the Company of
such election prior to 21 days after receipt of the first such notice from the
Company which confirms that a Material Event has occurred (the "Expiration
----------
Date"). The Company shall give prompt written notice (a "Second Notice") of
- ---- -------------
each such election to all other holders of Series A Preferred Stock within 5
days after the receipt thereof, and each such holder shall have until the later
of (i) the Expiration Date or (ii) 10 days after receipt of the latest Second
Notice to request redemption hereunder (by giving written notice to the Company)
of all or any portion of the Series A Preferred Stock owned by such holder. The
Company shall be obligated to redeem the aggregate number of Shares specified
therein on the later of (i) 90 days following occurrence of the Material Event
or (ii) 5 days after the Company's receipt of such election(s). Redemption made
pursuant to this Section D6 shall not relieve the Company of its obligation
pursuant to Section D1 to redeem any Series A Preferred Stock outstanding on the
Mandatory Redemption Date.
SECTION E. Priority of Series A Preferred Stock on Dividends and
-----------------------------------------------------
Redemptions. So long as any Series A Preferred Stock remains outstanding,
- -----------
without the prior written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock, the Company shall not, nor shall
it permit any Subsidiary to, redeem, retire, purchase or otherwise acquire
directly or indirectly any Junior Securities, nor shall any moneys or property
be paid into or set apart, or made available for the purchase or redemption of
any Junior Securities, nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (either in cash or property) upon
any Junior Securities (other than dividends payable solely in the securities in
respect of which such dividends are paid).
4
<PAGE>
SECTION F. Board Observation Rights. The Company will deliver to the
------------------------
holders of the Series A Preferred Stock a copy of the minutes of and all
materials distributed at or prior to all meetings of the board of directors
(including any committees thereof) or shareholders of the Company, certified as
true and accurate by the Secretary of the Company, promptly following each such
meeting. The Company will (a) permit each such holder to designate one (1)
person to attend all meetings of the Company's board of directors (including any
committee meetings), (b) provide such designee actual notice of all regular
meetings all special meetings of the Company's board of directors (including any
committee thereof) or shareholders, no fewer days in advance of such meetings as
is provided to the members of the board of directors or shareholders, as the
case may be and (c) permit such designees to attend such meetings as an
observer.
SECTION G. Voting Rights.
1. General; Notice of Stockholders' Meetings. The holders of Series A
-----------------------------------------
Preferred Stock shall have the voting rights prescribed by law and the
additional voting rights set forth in Section G2 of this Certificate. The
holders of the Series A Preferred Stock shall be entitled to notice of all
stockholders' meetings in accordance with the Company's bylaws, and shall have
the right to participate (but not vote, except as described herein or permitted
by law) in all such meetings.
2. Corporate Action Requiring Affirmative Vote of Holders of Shares of
-------------------------------------------------------------------
Series A Preferred Stock. So long as any Shares of Series A Preferred Stock are
- ------------------------
outstanding, the Company shall not:
(a) Without first obtaining the consent, given in person or by proxy,
either in writing or at any meeting called for the purpose, of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock,
(i) authorize, create or issue any shares of stock of any other
class or series, or authorize an increase in the authorized amount of any class
or series of shares, which shall rank in any respect on a parity with the Series
A Preferred Stock, or authorize, create or issue any obligations, bonds, notes,
debentures, stock or other securities by their terms convertible into shares of
stock of any other class or series which rank in any respect on a parity with
shares of Series A Preferred Stock; or
(ii) increase the authorized number of shares of Series A
Preferred Stock.
(b) Without first obtaining the consent, given in person or by proxy,
either in writing or at any meeting called for the purpose, of the holders of at
least 80% of the outstanding shares of Series A Preferred Stock,
(i) authorize, create or issue any shares of stock of any other
class or series, or authorize an increase in the authorized amount of any class
of shares, which shall rank in any respect prior to the Series A Preferred
Stock, or authorize, create or issue any obligations, bonds, notes, debentures,
stock or other securities by their terms convertible into shares of stock of any
other class or series which rank in any respect prior to shares of Series A
Preferred Stock; or
5
<PAGE>
(ii) amend, alter, change, or repeal 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
(except as may be expressly permitted under Subsection (a)(i) of this Section G2
with majority consent).
(c) For the purpose of this Section G2, except as otherwise
specifically provided, the holders of shares of Series A Preferred Stock shall
vote as one class, and each holder of Series A Preferred Stock shall be entitled
to one vote for each share held.
SECTION H. Conversion.
----------
1. Conversion Procedure.
--------------------
(a) At any time and from time to time, upon payment of the Conversion
Fee with respect to any Share, any holder of Series A Preferred Stock may
convert all or any portion of the Series A Preferred Stock (including any
fraction of a Share) held by such holder into a number of shares of Conversion
Stock computed by multiplying the number of Shares to be converted by $10.25 and
dividing the result by the Conversion Price then in effect.
(b) Except as otherwise provided herein, each conversion of Series A
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Series A Preferred Stock to be converted have been surrendered for conversion at
the principal office of the Company. At the time any such conversion has been
effected, the rights of the holder of the Shares converted as a holder of Series
A Preferred Stock shall cease and the Person or Persons in whose name or names
any certificate or certificates for shares of Conversion Stock are to be issued
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Conversion Stock represented thereby.
(c) The conversion rights of any Share subject to redemption hereunder
shall terminate on the Redemption Date for such Share unless the Company has
failed to pay to the holder thereof the Redemption Price thereof.
(d) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred Stock is to be made in connection with a Material Event or
other transaction affecting the Company, the conversion of any Shares of Series
A Preferred Stock may, at the election of the holder thereof, be conditioned
upon the consummation of such transaction, in which case such conversion shall
not be deemed to be effective until such transaction has been consummated.
(e) As soon as possible after a conversion has been effected (but in
any event within 10 business days in the case of subparagraph (i) below), the
Company shall deliver to the converting holder:
(i) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder has
specified;
6
<PAGE>
(ii) payment of all accrued and unpaid dividends with respect to
each Share converted which have not been paid thereto; and
(iii) a certificate representing any Shares of Series A Preferred
Stock which were represented by the certificate or certificates delivered to the
Company in connection with such conversion but which were not converted.
(f) The issuance of certificates for shares of Conversion Stock upon
conversion of Series A Preferred Stock shall be made without charge to the
holders of such Series A Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Company in connection with such conversion and the
related issuance of shares of Conversion Stock. Upon conversion of each Share
of Series A Preferred Stock, the Company shall take all such actions as are
necessary in order to insure that the Conversion Stock issuable with respect to
such conversion shall be validly issued, fully paid and nonassessable, and free
and clear of all taxes, liens, charges and encumbrances with respect to the
issuance thereof.
(g) The Company shall not close its books against the transfer of
Series A Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Series A Preferred Stock in any manner which interferes with the
timely conversion of Series A Preferred Stock. The Company shall assist and
cooperate with any holder of Shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Shares hereunder (including, without limitation, making any filings required
to be made by the Company).
(h) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the purpose
of issuance upon the conversion of the Series A Preferred Stock, such number of
shares of Conversion Stock as are issuable upon the conversion of all
outstanding Series A Preferred Stock. The Company shall take all such actions
as may be necessary to assure that all shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
or the NASDAQ National Market upon which shares of Conversion Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company shall not take
any action which would cause the number of authorized but unissued shares of
Conversion Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon conversion of the Series A Preferred Stock.
(i) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subparagraph, be delivered upon any conversion
of the Series A Preferred Stock, at the request of the holder thereof, the
Company, in lieu of delivering the fractional share therefor, shall pay an
amount to the holder thereof equal to the Fair Value of such fractional
interest.
2. Conversion Fee. The "Conversion Fee" with respect to any Share
--------------
shall be an amount equal to 5% of the Liquidation Value of such Share,
calculated on a per annum basis for the period
7
<PAGE>
commencing on the Date of Issuance of such Share and ending on the date such
Share is converted into Conversion Stock.
3. Conversion Price.
-----------------
(a) The initial "Conversion Price" shall be $10.25 per share. In
----------------
order to prevent dilution of the conversion rights granted under this Section H,
the Conversion Price shall be subject to adjustment from time to time pursuant
to this Section H3.
(b) If and whenever on or after the original Date of Issuance of the
Series A Preferred Stock, the Company issues or sells, or in accordance with
Section H4 is deemed to have issued or sold, any shares of its Common Stock for
a consideration per share less than the Fair Value per share immediately prior
to the time of such issue or sale, then immediately upon such issue or sale, or
deemed issue or sale, the Conversion Price shall be reduced to the Conversion
Price determined by dividing (i) the sum of (1) the product derived by
multiplying the Fair Value per share in effect immediately prior to such issue
or sale by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (2) the consideration, if any, received by the
Company upon such issue or sale, by (ii) the number of shares of Common Stock
Deemed Outstanding immediately after such issue or sale.
(c) Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price as a result of (i) any issue or sale, or deemed issue or sale
of Common Stock upon conversion, of Approved Preferred Stock, or (ii) any issue
or sale (or deemed issue or sale) of Common Stock pursuant to stock options,
warrants and other rights to acquire Common Stock described in Schedule 3.3 to
the Exchange Agreement (as such number of shares is proportionately adjusted for
subsequent stock splits, combinations of shares and stock dividends affecting
the Common Stock), in each case pursuant to the terms thereof as in effect on
the date of the Exchange Agreement.
4. Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section H3, the following shall
be applicable:
(a) Issuance of Rights or Options. If the Company in any manner
-----------------------------
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Fair Value per share immediately prior to the time of the granting or sale
of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Options for such
price per share. For purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the granting
or sale of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise of all such Options, plus in
the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such
8
<PAGE>
Convertible Securities and the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further adjustment of the
Conversion Price shall be made when Convertible Securities are actually issued
upon the exercise of such Options or when Common Stock is actually issued upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.
(b) Issuance of Convertible Securities. If the Company in any manner
----------------------------------
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon conversion or exchange thereof is less than the
Fair Value per share immediately prior to the time of such issue or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance or sale of
such Convertible Securities for such price per share. For the purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (i) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section H, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase price
-----------------------------------------
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time, the Conversion Price in effect at the time of such change
shall be immediately adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section H4, if the terms of any Option or Convertible Security
which was outstanding as of the Date of Issuance of the Series A Preferred Stock
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change; provided that no such change shall at any time cause
the Conversion Price hereunder to be increased.
(d) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent
9
<PAGE>
outstanding immediately prior to such expiration or termination, never been
issued. For purposes of this Section H4, the expiration or termination of any
Option or Convertible Security which was outstanding as of the Date of Issuance
of the Series A Preferred Stock shall not cause the Conversion Price hereunder
to be adjusted unless, and only to the extent that, a change in the terms of
such Option or Convertible Security caused it to be deemed to have been issued
after the Date of Issuance of the Series A Preferred Stock.
(e) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company shall be the
Market Price thereof as of the date of receipt. If any Common Stock, Option or
Convertible Security is issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving Company, the
amount of consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Option or Convertible Security, as the case
may be. The fair value of any consideration other than cash and securities shall
be determined jointly by the Company and the holders of a majority of the
outstanding Series A Preferred Stock. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Company and the
holders of a majority of the outstanding Series A Preferred Stock. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne by the Company.
(f) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, consideration shall be
allocated to such Option by the Board of Directors of the Company on a
reasonable basis.
(g) Treasury Shares. The number of shares of Common Stock outstanding
---------------
at any given time shall not include shares owned or held by or for the account
of the Company or any Subsidiary, and the disposition of any shares so owned or
held shall be considered an issue or sale of Common Stock.
(h) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
10
<PAGE>
5. Subdivision or Combination of Common Stock. If the Company at any
------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Company at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a manner that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an "Organic Change". Prior to the consummation of any
--------------
Organic Change, the Company shall make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series A Preferred
Stock then outstanding) to insure that each of the holders of Series A Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series A Preferred Stock, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series A Preferred Stock immediately prior to such Organic
Change. In each such case, the Company shall also make appropriate provisions
(in form and substance satisfactory to the holders of a majority of the Series A
Preferred Stock then outstanding) to insure that the provisions of this Section
H and Section I hereof shall thereafter be applicable to the Series A Preferred
Stock (including, in the case of any such consolidation, merger or sale in which
the successor entity or purchasing entity is other than the Company an immediate
adjustment of the Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale, and a corresponding
immediate adjustment in the number of shares of Conversion Stock acquirable and
receivable upon conversion of Series A Preferred Stock, if the value so
reflected is less than the Fair Value per share immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance reasonably satisfactory to the holders of a majority of the
Series A Preferred Stock then outstanding), the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
7. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section H but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series A
Preferred Stock; provided that no adjustment shall be made in connection with
any stock appreciation rights or phantom stock rights granted to employees
pursuant to employee benefit plans approved by the Company's Board of Directors;
and
11
<PAGE>
provided further that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section H or decrease the number of shares
of Conversion Stock issuable upon conversion of each Share of Series A Preferred
Stock.
8. Notices.
-------
(a) Promptly after any adjustment of the Conversion Price, the Company
shall give written notice thereof to all holders of Series A Preferred Stock,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(b) The Company shall give written notice to all holders of Series A
Preferred Stock at least 20 days prior to the date on which the Company closes
its books or takes a record (i) with respect to any dividend or distribution
upon Common Stock, (ii) with respect to any pro rata subscription offer to
holders of Common Stock or (iii) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(c) The Company shall also give written notice to the holders of
Series A Preferred Stock at least 20 days prior to the date on which any Organic
Change shall take place.
Section I. Registration of Transfer. The Company will keep at its
------------------------
principal office a register for the registration of Series A Preferred Stock.
Upon the surrender of any certificate representing Series A Preferred Stock at
such place, the Company will, at the request of the record holder of such
certificate, execute and deliver (at the Company's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
will be registered in the name of such transferee and will represent such number
of Shares as is requested by the holder of the surrendered certificate and will
be substantially identical in form to the surrendered certificate, and dividends
will accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Series A Preferred
Stock represented by the surrendered certificate.
SECTION J. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of any class of Series A Preferred Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Company (provided that if the holder is GE
Capital or any of its 100% Affiliates, its own agreement will be satisfactory),
or, in the case of any such mutilation upon surrender of such certificate, the
Company will (at its expense) execute and deliver in lieu of such certificate a
new certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
will accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
SECTION K. Definitions. Unless defined below or elsewhere herein,
-----------
each capitalized term used herein shall have the meaning given such term in the
Exchange Agreement.
12
<PAGE>
"100% Affiliate" means with respect to any Person, (i) each other
--------------
Person that, directly or indirectly, owns or controls one hundred percent (100%)
of the Stock having ordinary voting power in the election of directors of such
Person, (ii) each other Person of which the Stock having ordinary voting power
in the election of its directors is owned or controlled one hundred percent
(100%) by such Person, or (iii) each other Person of which the Stock having
ordinary voting power in the election of its directors is owned or controlled
one hundred percent (100%) by any Person defined in clause (i) above or any of
its 100% Affiliates.
"Approved Preferred Stock" means any other series of preferred stock
------------------------
issued in accordance with Section G hereof that the Board of Directors of the
Company expressly designates as such by referring to this definition in the
resolution or resolutions providing for the issuance thereof.
"Change Of Control" means (A) prior to a filing by the Company of a
-----------------
registration statement with the Security and Exchange Commission under the 1933
Act covering the securities of the Company (an "IPO"), (a) capital stock of the
---
Company or any of its Subsidiaries (after giving effect to the exercise of all
outstanding Shares, options, warrants or other equity securities), having by its
terms voting power to elect greater than 50% (in number of votes) of the board
of directors of the Company or such Subsidiary, shall cease to be owned in the
aggregate by (i) John P. Miller or members of such Person's immediate family
(including, parents, spouse, children and siblings) or (ii) a trust for the
benefit of John P. Miller or members of his immediate family, which trust is
under the control of John P. Miller or members of his immediate family; or (b) a
majority of the members of the board of directors of the Company or any of its
Subsidiaries then in office are no longer individuals elected or designated by
any of the Persons referenced in clause (i) or (ii) above and (B) subsequent to
an IPO if (i) any "person" as defined in Section 3(a)(9) of the Security and
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
------------
13(d) and 14(d) thereof, including any "group" as defined in Section 13(d) of
the Exchange Act, but excluding the Company and any Subsidiary, any of the
Company's existing shareholders prior to an IPO and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any trustee
of such plan acting as trustee), directly or indirectly becomes a "beneficial
owner" (as defined in Rule 13d-3 Under the Exchange Act) of securities of the
Company representing 20% or more of the voting power of the then outstanding
securities of the Company, except where the acquisition is approved by the Board
of Directors; (ii) the shareholders of the Company approve (or, if shareholder
approval is not required, the Board of Directors approves) an agreement
providing for (aa) the merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, will not beneficially own, immediately after the merger
or consolidation, shares entitling such shareholders to a majority of all votes
to which all shareholders of the surviving corporation would be entitled in the
election of directors, or where the members of the Board of Directors,
immediately prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the surviving corporation, (bb) a sale or other disposition of all or
substantially all of the assets of the Company, or (cc) a liquidation or
dissolution of the Company; (iii) any person has commenced a tender offer or
exchange offer for 35% or more of the voting power of the then outstanding
shares of the Company,; or (iv) directors are elected such that a majority of
the members of the Board of
13
<PAGE>
Directors shall have been members of the Board of Directors for less than two
years, unless the election or nomination for election of each new director who
was not a director at the beginning of such two-year period was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections H4(a) and
H4(b) hereof.
"Conversion Stock" means shares of the Common Stock; provided that if
----------------
there is a change such that the securities issuable upon conversion of the
Series A Preferred Stock are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Conversion Stock" shall mean one share of the security issuable upon conversion
of the Series A Preferred Stock if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"Convertible Securities" means any evidence of indebtedness, shares of
----------------------
Stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for additional shares of Common Stock.
"Exchange Agreement" means the Exchange Agreement, dated as of March
------------------
30, 1998 among the Company and GECFS, Inc.
"Fair Value" means with respect to any share of Common Stock (other
----------
than shares issued pursuant to the Company's 1998 Equity Compensation Plan or
the Company's 1998 Non-Employee Director Option Plan) the average of the closing
sales prices of the Common Stock on all securities exchanges or automated
quotation system on which such shares may at the time be listed or included, or,
if there has been no sales on any such exchange or reported on such quotation
system on any day, the average of the highest bid and lowest asked prices on all
such exchanges or reported at the end of such day, or, if on any day such share
is not so listed or included in any such quotation system, the average of the
highest bid or lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a period of 21
business days consisting of the third day immediately prior to the date as of
which the Fair Value is being determined and the 20 consecutive business days
prior to such date; provided, however, that if the Common Stock is not listed on
-------- -------
any securities exchange or quoted in any such quotation system or over-the-
counter market, then "Fair Value" means the fair value thereof determined by an
independent appraiser of nationally recognized standing experienced in valuing
securities, which appraiser shall be jointly selected by the Company and the
holders of the Series A Preferred Stock, valued on the basis of a sale of the
Company as a whole (without consideration of any control premium) in an arms-
length transaction between a willing buyer and the Company as a willing seller,
neither acting under compulsion. The determination of such appraiser shall be
final and binding upon the parties with respect to this proviso, and the Company
shall pay one half of the fees and expenses of such appraiser and the holders of
the Series A Preferred Stock shall pay one half of the fees and expenses of such
appraiser.
14
<PAGE>
"GE Capital" means General Electric Capital Corporation, a New York
----------
corporation.
"Junior Securities" means any of the Company's Stock, except for the
-----------------
Series A Preferred Stock and any other Approved Preferred Stock that by the
terms of the Certificate of Designation thereof is stated to be on a parity with
the Series A Preferred Stock as to dividends and on liquidation, dissolution or
winding up of the Company.
"Liquidation Value" of any Share as of any particular date will be
-----------------
equal to $10.25.
"Loan Agreements" means collectively (i) that certain Amended and
---------------
Restated Loan and Security Agreement dated December 16, 1997 between GE Capital
and Premier Graphics, Inc., (ii) that certain Loan and Security Agreement dated
March 11, 1998 between GE Capital and Phillips Litho Co., Inc., and (iii) any
other loan agreement entered into between GE Capital and the Company or any
other Subsidiary of the Company, as each of the foregoing may be amended or
modified from time to time.
"Material Event" means the occurrence of (i) a Change of Control, (ii)
--------------
the payment or prepayment of all or substantially all of the indebtedness,
liabilities and obligations owning to GE Capital under the Loan Agreements (or
such payment or prepayment shall become or be declared due pursuant to any of
the Loan Agreements), (iii) a merger, consolidation, share exchange or similar
transaction involving the Company or any of its Subsidiaries and one or more
Persons (other than a merger of a Subsidiary with and into another Subsidiary
or, if the Company is the surviving corporation, the Company, provided that the
--------
holders of the Series A Preferred Stock have received prior written notice
thereof) or a disposition (by sale, assignment, conveyance, transfer, lease,
exchange or otherwise), in one or more related transactions of all or a
substantial portion of the assets, business or revenue, or income generating
operations of the Company or any of its Subsidiaries taken as a whole or any
substantial change in the type of business conducted by the Company and its
Subsidiaries taken as a whole.
"Person" means any individual, sole proprietorship, partnership
------
(including a limited partnership), joint venture, trust, unincorporated
organization, association, Company, institution, public benefit Company, limited
liability company, joint stock company, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof) or any other
business entity.
"Redemption Date" as to any Share, means the Mandatory Redemption Date
---------------
or the applicable date specified herein in the case of any other redemption;
provided, that no such date will be a Redemption Date unless the applicable
Redemption Price is actually paid in cash, and if not so paid, the Redemption
Date will be the date on which such Redemption Price is fully paid in cash.
"Series A Preferred Stock" means the Series A Cumulative Convertible
------------------------
Redeemable Preferred Stock, par value $.01 per share, of the Company, senior in
priority to the Series A Preferred Stock and any other Approved Preferred Stock.
"Stock" means all shares, options, warrants, general or limited
-----
partnership interests,
15
<PAGE>
participation or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including, without limitation, common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended), including, without limitation, any securities with profit
participation features, and any rights, warrants, options or other securities
convertible into or exercisable or exchangeable for any such shares, equity or
profits interests, participations or other equivalents, or such other
securities, directly or indirectly (or any equivalent ownership interests, in
the case of a Person which is not a Company).
"Subsidiary" shall mean, with respect to any Person, (i) any Company
----------
of which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power for the election of directors, managers or trustees of such Company
(irrespective of whether, at the time, Stock of any other class or classes of
such Company shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned legally or
beneficially or controlled, directly or indirectly, by such Person and/or one or
more Subsidiaries of such Person, or any combination thereof, or with respect to
which any such Person has the right to vote or designate the vote of more than
50% of such Stock whether by proxy, agreement, operation of law or other wise,
(ii) any partnership, limited liability company, association or other business
entity, in which such Person and/or one or more Subsidiaries of such Person
shall have more than 50% of the partnership or other similar ownership interests
thereof (whether in the form of voting or participation in profits or capital
contribution), and (iii) all other Persons from time to time included in the
consolidated financial statements of such Person. For purposes hereof, a Person
or Persons shall be deemed to have more than 50% ownership interest in a limited
liability company, partnership, association or other business entity if such
Person or Persons shall be allocated more than 50% of limited liability company,
partnership, association or other business entity gains or losses or shall be or
control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
SECTION L. Amendment and Waiver. No amendment, modification or
--------------------
waiver will be binding or effective with respect to any of the provisions of
this Certificate stating the number, designation, relative rights, preferences
and limitations of the Series A Preferred Stock, without the prior written
consent of the holders of at least 80% of the Shares of Series A Preferred Stock
then outstanding.
SECTION M. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to herein will be in writing and will be delivered by
registered or certified mail, return receipt requested, postage prepaid and will
be deemed to have been given four business days after being deposited in the
mail (i) to the Company, at its principal executive offices and (ii) to any
stockholder, at such holder's address as it appears in the stock records of the
Company (unless otherwise indicated by any such holder).
16
<PAGE>
IN WITNESS WHEREOF, this Articles of Amendment have been duly executed
this 30th day of March, 1998.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
-----------------
Name: Lance T. Fair
Title: Chief Financial Officer
ATTEST:
/s/ President
-------------
17
<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED STOCK PURCHASE WARRANT
-------------------------------------------
This Amended and Restated Stock Purchase Warrant (the "Warrant"), is issued
as of 19th day of June 1997, by MASTER GRAPHICS, INC., a Delaware corporation
(the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee corporation (SIRROM
CAPITAL CORPORATION and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
WHEREAS, the parties desire to amend and restate that certain Stock
Purchase Warrant, dated June 19, 1997 by and between the Company and Holder.
AGREEMENT:
NOW THEREFORE, for good and valid consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. ISSUANCE OF WARRANT; TERM. For and in consideration of SIRROM CAPITAL
-------------------------
CORPORATION making a loan to the Company in an amount of Four Million Three
Hundred Thousand and no/l00ths Dollars ($4,300,000) pursuant to the terms of a
secured promissory note of even date herewith (the "Note") and related loan
agreement of even date herewith (the "Loan Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase shares
of the Company's common stock (the "Common Stock"), which shall be equal to 6%
of the shares of capital stock outstanding on the date of exercise, calculated
on a fully diluted basis and assuming exercise of this Warrant ("Base Amount"),
provided that in the event that any portion of the indebtedness evidenced by the
Note is outstanding on the following dates, the Base Amount shall be increased
to the corresponding number set forth below:
DATE BASE AMOUNT
------------- --------------------------------------------------
June 19, 1999 that number of shares which shall be equal to
8.67% of the shares of the Company's capital stock
outstanding on the date of exercise calculated on
a fully diluted basis after exercise of this
Warrant
June 19, 2000 that number of shares which shall be equal to
11.34% of the shares of the Company's capital
stock outstanding on the date of exercise
calculated on a fully diluted basis after exercise
of this Warrant
<PAGE>
DATE BASE AMOUNT
------------- --------------------------------------------------
June 19, 2001 that number of shares which shall be equal to 13%
of the shares of the Company's capital stock
outstanding on the date of exercise calculated on
a fully diluted basis after exercise of this
Warrant
June 19, 2002 that number of shares which shall be equal to
15.67% of the shares of the Company's capital
stock outstanding on the date of exercise
calculated on a fully diluted basis after exercise
of this Warrant
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time for the date hereof until July 30, 2002.
2. EXERCISE PRICE. The exercise (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 One Cent ($.01).
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 of One Hundred (100) Shares (or the balance of the Shares if less
than such number), 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 so purchased. The Exercise Price shall
be payable, at the option of the Holder, (i) by certified or bank check, (ii) by
the surrender of the Note or portion thereof having an outstanding principal
balance equal to the aggregate Exercise Price or (iii) by the surrender of a
portion of this Warrant where the Shares subject to the portion of this Warrant
that is surrendered have a fair market value equal to the aggregate Exercise
Price. Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event within 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
Holder shall be entitled to receive a new Warrant covering the number of Shares
in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant. The Company
<PAGE>
covenants and agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of this Warrant or
the issuance of any Shares upon exercise of 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 (the Company hereby acknowledges that
Caldwell & Caldwell, P.C. is acceptable counsel). 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, liens, 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.
<PAGE>
(c) The Company covenants and agrees that it shall not sell any shares
of the Company's capital stock at a price per share below the fair market value
of such shares, without the prior written consent of the Holder hereof. In the
absence of an established public market for the shares of stock sold by the
Company, fair market value shall be established by the Company's board of
directors in a commercially reasonable manner. The basis for determination shall
be provided in writing to the Holder hereof. In the event that the Company sells
shares of the Company's capital stock in violation of this Section 4(c), the
number of shares issuable upon exercise of this Warrant shall be equal to the
product obtained by multiplying the number of shares issuable pursuant to this
Warrant prior to such sale by the quotient obtained by dividing (i) the fair
market value of the shares issued in violation of this Section 4(c) by (ii) the
price at which such shares were sold.
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; RIGHTS OFFERING; PREEMPTIVE RIGHTS.
------------------------------------------------------------------
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are subject to this Warrant shall be deemed to
be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive notice
-------------------
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity and
shall receive a copy of all correspondence and information delivered to the
Company's Board of Directors, from the date hereof until such time as the
indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
--------------------------------
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event, occurring after the date hereof,
then the Holder exercising this Warrant shall receive, for the aggregate price
paid upon such exercise, the aggregate number and class of shares which such
Holder would have received if this Warrant had been exercised immediately prior
to such stock split, stock dividend, recapitalization, combination of shares, or
other similar event. If any adjustment under this Section 8(a), would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of shares,
<PAGE>
rounding all fractions upward. Whenever there shall be an adjustment pursuant to
this Section 8(a), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, or the holders
of Common Stock are entitled to receive cash or other property, then the Holder
exercising this Warrant shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of shares, cash or other property which
such Holder would have received if this Warrant had been exercised immediately
prior to such merger, consolidation, exchange of shares, separation,
reorganization or liquidation, or other similar event. If any adjustment under
this Section 8(b) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the next
higher number of shares, rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 8(b), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
9. PUT AGREEMENT.
-------------
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant for a period of
30 days immediately prior to the expiration thereof, at a purchase price (the
"Purchase Price") equal to the Fair Market Value (as hereinafter defined) of the
shares of Common Stock issuable to Holder upon exercise of this Warrant which
shall be exercisable with the consent of the Senior Lenders (as defined in the
Loan Agreement).
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price in exchange for the delivery to the Company
of this Warrant within thirty (30) days of the receipt of written notice,
addressed as set forth in Section 3 hereto, from the Holder of its intention to
exercise the Put.
(c) The Fair Market Value of the shares of Common Stock of the Company
issuable pursuant to this Warrant shall be determined as follows:
(i) The Company and the Holder shall each appoint an independent,
experienced appraiser who is a member of a recognized professional association
of business appraisers. The two appraisers shall determine the value of the
shares of Common Stock which would be issued upon the exercise of the Warrant,
<PAGE>
assuming that the sale would be between a willing buyer and a willing seller,
both of whom have full knowledge of the financial and other affairs of the
Company, and neither of whom is under any compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not more than 10% more
than the lower of the appraisals, the Fair Market Value shall be the average of
the two appraisals. If the higher of the two appraisals is 10% or more than the
lower of the two appraisals, then a third appraiser shall be appointed by the
two appraisers, and if they cannot agree on a third appraiser, the American
Arbitration Association shall appoint the third appraiser. The third appraiser,
regardless of who appoints him or her, shall have the same qualifications as the
first two appraisers.
(iii) The Fair Market Value after the appointment of the third
appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be paid one-
half by the Company and one-half by the Holder.
10. REGISTRATION.
------------
(a) The Company and the holders of the Shares 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 on a form suitable for a
primary offering, 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
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 affect 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 securities entitled to be
included therein owned by each selling shareholder, but in no event shall 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
<PAGE>
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 or 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 Holders and
underwriters, and the Company will not file such registration statement or any
amendment thereto or any prospectus or 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 jurisdictions 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 of 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 not 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.
<PAGE>
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration statement.
(vii) Enter into such customary agreements (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 or
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 or 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 and 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)
<PAGE>
and the underwriters, if any, with respect to the Shares and the registration
statement as are customarily made by issuers in primary underwritten offerings;
(B) use its best efforts to obtain "cold comfort" letters and updates thereof
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 the type 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 a majority of the Shares being sold, and (2) by the underwriters,
if any, to evidence compliance with clause (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, if any), covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by the selling Holders and underwriters 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 statements, notes thereto or other financial data or
other expertized material contained therein). If for any reason the Company's
counsel is unable to give such opinion, 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 1 1
(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 a firm or best efforts underwritten offering, or (B) if not 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) After the date hereof, the Company shall not grant to any holder
of securities of the Company any registration rights which have a priority
greater than or equal to those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) 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 within the meaning of the Securities Act) from any loss, claim,
damage or liability arising out of, based upon or in any way relating to any
<PAGE>
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.
(e) For purposes of this Section 10, all of the Shares shall be deemed
to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose to:
---------------
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common Stock
any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or substantially
all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or securities
convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date of which the
<PAGE>
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
12. RIGHTS OF CO-SALE.
-----------------
(a) Co-Sale Right. John Miller shall not enter into any transaction
-------------
that would result in the sale by it of any Common Stock now or hereafter owned
by it, unless prior to such sale such Management Shareholder shall give notice
to Holder of its intention to effect such sale in order that Holder may exercise
its rights under this Section 12 as hereinafter described. Such notice shall
set forth (i) the number of shares to be sold by such Management Shareholder,
(ii) the principal terms of the sale, including the price at which the shares
are intended to be sold, and (iii) an offer by such Management Shareholder to
use his best efforts to cause to be included with the shares to be sold by it in
the sale, on a share-by-share basis and on the same terms and conditions, the
Shares issuable or issued to Holder pursuant this Warrant.
(b) Rejection of Co-Sale Offer. If Holder has not accepted such offer
--------------------------
in writing within a period of ten (10) days from the date of receipt of the
notice, then such Management Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in such notice, at a
price no greater than the price set forth in such notice and on otherwise no
more favorable terms to such Management Shareholder than as set forth in such
notice without any further obligation to Holder in connection with such sale.
In the event that such Management Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in such notice shall
continue to be subject to this Section.
(c) Acceptance of Co-Sale Offer. If Holder accepts such offer in
---------------------------
writing within ten (10) day period, such acceptance shall be irrevocable unless
such Management Shareholder shall be unable to cause to be included in his sale
the number of Shares of stock held by Holder and set forth in the written
acceptance. In that event, such Management Shareholder and Holder shall
participate in the sale equally, with such Management Shareholder and Holder
each selling half the total number of such shares to be sold in the sale.
13. 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.
14. 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
<PAGE>
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 or such notice, election or demand. For the purposes of this
Warrant:
The Address of Holder is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Burton Harvey
Telecopy No. 615/726-1208
with a copy to: Caldwell & Caldwell
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Maria-Lisa Caldwell, Esq.
Telecopy No. 615/256-9958
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
15. 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 by law.
16. 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.
17. 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.
<PAGE>
18. 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.
19. 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 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 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.
20. EQUITY PARTICIPATION. This Warrant is issued in connection with the
--------------------
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. 47-24 101, et seq. and that equity
------
participation be permitted under said statutes and not constitute interest on
the Note. If under any circumstances whatsoever, fulfillment of any obligation
of this Warrant, the Loan Agreement, or any other agreement or document executed
in connection with the Loan Agreement, shall violate the lawful limit of any
applicable usury statue or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled shall be
reduced to such lawful limit, such that in no event shall there occur, under
this Warrant, the Loan Agreement, or any other document or instrument executed
in connection with the Loan Agreement, any violation of such lawful limit, but
such obligation shall be fulfilled to the lawful limit. If any sum is collected
in excess of the lawful limit, such excess shall be applied to reduce the
principal amount of the Note.
<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: SIRROM CAPITAL CORPORATION, a Tennessee
------ corporation
By: /s/ R. Burton Harvey
---------------------
Title: Vice President
---------------
IN WITNESS WHEREOF, the parties hereto have executed or caused this Warrant
to be executed as of the date first above written for the purpose of agreeing to
the terms and conditions of Section 12 hereof.
JOHN MILLER: /s/ John P. Miller
----------- ------------------
<PAGE>
EXHIBIT 4.8
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 22nd day of September, 1997, by MASTER
GRAPHICS, INC. a Delaware corporation (the "Company"), to JOSEPH M. JENSEN and
any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders"). JOHN P. MILLER, the sole shareholder of
the Company (the "Shareholder") joins in this agreement for purposes of the
enforceability of the Rights conferred under Section 7 hereof.
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 the subject of an initial public offering of its stock (an "IPO")
within ten years from the date hereof Holder shall have the option to acquire
from the Company up to $1,875,000 of shares, with the precise number of shares
being determined based upon the IPO price per share as follows:
$l,875,000 / Initial IPO Price Per Share = Maximum Number of Option Shares
"Initial IPO" price shall mean the price established by the underwriters as
the initial price of the first public stock offering made by the Company.
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
hereof, 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 within
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
<PAGE>
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 hares covered by this Warrant shall be null and void Holder shall have
the right to apply any amounts due or to become due to him under the terms of
the 12% Subordinated Note from the Company to him of even date herewith toward
payment of the amounts due for payment of the Exercise Price hereunder.
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 (1) 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 an 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
-2-
<PAGE>
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 a 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) For and in consideration of the benefits to be derived by him from the
transaction for the purchase of all of the shares of The Argus Press, Inc and
for other good and valuable considerations the receipt of which is hereby
acknowledged, the Shareholder (John P. Miller) agrees not to 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 said 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 $1,875,000, with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$ 1,875,000 / 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
-3-
<PAGE>
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: Joseph M. Jensen
6917 N. Lexington, A 1
Niles, Ill 60714
with a copy to: Hamblet, Casey, Oremus & Vacin
75 E. Wacker Drive, Suite 200
Chicago, Illinois 60601
Attention: Michael J. Hamblet
The Address of Company
and Shareholder is: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John P. 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 by law.
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 by 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 by 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.
-4-
<PAGE>
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 written.
COMPANY: MASTER GRAPHICS, INC., a Delaware
-------
corporation
By: /s/ John P. Miller
------------------
Title: President
HOLDER: /s/ Joseph M. Jensen
------ -------------------------------------------------
JOSEPH M. JENSEN
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: By: /s/ John P. Miller
----------- ----------------------------------------------
JOHN P. MILLER
-5-
<PAGE>
EXHIBIT 4.9
STOCK PURCHASE WARRANT
----- ----------------
This Warrant is issued this 22nd day of September, 1997, by MASTER
GRAPHICS, INC., a Delaware corporation (the "Company"), to ALLAN R. BARTEL and
any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders"), JOHN P. MILLER, the sole shareholder of
the Company (the "Shareholder") joins in this Agreement for purposes of the
enforceability of the Rights conferred under Section 7 hereof.
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 the subject of an initial public offering of its stock (an "IPO")
within ten years from the date hereof, Holder shall have the option to acquire
from the Company up to $1,875,000 of shares, with the precise number of shares
being determined based upon the IPO price per share as follows:
$1,875,000 divided by Initial IPO Price Per Share = Maximum Number of
Option Shares
"Initial IPO" price shall mean the price established by the underwriters as
the initial price of the first public stock offering made by the Company.
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
hereof, 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 IP0 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 within
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificate 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
<PAGE>
and void. Holder shall have the right to apply any amounts due or to become due
to him under the terms of the 12% Subordinated Note from the Company to him of
even date herewith toward payment of the amounts due for payment of the Exercise
Price hereunder.
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 (1) 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
(11) 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 validity 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.
-2-
<PAGE>
5. Transfer and 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 a 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) For and in consideration of the benefits to be derived by him from the
transaction for the purchase of all of the shares of The Argus Press, Inc. and
for other good and valuable considerations the receipt of which is hereby
acknowledged, the Shareholder (John P. Miller) agrees not to 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 said 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 $l,875,000, with the maximum number of shares which Holder shall
have the option to purchase to be determined as follows:
$1,875,000 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
-3-
<PAGE>
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: Allan R Bartel
338 W. Sibley
Park Ridge, Illinois 60068
with a copy to: Hamblet, Casey, Oremus & Vacin
75 E.Wacker Drive Su 200
Chicago, Illinois 60601
Attention: Michael J. Hamblet
The Address of Company
and Shareholder is: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, TN 38114
Attention: John P. 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 by law.
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.
-4-
<PAGE>
12. Governing Law and Amendments. This Warrant shall be construed by 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 by 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 written.
COMPANY:
--------
MASTER GRAPHICS, INC.,
a Delaware corporation
By: /s/ John P. Miller
----------------------------------------
Title: President
HOLDER: By: /s/ Allan R. Bartel
------- ----------------------------------------
ALLAN R. BARTEL
IN WITNESS WHEREOF, the undersigned has executed or caused this Warrant to
be executed as of the day first above written for the purposes of agreeing to
the terms and conditions of Section 7 hereof.
SHAREHOLDER: By:/s/ John P. Miller
------------ ----------------------------------------
JOHN P. MILLER
-5-
<PAGE>
EXHIBIT 4.22
[Form of Stock Purchase Warrant]
STOCK PURCHASE WARRANT
This Warrant is issued this _____ day of _______, 19___, by MASTER
GRAPHICS, INC., a Tennessee corporation (the "Company") to
_________________________ ("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, and (b) there has been no acquisition or merger
of the Company prior to the time of the IPO, Holder shall have the option to
acquire from the Company or an Affiliated Entity the Common Stock of the Company
or the Affiliated Entity, as applicable, 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:
$_______________ + 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 Common Stock of the Company.
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, Suite 401, Memphis,
Tennessee 38119, or such other address as the Company shall designate in a
written notice to the Holder. 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 Report on Form 10-K, if any, for the
Company's most recently completed fiscal year; all Quarterly Reports of 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 (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 the Company (the "Exercise Delivery"): (i) this Warrant;
(ii) a signed statement indicating the number of shares to be purchased; and
(iii) a certified check in the amount of 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 for the 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, 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
1
<PAGE>
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 Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company.
7. 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.
8. 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: _________________________
2
<PAGE>
The Address of Company is: Master Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, TN 38119
Attention: John Miller
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14 CORPORATE TRANSACTIONS. If the Company merges, consolidates, sells
----------------------
all of its assets or dissolves and such transaction is not a Change of Control
(as defined in the Company's 1998 Equity Compensation Plan), then thereafter
upon any exercise of the warrant, the Holder shall be entitled to purchase under
the warrant, in lieu of the number of shares of Common Stock covered by this
warrant then exercisable, the number and class of shares of stock and securities
to which the Holder would have been entitled pursuant to the terms of the
agreement of merger, consolidation, sale of assets or dissolution, if,
immediately prior to such agreement of merger, consolidation, sale of assets or
dissolution, the Holder had been the holder of record of the number of shares of
Common Stock as to which the warrant is then exercisable.
15. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
----------------------------
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, then
the Holder shall receive, for the aggregate Exercise Price, the aggregate number
and class of shares which such holder would have received if this warrant had
been exercised immediately prior to such stock dividend, stock split,
combination of shares or recapitalization; provided, however, that this Section
15 shall not apply to any stock dividend, stock split, combination of shares or
recapitalization which occurs in contemplation of the Company's initial public
offering.
16. OTHER CORPORATE TRANSACTIONS. The existence of outstanding warrants
----------------------------
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
Common Stock or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceedings, whether of a similar character or otherwise.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations, or
exchanges or other relative changes in capitalization occurring
3
<PAGE>
after the Grant Date and not otherwise provided for by SECTIONS 14 or,
-----------
SECTION 15, this warrant shall be appropriately and equitably adjusted so as
- ----------
to maintain the proportionate number of shares without changing the aggregate
Exercise Price.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
MASTER GRAPHICS, INC.
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
5
<PAGE>
EXHIBIT 4.23
[Form of Nonqualified stock Option Agreement]
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
_____________________ (the "Optionee").
1. GRANT OF OPTION. Subject to the terms and conditions of this
---------------
Agreement and the 1998 Equity Compensation Plan (the "Plan"), the Company hereby
irrevocably grants to Optionee the right and option ("Option") to purchase from
the Company that certain number of shares of the Company's common stock, $0.001
par value ("Common Stock"), equal to (a) _________________ divided by (b) the
initial public offering price per share of the Common Stock (the "IPO Price").
The per share exercise price (the "Exercise Price") shall equal the IPO Price.
2. OPTION PERIOD. The Option herein granted may be exercised by Optionee
-------------
in whole or in part at any time during a 10-year period (the "Option Period")
beginning on the date on which the Company completes its initial public offering
(the "Grant Date") subject to the limitation that said Option shall be
exercisable in increments ratably as set forth in EXHIBIT A hereto (the "Vesting
---------
Schedule"), determined by the number of full years of employment with the
Company or its Affiliates from the Grant Date, to the date of such exercise.
Notwithstanding anything in this Option Agreement to the contrary, (i) the
vesting schedule is subject to SECTION 8 herein and (ii) the Committee, in its
---------
sole discretion, may waive the Vesting Schedule and, upon written notice to the
Optionee, accelerate the earliest date or dates on which any of the Options
granted hereunder are exercisable.
3. PROCEDURE OF EXERCISE. The vested portion of the Option may be
---------------------
exercised by written notice by Optionee to the Secretary of the Company setting
forth the number of shares of Common Stock with respect to which the Option is
to be exercised accompanied by payment for the shares to be purchased, and
specifying the address to which the certificate for such shares is to be mailed.
The notice shall be accompanied by one or a combination of the following payment
methods, equal in value to the aggregate exercise price: (i) cash, cashier's
check, bank draft, or postal or express money order payable to the order of the
Company, (ii) certificates representing shares of Common Stock owned by Optionee
duly endorsed for transfer to the Company, or (iii) a written election by
Optionee to transact a "cashless exercise" as described in SECTION 6(d)(iii) of
-----------------
the Plan. Notice may also be delivered by facsimile provided that the Exercise
Price of such shares is received by the Company via wire transfer on the same
day the facsimile transmission is received by the Company. An option to
purchase shares of Common Stock in accordance with this Plan shall be deemed to
have been exercised immediately prior to the close of business on the date (i)
written notice of such exercise and (ii) payment in full of the Exercise Price
for the number of shares for which Options are being exercised, are both
received by the Company, and Optionee shall be treated for all purposes as the
record holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effective for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this SECTION 3.
---------
4. TERMINATION OF EMPLOYMENT. If Optionee's employment with the Company
-------------------------
or its Affiliates is terminated during the Option Period for any reason other
than death or disability, Options granted to Optionee which are not exercisable
on such date shall terminate. Any Options which are exercisable on the date of
Optionee's termination of employment shall expire upon the earlier of (i) the
expiration of the remaining term of the Option or (ii) 30 days from the date of
such termination of employment.
<PAGE>
5. DEATH OR DISABILITY. If Optionee's employment with the Company or its
-------------------
Affiliates is terminated by death or disability, all Options hereunder
exercisable at the date of such death or disability shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of one year from
the date of Optionee's death or disability, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any
Option be exercised after the end of the Option Period. Optionee shall be
deemed to be disabled if, in the opinion of a physician selected by the
Committee, he or she is incapable of performing services for the Company or its
Affiliates by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of a long, continued and
indefinite duration.
6. TRANSFERABILITY. This Option shall not be transferable by Optionee
---------------
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
7. NO RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
------------------------
shareholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall
not be entitled to dividends or to vote at meetings of the shareholders of the
Company. Except as provided in SECTION 10 hereof, no adjustment shall be made
----------
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
8. CHANGE OF CONTROL. In the event of a Change of Control (as defined in
-----------------
the Plan), all outstanding Options, whether exercisable or not, shall
immediately vest and become exercisable. Further, in the event of a Change of
Control, the Committee, in its discretion, shall act to effect one or more of
the alternatives set forth in SECTION 12 of the Plan.
----------
9. CORPORATE TRANSACTIONS. If the Company merges, consolidates, sells
----------------------
all of its assets or dissolves and such transaction is not a Change of Control,
then thereafter upon any exercise of the Option hereunder, the Optionee shall be
entitled to purchase under the Option, in lieu of the number of shares of Common
Stock covered by this Option then exercisable, the number and class of shares of
stock and securities to which the Optionee would have been entitled pursuant to
the terms of the agreement of merger, consolidation, sale of assets or
dissolution, if, immediately prior to such agreement of merger, consolidation,
sale of assets or dissolution, the Optionee had been the holder of record of the
number of shares of Common Stock as to which the Option is then exercisable.
10. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
----------------------------
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares subject to the Option heretofore granted, and the
Exercise Price, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate Exercise
Price.
11. OTHER CORPORATE TRANSACTIONS. The existence of outstanding Options
----------------------------
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
Common Stock or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceedings, whether of a similar character or otherwise.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations, or
exchanges or other relative changes in capitalization occurring after the Grant
Date and not otherwise provided for by SECTIONS 8, SECTION 9 and SECTION 10
---------- --------- -----------
above, this Option shall be
-2-
<PAGE>
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Common Stock or other considerations subject to this Option.
12. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any shares
-------------------------------
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under SECTION 6) will enter into such written representations, warranties
---------
and agreements as the Company may reasonably request in order to comply with
applicable securities laws or with this Option Agreement.
13. COMPLIANCE WITH LAWS. Notwithstanding any of the other provisions
--------------------
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
14. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
------------------
the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation under applicable tax
laws or regulations; and, if the Optionee fails to do so, the Company is
authorized to withhold from any cash remuneration then or thereafter payable to
the Optionee any tax required to be withheld by reason of such resulting
compensation income, or the Company may otherwise refuse to issue or transfer
any shares otherwise required to be issued or transferred pursuant to the terms
hereof.
15. RESOLUTION OF DISPUTES. As a condition of the granting of the Option
----------------------
hereby, the Optionee and his heirs and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the Committee in
its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
16. LEGENDS ON CERTIFICATES. The certificates representing the shares of
-----------------------
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
17. NOTICES. Every notice hereunder shall be in writing and shall be
-------
given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to the Company at its principal place of
business at Memphis, Tennessee (Attention: Corporate Secretary). Any notice
given by the Company to Optionee directed to him at his address on file with the
Company shall be effective to bind him and any other person who shall acquire
rights hereunder. The Company shall be under no obligation whatsoever to advise
Optionee of the existence, maturity or termination of any of Optionee's rights
hereunder and Optionee shall be deemed to have familiarized himself with all
matters contained herein and in the Plan which may affect any of Optionee's
rights or privileges hereunder.
18. CONSTRUCTION AND INTERPRETATION. Whenever the term "Optionee" is used
-------------------------------
herein under the circumstances applicable to any other person or persons to whom
this award, in accordance with the provisions of SECTION 6 hereof, may be
---------
transferred, the term "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
19. AGREEMENT SUBJECT TO PLAN. This Option Agreement is subject to the
-------------------------
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are hereby incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a term or provision
of the Plan, the applicable terms and provisions of the Plan will govern and
prevail. All definitions of words and terms contained in the Plan shall be
applicable to this Option Agreement.
-3-
<PAGE>
20. EMPLOYMENT RELATIONSHIP. Employees shall be considered to be in the
-----------------------
employment of the Company as long as they remain employees of the Company or an
Affiliate. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Committee, and its determination shall be final. Nothing contained herein shall
be construed as conferring upon the Optionee the right to continue in the employ
of the Company, nor shall anything contained herein be construed or interpreted
to limit the "employment at will" relationship between the Optionee and the
Company.
21. BINDING EFFECT. This Option Agreement shall be binding upon and inure
--------------
to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the _____
day of _____, 19__.
MASTER GRAPHICS, INC.
By:
---------------------------------
Title:
------------------------------
OPTIONEE
------------------------------------
NAME
-4-
<PAGE>
EXHIBIT A
VESTING SCHEDULE
----------------
<TABLE>
<CAPTION>
CONDITIONS TO VESTING AMOUNT EXERCISABLE
--------------------- ------------------
<S> <C>
Upon the continuous employment by Optionee Cumulative proportion of the Stock as to all
through the anniversary of the Nonqualified Stock or part of which the Option can be exercised
Option Agreement indicated below: after satisfaction of the respective conditions
to vesting:
First Anniversary 25%
Second Anniversary 50%
Third Anniversary 100%
</TABLE>
A-1
<PAGE>
EXHIBIT 4.24
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933 OR RECEIPT OF A NO ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
MASTER GRAPHICS, INC.
COMMON STOCK
PURCHASE WARRANT
______________________________________
THIS WARRANT to purchase shares of Common Stock, $.01 par value, of the
Company (as defined below) (the "Shares") evidences that, for valuable
------
consideration, receipt of which is hereby acknowledged, GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, (the "Purchaser"), or registered assigns,
---------
is entitled to subscribe for and purchase from MASTER GRAPHICS, INC., a
Tennessee corporation (the "Company"), up to an aggregate number of Shares
-------
equal to the quotient of 2,200,000 divided by the IPO ( as hereinafter defined)
price of the Common Stock of the Company (the "Warrant Interest"), at a price
----------------
per share equal to the IPO price of Common Stock of the Company (the "Exercise
--------
Price"), provided, however, that in no event will the aggregate Exercise Price
- ----- -------- -------
for all of the Warrant Interest covered by this Warrant exceed One Hundred
Dollars ($100.00) whether as a result of any change in the par value of the
Shares or other securities issued upon exercise of this Warrant, as a result of
any change in the number of shares purchasable as provided in this Warrant, or
otherwise; provided, further, that such limitation of the aggregate Exercise
-------- -------
Price will have no effect whatsoever upon the amount or number of Warrant Shares
for which the Warrant may be exercised.
1. Conditions to Exercise. The purchase right represented by this
----------------------
Warrant is exercisable, in whole or in part, as to the Warrant Interest at any
time after the Company files its registration statement with the Securities and
Exchange Commission under the 1933 Act covering securities of the Company (an
"IPO"), and from time to time, on or before March 31, 2008. This Warrant
- ----
expires and may not be exercised after the earlier to occur of (i) March 31,
2003, in the event the Company has not been involved in an IPO prior to such
date or (ii) March 31, 2008.
2. Method of Exercise: Payment, Issuance of New Warrant. The purchase
----------------------------------------------------
right represented by this Warrant may be exercised at any time, and from time to
time, by the surrender of this Warrant (with the Notice of Exercise form
attached hereto duly executed) at the principal office of the Company and by the
payment to the Company by check in an amount equal to the Exercise Price
multiplied by the number of Shares of the Warrant Interest then being purchased.
In the event
1
<PAGE>
of any exercise of the rights represented by this Warrant, the Company shall
deliver to Purchaser a certificate for the Shares or other confirmation
evidencing the Warrant Interest so purchased within a reasonable time, but not
later than twenty business days after exercise. This Warrant will be deemed to
have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the Shares issuable upon such exercise is treated for all purposes as a
shareholder of the Company as of the close of business on such date. Unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
number of Shares with respect to which this Warrant has not then been exercised
must also be issued to Purchaser within such reasonable time.
3. Interest Fully Paid; Reservation of Interest. The Shares which may be
--------------------------------------------
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof provided, however the Holder of this
Warrant is responsible for any income taxes payable by the Holder with respect
to the issuance or exercise of this Warrant. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, the right to issue a
sufficient number of Shares to provide for the exercise of the rights
represented by this Warrant.
4. Events Effecting the Shareholder Interest. The number and kind of
-----------------------------------------
securities purchasable upon the exercise of this Warrant and the Exercise Price
are subject to adjustment from time to time upon the happening of the events and
in the manner described in this Section 4.
---------
4.1 Initial Public Offering. If at any time the Company issues or
------------------------
sells any of the Shares in an underwritten initial public offering, the number
of Shares purchasable upon exercise of this Warrant shall immediately and
automatically be adjusted to the number calculated by dividing (i) $2,200,000 by
(ii) the per share price at which Shares are offered to the public in such
initial public offering.
4.2 Reclassification, Consolidation or Merger. If any capital
-----------------------------------------
reorganization or reclassification of the Shares, or consolidation or merger of
the Company with another partnership, a corporation or any other entity, or the
sale of all or substantially all of its assets to another entity is effected,
the successor entity (if other than the Company) resulting from such
consolidation or merger or the entity purchasing such assets must assume this
Warrant by written instrument executed and mailed or delivered to Purchaser, and
lawful and adequate provision (in form reasonably satisfactory to Purchaser)
must be made whereby the holder hereof thereafter has the right to purchase and
receive in lieu of the Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such equity interests or
assets as may be issued or payable with respect to or in exchange for the amount
of Shares immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place. In any such case, appropriate
provision must be made with respect to the rights and interests of the holder of
this Warrant to assure that the provisions hereof (including without limitation
provisions for adjustment of the Exercise Price and of the number of Shares
purchasable and receivable upon the exercise of this Warrant) are thereafter
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter
2
<PAGE>
deliverable upon the exercise hereof.
4.3 Antidilution. In case the Company: (a) issues Shares as a
------------
dividend or distribution on the Shares, (b) subdivides or reclassifies the
outstanding Shares into a greater number of shares, or (c) combines or
reclassifies its outstanding Shares into a smaller number of shares or otherwise
effect a reverse split, then the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification is proportionately adjusted so that
the Holder of this Warrant exercised after such date is entitled to receive the
aggregate number and kind of shares which, if this Warrant had been exercised
immediately prior to such time, the Holder would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment is made successively whenever any event
listed in this Section 4.3 Initial Public Offering. If at any time the Company
------------------------------------
issues or sells any of the Shares in an underwritten initial public offering,
the number of Shares purchasable upon exercise of this Warrant shall immediately
and automatically be adjusted to the number calculated by dividing (i)
$2,200,000 by (ii) the per share price at which Shares are offered to the public
in such initial public offering. occurs.
4.4 Distribution of Property. In case the Company, subsequent to the
------------------------
issuance hereof, distributes to any holders of Capital Stock, assets (excluding
cash distributions), then upon the exercise of this Warrant, the holders of this
Warrant shall be entitled to receive an amount equal to the greatest per share
amount of consideration received by any holder of any class of Capital Stock
times the number of shares represented by the Warrant Interest. ("Capital Stock"
-------------
is defined as common stock or any other capital stock of the Company authorized
from time to time, or any other shares, options, interests, participations, or
other equivalents (however designated) of or in the Company, whether voting or
nonvoting, including, without limitation, common stock, options, warrants,
preferred stock, phantom stock, stock appreciation rights, convertible notes or
debentures, stock purchase rights, and all agreements, instruments, documents,
and securities convertible, exercisable, or exchangeable, in whole or in part,
into any one or more of the foregoing.)
4.5 Economic Dilution. If at any time the Company issues or sells any
-----------------
of the Shares or any warrant, option, right, or similar security exercisable
into, exchangeable for, or convertible to the Shares ("Share Equivalent"), other
----------------
than shares issuable pursuant to the Amended and Restated Stock Purchase Warrant
issued as of September 26, 1997 by the Company to Sirrom Capital Corporation,
and those certain warrants issued on or before the date hereof by the Company to
each of Walter P. McMullen, William J. and Brenda M. Blackwell, Allan R. Bartel,
David Sutherland, Joseph M. Jensen, Joseph Segal, Cary Rosenthal, Wendell Burns,
Robert Rymer, H. Henry Hederman, Jr., H. Henry Hederman, Jr. and Zach T.
Hederman, as Trustees of the H. Henry Hederman, Jr. Trust U/A 12/31/75, 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. 2 U/A 12/31/87, Phil Phillips, Jr., Michael Harper and Lynn Harper or
upon conversion by GECFS, Inc. of shares of the Company's Series A Cumulative
Convertible Redeemable Preferred Stock held by it, at a per unit or share
consideration (which consideration will include the price paid upon issuance
plus the minimum amount of any exercise, conversion, or similar payment made
upon exercise or conversion of any Share Equivalent) less than the Exercise
Price or the then current fair market value per Share immediately prior to the
time such Share or Share
3
<PAGE>
Equivalent is issued or sold (the "Additional Securities"), then the Exercise
----------------------
Price will be reduced to the lower of the prices calculated by:
(i) dividing (x) an amount equal to the sum of (1) the
number of the Shares outstanding on a fully diluted basis immediately
prior to such issuance or sale multiplied by the then existing
Exercise Price plus (2) the aggregate consideration, if any, received
by the Company upon such issuance or sale, by (y) the total number of
Shares outstanding immediately after such issuance or sale on a fully
diluted basis; and
(ii) multiplying the then existing Exercise Price by a
fraction, the numerator of which is (x) the sum of (1) the number of
Shares outstanding on a fully diluted basis immediately prior to such
issuance or sale, multiplied by the fair market value per Share
immediately prior to such issuance or sale, plus (2) the aggregate
consideration received by the Company upon such issuance or sale, (y)
divided by the total number of Shares outstanding on a fully diluted
basis immediately after such issuance or sale, and the denominator of
which is the fair market value per Share immediately prior to such
issuance or sale (for purposes of this subsection (ii), the date as of
which the fair market value per Share will be computed will be the
earlier of the date upon which the Company (aa) enters into a firm
contract for the issuance of such shares, or (bb) issues such shares);
and
4.6 Other Adjustments. In the case any event occurs as to which the
-----------------
preceding Section 4.5 is not strictly applicable, but as to which the failure to
-----------
make any adjustment would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and principles of this
Warrant, then, in each such case, the Purchaser may appoint an independent
investment bank or firm of independent public accountants, which will give its
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Warrant, necessary to preserve the
purchase rights represented by this Warrant. Upon receipt of such opinion, the
Company will promptly deliver a copy of such opinion to the Purchaser and will
make the adjustments described in such opinion. The fees and expenses of such
investment bank or independent public accountants will be borne by the Company.
4.7 Adjustment in Number of Units. Whenever the Exercise Price
-----------------------------
payable upon exercise of each Warrant is adjusted pursuant to this Section 4 of
----------
this Warrant, the number of Shares purchasable upon exercise of each Warrant
must simultaneously be adjusted by multiplying the number of Shares issuable
upon exercise of each Warrant in effect on the date thereof by the Exercise
Price in effect on the date thereof and dividing the product so obtained by the
Exercise Price, as adjusted.
4.8 De Minimus Adjustment. No adjustment in the Exercise Price is
---------------------
required unless such adjustment would require an increase or decrease of at
least One Dollar ($1.00) in the price. Any adjustments which by reason of this
Section 4.8 are not required to be made are carried forward and taken into
- -----------
account in any subsequent adjustment. All calculations under this Section 4 are
---------
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be.
4
<PAGE>
4.9 Dilution Fee. In the event that, during the term of this Warrant, the
------------
Company pays any cash dividend or makes any cash distribution to any holder of
any class of its Capital Stock, other than Series A 5% Cumulative Redeemable
Preferred Stock, with respect to such Capital Stock, the Purchaser will be
entitled to receive in respect of this Warrant a dilution fee in cash (the
"Dilution Fee") on the date of payment of such dividend or distribution, which
- -------------
Dilution Fee will be equal to the difference between (a) the highest amount per
share paid to any class of Capital Stock times the number of shares represented
by the Warrant Interest, and (b) the amount of such dividend or distribution
otherwise paid to Purchaser as a result of its ownership of Capital Stock
4.10 Retention of Accountants. The Purchaser may retain a firm of
------------------------
independent accountants or investment bankers of recognized standing or an
independent investment bank to make any computation required by this Section 4,
---------
and a certificate signed by such firm is presumptive evidence of the correctness
of such adjustment.
4.11 Applicability of Adjustments. In the event that at any time, as
----------------------------
a result of an adjustment made pursuant to Section 4.3 of this Warrant, the
-----------
holder this Warrant thereafter becomes entitled to receive any interest in the
Company, other than Shares, thereafter the number of such other interests so
receivable upon exercise of any Warrant is subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in this Section 4.
---------
4.12 No Change In Language of Warrant. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares or interest
purchasable upon exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares or
interest as are stated in this Warrant initially issued by the Company.
4.13 Notice of Specific Events. In case at any time:
-------------------------
(a) the Company declares any distribution upon any of its Capital
Stock or makes any special distribution to its shareholders;
(b) the Company offers for subscription pro rata to its
shareholders any additional equity interests or other rights;
(c) there is a capital reorganization or reclassification of the
equity of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another entity; or
(d) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, the Company shall give Purchaser (i) at least sixty days prior written
notice of the date on which the books of the Company close or a record is taken
for such distribution or subscription rights or
5
<PAGE>
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
sixty days prior written notice of the date when the same will take place.
Notice in accordance with the foregoing clause (i) must also specify, in the
case of any distribution or subscription rights, the date on which the
shareholders are entitled to exchange their Shares for other securities or other
property deliverable upon Shares for other securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
4.14 Notice of Adjustments. Whenever the Exercise Price is adjusted
---------------------
pursuant to Section 4 hereof, the Company shall promptly as practicable prepare
---------
a certificate signed by its chief financial officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the Exercise Price after
giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to Purchaser.
4.15 Fractional Shares. Fractional Shares will be issued in
-----------------
connection with any subscription hereunder.
5. Transfers.
---------
5.1 Transfer to Affiliates. This Warrant or the Warrant Interest may
----------------------
be transferred in whole or in part by Purchaser to any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, company, institution, entity, party, or government
(whether national, federal, state, county, city municipal, or otherwise,
including, without limitation, any instrumentality, division, agency, body, or
department of any of the foregoing ("Person").
------
5.2 Transfer Provisions Except as otherwise provided in this
-------------------
Warrant, Shares are not transferable except (1) pursuant to an effective
registration statement under the Securities Act of 1933 (the "Securities Act"),
--------------
(ii) pursuant to Rule 144 or 144A (or any successor provisions) under the
Securities Act or (iii) pursuant to a transaction that is otherwise exempt from
the registration requirements of the Securities Act; provided that in connection
with a transfer under clause (iii) the Company may require that the transferor
deliver an opinion of counsel (who may be an employee of the transferor) to the
effect set forth in clause (iii). Each holder of this Warrant (a "Holder")
------
agrees that notwithstanding compliance with the immediately preceding sentence,
such Holder will not sell, assign, transfer, or otherwise dispose of (any of the
foregoing, a "Transfer") the Warrant or any Shares ("Restricted Securities"), at
-------- ---------------------
any time prior to a public offering unless such Transferor has first made the
offer to sell as described below in this Section 5 of the Shares.
---------
5.3 Transfer Notice A Transferor that desires in good faith to
---------------
transfer any Restricted Securities (any such Person for purposes of this Section
-------
5, the "Transferor") shall deliver a written notice of the proposed Transfer
- - ----------
(the "Transfer Notice") to the Company. The Transfer Notice must contain a
---------------
description of the proposed transaction and the terms thereof, including the
6
<PAGE>
number and type of Restricted Securities proposed to be transferred (the
"Transfer Securities"), the name of the person to whom or in whose favor the
- --------------------
proposed Transfer is to be made (the "Transferee") and a description of the
----------
consideration to be received by the Transferor upon Transfer of the Transfer
Securities. The Transfer Notice must be accompanied by a copy of the
Transferee's bona fide written offer.
5.4 Terms of Offer. Concurrently with the delivery of the Transfer
--------------
Notice, the Transferor shall deliver to the Company a written offer to sell (the
"Offer to Sell") to the Company the Transfer Securities. The Offer to Sell must
-------------
contain the same terms and conditions, and must be for the same consideration
(or the fair market value thereof if other than cash) as that described in the
Transfer Notice, except that if the consideration described in the Transfer
Notice includes any promissory notes, the Offer to Sell must specify that such
notes may be promissory notes of the Company.
5.5 Purchase by the Company For a period of 20 days after the Offer
-----------------------
to Sell is delivered to the Company, the Company may, by written notice to the
Transferor, accept in whole but not in part the Offer to Sell and make payment
therefor within 20 days after delivering such notice.
5.6 Election of Transferor. If by the expiration of the 20 day
----------------------
period described in Section 5.5 above, the Company has not agreed to purchase
-----------
all of the Transfer Securities offered for sale to them by the Transferor, then
the Company is not entitled to purchase any of the Transfer Securities and the
Transferor may Transfer all (but not less than all) of the Transfer Securities
to the Transferee named in the Transfer Notice, which Transfer must be
substantially in accordance with the terms and for the consideration stated in
the Transfer Notice.
6. Registration under the Securities Act of 1933 (the "1933 Act").
--------------------------------------------------------------
6.1 Piggy-Back Registration Rights. If the Company proposes to file
------------------------------
a registration statement under the 1933 Act, covering securities of the Company,
whether for the Company's own account or for the account of selling security
holders, other than registration statement relating to an acquisition or merger
or a registration statement on Form S-8 or subsequent similar form, it shall
advise the holders of this Warrant or the Warrant Interest (each such person
being referred to herein as a "holder") by written notice at least thirty days
prior to the filing of such registration statement and will upon the request of
any such holder include in any such registration statement such information as
may be required to permit a public offering of the Warrant Interest. The
Company is not required to include such Warrant Interest in a registration
statement relating to an offering of securities if the managing underwriter has
advised the Company that the inclusion of such Warrant Interest will have a
material adverse effect upon the offering (in which case the amount of
securities to be offered for the accounts of Holders will be reduced pro rata
(according to the Shares proposed for registration) to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter). In so excluding the Warrant
Interest, the Company may not treat the holders less favorably than others
having piggyback registration rights. The Company shall keep such registration
statement current for a period of nine months from the effective date of such
registration statement or until such earlier date as all of the
7
<PAGE>
registered Warrant Interest has been sold. In connection with such registration,
the holders will execute and deliver such customary underwriting documents as
are requested by the managing underwriter as a condition to the inclusion of the
Warrant Interest in the registration statement.
6.2 [Intentionally Deleted]
6.3 Additional Provisions Concerning Registration. The following
---------------------------------------------
provisions of this Section 6.3 are also applicable to any registration statement
-----------
filed pursuant to Section 6.1 or 6.2 of this Warrant:
----------- ---
(a) The Company shall bear the entire cost and expense of any
registration of securities initiated under Section 6 of this Warrant.
---------
Notwithstanding the foregoing, any holder whose Warrant Interest is
included in any such registration statement pursuant to this Section 6
---------
shall, however, bear the fees of its own counsel and accountants and any
transfer taxes or underwriting discounts or commissions applicable to the
Warrant Interest sold by the holder pursuant thereto.
(b) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the 1933 Act, who may
purchase from or sell for any such holder any Warrant Interest from and
against any and all losses, claims, damages and liabilities (including fees
and expenses of counsel, which counsel may, if the holders request, be
separate from counsel for the Company) caused by any untrue statement or
alleged untrue statement of material fact contained in the Registration
Statement or any post-effective amendment thereto or any registration
statement under the 1933 Act or any prospectus included therein required to
be filed or furnished by reason of this Section 6 or any application or
---------
other filing under any state securities law caused by any omission or
alleged omissions to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading to which
such holder or any such underwriter or any of them may become subject under
the 1933 Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise ("Act"), except insofar as such
---
losses, claims, damages or liabilities are caused by any such untrue
statement or alleged untrue statement or omission or alleged omission based
upon information furnished to the Company by any such holder or underwriter
expressly for use therein, which indemnification includes each person, if
any, who controls any such underwriter within the meaning of each such Act.
(c) The Company shall qualify the Warrant Interest for sale in
such states as it is otherwise qualifying its securities for sale, or in
respect of a registration pursuant to Section 6.2 of this Warrant, in such
-----------
states as are reasonably requested by the holder. However, in no event is
the Company required to submit to the jurisdiction of such state other than
the limited consent of service of process relating to the offering. The
Company shall also provide the holder with a reasonable number of
prospectuses upon request.
(d) Neither the giving of any notice by any holder nor the making
of any request for prospectuses imposes any upon any holder making such
request any obligation to sell any Warrant Interest or exercise this
Warrant.
8
<PAGE>
(e) The registration rights set forth in Sections 6.1 and 6.2 of this
------------ ---
Warrant are exercisable only by Purchaser and its permitted assigns.
(f) The Company is not required to include in any registration
statement any Warrant Interest which could, pursuant to the provisions of
Rule 144 of the Securities and Exchange Commission under the 1933 Act, be
sold during a period of four months following the date on which
registration of such Warrant Interest was requested.
(g) The Company's agreements with respect to this Warrant or the
Warrant Interest in this Section 6 continue in effect regardless of the
---------
exercise and surrender of this Warrant.
7. Listing Rights. If the Company at any time lists any securities of
--------------
the same class as those issuable on the exercise of this Warrant on any national
securities exchange, the Company will, at its expense, simultaneously list on
that exchange, on official notice of issuance on exercise of this Warrant, and
maintain such listing of, all shares of the Warrant Interest or other securities
from time to time issuable on exercise of this Warrant.
8. Repurchase Rights.
-----------------
8.1 Call Option. On or after the earlier of (i) five (5) years from
-----------
the date hereof or (ii) the date of delivery to the Company of a Demand Notice,
provided the sixty (60) day period after the delivery of such Demand Notice in
which the Company is entitled to exercise its rights under this Section 8.1 has
-----------
not passed, if the Warrant Interest has not been sold in a public offering
pursuant to a registration statement in accordance with Section 6, the Company
---------
is entitled to repurchase the Warrant Interest issued or issuable pursuant to
this Warrant at a price equal to the Current Market Value (as defined below) of
the Warrant Interest. In order to exercise this call option the Company must
give the Purchaser thirty days' notice of its intent to exercise the call option
contained in this Section 8.1 and to repurchase the Warrant or Warrant Interest.
-----------
8.2 Put Option. (i) Upon the occurrence of any event listed in
----------
Section 4.13 (c) pursuant to which, following consummation thereof, a Change of
- ----------------
Control (as such term is defined in the Loan and Security Agreement, dated as of
the date hereof, as amended, between Harperprints, Inc. and Purchaser (the "Loan
----
Agreement")) has occurred, (ii) if the Loans (as defined in the Loan Agreement)
- ---------
are repaid voluntarily other than from the proceeds of an initial public
offering of common stock of the Company, or (iii) if an Event of Default (as
defined in the Loan Agreement) occurs, if the Warrant Interest has not been sold
in a public offering pursuant to a registration statement in accordance with
Section 6, then, Purchaser or any subsequent holder, is entitled to require the
- ---------
Company to repurchase the Warrant Interest issued or issuable pursuant to this
Warrant at a price equal to the Current Market Value of the Warrant Interest
(the "Put Price"), provided, however that in no event shall the Put Price be
--------- -------- -------
paid until all amounts owing by the Company under that certain Secured
Promissory Note executed by the Company and payable to the order of Sirrom
Capital Corporation in the original principal amount of $4,300,000, dated June
19, 1997, have been paid. In order to exercise this put option Purchaser must
give the Company prior written notice of
9
<PAGE>
its intent to exercise the put option contained in this Section 8.2 requiring
-----------
the Company to repurchase the Warrant or Warrant Interest. Such written notice
of its intent to exercise its put option must be given not less than thirty days
prior to the exercise date in the case of subsection (iv), and, in case of
clause (i), (ii) or (iii), not less than twenty days prior to any event
described in clause (i), (ii) or (iii) of this Section 8.2. In the event that
-----------
the Company defaults in its obligation to purchase all or any portion of the
Warrant Interest upon exercise of the put option, in addition to any other
rights or remedies of the Holder, the unpaid portion of the Put Price will bear
interest at the Default Rate (as defined in the Loan Agreement). The Company
will, upon the request of the Holder, execute and deliver to the Holder a
promissory note in form and substance satisfactory to the Holder evidencing such
obligation.
8.3 Current Market Value. For the purpose of any calculating the
--------------------
price for the exercise of the put or call options, the "Current Market Value" of
--------------------
a Share is deemed to be equal to the highest of (i) a pro rata share of the
Company's book value, (ii) a pro rata share of the appraised value of the
Company, or (iii) the current market price of the Warrant Interest, in each case
determined without discount for any illiquidity, minority interest, call option
or otherwise. Current Market Value of Shares (and the Warrant Interest) will be
determined on a diluted basis assuming the exercise of all outstanding options
and warrants which at the time of valuation are exercisable and permit
permitting the holder thereof to purchase Shares and the payment of any exercise
price for such options or warrants. The appraised value of the Company will be
determined by an investment banking firm or appraiser mutually acceptable to the
Purchaser and Company. If the Company and the Purchaser are unable to agree on
an investment banking firm or appraiser within ten (10) days after receipt of
the appropriate party of the exercise of the call option or the put option, an
investment banking firm or appraiser shall be chosen by each of the Purchaser on
one hand, and the Company, on the other hand, and such chosen investment banking
firms or appraisers shall appoint a third investment banking firm or appraiser
to determine the appraised value. The cost of the investment banking firms
and/or appraisers shall be borne by the Company. If appropriate, the appraised
value of the Company must be determined on the basis of the sale of the Company
as a going business in an arms length transaction between a willing buyer and a
willing seller, neither of which is acting under compulsion. The current market
price of the Warrant Interest at any date is based on the public market for the
Shares, if any, and is based on the average of the daily closing prices for a
twenty consecutive trading days commencing thirty trading days before such date.
The closing price for each day is the last sale price reported or, in case no
such reported sale takes place on such day, the average of the reported last bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Shares are admitted to trading or listed or on
the NASDAQ System, or if the primary market for the Shares is not an exchange or
quotation system in which last sale transactions are contemporaneously reported,
the highest closing or last bona fide bid or asked quotation by disinterested
Persons in the over-the-counter market on such trading day as reported by the
National Association of Securities Dealers through its Automated Quotation
System or its successor or such other generally accepted source of publicly
reported bid quotations as the Holders designate.
9. Governing Law. This Warrant must be construed and interpreted in
-------------
accordance with and is governed in all respects by the laws of the State of New
York applicable to agreements executed and to be performed wholly within such
State.
10
<PAGE>
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 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 the Company or the Purchaser) designated below to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
(a) If to the Purchaser, 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
11
<PAGE>
and
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 the Company, at:
Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: Mr. John P. Miller
Telecopy No.: (901) 743-0612
and
Black Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: Mike Morgan, Esq.
Telecopy No.: (901) 683-2553
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers duly authorized as of March __, 1998.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
------------------------------
Name: Lance T. Fair
Title: Chief Financial Officer
<PAGE>
Purchase Warrant
NOTICE OF EXERCISE
------------------
TO: MASTER GRAPHICS, INC.
1. The undersigned hereby elects to purchase ________ shares of Common
Stock, $.01 par value, of MASTER GRAPHICS, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any, in the amount of
$______________.
2. Please issue a certificate or other confirmation of the shares of
common stock in the name of the undersigned or in such other name as is
specified below:
_____________________________________________
(Name)
_____________________________________________
_____________________________________________
3. The undersigned represents that the aforesaid shares of common stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares of common stock.
______________________________________________________
_____________________________________________________
_________________________________
Date
<PAGE>
EXHIBIT 4.25
NOTE MODIFICATION AGREEMENT
---------------------------
THIS NOTE MODIFICATION AGREEMENT ("Agreement") is made and entered into
this the 20th day of May, 1997, by and between HAROLD MARTIN ("Holder") and
MASTER PRINTING, INC., a Tennessee Corporation ("Maker").
W I T N E S S E T H:
WHEREAS, Maker delivered to Holder a promissory note in the original
principal amount of Two Hundred Thousand and 00/100ths Dollars ($200,000.00) ("
The Promissory Note") which was dated December, 1992; and
WHEREAS, contained within such Promissory Note are certain covenants
restricting the ability of Maker and its subsidiary, B & M Printing Company ("B
& M") from incurring any additional indebtedness without the prior consent of
Holder; and
WHEREAS, Maker is currently in the process of acquiring additional
subsidiaries and refinancing its existing indebtedness and as part of such
process Maker desires to remove any restrictions on its ability to incur
additional indebtedness in the future.
NOW, THEREFORE, the parties intending to be legally bound do hereby agree
as follows:
1. Maker and Holder do hereby agree to modify the Promissory Note so as
to remove the covenants set forth under paragraphs (b), (d) and (e) on page 3 of
the Promissory Note.
2. In consideration for Holder removing the above described covenants
from the Promissory Note, Maker does hereby grant to Holder warrants to purchase
stock of Maker based on the following terms and conditions:
(a) The warrants granted to Holder shall only be effective should
Maker successfully complete an initial public offering of its capital
stock.
(b) The option price under the warrants shall be the price set in the
initial public offering.
(c) There will be two classes of warrants. The first class of
warrants will consist of warrants to purchase a number of shares equal to
1/3 of the outstanding principal balance of the Promissory Note as of the
date of this Agreement divided by the initial public offering price of the
stock. These warrants may be exercised at any time during the period
commencing with the initial public offering of the stock and ending on the
third anniversary date of the initial public offering. The second class of
warrants shall be warrants to purchase a number of shares equal to 2/3 of
the outstanding principal balance of the Promissory Note
<PAGE>
as of the date of this Agreement divided by the initial offering price of
the stock. This class of warrants may only be exercised at the time of the
initial public offering.
(d) The stock purchased pursuant to the exercise of the warrants
shall be subject to whatever resale restrictions are imposed by the
underwriter in the initial public offering.
3. Except as modified herein, all other provisions of the Promissory Note
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and date above first written.
/s/ Harold Martin
---------------------------
HAROLD MARTIN
MASTER PRINTING, INC.
By: /s/ John P. Miller
-----------------------
Title: President
--------------------
-2-
<PAGE>
EXHIBIT 4.26
NOTE MODIFICATION AGREEMENT
---------------------------
THIS NOTE MODIFICATION AGREEMENT ("Agreement") is made and entered into
this the 22nd day of May, 1997, by and between CARL NELSON ("Holder") and MASTER
PRINTING, INC., a Tennessee Corporation ("Maker").
W I T N E S S E T H:
WHEREAS, Maker delivered to Holder a promissory note in the original
principal amount of Five Hundred Thousand and 00/100ths Dollars ($500,000.00) ("
The Promissory Note") which was dated December, 1992; and
WHEREAS, contained within such Promissory Note are certain covenants
restricting the ability of Maker and its subsidiary, B & M Printing Company ("B
& M") from incurring any additional indebtedness without the prior consent of
Holder; and
WHEREAS, Maker is currently in the process of acquiring additional
subsidiaries and refinancing its existing indebtedness and as part of such
process Maker desires to remove any restrictions on its ability to incur
additional indebtedness in the future.
NOW, THEREFORE, the parties intending to be legally bound do hereby agree
as follows:
1. Maker and Holder do hereby agree to modify the Promissory Note so as
to remove the covenants set forth under paragraphs (b), (d) and (e) on page 3 of
the Promissory Note.
2. In consideration for Holder removing the above described covenants
from the Promissory Note, Maker does hereby grant to Holder warrants to purchase
stock of Maker based on the following terms and conditions:
(a) The warrants granted to Holder shall only be effective should
Maker successfully complete an initial public offering of its capital
stock.
(b) The option price under the warrants shall be the price set in the
initial public offering.
(c) There will be two classes of warrants. The first class of
warrants will consist of warrants to purchase a number of shares equal to
1/3 of the outstanding principal balance of the Promissory Note as of the
date of this Agreement divided by the initial public offering price of the
stock. These warrants may be exercised at any time during the period
commencing with the initial public offering of the stock and ending on the
third anniversary date of the initial public offering. The second class of
warrants shall be warrants to purchase a number of shares equal to 2/3 of
the outstanding principal balance of the Promissory Note
<PAGE>
as of the date of this Agreement divided by the initial offering price of
the stock. This class of warrants may only be exercised at the time of the
initial public offering.
(d) The stock purchased pursuant to the exercise of the warrants
shall be subject to whatever resale restrictions are imposed by the
underwriter in the initial public offering.
3. Except as modified herein, all other provisions of the Promissory Note
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and date above first written.
/s/ Carl Nelson
----------------------------
CARL NELSON
MASTER PRINTING, INC.
By: /s/ John P. Miller
------------------------
Title: President
---------------------
-2-
<PAGE>
EXHIBIT 4.27
NOTE MODIFICATION AGREEMENT
---------------------------
THIS NOTE MODIFICATION AGREEMENT ("Agreement") is made and entered into
this the 20th day of May, 1997, by and between JACK GAMMON ("Holder") and MASTER
PRINTING, INC., a Tennessee Corporation ("Maker").
W I T N E S S E T H:
WHEREAS, Maker delivered to Holder promissory notes in the original
principal amount of Five Hundred Thousand and 10/100ths Dollars ($500,000.10)
and ($____________) ("Promissory Notes") which were dated December 4, 1992 and
____________________________, respectively; and an additional note of $100,000
of the same date; and
WHEREAS, contained within such Promissory Notes are certain covenants
restricting the ability of Maker and its subsidiary, B & M Printing Company ("B
& M") from incurring any additional indebtedness without the prior consent of
Holder; and
WHEREAS, Maker is currently in the process of acquiring additional
subsidiaries and refinancing its existing indebtedness and as part of such
process Maker desires to remove any restrictions on its ability to incur
additional indebtedness in the future.
NOW, THEREFORE, the parties intending to be legally bound do hereby agree
as follows:
1. Maker and Holder do hereby agree to modify the Promissory Notes so as
to remove the covenants set forth under paragraphs (b), (d) and (e) on page 3 of
the Promissory Notes.
2. In consideration for Holder removing the above described covenants
from the Promissory Notes, Maker does hereby grant to Holder warrants to
purchase stock of Maker based on the following terms and conditions:
(a) The warrants granted to Holder shall only be effective should
Maker successfully complete an initial public offering of its capital
stock.
(b) The option price under the warrants shall be the price set in the
initial public offering.
(c) There will be two classes of warrants. The first class of
warrants will consist of warrants to purchase a number of shares equal to
1/3 of the outstanding principal balance of the Promissory Note as of the
date of this Agreement divided by the initial public offering price of the
stock. These warrants may be exercised at any time during the period
commencing with the initial public offering of the stock and ending on the
third anniversary date of the initial public offering. The second class of
warrants shall be warrants to purchase
<PAGE>
a number of shares equal to 2/3 of the outstanding principal balance of the
Promissory Note as of the date of this Agreement divided by the initial
offering price of the stock. This class of warrants may only be exercised
at the time of the initial public offering.
(d) The stock purchased pursuant to the exercise of the warrants
shall be subject to whatever resale restrictions are imposed by the
underwriter in the initial public offering.
3. Except as modified herein, all other provisions of the Promissory
Notes shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and date above first written.
/s/ Jack Gammon
----------------------------
JACK GAMMON
MASTER PRINTING, INC.
By: /s/ John P. Miller
------------------------
Title: President
---------------------
-2-
<PAGE>
EXHIBIT 4.28
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, (the "Agreement"), dated as of March 30,
---------
1998 between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
-------
GECFS, INC., a Nevada corporation ("GECFS"). All capitalized terms used herein
-----
and not otherwise defined have the meaning specified in Section 7 hereof.
1. Background. The Company is a party to a certain Exchange
----------
Agreement, which governs certain rights and obligations of the Company and
GECFS. The Company and GECFS desire to provide for registration rights relating
to securities acquired pursuant to the Exchange Agreement.
2. Registration Rights.
-------------------
2.1. Incidental (Piggyback) Registration. If at any time, the
-----------------------------------
Company proposes to register any of its securities under the Securities Act of
1933, as amended (the "Securities Act"), for public offering and sale (other
--------------
than registrations with regard to acquisitions of employee stock options,
employee purchase plans or other employee benefit plans on Form S-8 under the
Securities Act or any successor form or registration on Form S-4), the Company
shall give written notice to GECFS of its intention to effect such a
registration at least sixty days prior to the filing with the Securities and
Exchange Commission (the "SEC") of such registration statement. Upon written
---
request of GECFS the Company shall use its best efforts to cause the number of
GECFS's Registrable Securities then held by GECFS and referred to in such
request to be included in such registration statement; provided, however, that
-------- -------
in the event that the offering pursuant to such registration statement shall be
underwritten and the underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
pursuant to this Section 2.1 exceeds the number of securities that can be sold
in the offering without adversely affecting the offering price or the marketing
of the Company's securities, the Company may first include in such registration
all securities the Company proposes to sell, and GECFS shall accept a reduction
(pro rata with any other holders of the Company's equity securities entitled to
register such securities on such registration statement whose registration
rights are not subordinate to GECFS), on the basis of the proportion that the
market value (based upon the proposed offering price of such securities or the
mid-point of the range of the proposed offering prices if any of such
securities) (the "Market Value") of each security holder's aggregate securities
------------
requested to be registered bears to the Market Value of the aggregate amount of
all equity securities (other than those to be sold for the Company's account) as
to which registration is sought) in the number of securities to be included in
such registration, which reduction may, if necessary, be total. The Company
shall keep such registration statement current for a period of nine months from
effective date of such registration statement or until such earlier date as all
of GECFS's registered Registrable Securities have been sold. In connection with
such registration, the holders will execute
<PAGE>
and deliver such customary underwriting documents as are requested by the
managing underwriter as a condition to the inclusion of GECFS's Registrable
Securities in the registration statement.
2.2. Demand Registration. (a) Except as provided in Section
--------------------
2.2(b) below, after the completion by the Company of an initial public offering
under the Securities Act of any of its securities pursuant to a registration
statement filed with the SEC, upon the written request of GECFS that the Company
effect pursuant to this Agreement the registration of Registrable Securities
under the Securities Act (which request shall specify the Registrable Securities
so requested to be registered, the Proposed Amounts thereof and the intended
method of disposition by GECFS), the Company will, as expeditiously as
reasonably possible, but not later than ninety days after the date of receipt of
such request, use its best efforts to effect the registration under the
Securities Act of the Proposed Amount of Registrable Securities, for disposition
in accordance with the intended method of disposition stated in such request.
The Company has the right to defer the filing of any such registration statement
or any amendment to such registration statement (a) in order to enable the
Company to prepare necessary financial statements for inclusion in such
registration statement, including any financial statements of any corporation or
other entity which has been or is expected to be acquired, (b) in order that the
Company not be required to disclose material nonpublic information, provided
that delays of the type referred to in this clause (b) do not exceed ninety days
in the aggregate, or (c) in order that a filing not be made earlier than two
hundred seventy days after the effective date of any other registration
statement filed by the Company. If the Company is able to register GECFS's
Registrable Securities on a Form S-3, or subsequent similar form, in a manner
which does not require inclusion in any information concerning the Company other
than to incorporate by reference its filing under the Exchange Act, the period
referred to in clause (c) is one hundred thirty-five days. The Company shall
keep any registration statement filed pursuant to this Section 2.2 current and
effective until the earlier of (i) nine months from the effective date of the
registration statement or (ii) such date as GECFS shall have sold all the
registered shares or shall have advised the Company that it no longer desires to
sell such shares pursuant to such registration statement. GECFS is entitled to
two demand registration rights pursuant to this Section 2.2. The Company shall
be entitled to include in any registration statement filed pursuant to this
Section 2.2: (A) securities of the Company held by any other security holder of
the Company, and (B) in an underwritten public offering, securities of the
Company to be sold by the Company for its own account, except as and to the
extent that (X) in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Registrable Securities to be sold by GECFS
and General Electric Capital Corporation or its affiliates or (Y) in GECFS's
reasonable opinion (if such method of disposition is not an underwritten public
offering), such inclusion would adversely affect the price at which the
Registrable Securities may be sold pursuant
2
<PAGE>
to the plan of distribution; provided, however, that if, after such registration
-------- -------
statement has been filed, the managing underwriter believes that the inclusion
of all securities requested to be included in the proposed underwritten public
offering would adversely affect the marketing of the Registrable Securities or,
in the case of a distribution that is not an underwritten public offering, GECFS
reasonably believes that the inclusion of all securities requested to be
included in such registration statement would adversely affect the price at
which the Registrable Securities may be sold pursuant to the plan of
distribution, then the aggregate amount of securities to be offered by the
Company and such other security holders of the Company shall be reduced so as to
permit the offering of all Registrable Securities requested by GECFS without
such adverse effects.
(b) The Company shall not be obligated to take any action to effect
any registration requested by GECFS pursuant to Section 2.2(a) hereof after the
Company has effected two (2) such registrations pursuant to Section 2.2(a) and
each such registration has been declared or ordered effective.
(c) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested pursuant to this Section 2.2 shall not be
deemed to have been effected (i) unless it has become effective, provided that a
--------
registration that does not become effective after the Company has filed a
registration statement with respect thereto solely by reason of the refusal of
GECFS to proceed shall be deemed to have been effected by the Company at the
request of GECFS unless GECFS shall have elected to pay all Company Registration
Expenses in connection with such registration, (ii) if after it has become
effective such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason other than a misrepresentation or an omission by GECFS, or (iii) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
other than by reason of some wrongful act or omission, or act or omission in bad
faith, by GECFS.
2.3. Registration Procedures. Subject to the limitations set forth
-----------------------
elsewhere herein, if and whenever the Company is required by the provisions of
this Agreement to use its best efforts to effect or cause the registration of
any Registrable Securities under the Securities Act as provided in this
Agreement, the Company will, as expeditiously as possible:
(a) in the case of a registration under Section 2.2 hereof, prepare
and file with the SEC (such filing to be made within ninety days after the
initial request by GECFS) a registration statement with respect to such
Registrable Securities on a form appropriate to permit GECFS to sell
3
<PAGE>
the Proposed Amount in accordance with GECFS's intended method of distribution
and use its best efforts to cause such registration statement to become and
remain effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for such period
as shall be requested by GECFS, which period shall not exceed nine (9) months
and to comply with the provisions of the Securities Act with respect to the sale
or other disposition of all securities covered by such registration statement
during such period;
(c) furnish to counsel for GECFS and each underwriter of the
securities being sold by GECFS, at least 5 days prior to the filing thereof,
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such counsel may reasonably request, in
substantially the form in which they are proposed to be filed with the SEC, in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by GECFS;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as GECFS or any underwriter of the
securities being sold by GECFS shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable GECFS and
such underwriter to consummate the disposition in such jurisdictions of such
Registrable Securities owned by GECFS, except that the Company shall not for any
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this clause (d), it would
not be obligated to be so qualified, or subject itself to taxation in any such
jurisdiction;
(e) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable GECFS to
consummate the disposition of such Registrable Securities;
(f) notify GECFS, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or
4
<PAGE>
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and promptly prepare and furnish to GECFS and each underwriter a
reasonable amount of copies of a prospectus supplement or amendment so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to GECFS, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, beginning with the first day of the Company's first calendar
quarter after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(h) enter into such agreements (including an underwriting agreement
in customary form) and take such other actions as GECFS shall reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;
(i) to use its best efforts to furnish to GECFS an opinion from the
Company's counsel and a "cold comfort" letter from the Company's independent
public accountant (in accordance with SAS 72), addressed to GECFS, in customary
form and covering such matters of the type customarily covered by such opinions
and "cold comfort" letters as GECFS shall reasonably request;
(j) make available for inspection by GECFS, by any other underwriter
participating in any disposition to be effected pursuant to such registration
statement, and by any attorney, accountant or other agent retained by GECFS or
any such underwriter, all reasonably pertinent financial and other records,
reasonably pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors, employees and the independent
public accountants who have audited its financial statements to supply all
information reasonably requested by GECFS or any such underwriter, attorney,
accountant or agent in connection with such registration statement; provided,
--------
however, that GECFS and each such representative of GECFS, underwriter,
- -------
attorney, accountant or agent must execute and deliver to the Company a
confidentiality agreement in form and substance reasonably acceptable to the
Company agreeing to keep any such information and records concerning the Company
confidential;
5
<PAGE>
(k) permit GECFS to participate in the preparation of such
registration or comparable statement;
(l) at or prior to the effective date of the registration use
commercially reasonable efforts to (i) secure a CUSIP number for all Registrable
Securities, and (ii) cause the Registrable Securities to be listed or included
for reporting on the NASDAQ Stock Market, or cause the Registrable Securities to
be listed on each other national securities exchange, if any, on which any other
class of the Company's securities are then listed; and
(m) in the case of an underwritten offering, enable the Registrable
Securities to be in such denominations or such number of shares and registered
in such names as the underwriters may request at least two business days prior
to the sale of the Registrable Securities.
In the case of an underwritten offering, the underwriters shall be
selected by the Company and reasonably acceptable to GECFS.
GECFS shall, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (f) above, forthwith
discontinue its disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until GECFS's
receipt of the copies of the supplemented or amended prospectus contemplated by
said subdivision and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in GECFS's possession of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in subdivision (b)
above shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
GECFS shall have received the copies of the supplemented or amended prospectus
contemplated by subdivision (f) above.
GECFS shall enter into such customary agreements as requested by the
Company in connection with the registration of securities as contemplated by
this Agreement.
GECFS shall furnish to the Company in writing such information and
documents regarding GECFS and the distribution of such securities as may be
required to be disclosed in the registration statement in question by the rules
and regulations under the Securities Act or under any other applicable
securities or blue sky laws of the jurisdictions referred to in Section 2.3(d)
hereof.
6
<PAGE>
If any such registration or comparable statement refers to GECFS by
name or otherwise as the holder of any securities of the Company then GECFS
shall have the right to require (i) the insertion therein of language, in form
and substance satisfactory to GECFS and presented to the Company in writing, to
the effect that the holding by GECFS of such securities is not to be construed
as a recommendation by GECFS of the investment quality of the Company's
securities covered thereby and that such holding does not imply that GECFS will
assist in meeting any future financial requirements of the Company, or (ii) in
the event that such reference to GECFS by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to GECFS.
3. Registration Expenses. In connection with any registration of
---------------------
Registrable Securities pursuant to this Agreement the Company will, whether or
not any registration pursuant to this Agreement shall become effective, from
time to time promptly upon receipt of bills or invoices relating thereto, pay
all expenses (other than Selling Expenses) incident to its performance of or
compliance with this Agreement (the "Company Registration Expenses"), including
-----------------------------
without limitation all registration, filing and NASD fees, fees and expenses of
compliance with securities or blue sky laws, word processing, duplicating and
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Company and all independent public accountants (including the
expenses of any audit and/or "cold comfort" letter) and other Persons retained
by the Company; provided, however, that in all events, GECFS shall be
-------- -------
responsible for the fees and expenses of its counsel and its accountants. GECFS
shall also be responsible for all Selling Expenses.
4. Indemnification. (a) The Company will, and hereby does,
---------------
indemnify, to the extent permitted by law, GECFS, its officers and directors, if
any, and each Person, if any, who controls GECFS within the meaning of Section
15 of the Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses under the Securities Act, joint or
several, caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities (or proceedings in respect thereof) or
expenses are caused by any untrue statement or alleged untrue statement made in
reliance on or in conformity with any information furnished in writing to the
Company by GECFS or any participating underwriter expressly for use therein. If
the offering pursuant to any registration statement provided for under this
Agreement is made through underwriters, the Company agrees to enter into an
underwriting agreement in
7
<PAGE>
customary form with such underwriters and to indemnify such underwriters, their
officers and directors, if any, and each Person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act to the same
extent as hereinbefore provided with respect to the indemnification of GECFS,
its officers and directors, if any, and each Person, if any, who controls GECFS
within the meaning of Section 15 of the Securities Act.
(b) If for any reason the indemnity under Section 4(a) is
unavailable, then the Company shall contribute to the amount paid or payable by
the indemnified party as a result of such losses, claims, damages, liabilities
or expenses (i) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and of the indemnified party on the other
or (ii) if the allocation provided by subdivision (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative fault of by the Company on the one hand and the indemnified party on
the other but also the relative benefits received by the Company and the
indemnified party as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(c) The Company shall make payments of all amounts required to be
made pursuant to the foregoing provisions of this Section 4 to or for the
account of the indemnified party from time to time promptly upon receipt of
bills or invoices relating thereto or when otherwise due and payable.
5. Limitations on Sale or Distribution of Securities. If a
-------------------------------------------------
registration under this Agreement shall be in connection with an underwritten
public offering of securities for the Company's or any other security holder's
account (other than GECFS), GECFS shall be deemed to have agreed by acquisition
of such Registrable Securities not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act, of any
Registrable Securities, during such period prior and subsequent to the
commencement of the offering of securities pursuant to such registration
statement as may be reasonably requested by the underwriters thereof, and in all
cases to otherwise comply with all applicable rules under the Securities Act and
the Exchange Act, including, without limitation, Rules 10b-6 and 10b-7
thereunder.
6. Registration Rights to Others. If the Company shall at any time
-----------------------------
hereafter provide to any holder of any securities of the Company rights with
respect to the registration of such securities under the Securities Act, such
rights shall be subordinate to and shall not be in conflict with or adversely
affect any of the rights provided in this Agreement to GECFS.
8
<PAGE>
7. Definitions. The following terms have the following respective
-----------
meanings for the purpose of this Agreement:
"Affiliate" shall have the meaning ascribed to such term in the
---------
Exchange Agreement.
"Common Stock" means the Company's common stock, par value $0.01 per
------------
share.
"Exchange Act" means the Securities Exchange Act of 1934 or any
------------
similar federal statute as at the time in effect, and any reference to a
particular Section of such Act shall include a reference to the comparable
Section, if any, of any such similar federal statute.
"Exchange Agreement" means the Exchange Agreement, dated as of March
------------------
30, 1998, between the Company and GECFS.
"Person" shall have the meaning ascribed to such term in the Exchange
------
Agreement.
"Proposed Amount" means, with respect to the Registrable Securities,
---------------
the aggregate amount of Shares thereof that GECFS shall request the Company to
register pursuant to Section 2.
"Registrable Securities" means (i) the shares of Common Stock of the
----------------------
Company underlying or issued pursuant to the conversion of the Series A
Preferred Stock, including any additional securities of the Company issued in
respect of such securities by way of a stock split, dividend or other
recapitalization or exchange of securities with or by the Company and (ii) any
shares held by General Electric Capital Corporation or its affiliates issuable
upon exercise of any stock purchase warrant between the Company and General
Electric Capital Corporation. Once issued, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (iii) they shall have
been otherwise transferred and new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company, or (iv)
they shall have ceased to be outstanding.
"Securities Act" means the Securities Act of 1933 or any similar
--------------
Federal statute as at the time in effect, and any reference to a particular
Section of such Act shall include a reference to the comparable Section, if any,
of any such similar Federal statute.
9
<PAGE>
"Selling Expenses" means all underwriting discounts, selling
----------------
commissions, stock transfer taxes, and fees and disbursements of counsel for,
and any other Person retained by, GECFS, applicable to the securities registered
by GECFS.
"Series A Preferred Stock" means the Series A Cumulative Convertible
------------------------
Redeemable Preferred Stock of the Company, issued by the Company to GECFS
pursuant to the Exchange Agreement.
8. Amendments and Waivers. This Agreement may be amended, and any
----------------------
provision of this Agreement may be waived, by a writing signed by both GECFS and
the Company. GECFS shall be bound by any consent given pursuant to this Section
8, whether or not any affected Registrable Securities shall have been marked to
indicate such consent.
9. Notices. All notices, demands and other communications given or
-------
delivered under this Agreement will be in writing and shall be made by hand
delivery, overnight courier, first-class mail, or telecopier and will be deemed
to have been given when personally delivered, four business days after being
mailed by first class mail, return receipt requested, or delivered by express
courier service or telecopied (subject to receipt of written confirmation).
Notices, demands and communications to the Company and the Purchaser will,
unless another address is specified in writing, be sent to the addresses set
forth in the Exchange Agreement.
10. Specific Performance. The parties hereto recognize and agree
--------------------
that money damages may be insufficient to compensate GECFS for breaches by the
Company of the terms hereof and, consequently, that the equitable remedy of
specific performance of the terms hereof will be available in the event of any
such breach.
11. Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
12. Miscellaneous. This Agreement shall be binding upon and inure to
-------------
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not. GECFS may freely assign all or
a portion of its rights under this agreement. This Agreement embodies the entire
agreement and understanding between the Company and
10
<PAGE>
GECFS and supersedes all prior agreements and understandings relating to the
subject matter hereof. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF TENNESSEE. The headings
in this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
-----------------
Name: Lance T. Fair
Title: Chief Financial Officer
GECFS, INC.
By: /s/ Kim A. Tanner
-----------------
Kim Tanner
Operations Manager
12
<PAGE>
EXHIBIT 4.29
EXCHANGE AGREEMENT
------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
EXCHANGE OF THE SECURITIES......................................... 1
1.1 Exchange................................................ 1
1.2 Closing................................................. 1
ARTICLE II
CONDITIONS TO CLOSING.............................................. 1
2.1 Conditions to GECFS's Obligations....................... 1
2.2 Conditions to the Company's Obligations................. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... 4
3.1 Authorization of the Transaction........................ 4
3.2 Due Execution and Delivery.............................. 4
3.3 Capitalization.......................................... 4
3.4 Absence of Conflicts.................................... 5
3.5 Absence of Certain Developments......................... 5
3.6 Disclosure.............................................. 6
3.7 Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities...................... 6
3.8 Organization and Good Standing.......................... 6
3.9 Subsidiaries............................................ 6
3.10 Absence of Undisclosed Liabilities...................... 7
3.11 Absence of Adverse Changes or Increased Liabilities..... 7
3.12 Title to Properties and Assets.......................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.13 Taxes................................................... 8
3.14 Litigation; Warranties.................................. 8
3.15 Permits, Licenses....................................... 8
3.16 Brokerage............................................... 9
3.17 Insurance............................................... 9
3.18 Other Instruments....................................... 9
3.19 Certain Transactions.................................... 9
3.20 Employee Benefit Plans.................................. 10
3.21 Relationship with Customers............................. 11
3.22 Closing Date............................................ 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GECFS............................ 11
4.1 Organization and Power.................................. 11
4.2 Authorization........................................... 11
4.3 Absence of Conflicts.................................... 11
4.4 Closing Date............................................ 12
ARTICLE V
COVENANTS OF THE COMPANY........................................... 12
5.1 Fulfillment of Obligations.............................. 12
5.2 Accounts and Reports.................................... 12
5.3 Conduct of Business and Corporate Existence............. 12
5.4 Payment of Taxes, Compliance with Laws.................. 12
5.5 Transactions with Related Parties....................... 13
5.6 Subsequent Registration Rights.......................... 13
5.7 Board of Directors Meetings............................. 13
5.8 Notice of Adverse Changes............................... 13
5.9 Negative Covenants of the Company....................... 13
ARTICLE VI
TERMINATION........................................................ 13
6.1 Termination............................................. 13
6.2 Effect of Termination................................... 14
ARTICLE VII
ADDITIONAL AGREEMENTS.............................................. 14
7.1 Survival................................................ 14
7.2 Indemnification......................................... 14
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.3 Press Releases and Announcements........................ 15
7.4 Further Transfers....................................... 15
7.5 Specific Performance.................................... 15
7.6 Investigation........................................... 16
7.7 Exclusivity............................................. 16
7.8 Transfer of Securities.................................. 16
7.9 GECFS Representations................................... 17
7.10 Restrictions on Certain Activities...................... 18
ARTICLE VIII
DEFINITIONS........................................................ 18
ARTICLE IX
MISCELLANEOUS...................................................... 20
9.1 Amendment and Waiver.................................... 20
9.2 Notices................................................. 21
9.3 Binding Agreement; Assignment........................... 22
9.4 Severability............................................ 22
9.5 No Strict Construction.................................. 22
9.6 Headings; Interpretation................................ 22
9.7 Entire Agreement........................................ 22
9.8 Counterparts............................................ 23
9.9 Governing Law........................................... 23
9.10 Parties in Interest..................................... 23
9.11 Termination............................................. 23
</TABLE>
iii
<PAGE>
EXCHANGE AGREEMENT
------------------
EXCHANGE AGREEMENT (this "Agreement") is made as of March 30, 1998 by and
between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
GECFS, INC., a Nevada corporation ("GECFS"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Article VIII hereof.
Subject to the terms and conditions set forth herein, GECFS desires to acquire
from the Company, and the Company desires to issue to GECFS, shares of Series A
Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), in exchange for 222,220 shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), under the circumstances
described herein. The Preferred Stock and the Underlying Common Stock are
sometimes collectively referred to herein as the "Securities." In consideration
of the mutual promises, representations, warranties, covenants and conditions
set forth in this Agreement, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF THE SECURITIES
I.1 Exchange. On the terms and subject to the conditions of this
--------
Agreement, at the Closing:
(a) GECFS shall surrender to the Company certificates evidencing
222,220 shares of Common Stock, duly endorsed to the Company or delivered
with duly executed stock powers.
(b) The Company shall issue to GECFS certificates evidencing 222,220
shares of Preferred Stock, duly registered in the name of GECFS, which
shares shall have the rights and preferences set forth in Exhibit A
attached hereto.
I.2 Closing. The closing of the transaction contemplated by this
-------
Agreement (the "Closing") will take place at the offices of Black, Bobango &
Morgan on March 30, 1998 (the "Closing Date") (so long as all conditions to the
obligations of the parties to consummate the transaction contemplated hereby
have been satisfied or waived), or at such other time and location as is
mutually agreed upon by the Company and GECFS, but in no event later than March
30, 1998.
ARTICLE II
CONDITIONS TO CLOSING
---------------------
II.1 Conditions to GECFS's Obligations. The obligation of GECFS to
---------------------------------
consummate the transaction contemplated by this Agreement is subject to the
satisfaction of the following conditions precedent on or before the Closing
Date:
<PAGE>
(a) the representations and warranties set forth in Article III herein
will be true and correct in all material respects at and as of the Closing
Date as though then made and as though references to the Closing Date were
substituted for references to the date of this Agreement throughout such
representations and warranties;
(b) prior to the Closing, the Company will have performed and complied
in all material respects with each of the covenants and agreements required
to be performed by it under this Agreement and the agreements and documents
attached hereto as Exhibits;
(c) the Company shall have duly adopted, executed and filed with the
Secretary of State of the State of Tennessee (i) the Company's Charter, in
substantially the form attached hereto as Exhibit B, and (ii) Articles of
Amendment to the Charter of Master Graphics, Inc. Designating and Fixing
the Rights and Preferences of a Series of Shares of Preferred Stock (the
"Designating Amendment"), in substantially the form attached hereto as
Exhibit A, and the Company shall not have adopted or filed any other
document designating terms, rights or preferences of its preferred stock;
(d) the Designating Amendment and the Charter shall be in full force
and effect as of the Closing under the laws of Tennessee and shall not have
been amended or modified;
(e) the Company and GECFS shall have entered into a Registration
Rights Agreement (the "Registration Rights Agreement"), in the form set
forth in Exhibit C attached hereto;
(f) [Intentionally Omitted];
(g) GECFS shall have received an opinion, dated the Closing Date, of
counsel to the Company, Black, Bobango & Morgan, in the form attached
hereto as Exhibit D and otherwise in form and substance reasonably
satisfactory to GECFS and its counsel;
(h) the Company shall have delivered to GECFS a list, after giving
effect to the transaction contemplated by this Agreement, of (x) the name
of each of the Company's directors, (y) the name and title of each of the
Company's officers and (z) the name of each of the Company's stockholders
setting forth the number and class of shares held;
(i) all proceedings to be taken by the Company in connection with the
consummation of the transaction contemplated hereby and all certificates,
opinions, instruments and other documents, including customary
representations, warranties, covenants, conditions and remedies for breach,
required to be delivered by the Company to effect the transaction
contemplated hereby will be reasonably satisfactory in form and substance
to GECFS;
-2-
<PAGE>
(j) all consents and waivers by third parties that are required for
the consummation of the transaction contemplated hereby including, without
limitation, any consents required pursuant to any leases or subleases or
that are required in order that the transaction contemplated hereby does
not constitute a material breach of or a material default under or a
termination or material modification of any material agreement to which the
Company or any of its Subsidiaries is a party or to which any material
property of the Company or any of its Subsidiaries is subject, will have
been obtained on terms reasonably satisfactory to GECFS; and
(k) all governmental filings, authorizations and approvals that are
required for the consummation of the transaction contemplated hereby, if
any, will have been duly made and obtained other than those filings,
authorizations or approvals the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect. Any condition to the
obligations of GECFS specified in this Section 2.1 may be waived by GECFS
in its sole discretion.
II.2 Conditions to the Company's Obligations. The obligation of the
---------------------------------------
Company to consummate the transaction contemplated by this Agreement is subject
to the satisfaction of the following conditions precedent on or before the
Closing Date:
(a) the representations and warranties set forth in Article IV hereof
and in any writing delivered by GECFS pursuant hereto will be true and
correct in all material respects at and as of the Closing Date as though
then made and as though the Closing Date were substituted for the date of
this Agreement throughout such representations and warranties;
(b) GECFS will have performed and complied in all material respects
with all of the covenants and agreements required to be performed by it
under this Agreement prior to the Closing;
(c) all consents and waivers by third parties that are required for
the consummation of the transaction contemplated hereby including, without
limitation, any consents that are required in order that the transaction
contemplated hereby does not constitute a breach of or a default under or a
termination or material modification of any material agreement to which
GECFS is a party or to which any material property of GECFS is subject,
will have been obtained on terms reasonably satisfactory to the Company;
and
(d) all governmental filings, authorizations and approvals that are
required for the consummation of the transaction contemplated hereby, if
any, will have been duly made and obtained other than those filings,
authorizations or approvals the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect. The
-3-
<PAGE>
conditions specified in this Section 2.2 may be waived by the Company, in
its sole discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to GECFS to enter into this Agreement, the Company
hereby represents and warrants to GECFS that:
III.1 Authorization of the Transaction. The Company has full corporate
--------------------------------
power and authority, and has obtained all approvals and consents required to
enter into, execute and deliver this Agreement, and the agreements and the
documents attached hereto as Exhibits, and upon the filing of the Designating
Amendment with the Tennessee Secretary of State, to perform fully its
obligations under this Agreement and such other agreements. The Board of
Directors of the Company has duly approved this Agreement and have duly
authorized the execution, delivery and performance of this Agreement, the
agreements and documents attached hereto as Exhibits and the consummation of the
transaction contemplated hereby, including without limitation, the issuance of
the Preferred Stock and the shares of Underlying Common Stock issuable upon
conversion of the Preferred Stock. No other corporate proceedings on the part
of the Company are necessary to approve and authorize the execution and delivery
of this Agreement, the agreements and documents attached hereto as Exhibits and
the consummation of the transaction contemplated hereby with the exception of
the filing of the Designating Amendment with the Tennessee Secretary of State.
III.2 Due Execution and Delivery. This Agreement and the agreements and
--------------------------
documents attached hereto as Exhibits have been duly executed and delivered by
the Company and constitute valid and binding agreements of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of equity.
III.3 Capitalization. (a) The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth on Schedule 3.3. All of the issued and
------------
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued, fully paid and nonassessable, are not subject to, nor were
they issued in violation of, any preemptive rights. Except as set forth on
Schedule 3.3, there are no outstanding or authorized securities with profit
- ------------
participating features or profit interests, or options, warrants, rights or
other agreements or commitments to which the Company is a party or which are
binding upon the Company providing for the issuance, disposition or acquisition
of any of its capital stock or any such securities or interests (collectively
"Options")(other than this Agreement). Except as set forth on Schedule 3.3,
- -------- ------------
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. Except as set forth on Schedule 3.3
------------
or as contemplated herein, there are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the capital stock of
the Company. Except as set forth on Schedule 3.3 or as contemplated herein, the
------------
-4-
<PAGE>
Company is not subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of its capital stock or any Options.
(b) Upon the issuance and delivery of the Preferred Stock in accordance
with this Agreement, (i) the Preferred Stock will be duly authorized, validly
issued, fully paid and nonassessable; and (ii) GECFS will acquire, subject to
the restrictions of this Agreement and the federal and state securities laws,
good, valid and marketable title to the Preferred Stock, free and clear of all
liens, claims, preemptive rights, options, warrants, rights, commitments,
charges, encumbrances, equities, proxies or voting or other agreements
whatsoever.
(c) The Underlying Common Stock has been duly and validly reserved and,
upon the issuance and delivery of the Underlying Common Stock upon conversion of
the Preferred Stock, (i) the Underlying Common Stock will be duly authorized,
validly issued, fully paid and nonassessable; and (ii) GECFS will acquire,
subject to the restrictions of the federal and state securities laws, good,
valid and marketable title to the Underlying Common Stock, free and clear of all
liens, claims, preemptive rights, options, warrants, rights, commitments,
charges, encumbrances, equities, proxies or voting or other agreements
whatsoever except for those created by GECFS.
III.4 Absence of Conflicts. Except as set forth on Schedule 3.4, the
-------------------- ------------
execution, delivery and performance of this Agreement and the consummation of
the transaction contemplated hereby do not and will not (a) conflict with or
result in a breach of any of the provisions of, (b) constitute a default under,
(c) result in a violation of, (d) give any third party the right to terminate or
to accelerate any obligation under, (e) result in the creation of any lien,
security interest, charge or encumbrance upon the Common Stock under, or (f)
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body under, the provisions of the
charter or bylaws of the Company or any of the Subsidiaries or any indenture,
mortgage, lease, license, loan agreement or other agreement or instrument to
which the Company or any of the Subsidiaries is bound or by which the Company or
any of the Subsidiaries is affected, or any law, statute, rule or regulation or
any judgment, order or decree to which the Company or any of the Subsidiaries is
subject;
III.5 Absence of Certain Developments. Since December 16, 1997, except as
-------------------------------
set forth on Schedule 3.5 or as specifically contemplated by this Agreement and
------------
the Designating Amendment, neither the Company nor any of the Subsidiaries has:
(a) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable
or exercisable into equity securities, or warrants, options or other rights
to acquire equity securities, of the Company or any of the Subsidiaries;
(b) except for the authorization of the Designating Amendment,
changed or authorized any change in its certificate of incorporation or
bylaws.
-5-
<PAGE>
III.6 Disclosure. To the knowledge of the chief executive officer of the
----------
Company, after due inquiry, neither this Agreement nor any of the schedules,
attachments, exhibits, written statements or certificates supplied to GECFS by
or on behalf of the Company with respect to the transaction contemplated hereby
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact which
has not been disclosed to GECFS in writing and of which any of the Company's
stockholders, executive officers and directors is aware or any of the executive
officers and directors of any of its Subsidiaries is aware, and which has had or
would reasonably be anticipated to have a Material Adverse Effect.
III.7 Exemption from Registration; Restrictions on Offer and Sale of Same
-------------------------------------------------------------------
or Similar Securities. Assuming GECFS's representations in Section 7.10 are
- --------------------- ------------
true, the offer and sale of the Securities made pursuant to this Agreement will
be exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has, in connection with the offering
of the Securities, engaged in (a) any form of general solicitation or general
advertising (as those terms are used within the meaning of Rule 502(c) under the
Securities Act), (b) any action involving a public offering within the meaning
of Section 4(2) of the Securities Act, or (c) any action that would require the
registration under the Securities Act of the offering and sale of the Securities
pursuant to this Agreement or that would violate applicable state securities or
"blue sky" laws. The Company has not made and will not prior to the Closing
make, directly or indirectly, any offer or sale of the Securities or of
securities of the same or a similar class as the Securities if, as a result, the
offer and sale of the Securities contemplated hereby could fail to be entitled
to exemption from the registration requirements of the Securities Act. As used
herein, the terms "offer" and "sale" have the meanings specified in Section 2(c)
of the Securities Act.
III.8 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Tennessee. The Company has all requisite corporate power and authority to own
and operate its properties and assets, and to carry on its business as now
conducted and as proposed to be conducted, and is duly qualified and in good
standing as a foreign corporation in each other jurisdiction in which the
location or nature of its property or the character of its business makes such
qualification necessary. The Company has furnished to counsel for GECFS true
and correct copies of its Charter, as amended, and Bylaws, as presently in
effect, and all minutes and consents of the stockholders and Board of Directors
of the Company. Such minutes and consents reflect all transactions referred to
in such minutes and consents accurately in all material respects.
III.9 Subsidiaries. Except for Premier Graphics, Inc. ("Premier") and
------------ -------
Phillips Litho Co., Inc. ("Phillips") the Company has no subsidiaries and has no
--------
investments in and does not control, directly or indirectly, any other
corporation, trust, partnership, limited liability company or other entity.
Neither Premier nor Phillips have any subsidiaries or have any investments in or
control,
-6-
<PAGE>
directly or indirectly, any other corporation, trust, partnership, limited
liability company or other entity.
III.10 Absence of Undisclosed Liabilities. The Company has no indebtedness
----------------------------------
for borrowed money or any other material liability of any nature, accrued or
contingent, arising out of any transaction or circumstance existing on or before
the date hereof, that is not reflected in the December 31, 1997 audited balance
sheet (the "Balance Sheet"), other than liabilities arising in the ordinary
-------------
course of business (including acquisitions) since the preparation thereof, and
the reserves established by the company and set forth on the Balance Sheet are
in the opinion of the Company adequate in all material respects.
III.11 Absence of Adverse Changes or Increased Liabilities. Except as
---------------------------------------------------
described in Schedule 3.11, since the date of the Balance Sheet there has been
(a) no material adverse change in the condition, financial or otherwise, of the
Company or in the assets, liabilities, properties, business or prospects of the
Company; (b) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company; (c) no waiver or any
valuable right of the Company or the cancellation of any debt or claim held by
the Company; (d) no loan by the Company to any officer, director, employee or
stockholder of the Company, or any agreement or commitment therefor; (e) no
material increase, direct or indirect, in the compensation paid or payable to
any officer, director, employee or agent of the Company; (f) no material loss,
destruction or damage to any property of the Company, whether or not insured;
(g) no resignation or termination of employment of any officer or key employee
of the Company, and the Company does not know of the impending resignation or
termination of employment of any such officer or key employee; (h) no labor
dispute involving the Company or its employees and none is pending or, to the
Company's knowledge, threatened; (i) no change, except in the ordinary course of
business (including acquisitions), in the contingent obligations of the Company,
by way of guaranty, endorsement, indemnity, warranty or otherwise; (j) no sales,
transfers, leases or other dispositions by the Company of any material amount of
its assets or any acquisition of any material amount of assets (or any contract
or arrangement therefor), except in the usual and ordinary course of business
(including acquisitions); and (k) no material transaction by the Company other
than for fair market value.
III.12 Title to Properties and Assets. Except as set forth in Schedule
------------------------------ --------
3.12 hereto, the Company has sole and exclusive possession of, and has good and
- ----
marketable title to all of its properties and assets (real and personal,
tangible and intangible) reflected on the Balance Sheet, in each case free and
clear of all liens, restrictions or encumbrances. All equipment included in
such properties which is necessary to the business of the Company is in good
condition and repair (ordinary wear and tear excepted) and all leases of real or
personal property to which the Company is a party are fully effective and afford
the Company peaceful and undisturbed possession of the subject matter of the
lease. All buildings, fixtures, equipment and other property and assets that
are material to the Company's business are either owned by the Company or are
held under leases or sub-leases by the Company that to the knowledge of the
Company are
-7-
<PAGE>
valid instruments enforceable in accordance with their respective terms, subject
to bankruptcy, moratorium and other laws affecting creditors rights and general
principles of equity. The Company is not in violation of any zoning, building or
safety ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties, nor has it
received any notice of such violation. The Company owns no real property nor has
any interests in real property except as set forth in Schedule 3.12 hereto.
-------------
III.13 Taxes. The Company has filed all federal, state and county local
-----
and foreign tax returns required to be filed by it and has paid all appropriate
federal, state, county, local and foreign income, franchise and other taxes
required to be paid by it through the date hereof. There is no pending or
asserted dispute with any taxing authority relating to any of such returns that,
if determined adversely to the Company, would result in the assertion by any
taxing authority of any material tax deficiency, and the Company has no
knowledge of a proposed liability or threatened assertion of any claim for any
tax to be imposed upon the Company's properties or assets for which there is not
an adequate reserve reflected in the Balance Sheet. No federal income tax
returns of the Company (since the organization of the Company) have been
audited. There is no waiver of any applicable statute of limitations in effect
with respect to tax liabilities or tax returns of the Company (since the
organization of the Company) for any year.
III.14 Litigation; Warranties.
----------------------
(a) Except as set forth on Schedule 3.14 hereto, there is no litigation,
-------------
action, suit or governmental or administrative proceeding or investigation
pending or, to the best knowledge of the Company, threatened against the Company
or affecting any of its properties or assets, or against any manager, officer,
member or key employee of the Company with respect to any matter related to the
Company, nor, to the best knowledge of the Company, has there occurred any event
nor does there exist any condition on the basis of which any such claims may be
asserted.
(b) Except as set forth on Schedule 3.14 hereto, (i) no claim has been
-------------
asserted against the Company for renegotiation or price redetermination of any
material business transaction, and to the knowledge of the Company there are no
facts upon which any such claim could be based, (ii) there have been no warranty
or similar claims asserted by customers with respect to products sold by the
Company, and there are no facts on which any such claim could be based, (iii)
there are no claims against the Company to return products by reason of alleged
overshipments, defective products or otherwise, and to the knowledge of the
Company there are no facts upon which any such claim could be based, and (iv)
there are no claims against the Company relating to any product alleged to have
been manufactured for or sold by the Company and alleged to have been inherently
dangerous, defective or improperly designed or manufactured, and to the
knowledge of the Company there are no facts upon which any such claim could be
based.
III.15 Permits, Licenses. The Company has all material franchises,
-----------------
authorizations, approvals, orders, consents, licenses, certificates, permits,
registrations, qualifications or other rights and privileges (collectively
"Permits") necessary to permit it to own its property and to conduct its
- --------
business as its is presently conducted or proposed to be conducted, and all such
-8-
<PAGE>
Permits are valid and in full force and effect. No Permit is subject to
termination as a result of the execution of the Agreement or consummation of the
transactions contemplated hereby. The Company is now and has heretofore been in
compliance with all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, state, municipal or other governmental
authority which apply to the conduct of its business. The Company has never
entered into or been subject to any judgment, consent decree, compliance order
or administrative order with respect to any environmental or health and safety
law or received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any such
law.
III.16 Brokerage. No broker, finder, agent or similar intermediary has
---------
acted on the Company's behalf in connection with the transactions contemplated
by this Agreement and there are no brokerage commission, finder's fees or
similar items of compensation payable in connection therewith based on any
arrangement or agreement made by or on behalf of the Company.
III.17 Insurance. The Company has in full force and effect the insurance
---------
policies listed in Schedule 3.17 hereto. The Company is presently insured, and
-------------
since the inception of operations by the Company has been insured, against such
risks as companies engaged in the same or substantially similar business would,
in accordance with good business practice, customarily be insured. The Company
has given in a timely manner to its insurers all notices required to be given
under such insurance policies with respect to all claims and actions covered by
insurance, and no insurer has denied coverage of any such claims or actions or
reserved its rights in respect of or rejected any of such claims. The Company
has not received any notice or other communication from any such insurer
canceling or materially amending any of such insurance policies, and no such
cancellation is pending or threatened. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not cause such
insurance policies to lapse, terminate or be canceled and will not result in any
party thereto having the right to terminate or cancel such insurance policies.
III.18 Other Instruments. The Company is not in violation of any of the
-----------------
terms of its Charter or By-Laws as amended and in effect on and as of the
Closing, nor any mortgage, indenture, contract, agreement, or instrument to
which it is a party or by which any of its properties or assets is bound, and
except for the terms and conditions of those agreements disclosed in this
Agreement, the Exhibits and Schedules hereto there is no term of any of the
foregoing that adversely affects or which the Company can now reasonably foresee
may adversely affect the business, prospects, condition (financial or
otherwise), affairs or operations of the Company or any of its properties or
assets.
III.19 Certain Transactions. Except as set forth on Schedule 3.19, the
-------------------- -------------
Company is not indebted directly or indirectly to any of its officers, directors
or stockholders or to their respective spouses or children in any amount
whatsoever; none of such officers, directors or stockholders, or any members of
their immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or business entity that is affiliated
with or with which the
-9-
<PAGE>
Company has a business relationship, or any firm or corporation that competes
with the Company; no officer, director or stockholder, or any member of his
immediate family, has a direct or indirect financial interest in any material
contract with the Company; the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation (excluding guaranties
arising from endorsement of items for deposit or collection in the ordinary
course of business). Nothing contained in this Section 3.19 shall be construed,
------------
however, to prevent any officer, director or stockholder, or any member of his
family, from owning up to five percent of the capital stock of any publicly-held
company that operates in the printing or graphics industry.
III.20 Employee Benefit Plans.
----------------------
(a) Employee Benefit Plan Compliance. For purposes of this Section
-------------------------------- -------
3.23, the term "Company" shall mean the Company and each corporation, trade,
- ----
business or entity under common control with the Company, within the meaning of
Section 414(b), (c), (m) or (o) of the Internal Revenue Code, as amended, or
Section 4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
-----
(b) Copies of Plans. True, correct and complete copies of each of the
---------------
Company's employee and director benefit and compensation plans and related
trusts (the "Plans"), if applicable, including all amendments thereto, have been
-----
furnished to Purchaser. None of the Plans is an "employee pension benefit
plan," within the meaning of Section 3(2) of ERISA, and the Company does not
contribute to or have an obligation to contribute to, and has not at any time
since its inception contributed to or had an obligation to contribute to, a plan
subject to Title IV of ERISA or a "multiemployer plan," within the meaning of
Section 3(37) of ERISA. The Company has substantially performed all
obligations, whether arising by operation of law or by contract, required to be
performed by it in connection with the Plans. Each Plan has been administered
and operated in compliance with its governing documents and applicable law.
There are no actions, suits or claims pending (other than routine claims for
benefits) or threatened against, or with respect to, any of the Plans or their
assets. Each Plan may be unilaterally amended or terminated in its entirety
without liability except as to benefits accrued thereunder prior to such
amendment or termination.
(c) No Additional Severance. The execution and delivery of this
-----------------------
Agreement and the consummation of the transactions contemplated hereby will not
(i) require the Company to make a larger contribution to, or pay greater
benefits under, any Plan than it otherwise would or (ii) create or give rise to
any additional vested rights or service credits under any Plan. The Company is
not a party to any agreement, nor has it established any policy or practice,
requiring it to make a payment or provide any other form of compensation or
benefit to any person performing services for the Company upon termination of
such services which would not be payable or provided in the absence of the
consummation of the transactions contemplated by this Agreement. In connection
with the consummation of the transactions contemplated by this Agreement, no
payments have or will be made under the Plans that, in the aggregate, would
result
-10-
<PAGE>
in imposition of the sanctions imposed under Sections 280G and 4999 of the
Internal Revenue Code, as amended.
III.21 Relationship with Customers. The relationships of the Company with
---------------------------
its customers are good commercial working relationships. No customer that
accounted for more than 10% of the revenues of the Company for its most recent
fiscal year or which is otherwise significant to the Company has canceled or
otherwise terminated or threatened to cancel or otherwise terminate its
relationship with the Company. No such customer has, to the knowledge of the
Company, any plan or intention to terminate, to cancel or otherwise materially
and adversely modify its relationship with the Company.
III.22 Closing Date. All of the representations and warranties contained
------------
in this Article III and made by or on behalf of the Company elsewhere in this
Agreement and all information delivered in any schedule, attachment or exhibit
hereto are true and correct in all material respects on the date of this
Agreement and will be true and correct in all material respects on the Closing
Date, unless waived by GECFS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GECFS
---------------------------------------
As a material inducement to the Company to enter into this Agreement, GECFS
hereby represents and warrants to the Company that:
IV.1 Organization and Power. GECFS is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the state of its
jurisdiction of incorporation, with full corporate power and authority to enter
into this Agreement and perform its obligations hereunder. GECFS is a 100%
Affiliate of General Electric Capital Corporation, a New York corporation.
IV.2 Authorization. The execution, delivery and performance of this
-------------
Agreement by GECFS and the consummation of the transaction contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of GECFS, and no other corporate proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement constitutes a valid and binding obligation of GECFS, enforceable
against GECFS in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer and similar laws affecting creditors' rights and remedies
generally and to general principles of equity.
IV.3 Absence of Conflicts. The execution, delivery and performance of this
--------------------
Agreement and the consummation of the transaction contemplated hereby do not and
will not (a) conflict with or result in a breach of any of the provisions of,
(b) constitute a default under, (c) result in a violation of, or (d) require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body under, the provisions of the certificate of
incorporation or bylaws of GECFS or any agreement or instrument to which GECFS
is bound or
-11-
<PAGE>
by which GECFS is affected, or any applicable law, statute, rule or regulation
or any judgment, order or decree to which GECFS is subject.
IV.4 Closing Date. The representations and warranties contained in this
------------
Article IV and made by GECFS elsewhere in this Agreement are true and correct in
all material respects on the date of this Agreement and will be true and correct
in all material respects on the Closing Date, unless waived by the Company.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
The Company further covenants and agrees as follows:
V.1 Fulfillment of Obligations. The Company will observe and comply fully
--------------------------
with all of the terms, conditions and covenants of this Agreement, the
Designating Amendment and any other agreements and instruments to be entered
into by the Company pursuant to this Agreement.
V.2 Acounts and Reports. The Company will continue to maintain a standard
-------------------
system of accounts in accordance with generally accepted accounting principles
consistently applied.
V.3 Conduct of Business and Corporate Existence. The Company shall
-------------------------------------------
continue to engage principally in the business now conducted by the Company or a
business or businesses similar thereto or reasonably compatible therewith,
including such research and development activities as the Board of Directors may
from time to time approve. The Company shall keep in full force and effect its
existence as a corporation and all material intellectual property rights useful
in its business.
V.4 Payment of Taxes, Compliance with Laws. The Company will pay and
--------------------------------------
discharge all lawful taxes, assessments and governmental charges or levied
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies that, if
not paid when due, might result in the imposition of a lien or charge upon any
of its properties; provided, however, that the Company shall not be required to
pay and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefore has been established on its books.
The Company shall comply with all material applicable laws and regulations in
the conduct of business, including without limitation, all applicable federal
and state securities laws, if applicable, in connection with the issuance of any
shares of its capital stock or other ownership interests.
V.5 Transactions with Related Parties. All transactions by and between
---------------------------------
the Company on the one hand and stockholders, officers and employees of the
Company or corporations or other business organizations controlled by or
affiliated with such stockholders, officers and employees on the other hand,
shall be conducted on an arms-length basis and shall be on terms
-12-
<PAGE>
and conditions no less favorable to the Company than could be obtained from non-
related persons.
V.6 Subsequent Registration Rights. From and after the Closing Date,
------------------------------
other than as permitted under the Registration Rights Agreement, the Company
shall not enter into any agreement granting any holder or prospective holder of
any securities of the Company registration rights with respect to such
securities unless such rights are subordinate to the registration rights of
GECFS.
V.7 Board of Directors Meetings. The Company shall ensure that meetings
---------------------------
of its Board of Directors are held at least four times each year and at
intervals of not more than three months.
V.8 Notice of Adverse Changes. The Company shall provide notice of GECFS
-------------------------
promptly after the occurrence thereof and in any event within five (5) business
days after each occurrence, notice of any material adverse change in the
operations or financial condition of the Company.
V.9 Negative Covenants of the Company. Without the prior written consent
---------------------------------
of GECFS, which consent shall not be unreasonably withheld, the Company will not
permit to occur any amendment, alteration, or modification of its Certificate of
Incorporation, Bylaws or other charter or organizational documents of the
Company, as constituted on the date of this Agreement, the effect of which, in
the sole judgment of GECFS, would be to alter, impair, or affect adversely,
either the rights and benefits of GECFS or the duties and obligations of Company
under this Agreement or the Preferred Stock, obligate itself or otherwise agree
to take, permit or enter into any of the events described above.
ARTICLE VI
TERMINATION
-----------
VI.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by mutual written consent of GECFS and the Company;
(b) by GECFS or the Company if there has been a material
misrepresentation or breach on the part of the other party or parties in
the representations and warranties set forth in this Agreement if such
breach is not cured within 10 days after the terminating party first
becomes aware of such breach, or if events have occurred which have made it
impossible to satisfy a condition precedent to the terminating party's or
parties' obligations to consummate the transaction contemplated hereby,
unless such terminating party's or parties' willful breach of this
Agreement has caused the condition to be unsatisfied; or
-13-
<PAGE>
(c) by either of GECFS or by the Company if the Closing has not
occurred on or prior to March 30, 1998; and provided that neither GECFS nor
--------
the Company may terminate this Agreement pursuant to this Section 6.1(c) if
--------------
such person's willful breach of this Agreement has prevented the
consummation of the transaction contemplated hereby at or prior to such
time.
VI.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either GECFS or the Company as provided above, this Agreement will forthwith
become void and there will be no liability on the part of any party hereto to
any other party hereto or its shareholders or directors or officers in respect
hereof, except for the obligations of the parties pursuant to Sections 7.2, 7.7
------------ ---
and 7.8 and except that nothing herein will relieve any party from liability
---
resulting from any breach of this Agreement prior to such termination,
including, without limitation, any breach of Section 7.9.
-----------
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
VII.1 Survival. Notwithstanding any examination made for or on behalf of
--------
GECFS, the knowledge of any of its officers, directors, stockholders, employees
or agents, or the acceptance of any certificate or opinion, all representations,
warranties, covenants and agreements set forth in this Agreement or in any
writing delivered in connection with this Agreement shall survive the Closing
and shall be fully effective and enforceable until the termination of any
statute of limitation applicable to the rights of the parties hereunder.
VII.2 Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless GECFS, including
each of its Affiliates, and the directors, officers, agents, employees,
accountants and attorneys thereof (GECFS and each such other Person, an
"Indemnified Party") from and against any losses, claims, damages, judgements,
-----------------
assessments, costs and other liabilities (collectively "Liabilities"), and will
-----------
reimburse each Indemnified Party for all fees and expenses (including the
reasonable fees and expenses of outside counsel) (collectively, "Expenses") as
--------
they are incurred in investigating, preparing or defending any claim, action,
proceeding or investigation, whether or not in connection with pending or
threatened litigation or arbitration and to which any Indemnified Party is a
party (collectively, "Actions"), arising out of (i) any material breach of any
-------
of the representations or warranties made by the Company in this Agreement or
any of the agreements or certificates, documents or other writings contemplated
hereby or delivered in connection herewith, (ii) any breach or violation of or
failure to perform fully any material covenant, agreement or obligation of the
Company in this Agreement or any of the agreements contemplated hereby, or (iii)
any Action by any third party arising out of or in connection with the
transactions contemplated by this Agreement; provided, however, that the Company
-------- -------
shall not indemnify any Indemnified Party from Liabilities or reimburse Expenses
incurred by such party to the extent they arise out of the willful misconduct,
gross negligence or bad faith (as finally
-14-
<PAGE>
determined by a court of competent jurisdiction) of such party. If multiple
claims are brought against an Indemnified Party (including in an arbitration),
with respect to at least one of which indemnification is permitted under
applicable law and provided for under this Agreement, the Company agrees that
any award shall be conclusively deemed to be based on claims as to which
indemnification is permitted and provided for, except to the extent the award
expressly states that the award, or any portion thereof, is based solely on a
claim as to which indemnification is not available.
(b) The indemnification provisions of this Section 7.2 are in addition
-----------
to, and not in derogation of, any statutory or common law remedy any party may
have for misrepresentation, breach of warranty or breach of covenant.
VII.3 Press Releases and Announcements. Except to the extent otherwise
--------------------------------
agreed by GECFS, except where the Company has been advised by its counsel that
such disclosure is required by law, the Company will not disclose the
transaction contemplated hereby, including by making any press release related
to this Agreement or the transaction contemplated herein, or other announcement
to the employees, customers or suppliers of the Company and the Subsidiaries,
without the prior written approval of GECFS (which shall not be unreasonably
withheld), and the Company will not disclose the name of GECFS or any of its
Affiliates without the prior written consent of GECFS, except where the Company
has been advised by its counsel that such disclosure is required by law, in
which event the Company shall use its best efforts to consult with GECFS prior
to making such disclosure.
VII.4 Further Transfers. The Company (at its own expense) will execute and
-----------------
deliver such further instruments of conveyance and transfer and take such
additional action as GECFS may reasonably request to effect, consummate, confirm
or evidence the issue to GECFS of the Securities. The Company will execute such
documents as may be necessary to assist GECFS in preserving or perfecting its
rights in the Securities and will also complete such actions as are necessary to
perform its representations, warranties and agreements herein, including,
without limitation, after the Closing, making all registrations, filings and
applications, giving all notices and obtaining all governmental, third party or
other consents, transfers, approvals, orders, qualifications and waivers
desirable for the consummation of the transaction contemplated hereby which, for
any reason, have not been made, given or obtained prior to the Closing.
VII.5 Specific Performance. The Company acknowledges that the business of
--------------------
the Company and the Subsidiaries and the Securities are unique and recognize and
affirm that in the event of a breach of this Agreement by the Company, money
damages may be inadequate and GECFS may have no adequate remedy at law.
Accordingly, the Company agrees that GECFS shall have the right, in addition to
any other rights and remedies existing in its favor at law or in equity, to
enforce its rights and the Company's obligations hereunder not only by an action
or actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief (without posting of bond
or other security).
-15-
<PAGE>
VII.6 Investigation. Prior to the Closing Date, GECFS and its
-------------
representatives may make or cause to be made such investigation of the business
and properties of the Company and the Subsidiaries as each deems reasonably
necessary or advisable and the Company shall (and shall cause each of its
Subsidiaries to) furnish and disclose promptly to GECFS all information
concerning its business, properties and personnel as GECFS or its
representatives reasonably request. Upon reasonable notice, the Company agrees
to permit, prior to the Closing Date, GECFS and its authorized representatives
to have access during business hours to the Company's and each of its
Subsidiaries' books, records, facilities, key personnel, officers, directors,
customers (upon prior consultation with the Company), independent accountants,
and legal counsel (without waiver of privilege) in a manner that will not
unreasonably interfere with the normal business of the Company and its
Subsidiaries.
VII.7 Exclusivity. Until the earlier of the consummation of the
-----------
transaction contemplated hereby or the termination of this Agreement in
accordance with Section 6.1, neither the Company, nor any of its
-----------
representatives, officers, employees, directors, or agents, will directly or
indirectly (a) submit, solicit, initiate or encourage any proposal or offer from
any person or enter into any agreement or accept any offer relating to any
issuance or sale of any of its capital stock or of any rights or securities
convertible into or exercisable or exchangeable for any of its capital stock,
except for the issuance of capital stock upon exercise or conversion of
warrants, options and other rights to acquire Common Stock outstanding as
reflected on Schedule 3.3 hereto (or any other transactions between the Company
------------
and GECFS or its Affiliates), in each case in accordance with the terms of such
warrants, options and other rights as previously disclosed to GECFS, and except
for an underwritten initial public offering of the capital stock of the Company
on terms and conditions satisfactory to GECFS, or (b) furnish any information
with respect to, assist or participate in or facilitate in any other manner any
effort or attempt by any person to do or seek to do any of the foregoing. Except
with respect to a contemplated underwritten initial public offering of the
capital stock of the Company, the Company represents and warrants that it is not
engaged in any discussions with third-parties regarding the foregoing and shall
notify GECFS immediately if any person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
VII.8 Transfer of Securities.
----------------------
(a) General Provisions. The Securities are transferable only pursuant to
------------------
(i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the Securities Act (or any similar rule or rules then in force) if such
rule is available or (iii) subject to the conditions specified in Section 7.9
-----------
below, any other legally available means of transfer such that the Securities
are registered or exempt from registration. In addition to the foregoing, the
Preferred Stock may only be transferred to or among 100% Affiliates of GECFS who
agree to be bound by the conditions contained in this Section and Section 7.9
-----------
(b) Opinion Delivery. In connection with the transfer of any Securities,
----------------
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or
-16-
<PAGE>
proposed transfer, and, except for in a transfer described in subsection
7.8(a)(i) or (ii) above and other than a transfer to a 100% Affiliate of GECFS,
an opinion of counsel payable solely by the holder of the Securities, in form
and substance reasonably satisfactory to the Company and its counsel, to the
effect that such transfer of Securities may be effected without registration of
such Securities under the Securities Act. In addition, if the holder of the
Securities delivers to the Company an opinion of counsel payable solely by the
holder of the Securities, in form and substance reasonably satisfactory to the
Company and its counsel, that no subsequent transfer of such Securities shall
require registration under the Securities Act, the Company shall promptly upon
such contemplated transfer deliver new certificates for such Securities which do
not bear the Securities Act legend set forth in Section 7.9. If the Company is
-----------
not required to deliver new certificates for such Securities not bearing such
legend, the holder thereof shall not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be bound by
the conditions contained in this Section and Section 7.9
-----------
(c) Rule 144A. Upon the request of GECFS, the Company shall promptly
---------
supply to GECFS or its prospective transferees all information regarding the
Company required to be delivered in connection with a transfer of the Preferred
Stock pursuant to Rule 144A of the Securities Act.
(d) Removal of Legend. If any Securities are eligible for sale pursuant
-----------------
to Rule 144(k), the Company shall, upon the request of the holder of such
Securities, remove the legend set forth in Section 7.9 from the certificates for
-----------
such Securities.
(e) Restriction on Transfer. The Company acknowledges and agrees that
-----------------------
(A) GECFS is not bound by any terms or provisions contained in any existing or
future agreement to which the Company is or may be a party that may expressly or
impliedly restrict, or be construed to restrict, the transfer by GECFS of the
Securities, (B) subject to subsection (a) and (e)(i) above, GECFS has the
unfettered right to transfer or assign the Securities, and (C) GECFS shall not
be liable for any damages or losses incurred by the Company in the event of a
breach or alleged breach of any agreement to which the Company is or may be a
party which arises out of, or is related to, the transfer of the Securities.
VII.9 GECFS Representations. GECFS represents that it is an "Accredited
---------------------
Investor" within the meaning of Regulation D under the Securities Act. GECFS
understands that the Securities constitute "restricted securities" within the
meaning of Rule 144 under the Securities Act. GECFS hereby represents that it
is acquiring the restricted securities purchased hereunder or acquired pursuant
hereto for its own account with the present intention of holding such securities
for purposes of investment, and that it has no intention of selling such
securities in a public distribution in violation of the federal securities laws
or any applicable state securities laws; provided, that nothing contained herein
--------
shall prevent GECFS and subsequent holders of restricted securities from
transferring such securities in compliance with the provisions of Section 7.8.
-----------
GECFS understands that the restricted securities are being offered and sold in
reliance on exemptions from the registration requirements of federal and state
securities laws and that the
-17-
<PAGE>
Company is relying upon the truth and accuracy of GECFS's representations,
warranties, agreements, acknowledgments and understandings set forth herein to
determine its suitability to acquire the restricted securities. Each instrument
or certificate for restricted securities shall be imprinted with a legend in
substantially the following form:"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
WERE ORIGINALLY ISSUED ON MARCH 30, 1998, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY STATE SECURITIES LAWS. THE
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER
FEDERAL AND STATE SECURITIES LAWS AND FURTHER IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE EXCHANGE AGREEMENT, DATED AS OF MARCH 30, 1998, BETWEEN THE
ISSUER (THE "COMPANY") AND GECFS, INC., AND THE COMPANY RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED
WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
VII.10 Restrictions on Certain Activities
----------------------------------
(a) Without the prior written consent of GECFS, the Company shall be
prohibited from entering into any voting trusts, proxies or any other agreements
or understandings with respect to the voting of the capital stock of the
Company.
(b) Without the prior written consent of GECFS, the Company shall be
prohibited from entering into any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
Options.
ARTICLE VIII
DEFINITIONS
-----------
"100% Affiliate" means with respect to any Person, (i) each other Person
--------------
that, directly or indirectly, owns or controls one hundred percent (100%) of the
Stock having ordinary voting power in the election of directors of such Person,
(ii) each other Person of which the Stock having ordinary voting power in the
election of its directors is owned or controlled one hundred percent (100%) by
such Person, or (iii) each other Person of which the Stock having ordinary
voting power in the election of its directors is owned or controlled one hundred
percent (100%) by any Person defined in clause (i) above or any of its 100%
Affiliates.
"Affiliate" means, with respect to any Person, (i) each other Person that,
---------
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that directly or indirectly controls, is controlled by or is under common
control with such Person or any Affiliate of such Person, (iii) each of such
Person's officers, directors, joint ventures and partners, and, (iv) the spouse,
each sibling and each lineal
-18-
<PAGE>
descendant and ascendant of any such specified Person or any Affiliate of such
specified Person. For the purpose of this definition, "control" of a Person
-------
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of its management or policies, whether through the ownership
of voting securities, by contract or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Material Adverse Effect" shall mean (i) a material adverse change in (A)
-----------------------
the business, assets, earnings, operations, prospects, or customer, supplier,
employee or sales representative relations, or financial or other condition of
the Company and each Subsidiary of the Company, taken as a whole, or (B) the
Company's or any of its Subsidiaries' ability to pay or perform its obligations
in accordance with the terms thereof, or (ii) the existence of any action or
proceeding by or before any court or government body wherein an unfavorable
judgment, decree, injunction or order would prevent the carrying out of this
Agreement or the transaction contemplated by this Agreement or cause such
transaction to be rescinded, or could reasonably be expected adversely to affect
the right of GECFS to own or control the Preferred Stock or the Underlying
Common Stock.
"Person" means any individual, sole proprietorship, partnership (including
------
a limited partnership), joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, limited
liability company, joint stock company, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof) or other business
entity.
"SEC" means the United States Securities and Exchange Commission and any
---
successor to the functions thereof.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Stock" means all shares, options, warrants, general or limited partnership
-----
interests, participations or other equivalents (regardless of how designated) of
or in a Person, whether voting or nonvoting, including, without limitation,
common stock, preferred stock, or any other "equity security" (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
SEC under the Exchange Act), including, without limitation, any securities with
profit participation features, and any rights, warrants, options or other
securities convertible into or exercisable or exchangeable for any such shares,
equity or profits interests, participations or other equivalents, or such other
securities, directly or indirectly (or any equivalent ownership interests, in
the case of a Person which is not a corporation).
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
----------
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power for the election of directors, managers or trustees of such
corporation (irrespective of whether, at the
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<PAGE>
time, Stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned legally or beneficially or controlled,
directly or indirectly, by such Person and/or one or more Subsidiaries of such
Person, or any combination thereof, or with respect to which any such Person has
the right to vote or designate the vote of more than 50% of such Stock whether
by proxy, agreement, operation of law or otherwise, (ii) any partnership,
limited liability company, association or other business entity, in which such
Person and/or one or more Subsidiaries of such Person shall have more than 50%
of the partnership or other similar ownership interests thereof (whether in the
form of voting or participation in profits or capital contribution), and (iii)
all other Persons from time to time included in the consolidated financial
statements of such Person. For purposes hereof, a Person or Persons shall be
deemed to have more than 50% ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated more than 50% of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
managing director or general partner of such limited liability company,
partnership, association or other business entity.
"Transaction Documents" means this Agreement, the Registration Rights
---------------------
Agreement, each of the other agreements or other documents contemplated hereby,
the Company's Charter and the Designating Amendment.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
-----------------------
upon conversion of the Preferred Stock, and (ii) any Common Stock issued or
issuable with respect to the securities referred to above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
ARTICLE IX
MISCELLANEOUS
IX.1 Amendment and Waiver. This Agreement may be amended and any provision
--------------------
of this Agreement may be waived, provided that, subject to the last sentence of
Section 2.1 and the last sentence of Section 2.2, any such amendment or waiver
- ----------- -----------
will be binding upon a party only if such amendment or waiver is set forth in a
writing executed by each of the Company and GECFS. No course of dealing between
or among any persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any party under or by reason of this Agreement.
IX.2 Notices. All notices, demands and other communications given or
-------
delivered under this Agreement will be in writing and shall be made by hand
delivery, overnight courier, first-class mail, or telecopier and will be deemed
to have been given when personally delivered, four business days after being
mailed by first class mail, return receipt requested, or delivered by express
courier service or telecopied (subject to receipt of written confirmation).
Notices, demands and communications to the Company and GECFS will, unless
another address is specified in writing, be sent to the addresses indicated
below:
-20-
<PAGE>
Notices to the Company: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: Mr. John P. Miller
Telecopy No.: (901) 744-6012
With copies to: Black, Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, TN 38117
Attention: Michael Morgan, Esq.
Telecopy No.: (901) 683-2553
Notices to GECFS: GECFS, Inc.
880 Greir Drive
Las Vegas, Nevada 89119
Attention: President
With copies to: 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
and 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 Patton Boggs, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Larry A. Makel, Esq.
Telecopy No.: (214) 871-2688
IX.3 Binding Agreement; Assignment.
-----------------------------
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<PAGE>
EXHIBIT 10.1
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 the Tennessee Code Annotated, between Premier Graphics,
Inc. ("Premier" or "Surviving Corporation"), a Delaware corporation and B & M
Printing, Inc. ("B & M" 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 B & M and B & M 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
<PAGE>
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 form this
Agreement and Plan of Merger shall be, and may be separately certified as, the
Certificate of Incorporation, as amended, of the Surviving Corporation.
EXHIBIT A
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 B & M 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 consistent 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
2
<PAGE>
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.
(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 be come 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 an property of the
Merged Corporation acquired or to be acquired by
3
<PAGE>
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 authorize in the name of the Merged
Corporation or otherwise to take any and all such action.
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 stock holders 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.
4
<PAGE>
IN WITNESS WHEREOF, the parties to this agreement, pursuant to the approval
and authority duly given by resolution 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 the 18th day of June, 1997.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------------------
John P. Miller, President
B & M PRINTING, INC.
By: /s/ Ron McKinney
-------------------------------
Ron McKinney, President
5
<PAGE>
EXHIBIT 10.2
AGREEMENT FOR SALE AND PURCHASE
OF CORPORATE STOCK
------------------
THIS AGREEMENT is made on the 17th day of June, 1997, between WILLIAM J.
BLACKWELL and BRENDA M. BLACKWELL ("Sellers") and MASTER GRAPHICS, INC.
("Buyer").
(S)1. PURCHASE OF STOCK: Sellers agree to sell, assign, transfer and
------------------
convey to Buyer, and Buyer agrees to purchase from Sellers, all of Sellers'
4,400 shares of common stock of Blackwell Lithographers, Inc. ("Blackwell"),
which constitutes all of the issued and outstanding stock of Blackwell.
(S) 2. PURCHASE PRICE: The Purchase Price to be paid by Buyer to
---------------
Sellers for said capital stock of Blackwell shall be Four Million Dollars
($4.000,000.00).
(S) 3. CLOSING:
-------
(a) The Closing Date shall be June 18, 1997 or such earlier or later
date as may be mutually agreed upon by the parties.
(b) In the event Buyer fails to close or before June 20, 1997, this
Agreement and all of Sellers' obligations hereunder shall become voidable at
Sellers' option. It is agreed that the closing date may be extended but any such
extensions shall be in writing and signed by Buyer and Sellers.
(c) If the transaction described in this Agreement does not close on
the aforementioned date or at the end of any extension period, except for reason
of Sellers' refusal to close or their failure to comply with the terms hereof,
Buyer shall, by no later than June 30, 1997, reimburse Sellers for all costs and
expenses incurred by them incident to this transaction.
<PAGE>
(S) 4. DELIVERY OF STOCK AND PAYMENT OF PURCHASE PRICE:
-----------------------------------------------
(a) The delivery to Buyer of certificates for the shares of capital
stock sold hereunder by Sellers, and the payment of the initial installment of
the Purchase Price therefor by Buyer to Sellers, shall take place on the Closing
Date at the office of Black Bobango & Morgan, 530 Oak Court Dr., Ste. 345
Memphis, Tennessee, 38117.
(b) On the Closing Date, Sellers shall deliver to Buyer the
certificates evidencing the 4,400 shares of capital stock of Blackwell agreed to
be sold hereunder, duly endorsed for transfer, and Buyer shall pay Sellers the
sum of Three Million Dollars ($3,000,000.00), by certified check, representing
the initial installment of the Purchase Price to be paid for said shares by
Buyer. The balance of the Purchase Price shall be payable by the execution and
delivery to Seller of a seven-year promissory note of Buyer in the amount of One
Million Dollars ($1,000,000.00) bearing interest thereon at the rate of 12% per
annum from the Closing Date until the principal sum and all accrued interest
thereon have been paid in full, said promissory note to be in the form as shown
in Exhibit "A" hereto. Interest on the said promissory note shall be paid
quarterly. The payment of the promissory note and interest thereon shall be
guaranteed by Buyer and by John P Miller, personally. In the event Buyer wishes
to repay this promissory note without Sellers' consent, Buyer and Guarantor
shall pay to Sellers a prepayment fee of Two Hundred Thousand Dollars
($200,000.00), in addition to the principal and interest due and payable on the
promissory note.
(c) In the event that Buyer shall cause to be made a public offering
of its stock (the "IPO") or in the event Buyer merges with or is acquired by a
publicly held company, Sellers shall have the following rights:
(i) In the event there is an IPO, Sellers shall have options to
acquire those numbers of shares in the IPO that aggregate $1
million, such number of shares to be determined as follows:
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
number of shares
$1 million / initial IPO price per share = Sellers shall have
option to purchase
</TABLE>
(ii) In the event of an acquisition or merger, Sellers shall
have the option to acquire those numbers of shares in the Company
merging with or acquiring Buyer as would equal $1 million in
value, such number of shares to be determined as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
price per share of
$1 million divide by Company merging number of shares
with or acquiriing Sellers shall have
Buyer = to purchase
</TABLE>
Such stock options shall expire ten (10) years from the date of Sellers
acquisition of them.
(d) Buyer shall assume all liabilities of Blackwell except off balance
sheet contingencies or obligations and Buyer and John P. Miller will use their
best efforts to have Sellers released from any and all personal guaranties of
any Blackwell indebtedness.
(S) 5. REDUCTION IN PURCHASE PRICE: If at the time of closing, the net
---------------------------
equity of the Company is less than One Million Nine Hundred Fifty-Eight Thousand
Six Hundred Sixty-Three Dollars ($1,958,663.00) as determined by an accountant
chosen by Buyer working in concert with the Blackwell's accountant, the total
Purchase Price may be reduced by the amount of the shortfall, but only if
Buyer's accountant and Blackwell's accountant are in agreement. If Buyer and
Sellers disagree as to the Company's net equity at the time of closing, they
shall agree on an accounting firm that shall be authorized to make a
determination of Blackwell's net equity. The parties agree to be bound by the
determination so made. In recognition that accounts receivable constitute a
significant portion of Blackwell's net equity, Sellers represent that
historically only a very small percentage of Blackwell's accounts receivable are
uncollectible and that such amount will not exceed $50,000.
-3-
<PAGE>
(S) 6. WARRANTIES AND REPRESENTATIONS OF SELLERS:
-----------------------------------------
Sellers, jointly and severally, warrant and represent to Buyer as follows:
(a) Sellers each have full, complete and absolute title to the
following number of share of capital stock of Blackwell:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
William J. Blackwell 2,640
Brenda M. Blackwell 1,760
</TABLE>
(b) The title of each of Sellers to said shares is free and clear of
any lien, charge or encumbrance, and said shares aggregating 4,400 shares
constitute all of the outstanding capital stock of Blackwell and, by sale of
said shares of stock hereunder, Buyer will receive good and absolute title
thereto free of any liens, charges or encumbrances;
(c) Blackwell is a corporation duly organized and existing under and by
virtue of the laws of the State of Mississippi, and is in good standing with the
Mississippi Secretary of State;
(d) The outstanding shares of capital stock of Blackwell have been duly
issued and said shares are valid, fully paid and non-assessable, and no
assessment is outstanding against the same or any part thereof;
(e) If requested by Buyer, prior to the closing of this transaction,
Sellers will deliver to Buyer an opinion of Rimmer, Rawlings, MacInnis &
Hedglin, P.A., Sellers' counsel, addressed to Buyer, stating (i) that the 4,400
shares of the capital stock of Blackwell now issued and outstanding have been
lawfully issued under the laws of the State of Mississippi and are valid; (ii)
that all stock transfer restrictions affecting the transfer of said shares of
capital stock to Buyer hereunder have been complied with or effectively waived;
(iii) that upon the closing hereunder, Buyer will have full and
-4-
<PAGE>
absolute title to said shares free and clear of all liens, charges or
encumbrances; and (iv) that Sellers have full power and authority to execute
this agreement and perform and implement the terms hereof.
(f) The present Directors and Officers of Blackwell are the following:
Directors: William J. Blackwell
Brenda M. Blackwell
Officers: William J. Blackwell, President
Brenda M. Blackwell, Vice President/Secretary
The written resignations of said Officers and Directors shall be tendered to
Buyer concurrently with the delivery of the certificates representing the
capital stock sold hereunder;
(g) Attached hereto and marked Exhibit "B" is a document styled:
BLACKWELL LITHOGRAPHERS, INC.
Financial Statements and Additional Information
Year Ended December 31, 1996
which contains the following Financial Statements of Blackwell:
(i) Balance Sheet;
(ii) Statement of Income;
(iii) Statement of Retained Earnings;
(iv) Statement of Cash Flows;
(v) Notes to Financial Statements;
and, have been prepared in accordance with generally accepted accounting
principles, consistently applied. Blackwell has no material liabilities as of
the date of this Agreement, whether absolute, contingent or otherwise, except
those disclosed on the Financial Statements other than trade credit or debt
otherwise incurred in the normal course of business. Said Financial Statements
truly, correctly
-5-
<PAGE>
and completely set forth the financial condition of Blackwell as of December 31,
1996. Title to all assets referred to and shown on the balance sheet are vested
in Blackwell as of said date;
(h) Between the date of this agreement and the Closing Date, Blackwell
and Sellers will not:
(i) Sell, assign or otherwise transfer any Blackwell property or
assets material to the operation of Blackwell's business other than
in the ordinary and usual course of its business as heretofore
conducted, except as to any such items that shall have become no
longer useful or otherwise rendered of no further use to Blackwell.
Sellers shall use their best efforts to prevent Blackwell from
suffering any adverse change in assets, liabilities, or financial
condition or to suffer any damage, destruction, or loss (whether or
not covered by insurance) that materially and adversely affects
Blackwell's business or properties;
(ii) Create, participate in, or agree to the creation of any
liens or encumbrances on Blackwell's property, save and except
liens for current taxes and liens created in the ordinary and usual
course of its business as heretofore conducted;
(iii) Enter into any leases, contracts, or agreements of any kind
or character or incur any liabilities, save and except those to
which it is presently committed and which are disclosed herein or
in the exhibits hereto and purchase orders placed for raw materials
and supplies and agreements to sell products to customers arising
in the ordinary and usual course of business as heretofore
conducted;
(iv) Make any payments or distributions to any of its officers,
stockholders or employees, save and except wages and salaries paid
to employees in the ordinary and usual course of Blackwell's
business as heretofore conducted; and, such additional sums as are
necessary to pay the income taxes at the highest taxable rate with
respect to 1997 S Corp. income reportable by Sellers;
-6-
<PAGE>
(v) Amend or repeal its Articles of Incorporation or By Laws or
issue any shares of capital stock in addition to and other than the
shares heretofore issued or reissue any treasury stock;
(i) Sellers shall instruct Blackwell's accountants and legal counsel to
cooperate and assist Buyer in its due diligence efforts and activities incident
to this transaction;
(j) Attached hereto, as Exhibit "C", is a schedule of all notes and
accounts payable, accrued taxes and other liabilities of Blackwell as reflected
by the balance sheet;
(k) Attached hereto, as Exhibit "D", is a list of the furniture,
fixtures and equipment owned by Blackwell and located on its premises at 120
Lake Drive, Richland, Mississippi, 39218, said furniture, fixtures and equipment
being free from any liens, claims or encumbrances except as otherwise disclosed
pursuant to this agreement and the exhibits hereto;
(l) Attached hereto, as Exhibit "E", is a list of the insurance
policies presently in effect with respect to the corporate property and business
of Blackwell, and Sellers shall maintain such policies in full force and effect
through the Closing Date;
(m) There are no actions, suits, or proceedings pending or, to Sellers'
knowledge, threatened against Blackwell or affecting Blackwell before any Court,
administrative agency or arbitrator. Blackwell is not subject to any order,
injunction, decree or decision of any Court, administrative agency or
arbitrator. No party has made a claim against Blackwell that might result in
litigation and Blackwell and Sellers represent that they have no knowledge of
any basis for such claim.
(n) All required federal, state and local tax returns of Blackwell have
been duly and timely filed, and all federal. state and local taxes required to
be paid with respect to the periods covered by such returns have been timely
paid. Blackwell is not delinquent in the payment of any tax, assessment
-7-
<PAGE>
or governmental charge. No tax deficiency is proposed or assessed against
Blackwell and Blackwell has not executed any waiver of any statute of
limitations on the assessment or collection of any tax.
(o) The corporation is not in violation of any federal, state, or
municipal law, statute, regulation, orders, judgments or decrees applicable to
Blackwell or shareholders in the operation of the business. Neither the Sellers
nor Blackwell have received any notice of any asserted present or past failure
by Blackwell to comply with such laws, statutes, ordinances, regulations,
judgments or decrees.
(p) None of the products manufactured and sold by Blackwell infringe
upon any patents, patented formulas or private trademarks, trade secrets or
copyrights nor has Blackwell, in the past, manufactured or sold any products
which infringe upon any such patents, trademarks, trade secrets or copyrights.
(q) Sellers shall continue to conduct Blackwell's business in
substantially the same manner as Sellers have previously conducted it and will
not introduce or undertake any material new method of management, operation or
accounting;
(r) Sellers shall maintain Blackwell's properties and facilities in as
good working order and condition as at present, ordinary wear and tear excepted;
(s) Sellers shall perform all of Blackwell's duties, obligations and
undertakings pursuant to contracts and agreements relating to or affecting
Blackwell's assets, properties, rights and business.
(t) To the best of Sellers' knowledge, information and belief Blackwell
is currently, and at all times has been, in full compliance with, and has not
been, and is not, in violation or liable under any Environmental Law (as defined
below) except for such failure to comply or violation which would not have a
material adverse effect. Blackwell has not disposed of or released any hazardous
substances on any portion of its Real Property. Blackwell has possessed and
currently possesses all
-8-
<PAGE>
permits, licenses and other necessary governmental authorizations required under
applicable Environmental Laws to operate its business and Blackwell is in
compliance with the terms and conditions thereof. To the best of Sellers'
knowledge, information and belief all property previously and currently owned,
leased or subleased by Blackwell (the "Real Property") and the use and operation
thereof have been and are currently in compliance with all applicable laws,
ordinances, rates and regulations, relating to public health and safety and
protection of the environment, including those statutes, regulations and
ordinances identified in the definition of Hazardous Materials (as defined
below) all as now and hereafter amended (collectively "Environmental Laws").
Blackwell has not stored any Hazardous Materials (as defined below) on any of
the Real Property or any property in which Blackwell has had an interest, except
in compliance with applicable Environmental Laws. There have been no actions,
activities, circumstances, conditions, events or incidents including, without
limitation, the release, emission, discharge, presence or disposal of any
Hazardous Materials that could form the basis of any environmental claim against
Blackwell which would have a material adverse effect, and neither Blackwell nor
Sellers know of any such actions, activities, circumstances, conditions, events
or incidents.
There are no pending or threatened requests for information, claims,
actions or proceedings from or by any governmental agency or any other person or
entity regarding the condition or use of the Real Property or the release, use,
refinement, generation, discharge, manufacture, treatment, transportation or
disposal of Hazardous Materials on, in, under (including the underlying
groundwater) or from the Real Property, or regarding any Environmental Laws, or
to liens or governmental actions, notices or violations, notices of non-
compliance or other proceedings of any kind with respect to the Real Property.
Sellers shall immediately notify Buyer and provide copies upon receipt of all
oral or written complaints, claims, citations, inquiries, reports or notices
relating to the condition of the Real Property or compliance with Environmental
Laws received after the date hereof.
For purposes of this Agreement, "Hazardous Materials" means
-9-
<PAGE>
(i) "Hazardous Substances" or "Toxic Substances" as those terms
are defined by the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. 9601, et seq.;
(ii) "Hazardous Waste" as that term is defined by the Resource
Conservation and Recovery Act, 42 U.S.C. 6902, et seq.;
(iii) Any pollutant or contaminate or hazardous, dangerous or
toxic chemicals, waste, materials or substances within the meaning
of any other applicable federal, state or local law, regulation,
ordinance or requirement relating to or imposing standards or
conduct concerning any hazardous, toxic or dangerous waste
substances or material;
(iv) Crude oil, petroleum products, by-products, or other
hydrocarbon substances;
(v) Any radioactive material, including any source, special
nuclear or by-product material as defined by 42 U.S.C. 211, et
seq., as amended;
(vi) Asbestos in any form or condition;
(vii) Polychlorinated biphenyls ("PCBs") or substances or
compounds containing PCBs; and
(viii) Medical or infectious waste.
(u) Company has good and marketable title, free and clear of all liens,
and charges and encumbrances, to all assets listed on the balance sheet dated
December 31, 1996, or property acquired thereafter, and all personal property
located on Company's business premises on December 31, 1996, except for assets
subsequently sold thereafter in the ordinary course of business.
-10-
<PAGE>
(v) Sellers have furnished Buyer such copies of the Articles of
Incorporation and Bylaws and Minutes of Blackwell. Such copies are true, correct
and complete copies of such corporate documents, with all amendments.
(w) Neither the execution of this Agreement nor the fulfillment of the
terms of this Agreement will result in a breach of the terms, provisions or
conditions of this Agreement. Neither the execution of this Agreement nor the
fulfillment of the terms of this Agreement will invalidate or constitute a
default under this Agreement, or give any other person any rights of
acceleration, cancellation, termination, or any other rights not existing under
Blackwell's Articles of Incorporation or Bylaws, or any contract, mortgage,
indenture, agreement, order, decree, rule or regulation of any court or of any
federal, state or local regulatory or administrative body, to which the Company
is a party or subject, or which Blackwell is bound other than with respect to
composite Exhibit F. Neither the execution of this Agreement nor the fulfillment
of the terms of the Agreement will result in the creation of any lien, charge,
or encumbrance on any of the Stock or on any property or assets of Blackwell.
(x) Sellers do not own or have a material beneficial interest, and have
not owned or had a beneficial interest within the past three years, directly or
indirectly, in any corporation, firm, association, partnership, or a
proprietorship that (1) is similar to or competitor of Blackwell (2) is a
customer or supplier of Blackwell, or (3) has any existing contractual
relationship with Blackwell, except as to Blackwell Computer Graphics, Inc,
which shall be dissolved concurrent with the closing of this transaction.
(y) Attached hereto as Exhibit G is a list of all employees of
Blackwell and their current rates of compensation. Blackwell is not a party to
any union contract or any other agreement providing employee benefits except
Blackwell does provide its employees with a health and dental insurance plan and
profit sharing plan.
-11-
<PAGE>
(z) No person holds the power of attorney for Blackwell. Blackwell's
bank accounts are with Bank of Mississippi, and the only persons authorized to
draw on such accounts are Sellers.
(aa) No license or permit is required to operate Blackwell's business,
except a business license issued by the City of Richland, Mississippi. Such
license is presently valid and affective, and in no danger of revocation or
nonrenewal.
(bb) To the best of Sellers' knowledge, information and belief, all
information provided to Buyer by Sellers and Blackwell is in compliance with the
provisions of this Agreement and is accurate and complete in all material
respects. The information provided does not contain any untrue statement of
material fact, and does not omit any facts in order to make such information
misleading.
(cc) There are no claims for brokerage commission, finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Sellers or Blackwell.
(dd) There are no outstanding rights to purchase or convert any
obligations of Blackwell to stock or securities of Blackwell, nor is Blackwell
obligated to issue any stock, securities, options, warrants, or convert any
obligations or other such rights.
(ee) Blackwell has all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to own and operate its
properties and to carry on its business as now being conducted.
(ff) Blackwell has no subsidiaries or affiliated companies and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation or other entity other than Blackwell Computer Graphics, Inc.
(S) 7. WARRANTIES AND REPRESENTATIONS OF BUYER:
----------------------------------------
-12-
<PAGE>
Buyer warrants and represents to Sellers as follows:
(a) Buyer is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware;
(b) Buyer has the power and authority to enter into this agreement and
to perform its obligations hereunder;
(c) The execution and delivery of this agreement and the consummation
of the transaction contemplated have been duly authorized by Buyer's Board of
Directors and no other corporate proceedings are necessary to authorize its
officers to effectuate this agreement and the transaction contemplated hereby;
(d) When executed by Buyer, this agreement constitutes a valid
obligation binding on it and such execution and performance of this agreement
does not violate, or result in a breach of, or constitute a default under, any
judgment, order or decree to which it may be subject nor does such making or
performance constitute a violation of or conflict with any provision of its
Charter or By Laws;
(e) That attached hereto as Exhibit H is the most current financial
statement of John P. Miller which is warranted to be accurate and correct.
(f) Buyer has not employed any broker, finder or agent, nor has it
otherwise become in any way obligated for any broker's, finder's, agent's or
similar fees with respect to the transaction contemplated by this agreement;
(g) Buyer does not have any knowledge of any claim, litigation or
threatened litigation or any other action which has been instituted or
threatened affecting its ability to lawfully perform its obligations under this
agreement;
-13-
<PAGE>
(h) At or prior to closing, Buyer will deliver to Sellers a letter from
its legal counsel verifying that the foregoing matters are true, accurate and
correct and that counsel is not aware of any legal impediment to the
consummation of the transaction described in this agreement.
(S) 8. SELLERS' RIGHT TO TERMINATE:
----------------------------
During the ten (10) day period following the execution of this agreement by
all parties, Sellers shall have the right to terminate this agreement if, in
their sole discretion, they determine that Master Graphics, Inc. and/or John P.
Miller do not have sufficient resources to fully implement the terms, duties and
obligations that this agreement imposes upon them.
(S) 9. CONFIDENTIALITY AGREEMENT: Both Buyer and Sellers recognize and
--------------------------
acknowledge that they have and will have access to, or will be provided, certain
confidential information of Blackwell, Master Graphics, Inc., John P. Miller and
Sellers ("Confidential Information") and such Confidential Information is a
valuable, special, and/or unique asset of Blackwell's business, Master Graphics,
Inc.'s business, John P. Miller's personal business, and Sellers' personal
business. The parties agree that they will not disclose any such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever unless duly authorized to do so in writing by
the non-disclosing party. In the event a breach or threatened breach by a
disclosing party, the non-disclosing party shall be entitled to an injunction
prohibiting the disclosing party from disclosing, in whole or in part, such
Confidential Information.
(S) 10. INCORPORATION OF TERMS OF LETTER OF INTENT:
-------------------------------------------
Except to the extent that any of its terms and provisions would conflict or
be inconsistent with the provisions hereof, the terms and provisions of the
Letter of Intent dated February 14, 1997, between Sellers and Buyer are hereby
adopted and ratified by Sellers and Buyer and made a part hereof. A copy of said
Letter of Intent is attached hereto as Exhibit I.
-14-
<PAGE>
(S) 11. EMPLOYMENT AGREEMENT AND COVENANT NOT TO COMPETE: Following the
------------------------------------------------
closing of the transaction described herein, Sellers shall be employed by
Blackwell or its equivalent or continuing counterpart in the following
capacities:
William J. Blackwell Position: President
Brenda M. Blackwell Position: Vice President/Secretary
This employment agreement is for a 10-year period under the following terms and
conditions:
(a) Sellers will provide services to Blackwell of the same scope, kind
and nature as the services they provided to it prior to the execution of this
agreement;
(b) Sellers shall be paid the following annual salaries:
William J. Blackwell: $180,000.00
Brenda M. Blackwell: $130,000.00
subject to upward adjustments as shall be agreed upon, from time to time, by the
Directors of Blackwell;
(c) Sellers shall receive the same or equivalent benefits as they were
receiving as of the Closing Date throughout such period of employment following
the Closing Date, such benefits including but not limited to those items
appearing on Exhibit J.
(d) While so employed, Sellers will use their best efforts to maintain,
preserve, promote and enhance Blackwell's business and to maintain its
relationships with suppliers, customers and others having business relationships
with Blackwell;
(e) It is expressly agreed and understood by and between Sellers, Buyer
and Blackwell that Sellers' employment, pursuant to this provision, is subject
to termination by either Sellers or
-15-
<PAGE>
Buyer at any time after two (2) years from the date of closing. However, the
parties hereto covenant and agree that they will not exercise their respective
rights of termination without giving at least six (6) months notice of such
intent to the other parties hereto;
(f) During the term of their employment with Buyer and for a 10-year
period thereafter, Sellers shall not, directly or indirectly, compete with Buyer
in any manner or capacity in any business activity in which Blackwell has
engaged during the term of this agreement. The obligation of Sellers under this
section shall likewise apply to any geographic region in which Blackwell has
engaged in business during the term of this agreement or to which the Sellers
had knowledge that Blackwell was in the process of expanding its business
operations to include.
(g) Sellers acknowledge that any breach or attempted breach by either
of them of the provisions of this section will result in irreparable injury to
Buyer for which it may not have an adequate remedy at law and that if they
should breach, or attempt to breach, such provisions, Buyer shall be entitled to
an injunction prohibiting any such breach, or attempted breach, or to otherwise
compel compliance with the provisions hereof.
For purposes of this section, a business shall be deemed "engaged in" or
"carried on" by Sellers if engaged in or carried on by a partnership of which
they may be a general or limited partner or by a corporation or association of
which they may be stockholders or members;
(h) In the event Buyer shall fail to meet any of its obligations under
the promissory note as described in 4(b), for a period of thirty (30)
consecutive months, notwithstanding any other provision hereof, Sellers shall
have the right to immediately terminate their employment with Buyer or any
successor corporation and the non-compete provisions hereof shall immediately
become null and void.
(S) 12. ENTIRE AGREEMENT: The parties understand agree and represent that
-----------------
this agreement constitutes the entire agreement among the parties concerning the
subject matter hereof,
-16-
<PAGE>
and that no amendment, modification, deletion or addition hereto shall be valid
unless set out in writing and signed by all parties to this agreement. Buyer
expressly acknowledges and agrees that Sellers' warranties and representations
contained in this agreement constitute the only warranties and representations
of Sellers relied upon by Buyer in completing in this transaction, and that
Sellers have made no warranties or representations upon which Buyer relies
except as are expressly set out in writing, signed by Sellers.
(S) 13. CONDITIONS PRECEDENT TO CLOSING: The parties shall comply with
-------------------------------
the following prior to Closing:
(a) The representations and warranties set forth in the Agreement are
accurate and correct in all material respects as of the date of Closing to the
best of the parties' knowledge, information and belief;
(b) The Buyer and Sellers shall have performed and complied with all of
their covenants contained in the Agreement;
(c) There shall be no injunctions, judgments, orders, decrees or ruling
in effect preventing consummation of any of the transactions contemplated by the
Agreement;
(d) Sellers and Buyer shall have received from each other's legal
counsel opinions in the form and substance as set forth in Exhibit K attached
hereto, addressed to Sellers and Buyer and dated as of the Closing Date;
(e) Buyer shall have obtained the financing necessary to consummate the
transactions contemplated and described in this Agreement.
-17-
<PAGE>
(S) 14. PAYMENT OF FEES AND EXPENSES: The parties hereto shall be
-----------------------------
responsible for, and will pay, all of their own fees and expenses, including
those for their own legal counsel and accountants, incurred in the negotiation,
preparation and consummation of this Agreement.
(S) 15. SURVIVORSHIP: All representations and warranties made by the
------------
parties to this Agreement and in certificates and other documents to be
delivered at closing, and the liability of the parties for the breach, accuracy
or other failure of such representations and warranties, shall not be
extinguished at closing. The parties, in executing, and in carrying out the
provisions of, this Agreement, are relying solely on the representations,
warranties and agreements contained in this Agreement or in any writing
delivered pursuant to provisions of this Agreement or at the closing of this
transaction and not upon any representation, warranty, agreement, promise or
information, written or oral, made by any person other than as specifically set
forth herein.
(S) 16. BINDING EFFECT: This agreement shall be binding upon and inure to
---------------
the benefit of the parties and their respective heirs, legal representatives,
successors and assigns.
(S) 17. ASSIGNMENT: Buyer shall not assign this agreement, or any rights
-----------
contained herein, without the prior written approval of Sellers.
(S) 18. MISCELLANEOUS:
--------------
(a) All notices, approvals or other communications to be sent or given
by or to the parties shall be deemed validly and properly given or made if in
writing and delivered by hand or by registered or certified mail, return receipt
requested, and addressed to:
SELLERS: William J. Blackwell Stephen W. Rimmer, Esq.
Brenda M. Blackwell Rimmer, Rawlings, MacInnis & Hedglin, P.A.
120 Lake Drive 1290 Deposit Guaranty Plaza
Richland, MS 39218 Jackson, MS 39201
- ----------------------------------------------------------------------------
-18-
<PAGE>
BUYER: Master Graphics, Inc. Michael P. Morgan, Esq.
2500 Lamar Black Bobango & Morgan
Memphis, TN 38114 530 Oak Court Drive, Suite 345
Memphis, TN 38117
(b) The parties agree, upon the request of any other party, to execute
any agreements or instruments consistent with this agreement which are necessary
to effectuate and consummate the transactions contemplated in this agreement.
(c) This agreement may be executed in any number of counterparts, each
of which shall be taken to be an original.
(d) No waiver of any provision of this agreement shall be valid unless
in writing and signed by the person or party against whom charged.
(e) The validity or enforceability of any particular provision of this
agreement shall not affect the other provisions of this agreement, and this
agreement shall be construed as if such invalid or unenforceable provision was
omitted. All parties hereto having participated actively in the negotiation and
drafting of this agreement, and each party having been represented by counsel,
it is agreed that the terms of this agreement shall not be construed against,
nor more favorably to, any party, regardless of their responsibility for its
preparation.
(S) 19. GOVERNING LAW: This agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Mississippi.
-19-
<PAGE>
BUYER:
MASTER GRAPHICS, INC.
BY: /s/ John P. Miller, President Date: 6/17/97
- ---------------------------------
GUARANTOR:
/s/ John P. Miller Date: 6/17/97
- -----------------------------------
John P. Miller
SELLERS:
/s/ John P. Miller Date: 6/17/97
- -----------------------------------
William J. Blackwell Date: 6/17/97
/s/ Brenda M. Blackwell
- -----------------------------------
Brenda M. Blackwell
BLACKWELL LITHOGRAPHERS, INC.
BY:/s/ William J. Blackwell
------------------------
William J. Blackwell, President
-20-
<PAGE>
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
AMONG
MASTER GRAPHICS, INC.
AND
WALTER P. MCMULLEN
June 4, 1997
<PAGE>
<TABLE>
<S> <C>
1. Definitions ..........................................................
2. Purchase and Sale of Shares ..........................................
(a) Basic Transaction ...............................................
(b) Purchase Price ..................................................
(c) Purchase Price Adjustment .......................................
(d) Tax Dividend Payment to Seller ..................................
(e) The Closing .....................................................
(f) Deliveries at the Closing .......................................
(g) Transfer of Assets at or Prior to Closing .......................
(h) Stock Option in Favor of Seller .................................
3. Representations and Warranties Concerning the
Transaction ..........................................................
(a) Representations and Warranties of the Seller ....................
(b) Representations and Warranties of the Buyer .....................
4. Representations and Warranties Concerning the Company ................
(a) Organization, Qualification, and Corporate Power ................
(b) Capitalization ..................................................
(c) Noncontravention ................................................
(d) Brokers' Fees ...................................................
(e) Title to Tangible Assets ........................................
(f) Subsidiaries ....................................................
(g) Financial Statements ............................................
(h) Events Subsequent to Most Recent Fiscal Month End ...............
(i) Legal Compliance ................................................
(j) Tax Matters .....................................................
(k) Real Property ...................................................
(l) Intellectual Property ...........................................
(m) Contracts .......................................................
(n) Powers of Attorney ..............................................
(o) Litigation ......................................................
(p) Employee Benefits ...............................................
(q) Certain Business Relationships with the Company .................
(r) Absence of Undisclosed Liabilities ..............................
(s) Employees .......................................................
(t) Environmental Compliance ........................................
(u) Disclaimer of Other Representations and Warranties ..............
5. Pre-Closing Covenants ................................................
(a) General .........................................................
(b) Notices and Consents ............................................
(c) Operation of Business ...........................................
(d) Full Access .....................................................
(e) Notice of Developments ..........................................
(f) Exclusivity .....................................................
6. Post-Closing Covenants ...............................................
(a) General .........................................................
(b) Litigation Support ..............................................
(c) Covenant Not to Compete .........................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(d) Access to Buyer Information .....................................
(e) Business and Financial Covenants ................................
(f) Tax Calculation Adjustments .....................................
(g) Environmental Compliance ........................................
(h) Payments and Notice to Unsecured Creditors ......................
(i) Special Indemnity ...............................................
7. Conditions to Obligation to Close ....................................
(a) Conditions to Obligation of the Buyer ...........................
(b) Conditions to Obligation of the Seller ..........................
8. Remedies for Breaches of This Agreement ..............................
(a) Survival of Representations and Warranties ......................
(b) Indemnification Provisions for Benefit of the Buyer .............
(c) Indemnification Provisions for Benefit of the Seller ............
(d) Matters Involving Third Parties .................................
(e) Determination of Adverse Consequences ...........................
(f) Other Indemnification Provisions ................................
9. Termination ..........................................................
(a) Termination of Agreement ........................................
(b) Effect of Termination ...........................................
10. Miscellaneous ........................................................
(a) Press Releases and Public Announcements .........................
(b) No Third-Party Beneficiaries ....................................
(c) Entire Agreement ................................................
(d) Succession and Assignment .......................................
(e) Counterpart .....................................................
(f) Headings ........................................................
(g) Notices .........................................................
(h) Governing Law ...................................................
(i) Amendments and Waivers ..........................................
(j) Severability ....................................................
(k) Expenses ........................................................
(l) Construction ....................................................
(m) Incorporation of Exhibits, Annexes, and Schedules ...............
</TABLE>
Exhibit A--Form of Buyer Note
Exhibit B--Form of Guaranty
Exhibits C-1 through C-4--Forms of Employment Agreement
Exhibit D--Form of Opinion of Counsel to the Seller
Exhibit E--Form of Opinion of Counsel to the Buyer
Annex I--Exceptions to the Seller's Representations and Warranties Concerning
the Transaction
<PAGE>
Annex II--Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties Concerning the
Company
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into on June 4, 1997, by and among MASTER GRAPHICS, INC.,
a Delaware corporation (the "Buyer"), and WALTER P. MCMULLEN (the "Seller"). The
----- ------
Buyer and the Seller are referred to collectively herein as the "Parties."
-------
The Seller owns substantially all of the outstanding capital stock of
Lithograph Printing Company of Memphis, a Tennessee corporation (the "Company").
-------
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell (or cause the sale) to the Buyer, all
of the outstanding capital stock of the Company in return for cash and the Buyer
Note.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
-----------
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
"Applicable Rate" means the prime rate of interest as published in The Wall
--------------- --------
Street Journal from time to time.
- --------------
"Buyer" has the meaning set forth in the preface above.
-----
"Buyer Note" has the meaning set forth in (S)2(b) below.
----------
"Cash" means cash and cash equivalents (including marketable securities and
----
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in (S)2(e) below.
-------
"Closing Date" has the meaning set forth in (S)2(e) below.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
1
<PAGE>
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of any Party that is not already generally available to the public.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
-------------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan [or material fringe
benefit plan or program].
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-----------------------------
"Environmental Laws" has the meaning set forth in (S)4(t) below.
------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Financial Statement" has the meaning set forth in (S)4(g) below.
-------------------
"Financing Commitment" has the meaning set forth in (S)3(b)(xii) below.
--------------------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
---------------------
Act of 1976, as amended.
"Income Tax" means any federal, state, local, or foreign income tax,
----------
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
-----------------
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" has the meaning set forth in (S)8(d) below.
-----------------
"Indemnifying Party" has the meaning set forth in (S)8(d) below.
------------------
"Knowledge" means actual knowledge without independent investigation.
---------
2
<PAGE>
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
--------------------------------
below.
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
---------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
------------------
"Net Worth" means the excess of the book value of the assets of the Company
---------
over its liabilities calculated in a manner consistent with the historical
accounting practices of the Company.
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-----
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Purchase Price" has the meaning set forth in (S)2(b) below.
--------------
"Related Person" shall mean any person (a) which now or hereafter directly
--------------
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, Buyer, or (b) which now or hereafter
beneficially owns or holds five percent (5%) or more of the capital stock of
Buyer, or (c) five percent (5%) or more of the capital stock of which is
beneficially owned or held by Buyer. For purposes hereof, "control" shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock, by contract or otherwise.
"Reportable Event" has the meaning set forth in ERISA (S)4043.
----------------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d)
3
<PAGE>
other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
------
"Share" means any share of the Common Stock, voting or non-voting, of the
-----
Company.
"Subsidiary" means any corporation with respect to which a specified Person
----------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Third Party Claim" has the meaning set forth in (S)8(d) below.
-----------------
2. Purchase and Sale of Company Shares.
-----------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
-----------------
Agreement, the Buyer agrees to purchase from the Seller, and the other
shareholders of the Company ("Other Shareholders"), and the Seller agrees to
sell to the Buyer, or to cause the Other Shareholders to sell, all of his or
their Shares for the consideration specified below in this (S)2.
(b) Purchase Price. The Buyer agrees to pay to the Seller (or to the Other
--------------
Shareholders as designated by Seller) at the Closing $11,558,000.00 (the
"Purchase Price") by delivery of (i) its promissory note (the "Buyer Note") in
- --------------- ----------
the form of Exhibit A attached hereto in the principal amount of $3,750,000.00
and (ii) cash for the balance of the Purchase Price payable by wire transfer or
delivery of other immediately available funds. The Buyer Note shall be
guaranteed by the Company in the form of Exhibit B-1 attached hereto and by John
P. Miller personally in the form of Exhibit B-2 attached hereto. The cash
portion Purchase Price shall be allocated among (with the amount of the Buyer
Note allocated only to Seller) the Seller and the Other Shareholders in
proportion to their respective holdings of Shares as set forth in (S)4(b) of the
Disclosure Schedule.
(c) Purchase Price Adjustment.
-------------------------
(i) Basis for Adjustment. The amount of the Purchase Price shall be
--------------------
reduced at Closing by the amount, if any, by which the Net Worth of the
Company on the Closing Date is less than the sum of $4,747,436.00, as
determined in accordance with the procedures hereinafter set forth. In the
event of any reduction in the Purchase Price pursuant to this Section, the
amount of the reduction shall be applied to reduce the amount of the Buyer
Note and the cash payment at Closing on a proportionate basis.
4
<PAGE>
(ii) Initial Determination. At close of business on the day prior
---------------------
to the Closing Date, the Company will determine the value of its Net Worth
(the "Closing Net Worth") in accordance with its usual accounting
practices. The Closing Net Worth determination shall be delivered to each
of the Parties, and shall be used by the Parties for purposes of any
adjustment to the Purchase Price pursuant to Subsection (i) above.
(iii) Objections to Valuation. If any Party believes that the
-----------------------
Closing Net Worth as calculated is incorrect, it may object thereto by
delivering to the other Parties, a statement of its objections in
reasonable detail within ten (10) days after the delivery to it of the
Closing Net Worth. The Parties shall attempt to resolve any such
disagreement promptly, but if agreement has not been reached within thirty
(30) days of the Closing Date, the disagreement shall be resolved forthwith
in accordance with the provisions of this Section.
(iv) Disagreements. In the event that the Parties cannot agree as
-------------
to the Closing Net Worth, any such disagreement shall be submitted
forthwith to arbitration in Memphis, Tennessee, by a neutral, independent
accounting firm, (the "Independent Accountant") as may be agreed to by the
parties or, if the parties are unable to so agree, to such an Independent
Accountant as is selected by the Chairman of the Department of Accountancy
at The University of Memphis.
(v) Procedures. The parties shall submit to the Independent
----------
Accountant (within ten (10) days of the appointment of the Independent
Accountant) their respective determination of Closing Net Worth. The
Independent Accountant shall as promptly as practicable make a
determination of the amounts of the Closing Net Worth, based upon the
information available to the Independent Accountant, without performing any
independent audit, and using the accounting practices historically followed
by the Company, which determination shall be final and binding upon the
Parties and shall be enforceable by a court of competent jurisdiction. In
the event the determination as issued by the Independent Accountant shows a
Closing Net Worth which is less than the sum of $4,747,436.00, then the
Buyer Note shall be deemed to have been reduced in principal amount by
thirty-two and four-tenths percent (32.4%) of such deficiency, with the
balance of the deficiency to be paid by Seller to Buyer in cash.
(vi) Attorneys' Fees. The Independent Accountant shall award
---------------
attorneys' fees and costs, including the cost of the Independent
Accountant, in favor of the Party that it determines to be the prevailing
party, if the Independent Accountant finds such award to be equitable;
otherwise, the
5
<PAGE>
cost of the Independent Accountant shall be borne equally by the Parties.
(d) Tax Dividend Payment to Seller and the Other Shareholders. Prior to the
---------------------------------------------------------
Closing, the Seller will cause the Company to pay the Seller and the Other
Shareholders in proportion to their respective holdings of Shares an aggregate
amount equal to the Seller's good faith estimate of the tax liability of the
Seller and the Other Shareholders based upon the taxable income of the Company
for the taxable period of January 1, 1997 through the Closing Date. The
estimated tax liability of the Seller and the Other Shareholders shall be
calculated at 40% of the Company's taxable income for those periods.
(e) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of The Bogatin Law
-------
Firm in Memphis, Tennessee, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Seller may
mutually determine (the "Closing Date"); provided, however, that the Closing
------------ -----------------
Date shall be no later than June 15, 1997.
(f) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
-------------------------
to the Buyer the various certificates, instruments, and documents referred to in
(S)7(a) below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in (S)7(b) below, (iii) the
Seller will deliver to the Buyer stock certificates representing all of the
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) the Buyer will deliver to the Seller the consideration specified in
(S)2(b) above.
(g) Transfer of Assets at or Prior to Closing. At or prior to Closing, the
-----------------------------------------
Seller may cause the Company to transfer to the Seller any one or more of the
assets listed on (S)2(g) of the Disclosure Schedule, as part of the
consideration of this transaction; provided that the book value of any such
assets so transferred shall be deducted from the Purchase Price, with the
deduction to be applied to the cash portion of the Purchase Price.
(h) Stock Option in Favor of Seller.
-------------------------------
(i) In the event that Buyer or any of Buyer's successors or assigns (a
"Buyer Entity") shall cause to be made or shall be involved in a public offering
of its stock (the "IPO") within ten years of the Closing Date, Seller shall have
the option to acquire, at the initial IPO price per share, the number of shares
up to that number pursuant to which the purchase price would equal
6
<PAGE>
$3,750,000.00, with the maximum number of shares which Seller shall have the
option to purchase to be determined as follows:
$3,750,000.00 divided by Initial IPO Price Per Share = Maximum
Number of Option Shares.
(ii) In the event of any acquisition or merger of a Buyer Entity,
pursuant to which the shareholders of the Buyer Entity receive shares of stock
of any company whose stock is traded on any exchange (a "Surviving Entity")
during the ten (10) year period following the Closing Date, the Buyer shall
cause its shareholders to agree (with the agreement of the shareholders to be
provided at Closing) to grant and convey to Seller an option to acquire at 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 $3,750,000.00, with the maximum
number of shares which Seller shall have the option to purchase to be determined
as follows:
$3,750,000.00 divided by Price Per Share of Surviving
Entity = Maximum Number of Option Shares.
(iii) At closing, Buyer shall execute and deliver, and shall cause
its shareholders to execute and deliver, such agreements and instruments as may
be requested by Seller to effectively grant and convey the options contemplated
herein.
3. Representations and Warranties Concerning the Transaction.
---------------------------------------------------------
(a) Representations and Warranties of the Seller. The Seller represents
--------------------------------------------
and warrants to the Buyer that the statements contained in this (S)3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this (S)3(a))
with respect to himself, except as set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power and
----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the
7
<PAGE>
transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
the Seller is subject.
(iii) Brokers' Fees. The Seller has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Investment. The Seller (A) understands that the Buyer Note has
----------
not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Note solely for his own account for
investment purposes, and not with a view to the distribution thereof, and
(C) has received certain information concerning the Buyer and has had the
opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Note.
(v) Shares. The Seller holds of record and owns beneficially the
------
number of Shares set forth next to his name in (S)4(b) of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands, except as otherwise shown on
the Disclosure Schedule. Except as shown on the Disclosure Schedule, the
Seller is not a party to any option, warrant, purchase right, or other
contract or commitment that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of the Company (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock
of the Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Seller that the statements contained in this (S)3(b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this (S)3(b)), except as
set forth in Annex II attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation duly
-------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
8
<PAGE>
(ii) Authorization of Transaction. The Buyer has full power and
----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Shares with a view
----------
to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
(vi) Financial Statements. Buyer has previously provided to Seller
--------------------
copies of the following financial statements (collectively the "Financial
Statements"): (i) audited balance sheets and statements of income, changes
in stockholders' equity, and cash flow as of and for the fiscal year ended
December 31, 1995; and (ii) unaudited balance sheets and statements of
income, changes in stockholders' equity, and cash flow (the "Most Recent
-----------
Financial Statements") as of and for the fiscal year ended December 31,
--------------------
1996 (the "Most Recent Fiscal Year End"). The Financial Statements
---------------------------
(including the notes thereto) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby and
present fairly the financial condition of the Buyer as of such dates and
the results of operations of the Buyer for such periods; provided, however,
-----------------
that the Most Recent Financial Statements are subject to normal year-end
9
<PAGE>
adjustments and lack footnotes and other presentation items.
(vii) Events Subsequent to Most Recent Fiscal Year End. Since the
------------------------------------------------
Most Recent Fiscal Year End, there has not been any material adverse change
in the financial condition of the Buyer.
(viii) Legal Compliance. The Buyer has complied with all applicable
----------------
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local,
and foreign governments (and all agencies thereof), except where the
failure to comply would not have a material adverse effect upon the
financial condition of the Buyer taken as a whole.
(ix) Tax Matters. The Buyer has filed all Income Tax Returns that
-----------
it was required to file, and has paid all Income Taxes shown thereon as
owing, except where the failure to file Income Tax Returns or to pay Income
Taxes would not have a material adverse effect on the financial condition
of the Buyer.
(x) Litigation. The Buyer is not subject to any outstanding
----------
injunction, judgment, order, decree, ruling, or charge, and is not a party
to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction, except where the injunction,
judgment, order, decree, ruling, action, suit, proceeding, hearing, or
investigation would not have a material adverse effect on the financial
condition of the Buyer taken as a whole.
(xi) Employee Benefits.
-----------------
(A) With respect to each Employee Benefit Plan that the Buyer
maintains or to which the Buyer contributes:
(I) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation
in all respects with the applicable requirements of ERISA and the
Code, except where the failure to comply would not have a material
adverse effect on the financial condition of the Buyer taken as a
whole.
(II) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
10
<PAGE>
(III) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan has received a determination letter from the
Internal Revenue Service to the effect that it meets the requirements
of Code (S)401(a).
(IV) As of the last day of the most recent prior plan year,
the market value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equaled or exceeded the present value of liabilities thereunder
(determined in accordance with then current funding assumptions).
(B) With respect to each Employee Benefit Plan that the Buyer
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(I) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC.
No proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted.
(II) No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of
any such Employee Benefit Plan (other than routine claims for
benefits) is pending, except where the action, suit, proceeding,
hearing, or investigation would not have a material adverse effect on
the financial condition of the Buyer taken as a whole.
(III) The Buyer has not incurred any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability) with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(xii) Financing Commitment. The Buyer has received a commitment (the
--------------------
"Financing Commitment") from a financial institution for financing the
transactions contemplated by this Agreement, and Buyer will proceed with
its best efforts to promptly satisfy all conditions to financing as set
forth in the Financing Commitment.
4. Representations and Warranties Concerning the Company. Seller
-----------------------------------------------------
represents and warrants to the Buyer that the statements
11
<PAGE>
contained in this (S)4 are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this (S)4), except as set forth in the disclosure schedule delivered
by the Seller to the Buyer on the date hereof (the "Disclosure Schedule").
-------------------
(a) Organization, Qualification, and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the financial
condition of the Company taken as a whole. The Company has full corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. (S)4(a) of the Disclosure Schedule
lists the directors and officers of the Company.
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of 800,000 Shares, of which 128,286 Shares are issued and outstanding.
All of the issued and outstanding Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the Seller and
the Other Shareholders as set forth in (S)4(b) of the Disclosure Schedule.
Except as shown on (S)4(b) of the Disclosure Schedule, there are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require the Company to issue, sell, or otherwise cause to become outstanding any
of its capital stock. Except as shown on (S)4(b) of the Disclosure Schedule,
there are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.
(c) Noncontravention. To the Knowledge of the Seller, neither the execution
----------------
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Company is subject
or any provision of the charter or bylaws of the Company or (ii) except as shown
in (S)4(C) of the Disclosure Schedule, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Company is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets), except where the violation, conflict, breach, default,
acceleration,
12
<PAGE>
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the financial condition of
the Company taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of the Seller, the
Company does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the financial condition of the Company taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Tangible Assets. The Company has good title to, or a valid
------------------------
leasehold interest in, the material tangible assets it uses regularly in the
conduct of its business. To the extent that the Company's material tangible
assets have not been either expensed or fully depreciated, such assets are
reflected in the Financial Statements to the extent so required to be under
GAAP. The Company's material tangible assets are free of any liens or
encumbrances except those reflected in the Financial Statements and liens for
personal property taxes not yet due and payable.
(f) Subsidiaries. The Company does not have any Subsidiaries.
------------
(g) Financial Statements. Seller has previously provided to Buyer copies of
--------------------
the following financial statements (collectively the "Financial Statements"):
(i) audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1994 and
1995, for the Company; and (ii) audited balance sheets and statements of income,
changes in stockholders' equity, and cash flow (the "Most Recent Financial
---------------------
Statements") as of and for the fiscal year ended December 31, 1996 (the "Most
- ---------- ----
Recent Fiscal Year End") for the Company. The Financial Statements (including
- ----------------------
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
------------------------------------------------
Fiscal Year End, there has not been any material adverse change in the financial
condition of the Company. Without limiting the generality of the foregoing,
since that date the Company has not engaged in any practice, taken any action,
or
13
<PAGE>
entered into any transaction outside the Ordinary Course of Business the primary
purpose or effect of which has been to generate or preserve Cash.
(i) Legal Compliance. To the Knowledge of the Seller, the Company has
----------------
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a material adverse effect upon
the financial condition of the Company taken as a whole.
(j) Tax Matters.
-----------
(i) The Company has filed all Income Tax Returns that it was required
to file, and has paid all Income Taxes shown thereon as owing, except where
the failure to file Income Tax Returns or to pay Income Taxes would not
have a material adverse effect on the financial condition of the Company.
(ii) (S)4(j) of the Disclosure Schedule lists all Income Tax Returns
that currently are the subject of audit. For the years subsequent to
December 31, 1993, the Seller has delivered to the Buyer correct and
complete copies of all federal Income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company.
(iii) The Company has not waived any statute of limitations in respect
of Income Taxes or agreed to any extension of time with respect to an
Income Tax assessment or deficiency.
(iv) The Company is not a party to any Income Tax allocation or
sharing agreement.
(k) Real Property.
-------------
(i) Except for that certain investment real estate listed in (S)2(g)
on the Disclosure Schedule, which the Parties anticipate will be
transferred to Seller at or prior to Closing, the Company does not own any
real property.
(ii) (S)4(k)(ii) of the Disclosure Schedule lists all real property
leased or subleased to the Company. The Seller has delivered to the Buyer
correct and complete copies of the leases and subleases listed in
(S)4(k)(ii) of the Disclosure Schedule (as amended to date). Each lease
and sublease listed in (S)4(k)(ii) of the Disclosure Schedule is legal,
valid, binding, enforceable, and in full force and effect, except where the
illegality, invalidity, nonbinding nature, unenforceability, or
ineffectiveness would not have a material
14
<PAGE>
adverse effect on the financial condition of the Company taken as a whole.
(l) Intellectual Property. (S)4(l) of the Disclosure Schedule identifies
---------------------
each patent or registration which has been issued to the Company with respect to
any of its intellectual property, identifies each pending patent application or
application for registration which the Company has made with respect to any of
its intellectual property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect to any
of its intellectual property.
(m) Contracts. (S)4(m) of the Disclosure Schedule lists all written
---------
contracts and other written agreements to which the Company is a party the
performance of which will involve consideration in excess of $50,000.00
("Contracts"). The Seller has delivered to the Buyer a correct and complete
copy of each Contract or other agreement listed in 4(m) of the Disclosure
Schedule (as amended to date). To Seller's knowledge, the Contracts are in full
force and effect and there are no events currently existing which would
constitute an event of default under such Contracts.
(n) Powers of Attorney. To the Knowledge of the Seller, there are no
------------------
outstanding powers of attorney executed on behalf of the Company.
(o) Litigation. (S)4(o) of the Disclosure Schedule sets forth each instance
----------
in which the Company (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is (or to seller's knowledge, is
threatened to be) a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, except where the
injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing,
or investigation would not have a material adverse effect on the financial
condition of the Company taken as a whole.
(p) Employee Benefits.
-----------------
(i) (S)4(p) of the Disclosure Schedule lists each Employee Benefit
Plan that the Company maintains or to which the Company contributes.
(A) To the Knowledge of the Seller, each such Employee Benefit
Plan (and each related trust, insurance contract, or fund) complies in form
and in operation in all respects with the applicable requirements of ERISA
and the Code, except where the failure to comply would not have a material
adverse effect on the financial condition of the Company taken as a whole.
15
<PAGE>
(B) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan.
(C) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Code (S)401(a).
(D) As of the last day of the most recent prior plan year, the
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equaled
or exceeded the present value of liabilities thereunder (determined in
accordance with then current funding assumptions).
(E) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted.
(B) No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending,
except where the action, suit, proceeding, hearing, or investigation would
not have a material adverse effect on the financial condition of the
Company taken as a whole.
(C) The Company has not incurred any liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal liability) with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
16
<PAGE>
(q) Certain Business Relationships with the Company. Except as shown in
-----------------------------------------------
(S)4(Q) of the Disclosure Schedule, neither the Seller nor any of his Affiliates
have been involved in any material business arrangement or relationship with the
Company within the past 12 months and neither the Seller nor any of his
Affiliates (other than the Company) owns any material asset, tangible or
intangible, which is used in the business of the Company.
(r) Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
indebtedness, obligation or liability, whether absolute, contingent or otherwise
of the type required to be reflected on the Company's Financial Statements
except for those disclosed in, reflected on or reserved against in the Financial
Statements.
(s) Employees. Section 4(s) of the Disclosure Schedule lists all of the
---------
employees of the Company, including the current rate of compensation payable to
each. Except as set forth in the Disclosure Schedule, the Company is not a
party to any union contract or other collective bargaining agreement.
(t) Environmental Compliance.
------------------------
(i) All property owned, leased or subleased by the Company (the "Real
Property") and the use and operation thereof are currently in substantial
compliance with all applicable laws, ordinances, rules and regulations
(including consent decrees and administrative orders) relating to public
health and safety in protection of the environment, including those
statutes, regulations and ordinances identified in subparagraph (iii) below
(collectively, "Environmental Laws"), and all permits, licenses and
authorizations relating to the use and operation of the Real Property
required by applicable Environmental Laws are in effect, except to the
extent the absence thereof would not have a material adverse effect on the
financial condition of the Company.
(ii) There are no pending or to Seller's knowledge, threatened (A)
requests for information, actions or proceedings from or by any
governmental agency or any other person or entity regarding the condition
or use of the Real Property or the release, generation, discharge,
manufacture, treatment, transportation or disposal of Hazardous Material
on, in, under (including the underlying ground water) or from the Real
Property, or regarding any Environmental Law, or (B) liens or governmental
actions, notices or violations, notices of non-compliance or other
proceedings of any kind with respect to the Real Property. Seller shall
immediately notify Buyer and proves copies upon receipt of all written
complaints, claims, citations, inquiries, reports or notices relating to
the condition of the Real Property or compliance with Environmental Laws
(collectively, "Environmental Notices") received after the date hereof.
17
<PAGE>
(iii) For purposes of this Agreement, "Hazardous Material" means (A)
"Hazardous Substances" or "Toxic Substances" as those terms are defined by
the Comprehensive Environmental Response, Compensation and Liability act,
42 U.S.C. 9601 et seq., as now and hereinafter amended, (B) "Hazardous
-- ---
Wastes", as that term is defined by the Resource Conservation and Recovery
Act, 42 U.S. C. 6902 et seq., as now and hereinafter amended, (C) any
-- ---
pollutant or contaminate or hazardous, dangerous or toxic chemicals,
materials or substances within the meaning of any other applicable federal,
state or local law, regulation, ordinance or requirement (including consent
decrees and administrative orders) relating to or imposing liability or
standards or conduct concerning any hazardous, toxic or dangerous waste
substances or materials, (D) crude oil or petroleum, (E) any radioactive
material, including any source, special nuclear or byproduct material as
defined as 42 U.S.C. 211 et seq., (F) asbestos in friable condition, (G)
-- ---
polychlorinated biphenyls ("PCBs") or substances or compounds containing
PCBs, and (H) medical waste.
(u) Disclaimer of other Representations and Warranties. Except as
--------------------------------------------------
expressly set forth in Section 3 and this Section 4, the Seller makes no
representation or warranty, express or implied, at law or in equity, in respect
of the Company, or any of its assets, liabilities or operations, including,
without limitation, with respect to merchantability or fitness for any
particular purpose, and any such other representations or warranties are hereby
expressly disclaimed. Buyer hereby acknowledges and agrees that, except to the
extent specifically set forth in Section 3 and this Section 4, the Buyer is
purchasing the Shares on an "as-is, where-is" basis.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
-------
efforts to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in (S)7
below).
(b) Notices and Consents. The Seller will cause the Company to give any
--------------------
notices to third parties, and will cause the Company to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in (S)4(c) above. Each of the
Parties will (and the Seller will cause the Company to give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and
18
<PAGE>
governmental agencies in connection with the matters referred to in (S)3(a)(i),
(S)3(b)(ii) and (S)4(c) above.
(c) Operation of Business. The Seller will not cause or permit the Company
---------------------
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business.
(d) Full Access. The Buyer will permit, and the Seller will cause the
-----------
Company to permit, representatives of the other Party to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Buyer or the Company, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to Buyer or the Company, respectively. Each Party will treat and
hold as such any Confidential Information it receives from the Buyer or the
Company in the course of the reviews contemplated by this (S)5(d), will not use
any of the Confidential Information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever, will return to
the Buyer or the Company, as appropriate, all tangible embodiments (and all
copies) of the Confidential Information which are in its possession.
(e) Notice of Developments.
----------------------
(i) The Seller may elect at any time to notify the Buyer of any
development causing a breach of any of the representations and warranties
in (S)4 above. Unless the Buyer has the right to terminate this Agreement
pursuant to (S)9(a)(ii) below by reason of the development and exercises
that right within the period of 10 business days referred to in (S)9(a)(ii)
below, the written notice pursuant to this (S)5(e)(i) will be deemed to
have amended the Disclosure Schedule, to have qualified the representations
and warranties contained in (S)4 above, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.
(ii) Each Party will give prompt written notice to the others of any
material adverse development causing a breach of any of his or its own
representations and warranties in (S)3 above. No disclosure by any Party
pursuant to this (S)5(e)(ii), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or
cure any misrepresentation or breach of warranty.
(f) Exclusivity. The Seller will not (and the Seller will not cause or
-----------
permit the Company to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Company
(including any acquisition structured as a merger, consolidation, or share
exchange); provided, however,
-----------------
19
<PAGE>
that the Seller, the Company and its directors and officers will remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require.
6. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
-------
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under (S)8 below).
(b) Litigation Support. In the event and for so long as any Party actively
------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties shall cooperate with him or it
and his or its counsel in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S)8 below).
(c) Covenant Not to Compete. For a period of three (3) year(s) from and
-----------------------
after the Closing Date, Seller will not engage directly or indirectly in any
business that the Company conducts as of the Closing Date in any geographic area
in which the Company conducts that business as of the Closing Date; provided,
---------
however, that ownership of less than 5% of the outstanding stock of any
- -------
publicly-traded corporation shall not be deemed such engagement solely by reason
thereof in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this (S)6(c) is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
20
<PAGE>
which the judgment may be appealed.
(d) Access to Buyer Information. Until final payment by Buyer of all
---------------------------
amounts due pursuant to the Buyer Note, the Buyer agrees to provide to Seller or
his representatives complete access to Buyer's books and records and to cause
the books and records of any guarantors to be available to Seller and his
representatives. In addition, Buyer shall provide to Seller copies of (i)
Buyer's quarterly financial statements within 30 days of the end of each
quarter, not audited but certified by Buyer's chief financial officer, (ii)
Buyer's annual financial statements within ninety (90) days of the end of each
fiscal year, certified by Buyer's independent accountants; and (iii) all loan
documents evidencing Senior Debt (as defined in the Buyer Note), and all
amendments thereto.
(e) Business and Financial Covenants. Buyer covenants and agrees that from
--------------------------------
the date hereof and until payment in full of the principal of and interest on
the Buyer Note, unless the Seller shall otherwise consent in writing, such
consent to be at the discretion of the Seller, Buyer will:
(i) Perform all things necessary to preserve and keep in full force
and effect its existence, rights and franchises, comply with all laws
applicable to it and continue to conduct and operate its business
substantially as conducted and operated during the present and preceding
calendar years.
(ii) Maintain, preserve and protect all franchises, patents,
copyrights, trademarks and tradenames and other proprietary assets and
preserve all the remainder of its properties used or useful in the conduct
of its business substantially as conducted and operated during the present
and preceding fiscal year; preserve all the remainder of its properties
used or useful in the conduct of its business and keep the same in good
repair, working order and condition, and from time to time make, or cause
to be made, all needed and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly conducted at all times.
(iii) (A) At all times maintain in some company or companies (having
a Best's rating of A:XI or better) approved by Seller:
(I) Comprehensive public liability insurance covering claims for
bodily injury, death, and property damage, with minimum limits
satisfactory to the Seller, but in any event not less than those
amounts customarily maintained by companies in the same or
substantially similar business; and
21
<PAGE>
(II) Hazard insurance insuring Buyer's property and assets
against loss by fire (with extended coverage) and against such other
hazards and perils (including but not limited to loss by windstorm,
hail, explosion, riot, aircraft, smoke, vandalism, malicious mischief
and vehicle damage) for the replacement value of such property and
assets.
(iv) Pay all of its indebtednesses and obligations promptly in
accordance with normal terms and practices of its business and pay and
discharge or cause to be paid and discharged promptly all taxes,
assessments, and governmental charges or levies imposed upon it or upon any
of its income, profits, or properties, real, personal or mixed, or upon any
part thereof, before the same shall become in default, as well as all
lawful claims for labor, materials, and supplies which otherwise, if
unpaid, might become a lien or charge upon such properties or any part
thereof; provided, however, that the Buyer shall not be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
trade payable, charge, levy or claim so long as the validity thereof shall
be contested in good faith by appropriate proceedings.
(v) Furnish to the Seller as soon as available, and in any event
within ninety (90) days after the end of each fiscal year of Buyer,
consolidated and consolidating balance sheets and statements of income and
surplus of Buyer which have been certified by an independent Certified
Public Accountant, showing the financial condition of Buyer as at the close
of such year and the results of operations during such year; and, within
thirty (30) days after the end of each month, financial statements similar
to those mentioned above, not audited but certified by the Treasurer or
other appropriate financial officer ("Certifying Officer") of Buyer such
balance sheets to be as of the end of each such month, and such statements
of income and surplus to be for the period from the beginning of the fiscal
year to the end of such month, in each case subject only to audit and year-
end adjustment. The certificate of the Certifying Officer shall (i) state
that the attached financial statement, together with any explanatory notes
therein referred to and attached thereto, is correct and complete and
fairly presents the financial condition of the Buyer as of the date of the
financial statement, and the results of its operations for the period
ending on the date reflected in said financial statement, (ii) state that
such financial statement has been prepared in accordance with generally
accepted accounting principals applied on a consistent basis maintained
throughout the period involved, (iii) certify that the Buyer is in
compliance with all provisions of this Agreement and (iv) contain the
calculations with respect to the financial covenants set forth in
Subsections (viii), (ix) and (x).
22
<PAGE>
(vi) At the time of Buyer's first knowledge or notice, furnish the
Seller with written notice of the occurrence of any event or the existence
of any event, circumstance, or condition which constitutes or upon notice,
lapse of time, or both, would constitute an event of default under the
terms of this Agreement, the Buyer Note or any Senior Debt.
(vii) Furnish such other information regarding the operations,
business affairs and financial condition of the Buyer as Seller may
reasonably request.
(viii) Permit any person designated by Seller to visit and inspect
any of the properties, corporate books and financial reports of the Buyer
and to discuss its affairs, finances and accounts with its principal
officers, at all such reasonable times and as often as Seller may
reasonably request.
(ix) Except for any guarantee by Buyer of obligations of any
Subsidiary of Buyer in connection with the acquisition of businesses from
time to time by such Subsidiary, not guarantee or otherwise in any way
become or be responsible for the indebtedness or obligations of any other
Person, by any means whatsoever, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of funds
to any other Person through the purchase of goods, supplies or services (or
by way of stock purchase, capital contribution, advance or loan) for the
purpose of paying or discharging the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable instruments by the
Buyer in the ordinary course of business for collection.
(x) Not make any loans to any Person.
(xi) Not (A) declare or pay, or set aside any sum for the payment
of, any dividends or make any other distribution upon any shares of its
capital stock of any class, or (B) purchase, redeem or other otherwise
acquire for value any shares of its capital stock of any class, or commit
to do any of same, or set aside any sum therefor, or permit any subsidiary
to purchase or acquire for value any shares of its capital stock of any
class, or commit to do any of the same, or set aside any sum therefor, or
(C) make any payment to a profit sharing plan or to any other retirement or
pension plan to or for the benefit of management shareholders which exceeds
(based on a percentage of compensation) similar payments made for the
benefit of all employees of the Buyer.
(f) Tax Calculation Adjustments. In the event the final tax returns for
---------------------------
the Company for the periods ending December 31, 1996 and the Closing Date,
result in a tax liability to the Seller and
23
<PAGE>
the Other Shareholders in excess of the estimated tax liability as determined
pursuant to Section 2(d) hereof, the Buyer shall cause the Company to promptly
pay to the Seller and the Other Shareholders in proportion to their respective
holdings of Shares the amount of such additional tax liability; provided that in
the event such payment causes the Net Worth of the Company to be less than the
minimum specified in Section 2(c) hereof, then the Purchase Price shall be
adjusted as set forth therein.
(g) Environmental Compliance. From and after the Closing Date, the Buyer
------------------------
shall at all times cause the Company and its operations to be in compliance with
all Environmental Laws.
(h) Payments and Notice to Unsecured Creditors. In connection with the
------------------------------------------
Closing, the Buyer will be entering into a loan agreement with First American
National Bank (the "Bank"), pursuant to which the Bank will provide a revolving
line of credit in favor of the Buyer and its merged subsidiary in the amount of
$7,500,000.00. Effective upon the Closing, the Buyer agrees to maintain the
line of credit in effect at all times for a minimum period of ninety (90) days
following the Closing, and to maintain minimum availability under the line of
credit for such 90-day period in an amount equal to or greater than the
aggregate amount of the outstanding indebtednesses owed to unsecured creditors
of the Buyer and its merged subsidiary as of the Closing Date (an amount which
is currently approximately $1,500,000). The Buyer further agrees that in the
event any unsecured creditors of the Buyer or its merged subsidiary are not paid
when due in the ordinary course of business, at any time during the ninety (90)
day period following closing, the Buyer will draw down sufficient funds from the
line of credit to pay the total amount due such unsecured creditors. For
purposes of this Agreement, unsecured creditors shall include not only the
unsecured creditors as of the Closing Date, but those arising within the ninety
(90) day period following the Closing Date.
In addition to the foregoing, the Buyer agrees to prepare an appropriate
professional notice of the acquisition of the Company, and the merger of the
Company with the other subsidiaries of the Buyer, which will be included with
all purchase orders issued by the Buyer and its merged subsidiary, and also with
all checks issued by the Buyer and its merged subsidiary, during the ninety (90)
day period following the Closing.
(i) Special Indemnity. In the event Seller or any of the Other
-----------------
Shareholders incurs any extra tax costs as a result of any claims by the
Internal Revenue Service recharacterizing the sale of stock by them as something
other than a sale of stock, the Buyer shall reimburse the Seller and/or the
Other Shareholders by the amount of such extra tax costs, together with such
additional
24
<PAGE>
amount as will pay any additional taxes resulting from such payment, so that the
net amount to the Seller and the Other Shareholders after taxes shall be equal
to the extra tax costs so incurred by them. In addition, the Buyer hereby
agrees to indemnify and hold the Seller and the Other Shareholders harmless from
any and all costs and expenses incurred in connection with any such
recharacterization, including but not limited to legal fees. All amounts owed to
the Seller and/or the Other Shareholders under this Section 6(i) are hereinafter
referred to as the "Special Indemnity Amount."
The Special Indemnity Amount shall be payable by the Buyer to the Seller
and/or the Other Shareholders as soon as it can be paid by the Buyer without
violating any of the Buyer's loan covenants; provided, however, that in no event
-----------------
shall the Special Indemnity Amount be payable earlier than the third (3rd)
anniversary of the Closing Date or later than the maturity date of the Buyer
Note. The Special Indemnity Amount shall accrue interest at the rate of 12% per
annum commencing on the date the Seller and/or the Other Shareholders notify the
Buyer of its liability for the Special Indemnity Amount.
7. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)3(a) and (S)4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in (S)7(a)(i)-(iii) is
satisfied in all respects;
(v) the Buyer shall have received from counsel to Seller an opinion
in form and substance as set forth in Exhibit D attached hereto, addressed
to the Buyer, and dated as of the Closing Date;
(vi) the Buyer shall have received the financing for the
25
<PAGE>
acquisition pursuant to the terms of the Financing Commitment; and
(vii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this (S)7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller to
--------------------------------------
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)3(b) above
shall be true and correct in all material respects at and as of the Closing
Date, and no event shall have occurred causing any of the representations
and warranties in (S)3(a) or (S)4 to be untrue or incorrect in any material
respect;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to the
effect that each of the conditions specified above in (S)7(b)(i)-(iii) is
satisfied in all respects;
(v) the Seller, Eddie R. Cox, Russell F. Gordon, and Phyllis A.
Leoncavallo shall have been offered employment agreements by the Buyer in
form and substance as set forth in Exhibit C;
(vi) the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Seller, and dated as of the Closing Date;
(vii) the Buyer shall have provided to the Seller evidenced
satisfactory to Seller in his discretion that the Buyer is and will be
solvent (considering all indebtedness including the Buyer Note) on and
after the Closing and will remain solvent (considering all indebtedness
including the Buyer Note) through maturity of the Buyer Note, and that the
Buyer Note will be paid when due;
26
<PAGE>
(viii) the Buyer shall have caused Seller to be released from any
personal guaranties of any indebtednesses and obligations of the Company;
(ix) the Buyer shall have delivered to Seller the guaranties as
described in Section 2(b) hereof;
(x) the Buyer shall have affirmed the lease of the real property
located at 4222 and 4240 Pilot Drive, Memphis, Tennessee, between Graphic
Development Company as Lessor and the Company as Lessee, with such
modifications as Seller may require; and
(xi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller.
The Seller may waive any condition specified in this (S)7(b) if they execute a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties.
------------------------------------------
All of the representations and warranties of each of the Seller contained
in (S)4 above shall survive the Closing hereunder (unless the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of eighteen (18)
months thereafter. All of the representations and warranties of the Parties
contained in (S)3 above shall survive the Closing (unless the damaged Party knew
or had reason to know of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) In the event the Seller breaches any of his representations,
warranties, and covenants contained herein (other than the covenants in
(S)2(a) above and the representations and warranties in (S)3(a) above),
and, if there is an applicable survival period pursuant to (S)8(a) above,
provided that the Buyer makes a written claim for indemnification against
the Seller pursuant to (S)10(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against any Adverse
Consequences the Buyer shall suffer through and after the date of the claim
for indemnification (but excluding any Adverse Consequences
---------
27
<PAGE>
the Buyer shall suffer after the end of any applicable survival period)
caused proximately by the breach; provided, however, that Seller shall not
-----------------
have any obligation to indemnify the Buyer from and against any Adverse
Consequences caused by the breach of any representation or warranty or
covenant of the Seller contained in (S)4 above: (A) until the Buyer has
suffered Adverse Consequences by reason of all such breaches in excess of a
$100,000.00 aggregate deductible (after which point the Seller will be
obligated only to indemnify the Buyer from and against further such Adverse
Consequences) or thereafter (B) to the extent the Adverse Consequences the
Buyer has suffered by reason of all such breaches exceeds the Purchase
Price received by the Seller (after which point the Seller will have no
obligation to indemnify the Buyer from and against further such Adverse
Consequences).
(ii) In the event Seller breaches any of his covenants in (S)2(a)
above or any of his representations and warranties in (S)3(a) above, and,
if there is an applicable survival period pursuant to (S)8(a) above,
provided that the Buyer makes a written claim for indemnification against
the Seller pursuant to (S)10(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer shall suffer through and after the date of
the claim for indemnification (but excluding any Adverse Consequences the
---------
Buyer shall suffer after the end of any applicable survival period) caused
by the breach.
(iii) In the event Seller is determined by a court with jurisdiction
to be liable to the Buyer (or the Parties agree to such a determination)
pursuant to this (S)8(b), the amount of such liability shall be applied
first to reduce the remaining outstanding principal balance of the Buyer
Note payable to Seller.
(c) Indemnification Provisions for Benefit of the Seller. In the event the
----------------------------------------------------
Buyer breaches any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to (S)8(a)
above, provided that the Seller makes a written claim for indemnification
against the Buyer pursuant to (S)10(h) below within such survival period, then
the Buyer agrees to indemnify the Seller from and against the entirety of any
Adverse Consequences the Seller shall suffer through and after the date of the
claim for indemnification (but excluding any Adverse Consequences the Seller
---------
shall suffer after the end of any applicable survival period) caused proximately
by the breach.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the
28
<PAGE>
"Indemnified Party") with respect to any matter (a "Third Party Claim")
----------------- -----------------
which may give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this (S)8, then the Indemnified Party
-----------------
shall promptly (and in any event within five business days after receiving
notice of the Third Party Claim) notify each Indemnifying Party thereof in
writing.
(ii) Any Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with counsel of
his or its choice reasonably satisfactory to the Indemnified Party.
(iii) Unless and until an Indemnifying Party assumes the defense of
the Third Party Claim as provided in (S)8(d)(ii) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner he
or it reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of each of the Indemnifying Parties
(not to be withheld unreasonably).
(e) Determination of Adverse Consequences. The Parties shall make
-------------------------------------
appropriate adjustments for tax benefits and insurance coverage and take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)8. All
indemnification payments under this (S)8 shall be deemed adjustments to the
Purchase Price.
(f) Other Indemnification Provisions. The indemnification provisions in
--------------------------------
this (S)8 are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; provided, however, that the Buyer acknowledges and agrees
-----------------
that the foregoing indemnification provisions in this (S)8 shall be the
exclusive remedy of the Buyer for any breach of the representations and
warranties in (S)4 above, or any claims of misrepresentation, fraud, fraud in
the inducement, and other claims, whether sounding in tort or contract.
9. Termination.
-----------
(a) Termination of Agreement. Certain of the Parties may terminate this
------------------------
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
29
<PAGE>
written notice to the Seller at any time prior to the Closing in the event
(A) the Seller has within the then previous 10 business days given the
Buyer any notice pursuant to (S)5(e)(i) above and (B) the development that
is the subject of the notice has had a material adverse effect upon the
financial condition of the Company taken as a whole;
(iii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller
has breached any material representation, warranty, or covenant contained
in this Agreement (other than the representations and warranties in (S)4
above) in any material respect, the Buyer has notified the Seller of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before June 15, 1997, by reason of the failure of any condition
precedent under (S)7(a) hereof (unless the failure results primarily from
the Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and
(iv) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (A) in the event the Buyer
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Seller has notified the
Buyer of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 15, 1997, by reason of the failure of any
condition precedent under (S)7(b) hereof (unless the failure results
primarily from the Seller themselves breaching any representation,
warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
---------------------
to (S)9(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
-----------------
confidentiality provisions contained in (S)5(d) above shall survive termination.
10. Miscellaneous.
-------------
(a) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure).
30
<PAGE>
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. Except for that certain Nondisclosure Agreement
----------------
dated February 5, 1997, between the Buyer and the Company, which shall survive
this Agreement to the extent not in conflict herewith, this Agreement (including
the documents referred to herein) constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they have related in any
way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
-----------------
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder, and
the Buyer shall guarantee the Buyer Note).
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copy to:
---------------- -------
Mr. Walter P. McMullen Irvin Bogatin and
350 S. Yates Rd. Matthew P. Cavitch
Memphis, TN 38120 The Bogatin Law Firm
860 Ridge Lake Blvd, #360
Memphis, TN 38120
31
<PAGE>
If to the Buyer: Copy to:
--------------- -------
Mr. John P. Miller Michael P. Morgan
Master Graphics, Inc. Black, Bobango & Morgan
2500 Lamar Avenue 530 Oak Court Drive, Suite 345
Memphis, TN 38114 Memphis, TN 38117
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Tennessee or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Tennessee.
(i) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction and which does not
materially affect the consideration to any Party pursuant to this Agreement
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Buyer and the Company will bear its own costs
--------
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Company will also
bear all of the Seller's costs and expenses (including all of their legal fees
not to exceed $75,000.00) incurred in connection with this Agreement and the
transactions contemplated hereby (other than any Income Tax on any gain
resulting from the sale of the Shares hereunder).
32
<PAGE>
(l) Construction. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
MASTER GRAPHICS, INC.
By: /s/John P. Miller
-----------------
Title: Chairman
/s/ Walter P. McMullen
----------------------
Walter P. McMullen
33
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This First Amendment is made this 19th day of June, 1997, by and between
Master Graphics, Inc., a Delaware corporation ("Buyer"), and Walter P. McMullen
("Seller").
WHEREAS, the parties entered into a Stock Purchase Agreement dated June 4,
1997 (the "Agreement"), and wish to now amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Sections 9(a)(iii) and 9(a)(iv). The June 15th date referred to in
-------------------------------
Sections 9(a)(iii) and 9(a)(iv) of the Agreement shall be changed to June 23rd.
2. Section 1. Section 1 shall be amended by adding the following
---------
definition:
"Senior Debt" means the credit facilities provided at the Closing by
-----------
General Electric Capital Corporation, First American National Bank, and
Sirrom Capital Corporation.
3. Section 6(e)(ix). Section 6(e)(ix) shall be amended by adding the
----------------
following sentence at the end:
Notwithstanding the foregoing, the Buyer is expressly permitted to
guarantee the Senior Debt.
4. Section 6(e)(xi)(B). Section 6(e)(ix) shall be amended by adding the
-------------------
following sentence at the end:
Notwithstanding the foregoing, the Buyer is expressly permitted to purchase
any warrants acquired by Sirrom Capital Corporation at the Closing put back
to the Buyer by Sirrom Capital Corporation five years after the Closing.
5. Exhibit A. Exhibit A to the Agreement shall be replaced by the
---------
attached Exhibit A.
<PAGE>
6. Section 8(b)(i). Section 8(b)(i) shall be amended so that the $100,000
---------------
basket shall not apply to the representation and warranty contained in Section
4(b).
7. No Other Changes. Other than the amendments referred to above, the
----------------
Agreement shall continue without change in full force and effect. All
capitalized terms not defined herein are used as defined in the Agreement.
IN WITNESS WHEREOF, the parties have executed this First Amendment on the
date first above written.
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
--------------------
John P. Miller, Chairman
/s/ Walter P. McMullen
----------------------
Walter P. McMullen
<PAGE>
EXHIBIT 10.7
------------
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT, made this 20th day of May, 1997, by and among Sutherland
Printing Company, Inc., an Iowa corporation ("SELLER"), David Sutherland, III,
the controlling shareholder and holder of authorized Power of Attorneys from all
other shareholders of Seller ("SUTHERLAND") and Master Printing, Inc., a
Tennessee corporation ("MASTER" or "PURCHASER");
BACKGROUND
1. Seller is engaged, among other areas, in the printing business
and desires to sell to Purchaser all of Seller's assets. Sutherland is the
controlling stockholder, or record and beneficially, by reason of Stock
Authorizations and Powers of Attorney has control of all of Seller's issued and
outstanding capital stock and will benefit from the sale of the business to
Purchaser.
2. Purchaser, together with its subsidiaries and operating
affiliates (collectively "PURCHASER") is engaged, in substantial part, in
business as a printing company and Master, or a subsidiary of Master, desires to
purchase the assets of Seller's business and Purchaser agrees to assume the
existing liabilities of Seller, upon a limited basis, in accordance with the
provisions as hereinafter set forth.
3. Seller is currently operating as a Debtor-in-Possession under the
protection of a proceedings filed under Chapter 11 of the United States
Bankruptcy Code (the "BANKRUPTCY CODE"), Case #96-02524-C J-11 (the "BANKRUPTCY
CASE") in the United States Bankruptcy Court for the Southern District of Iowa,
Central Division (the "BANKRUPTCY COURT").
4. Seller has filed an Amended Plan of Reorganization (the "AMENDED
PLAN") which, if confirmed by the Bankruptcy Court, would allow the Seller to
restructure and refinance its operations and provide for a dividend distribution
to unsecured creditors of up to 80% over a 10-year period.
5. Purchaser has proposed as hereinafter set forth to Seller a
proposal for the purchase of Seller's assets and the limited payment of Seller's
debts, notwithstanding the Amended Plan of Reorganization upon the basis as
hereinafter defined.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE
-----------------
1.1 AGREEMENT TO SELL. At the Closing (as defined in Article II) and in
-----------------
reliance on the representations, warranties and covenants of Purchaser contained
herein, Seller shall sell, convey, assign, transfer and deliver to Purchaser or
its nominee, upon and subject to the terms and conditions of this Agreement, all
right, title and interest of Seller in and to the Assets (as defined below),
subject to the assumption of mortgages, liens, leases and security interests as
hereinafter set forth, but free and clear of all claims, restrictions and
encumbrances of unsecured creditors whatsoever, whether in rem or in personam,
pursuant to either (S)(S)363, 1123(b)(4), 1129 and 1141(c) of the Bankruptcy
Code, or providing the consent and approval of Seller's creditors to the sale is
received as hereinafter provided, upon dismissal pursuant to (S)1112(b) of the
Bankruptcy Code.
1.2 AGREEMENT TO PURCHASE. Upon and subject to the terms and conditions
---------------------
of this Agreement and the reliance upon the representations, warranties and
covenants of Seller and Sutherland contained herein, Purchaser shall, at
Closing, purchase the Assets from Seller in exchange for the Purchase Price (as
defined in Section 1.4 hereof).
-----------
1.3 DESCRIPTION OF ASSETS TO BE ACQUIRED. Seller shall sell to Purchaser
------------------------------------
all Assets owned by Seller or useful in Seller's business (tangible or
intangible), including, without limitation, all cash, cash equivalents,
marketable securities, accounts receivable, and notes receivable; all supplies,
furniture, fixtures, leasehold improvements and equipment; all contract rights;
all trade secrets; all tradenames, trademarks, service marks and copyrights; all
software licenses, all deposits and prepaid expenses; rights to all past and
present corporate names of the Seller and other names used by the Seller or its
predecessor in its business; all customer lists owned by the Seller or used by
the Seller in its business; all licenses, permits, consents and authorizations
of Government authorities required for the operation by the Seller of its
business (the "LICENSES"); Seller's rights under any written or oral contract of
Employment Agreement with any of Seller's employees, including any rights to
enforce any Non-Compete Agreements; and the goodwill of the Seller as to its
business, excluding any shareholder notes receivable.
1.4 PURCHASE PRICE, PAYMENT, ALLOCATION, LIABILITIES.
------------------------------------------------
1.4.1 PURCHASE PRICE. Assuming the accuracy of the warranties and
--------------
representations in Article III, and subject to any adjustments under
(S)1.4.3 hereof, the purchase price to be paid for the Assets (the
"PURCHASE PRICE") shall be equal to Two Million, Ninety-Three
Thousand, Five Hundred and Fifty-Five Dollars and Forty Cents,
($2,093,555.40 ) and shall be allocated among the assets as set forth
below based upon a separate addendum to be attached at Closing.
ALLOCATION OF PURCHASE PRICE
<TABLE>
===========================================================================================
<S> <C>
. EQUIPMENT (MACHINERY, EQUIPMENT, See Separate Addendum
TOOLS, VEHICLES, FURNITURE, FURNISHINGS,
LEASEHOLD IMPROVEMENTS, GOODS AND
OTHER TANGIBLE PERSONAL PROPERTY) AS
DESCRIBED IN SECTION 1.3
- -------------------------------------------------------------------------------------------
. Supplies and inventories set forth in Section 1.3 See Separate Addendum
- -------------------------------------------------------------------------------------------
. Computer equipment, software and other See Separate Addendum
technology assets described in Section 1.3
- -------------------------------------------------------------------------------------------
. Tradenames, trademarks, service marks and See Separate Addendum
copyrights and other intangible assets described in
Section 1.3
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
================================================================================================================
<S> <C>
. Rights to all past and present corporate names of See Separate Addendum
Seller and other names used by Seller or its
predecessor in its business, all customer lists owned by
Seller or used by Seller in its business, all capital
licenses owned by Seller and the goodwill of Seller
- ----------------------------------------------------------------------------------------------------------------
. All of Seller's interest in the press and lease 1,800,000.00
equipment entered into between Seller and Norwest
Equipment Finance, Inc. involving Seller's Missouri
location
- ----------------------------------------------------------------------------------------------------------------
. All of Seller's rights pursuant to the existing Lease to be either acquired or assumed
lease with the City of Ozark, Missouri on the personal by Purchaser
property and real estate of Seller in Ozark City,
Missouri
- ----------------------------------------------------------------------------------------------------------------
. All of Seller's right, title or interest in the Lease to be acquired or assumed by
existing lease with Phoenixcor, Inc. involving Purchaser
equipment located in Montezuma, Iowa
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
</TABLE>
1.4.2 PAYMENTS; ASSUMPTION OF LIABILITIES
-----------------------------------
The Purchase Price shall be paid as follows:
(a) On the Closing Date, Purchasers shall pay to the Escrow
Agent under an Escrow Agreement substantially in the
form attached hereto as Exhibit "B" the ("ESCROW
AGREEMENT") on account of the Purchase Price, the
amount of $2,093,555.40 (the "ESCROWED AMOUNT"). The
Escrowed Amount shall be held by Escrow Agent and shall
be released as follows:
(i) The amount of $1,102,525.16 (or the actual
amount as determined to be due and owing on
the Closing Date) shall be released by Escrow
Agent to Norwest Business Credit, Inc. for
the payoff of the security interest held on
Seller's Assets;
(ii) Seller shall assign to Purchaser all of
Seller's interest and rights as to the
equipment owned by Norwest Equipment Finance
Inc. and Purchaser shall pay to Norwest
Equipment Finance, Inc. the amount of
$1,800,000.00 for the purchase and/or
acquisition of the equipment heretofore
leased by Norwest Equipment Finance, Inc. to
Seller. Purchaser shall have the option to
assume or enter into a lease that Purchaser
deems acceptable with Norwest Equipment
Finance, Inc. on the leased collateral and
other collateral owned or secured by Norwest
Equipment Finance, Inc. and, Seller may
substitute this assumption for $1,800,000.00
set forth above. Seller shall be authorized
to utilize its cash on hand to reduce the
amount due Norwest Equipment Finance, Inc. to
the amount of $1,800,000.00 at closing;
(iii) Escrow Agent shall release upon Closing
$10,759.71 representing payroll taxes and
withholding taxes payable;
(iv) Escrow Agent shall release upon Closing
$191,675.98 representing current payables due
by Seller; and
<PAGE>
(v) Escrow Agent shall release upon Closing
$788,594.62 representing an immediate 75%
dividend payment to Seller's unsecured
creditors.
1.4.3 ADJUSTMENT TO PURCHASE PRICE. Purchaser's acquisition of the
----------------------------
Assets from Seller is based upon a January 31, 1997 combined balance sheet
and financial statement, and is additionally based upon the agreement by
Purchaser to pay to Seller's unsecured creditors a 75% lump sum dividend
distribution in full settlement of each of the unsecured creditors claims
and for the release of any lien or guaranty of Seller or Sutherland.
Purchaser's payment to Norwest Equipment Finance, Inc. of $1,800,000.00 for
the purchase of acquisition of the interest held by Norwest Equipment
Finance, Inc. is subject to Seller reducing the claim of Norwest Equipment
Finance, Inc. to this amount on or before Closing Date from Seller's cash
reserves. Purchaser shall no later than 10 days prior to Closing Date
ascertain the exact Purchase Price to be paid to the creditors, including
the unsecured creditors, the payroll taxes and withholding taxes payables,
the current payables, and Norwest Business Credit, Inc., which adjustment
to the Purchase Price shall only be made to the extent that such variance
exceeds 10% of the amount reflected in Sections 1.4.1 and 1.4.2 above,
based upon the January 31, 1997 combined balance sheet and financial
statement. Any commitment as to financing by Purchaser shall be removed on
or before May 20, 1997.
1.4.4 ASSUMPTION OF LIABILITIES. Except with respect to the
-------------------------
acquisition of the Seller's interest in the Norwest Equipment Finance, Inc.
collateral, the existing lease with Phoenixcor, Inc. and the existing lease
with the City of Ozark, Missouri, Purchaser shall not assume or be
responsible for any other liability of Seller, whether accrued before or
after the Closing Date. For purposes of this Agreement, the term
"LIABILITY" or "LIABILITIES" shall include, without limitation, any direct
or indirect indebtednesses, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility, affixed or
unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured, matured or unmatured,
absolute or contingent, whether arising under a contract, tort or by
statute. Purchaser shall ensure that its acquisition and payment of the
Purchase Price set forth herein shall relieve and extinguish Sutherland
from any and all liabilities claimed due by reason of any guarantees held
by any secured or unsecured creditors of Seller. Without limiting the
breadth and generality of the foregoing, Purchaser shall not assume or
incur any liability in respect to any of the following:
(a) Liabilities to any of Seller's creditors for deficiencies
following the sale, return or disposition of any Assets
which are subject to their respective security interests;
(b) Any liability arising prior to or as a result of the
Closing to pay any employees, agent or independent
contractors of Seller, whether or not employed by
Purchaser after Closing, or under any benefit arrangement
with respect thereto except for liabilities arising after
Closing with respect to employees hired by Purchaser as a
result of the acquisition of any Employment Agreements;
(c) Any liability of Seller arising or incurred in connection
with the negotiations, preparation and the execution of
this Agreement and the transactions contemplated hereby
including, fees and expenses of counsel, accountants and
other experts.
1.5 ACQUISITION OF INTERESTS FROM EQUIPMENT LESSORS.
-----------------------------------------------
Purchaser shall acquire from Equipment Lessors those Assets which Seller is
currently leasing under certain agreements denominated as equipment leases which
are identified and set forth in Exhibit D, attached hereto , and made by this
reference a part hereof. Purchaser shall acquire the Assets from the equipment
lessors either by entering into new lease agreements with Equipment Lessors
and/or through the purchase of the Equipment from the Equipment Lessors at
Purchaser's option. For purposes of this Agreement, the term "EQUIPMENT LESSORS"
shall include the leases with Norwest Equipment Finance, Inc., Phoenixcor, Inc.,
and the City of Ozark, Missouri.
1.6 REAL ESTATE. Purchaser shall acquire upon payment of the
-----------
Purchase Price herein, all of Seller's right, title and interest in the real
estate located in Montezuma, Iowa, currently occupied by Seller, as well as all
<PAGE>
right, title and interest in an to that real estate located in Ozark City,
Missouri, subject to the existing lease with the City of Ozark City, Missouri
involving the Ozark City Bank.
ARTICLE II
CLOSING
-------
The Closing ("CLOSING") of the sale and purchase of the Assets shall take
place at Black, Bobango & Morgan, P.C., attorneys for Purchaser, 530 Oak Court
Drive, Memphis, Tennessee at 10:00 a.m., local time, on the date which is not
more than five (5) business days after the conditions set forth in Article V
have been satisfied or waived by the party whose obligations are subject to such
condition or on such other date as may be mutually agreed upon in writing by
Purchaser and Seller. The date of the Closing is some times herein referred to
as the ("CLOSING DATE").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller and
--------------------------------------------
Sutherland, jointly and severally, hereby represent and warrant to Purchaser
that, except as set forth on the Disclosure Schedule attached hereto (the
"DISCLOSURE SCHEDULE"), which Disclosure Schedule shall specifically identify
the relevant subsection hereof to which it relates and shall be deemed to be
representations and warranties as if made hereunder:
3.1.1 CORPORATE EXISTENCE AND ORGANIZATION. Seller is a corporation duly
-------------------------------------
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation; and Seller is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the contact of the business by it requires it to be so
qualified; as evidenced by certificates of good standing being issued by
such jurisdiction and included as part of the Disclosure Schedule.
Sutherland is the controlling shareholder of Seller and is the holder,
pursuant to signed and authorized powers of attorneys of the owners of all
issued and outstanding common stock of Seller and is entitled to exercise
all voting rights. There are no proxies, voting trust agreements, pledges
or other restrictions affecting those voting rights. There are no
agreements affecting Seller's corporate governance other than the Articles
of Incorporation and Bylaws included as a part of the Disclosure Schedules.
There are issued and outstanding no bonds, debentures, warrants, options,
multiple classes of stock or other instruments convertible to any class of
stock.
<PAGE>
3.1.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Subject
-------------------------------------------------------
to the provisions of the Bankruptcy Code, the Bankruptcy Case and the
jurisdiction of the Bankruptcy Court, Seller has the corporate power,
authority and the legal right to execute, deliver and perform this
Agreement. Subject to the provisions of the Bankruptcy Code, and the
required confirmation of the Bankruptcy Court of this Agreement and the
underlying transactions contemplated thereby (in the event a sale is
consummated pursuant to the provisions of 11 U.S.C. (S)363), the execution,
delivery and performance of this Agreement by Sutherland and Seller has
been duly authorized by all necessary corporate and shareholder action.
This Agreement has been, and the other agreements, documents and
instruments required to be delivered by Seller in accordance with the
provisions hereof (the "SELLER'S DOCUMENTS") will be, duly executed and
delivered on behalf of Seller by duly authorized officers of Seller; and
this Agreement constitutes, and the Seller's Documents when executed and
delivered (and when approved by the Bankruptcy Court) will constitute, the
legal, valid and binding obligations of Seller, enforceable against Seller
in accordance with their respective terms.
3.1.3 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. Subject to the
-------------------------------------------
provisions of the Bankruptcy Code, the Bankruptcy Case and the jurisdiction
of the Bankruptcy Court, the execution, delivery and performance of this
Agreement by Sutherland and Sutherland does not and will not violate,
conflict with or result in the breach of any term, condition or provision
of, or require the consent of any other person under, (a) any existing law,
ordinance, or governmental rule or regulation to which Seller or Sutherland
is subject; (b) any judgment, order, writ, injunction, decree or award of
any court, arbitrator or governmental or regulatory official, body or
authority which is applicable to Seller or Sutherland; (c) the charter
documents of Seller or any securities issued by Seller, or (d) any
mortgage, indenture, agreement, contract, commitment, lease, plan,
authorization, or any other instrument, document or understanding, oral or
written, to which Seller or Sutherland is a party, by which Seller or
Sutherland may have any rights or by which any of the Assets which may be
bound or affected, or give any party with rights thereunder the right to
terminate, modify, accelerate or otherwise change the existing rights of
Seller or Sutherland thereunder except as provided and set forth in this
Agreement.
3.1.4 NO THIRD PARTY OPTIONS. There are no existing agreements, options,
----------------------
commitments or rights with, of or to any person to acquire any of Seller's
assets, properties or rights included in the Assets or any interest therein
or Sutherland's ownership interest in Seller.
<PAGE>
3.1.5 FINANCIAL STATEMENTS. Seller has delivered to Purchaser true and
--------------------
complete copies of (a) the balance sheets of Seller at January 31, 1997,
together with December 31, 1996 financial statements, all of which have
been prepared in accordance with the generally accepted Accounting
Principles consistently applied throughout the periods involved. The
Financial Statements, including related notes fairly represent the
financial position, assets and liabilities (whether accrued, absolute or
contingent or otherwise) of Seller at the dates indicated. Seller has
provided to Purchaser access to Seller's books and records, accountants,
and lenders so that Purchaser can ascertain to Purchaser's satisfaction all
outstanding and potential liabilities of the Seller as of the Closing Date.
3.1.6 ACCOUNTS RECEIVABLE. The accounts receivable shown in the Financial
-------------------
Statements do not include any amounts attributable to goods not yet
delivered for services yet to be performed.
3.1.7 INVENTORY. All inventory of Seller used in the conduct of the
---------
business, including without limitation raw materials, work-in-process and
finished goods, reflected on the Financial Statement or acquired since the
date thereof was acquired and has been maintained in the ordinary course of
the business; is of good and merchantable quality; consists substantially
of a quality, quantity and condition usable in the ordinary course of the
business; is valued at reasonable amounts based on the ordinary course of
business of Seller during the past six months; and is not subject to any
write-down or write-off.
3.1.8 TAX AND OTHER RETURNS AND REPORTS. All federal, state, local and
---------------------------------
foreign tax returns, reports, statements and other similar filings required
to be filed by Seller (the "TAX RETURNS") with respect to any federal,
state, local or foreign taxes, assessments, interest, penalties,
deficiencies, fees and other governmental charges or impositions,
(including, without limitation, all income tax, unemployment compensation,
Social Security, payroll, sales and use, excise, privilege, property, and
any other tax or similar governmental charge or imposition under the laws
of the United States or any state or municipal or political subdivision
thereof or of any foreign county or political subdivision thereof) (the
"TAX") have been filed with the appropriate governmental agencies in all
jurisdictions in which such tax returns are required to be filed, and all
such tax returns property reflect the liabilities of Seller for taxes for
the periods, property or events covered thereby. All taxes, including
without limitation those which are called for by the tax returns, or
heretofore or hereafter claimed to be due by any taxing authority from
Seller, have been properly
<PAGE>
accrued or paid and no taxes are currently delinquent. The accruals for
taxes contained in the Financial Statements are accurate to cover the tax
liabilities of Seller with respect to the business as of that date and
include adequate provision for all deferred taxes, and nothing has occurred
subsequent to the date to make any of such accruals inadequate. Seller is
currently undergoing an audit by the Internal Revenue Service for the tax
years 1994-1995, the results of which, if known, will be disclosed by
Seller to Purchaser prior to Closing. Seller has not extended, or waived
the application of, any statute of limitations or any jurisdiction
regarding the assessment or collection of any taxes. There are no tax liens
(other than any lien for current taxes not yet due and payable) on any of
the assets or properties of Seller. Seller has no knowledge of any basis
for any additional assessments of any taxes. Seller has made all deposits
required by law to be made with respect to employees' withholding and other
employment taxes, including without limitation the portion of the such
deposits relating to taxes imposed upon Seller.
3.1.9 BOOKS OF ACCOUNT. The books, records and accounts of Seller
----------------
maintained with respect to the business accurately and fairly reflect, in
reasonable detail, the assets and liabilities of Seller. Seller is not
engaged in any transaction with respect to the business, maintain any bank
account for the business or use any of the funds of Seller in the contact
of the business except for transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of the
business.
3.1.10 EXISTING CONDITION. Since the date of the January 31, 1997
------------------
Balance Sheet and Financial Statement, and unless specifically authorized
by the Bankruptcy Court, Seller has not:
(a) incurred any liabilities, other than liabilities incurred in the
ordinary course of business (other than Debtor-in-Possession
financing), consistent with past practice, or discharged or
satisfied any lien or encumbrance, or paid any liabilities, other
than in the ordinary course of business consistent with past
practice, or failed to pay or discharge when due any liabilities of
which the failure to pay or discharge has caused or will cause any
material damage or risk of material loss to it or any of its assets
or properties (except for the failure to make any payment or
discharge any Liabilities specifically authorized by the Bankruptcy
Court), and Seller has made all adequate protection payments to its
creditors required by the Bankruptcy Court;
<PAGE>
(b) sold, unencumbered, assigned or transferred any assets or
properties which would have been included in the Assets if the Closing
had been held on the date of the January 31, 1997 Balance Sheet or on
any date since then, except for the sale, use or consumption of
inventory in the ordinary course of business consistent with past
practices;
(c) created, incurred, assumed or guaranteed any indebtedness for
money borrowed, or mortgaged, pledged or subject any of the Assets to
any mortgage, lien, pledge, security interest, conditional sales
contract or other encumbrance of any nature whatsoever, except for
Debtor-in-Possession financing;
(d) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease or plan to which it is a party
or which it is bound, canceled, modified or waived any substantial
debts or claims held by it or waived any rights of substantial value,
whether or not in the ordinary course of business (other than Debtor-
in-Possession financing);
(e) declared, set aside or paid any dividend or made or agreed to make
any other distribution or payment in respect of its capital shares or
redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or acquire any of its capital shares;
(f) suffered any damage, destruction or loss, whether or not covered
by insurance, (i) material and adversely affecting it business,
operation, assets, properties or prospects, or (ii) or any item or
items carried on its books of account individually or in the aggregate
at more than $25,000.00, or suffered any repeated, reoccurring or
prolonged storage, assession or interruption of supplies or utilities
or other services required to conduct it business and operations;
(g) suffered any material adverse change in its business, operations,
assets, properties, prospects or condition, financial or otherwise;
(h) received notice or have knowledge of any actual or threatened
labor trouble, strike or other occurrence, event or condition of any
similar character which has had or might have any adverse affect on
its business, operations, assets, properties or prospects;
(i) made commitments or agreements for capital expenditures or capital
additions or betterments exceeding in the aggregate $25,000.00 except
such as may be involved in the ordinary repairs, maintenance or
replacements of its Assets;
(j) increased the salaries or other compensation of, or made any
advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its employees or made any increase in, or
any addition to, other benefits to which any of its employees may be
entitled;
(k) changed any of the accounting principles followed by it or the
methods of applying such principles; or
(l) entered into any transaction other than the ordinary course of
business consistent with past practices.
<PAGE>
3.1.11 TITLE TO PROPERTIES. The Seller has good, valid and marketable
-------------------
title to all of its properties and assets, real, personal and mixed, which
will be included in the assets if the Closing took place on the date
hereof, which purports to own, including without limitation all Assets to
be acquired under this Agreement as reflected in the January 31 Balance
Sheet (except for inventory sold, used or consumed since the date thereof
in the ordinary course of business consistent with past practices) free and
clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions or other encumbrances and defects of title of any
nature whatsoever, except for Permitted Liens.
3.1.12 CONDITION OF TANGIBLE ASSETS. All buildings, structures,
----------------------------
facilities, equipment, machinery, vehicles and other material items of
tangible property and assets which would be included in the Assets if the
Closing took place on the date hereof are in Seller's possession and
control, are in good operating condition and repair, subject to normal wear
and maintenance, are usable in the regular and ordinary course of Seller's
and Purchaser's business and conform to all applicable laws, ordinances,
codes, rules, regulations, authorizations, warranties and maintenance
schedules relating to their construction, manufacture, modification, use
and operation. No person other than Seller owns any equipment or other
tangible asset or property situated on any of the real estate owned or
leased by Seller or necessary to the operation of the business of Seller,
except for leased items disclosed in the Disclosure Statement or permitted
liens and for items of immaterial value.
3.1.13 COMPLIANCE WITH LAW; AUTHORIZATIONS. Seller has complied with
-----------------------------------
each, and is not in violation of any law, ordinance, or governmental or
regulatory rule or regulation, whether federal, state, local or foreign, to
which Seller's business, operations, assets or properties is subject
("REGULATIONS"). Seller owns, holds, possesses or lawfully uses in the
operation of its business all operating authorities, franchises, licenses,
permits, easements, rights, applications, filings, registrations and other
authorizations ("AUTHORIZATIONS") which are in any manner necessary for it
to conduct it business is now or previously conducted or for the ownership
and use of the Assets owned or used by Seller in the conduct of the
business of Seller, free and clear of all liens, charges, restrictions and
encumbrances and in compliance with all Regulations. No shareholder,
director, officer, employee or former employee of Seller of any affiliates
of Seller, or any other person, firm or corporation owns or has any
priority, financial or other interest (direct or indirect) in any
authorization which Seller owns, possesses or uses in the operation of the
business of Seller as now or previously conducted:
3.1.14 INSURANCE. The Assets and operations of Seller are insured under
---------
various policies of general liability and other forms of insurance, all of
which are described in the Disclosure Schedule, which discloses for each
policy risk insured against, coverage limits, deductible amounts, all
outstanding claims thereunder, and whether the term of such policy provides
for retrospective premium adjustments. All such policies are in full force
and effect in accordance with the terms, no notice of cancellation has been
received, and there is no existing default or event which, with the giving
of notice or lapse of time or both, would constitute a default thereunder.
Such policies are in amounts which are adequate in relation to the business
and assets of Seller and all premiums to date have been paid-in-full.
Seller has not been refused any insurance, nor has his coverage been
limited, by any insurance carrier to which it is applied for insurance or
with which it has carried insurance during the past five years.
3.1.15 CONTRACTS AND COMMITMENTS. Each of the Agreements listed in the
-------------------------
Disclosure Statement in response to this Section, or not required to be
listed therein because of the amount thereof, and to which Purchaser is to
acquire rights or obligations hereunder, is valid and enforceable in
accordance with its terms. Seller has previously been notified of the
termination of the existing lease with Norwest Equipment Finance, Inc.
Seller has entered into a commitment agreement with Norwest Equipment
Finance, Inc. which grants to Seller the right to purchase the Assets for
the total amount of $2,000,000.00 as of April 1, 1997. Seller is
continuing to pay to Norwest Equipment Finance, Inc. amounts towards this
purchase. Seller would also be obligated to pay personal property taxes on
the purchase, if applicable. As to the other obligations, Seller is, and to
Seller's knowledge all other parties thereto are, in compliance with the
provisions thereof; Seller is not, and to Seller's knowledge, no other
party thereto is, in default in the performance, observance or fulfillment
of any material obligation, covenant or condition contained
<PAGE>
therein; and no event has occurred which with or without the giving of
notice of lapse of time, or both, would constitute a default thereunder. No
such agreement in the reasonable opinion of Seller, contains any
contractual requirement with which there is a reasonable likelihood Seller
or any other party thereto would be unable to comply. Seller's obligations
under the Phoenixcor, Inc. lease and the lease with the City of Ozark,
Missouri, are assignable, but require the consent of the appropriate party.
3.1.16 AVAILABILITY OF DOCUMENTS. Seller has made available to Purchaser
-------------------------
or will make available to Purchaser prior to Closing, copies of all
documents, including without limitation all agreements, contracts,
commitments, insurance policies, leases, plan, instruments, undertakings,
authorizations, permits, licenses, patents, trademarks, tradenames, service
marks, copyrights and applications therefore listed in the Disclosure
Schedule hereto or referred to herein or any other documents reasonably
requested by Purchaser in its due diligence. Such copies are true and
correct and include all amendments, supplements and modifications thereto
or waivers currently in effect thereunder.
3.1.17 COMPLETENESS OF DISCLOSURE. No representation or warranty by
--------------------------
Seller in this Agreement no any certificate, schedule, statement, documents
or instrument furnished or to be furnished to Purchaser pursuant hereto, or
in connection with the negotiation, execution or performance of this
Agreement, contains or will contain any untrue statement of material fact
or omit or will omit to state a material fact required to be stated herein
or therein or necessary to make any statement herein or therein not
misleading.
3.1.18 ENVIRONMENTAL COMPLIANCE.
-------------------------
(i) All property owned, leased or subleased by Seller (the "Real
Property") and the use and operation thereof are currently in
compliance with all applicable laws, ordinances, rules and
regulations (including consent decrees and administrative orders)
relating to public health and safety in protection of the
environment, including those statutes, regulations and ordinances
identified in subparagraph (iii) below, all as now and hereafter
amended (collectively, "Environmental Laws"), and all permits,
licenses and authorizations relating to the use and operation of
the Real Property required by applicable Environmental Laws are in
effect.
(ii) There are no pending or threatened (A) requests for
information, actions or proceedings from or by any governmental
agency or any other person or entity regarding the condition or
use of the Real Property or the release, generation, discharge,
manufacture, treatment, transportation or disposal of Hazardous
Material on, in, under (including the underlying ground water) or
from the Real Property, or regarding any Environmental Law, or (B)
liens or governmental actions, notices or violations, notices of
non-compliance or other proceedings of any kind with respect to
the Real Property. Seller shall immediately notify Purchaser and
provide copies upon receipt of all written complaints, claims,
citations, inquiries, reports or notices relating to the condition
of the Real Property or compliance with Environmental Laws
(collectively, "Environmental Notices") received after the date
hereof.
(iii) For purposes of the Agreement, "Hazardous Material" means
(A) "Hazardous Substances" or "Toxic Substances" as those terms
are defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et seq., as now and
-------
hereinafter amended, (B) "Hazardous Wastes", as that term is
defined by the Resource Conservation and Recovery Act, 42 U.S.C.
6902 et seq., as now and hereinafter amended, (C) any pollutant
-------
or contaminate or hazardous, dangerous or toxic chemicals,
materials or substances within the meaning of any other applicable
federal, state or local law, regulation, ordinance or requirement
(including consent decrees and administrative orders) relating to
or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste substances or
<PAGE>
materials, all as now and hereinafter amended, (D) crude oil or
any fraction thereof which is liquid at standard conditions or
temperature and pressure (60 degrees fahrenheit and 14.7 pounds
per square inch absolute), (E) any radioactive material, including
any source, special nuclear or byproduct material as defined in 42
U.S.C. 211 et seq., as now and hereinafter amended, (F) asbestos
--------
in any form or condition, (G) polychlorinated biphenyls ("PCBs")
or substances or compounds containing PCBs, and (H) medical waste.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
--- -------------------------------------------
warrants to Seller as follows:
3.2.1 CORPORATE EXISTENCE. Purchaser is a corporation duly
----- -------------------
organized, valid and existing and in good standing under the laws of the
State of Tennessee.
3.2.2 CORPORATE POWER AND AUTHORIZATION. Purchaser has the corporate
----- ---------------------------------
power, authority and legal right to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement by
Purchaser has been duly authorized by all necessary corporate action. This
agreement has been duly executed and delivered by duly authorized officers
of Purchaser and constitutes the legal, valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its terms.
3.2.3 VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. The execution,
------------------------------------------
delivery, and performance of this Agreement by Purchaser does not and will
not violate, conflict with or result in the breach of any term, condition
or provision of, or (other than approval of the Bankruptcy Court) require
the consent of any other person under, (a) any existing law, ordinance, or
governmental rule or regulation to which Purchaser is subject, (b) any
judgment, order, writ, injunction, decree, or award of any Court,
arbitrator or governmental or regulatory official, body or authority which
is applicable to Purchaser, (c) the charter documents of Purchaser or any
securities issued by Purchaser, or (d) any mortgage, indenture, agreement,
contract, commitment, lease, plan, authorization, or other instrument,
document or understanding, oral or written, to which Purchaser is a party
or by which Purchaser may have rights to give any party with right
thereunder the right to terminate, modify, accelerate, or otherwise change
the existing rights or obligations of Purchaser thereunder.
3.3 SURVIVALS OF REPRESENTATIONS AND WARRANTIES. All representations and
-------------------------------------------
warranties made by the parties in this Agreement or in any certificate,
schedule, statement, document or instrument furnished hereunder or in connection
with the negotiation, execution and performance of this Agreement shall survive
the Closing. Notwithstanding any investigation, due diligence or audit
conducted before or after the Closing Date or the decision of any party to
complete the Closing, each party shall be entitled to rely upon the
representations and warranties set forth herein and therein.
ARTICLE IV
AGREEMENTS PENDING CLOSING
--------------------------
4.1 AGREEMENTS OF SELLER AND SUTHERLAND PENDING CLOSING. Seller and
---------------------------------------------------
Sutherland each covenant and agree that, pending the Closing and except as
otherwise agreed to in writing by Purchaser:
4.1.1 CONDUCT OF BUSINESS. The business shall be conducted solely in
-------------------
the ordinary course consistent with past practices. Neither Seller nor
Sutherland shall engage in any activity or other business competitive with
or detrimental to the business. Seller shall use its best efforts to
conduct its business in such a manner that on the Closing Date the
representations and warranties of Seller and Sutherland contained in this
Agreement shall be true, as though such representations and warranties were
made on and as of such date. Neither Seller nor Sutherland
<PAGE>
shall provide any confidential information concerning the business or its
properties or assets to any third party, other than in the ordinary course
of business.
4.1.2 MAINTENANCE OF PHYSICAL ASSETS. Seller shall continue to maintain
------------------------------
and service the physical assets used in the conduct of the business in the
same manner as has been its consistent past practice.
4.1.3 EMPLOYEES AND BUSINESS RELATIONS. Seller shall use its best efforts
--------------------------------
to keep available the services of the present employees and agents of the
business and to maintain the relations and goodwill with the suppliers,
customers, distributors and any others having business relations with the
business. Seller shall not change the amount or method of compensation for
any employees.
4.1.4 MAINTENANCE OF INSURANCE. Seller shall notify Purchaser of any
------------------------
changes in the terms of the insurance policies and binders other than is
disclosed on the date hereof.
4.1.5 COMPLIANCE WITH LAWS, ETC. Seller shall comply with all laws,
-------------------------
ordinances, rules, regulations and orders applicable to the business, or
Seller's operations, assets or properties with respect thereof, the
noncompliance with which might materially affect the Business or the
Assets.
4.1.6 UPDATED SCHEDULES. Seller and Sutherland shall promptly disclose to
-----------------
Purchaser any information contained in its representations and warranties
or the Schedules which, because of an event occurring after the date
hereof, is incomplete or is no longer correct as of all times after the
date hereof until the Closing Date; provided, however, none of such
disclosure shall be deemed to modify, amend or supplement the
representations or warranties of Seller, and Sutherland, or the schedules
hereto for the purposes of Article V hereof, unless Purchaser shall have
consented thereto in writing.
4.1.7 SALE OF ASSETS. Seller shall not, directly or indirectly, sell or
--------------
encumber all or any part of its Assets.
4.1.8 ACCESS. Seller shall give to Purchaser's officers, employees,
------
counsel, accountants and other representatives free and full access to and
the right to inspect, during normal business hours, all of the premises,
properties, assets, records, contracts and other documents relating to the
Assets and shall permit them to consult with the officers, employees,
accountants, counsel and agents of Seller for the purpose of making such
investigation of the Assets, including without limitation Seller's
financial statements, as Purchaser shall desire to make, provided that such
investigation shall not unreasonably interfere with Seller's business
operations. Furthermore, Seller shall furnish to Purchaser all such
documents and copies of documents and records and information with respect
to the affairs of the business and copies of all working papers relating
thereto as Purchaser shall from time to time reasonably request and shall
permit Purchaser and its agents to make physical inventories and inspection
of the Assets as Purchaser may request from time to time.
4.1.9 PRESS RELEASES. Except as required by applicable law, neither
--------------
Seller nor Sutherland shall give notice to third parties or otherwise make
any public statement or releases concerning this Agreement or the
transactions contemplated hereby except for such written information as
shall have been approved in writing as to form and content by Purchaser,
which approval shall not be unreasonably withheld.
4.1.10 ENVIRONMENTAL INVESTIGATIONS. Seller acknowledges that
----------------------------
Purchaser may, at its expense, undertake or cause to be undertaken one or
more environmental investigations, including Phase I and/or Phase II
investigations, of each parcel of the Seller's real property. Seller shall
provide or cause to be provided all access,
<PAGE>
information and documents reasonably required for such investigations,
including, but not limited to, any prior environmental assessments for any
Seller real property.
4.1.11 CORPORATE MATTERS. Seller shall not amend its Articles of
-----------------
Incorporation or Bylaws; make any tax election or change the tax status of
the corporation; merge with any other person or entity; acquire
substantially all of the assets of any other entity; convert to any form of
organization; or issue any new stock. Sutherland shall not transfer,
pledge or otherwise alienate or encumber his ownership interest in Seller;
pledge, transfer or severe any restrictions in his voting rights; or
exercise his voting rights in any manner, restricting, delaying or
impairing, or inconsistent with, the timely and full performance of Seller
or Sutherland's covenants, warranties, agreements or obligations hereunder.
4.1.12 SECTION 363 SALE OR DISMISSAL. As soon as possible after the
-----------------------------
execution of this Agreement, but in no event later than 25 days prior to
the Closing Date, Seller shall have filed a motion pursuant to 11 U.S.C.
(S)363 to authorize the sale of its Assets free and clear of liens and
encumbrances except as those set forth in this Agreement, in the United
States Bankruptcy Court for the Southern District of Iowa, Central
Division, or, dependent and contingent upon Seller receiving the requisite
approval of its unsecured creditors to a 75% settlement of existing claims,
a motion to dismiss the Chapter 11 proceedings, so that the Asset purchase
can be completed consistent with the terms of this Agreement without any
Bankruptcy Court restriction. Seller represents and warrants that it shall
use its reasonable best efforts to obtain approval of its unsecured
creditors to the sale in a form filed or in a form as modified and agreed
within the terms of this Agreement with Purchaser.
4.2 AGREEMENTS OF PURCHASER PENDING THE CLOSING. Purchaser covenants
-------------------------------------------
and agrees that pending the Closing and except as otherwise agreed to in writing
by Seller:
4.2.1 ACTIONS OF PURCHASER. Purchaser will not take any action which
--------------------
would result in a breach of any of its representations and warranties
hereunder. Furthermore, Purchaser shall cooperate with Seller and use its
best efforts to cause all of the conditions to the obligations of Purchaser
and Seller under this Agreement to be satisfied on or prior to the Closing
Date.
4.2.2 PRESS RELEASES. Except as required by applicable law, Purchaser
--------------
shall not give notice to the third parties or otherwise make any public
statements or releases concerning this Agreement or the transactions
contemplated hereby except for such written information as shall have been
approved in writing as to form and content by Seller, which approval shall
not unreasonably withheld.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
5.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations of
-----------------------------------------------
Purchaser under this Agreement are, at Purchaser's discretion subject to the
fulfillment or satisfaction, at the times indicated herein, of each of the
following conditions precedent:
5.1.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE.
----------------------------------------------------------
The representations and warranties of Seller contained in this Agreement or
in any schedule, certificate or document delivered by Seller to Purchaser
pursuant to the provisions hereof shall have been true on the date hereof
and shall be true on the Closing Date with the same effect as those such
representations and warranties were made as of such date.
<PAGE>
5.1.2 COMPLIANCE WITH THIS AGREEMENT. Seller and Sutherland shall have
------------------------------
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the
Closing.
5.1.3 NO THREATENED OR PENDING LITIGATION. On the Closing Date, no suit,
-----------------------------------
action or other proceeding, injunction or final judgment relating thereto,
shall be threatened or pending before any court or governmental or
regulatory official, body or authority in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, and
Seller shall be aware of no investigation that might result in any such
suit, action or proceeding that shall be pending or threatened.
5.1.4 CONSENTS, APPROVALS AND NOTICES. To the extent required by
-------------------------------
applicable law:
(a) To the extent that Seller's rights under any agreement,
contract, commitment, lease, authorization or other Asset to be
assigned to Purchaser hereunder may not be assigned without the
consent of another person which has not yet been obtained, this
Agreement shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof or be
unlawful.
(b) All notices shall have been given and all consents shall
have been obtained as required by the terms of the contracts,
commitments, agreements or authorizations.
(c) The holders of any indebtedness of Seller, the lessors of
any real or personal property or assets leased by Seller, the
parties (other than Purchaser) to any contract, commitment or
agreement to which Seller is a party of subject, any governmental
or regulatory official, body or authority or any other person which
owns or has authority to grant any authorization or any
governmental, judicial or regulatory official, body or authority
having jurisdiction over Sutherland, Seller or Purchaser to the
extent that their consent or approval is required or necessary
under the pertinent debt, lease, contract, commitment or agreement
or other document or instrument or under applicable orders, laws,
rules or regulations, for the consummation of the transactions
contemplated hereby in the manner herein provided, shall have
granted such consent or approval.
(d) Seller has received consent and agreement of any judgment
lien holders as to the release of the judgment as it effects any of
Seller's Assets and Sutherland has been released of any obligations
created or based upon any guarantees.
(e) Seller shall have received the consent of its unsecured
creditors to the acceptance of 75% of the unsecured creditors'
indebtednesses to be paid and received in full after Closing or if
any consent or approval shall not be obtained or if any attempted
assignment would be ineffective or would impair Purchaser's rights
under the Asset in question so that Purchaser would not in effect
require the benefit of all such rights, and Purchaser elects to
close this transaction without such consent, approval or
assignment, Purchaser shall have the discretion to require that
Seller, to the maximum extent permitted by law, cooperate with
Purchaser and act after the Closing as Purchaser's agent in order
to obtain for it the benefits under such Asset.
5.1.5 MATERIAL ADVERSE CHANGES. The business, operations, assets,
------------------------
properties or prospects of the business shall not have been and shall not
be threatened to be materially adversely affected in any way as a result
<PAGE>
of any event or occurrence.
5.1.6 ESCROW AGREEMENT. Buyer shall deposit with counsel for Seller
----------------
the Purchase Price deemed necessary by Seller, pursuant to the Escrow
Agreement attached hereto, which funds shall be utilized by Seller's
counsel as Escrow Agent for the payment of those obligations and
liabilities identified in Provision 1.4.2 herein.
5.1.7 APPROVAL OF COUNSEL; CORPORATE MATTERS. All instruments and
--------------------------------------
documents required to carry out this Agreement or incidental thereto shall
have been approved on the Closing Date by Black, Bobango & Morgan, counsel
for Purchaser, in the exercise of its reasonable judgment. Sutherland and
Seller shall also have delivered to Purchaser such other documents,
instruments, certifications and further assurances as such counsel may
reasonably require.
5.1.8 APPROVAL BY BANKRUPTCY COURT. If sale is pursuant to 11 U.S.C.
----------------------------
(S)363, prior to the Closing, the Bankruptcy Court shall have, in a form
satisfactory to Purchaser and its counsel, approved this Agreement and all
transactions contemplated hereunder, including, but not limited to, the
conveyance of the Assets, free and clear of all mortgages, liens, pledges,
said security agreements (except for security interests created by
Purchaser in favor of the lessors), charges, claims, restrictions and
encumbrances of any nature whatsoever pursuant to the applicable
provisions of the Bankruptcy Court (the "SALE APPROVAL ORDER"). The Sale
Approval Order with respect to the sale shall, among other things, unless
specifically waived in writing by Purchaser:
(a) Make a finding that those matters which are the subject of
this Agreement are ("CORE") matters over which the Bankruptcy Court
has jurisdiction pursuant to 28 U.S.C. (S)(S)1334 and 157;
(b) Make a finding the due and proper notice of the transactions
contemplated by this Agreement have been given to creditors,
shareholders and other parties-in-interest;
(c) Make a finding that the Purchase Price constitutes fair value
for the Assets;
(d) Make a finding that the Assets are being purchased by
Purchaser in good faith and that the Purchase Price was not controlled
by an agreement among potential bidders and otherwise complies with
the requirements of 11 U.S.C. (S)363(m);
(e) Make a finding that "sound business reasons" exist for
Bankruptcy Court approval of this Agreement;
(f) Approve the Agreement and provide that the Assets are to be
conveyed to Purchaser free and clear of any and all interests in such
Assets, including, but not limited to, tax liens, mortgages, liens,
security interests, encumbrances, claims (including third-party claims
of any nature whatsoever, including, but not limited to, any claim
which might otherwise give rise to successor liability), restrictions
and limitations;
(g) Direct the Clerk of the Bankruptcy Court to enter the Sale
Approval Order on the docket and provide that there is no just reason
to delay entry of the Sale Approval Order; and
<PAGE>
(h) Specifically overrule objections, if any, to confirmation of
the sale; provided, however, that the Sale Approval Order shall not
have been stayed, materially modified, withdrawn or reversed as of the
Closing.
5.1.9 APPROVAL BY THE BANKRUPTCY COURT, DISMISSAL ALTERNATIVE. In the
-------------------------------------------------------
event the Seller proceeds with the Closing of this Sale Agreement upon
consent and approval of unsecured creditors, and prior to Closing, the
Bankruptcy Court shall have, in a form satisfactory to Purchaser and its
counsel, entered its Order dismissing the Bankruptcy Case.
5.1.10 SELLER'S DELIVERIES. The Seller shall have delivered to the
-------------------
Purchaser at or prior to the Closing the following, all of which shall be in a
form reasonably satisfactory to the Purchaser as counsel:
(a) Such bills of sale, deeds and assignments with covenants of
warranty, assignments, endorsements, and other good and sufficient
instruments and documents of conveyance and transfer, in a form
reasonably satisfactory to Purchaser and its counsel, as shall be
necessary and effective to transfer and assign to, invest in,
Purchaser (i) good and valid title in and to the Assets free and
clear of all liens and encumbrances as provided herein, (ii) good and
valid leasehold interest in and to the Assets leased by Seller as
Lessee, and (iii) Seller's rights under all agreements, warranties,
contracts, commitments, leases, plans, quotations, proposals,
instruments and other documents included in the Assets;
(b) Agreements, contracts, commitments, leases, plans, bids,
quotations, proposals, computer programs and software, manuals and
guide books, price books and price lists, customer and subscriber
lists, supplier lists, sales records, files, correspondence, legal
opinions, and other documents, books, records, papers, files, office
supplies and data belonging to Seller which are part of the Assets;
and simultaneously with such delivery, all such steps shall be taken
as may be required to put Purchaser in actual possession and operating
control of the Assets;
(c) The Escrow Agreement, duly executed by an Official Unsecured
Creditors Committee appointed in the Bankruptcy Case, the Purchaser
and the Seller; and
(d) The assignment, to the extent possible or required, of
Seller's telephone and telecopier numbers to Purchaser.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. All obligations of
-------------------------------------------------
Seller under this Agreement are subject to the fulfillment or satisfaction,
prior to or at the Closing, of each of the following conditions precedent:
5.2.1 REPRESENTATIONS AND WARRANTIES TRUST AS OF THE CLOSING DATE. The
-----------------------------------------------------------
representations and warranties of Purchaser contained in this Agreement or in
any list, certificate or document delivered by Purchaser to Seller pursuant
to the provisions hereof shall be true on the Closing Date with the same
effect as those such representations and warranties were made as of such
date.
5.2.2 COMPLIANCE WITH THIS AGREEMENT. Purchaser shall have performed and
------------------------------
complied with all agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at Closing.
5.2.3 NO THREATENED OR PENDING LITIGATION. On the Closing Date, no suit,
-----------------------------------
action, or other proceeding, or
<PAGE>
injunction or final judgment relating thereto, shall be threatened or
pending before any court or governmental or regulatory official, body or
authority in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, and no investigation
that might result in any such suit, action or proceedings shall be pending
or threatened.
5.2.4 ESCROW AGREEMENT. Any Official Committees appointed in the
----------------
Bankruptcy Case, the Purchaser and the Escrow Agent shall have executed and
delivered the Escrow Agreement.
5.2.5 APPROVAL OF COUNSEL; CORPORATE MATTERS. All instruments and
--------------------------------------
documents required to carry out this Agreement or incidental hereto shall
have been approved on the Closing Date by counsel for Seller in the
exercise of their reasonable judgment. Purchaser shall also have delivered
to Seller such other documents, instruments, certifications and further
assurances as such counsel for Seller may reasonably require.
5.2.6 EMPLOYMENT AGREEMENT. Purchaser shall have executed and delivered
--------------------
to Sutherland the Sutherland Employment Agreement, in the form satisfactory
to Sutherland, substantially similar to Exhibit "C" hereto.
ARTICLE VI
INDEMNIFICATION
---------------
6.1 GENERAL INDEMNIFICATION OBLIGATION OF SELLER AND SUTHERLAND. From
-----------------------------------------------------------
and after the Closing, Seller and Sutherland, jointly and severally, each will
reimburse, indemnify and hold harmless Purchaser and its successors and assigns
against in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs
and expenses (including, without limitation, reasonable legal
expenses) incurred or suffered by Purchaser that result from,
relate to or arise out of:
(i) any and all liabilities and obligations of Seller of
any nature whatsoever, except those liabilities and
obligations of Seller that Purchaser assumes and agrees to pay
by this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative arbitration, governmental or other proceedings
or investigations against Purchaser that: (1) relate to Seller
or the Business, in which the principal event giving rise
thereto occurred prior to the Closing Date; or (2) result from
or arise out of any action or inaction of Seller or Sutherland
or any director, officer, employee, agent, representative or
subcontractor of Seller; or
(iii) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of
Seller or Sutherland under this Agreement, or from any
misrepresentation in or omission from any certificate,
schedules, statement, document or instrument furnished to
Purchaser pursuant hereto or in connection win the
negotiation, execution or performance of this Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable
legal fees and expenses) incident to any of the foregoing or to the
enforcement of this Section 6.1.
<PAGE>
6.2 DEFENSE OF CLAIMS. If Purchaser seeks indemnity (the "INDEMNITEE")
-----------------
pursuant to this Article VI, it shall give notice to all indemnifying parties
(the "INDEMNITOR"), briefly describing the claim and providing a good faith
estimate of the amount of the claim if it is successful. Within ten (10) days
of the date the notice is given, the Indemnitor shall notify Indemnitee in
writing that the Indemnitor acknowledges its liability for defense and
indemnity; the Indemnitor denies all liability for indemnity or defense; or the
Indemnitor denies liability for Indemnity but is willing to provide a defense to
the indemnity. Defense of the claim shall be provided by counsel selected by
the indemnity, in the exercise of reasonable discretion, unless the Indemnitor
acknowledges full liability for indemnity and defense and provides to the
Indemnitee reasonable evidence that the Indemnitor has the financial wherewithal
to pay for both indemnity and defense. If the Indemnitor acknowledges its
liability for defense and indemnity and provides reasonable evidence that the
Indemnitor has the financial wherewithal to pay for both indemnity and defense,
any such claim shall not be settled without the consent of the Indemnitor, which
shall not be unreasonably withheld.
6.3 COMPLIANCE WITH BULK SALES LAW. Purchaser and Seller acknowledge that
------------------------------
the Seller's principal business is not the sale of inventory from stock, and
hereby waive compliance by Purchaser and Seller with the bulk sale law and any
other similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement, Seller shall indemnify Purchaser from, and hold
it harmless against, any liabilities, damages, costs and expenses resulting from
or arising out of (i) the party's failure to comply with any of such laws in
respect of the transactions contemplated by this Agreement, or (ii) any action
brought or levy made as a result thereof.
6.4 OTHER RIGHTS AND REMEDIES NOT AFFECTED. The indemnification rights of
--------------------------------------
the Indemnitee under this Article VI are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, recision or restitution, none of which
rights or remedies shall be affected or diminished hereby.
ARTICLE VII
POST-CLOSING MATTERS
--------------------
7.1 EMPLOYEE BENEFITS. No portion of the Assets of any plan, fund,
-----------------
program or arrangement, written or unwritten, heretofore sponsored or maintained
by Seller (and no amount attributed to any such plan, fund, program or
arrangement) shall be transferred to Purchaser; and Purchaser shall not be
required to continue any such plan, fund, program or arrangement after the
Closing Date. The amounts payable on account of all benefit arrangements (other
than those specified in the following subsection) shall be determined with
reference to the date of the event by reason of which such amounts become
payable, without regard to conditions subsequent, and Purchaser shall not be
liable for any claim for insurance, reimbursement or other benefits payable by
reason of any event which occurs prior to the Closing Date. All employees of
Seller who may be employed by Purchaser on or after the Closing Date shall be
new employees of Purchaser and any prior employment by Seller of such employees
shall not effect entitlement to, or the amount of, salary or other cash
compensation, current or deferred, which Purchaser may make available to its
employees other than those employees that are under written employment contract
with Seller.
7.2 EMPLOYEES. As of the Closing Date, Purchaser may offer employment to,
---------
and Seller may use its best efforts to assist Purchaser in employing as new
employees of Purchaser, those employees that Purchaser wants to employ after the
Closing Date.
7.3 MAINTENANCE OF BOOKS AND RECORDS. Seller and Sutherland shall
--------------------------------
preserve all records possessed or to be possessed by such party relating to any
of the Assets, Liabilities or of the Business until the earlier of (i) the
tenth anniversary of the Closing Date or (ii) 90 days after notice to Purchaser
that Seller or Sutherland intends to destroy the records, in which case
Purchaser shall have 30 days to elect to receive the records and Seller and
Sutherland will deliver the
<PAGE>
records as requested by Purchaser. After the Closing Date, where there is a
legitimate purpose, Sutherland shall provide the Purchaser with access, upon
prior reasonable written request specifying the need therefore, during regular
business hours, to (i) the officers and employees of Seller and Sutherland and
(ii) the books of account and records of Seller and Sutherland and the Purchaser
and its representatives shall have the right to make copies of such books and
records; provided, that the foregoing right of access shall not be exercisable
in such a matter as to interfere unreasonable with the normal operations and
business of Seller or Sutherland; and further, provided, that, as to so much of
such information as constitutes trade secrets or confidential business
information of Seller or Sutherland (and not part of the Assets), the Purchaser
and its officers, directors and representatives will use due care to not
disclose such information except (i) as required by law, (ii) with the prior
written consent of Seller or Sutherland, which consent shall not be unreasonably
withheld, or (iii) where such information becomes available to the public
generally, or becomes generally known to competitors of Seller or Sutherland,
through sources other than the Purchaser, its affiliates or its officers,
directors or representatives. Such records may nevertheless be destroyed by
Seller or Sutherland if such party sends to the Purchaser written notice of its
intent to destroy records, specify with particularity the contents of the
records to be destroyed. Such records may then be destroyed after the 30th day
after such notice is given unless Purchaser objects to the destruction in which
case the parties seeking to destroy the records shall deliver such records to
Purchaser.
7.4 PAYMENTS RECEIVED. Seller and Purchaser each agree that after the
-----------------
Closing they will hold and will promptly transfer and deliver to the other, from
time to time as and when received by them, any cash, checks with appropriate
endorsements (using their best efforts not to convert such checks into cash), or
other property that they may receive on or after the Closing which property
belongs to the other party, including without limitation any insurance proceeds,
and will account to the other for all such receipts. From and after the
Closing, Purchaser shall have the right and authority to endorse, without
recourse, the name of Seller on any check or other evidences of indebtedness
received by Purchaser on account of the Assets transferred to Purchaser
hereunder.
7.5 UCC MATTERS. From and after the Closing Date, Seller will promptly
-----------
refer all inquiries with respect to the ownership of the Assets to Purchaser.
In addition, Seller will execute such documents and financing statements as
Purchaser may request from time to time to evidence transfer of the Assets to
Purchaser, including any necessary assignments of financing statements.
7.6 NON-COMPETITION AGREEMENT. Seller and Sutherland shall sign and
-------------------------
execute the covenant not to compete as attached hereto as Exhibit E which shall
remain in effect for a period of five (5) years from the date of the Closing of
this Agreement unless terminated prior to the expiration of the five (5) year
period in accordance with the terms as set forth in the Non-Competition
Agreement.
7.7 FURTHER ASSURANCES. Seller from time to time after the Closing, at
------------------
Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments and will take such other actions and execute and deliver such
other documents, certifications and further assurances as Purchaser may
reasonably require to vest more effectively in Purchaser, or to put Purchaser
more fully in possession of, any of the Assets. Each of the parties hereto will
cooperate with the other and execution and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by the other party hereto as necessary to
carry out, evidence and confirm the intended purposes of this Agreement.
7.8 RELEASE OF ESCROWED AMOUNT. Upon the order of the Bankruptcy Court
--------------------------
for the Southern District of Iowa, Central Division, either approving a sale
pursuant to the provisions of 11 U.S.C. (S)363(m) or upon an Order of Dismissal
being entered, Purchaser, Seller and Sutherland acknowledge and agree that the
Escrow Agent shall be authorized to release the funds held in escrow in order to
settle, discharge, or satisfy the creditors' claims against Seller.
ARTICLE VIII
<PAGE>
MISCELLANEOUS
-------------
8.1 TERMINATION.
-----------
8.1.1 CAUSES. Anything herein or elsewhere to the contrary
------
notwithstanding, this Agreement may be terminated by written notice of
termination at any time on or before the Closing Date only as follows:
(a) by mutual consent of Seller and Purchaser;
(b) by Purchaser (i) at any time if the representations and
warranties of Seller or Sutherland contained in Section 3.1 hereof
were incorrect in any material respect when made or at any time
thereafter, including as of Closing, (ii) upon written notice to
Seller given at any time after May 1, 1997 (or such later date as
shall have been specified in a writing authorized on behalf of the
Seller and Purchaser) if all of the conditions precedent set forth in
Section 5.1 hereof have not been met; or (iii) if Seller or
Sutherland breach any covenant or agreement which either of them make
under this Agreement or any other document contemplated by this
Agreement.
8.1.2 EFFECT OF TERMINATION. In the event of the termination and
---------------------
abandonment hereof pursuant to the provisions of this Section 8.1, this
Agreement shall become void and have no effect, without any liability on
the part of any of the parties or their directors or officers or
stockholders in respect of this Agreement, unless the termination was a
result of the representations and warranties of a party being materially
incorrect when made or the material breach by such party of the covenant
hereunder in which event the party whose representations and warranties
were incorrect or who breached such a covenant shall be liable to the other
party for all costs and expenses of the other party in connection with the
preparation, negotiation, execution and performance of this Agreement.
8.2 BROKER'S AND FINDER'S FEES. Purchaser and Seller each represent and
--------------------------
warrant to the other that all negotiations relative to this Agreement have been
carried on by them directly without the intervention of any person who may be
entitled to the brokerage or finder's fee or other commission in respect to this
Agreement or the consummation of the transactions contemplated hereby and each
agrees to indemnify and hold the other harmless against any and all claims,
losses, liabilities and expenses which may be asserted against or incurred by
each as a result of the other's dealings, arrangements or agreements of any such
person.
8.3 EXPENSES. Except as otherwise provided in this Agreement and
--------
hereunder, each party hereto shall pay its own expenses incidental to the
preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
8.4 CONTENTS OF AGREEMENT; PARTIES-IN-INTEREST; ETC. This Agreement sets
------------------------------------------------
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. It shall not be amended or modified except by
written instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties regarding
the subject matter hereof, whether written or oral, are superseded by this
Agreement.
8.5 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be assigned
-----------------------------
prior to the Closing by any party hereto without the prior written consent of
the other parties, except that prior to Closing, Purchaser may assign and
delegate any and all of its rights and obligations hereunder to one or more of
its subsidiaries, or other entity affiliated by common ownership with Purchaser
or one of its subsidiaries. Subject to the foregoing, all of the terms and
provisions of this
<PAGE>
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of Sutherland, Seller and Purchaser. Prior to
execution by all parties, this Agreement shall not be binding upon or
enforceable by or against any party, by estoppel or otherwise. In consideration
of Seller's agreement to permit Master to assign its obligations hereunder,
Master agrees that, in the event of a breach of the obligations of its Assignee
hereunder, Master shall remain liable for any such breach.
8.6 WAIVER. Any condition, term or provision of this Agreement may be
------
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed buy such party. Any such written waiver shall not
imply a waiver as to any other term, condition, circumstance or occasion nor
estop any party from enforcing any term, condition, right or remedy not
expressly so waived. Failure of a party to insist upon adherence to any term or
condition of this Agreement on any occasion shall be considered a waiver or
deprive that party of the right thereafter to insist upon adherence to that term
of condition or any other term or condition of this Agreement.
8.7 NOTICES. Any notice or communication of this Agreement shall be in
-------
writing and delivered (by hand, telecopier, telegraph, telex or courier) or
deposited in the United States mail (first class, registered or certified)
postage fully prepaid and addressed as stated below. Notice by United States
mail shall be deemed given on the third day after its deposit. Notice by
telecopier, telegraph or telex shall be deemed given on the day sent. Notice by
hand delivery or courier shall be deemed given on the first business day when
such delivery is first attempted. Either party may, from time to time, specify
as to its address for purposes of this Agreement any other address upon the
giving of 10 days notice thereof to the other party in the manner required by
this paragraph. This paragraph shall not prevent the giving of written notice
in any other matter, but such notice shall be deemed effective only when and as
of its actual receipt at the proper address and by the proper addressee.
8.8 GOVERNING LAW. This Agreement shall be governed by and interpreted
-------------
and enforced in accordance with the laws of the State of Iowa.
8.9 NO BENEFIT TO OTHERS. The representations, warranties, covenants and
--------------------
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Article VI hereof, the other parties certified to
indemnity or defense, and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any right on any other persons.
8.10 HEADINGS, GENDER AND "PERSON". All section headings contained in this
------------------------------
Agreement are for convenience of reference only, do not form a part of this
Agreement, and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine or neuter, as the context
requires. Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority or body, association,
unincorporated organization or other entity.
8.11 SCHEDULES AND EXHIBITS. All Exhibits and Schedules referred to herein
----------------------
are intended to be and hereby are specifically made a part of this Agreement.
8.12 SEVERABILITY. Any provision of this Agreement which is invalid or
------------
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
<PAGE>
8.13 JURISDICTION. Except with respect to such matters as properly remain
------------
within the jurisdiction of the Bankruptcy Court, Seller, Sutherland and
Purchaser consent to the jurisdiction and venue of the state and federal courts
located in Poweshiek County, Iowa and/or the Southern District of Iowa with
respect to any legal action, in tort or contract, arising directly or indirectly
from this Agreement or the relationship created hereby. This provision shall
not bar enforcement of a provisional, extraordinary, in rem or post-judgment
remedy in any court whose original jurisdiction is essential or exclusive as to
that remedy, despite the above consent to jurisdiction.
8.14 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for all of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
SELLER PURCHASER
SUTHERLAND PRINTING MASTER PRINTING, INC.
COMPANY, INC.
By: /s/ David Sutherland By: /s/ John P. Miller
--------------------- -------------------
David Sutherland, III, Its John P. Miller, Its President
President
Address for Notices: Address for Notices:
525 North Front Street 2500 Lamar
Montezuma, IA 50171 Memphis, TN 38114
Facsimile: (515) 623-2675) Facsimile: (901) 744-6012
SUTHERLAND
/s/ David Sutherland, III
- -------------------------
David Sutherland, III
Address for Notices:
254 Center Point Drive
Montezuma, IA 50172-0550
<PAGE>
Copies of all notices to: Copies of all notices to:
Donald F. Neiman, Esq. Michael Morgan, Esq.
I.D. No.: ###-##-#### Black, Bobango & Morgan, P.C.
801 Grand, Suite 3700 530 Oak Court Drive
Des Moines, IA 50309-2727 Memphis, TN 38117
Facsimile: (515) 246-5808 Facsimile: (901) 683-2553
COUNSEL FOR SELLER & COUNSEL FOR PURCHASER &
SUTHERLAND MASTER
<PAGE>
LIST OF EXHIBITS
- ----------------
Exhibit A January 31, 1996 Balance Sheet
Exhibit B Escrow Agreement
Exhibit C Sutherland Employment Agreement
Exhibit D Lease Identified on Exhibit D as follows: Exhibit "D" are those
Equipment Leases identified by Seller as follows:
Lease with Phoenixcor, Inc. regarding equipment located in
Montezuma, Iowa;
Lease with City of Ozark, Missouri on the personal property and
real estate of Seller located in Ozark City, Missouri;
Seller's previous lease with Norwest Equipment Financing, Inc.,
which lease has been terminated by Norwest Equipment Financing,
Inc., but which interest in said equipment to Seller specifically
assigns to Purchaser.
Exhibit E Non-Compete Agreement
<PAGE>
EXHIBIT 10.9
SEPTEMBER 22, 1997
AGREEMENT FOR SALE AND PURCHASE
OF CORPORATE STOCK
------------------
THIS AGREEMENT is made on the 22 day of September, 1997, between THE ARGUS
PRESS, INC. ("Argus"), an Illinois corporation, Joseph M. Jensen ("Jensen") and
Allan R. Bartel ("Bartel") (Messrs. Jensen and Bartel collectively referred to
herein as "Sellers") and MASTER GRAPHICS, INC. ("Buyer") a Delaware corporation.
1. PURCHASE OF STOCK
-----------------
Sellers agree to sell, assign, transfer and convey to Buyer all of the
stock of Argus pursuant to this agreement. Buyer agrees to purchase from
Sellers, all of Sellers' 1,000 shares of common stock of Argus which constitutes
all of its issued and outstanding stock. Sellers understand, acknowledge and
agree that Argus will be merged into Premier Graphics, Inc., a Delaware
corporation ("Premier"), and that Premier shall be the surviving corporation.
2. PURCHASE PRICE
--------------
The Purchase Price to be paid by Buyer to Sellers for said capital stock of
Argus shall be Twelve Million Two Hundred Fifty Thousand Dollars
($12,250,000.00).
<PAGE>
3. CLOSING
-------
(a) The Closing Date shall be September 30, 1997 or such earlier or
later date as may be mutually agreed upon by the parties.
(b) In the event Buyer fails to close on or before September 30, 1997,
this Agreement and all of Sellers' obligations hereunder shall become voidable
at Sellers' option. It is agreed the Closing date may be extended, but any such
extensions shall be in writing and signed by Buyer and Sellers.
(c) If the transaction described in this Agreement does not close on
the aforementioned date or at the end of any extension period, except for reason
of Sellers' refusal to dose or their failure to comply with the terms hereof,
Buyer shall, by no later than September 30, 1997, reimburse Sellers for all
costs and expenses incurred by them incident to this transaction.
4. DELIVERY OF STOCK AND PAYMENT OF PURCHASE PRICE
-----------------------------------------------
(a) The delivery to Buyer of certificates for the shares of capital
stock sold hereunder by Sellers, and the payment of the cash portion of the
Purchase Price therefor by Buyer to Sellers, shall take place on the Closing
Date at the offices of Hamblet, Casey, Oremus & Vacin, SUITE 200 75 East Wacker
Drive, Chicago, Illinois.
(b) On the Closing Date, Sellers shall deliver to Buyer the
certificates evidencing the 1,000 shares of capital stock of Argus agreed to be
sold hereunder, duly endorsed for transfer,
<PAGE>
and Buyer shall pay Sellers or Seller's nominees the sum of Eight Million Five
Hundred Thousand Dollars ($8,500,000.00), by wire transfer in accordance with a
joint direction from Sellers at or before the Closing, and Three Million Seven
Hundred Fifty Thousand Dollars ($3,750,000.00) in subordinated debentures and
the warrant rights created under Section 4 (c) hereunder representing the
Purchase Price to be paid for said shares by Buyer. The sale proceeds, net of
any closing costs, commissions, fees and expenses paid at closing, shall be
shared equally between Jensen and Bartel The subordinated debentures shall
consist of seven-year promissory of Buyer in the total amount of Three Million
Seven Hundred Fifty Thousand Dollars ($3,750,000 00) bearing interest thereon at
the rate of 12% per annum payable from the Closing Date until the principal sum
and all accrued interest thereon have been paid in full, said promissory notes
to be in the form of the two Subordinated Notes attached as Exhibits "A- 1" and
"A-2" hereto. Interest on the said promissory notes shall be paid monthly. The
payment of the promissory notes and interest thereon shall be guaranteed by John
P. Miller, personally in the form of the Personal Guaranty attached to each of
the said Notes. In the event Buyer wishes to prepay the said promissory notes
without Sellers' consent, Buyer and/or the said guarantors shall pay to Sellers
a prepayment fee of Seven Hundred Fifty Thousand Dollars ($750,000.00), in
addition to the principal and interest due and payable on the promissory notes.
(c) In the event that Buyer shall cause to be made a public offering of its
stock (the "IPO") or in the event Buyer merges with or is acquired by any
publicly or privately held company, Sellers shall have the following rights:
<PAGE>
(i) In the event there is an IPO by Buyer, Sellers shall have
options to acquire for a price equal to the IPO Price those numbers of
shares in the IPO that aggregate to Three Million Seven Hundred Fifty
Thousand dollars ($3,750,000.00), such number of shares to be determined as
follows,
$$3.75 million / initial IPO price per share = number of shares Sellers
shall have option to purchase
(ii) In the event there has not been an IPO within three years of
the purchase, Sellers will have an option to buy Buyer's stock in share
value totaling Three Million Seven Hundred Fifty Thousand dollars
($3,750,000.00) at a price per share equal to the total value of Buyer
(based on the five (5) times EBITDA formulae for the preceding calendar
year divided by the total number of issued and outstanding shares of
capital stock.
(iii) In the event of an acquisition or merger, Sellers shall have
the option to acquire those numbers of shares in the company merging with
or requiring Buyer as would equal $3,750,000 in value, such number of
shares to be determined as follows,
$3.75 million / price per share of Company = number of shares
merging with or Sellers shall have option
acquiring Buyer to purchase
<PAGE>
stock options shall expire ten (10) years from the Closing Date and shall be in
the form of the stock warrants attached hereto Exhibits B-1 and B-2.
(d) Sellers agree to assume responsibility for any costs and expenses
incurred by Buyer in connection with the return of the Screen USA PIR 1080 Plate
Exposure Device and PIR AT AND The PIR Configurable Punch now being purchased by
Argus pursuant to a contract with Screen USA dated March 27, 1997 and numbered
MW-00334 in the event Premier shall reasonably decide in accordance with the
privileges afforded it under the said contract to return the replacement PIR
equipment by reason of its having failed to meet the performance standards
therein enumerated. Prior to the Closing, Sellers have procured the consent of
Screen USA to the assignment of this contract to Premier by document dated
September 19, 1997 entitled Acknowledgment and Consent. Subsequent to the
Closing, Buyer shall cause Premier to allow Screen USA to first attempt to make
the said equipment satisfy the contract standards for the ninety day period
after September 30, 1997 and then, if the existing equipment has not met the
said standards, to cause Premier to allow Screen USA to replace the said
equipment as provided in the said Acknowledgment and Consent In the event Buyer
calls upon Sellers to assume the aforesaid responsibility, Seller and Premier
shall fully cooperate with Sellers in asserting any rights Buyer or Premier have
under the said contract, including the assignment of the contract and any of
Buyer's or Premier's rights in and to the replacement equipment to Sellers.
Except to the extent of Sellers responsibilities for Argus liabilities under
this Section, Buyer shall purchase the stock of Argus subject to all of Argus'
existing corporate liabilities. Buyer and John P Miller will use their best
efforts to have Sellers released from any and all personal guarantees, if any,
of any Argus indebtedness and indemnify Sellers from any and all such
liabilities.
<PAGE>
5. ARGUS' NET WORTH
----------------
The terms of this contract are premised on the representation to the Buyer
by Sellers that Argus' net worth on its May 31, 1997 balance sheet and as of the
Closing, or any other date shortly before the Closing that is agreed to by the
parties, shall have been, and shall be, no less than Three Million Four Hundred
Seventeen Thousand Six Hundred and Twenty Nine dollars ($3,417,629.00). Buyer
shall be entitled to retain the amount of any increase in Argus' Net Worth
between May 31, 1997 and the Closing, provided, however, Buyer shall reimburse
Sellers for the amount of the federal and state income taxes required to be paid
by them as "Subchapter Shareholders" on Argus' taxable earnings between May 31,
1997 and the Closing Date. In calculating Argus' said Net Worth as of the
Closing as well as the amount of Argus' taxable income after May 31, 1997,
Argus' historical accounting methods shall be used.
6. WARRANTIES AND REPRESENTATIONS OF SELLERS
-----------------------------------------
Sellers, jointly and severally, warrant and represent to Buyer as
follows,
(a) Sellers each have full, complete and absolute title to the
following number of capital stock of Argus:
NAME NUMBER OF SHARES
Joseph M. Jensen 500
Allan R. Bartel 500
(b) The title of each of Sellers to said shares is free and clear of
any lien, charge or encumbrance, and said shares, aggregating to 1,000 shares,
constitute all of the outstanding capital
<PAGE>
stock of Argus and, by sale of said shares of stock hereunder, Buyer will
receive good and absolute title thereto free of any liens, charges or
encumbrances.
(c) Argus is a corporation duly organized and existing under and by
virtue of the laws of the State of Illinois, and is in good standing with the
Illinois Secretary of State.
(d) The one thousand (1000) shares of capital stock of Argus have
been duly issued and are outstanding and are all of the outstanding shares of
Argus and said shares are valid, fully paid and non-assessable, and no
assessment is outstanding against the same or any part thereof
(e) If requested by Buyer, prior to the closing of this
transaction, Sellers will deliver to Buyer an opinion of Hamblet, Casey, Oremus
& Vacin, Sellers' counsel, addressed to Buyer, stating:
(i) that the 1,000 shares of the capital stock of Argus now issued
and outstanding have been lawfully issued under the laws of the State of
Illinois and are valid;
(ii) that all stock transfer restrictions affecting the transfer of
said shares of capital stock to Buyer hereunder have been complied with or
effectively waived
(iii) of the issued and outstanding shares of Argus free and clear of
all liens, charges or that upon the closing hereunder, Buyer will have full
and absolute title to all encumbrances; and,
(iv) that Sellers have full power and authority to execute this
agreement and perform and implement the terms hereof.
<PAGE>
(v) such other terms and provisions as Buyer or its counsel may
reasonably require.
(f) The present Directors and Officers of Argus are the following,
Directors, Joseph M. Jensen
Allan R. Bartel
Officers, Joseph M. Jensen Chairman, Secretary
Alan R. Bartel President, Treasurer
Diane M. Jensen Vice President
Lorie S. Bartel Vice President
Donald M. Harris Assistant Secretary
Michael J. Hamblet Assistant Secretary, Registered Agent
The written resignations of said Officers and Directors shall be tendered to
Buyer concurrently with the delivery of the certificates representing the
capital stock sold hereunder.
(g) Attached hereto and marked Exhibit "C" is a document styled,
THE ARGUS PRESS, INC.
Financial Statements and Additional Information
Month Ended May 31, 1997
which contains the following Financial Statements of Argus
I. Balance Sheet
<PAGE>
II. Statement of Income
and, have been prepared using accounting methods, consistent with Argus'
historical accounting methods. Argus has no material liabilities as of the date
of this Statement, whether absolute, contingent or otherwise, except those
disclosed on the Financial Statements. Said Financial Statements truly,
correctly and completely set forth the financial condition of Argus as of May
31, 1997 in all material respects. Title to all assets referred to and shown on
the balance sheet are vested in Argus as of said date.
(h) Between the date of this agreement and the Closing Date, Argus
and Sellers will not,
(i) Sell, assign or otherwise transfer any Argus property or assets
material to the operation of Argus' business other than in the ordinary and
usual course of its business as heretofore conducted, except as to any such
items that shall have become no longer useful or otherwise rendered of no
further use to Argus. Sellers shall use their best efforts to prevent Argus
from suffering any adverse change in assets, liabilities, or financial
condition or to suffer any damage, destruction, or loss (whether or not
covered by insurance) that materially and adversely affects Argus '
business or properties;
<PAGE>
(ii) Create, participate in, or agree to the creation of any liens or
encumbrances on Argus' property, save and except liens for current taxes
and liens created in the ordinary and usual course of its business as
heretofore conducted;
(iii) Enter into any leases, contracts, or agreements of any kind or
character or incur any liabilities, save and except those to which it is
presently committed and which are disclosed herein or in the exhibits
hereto and purchase orders placed for raw materials and supplies and
agreements to sell products to customers arising in the ordinary and usual
course of business as heretofore conducted and except for the prepress
equipment and telephone system which as previously disclosed to Buyer is
now being purchased by Argus;
(iv) Make any payments or distributions to any of its officers,
stockholders or employees, save and except: wages and salaries paid to
employees in the ordinary and usual course of Argus' business as
heretofore conducted.
(i) Amend or repeal its Articles of incorporation or Bylaws or
issue any shares of capital stock in addition to and other than the shares
heretofore issued or reissue any treasury stock.(i) Sellers shall instruct
Argus' accountants and legal counsel to cooperate and assist Buyer in its
due diligence efforts and activities incident to this transaction.
(j) Attached hereto, as Exhibit "D", is a schedule of all notes and
accounts payable, accrued taxes and other liabilities of Argus as reflected by
the balance sheet.
(k) Attached hereto, as Exhibit "E" is a list of the furniture,
fixtures and equipment owned by Argus and located on its premises at 7440
Natchez, Niles, Illinois, said furniture,
<PAGE>
fixtures and equipment being free from any liens, claims or encumbrances except
as otherwise disclosed pursuant to this agreement and the exhibits hereto.
(l) Attached hereto, as Exhibit "F", is a list of the insurance
policies presently in effect with respect to the corporate property and business
of Argus, and Sellers shall maintain such policies in full force and effect
through the Closing Date. As soon as practicable after the closing Buyer shall
elect whether to retain the "Key Man" policies now maintained by Argus on the
lives of the Sellers; should Buyer elect not to retain the said policies, Buyer
shall offer them to the Seller whose life is thereby insured at a price equal to
the cash value of such policy.
(m) There are no actions, suits, or proceedings pending or, to
Sellers' knowledge, threatened against Argus or affecting Argus before any
Court, administrative agency or arbitrator, except for the workers compensation
cases previously disclosed to Buyer which cases are being defended and insured
by Argus' workers compensation insurer(s). Argus is not subject to any order,
injunction, decree or decision of any Court, administrative agency or
arbitrator. No party has made a claim against Argus that might result in
litigation and Argus and Sellers represent that they have no knowledge of any
basis for such claim.
(n) All required federal, state and local tax returns of Argus have
been duly and timely filed, and all federal, state and local taxes required to
be paid with respect to the periods covered by such returns have been timely
paid. Argus is not delinquent in the payment of any tax, assessment or
governmental charge. No tax deficiency is proposed or assessed against Argus and
Argus has not executed any waiver of any statute of limitations on the
assessment or collection of any
<PAGE>
tax. Sellers are responsible for any Subchapter S income tax audit deficiencies
for periods prior to the Closing, subject to the provisions of Section 5 above.
Buyer and Premier shall fully cooperate with Seller in providing records and
other information needed for any such audits.
(o) Argus is not in violation of any federal, state, or municipal law,
statute, regulation, orders, judgments or decrees applicable to Argus or
shareholders in the operation of the business. Neither the Sellers nor Argus
have received any notice of any asserted present or past failure by Argus to
comply with such laws, statutes, ordinances, regulations, judgments or decrees.
(p) None of the products manufactured or sold by Argus infringe upon
any patents, patented formulas or private trademarks, trade secrets or
copyrights nor has Argus, in the past, manufactured or sold any products which
infringe upon any such patents, trademarks, trade secrets or copyrights.
(q) Sellers shall continue to conduct Argus' business in substantially
the same manner as Sellers have previously conducted it and will not introduce
or undertake any material new method of management, operation or accounting.
(r) Sellers shall maintain Argus' properties and facilities in as good
working order and condition as at present, ordinary wear and tear excepted.
<PAGE>
(s) Sellers shall perform all of Argus' duties, obligations and
undertakings pursuant to contracts and agreements relating to or affecting
Argus' assets, properties, rights and business.
(t) To the best of Sellers' knowledge, information and belief Argus is
currently, and at all times has been, in full compliance with, and has not been,
and is not, in violation or liable under any Environmental Law (as defined
below) except for such failure to comply or violation which would not have a
material adverse effect. Argus has not disposed of or released any hazardous
substances on any portion of its Real Property. Argus has possessed and
currently possesses all permits, licenses and other necessary governmental
authorizations required under applicable Environmental Laws to operate its
business and Argus is in compliance with the terms and conditions thereof. To
the best of Sellers' knowledge, information and belief all property previously
and currently owned, leased or subleased by Argus (the "Real Property") and the
use and operation thereof have been and are currently in compliance with all
applicable laws, ordinances, rates and regulations, relating to public health
and safety and protection of the environment, including those statutes,
regulations and ordinances identified in the definition of Hazardous Materials
(as defined below) all as now and hereafter amended ("collectively Environmental
Laws"). Argus has not stored any Hazardous Materials (as defined below) on any
of the Real Property or any property in which Argus has had an interest, except
in compliance with applicable Environmental Laws. There have been no actions,
activities, circumstances, conditions, events or incidents including, without
limitation, the release, emission, discharge, presence or disposal of any
Hazardous Materials that could form the basis of any environmental claim against
Argus which would have a material adverse effect, and
<PAGE>
neither Argus nor Sellers know of any such actions, activities, circumstances,
conditions, events or incidents.
There are no pending or threatened requests for information, claims,
actions or proceedings from or by any governmental agency or any other person or
entity regarding the condition or use of the Real Property or the release, use,
refinement, generation, discharge, manufacture, treatment, transportation or
disposal of Hazardous Materials on, in, under (including the underlying
groundwater) or from the Real Property, or regarding any Environmental Laws, or
to liens or governmental actions, notices or violations, notices of non-
compliance or other proceedings of any kind with respect to the Real Property.
Sellers shall immediately notify Buyer and provide copies upon receipt of all
oral or written complaints, claims, citations, inquiries, reports or notices
relating to the condition of the Real Property or compliance with Environmental
Laws received after the date hereof.
For purposes of this Agreement, 'Hazardous Materials' means,
(i) "Hazardous Substances" or "Toxic Substances" as those terms are
defined by the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. 9601, et seq.;
(ii) "Hazardous Waste" as that term is defined by the Resource
Conservation and Recovery Act, 42 U.S.C. 6902, et seq.;
<PAGE>
(iii) Any pollutant or contaminate or hazardous, dangerous or toxic
chemicals, waste, materials or substances within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement relating to or imposing standards or conduct concerning any
hazardous, toxic or dangerous waste substances or material;
(iv) Crude oil petroleum products, by-products, or other hydrocarbon
substances;
(v) Any radioactive material, including any source, special nuclear
or by-product material as defined by 42 U.S.C. 211, et seq., as amended;
(vi) Asbestos in any form or condition;
(vii) Polychlorinated biphenyls ("PCBs") or substances or compounds
containing PCBs; and,
(viii) Medical or infectious waste.
(u) Argus has good and marketable title, free and clear of all
liens, and charges and encumbrances, to all assets listed on the balance sheet
dated May 31, 1997, or property acquired thereafter, and all personal property
located on Argus' business premises on May 31,
<PAGE>
1997, except for assets subsequently sold thereafter in the ordinary course of
business and for assets secured by institutional indebtedness as previously
disclosed and as described in the December 31, 1996 financial statements
furnished to Buyer.
(v) Sellers have furnished Buyer such copies of the Articles of
Incorporation and Bylaws and Minutes of Argus. Such copies are true, correct and
complete copies of such corporate documents, with all amendments.
(w) Neither the execution of this Agreement nor the fulfillment of the
terms of this Agreement will result in a breach of the terms, provisions or
conditions of this Agreement. Neither the execution of this Agreement nor the
fulfillment of the terms of this Agreement will invalidate or constitute a
default under this Agreement, or give any other person any rights of
acceleration, cancellation, termination, or any other rights now existing under
Argus' Articles of Incorporation or Bylaws, or any contract, mortgage,
indenture, agreement, order, decree, rule or regulation of any court or of any
federal, state or local regulatory or administrative body, to which the Company
is a party or subject, or which Argus is bound other than with respect to
composite Exhibit "G". Neither the execution of this Agreement nor the
fulfillment of the terms of the Agreement will result in the creation of any
lien, charge, or encumbrance on any of the Stock or on any property or assets of
Argus.
(x) Sellers do not own or have a material beneficial interest, and
have not owned or had a beneficial interest within the past three years,
directly or indirectly, in any corporation, firm,
<PAGE>
association, partnership, or a proprietorship that (I) is similar to or
competitor of Argus, (2) is a customer or supplier of Argus, or (3) has any
existing contractual relationship with Argus.
(y) Attached hereto as Exhibit "H" is a list of all employees of
Argus and their current rates of compensation. Argus is not a party to any union
contract or any other agreement providing employee benefits except Argus does
provide its' employees with a health and dental insurance plan and profit
sharing plan.
(z) No person holds the power of attorney for Argus. Argus' bank
accounts are with American National Bank of Chicago, and the only persons
authorized to draw on such accounts are Sellers.
(aa) No license or permit is required to operate Argus' business,
except a business License issued by the Village of Niles, Illinois. Such license
is presently valid and effective, and in no danger of revocation or nonrenewal.
(bb) Without limiting the foregoing to the best of Sellers' knowledge,
information and belief, all information provided to Buyer by Sellers and Argus
is in compliance with the provisions of this Agreement and is accurate and
complete in all material respects. The information provided does not contain any
untrue statement of material fact, and does not omit any facts in order to make
such information misleading.
<PAGE>
(cc) Except for the compensation due MASI Ltd for their services in
this transaction which shall be the sole responsibility of Sellers, there are no
claims for brokerage commission, finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Sellers or Argus.
(dd) There are no outstanding rights to purchase or convert any
obligations of Argus to stock or securities of Argus, nor is Argus obligated to
issue any stock, securities, options, warrants, or convert any obligations or
other such rights.
(ee) Argus has all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to own and operate its
properties and to carry on its business as now being conducted.
(ff) Argus has no subsidiaries or affiliated companies and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation or other entity.
7. WARRANTIES AND REPRESENTATIONS OF BUYER
---------------------------------------
Buyer warrants and represents to Sellers as follows,
(a) Buyer is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware.
<PAGE>
(b) Buyer has the power and authority to enter into this agreement and
to perform its obligations hereunder.
(c) The execution and delivery of this agreement and the consummation
of the transaction contemplated have been duly authorized by Buyer's Board of
Directors and no other corporate proceedings are necessary to authorize its
officers to effectuate this agreement and the transaction contemplated hereby.
(d) When executed by Buyer, this agreement constitutes a valid
obligation binding on it and such execution and performance of this agreement
does not violate, or result in a breach of, or constitute a default under, any
judgment, order or decree to which it may be subject nor does such making or
performance constitute a violation of or conflict with any provision of its
Charter or Bylaws.
(e) That attached hereto as Exhibit "I" is the most current financial
statement of John P. Miller which is warranted to be accurate and correct.
(f) Attached hereto and marked Exhibit "J" is a document styled,
MASTER GRAPHICS, INC.
Financial Statements and Additional Information
Month Ended May 31, 1997
which contains the following Financial Statements of Master -
<PAGE>
(i) Balance Sheet
(ii) Statement of Income
(iii) Statement of Retained Earnings
(iv) Statement of Cash Flows
(v) Managements' notes to Financial Statements
and, have been prepared in accordance with generally accepted accounting
principles, consistently applied. Master has no material liabilities as of the
date of this Agreement, whether absolute, contingent or otherwise, except those
disclosed on the Financial Statements other than trade credit or debt otherwise
incurred in the normal course of business.. Said Financial Statements truly,
correctly and completely set forth the financial condition of Master as of May
31, 1997. Title to all assets referred to and shown on the balance sheet are
vested in Master as of said date.
(g) Attached hereto and marked Exhibit "K" is a document styled,
PREMIER GRAPHICS, INC.
Financial Statements and Additional Information
Month Ended May 31, 1997
which contains the following Financial Statements of Master- -
(i) Balance Sheet
(ii) Statement of Income
<PAGE>
(iii) Statement of Retained Earnings
(iv) Statement of Cash Flows
(v) Managements' notes to Financial Statements
and, have been prepared in accordance with generally accepted accounting
principles, consistently applied. Premier has no material liabilities as of the
date of this Agreement, whether absolute, contingent or otherwise, except those
disclosed on the Financial Statements other than trade credit or debt otherwise
incurred in the normal course of business. Said Financial Statements truly,
correctly and completely set forth the financial condition of Premier as of May
31, 1997. Title to all assets referred to and shown on the balance sheet are
vested in Master as of said date.
(h) Except for compensation due Asset Services, a company, of Memphis,
Tennessee, Buyer has not employed any broker, finder or agent, nor has it
otherwise become in any way obligated for any broker's, finder's or agent's or
similar fees with respect to the transaction contemplated by this agreement.
(i) Buyer does not have any knowledge of any claim, litigation or
threatened litigation or any other action which has been instituted or
threatened affecting its ability to lawfully perform its obligations under this
agreement.
<PAGE>
(j) At or prior to closing, Buyer will deliver to Sellers a letter
from its legal counsel verifying that the foregoing matters are true, accurate
and correct and that counsel is not aware of any legal impediment to the
consummation of the transaction described in this agreement.
8. INDEMNIFICATION PROVISIONS (a) Indemnification Provisions for Benefit
--------------------------
of Buyer. In the event the Sellers breach any of their representations,
warranties, and covenants contained herein, then Sellers agree to indemnify the
Buyer from and against any adverse consequences the Buyer shall suffer through
and after the date of the claim for indemnification caused proximately by the
breach; provided, however, that Sellers shall not have any obligation to
indemnify the Buyer from and against any adverse consequences caused by the
breach of any representations, warranties or covenants of the Sellers contained
above until the Buyer has suffered adverse consequences by reason of all such
breaches in excess of a $50,000.00 aggregate deductible.
(b) Indemnification Provisions for Benefit of the Sellers. In the
event the Buyer breaches any of its representations, warranties, and covenants
contained herein, then the Buyer agrees to indemnify the Sellers from and
against any adverse consequences the Seller shall suffer through and after the
date of the claim for indemnification caused proximately by the breach;
provided, however, that Buyer shall not have any obligation to indemnify the
Sellers from and against any adverse consequences caused by the breach of any
representations, warranties or covenants of the Buyer contained above until the
Sellers have suffered adverse consequences by reason of all such breaches in
excess of a $50,000.00 aggregate deductible.
<PAGE>
(c) Matters Involving Third Parties. If any third party shall notify
any Party (the "Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against any other
party (the "Indemnifying Party") under this Section 8, then the Indemnified
Party shall promptly (and in any event within five (5) business days after
receiving notice of the Third Party Claim) notify each Indemnifying Party
thereof in writing. Any Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third Party Claim with counsel
of his or its choice reasonably satisfactory to the Indemnified Party. Unless
and until an Indemnifying Party assumes the defense of the Third Party Claim as
provided above, the Indemnified Party may defend against the Third Party Claim
in any manner he or it reasonably may deem appropriate. In no event will the
Indemnified Party consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of each of the Indemnifying Parties, which will not be unreasonably
withheld.
(d) Determination of Adverse Consequences. The Parties shall make
appropriate adjustments for tax benefits and insurance coverage and take into
account the time cost of money in determining adverse consequences for purposes
of this Section 8.
(e) Limitations. The parties agree not to assert any claims against
the other Party for breaches of representations, warranties or covenants of this
Purchase Agreement, apart from the Debentures and Warrants and Guarantees
exchanged hereunder, more than two years after the
<PAGE>
Closing Date and to limit the aggregate amount of any and all claims so asserted
by either Seller's or Buyer against the other to the amount of the Purchase
Price, with the exception of the following items:
(i) A claim arising as a result of a breach of representation or
warranty contained in Section 6(g) shall be limited to the amount of the
subordinated debentures if the breach of such representation or warranty is
a result of the failure by the Sellers to disclose a liability or potential
liability which is unknown to them as of the date of this Agreement.
(ii) Buyer shall have no recourse against Sellers for a breach of
representation and warranties contained in sections 6(j) and 6(k) provided
that the omission from the schedules referenced in such sections is
unintentional and the omitted items are properly reflected on the financial
statements attached to this Agreement.
(iii) A claim arising as a result of a breach of representation or
warranty contained in Section 6(m) shall be limited to the amount of the
subordinated debentures if the breach of such representation or warranty is
a result of a matter to which Sellers had no knowledge as of the date of
this Agreement.
(iv) A claim made as a result of a breach of a representation or
warranty contained in the first sentence of Section 6(o) shall be limited
to the amount of the subordinated debentures if such breach is a result of
a violation to which the Sellers had no knowledge as of the date of the
Agreement.
<PAGE>
(v) A claim made as a result of a breach of a representation or
warranty contained in Section 6(p) shall be limited to the amount of the
subordinated debentures if such breach is a result of an infringement which
Sellers had no knowledge of as of the date of this Agreement.
(vi) A claim made as a result of a breach of a representation or
warranty contained in Section 6(t) shall be limited to the amount of the
subordinated debentures provided such breach was a result of events or
occurrences to which Sellers had no knowledge of as of the date of this
Agreement.
(vii) A claim made as result of a breach of a representation or
warranty contained in Section 6(w) shall be limited to the amount of the
subordinated debentures if such breach related to a matter to which Sellers
had no knowledge of as of the date of this Agreement.
(viii) Buyer shall have no claim for a breach of a representation or
warranty contained in Section 6(y) if the omission from the schedule
referenced therein was inadvertent and immaterial to the overall operations
of Argus.
<PAGE>
(ix) A claim for a breach of a representation or warranty contained in
Section 6(ee) shall be limited to the amount of the subordinated debentures
if the breach results from the failure of Argus to have licenses, permits
or authorizations to which Sellers did not know were required.
(f) Source of Recovery. In the event the Buyer successfully asserts a
claim against the Sellers pursuant to this Section 8, the amount of such claim
shall go first to reduce the amount owed under the Subordinated Debentures
delivered as part of the Purchase Price. In the event the amount of the claim is
in excess of the amount owed under the Subordinated Debentures, Sellers shall
pay Buyer such excess by wire transfer or cashier' s check.
9. EMPLOYMENT AGREEMENT AND COVENANT NOT TO COMPETE
------------------------------------------------
(a) At closing Buyer and each Seller shall enter into an employment
agreement for a S-year period which shall also include the terms and conditions
indicated in the contract attached hereto as Exhibit "L-1" for Joseph M. Jensen
and "L-2" for Allan R. Bartel.
(b) During the term that the subordinated debenture is outstanding,
the Stockholders will be entitled but not required to attend all of Master
Graphics, Inc. and of Premier Graphics Inc. corporate board meetings and shall
receive notice of all such meetings of the Shareholders and of the Board of
Directors. This right shall not be extinguished if Sellers' employment under the
aforesaid Employment Agreement is terminated.
<PAGE>
(c) After the merger of Argus into Premier Master will cause Premier
to offer 3-year employment contracts to the following Argus employees or
commissioned salespersons: Victor Giarnpietro, Ralph Johnson, Joseph Jensen Jr.,
Patrick McCowan and Jeffrey Jensen with compensation terms substantially as now
prevail for the said persons, provided, each such employee so entitled to the
said contract continues to perform his duties and responsibilities substantially
as well as they are presently being performed by him The parties intend by this
provision to make the aforesaid persons third party beneficiaries of the
contractual provisions of this Section.
10. CONDITIONS PRECEDENT TO CLOSING
-------------------------------
The parties shall comply with the following prior to Closing,
(a) The representations and warranties set forth in the Agreement are
accurate and correct in all material respects as of the date of Closing to the
best of the parties' knowledge, information and belief and Sellers shall each
have executed and delivered a certificate to that effect before closing.
(b) The Buyer and Sellers shall have performed and complied with all
of their covenants contained in the Agreement and Sellers shall each have
executed and delivered a certificate to that effect on or before the Closing
<PAGE>
(c) There shall be no injunctions, judgments, orders, decrees or
ruling in effect preventing consummation of any of the transactions contemplated
by the Agreement.
(d) Sellers and Buyer shall have received from each other's legal
counsel opinions in the form and substance as set forth in Exhibit "M-l" and
"M-2", respectively, attached hereto, addressed to Sellers and Buyer as the case
may be and dated as of the Closing Date.
(e) Buyer shall have obtained the financing necessary to consummate
the transactions contemplated and described in this Agreement.
11. PAYMENT OF FEES AND EXPENSES
----------------------------
The parties hereto shall be responsible for, and will pay all of their own
fees and expenses, including those for their own legal counsel, accountants,
financial advisors and the M & A specialists separately retained by them in this
matter, incurred in the negotiation, preparation and consummation of this
Agreement.
12. SURVIVORSHIP
------------
All representations and warranties made by the parties to this Agreement
and in certificates and other documents to be delivered at closing, and the
liability of the parties for the breach, accuracy or other failure of such
representations and warranties, shall not be extinguished
<PAGE>
at closing. The parties, in executing, and in carrying out the provisions of,
this Agreement, are relying solely on the representations, warranties and
agreements contained in this Agreement or in any writing delivered pursuant to
provisions of this Agreement or at the closing of this transaction and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any person other than as specifically set forth herein.
13. ENTIRE AGREEMENT
----------------
The parties understand, agree and represent that this agreement constitutes
the entire agreement among the parties concerning the subject matter hereof, and
that no amendment, modification, deletion or addition hereto shall be valid
unless set out in writing and signed by all parties to this agreement. Buyer
expressly acknowledges and agrees that Sellers' warranties and representations
contained in this agreement constitute the only warranties and representations
of Sellers relied upon by Buyer in completing in this transaction, and that
Sellers have made no warranties or representations upon which Buyer relies
except as are expressly set out in writing, signed by Sellers.
14. INCORPORATION OF TERMS OF LETTER OF INTENT
------------------------------------------
Except to the extent that any of its terms and provisions would conflict or
be inconsistent with the provisions hereof, the terms and provisions of the
Letter of Intent dated June 25, 1997, between Sellers and Buyer are hereby
adopted and ratified by Sellers and Buyer and made a part hereof. A copy of said
Letter of Intent is attached hereto as Exhibit "N".
<PAGE>
15. BINDING EFFECT
--------------
This agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
assigns.
16. ASSIGNMENT
----------
Buyer shall not assign this agreement, or any rights contained herein,
without the prior written approval of Sellers.
17. MISCELLANEOUS
-------------
(a) All notices, approvals or other communications to be sent or given
by or to the parties shall be deemed validly and properly given or made if in
writing and delivered by hand or by registered or certified mail, return receipt
requested, and addressed to,
SELLERS Joseph M. Jensen Michael J. Hamblet
6917 N. Lexington Lane Hamblet, Casey, Oremus & Vacin
Niles, Illinois 60714 75 East Wacker Drive
Chicago, Illinois 60601
Allan R. Bartel Michael J. Hamblet
338 W. Sibley Hamblet, Casey, Oremus & Vacin
Park Ridge, Illinois 60068 75 East Wacker Drive
<PAGE>
Chicago, Illinois 60601
BUYER Premier Graphics, Inc. and Michael P. Morgan, Esq.
Master Graphics, Inc. Black Bobango & Morgan
2500 Lamar 530 Oak Court Dr., Ste. 345
Memphis, Tennessee 38114 Memphis, Tennessee 38117
(b) The parties agree, upon the request of any other party, to execute
any agreements or instruments consistent with this agreement which are necessary
to effectuate and consummate the transactions contemplated in this agreement.
(c) This agreement may be executed in any number of counterparts, each
of which shall be taken to be an original.
(d) No waiver of any provision of this agreement shall be valid unless
in writing and signed by the person or party against whom charged.
(e) The validity or enforceability of any particular provision of this
agreement shall not affect the other provisions of this agreement, and this
agreement shall be construed as if such invalid or unenforceable provision was
omitted. All patties hereto having participated actively in the negotiation and
drafting of this agreement, and each party having been represented by counsel,
it is agreed that the terms of this agreement shall not be construed against,
nor more favorably to, any party, regardless of their responsibility for its
preparation.
18. GOVERNING LAW
-------------
<PAGE>
This agreement shall be governed by and construed in accordance with the
laws of the State of Tennessee.
BUYER:
MASTER GRAPHICS, INC.
By: /s/ John P. Miller Date: 9/22/97
------------------
President
GUARANTORS:
/s/ John P. Miller Date: 9/22/97
- ------------------
John P. Miller
SELLERS:
/s/ Joseph M. Jensen Date: 9/22/97
- --------------------
Joseph M. Jensen
/s/ Allan R. Bartel Date: 9/22/97
- -------------------
Allan R. Bartel
THE ARGUS PRESS, INC.
By: /s/ Allan R. Bartel Date: 9/22/97
-------------------
Allan R. Bartel, President
<PAGE>
EXHIBIT 10.21
MERGER AGREEMENT
This Merger Agreement (the "Agreement") is entered into as of this the 9th
day of April, 1998 by and among MASTER GRAPHICS, INC., a Tennessee corporation
(the "Buyer") and MASTER ACQUISITIONSUB, INC., a Tennessee corporation and a
wholly-owned Subsidiary of the Buyer (the "Transitory Subsidiary") on the one
hand, and MCQUIDDY PRINTING COMPANY, a Tennessee corporation (the "Company"),
DAVID L. MCQUIDDY, JR., a resident of the State of Tennessee and DAVID L.
MCQUIDDY III, a resident of the State of Tennessee, individually and not in his
capacity as the trustee of the Company's 401(k) and Employee Stock Ownership
Plan (collectively the "Shareholders") on the other hand. The Buyer, the
Transitory Subsidiary, the Company, and the Shareholders are referred to
collectively herein as the "Parties."
RECITALS
This Agreement contemplates a transaction in which the Buyer will acquire
all of the outstanding capital stock of the Company for cash and a promissory
note through a reverse subsidiary merger of the Transitory Subsidiary with and
into the Company.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, the representations, warranties, and covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
---------
"Applicable Contract"--any Contract in existence as of the Effective Time
-------------------
(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.
"Articles of Merger" -- as defined in Section 2.3.
------------------
"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
material inaccuracy in or breach of, or any material failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any material claim (by any Person) or other occurrence or
circumstance that is or was materially inconsistent with such representation,
warranty, covenant, obligation, or other provision, and the term "Breach" means
any such material inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Buyer"--as defined in the preface of this Agreement.
-----
"Buyer Note"--as defined in Section 2.4(e).
----------
"Closing"--as defined in Section 2.2.
-------
"Code"--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.
<PAGE>
"Company"--as defined in the preface of this Agreement.
-------
"Company Share" -- any share of the common stock, $10.00 par value per
-------------
share, of the Company.
"Company Shareholder" -- any Person who or which holds any Company Shares.
-------------------
"Consent"--any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"Contract"--any agreement, contract, obligation, promise, or undertaking
--------
(other than this Agreement and the Exhibits and Schedules hereto) to which the
Company is a party (whether written or oral and whether express or implied)
that is legally binding which involves consideration in excess of $10,000.
"Damages"--as defined in Section 10.2.
-------
"Disclosure Schedule" -- as defined in Section 3.
-------------------
"Dissenting Share" means any Company Share which any shareholders who or
----------------
which have exercised his or its dissenters rights under the Tennessee Business
Corporation Act holds of record.
"Effective Time" -- as defined in Section 2.4.
--------------
"Encumbrance"--any charge, claim, 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), groundwater, 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.
2
<PAGE>
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.
"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.
"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;
3
<PAGE>
(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.
which exercises competent jurisdiction over the applicable party.
"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.
----------------------------
"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 without the necessity of conducting an
investigation concerning the existence of such fact or other matter.
(c) anything in this Agreement (or any document instrument, Schedule, Exhibit or
similar item) to the contrary notwithstanding, no Knowledge of David L. McQuiddy
III shall, can or may be imputed in any manner to David L. McQuiddy, Jr.; and
likewise, no Knowledge of David L. McQuiddy, Jr. shall, can or may be imputed in
any manner to David L. McQuiddy III.
"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.
"Merger" -- as defined in Section 2.1.
------
"Merger Consideration" -- as defined in Section 2.4(e).
--------------------
"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.
4
<PAGE>
"Order"--any final, non-applicable award, decision, injunction, judgment,
-----
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
competent 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.
----
"Premier"--as defined in Section 4.1.
-------
"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.
"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;
5
<PAGE>
(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 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.
"Requisite Shareholder Approval" -- the affirmative vote of the holders of
------------------------------
a majority of the Company Shares in favor of this Agreement and the Merger.
"Securities Act"--the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"Special Meeting" -- as defined in Section 5.9.
---------------
"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.
"Surviving Corporation" -- as defined in Section 2.1.
---------------------
"Tax"-- any federal, state, local or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
"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.
6
<PAGE>
"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 actual demand or statement has been made
(orally or in writing) or any actual notice has been given (orally or in
writing), or if any other actual event has occurred or any other circumstances
exist (in conformity with the definition of "Knowledge"), 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.
"Transitory Subsidiary" -- as defined in the preface.
---------------------
2. BASIC TRANSACTION
2.1 THE MERGER
On and subject to the terms and conditions of this Agreement, the
Transitory Subsidiary will merge with and into the Company (the "Merger") at the
------
Effective Time. The Company shall be the corporation surviving the Merger (the
"Surviving Corporation"). The Transitory Subsidiary shall enter into the
---------------------
Agreement and Plan of Merger (the "Agreement and Plan of Merger") in
substantially the form attached hereto as Exhibit 2.1 upon adoption of the
Agreement and Plan of Merger by the Board of Directors of the Transitory
Subsidiary and the satisfaction or waiver of the conditions precedent to the
Transitory Subsidiary's obligations set forth in this Agreement. The Company
shall enter into the Agreement and Plan of Merger upon adoption of the Agreement
and Plan of Merger by the Board of Directors of the Company, approval of this
Agreement and the Merger by the Requisite Shareholder Approval, and the
satisfaction or waiver of the conditions precedent to the Company's obligation
set forth in this Agreement.
2.2 THE CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Baker, Donelson, Bearman &
- --------
Caldwell, 1700 Nashville City Center, 511 Union Street, Nashville, Tennessee
37219, commencing at 9:00 a.m. local time on the second business day following
the satisfaction or waiver of all conditions to the obligations of the Parties
to consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Effective Time").
--------------
2.3 ACTIONS AT THE CLOSING.
At the Closing, (i) the Company and the Shareholders, as applicable, shall
deliver to the Buyer and the Transitory Subsidiary the various certificates,
instruments, and documents referred to in Section 7.4 below, (ii) the Buyer and
the Transitory Subsidiary, as applicable, shall deliver to the Company the
various certificates, instruments, and documents referred to in Section 8.4
below, (iii) the Company and the Transitory Subsidiary shall file with the
Secretary of State of the State of Tennessee Articles of Merger in substantially
the form attached hereto as Exhibit 2.3 (the "Articles of Merger"), and (iv) the
------------------
Buyer shall pay the Merger Consideration to the Company Shareholders and other
amounts to be paid pursuant to Section 8.4.
2.4 EFFECT OF THE MERGER
(a) General. The Merger shall become effective at the time (the
-------
"Effective Time") the Company and the Transitory Subsidiary file the Articles of
- ---------------
Merger with the Secretary of State of the State of Tennessee. The Merger shall
have the effect set forth in the Tennessee Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either the Company or the Transitory Subsidiary in order to carry out and
effectuate the transactions contemplated by this Agreement.
7
<PAGE>
(b) Charter. The Charter of the Surviving Corporation shall be amended
-------
and restated at and as of the Effective Time to read as did the Charter of the
Transitory Subsidiary immediately prior to the Effective Time (except that the
name of the Surviving Corporation will remain unchanged).
(c) Bylaws. The Bylaws of the Surviving Corporation shall be amended and
------
restated at and as of the Effective Time to read as did the Bylaws of the
Transitory Subsidiary immediately prior to the Effective Time (except that the
name of the Surviving Corporation will remain unchanged).
(d) Directors and Officers. The directors and officers of the Transitory
----------------------
Subsidiary shall become the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions and terms
of office).
(e) Conversion of Company Shares. At and as of the Effective Time, (A)
----------------------------
each Company Share (other than any Dissenting Share) shall be converted into the
right to receive an amount (the "Merger Consideration") equal to $175.00 in cash
(without interest); provided however, that David L. McQuiddy, Jr. has agreed to
accept an interest bearing promissory note (the "Buyer Note") in the aggregate
principal amount of One Million Five Hundred Two Thousand Nine Hundred Forty-
eight Dollars ($1,502,948.00) in lieu of a portion of the cash consideration
which would otherwise be payable to him, and (B) each Dissenting Share shall be
converted into the right to receive payment from the Surviving Corporation with
respect thereto in accordance with the provisions of the Tennessee Business
Corporation Act; provided, however, that the Merger Consideration shall be
-----------------
subject to equitable adjustment in the event of any stock split, stock dividend,
reverse stock split, or other change in the number of Company Shares
outstanding. At the Effective Time, the Buyer shall pay to the holder of each
Dissenting Share an amount equal to $175.00 per share, which the Buyer and the
Company have determined is the "fair value" of a Company Share. No Company
Share shall be deemed to be outstanding or to have any rights other than those
set forth above in this Section 2.4(e) after the Effective Time. The Buyer Note
shall be in substantially the form attached hereto as Exhibit 2.4(e)(1) and
shall be personally guaranteed by John P. Miller pursuant to a guaranty
agreement in the form of Exhibit 2.4(e)(2).
(f) Conversion of Capital Stock of the Transitory Subsidiary. At and as
--------------------------------------------------------
of the Effective Time, each share of Common Stock, $.01 par value per share, of
the Transitory Subsidiary shall be converted into one share of Common Stock,
$10.00 par value per share, of the Surviving Corporation.
(g) Procedure for Payment. Immediately after the Effective Time, the
---------------------
Buyer will cause the Surviving Corporation to make full payment of the Merger
Consideration to the record holders of all of the issued and outstanding Company
Shares (other than any Dissenting Shares) upon the tendering of such Company
Shares for payment. No interest will accrue or be paid to the holder of any
outstanding Company Shares (other than any interest on the Buyer Note in
accordance with its terms). At the Effective Time, the Buyer shall pay to the
holder of each Dissenting Share an amount equal to $175.00 per share, which the
Buyer and the Company have determined is the "fair value" of a Company Share.
(h) Closing of Transfer Records. After the close of business on the
---------------------------
Effective Time, transfers of Company Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.
The Company and the Shareholders represent and warrant to the Buyer and the
Transitory Subsidiary that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Effective Time (as though made then and as though the
Effective Time were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Disclosure Schedule"); provided,
------------------- --------
however, that any reference to the Knowledge of the Shareholders or words of
- -------
similar import shall mean the Knowledge of each Shareholder severally and
8
<PAGE>
not jointly. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 3.
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 material 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) The Company has delivered to the Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) The Company has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and to perform its
obligations hereunder; provided, however, that the Company cannot consummate the
-------- -------
Merger unless and until it receives the Requisite Shareholder Approval. This
Agreement constitutes the legal, valid, and binding obligation of the Company
and the Shareholders, enforceable against the Company and the Shareholders 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 Shareholders of the documents listed in Sections 7.4(d), 7.4(e),
7.4(f), and 7.4(g), such documents will constitute the legal, valid, and binding
obligations of the Shareholders who are a party thereto, enforceable against
such Shareholders 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. The Shareholders have the absolute and unrestricted
right, power, authority, and capacity to execute and deliver this Agreement and
the documents listed in Sections 7.4(d), 7.4(e), 7.4(f), and 7.4(g) and to
perform his obligations under this Agreement and such other documents.
(b) Except as set forth in Section 3.2 of the Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation or performance
of any of the transactions contemplated by this Agreement by the Company or the
Shareholders 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 shareholders of the
Company;
(ii) to the Shareholders' 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 transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which the Company or the Shareholders, or any of the assets
owned or used by the Company, may be subject;
(iii) to the Shareholders' 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) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Body;
9
<PAGE>
(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 the Shareholders' Knowledge, except as set forth in Section 3.2 of the
Disclosure Schedule, neither the Shareholders 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 transactions contemplated by this Agreement, with
the exception of obtaining the Requisite Shareholders Approval and allowing the
participants of the Company's 401(k) and Employee Stock Ownership Plan (the
"ESOP") to direct or advise David L. McQuiddy III, as trustee of the ESOP,
regarding the vote of Company Shares owned by the ESOP.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 100,000
shares of common stock, par value $10.00 per share, of which 33,923 shares are
issued and outstanding. The Shareholders and the David L. McQuiddy, Jr.
Charitable Remainder Trust are and will be on the Effective Time the record and
beneficial owners and holders of the 19,010 shares of common stock, 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. 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. Except as set
forth in Section 3.3 of the Disclosure Schedule, 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. With the exception of rights of participants in the ESOP, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company.
3.4 FINANCIAL STATEMENTS
The Shareholders have previously delivered to the Buyer the audited
financial statements for the Company for the years ending June 30, 1996 and
1997, and the unaudited balance sheet and income statement of the Company as of
December 31, 1997 (the December 31, 1997 unaudited balance sheet shall
hereinafter be referred to as the "Balance Sheet"). Such unaudited 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 the Shareholders' 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. For periods of time after
December 31, 1997, the financial statements of the Company will include the
income, assets and liabilities formerly belonging to Digital Spectrum, LLC.
3.5 BOOKS AND RECORDS
Except as set forth in Section 3.5 of the Disclosure Schedule, the books
of account, minute books, stock record books, and other records of the Company,
all of which have been made available to the Buyer, are complete and correct in
all material respects and have been maintained in accordance with sound business
practices. Except as set forth in Section 3.5 of the Disclosure Schedule, 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
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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
Section 3.6 of the Disclosure Schedule, 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 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 Section 3.6 of the Disclosure Schedule 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 and short-term investments acquired and sold
since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice) are listed in Section 3.6 of the Disclosure
Schedule. 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 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, (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 the Shareholders' 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 the Shareholders' Knowledge, except as disclosed in Section 3.7 of
the Disclosure Schedule, 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 (the "Accounts Receivable") or on the accounting records of the Company as
of the Effective Time were incurred in the Ordinary Course of Business for bona
fide sales. Unless paid prior to the Effective Time, to the Shareholders'
Knowledge, the Accounts Receivable are or will be as of the Effective Time
collectible in accordance with the Company's historical collection percentage
and practices. To the Shareholders' Knowledge, there is no contest, claim, or
right of set-off, other than returns in the
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Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
Section 3.8 of the Disclosure Schedule contains a complete and accurate list of
all Accounts Receivable as of the date of the Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
3.9 INVENTORY
To the Shareholders' 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 (or will be in the
adjusting journal entries of the annual audit performed by the Company) written
off or written down to net realizable value in the Balance Sheet or on the
accounting records of the Company as of the Effective Time, 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 the Shareholders' 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 Section 3.10 of the Disclosure Schedule, to the
Shareholders' 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 (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
3.11 TAXES
(a) The Company has filed or caused to be filed (on a timely basis since
January 1, 1994) all Tax Returns that are or were required to be filed by it
pursuant to applicable Legal Requirements. The Shareholders have delivered or
made available to the Buyer copies of, and Section 3.11 of the Disclosure
Schedule contains a complete and accurate list of, all such Tax Returns relating
to income or franchise taxes filed since January 1, 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 pursuant to any assessment received by the
Shareholders or the Company, except such Taxes, if any, as are listed in Section
3.11 of the Disclosure Schedule 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) Section 3.11 of the Disclosure Schedule 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 Section 3.11 of the
Disclosure Schedule, are being contested in good faith by appropriate
proceedings. Section 3.11 of the Disclosure Schedule 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 Section 3.11 of the Disclosure Schedule, neither the
Shareholders nor the Company have 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 the Shareholders' 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 liability for
Taxes. There exists no proposed tax assessment against the Company except as
disclosed in the Balance Sheet or in Section 3.11 of the Disclosure Schedule. No
consent to the application of Section 341(f)(2) of the Code 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. All
Tax Returns filed by (or that include on a consolidated basis) the Company are
true, correct, and complete.
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(d) 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
Except as set forth in Section 3.12 of the Disclosure Schedule, since
the date of the Balance Sheet, to the Shareholders' Knowledge, there has not
been any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and to the Shareholders'
Knowledge, no event has occurred or circumstance exists that may result in such
a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) Section 3.13 of the Disclosure Schedule sets forth a true and complete
list of all employment contracts, collective bargaining or other labor
agreements, 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 Buyer. 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 Section 3.13 of the Disclosure Schedule, 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) The ESOP is qualified under Section 401(a) of the Code and the
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 Plan have been made available to the Buyer.
(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 Plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a non-exempt "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 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 Effective Time, will be discharged and
paid on or prior to the Effective Time except to the extent that any such amount
is recorded as a liability on the Balance Sheet. Except as set forth in Section
3.13 of the Disclosure Schedule, 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.
(e) Notwithstanding anything to the contrary contained in this
Agreement, no representation or warranty of the Shareholders or the Company
shall be breached or deemed to be breached in the event any Governmental Body
determines that the pass through of "dissenters rights" under Tennessee law to
any ESOP participants who perfect their dissenters rights in accordance with
Tennessee Law constitutes a non-exempt "prohibited transaction" under ERISA.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Section 3.14 of the Disclosure Schedule, to
the Shareholders' 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
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where the failure to be in compliance with any such Legal Requirements
will 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 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) Section 3.14 of the Disclosure Schedule 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 Section 3.14 of the Disclosure Schedule 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 Section 3.14 of the Disclosure Schedule:
(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 Section 3.14 of the
Disclosure Schedule 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 Section 3.14 of the Disclosure Schedule, 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 Section
3.14 of the Disclosure Schedule;
(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
Section 3.14 of the Disclosure Schedule 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 the Shareholders' Knowledge, the Governmental Authorizations listed
in Section 3.14 of the Disclosure Schedule 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.
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3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders 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
transactions contemplated by this Agreement.
To the Knowledge of the Shareholders, (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. To the
Shareholders' Knowledge, the Proceedings listed in Section 3.15 of the
Disclosure Schedule will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Company.
(b) Except as set forth in Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders:
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
(ii) to the Knowledge of the Shareholders, 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 Section 3.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders:
(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, 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 Section 3.16 of the Disclosure Schedule, 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;
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(c) payment or increase by the Company (except in the Ordinary Course
of Business, including the disposition of the shareholders' receivable balance
which shall occur on or before the Effective Time) of any bonuses, salaries, or
other compensation to any shareholder, director, officer, or employee or entry
into any employment, severance, or similar Contract with any director, officer,
or employee; provided, however, that the Company shall allow David L. McQuiddy,
Jr. to remove his split dollar life insurance, have the Company waive any
obligation or David L. McQuiddy, Jr. to the Company with respect to the split
dollar insurance, and otherwise end the split dollar insurance plans with no
further obligation to the Company;
(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 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) 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) Section 3.17(a) of the Disclosure Schedule contains a complete and
accurate list, and the Shareholders have made available to the 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 was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of the
Company in excess of $10,000;
(iii) 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);
(iv) 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;
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(v) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of
a group of employees;
(vi) 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;
(vii) 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;
(viii) 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;
(ix) each power of attorney that is currently effective and
outstanding;
(x) 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;
(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.
(b) To the Shareholders' Knowledge, except as set forth in Section
3.17(b) of the Disclosure Schedule:
(i) Neither the Shareholders nor any Related Person of the
Shareholders has or may acquire any rights under, and neither the
Shareholders nor any Related Person of the Shareholders have or may
become subject to any obligation or liability under, any Contract (other
than this Agreement) that relates to the business of, or any of the
assets owned or used by, the Company; and
(ii) 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 Section 3.17(c) of the Disclosure
Schedule, to the Knowledge of the Shareholders, each Contract identified or
required to be identified in Section 3.17(a) of the Disclosure Schedule 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 Section 3.17(d) of the Disclosure Schedule
to the Knowledge of the Shareholders:
(i) the Company is, and at all times has been, in material 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, except where the failure to comply does not have a material
adverse effect on the business, assets or prospects of the Company;
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(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 material compliance with all applicable terms
and requirements of such Contract except where the failure to comply
does not have a material adverse effect on the business, assets or
prospects of the Company;
(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 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 the Shareholders, 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 the Shareholders, 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) The Shareholders have made available to the 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; and
(ii) true and complete copies of all pending applications for policies
of insurance.
(b) Section 3.18(b) of the Disclosure Schedule 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) Section 3.18(c) of the Disclosure Schedule 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:
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(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 Section 3.18(d) of the Disclosure Schedule:
(i) Neither the Shareholders 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 the Shareholders'
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 Section 3.19 of the Disclosure Schedule:
(a) To the Knowledge of the Shareholders, 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 the Buyer by the Shareholders in connection with this
Agreement. To the Knowledge of the Shareholders there is no basis to expect, nor
has any other Person for whose conduct the Shareholders 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 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
Shareholders, 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 the
Shareholders' 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 the Shareholders,
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 Shareholders or the Company have or had an interest.
(c) The Shareholders have no Knowledge of any basis to expect, nor has
the Company or to the Knowledge of the Shareholders, 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,
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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 Shareholders 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 the Shareholders, 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 the Shareholders, neither the Shareholders 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 the Shareholders, with respect to any
other properties and assets (whether real, personal, or mixed) in which the
Shareholders or the Company (or any predecessor), has or had an interest, or at
any property geologically or hydro logically adjoining the Facilities or any
such other property or assets.
(e) To the Knowledge of the Shareholders, 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
the Shareholders, the Company, nor any other Person for whose conduct the
Company may be held responsible, or to the Knowledge of the Shareholders 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
Shareholders 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 the Shareholders and the Company, there has
been no Release or Threat of Release, of any Hazardous Materials at or from the
Facilities in which the Shareholders or the Company has or had an interest in a
quantity or manner that violates applicable Environmental Laws.
(g) The Shareholders have delivered to the Buyer true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Shareholders or the Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or
concerning compliance by the Shareholder, 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 Section 3.19 of the Disclosure
Schedule shall not constitute an admission that such matter is a violation of
any applicable Environmental Laws.
3.20 EMPLOYEES
(a) Section 3.20(a) of the Disclosure Schedule 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 the Shareholders, 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
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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 the
Shareholders or the Company by any such employee or director. To the
Shareholders' Knowledge, except for those employees set forth on Section 3.20(b)
of the Disclosure Schedule, no director, officer, or other key employee of the
Company intends to terminate his or her employment with the Company.
(c) Section 3.20(a) of the Disclosure Schedule 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 the
Shareholders' 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 the Shareholders' 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 Shareholders' 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 Shareholders'
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) The term "Intellectual Property Assets" includes:
(i) the name McQuiddy Printing, 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 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 not obliged to make future
payments principally for its ownership or use of any Intellectual Property
Assets, (iii) has not 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 not be in violation
of any contracts or agreements relating to the use of any Intellectual Property
Assets.
3.23 CERTAIN PAYMENTS
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To the Shareholders' Knowledge, since January 1, 1992, neither the
Company nor any director, officer, agent, or employee of the Company, or to the
Shareholders' 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 the Shareholders' Knowledge, no representation or warranty of
the Shareholders 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 the Shareholders' Knowledge, except as set forth on Section 3.25 of
the Disclosure Schedule, neither the Shareholders nor any Related Person of the
Shareholders 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 Section 3.25 of the
Disclosure Schedule, neither the Shareholders nor to the Knowledge of the
Shareholders any Related Person of the Shareholders 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
Neither the Company nor the Shareholders and his agents have incurred
any 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 GUARANTIES
Except as set forth in Section 3.27 of the Disclosure Schedule, the
Company is not a guarantor and otherwise is not liable for any liability or
obligation (including indebtedness) of any other Person.
3.28 POWERS OF ATTORNEY
There are no outstanding powers of attorney executed by the Company,
except as may be contained in financing documents or security agreements listed
in Section 3.28 of the Disclosure Schedule.
3.29 INVESTMENT
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David L. McQuiddy, Jr. (i) understands that the Buyer Note has not
been, and will not be, registered under the Securities Act, or under any state
securities laws, and is being offered and sold in reliance upon federal and
state exemptions for transactions not involving a public offering, (ii) is
acquiring the Buyer Note solely for his own account for investment purposes, and
not with a view to the distribution thereof, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has had
the opportunity to obtain information about the Buyer as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Note, and (v) is
able to bear the economic risk and lack of liquidity inherent in holding the
Buyer Note.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Effective Time (as though made then and as though the Effective Time were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
4.1 ORGANIZATION AND GOOD STANDING
Each of the Buyer, Premier Graphics, Inc., a Delaware corporation
("Premier"), and the Transitory Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of its respective
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 of the Buyers, Premier and the Transitory Subsidiary
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.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation
of the Buyer and Transitory Subsidiary, enforceable against the Buyer and
Transitory Subsidiary 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 principles governing the availability of equitable
remedies generally. Upon execution and delivery of the agreements which are
attached hereto as Exhibits, each of such agreements will constitute the legal,
valid and binding obligation of the Buyer, the Transitory Subsidiary or Premier,
as applicable, enforceable against such parties 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 principles governing the
availability of equitable remedies generally. Each of the Buyer, the Transitory
Subsidiary and Premier has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and each agreement attached
hereto to which it is a party and to perform its obligations under this
Agreement and the agreements attached hereto as Exhibits.
(b) Except as set forth in Section 4.2 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by the Buyer or the
Transitory Subsidiary, nor the consummation or performance of any of the
transactions contemplated by this Agreement by the Buyer, Premier or the
Transitory Subsidiary, will give any Person the right to prevent, delay, or
otherwise interfere with any of the transactions contemplated by this Agreement
pursuant to:
(i) any provision of the Buyer's, Premier's or the Transitory
Subsidiary's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer, Premier or the Transitory Subsidiary;
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(iii) any Legal Requirement or Order to which the Buyer, Premier or the
Transitory Subsidiary may be subject; or
(iv) any Contract to which the Buyer, Premier or the Transitory
Subsidiary is a party or by which the Buyer, Premier or the Transitory
Subsidiary may be bound.
Except as set forth in Section 4.2 of the Disclosure Schedule, the 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 transactions contemplated by this Agreement.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against the Buyer,
Premier or the Transitory Subsidiary and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated by this Agreement. To the Buyer's Knowledge, no
such Proceeding has been Threatened.
4.4 BROKERS OR FINDERS
Neither the Buyer, Premier nor the Transitory Subsidiary nor any of
their respective officers or agents have incurred any 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 the Company and the Shareholders harmless from any such payment alleged
to be due by or through the Buyer, Premier or the Transitory Subsidiary as a
result of the action of the Buyer, Premier, the Transitory Subsidiary, or any of
their respective officers or agents.
4.5 COMPANY INFORMATION
The Buyer has requested all information that it believes is material to
its decision to consummate the Merger. The Buyer has received from the
Shareholders or the Company information responsive to each of its requests. The
Buyer has not relied on any representation that is not set forth in the
Agreement. As of the date of this Agreement, the Buyer does not have Knowledge
of any Breach committed by the Company or the Shareholders of any
representation, warranty, covenant of agreement contained in this Agreement.
4.6 FINANCIAL COVENANT
The Buyer has the financial ability to pay all amounts due under the
Buyer Notes as and when such amounts become due and payable. Prior to the
Effective Time, the Buyer will provide to David L. McQuiddy, Jr., audited
financial statements of the Buyer for the period ended December 31, 1997. The
Buyer will continue to provide to David L. McQuiddy, Jr. financial statements on
a quarterly basis until such time as all amounts due under the Buyer Note have
been paid.
4.7 EMPLOYEE BENEFITS
From and after the Effective Time, the Buyer and the Surviving
Corporation shall be solely responsible for the form and maintenance of the
Plans in compliance with Applicable Laws. The Buyer and the Surviving
Corporation shall be solely responsible for any act or omission of the Buyer or
the Surviving Corporation which occurs after the Effective Time and results in a
retroactive disqualification of the ESOP.
5. COVENANTS OF THE COMPANY AND THE SHAREHOLDERS PRIOR TO EFFECTIVE TIME
5.1 ACCESS AND INVESTIGATION
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Between the date of this Agreement and the Effective Time, the
Shareholders will, and will cause the Company and its Representatives to, (a)
afford the 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 the Buyer and the Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as the Buyer may reasonably request, and (c) furnish
the Buyer and the Buyer's Advisors with such additional financial, operating,
and other data and information as the Buyer may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
Between the date of this Agreement and the Effective Time, the
Shareholders will, and will cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business; provided, however, the Buyer acknowledges that (i) the ESOP may be
converted into a 401(k) plan prior to the Effective Time; (ii) the indebtedness
of the ESOP may be repaid prior to the Effective Time; and (iii) the payment of
fees incurred in connection with this Agreement and the transactions
contemplated hereby;
(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 the Buyer concerning operational matters of a material
nature; and
(d) otherwise report periodically to the 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 Effective Time, the Shareholders will not, and
will cause the Company not to, without the prior consent of the 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, the
Shareholders will, and will cause the Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Effective Time, the Shareholders will, and will cause the Company to, (a)
cooperate with the Buyer with respect to all filings that the Buyer elects to
make or is required by Legal Requirements (with the exception of obtaining an
Individual Prohibited Transaction Exemption from the United States Department of
Justice) to make in connection with the transactions contemplated by this
Agreement, and (b) cooperate with the Buyer in obtaining all consents identified
in Section 4.2 of the Disclosure Schedule.
5.5 NOTIFICATION
Between the date of this Agreement and the Effective Time, the
Shareholders will promptly notify the Buyer in writing if the Shareholders or
the Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of the Company's or the Shareholders' representations and
warranties as of the date of this Agreement, or if the
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Shareholders 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, the Shareholders will promptly notify the Buyer of the occurrence of any
Breach of any covenant of the Shareholders 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, the Shareholders will
cause all indebtedness, with the exception of indebtedness related to split
dollar life insurance policies, owed to the Company by the Shareholders or any
Related Person of the Shareholders to be paid in full prior to Closing.
5.7 NO NEGOTIATION
Except as required in the exercise of their fiduciary duty as directors
of the Company, until such time, if any, as this Agreement is terminated
pursuant to Section 9, the Shareholders 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 the 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 Effective Time, the
Shareholders will use their Best Efforts to cause the conditions in Sections 7
and 8 to be satisfied.
5.9 SPECIAL SHAREHOLDERS MEETING
The Company will call a special meeting of its shareholders (the
"Special Meeting"), as soon as practicable in order that the shareholders may
consider and vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the Tennessee Business Corporation Act. The notice for
the Special Meeting shall comply in all respects with Sections 48-17-105 and 48-
23-201 of the Tennessee Code Annotated and the Bylaws of the Company and contain
(i) the affirmative recommendation of the board of directors of the Company in
favor of the adoption of the Agreement and the approval of the Merger; provided,
--------
however, that no director or officer of the Company shall be required to violate
- -------
fiduciary duty or other requirement imposed by law in connection therewith; and
(ii) a copy of Sections 48-23-101 through 48-23-302, inclusive, of the Tennessee
Code Annotated.
6. COVENANTS OF BUYER PRIOR TO EFFECTIVE TIME
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, the 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 transactions
contemplated by this Agreement. Between the date of this Agreement and the
Effective Time, the Buyer will, and will cause each Related Person to, cooperate
with the Shareholders with respect to all filings that the Company is required
by Legal Requirements to make in connection with the transactions contemplated
by this Agreement, and (ii) cooperate with the Company in obtaining all consents
identified in Section 3.2 of the Disclosure Schedule; provided that this
Agreement will not require the 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.
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6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Effective Time, the Buyer will use its Best Efforts to
cause the conditions in Sections 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions(any of which may be
waived by the Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of the Company's and the Shareholders' 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 Effective Time as if made on the
Effective Time.
7.2 COMPANY AND SHAREHOLDERS PERFORMANCE
(a) All of the covenants and obligations that either the Company or the
Shareholders 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 7.4 must
have been delivered, and each of the other covenants and obligations in Section
5.1 through Section 5.9, inclusive, must have been performed and complied with
in all respects.
7.3 CONSENTS
Each of the Consents set forth in Section 3.2 of the Disclosure
Schedule, must have been obtained and must be in full force and effect.
7.4 DELIVERIES AT CLOSING BY THE COMPANY AND THE SHAREHOLDERS
The Shareholders or the Company, as applicable, shall execute and
deliver to the Buyer prior to or at the Closing:
(a) certified resolutions of the directors and shareholders of the
Company authorizing the execution and delivery of the Agreement, approving the
Merger, and authorizing the execution and delivery of all documents and the
consummation of all transactions contemplated by this Agreement;
(b) the Articles of Merger;
(c) the Agreement and Plan of Merger;
(d)[intentionally omitted]
(e) a noncompetition agreement in substantially the form attached
hereto as Exhibit 7.4(e), executed by the David L. McQuiddy III;
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(f) employment agreements in substantially the form attached hereto as
Exhibit 7.4(f) executed by the appropriate parties;
(g) a certificate executed by the Shareholders representing and
warranting to the Buyer that each of the Shareholders' 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 Effective Time as if made on
the Effective Time.
(h) opinions of Harwell Howard Hyne Gabbert & Manner, P.C. and Dodson,
Parker & Behm, P.C., dated as of Effective Time, in form and substance mutually
agreeable to the Parties and their respective counsel;
(i) the consulting agreement in substantially the form attached hereto
as Exhibit 7.4(i);
(j) the option agreements in substantially the form attached hereto as
Exhibit 7.4(j);
(k) the warrant agreements in substantially the form attached hereto as
Exhibit 7.4(k)
(l) 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, (ii) evidencing the accuracy of any of the Company's or the
Shareholders' representations and warranties, (iii) evidencing the performance
by the Company or the Shareholders of, or the compliance by the Company or the
Shareholders with, any covenant or obligation required to be performed or
complied with by the Company or the Shareholders, (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 transactions
contemplated by this Agreement.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against the Buyer, or against any Person affiliated with the Buyer,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the transactions contemplated by this
Agreement, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the transactions contemplated by
this Agreement.
7.6 NO PROHIBITION
Neither the consummation nor the performance of any of the transactions
contemplated by this Agreement 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 the Buyer or any Person affiliated with the
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.
7.7 SHAREHOLDER APPROVAL
This Agreement and the Merger shall have received the Requisite
Shareholder Approval.
8.CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SHAREHOLDERS' OBLIGATION TO
CLOSE
The obligation of the Company and the Shareholders to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions (any of which may be waived by the
Company and the Shareholders, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
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All of the Buyer's and the Transitory Subsidiary'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 Effective Time as if made on the
Effective Time.
8.2 BUYER AND TRANSITORY SUBSIDIARY PERFORMANCE
(a) All of the covenants and obligations that either the Buyer or the
Transitory Subsidiary 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) Each document required to be delivered pursuant to Section 8.4 must
have been delivered, and each of the other covenants and obligations in Section
6.1 and Section 6.2, inclusive, must have been performed and complied with in
all respects.
8.3 CONSENTS
Each of the Consents identified in Section 3.2 of the Disclosure
Schedule must have been obtained and must be in full force and effect.
8.4 DELIVERIES AT CLOSING BY THE BUYER AND THE TRANSITORY SUBSIDIARY
The Buyer, Premier or the Transitory Subsidiary, as applicable, shall
execute and deliver to the Company or the Shareholders, as applicable, prior to
or at the Closing:
(a) Four Million Four Hundred Thirty-three Thousand Five Hundred
Seventy-seven Dollars ($4,433,577.00) by wire transfer to accounts specified by
the Shareholders and in amounts set forth in Schedule 8.4(a);
(b) the Buyer Note;
(c) the guaranty of John P. Miller in substantially the form attached
hereto as Exhibit 2.4(b);
(d) a certificate executed by the Buyer to the effect that, except as
otherwise stated in such certificate, each of the 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 Effective Time as if made on
the Effective Time; and
(e) the Articles of Merger;
(f) the Agreement and Plan of Merger;
(g) an opinion of Baker, Donelson, Bearman & Caldwell, dated as of the
Effective Time, in form and substance mutually agreeable to the Parties and
their respective counsel, which shall include an opinion regarding "prohibited
transactions" under ERISA;
(h) the employment agreements in substantially the form attached hereto
as Exhibit 7.4(f);
(i) the consulting agreement in substantially the form attached hereto
as Exhibit 7.4(i)
(j) the option agreements in substantially the form attached hereto as
Exhibit 7.4(j);
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(k) the warrant agreements in substantially the form attached hereto as
Exhibit 7.4(k);
(l) the non-competition agreement in substantially the form attached
hereto as Exhibit 7.4(e);
(m) unless paid prior to Closing, wire transfers in the amounts and to
the accounts listed on Schedule 8.4(m);
(n) unless the parties hereto mutually agree to delay entry of the
agreements to a later date, stock option agreements in a form mutually agreeable
to the parties for that certain number of shares of the Buyer's common stock
equal to (a) the dollar amounts reflected on the attached Schedule 8.4(n)
divided by (b) the initial public offering price per share of the Buyer's common
stock. Such option agreements shall (i) provide for an exercise price per share
equal to the initial public offering price pre share of the Buyer's common stock
and (ii) with the exception of the $123,000 in fully vested options, shall vest
on the schedule of 25% after one year of service, an additional 25% after two
years of service and an additional 50% after three years of service. The terms
and conditions contained in such stock option agreements shall govern and, to
the extent inconsistent herewith, supersede the terms and conditions set forth
in this Agreement.
(o) such other documents as the Company or the Shareholders may
reasonably request for the purpose of (i) enabling his counsel to provide the
opinion referred to in Section 7.4, (ii) evidencing the accuracy of any
representation or warranty of the Buyer or the Transitory Subsidiary, (iii)
evidencing the performance by the Buyer or the Transitory Subsidiary of, or the
compliance by the Buyer or the Transitory Subsidiary with, any covenant or
obligation required to be performed or complied with by the Buyer or the
Transitory Subsidiary, (ii) evidencing the satisfaction of any condition
referred to in this Section 8, or (v) otherwise facilitating the consummation of
any of the transactions contemplated by this Agreement.
8.5 NO PROCEEDINGS
Since the date of this Agreement, with the exception of any exercise of
"dissenters' rights" under Tennessee law, there must not have been commenced or
Threatened against the Company or the Shareholders, or against any Person
affiliated with the Company or the Shareholders, any Proceeding (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the transactions contemplated by this Agreement, or (b) that may have the effect
of preventing, delaying, making illegal, or otherwise interfering with any of
the transactions contemplated by this Agreement.
Neither the consummation nor the performance of any of the transactions
contemplated by this Agreement 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 the Shareholders or any Person affiliated with
the Shareholders 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.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either the Buyer or the Company or the Shareholders 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 the Buyer if any of the conditions in Section 7 has not been
satisfied as of the Effective Time or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Buyer to comply with
its obligations under this Agreement) and the Buyer has not waived such
condition on or before the Effective Time; or
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(ii) by the Company or the Shareholders, if any of the conditions in Section 8
has not been satisfied of the Effective Time or if satisfaction of such a
condition is or becomes impossible (other than through the failure of the
Company or the Shareholders to comply with their obligations under this
Agreement) and the Company or the Shareholders have not waived such condition on
or before the Effective Time;
(c) by mutual consent of the Buyer, the Company and the Shareholders.
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 contained
in this Agreement, the certificates delivered pursuant to Section 7.4(g) and
Section 8.4(d) 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 a breach of such representations,
warranties, covenants, and obligations will not be affected by any investigation
conducted by the Buyer. 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 such representations, warranties, covenants,
and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE SHAREHOLDERS
The Shareholders will indemnify and hold harmless the Buyer, the
Company, the Transitory Subsidiary and their respective affiliates
(collectively, the "Indemnified Persons") from, 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) 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 the Company or
the Shareholders in this Agreement, or any other certificate or document
delivered by the Company or the Shareholders pursuant to this Agreement;
(b) any breach of any representation or warranty made by the Company or
the Shareholders in this Agreement as if such representation or warranty were
made on and as of the Effective Time, other than any such breach that is
expressly identified in the certificate delivered pursuant to Section 7.4(g) as
having caused the condition specified in Section 7.1 not to be satisfied;
(c) any breach by the Company or the Shareholders of any covenant or
obligation of the Company or the Shareholders in this Agreement; and
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(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 the Shareholders or the
Company (or any Person acting on their behalf) in connection with any of the
transactions contemplated by this Agreement.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to the Buyer or the other
Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
The Buyer will indemnify and hold harmless the Shareholders, and will
pay to Shareholders the amount of any Damages arising, directly or indirectly,
from or in connection with:
(a) any breach of any representation or warranty made by the Buyer or
the Transitory Subsidiary in this Agreement, or any other certificate or
document delivered by the Buyer or the Transitory Subsidiary pursuant to this
Agreement;
(b) any breach of any representation or warranty made by the Buyer or
the Transitory Subsidiary in this Agreement as if such representation or
warranty were made on and as of the Effective Time, other than any such breach
that is expressly identified in the certificate delivered pursuant to Section
8.4(d) as having caused the condition specified in Section 8.1 not to be
satisfied;
(c) any breach by the Buyer or the Transitory Subsidiary of any
covenant or obligation of the Buyer or the Transitory Subsidiary 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 the Buyer or the
Transitory Subsidiary (or any Person acting on their behalf) in connection with
any of the transactions contemplated by this Agreement;
(e) any claim against David L. McQuiddy III acting in his capacity as
trustee of the ESOP based on a breach of his fiduciary duty as trustee;
provided, however, that no indemnification shall be owed if David L. McQuiddy
III intentionally or knowingly breaches his fiduciary duties as trustee.
The remedies provided in this Section 10.3 will not be exclusive of or
limit any other remedies that may be available to the Company or the
Shareholders.
10.4 TIME LIMITATIONS
If the Closing occurs, the Shareholders 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 Effective
Time, other than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or
before the second anniversary of the Effective Time the Buyer notifies the
Shareholders of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by the Buyer. A claim by the Buyer or an
Indemnified Person with respect to Section 3.3, 3.11, 3.13, or 3.19, or a claim
by the Buyer or an Indemnified Person for indemnification or reimbursement based
upon any covenant or obligation to be performed and complied with after the
Effective Time, may be made at any time within the applicable statute of
limitations period. If the Closing occurs, the 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 by the Buyer prior to
the Effective Time, unless on or before second anniversary of the Effective Time
the Shareholders notify the Buyer of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by the Shareholders. A
claim by the Shareholders for indemnification or reimbursement based upon any
covenant or
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obligation to be performed and complied with by the Buyer after the Effective
Time, may be made at any time within the applicable statute of limitations
period.
10.5 LIMITATIONS ON INDEMNIFICATION--THE SHAREHOLDERS
The Shareholders 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
Effective Time, 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. However, the $25,000 limitation contained in the
preceding sentence will not apply to any breach of any of the Shareholders'
representations and warranties of which the Shareholders had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional breach by the Shareholders of any covenant or obligation, and the
Shareholders will be liable for all Damages (subject to the limitations
contained in the next succeeding sentence) with respect to such breaches. At
such time as the indemnification threshold described in the first sentence of
this Section 10.5 is reached and at all times thereafter, or in the event of a
claim for indemnification to which the second sentence of this Section 10.5
applies, each of the Shareholders shall be liable to the Indemnified Persons
only for an amount equal to (i) the total amount of indemnification due pursuant
to Section 10.2 multiplied by (ii) a fraction, the numerator of which is the
number of Company Shares directly owned by such Shareholder in his individual
capacity immediately prior to the Effective Time (provided, however, that
Company Shares owned by the David L. McQuiddy, Jr. Irrevocable Charitable
Remainder Trust shall be allocated to David L. McQuiddy, Jr. for purpose of this
Section 10.5) and the denominator of which is 33,923. Each of the Shareholders'
total 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 Effective Time, clause (c) of Section 10.2, shall
be limited to the total consideration received by such Shareholder.
10.6 LIMITATIONS ON INDEMNIFICATION--BUYER
The 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, the $25,000
limitation contained in the preceding sentence will not apply to any breach of
any of the Buyer's representations and warranties of which the Buyer had
Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional breach by the Buyer of any covenant or
obligation, and the Buyer will be liable for all Damages with respect to such
breaches.
10.7 RIGHT OF SET-OFF
Upon (i) agreement of the parties or (ii) a final determination of a
court of competent jurisdiction that amounts are owned by David L. McQuiddy, Jr.
to the Buyer, the Buyer may set off any amount to which it may be entitled under
this Section 10 against amounts otherwise payable under the Buyer Note. The
exercise of such right of set-off by the Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute an event of default
under the Buyer Note or any instrument securing the Buyer Note. Neither the
exercise of nor the failure to exercise such right of set-off will constitute an
election of remedies or limit the 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 alleging
facts which, if true would constitute a breach of any representation, warranty
or covenant contained in this Agreement or which would otherwise trigger an
indemnification obligation under this Section 10, 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
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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 reasonably
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
reasonable 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 thirty (30) 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 (at its own cost), 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) The Shareholders 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 the Shareholders with respect to such a claim anywhere
in the world.
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 as required in Section 11.4 within a reasonable
period of time after discovery of the alleged claim to the party from whom
indemnification is sought.
10.11 ACCOUNTS RECEIVABLE
(a) The Shareholders' 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 Buyer Note shall be reduced
by the excess of the then outstanding account balances of all accounts
receivable of the Company that existed
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as of the date of the Balance Sheet over the bad debt reserve as reflected in
the financial statements of the Company as of the date of the Balance Sheet.
(b) The Buyer shall cause ownership of all accounts receivable recorded on
the Balance Sheet which remain uncollected on August 31, 1998 to be transferred
to the David L. McQuiddy, Jr. For purposes of this Section, payments received
after the Effective Time 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, the Company will
bear the expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the transactions contemplated by this
Agreement, including all fees and expenses of the Shareholders' counsel and
accountants, all of which shall be paid by the Company prior to Closing. In the
event of termination of this Agreement, each party will be obligated to pay its
own expenses subject to any rights of such party arising from a breach of this
Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcements or similar publicity with respect to this
Agreement or the transactions contemplated by this Agreement will be issued, if
at all, at such time and in such manner as reasonably agreed to by the Buyer,
the Company and the Shareholders. Unless consented to by the Buyer in advance or
required by Legal Requirements, prior to the Closing the Shareholders shall, and
shall cause the Company to, keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any Person. The Company, the
Shareholders and the 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 transactions contemplated by
this Agreement, and the Buyer will have the right to be present for any such
communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Effective Time, the Buyer and
the Shareholders will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of the 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
transactions contemplated by this Agreement, 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
transactions contemplated by this Agreement, (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 the Buyer to lenders
or other institutions providing financial accommodations to the Buyer.
If the transactions contemplated by this Agreement are not consummated, the
obligations set forth in the preceding paragraph will remain in full force and
effect and 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
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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):
The Company David L. McQuiddy, Jr.
or Shareholders 5905 East Ashland Drive
Nashville, Tennessee 37215
David L. McQuiddy, III
711 Spence Lane
Nashville, Tennessee 37217
with a copy to: Dodson, Parker & Behm, P.C.
306 Gay Street, Suite 400
Nashville, Tennessee 37219-8066
Attention: Paul Parker
Facsimile No.: (615) 726-2241
with a copy to: Harwell Howard Hyne Gabbert & Manner
315 Deaderick Street, 18th Floor
Nashville, Tennessee 37238
Attention: Glenn Rose
Facsimile No.: (615) 251-1057
Buyer: Master Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
with a copy to: Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2000
Memphis, Tennessee 38103
Attention: John A. Good
Facsimile No.: (901) 577-2303
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 Davidson, or, if it
has or can acquire jurisdiction, in the United States District Court for the
Middle 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.
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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.
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 the Buyer
and the Shareholders) 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.
11.9 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 the Buyer may assign any of its rights under this Agreement to any
Subsidiary of the 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. The Buyer
acknowledges that certain individual are granted rights pursuant to the
agreements attached hereto as Exhibits.
11.10 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.
11.11 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
37
<PAGE>
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.
11.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
11.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Tennessee
without regard to conflicts of laws principles.
11.14 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.
38
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
-----------------------------------
Title: Senior Vice President/CFO
--------------------------------
MASTER ACQUISITIONSUB, INC.
By: /s/ Lance T. Fair
-----------------------------------
Title: Secretary
--------------------------------
MCQUIDDY PRINTING COMPANY
By: /s/ David L. McQuiddy, III
-----------------------------------
Title: President
--------------------------------
/s/ David L. McQuiddy, Jr.
--------------------------------------
David L. McQuiddy, Jr.
/s/ David L. McQuiddy, III
--------------------------------------
David L. McQuiddy, III
<PAGE>
EXHIBIT 10.22
AGREEMENT AND PLAN OF MERGER
OF
MASTER ACQUISITIONSUB, INC.
(a Tennessee corporation)
WITH AND INTO
MCQUIDDY PRINTING COMPANY
(a Tennessee corporation)
AGREEMENT AND PLAN OF MERGER (the "Agreement and Plan of Merger"), dated as
of May 8,1998, by and between MASTER ACQUISITIONSUB, INC., a corporation
organized and existing under the laws of the State of Tennessee ("Master") and
MCQUIDDY PRINTING COMPANY, a corporation organized and existing under the laws
of the State of Tennessee ("MPC"), with reference to the following recitals:
WITNESSETH:
WHEREAS, Master is a corporation duly organized, validly existing and in
good standing under the laws of the State of Tennessee. The entire authorized
capital stock of Master consists of one thousand (1,000) shares of common stock,
no par value per share(the "Master Common Stock"), of which one hundred (100)
shares are issued and outstanding.
WHEREAS, MPC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee. The entire authorized capital
stock of MPC consists of one hundred thousand (100,000) shares of common stock,
$10.00 par value per share (the "MPC Common Stock"), of which Thirty-three
Thousand Nine Hundred Twenty-three (33,923) shares are issued and outstanding;
and
WHEREAS, the Board of Directors and shareholders of each of Master and MPC
have adopted resolutions approving this Agreement and Plan of Merger in
accordance with the Tennessee Business Corporation Act (the "TBCA").
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained and intending to be legally bound, agree as follows:
1. Parties to Merger. Master and MPC (such corporate parties to the
------------------
merger being hereinafter sometimes collectively referred to as the "Constituent
Corporations") shall effect a merger (the "Merger") in accordance with and
subject to the terms and conditions of this Agreement and Plan of Merger.
2. Merger. At the Effective Time (as defined in Section 3 hereof), Master
------
shall be merged with and into MPC, which latter corporation shall be, and is
hereinafter sometimes referred to as, the "Surviving Corporation."
3. Filing and Effective Time. Articles of Merger to be filed with the
--------------------------
Secretary of the State of the State of Tennessee and such other documents and
instruments as are required by, and complying in all respects with, the TBCA
shall be delivered to the appropriate state officials for filing. The Merger
shall become effective immediately upon the filing of Articles of Merger with
the Tennessee Secretary of State (the "Effective Time").
4. Charter. The Charter of the Surviving Corporation shall be amended
-------
and restated at and as of the Effective Time to read as did the Charter of
Master immediately prior to the Effective Time (except that the name of the
Surviving Corporation will remain unchanged)
1
<PAGE>
5. Bylaws. The Bylaws of the Surviving Corporation shall be amended and
-------
restated at and as of the Effective Time to read as did the Bylaws of Master
immediately prior to the Effective Time (except that the name of the Surviving
Corporation will remain unchanged).
6. Directors and Officers. The directors and officers of Master shall
----------------------
become the directors and officers of the Surviving Corporation at and as of the
Effective Time (retaining their respective positions and terms of office).
7. Effect of Merger. At the Effective Time, the Merger shall have the
----------------
effect set forth in the TBCA.
8. Further Assurances. Each of the Constituent Corporations shall use
------------------
their best efforts to take action and to do all things necessary in order to
consummate and make effective the actions contemplated in this Agreement and
Plan of Merger. If at any time the Surviving Corporation, or its successors or
assigns, shall consider to be advised that any further assignments or assurances
in law or any other acts are necessary or desirable to (a) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its rights, title
or interest in, to or under any of the rights, properties or assets acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger, or (b) otherwise carry out the purposes of this Agreement and
Plan of Merger, MPC and its proper officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such proper deeds, assignments and assurances in law and
to do all acts necessary or proper to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement and Plan of Merger, and
the proper officers and directors of the Surviving Corporation are fully
authorized in the name of Master or otherwise to take any and all such action.
9. Capital Stock. At the Effective Time:
--------------
(a) At and as of the Effective Time, (i) each share of MPC Common
Stock (other than any dissenting share) shall be converted into the right
to receive cash and a note (the "Buyer Note") as provided in the Merger
Agreement dated April 9, 1998 (the "Merger Consideration"), (ii) each
Dissenting Share shall be converted into the right to receive payment from
the Surviving Corporation with respect thereto in accordance with the
provisions of the TBCA; provided, however, that the Merger Consideration
-----------------
shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change in the number of
Company Shares outstanding. No share of MPC Common Stock shall be deemed
to be outstanding or to have any rights other than those set forth above in
this Section 9(a) after the Effective Time.
(b) On and after the Effective Date, the holders of MPC Common
Stock shall cease to have any rights as shareholders of MPC except for the
right to surrender their shares of MPC Common Stock in exchange for payment
of the Merger Consideration or payment pursuant to Section 10, as
applicable.
10. Dissenting Shares. Notwithstanding anything herein to the contrary,
-----------------
shares of MPC Common Stock that are outstanding immediately prior to the
Effective Date and that are held by shareholders, if any, who are entitled to
assert a right to dissent from the Merger and who demand and validly perfect
their rights to receive the "fair value" of their shares with respect to the
merger under Sections 48-23-101 et seq. of the TBCA (the "Dissenting Shares")
shall be entitled solely to the payment of the "fair value" of such shares in
accordance with the provisions of the TBCA, which shall be paid at the Effective
Time; except that (i) if such demand to receive "fair value" shall be withdrawn
upon the consent of the Surviving Corporation, (ii) if this Agreement and Plan
of Merger shall be terminated, or the merger shall not be consummated, (iii) if
no demand or petition for the determination of "fair value" by a court shall
have been made or filed within the time provided in the provisions of the TBCA
or (iv) if a court of competent jurisdiction shall determine that such holder of
Dissenting Shares is not entitled to the relief provided by the provisions of
the TBCA, then the right of such holder of Dissenting Shares to be paid the
"fair value" of his shares of MPC Common Stock shall cease and, with
2
<PAGE>
respect to clauses (i), (ii) and (iv) above, such Dissenting Shares shall
thereupon be deemed to have been converted into and to have become exchangeable
for, as of the Effective Date, the right to receive the Merger Consideration
with respect thereto, without any interest thereon, and with respect to clause
(ii) above, the status of such shareholder shall be restored retroactively
without prejudice to any corporate proceeding which may have been taken during
the interim.
11. Amendment or Termination. Notwithstanding shareholder approval of
-------------------------
this Agreement and Plan of Merger, this Agreement and Plan of Merger may be
amended or terminated at any time on or before the Effective Date by agreement
of the Boards of Directors of the Constituent Corporations, provided that no
amendment may be made which decreases the Conversion Ratio.
12. Counterparts. This Agreement and Plan of Merger may be executed in
------------
counterparts each of which shall be deemed an original and all of which together
shall be considered one and the same agreement. The parties agree that a
facsimile may be executed as an original.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto, pursuant to the approval and
authority duly given by resolutions adopted by their respective Boards of
Directors and the Master Stockholders, have duly executed this Agreement and
Plan of Merger as of the day and year first written above.
MASTER ACQUISITIONSUB, INC.
By: /s/ Lance T. Fair
-----------------------------
Title: Secretary
ATTEST:
By: /s/ Robert J. DelPriore
----------------------------------------------
MCQUIDDY PRINTING COMPANY
By: /s/ David L. McQuiddy, III
-----------------------------
Title: President
ATTEST:
By: /s/ D. Webb McQuiddy
----------------------------------------------
4
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made April 15, 1998, effective as of March 31, 1998, by
and between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
JOHN P. MILLER (the "Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as president and chief executive officer ("CEO") of the Company, and shall
perform such duties for such compensation and subject to such terms and
conditions as are hereinafter set forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of March 1, 1998, and shall
continue through February 28, 2001. On the third and each successive
anniversary of the effective date of this Employment Agreement, the Term of this
Employment Agreement shall be extended for an additional one (1) year period,
unless either party gives notice of such party's intent not to extend the Term
of this Employment Agreement not later than the anniversary date immediately
preceding the anniversary date on which such extension will occur. Termination
of the Executive's employment pursuant to this Employment Agreement shall be
governed by Articles 4 and 5.
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties
<PAGE>
and responsibilities as are assigned to him from time to time by the Board of
Directors. As of the effective date of this Employment Agreement, the Executive
shall continue to possess and assume senior management authority and
responsibility as president and CEO of the Company, consistent with directions
from the Board of Directors of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)
per annum, subject to applicable withholdings. Base Salary shall be payable
according to the customary payroll practices of the Company but in no event less
frequently than once each month. The Base Salary shall be reviewed annually and
shall be subject to increase or decrease according to the policies and practices
adopted by the Board of Directors from time to time; provided, however, that in
no event shall the Base Salary for any year be decreased by more than five
percent (5%) from the immediately preceding year's Base Salary as a result of
any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such
-2-
<PAGE>
insurance), will pay annually up to the lesser of (i) Five Thousand Dollars
($5,000.00) in life insurance premiums or (ii) the amount of premium required to
obtain a life insurance policy on the life of the Executive with a death benefit
equal to twice the Executive's Base Salary for the year prior to the year in
which such policy is procured. The beneficiary(ies) under the Policy shall be
designated by the Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a
-3-
<PAGE>
payment or provide a benefit required as part of this Employment Agreement, the
Executive's obligation to provide information and assistance will end.
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(1) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(2) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder ("Section
-4-
<PAGE>
280G")) to or for the benefit of the Executive (or any part of such amount or
other payment) constitutes an "excess parachute payment" within the meaning of
Section 280G, the amount, if any, of (A) such "excess parachute payment"
multiplied by a fraction, the numerator of which is the number one (1.00) and
the denominator of which is (I) the number one (1.00) minus (II) the effective
tax rate under Section 280G applicable to the Executive expressed as a decimal,
minus (B) the amount of such "excess parachute payment." For six (6) months
following such Termination Without Cause or Constructive Termination, the
Company shall reimburse the Executive for the cost of the Executive's major
medical health insurance as in effect at the date of termination. The
exercisability of stock options granted to the Executive shall be governed by
any applicable stock option agreements and the terms of the respective stock
option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(1) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(2) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1)
year after termination of his employment to assert against the Company that he
has suffered a Constructive Termination, and after the expiration of such one
year period, the Executive shall be deemed to have irrevocably waived the right
to such assertion.
(3) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied
-5-
<PAGE>
upon for such termination, due to the Executive's conviction for a felony, the
Executive's perpetration of a fraud, embezzlement or other act of dishonesty or
the Executive's intentional breach of a trust or fiduciary duty which materially
adversely affects the Company or its shareholders.
(4) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
--------------
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer of (i) the remaining Term of
this Employment Agreement or (ii) one (1) year; provided that if a Voluntary
Termination follows a notice by the Company under Section 2.1 that the Term of
this
-6-
<PAGE>
Employment Agreement will not be automatically extended, there will be no
restriction on the Executive's right to Compete with the Company after the date
his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and this Employment
-7-
<PAGE>
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by arbitration
in Memphis, Tennessee, in accordance with the rules then obtaining of the
American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. All provisions hereof are for
the protection and are intended to be for the benefit of the parties hereto and
enforceable directly by and binding upon each party. Each party hereto agrees
that the remedy at law of the other for any actual or threatened breach of this
Employment Agreement would be inadequate and that the other party shall be
entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable
-8-
<PAGE>
expenses of litigation, including attorney's fees incurred in connection
therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 6075 Poplar Avenue, Suite 401, Memphis,
Tennessee 38119 or at such other address as may have been furnished to the
Executive by the Company in writing; or
(2) If to the Executive, at 6075 Poplar Avenue, Suite 401,
Memphis, Tennessee 38119 or such other address as may have been furnished
to the Company by the Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
----------------------------
Title: Secretary
-------------------------
EXECUTIVE:
/s/ John P. Miller
-------------------------------
JOHN P. MILLER
-10-
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made April ___, 1998, effective as of March 31, 1998, by
and between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
ROBERT J. DIEHL (the "Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as chief operating officer ("COO") of the Company, and shall perform such duties
for such compensation and subject to such terms and conditions as are
hereinafter set forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of March 1, 1998, and shall
continue through February 28, 2001. On the third and each successive
anniversary of the effective date of this Employment Agreement, the Term of this
Employment Agreement shall be extended for an additional one (1) year period,
unless either party gives notice of such party's intent not to extend the Term
of this Employment Agreement not later than the anniversary date immediately
preceding the anniversary date on which such extension will occur.. Termination
of the Executive's employment pursuant to this Employment Agreement shall be
governed by Articles 4 and 5.
<PAGE>
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the effective
date of this Employment Agreement, the Executive shall continue to possess and
assume senior management authority and responsibility as chief operating officer
("COO") of the Company, consistent with directions from the Board of Directors
of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of One Hundred Seventy-Five Thousand and 00/100 Dollars
($175,000.00) per annum, subject to applicable withholdings. Base Salary shall
be payable according to the customary payroll practices of the Company but in no
event less frequently than once each month. The Base Salary shall be reviewed
annually and shall be subject to increase or decrease according to the policies
and practices adopted by the Board of Directors from time to time; provided,
however, that in no event shall the Base Salary for any year be decreased by
more than five percent (5%) from the immediately preceding year's Base Salary as
a result of any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
-2-
<PAGE>
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such insurance), will pay annually up to the lesser
of (i) Five Thousand Dollars ($5,000.00) in life insurance premiums or (ii) the
amount of premium required to obtain a life insurance policy on the life of the
Executive with a death benefit equal to twice the Executive's Base Salary for
the year prior to the year in which such policy is procured. The
beneficiary(ies) under the Policy shall be designated by the Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
-3-
<PAGE>
position with the Company and his physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(1) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(2) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the
-4-
<PAGE>
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder ("Section 280G")) to or for the benefit of the Executive (or any part
of such amount or other payment) constitutes an "excess parachute payment"
within the meaning of Section 280G, the amount, if any, of (A) such "excess
parachute payment" multiplied by a fraction, the numerator of which is the
number one (1.00) and the denominator of which is (I) the number one (1.00)
minus (II) the effective tax rate under Section 280G applicable to the Executive
expressed as a decimal, minus (B) the amount of such "excess parachute payment."
For six (6) months following such Termination Without Cause or Constructive
Termination, the Company shall reimburse the Executive for the cost of the
Executive's major medical health insurance as in effect at the date of
termination. The exercisability of stock options granted to the Executive shall
be governed by any applicable stock option agreements and the terms of the
respective stock option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(1) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(2) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1)
year after termination of his employment to assert against the Company that he
has suffered a Constructive Termination, and after the expiration of such one
year period, the Executive shall be deemed to have irrevocably waived the right
to such assertion.
-5-
<PAGE>
(3) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied upon for such termination, due to the
Executive's conviction for a felony, the Executive's perpetration of a fraud,
embezzlement or other act of dishonesty or the Executive's intentional breach of
a trust or fiduciary duty which materially adversely affects the Company or its
shareholders.
(4) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
--------------
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer
-6-
<PAGE>
of (i) the remaining Term of this Employment Agreement or (ii) one (1) year;
provided that if a Voluntary Termination follows a notice by the Company under
Section 2.1 that the Term of this Employment Agreement will not be automatically
extended, there will be no restriction on the Executive's right to Compete with
the Company after the date his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company"
-7-
<PAGE>
as used herein will mean or include the other corporation or organization and
this Employment Agreement shall continue in full force and effect. This Section
7 is not intended to modify or limit the rights of the Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by
arbitration in Memphis, Tennessee, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to
-8-
<PAGE>
any damages which the complaining party may be legally entitled to recover
together with reasonable expenses of litigation, including attorney's fees
incurred in connection therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 6075 Poplar Avenue, Suite 401,
Memphis, Tennessee or at such other address as may have been furnished to
the Executive by the Company in writing; or
(2) If to the Executive, at 2669 Halle Parkway,
Collierville, Tennessee or such other address as may have been furnished to
the Company by the Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
Title: President
EXECUTIVE:
BY: /s/ Robert J. Diehl
--------------------
ROBERT J. DIEHL
-10-
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made April __, 1998, effective as of March 31, 1998, by
and between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
P. MELVIN HENSON (the "Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as senior vice president of the Company, and shall perform such duties for such
compensation and subject to such terms and conditions as are hereinafter set
forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of March 1, 1998, and shall
continue through February 28, 2001. On the third and each successive
anniversary of the effective date of this Employment Agreement, the Term of this
Employment Agreement shall be extended for an additional one (1) year period,
unless either party gives notice of such party's intent not to extend the Term
of this Employment Agreement not later than the anniversary date immediately
preceding the anniversary date on which such extension will occur.. Termination
of the Executive's employment pursuant to this Employment Agreement shall be
governed by Articles 4 and 5.
<PAGE>
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the
effective date of this Employment Agreement, the Executive shall continue to
possess and assume senior management authority and responsibility as senior vice
president of the Company, consistent with directions from the Board of Directors
of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of One Hundred Thousand and 00/100 Dollars ($100,000.00) per
annum, subject to applicable withholdings. Base Salary shall be payable
according to the customary payroll practices of the Company but in no event less
frequently than once each month. The Base Salary shall be reviewed annually and
shall be subject to increase or decrease according to the policies and practices
adopted by the Board of Directors from time to time; provided, however, that in
no event shall the Base Salary for any year be decreased by more than five
percent (5%) from the immediately preceding year's Base Salary as a result of
any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
-2-
<PAGE>
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such insurance), will pay annually up to the lesser
of (i) Five Thousand Dollars ($5,000.00) in life insurance premiums or (ii) the
amount of premium required to obtain a life insurance policy on the life of the
Executive with a death benefit equal to twice the Executive's Base Salary for
the year prior to the year in which such policy is procured. The
beneficiary(ies) under the Policy shall be designated by the Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time
-3-
<PAGE>
will make himself available to the Company to undertake assignments consistent
with his position or prior position with the Company and his physical and mental
health. If the Company fails to make a payment or provide a benefit required as
part of this Employment Agreement, the Executive's obligation to provide
information and assistance will end.
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(1) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(2) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
-4-
<PAGE>
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder ("Section 280G")) to or for the
benefit of the Executive (or any part of such amount or other payment)
constitutes an "excess parachute payment" within the meaning of Section 280G,
the amount, if any, of (A) such "excess parachute payment" multiplied by a
fraction, the numerator of which is the number one (1.00) and the denominator of
which is (I) the number one (1.00) minus (II) the effective tax rate under
Section 280G applicable to the Executive expressed as a decimal, minus (B) the
amount of such "excess parachute payment." For six (6) months following such
Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(1) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(2) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1) year
after termination of his
-5-
<PAGE>
employment to assert against the Company that he has suffered a Constructive
Termination, and after the expiration of such one year period, the Executive
shall be deemed to have irrevocably waived the right to such assertion.
(3) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied upon for such termination, due to the
Executive's conviction for a felony, the Executive's perpetration of a fraud,
embezzlement or other act of dishonesty or the Executive's intentional breach of
a trust or fiduciary duty which materially adversely affects the Company or its
shareholders.
(4) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
--------------
-6-
<PAGE>
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer of (i) the remaining Term of
this Employment Agreement or (ii) one (1) year; provided that if a Voluntary
Termination follows a notice by the Company under Section 2.1 that the Term of
this Employment Agreement will not be automatically extended, there will be no
restriction on the Executive's right to Compete with the Company after the date
his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
-7-
<PAGE>
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and this Employment Agreement shall continue in full force and
effect. This Section 7 is not intended to modify or limit the rights of the
Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement
-8-
<PAGE>
shall be governed by the laws of that state. Any dispute among the parties
hereto shall be settled by arbitration in Memphis, Tennessee, in accordance with
the rules then obtaining of the American Arbitration Association and judgment
upon the award rendered may be entered in any court having jurisdiction thereof.
All provisions hereof are for the protection and are intended to be for the
benefit of the parties hereto and enforceable directly by and binding upon each
party. Each party hereto agrees that the remedy at law of the other for any
actual or threatened breach of this Employment Agreement would be inadequate and
that the other party shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such other
appropriate judicial remedy, writ or orders as may be decided by a court of
competent jurisdiction in addition to any damages which the complaining party
may be legally entitled to recover together with reasonable expenses of
litigation, including attorney's fees incurred in connection therewith, as may
be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 6075 Poplar Avenue, Suite 401,
Memphis, Tennessee or at such other address as may have been furnished to
the Executive by the Company in writing; or
(2) If to the Executive, at 2186 Grandbury Way Cove,
Germantown, Tennessee or such other address as may have been furnished to
the Company by the Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
------------------
Title: PRESIDENT
EXECUTIVE:
By: /s/ P. Melvin Henson
--------------------
P. MELVIN HENSON
-10-
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made April 15, 1998, effective as of March 31, 1998, by
and between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
LANCE T. FAIR (the "Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as chief financial officer ("CFO") of the Company, and shall perform such duties
for such compensation and subject to such terms and conditions as are
hereinafter set forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of March 1, 1998, and shall
continue through February 28, 2001. On the third and each successive
anniversary of the effective date of this Employment Agreement, the Term of this
Employment Agreement shall be extended for an additional one (1) year period,
unless either party gives notice of such party's intent not to extend the Term
of this Employment Agreement not later than the anniversary date immediately
preceding the anniversary date on which such extension will occur.. Termination
of the Executive's employment pursuant to this Employment Agreement shall be
governed by Articles 4 and 5.
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties
<PAGE>
and responsibilities as are assigned to him from time to time by the Board of
Directors. As of the effective date of this Employment Agreement, the Executive
shall continue to possess and assume senior management authority and
responsibility as chief financial officer ("CFO") of the Company, consistent
with directions from the Board of Directors of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of One Hundred Twenty Thousand and 00/100 Dollars ($120,000.00)
per annum, subject to applicable withholdings. Base Salary shall be payable
according to the customary payroll practices of the Company but in no event less
frequently than once each month. The Base Salary shall be reviewed annually and
shall be subject to increase or decrease according to the policies and practices
adopted by the Board of Directors from time to time; provided, however, that in
no event shall the Base Salary for any year be decreased by more than five
percent (5%) from the immediately preceding year's Base Salary as a result of
any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such
-2-
<PAGE>
insurance), will pay annually up to the lesser of (i) Five Thousand Dollars
($5,000.00) in life insurance premiums or (ii) the amount of premium required to
obtain a life insurance policy on the life of the Executive with a death benefit
equal to twice the Executive's Base Salary for the year prior to the year in
which such policy is procured. The beneficiary(ies) under the Policy shall be
designated by the Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a
-3-
<PAGE>
payment or provide a benefit required as part of this Employment Agreement, the
Executive's obligation to provide information and assistance will end.
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(1) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(2) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder ("Section
-4-
<PAGE>
280G")) to or for the benefit of the Executive (or any part of such amount or
other payment) constitutes an "excess parachute payment" within the meaning of
Section 280G, the amount, if any, of (A) such "excess parachute payment"
multiplied by a fraction, the numerator of which is the number one (1.00) and
the denominator of which is (I) the number one (1.00) minus (II) the effective
tax rate under Section 280G applicable to the Executive expressed as a decimal,
minus (B) the amount of such "excess parachute payment." For six (6) months
following such Termination Without Cause or Constructive Termination, the
Company shall reimburse the Executive for the cost of the Executive's major
medical health insurance as in effect at the date of termination. The
exercisability of stock options granted to the Executive shall be governed by
any applicable stock option agreements and the terms of the respective stock
option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(1) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(2) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1)
year after termination of his employment to assert against the Company that he
has suffered a Constructive Termination, and after the expiration of such one
year period, the Executive shall be deemed to have irrevocably waived the right
to such assertion.
(3) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied
-5-
<PAGE>
upon for such termination, due to the Executive's conviction for a felony, the
Executive's perpetration of a fraud, embezzlement or other act of dishonesty or
the Executive's intentional breach of a trust or fiduciary duty which materially
adversely affects the Company or its shareholders.
(4) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
--------------
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer of (i) the remaining Term of
this Employment Agreement or (ii) one (1) year; provided that if a Voluntary
Termination follows a notice by the Company under Section 2.1 that the Term of
this
-6-
<PAGE>
Employment Agreement will not be automatically extended, there will be no
restriction on the Executive's right to Compete with the Company after the date
his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and this Employment
-7-
<PAGE>
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by
arbitration in Memphis, Tennessee, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable
-8-
<PAGE>
expenses of litigation, including attorney's fees incurred in connection
therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 6075 Poplar Avenue, Suite 401,
Memphis, Tennessee or at such other address as may have been furnished to
the Executive by the Company in writing; or
(2) If to the Executive, at 344 Grandview Street, Memphis,
Tennessee or such other address as may have been furnished to the Company
by the Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------------------
Title: President
----------------------------
EXECUTIVE:
By: /s/ Lance T. Fair
-------------------------------
LANCE T. FAIR
-10-
<PAGE>
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, is made April ___, 1998, effective as of March 31, 1998, by
and between MASTER GRAPHICS, INC., a Tennessee corporation (the "Company"), and
JAMES B. DUNCAN (the "Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as senior vice president of the Company, and shall perform such duties for such
compensation and subject to such terms and conditions as are hereinafter set
forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of March 1, 1998, and shall
continue through February 28, 2001. On the third and each successive
anniversary of the effective date of this Employment Agreement, the Term of this
Employment Agreement shall be extended for an additional one (1) year period,
unless either party gives notice of such party's intent not to extend the Term
of this Employment Agreement not later than the anniversary date immediately
preceding the anniversary date on which such extension will occur.. Termination
of the Executive's employment pursuant to this Employment Agreement shall be
governed by Articles 4 and 5.
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the
<PAGE>
effective date of this Employment Agreement, the Executive shall continue to
possess and assume senior management authority and responsibility as senior vice
president of the Company, consistent with directions from the Board of Directors
of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of One Hundred Thousand and 00/100 Dollars ($100,000.00) per
annum, subject to applicable withholdings. Base Salary shall be payable
according to the customary payroll practices of the Company but in no event less
frequently than once each month. The Base Salary shall be reviewed annually and
shall be subject to increase or decrease according to the policies and practices
adopted by the Board of Directors from time to time; provided, however, that in
no event shall the Base Salary for any year be decreased by more than five
percent (5%) from the immediately preceding year's Base Salary as a result of
any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such insurance), will pay annually up to the lesser
of (i) Five Thousand Dollars ($5,000.00) in life insurance
-2-
<PAGE>
premiums or (ii) the amount of premium required to obtain a life insurance
policy on the life of the Executive with a death benefit equal to twice the
Executive's Base Salary for the year prior to the year in which such policy is
procured. The beneficiary(ies) under the Policy shall be designated by the
Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
-3-
<PAGE>
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(1) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(2) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder ("Section 280G")) to or for the
benefit of the Executive (or any part of such amount or other payment)
constitutes an "excess parachute payment" within the meaning of Section 280G,
the amount, if any,
-4-
<PAGE>
of (A) such "excess parachute payment" multiplied by a fraction, the numerator
of which is the number one (1.00) and the denominator of which is (I) the number
one (1.00) minus (II) the effective tax rate under Section 280G applicable to
the Executive expressed as a decimal, minus (B) the amount of such "excess
parachute payment." For six (6) months following such Termination Without Cause
or Constructive Termination, the Company shall reimburse the Executive for the
cost of the Executive's major medical health insurance as in effect at the date
of termination. The exercisability of stock options granted to the Executive
shall be governed by any applicable stock option agreements and the terms of the
respective stock option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(1) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(2) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1)
year after termination of his employment to assert against the Company that he
has suffered a Constructive Termination, and after the expiration of such one
year period, the Executive shall be deemed to have irrevocably waived the right
to such assertion.
(3) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied upon for such termination, due to the
Executive's conviction for a felony, the Executive's perpetration
-5-
<PAGE>
of a fraud, embezzlement or other act of dishonesty or the Executive's
intentional breach of a trust or fiduciary duty which materially adversely
affects the Company or its shareholders.
(4) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
6.3 Noncompetition.
--------------
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer of (i) the remaining Term of
this Employment Agreement or (ii) one (1) year; provided that if a Voluntary
Termination follows a notice by the Company under Section 2.1 that the Term of
this
-6-
<PAGE>
Employment Agreement will not be automatically extended, there will be no
restriction on the Executive's right to Compete with the Company after the date
his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and this Employment
-7-
<PAGE>
Agreement shall continue in full force and effect. This Section 7 is not
intended to modify or limit the rights of the Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by
arbitration in Memphis, Tennessee, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable
-8-
<PAGE>
expenses of litigation, including attorney's fees incurred in connection
therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(1) If to the Company, at 6075 Poplar Avenue, Suite 401, Memphis,
Tennessee or at such other address as may have been furnished to the Executive
by the Company in writing; or
(2) If to the Executive, at 8511 Huntleigh Way, Germantown,
Tennessee or such other address as may have been furnished to the Company by the
Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-----------------------------------
Title: President
---------------------------------
EXECUTIVE:
By: /s/ James B. Duncan
------------------------------------
JAMES B. DUNCAN
-10-
<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>
EXHIBIT 10.30
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 CARY ROSENTHAL, 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,
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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.
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: Cary Rosenthal
c/o Phoenix Communications, Inc.
5664 New Peachtree Road
<PAGE>
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.
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:
By: /s/ Cary Rosenthal
------------------
<PAGE>
Cary Rosenthal
<PAGE>
EXHIBIT 10.33
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of May 8, 1998,
by and between MASTER GRAPHICS, INC., a Tennessee corporation ("Buyer"), and
DAVID L. MCQUIDDY III, an individual residing in Nashville, Tennessee
("Employee").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
acquiring by merger all of the common stock, par value $10.00 per share, of
McQuiddy Printing Company (the "Acquired Company") pursuant to the terms and
conditions of a Merger Agreement made as of April 9, 1998, (the "Merger
Agreement"). It is anticipated that the Acquired Company will be merged into
Premier Graphics, Inc., a Delaware corporation (the "Company"), which is a
wholly owned subsidiary of Buyer. Section 7.4(e) of the Merger Agreement
requires that a noncompetition agreement be executed and delivered by Employee
as a condition to the closing of the Merger Agreement.
AGREEMENT
Now, therefore, in consideration of the mutual promises, agreements and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, 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 Merger Agreement.
2. ACKNOWLEDGMENTS BY EMPLOYEE
Employee acknowledges that (a) Employee 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; provided, however, that Confidential
-------- -------
Information shall not include any information that is or becomes generally known
to and available for use by the public other than as a result of Employee's
fault or the fault of any other Person known by Employee to be bound by a duty
of confidentiality to Buyer or the Company; (b) the customers of the Company are
located in several states; (c) the Company competes with other businesses that
are or could be located in any part of the United States; (d) Buyer has required
that Employee make the covenants set forth in Sections 3 and 4 of this Agreement
as a condition to the closing of the Merger Agreement; (e) the provisions of
Sections 3 and 4 of this Agreement are reasonable and necessary to protect and
preserve the Acquired Companies' business, and (f) the Company would be
irreparably damaged if Employee were to breach the covenants set forth in
Sections 3 and 4 of this Agreement.
1
<PAGE>
3. CONFIDENTIAL INFORMATION
Employee acknowledges and agrees that all Confidential Information known or
obtained by Employee, whether before or after the date hereof, is the property
of the Company. Therefore, Employee agrees that Employee 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 Employee has
such information in Employee'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 Employee's fault or the fault of any
other Person known by Employee to be bound by a duty of confidentiality to Buyer
or the Company. Employee 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 Employee may then possess or have under Employee's control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Merger Agreement and as
additional consideration for the consideration to be paid to Employee under the
his Employment Agreement, Employee agrees that:
(a) While Employee is employed by the Company and for a period of one (1)
year after termination of Employee's employment by the Company for cause or by
Employee without cause:
(i) Employee 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 Employee's name or any similar
name to, lend Employee'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;
provided, however, that Employee 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. Employee agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
(ii) Employee 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) Employee will not, directly or indirectly, either for himself or
any other Person, solicit the business of any Person known to Employee to
be a customer of the Company at the time his employment is terminated,
whether or not Employee 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 Employee 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;
2
<PAGE>
(c) Employee will not, at any time during or after the period set forth in
Subsection 4(a) above, disparage Buyer or the Company, or any of their
shareholders, directors, officers, employees, or agents; and
(d) Employee will, during the period set forth in Subsection 4(a) above,
within ten days after accepting any employment, advise Buyer of the identity of
any employer of Employee. Buyer or the Company may serve notice upon each such
employer that Employee is bound by this Agreement and furnish each such employer
with a copy of this Agreement or relevant portions thereof.
(e) Notwithstanding anything herein to the contrary, Employee shall have
no obligations whatsoever under this Agreement in the event Premier Graphics,
Inc. ("Premier") has breached the terms of Employee's Employment Agreement with
Premier, entered into as a condition to the closing of the Merger Agreement.
5. REMEDIES
If Employee 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 Employee;
(b) To offset against any and all amounts owing to Employee under the
Merger 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 enforce specifically 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; and
(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 Employee and
will inure to the benefit of Buyer and the Company and their affiliates,
successors and assigns and Employee and Employee'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
3
<PAGE>
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 Davidson, or, if it
has or can acquire jurisdiction, in the United States District Court for the
Middle 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 lesser scope, time and geographic area, will be effective, binding and
enforceable against Employee.
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):
Employee: David L. McQuiddy III
220 Lake Ridge Court
Franklin, Tennessee 37069
with a copy to: Glenn B. Rose
4
<PAGE>
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238
Facsimile No.: (615) 251 1058
Buyer: Master Graphics, Inc
2500 Lamar Avenue
Memphis, Tennessee 38114
Attention: John P. Miller
Facsimile No.: (901) 744-6012
with a copy to: John A. Good
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2000
Memphis, Tennessee 38117
Facsimile No.: (901) 577 2303
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Merger 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 Employee 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
---------------------------
Title: CFO
-----
/s/ David L. McQuiddy, III
--------------------------
David L. McQuiddy III
6
<PAGE>
EXHIBIT 10.38
INDUSTRIAL BUILDING LEASE
DATE OF LEASE TERM OF LEASE MONTHLY RENT
Beginning Ending 11/5/85 to 1/31/86 - none;
November 4, 1985 11/5/85 12/31/92 *2/5/86 to
12/31/92:$8,500.00
Location of Premises: 7440 N. Natchez Ave., Niles, Illinois
Purpose: To carry on a printing business
LESSEE LESSOR
Name The Argus Press, Inc. Name and LaSalle Bank Trust 42560
7440 Natchez Business 135 So. LaSalle Street
Address Niles, IL 60648 Address Chicago, IL 60603
In consideration of the mutual covenants and agreements herein stated,
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for
the above purpose the premises designated above (the "Premises"), together with
the appurtenances thereto, for the above Term.
*Rent for February 1986 shall be prorated and shall be $7,285.70.
1. Rent. Lessee shall pay Lessor or Lessor's agent as rent for the
----
Premises the sum stated above, monthly in advance, until termination of this
lease, at Lessor's address stated above or such other address as Lessor may
designate in writing.
2. Condition and Upkeep of Premises. Lessee has examined and knows the
--------------------------------
condition of the Premises and has received the same in good order and repair,
and acknowledges that no representations as to the condition and repair thereof
have been made by Lessor, or his agent, prior to or at the execution of this
lease that are not herein expressed; Lessee will keep the Premises including all
appurtenances, in good repair, replacing all broken glass with glass of the same
size and quality as that broken, and will replace all damaged plumbing fixtures
with others of equal quality, and will keep the Premises, including adjoining
alleys, in a clean and healthful condition according to the applicable municipal
ordinances and the direction of the proper public officers during the term of
this lease at Lessee's expense, and will without injury to the roof, remove all
snow and ice from the same when necessary, and will remove the snow and ice from
the sidewalk abutting the Premises; and upon the termination of this lease, in
any way, will yield up the Premises to Lessor,
<PAGE>
in good condition and repair, loss by fire and ordinary wear excepted, and will
deliver the keys therefor at the place of payment of said rent.
3. Lessee Not To Misuse; Sublet; Assignment. Lessee will not allow the
----------------------------------------
Premises to be used for any purpose that will increase the rate of insurance
thereon, nor for any purpose other than that hereinbefore specified, and will
not load floors with machinery or goods beyond the floor load rating prescribed
by applicable municipal ordinances, and will not allow the Premises to be
occupied in whole, or in part, by any other person, and will not sublet the same
or any part thereof, nor assign this lease without in each case the written
consent of the Lessor first hand, and Lessee will not permit any transfer by
operation of law of the interest in the Premises acquired through this lease,
and will not permit the Premises to be used for any unlawful purpose, or for any
purpose that will injure the reputation of the building or increase the fire
hazard of the building, or disturb the tenants or the neighborhood, and will not
permit the same to remain vacant or unoccupied for more than ten consecutive
days; and will not allow any signs, cards or placards to be posted, or placed
thereon, nor permit any alteration of or addition to any part of the Premises,
except by written consent of Lessor; all alterations and additions to the
Premises shall remain for the benefit of Lessor unless otherwise provided in the
consent aforesaid.
4. Mechanic's Lien. Lessee will not permit any mechanic's lien or liens
---------------
to be placed upon the Premises or any building or improvement thereon during the
term hereof, and in case of the filing of such lien Lessee will promptly pay
same. If default in payment thereof shall continue for thirty (30) days after
written notice thereof from Lessor to the Lessee, the Lessor shall have the
right and privilege at Lessor's option of paying the same or any portion thereof
without inquiry as to the validity thereof, and any amounts so paid, including
expenses and interest, shall be so much additional indebtedness hereunder due
from Lessee to Lessor and shall be repaid to Lessor immediately on rendition of
bill therefor.
5. Indemnity for Accidents. Lessee covenants and agrees that he will
-----------------------
protect and save and keep the Lessor forever harmless and indemnified against
and from any penalty or damages or charges imposed for any violation of any
laws or ordinances, whether occasioned by the neglect of Lessee or those holding
under Lessee, and that Lessee will at all times protect, indemnify and save and
keep harmless the Lessor against and from any and all loss, cost, damage or
expense, arising out of or from any accident or other occurrence on or about the
Premises, causing injury to any person or property whomsoever or whatsoever and
will protect, indemnify and save and keep harmless the Lessor against and from
any and all claims and against and from any and all loss, cost, damage or
expense arising out of any failure of Lessee in any respect to comply with and
perform all the requirements and provisions hereof.
6. Non-Liability of Lessor. Except as provided by Illinois statute,
-----------------------
Lessor shall not be liable for any damage occasioned by failure to keep the
Premises in repair, nor for any damage done or occasioned by or from plumbing,
gas, water, sprinkler, steam or other pipes or sewerage or the bursting, leaking
or running of any pipes, tank or plumbing fixtures, in, above, upon or about
Premises or any building or improvement thereon nor for any damage occasioned by
water, snow
-2-
<PAGE>
or ice being upon or coming through the roof, skylights, trap door or otherwise,
nor for any damages arising from acts or neglect of any owners or occupants of
adjacent or contiguous property.
7. Water, Gas and Electric Charges. Lessee will pay, in addition to the
-------------------------------
rent above specified, all water rents, gas and electric light and power bills
taxed, levied or charged on the Premises, for and during the time for which this
lease is granted, and in case said water rents and bills for gas, electric light
and power shall not be paid when due, Lessor shall have the right to pay the
same, which amounts so paid, together with any sums paid by Lessor to keep the
Premises in a clean and healthy condition, as above specified, as declared to be
so much additional rent and payable with the installment of rent next due
thereafter.
8. Keep Premises in Repair. Lessor shall not be obligated to incur any
-----------------------
expense for repairing any improvements upon said demised premises or connected
therewith, and the Lessee at his own expense will keep all improvements in good
repair (injury by fire, or other causes beyond Lessee's control excepted) as
well as in a good tenantable and wholesome condition, and will comply with all
local or general regulations, laws and ordinances applicable thereto, as well as
lawful requirements of all competent authorities in that behalf. Lessee will,
as far as possible, keep said improvements from deterioration due to ordinary
wear and from falling temporarily out of repair. If Lessee does not make repairs
as required hereunder promptly and adequately, Lessor may but need not make such
repairs and pay the costs thereof, and such costs shall be so much additional
rent immediately due from and payable by Lessee to Lessor.
9. Access to Premises. Lessee will allow Lessor free access to the
------------------
Premises for the purpose of examining or exhibiting the same, or to make any
needful repairs, or alterations thereof which Lessor may see fit to make and
will allow to have placed upon the Premises at all times notice of "For Sale"
and "To Rent," and will not interfere with the same.
10. Abandonment and Reletting. If Lessee shall abandon or vacate the
-------------------------
Premises, or if Lessee's right to occupy the Premises be terminated by Lessor by
reason of Lessee's breach of any of the covenants herein, the same may be re-let
by Lessor for such rent and upon such terms as Lessor may deem fit; and if a
sufficient sum shall not thus be realized monthly, after paying the expenses of
such re-letting and collecting to satisfy the rent hereby reserved. Lessee
agrees to satisfy and pay all deficiency monthly during the remaining period of
this lease.
11. Holding Over. Lessee will, at the termination of this lease by lapse
------------
of time or otherwise, yield up immediate possession to Lessor, and failing so to
do, will pay as liquidated damages, for the whole time such possession is
withheld, the sum of _____________________________________________ Dollars
($__________________________) per day; but the provisions of this clause shall
not be held as a waiver by Lessor of any right of re-entry as hereinafter set
forth; nor shall the receipt of said rent or any part thereof, or any other act
in apparent affirmance of tenancy, operate as a waiver of the right to forfeit
this lease and the term hereby granted for the period still unexpired, for a
breach of any of the covenants herein.
-3-
<PAGE>
12. Extra Fire Hazard. There shall not be allowed, kept, or used on the
-----------------
Premises any inflammable or explosive liquids or materials save such as may be
necessary for use in the business of the Lessee, and in such case, any such
substances shall be delivered and stored in amount, and used, in accordance with
the rules of the applicable Board of Underwriters and statues and ordinances now
or hereafter in force.
13. Default by Lessee. If default be made in the payment of the above
-----------------
rent, or any part thereof, or in any other the covenants herein contained to be
kept by the Lessee, Lessor may at any time thereafter at his election declare
said term ended and reenter the Premises or any part thereof, with or (to the
extent permitted by law) without notice or process of law, and remove Lessee or
any persons occupying the same, without prejudice to any remedies which might
otherwise be used for arrears of rent.
14. No Rent Deduction or Set Off. Lessee's covenant to pay rent is and
----------------------------
shall be independent of each and every other covenant of this lease. Lessee
agrees that any claim by Lessee against Lessor shall not be deducted from rent
nor set off against any claim for rent in any action.
15. Rent After Notice or Suit. It is further agreed, by the parties
-------------------------
hereto, that after the service of notice, or the commencement of a suit or after
final judgment for possession of the Premises, Lessor may receive and collect
any rent due, and the payment of said rent shall not waive or affect said
notice, said suit, or said judgment.
16. Payment of Costs. Lessee will pay and discharge all reasonable costs,
----------------
attorney's fees and expenses that shall be made and incurred by Lessor in
enforcing the covenants and agreements of this lease.
17. Rights Cumulative. The rights and remedies of Lessor under this lease
-----------------
are cumulative. The exercise or use of any one or more thereof shall not bar
Lessor from exercise or use of any other right or remedy provided herein or
otherwise provided by law, nor shall exercise nor use of any right or remedy by
Lessor waive any other right or remedy.
18. Fire and Casualty. Paragraph deleted from original lease.
-----------------
19. Subordination. This lease is subordinate to all mortgages which may
-------------
now or hereafter affect the Premises.
20. Plurals; Successors. The words "Lessor" and "Lessee" wherever herein
-------------------
occurring and used shall be construed to mean "Lessors" and "Lessees" in case
more than one person constitutes either party to this lease; and all the
covenants and agreements contained shall be binding upon, and inure to, their
respective successors, heirs, executors, administrators and assigns and may be
exercised by his or their attorney or agent.
-4-
<PAGE>
21. Severability. Wherever possible each provision of this Lease shall be
------------
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this lease 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 lease.
Paragraphs 22-38.01, inclusive, are on the Rider attached hereto.
RIDER TO LEASE
7440 N. Natchez Avenue
Niles, Illinois 60648
22. Rider. This rider is a part of the aforesaid lease. In the event of
-----
any conflict between the printed form of lease and the provisions of this Rider,
the Rider shall control.
23. Legal Description. The legal description of the Premises is as
-----------------
follows:
Lot 2 (except N 277.86 feet of E 271.38 feet as measured along N line of
said lot 2) in Roehri's subdivision in SE 1/4 section 30 township 41 N
range 13 E of 3rd P.M. - a metes and bounds description of which is as
follows: commencing at northwestern corner of said lot 2 thence along
northern boundary line of said lot 2 327.00 feet; thence southeasterly
along a line perpendicular to said northern boundary line 277.86 feet;
thence along a line parallel with said northern boundary line 179.12 feet
to eastern boundary line of said lot 2; thence along said eastern boundary
line 31.28 feet to southern boundary line of said lot 2; thence along said
southern boundary line 357.45 feet to western boundary line of said lot 2;
and thence along said western boundary line 337.63 feet to place of
beginning in Cook County, Illinois, commonly known as 7440 N. Natchez
Avenue, Niles, Illinois, together with all buildings and improvements
thereon and appurtenances thereunto appertaining.
24. Net Lease. The Lessor shall receive the net rental free from all
---------
taxes, charges, expenses, damages, and deductions of every description, and
Lessee shall pay all of these which, except for this Lease, would have been
chargeable against the premises and payable by the Lessor.
25. Repairs. The Premises, together with the sidewalks adjacent thereto,
-------
shall he kept in good order and repair by the Lessee at the Lessee's sole cost
and expense, and the Lessee shall make all repairs and replacements, ordinary as
well as extraordinary, foreseen and unforeseen, structural or otherwise, that
may he necessary or required in or about the same so that at all times those
buildings, improvements, and sidewalks shall be in thorough good order,
condition, and repair.
26. Casualty Insurance.
------------------
-5-
<PAGE>
26.01 Lessee shall at all times during the term of this Lease, at its own
expense insure and keep insured in responsible insurance companies the building
on the Premises, and all alterations, extensions, and improvements thereto and
replacements thereof, against loss or damage by fire and the risks contemplated
within the extended coverage endorsement (as such endorsement in the broadest
form may customarily be written in Illinois from time to time) and against such
other risks as shall reasonably be required by the Lessor, in amounts that may
be reasonably required by the Lessor, but in no event in an amount less than
ninety per cent (90%) of the replacement cost, from time to time, of the
building and improvements. Lessee agrees to pay the premiums on this insurance,
as and when those premiums become due and payable, and promptly to deliver to
and deposit with the Lessor all such policies of insurance with due proof of
payment of premiums, and to deliver renewal policies, with such proof, to Lessor
within ten (10) days prior to expiration of the policies. However, at the
beginning of the term of this Lease Lessor's present fire and other policies in
force shall remain in force until their respective expiration dates, and the
premiums thereof shall be prorated and adjusted between Lessor and Lessee as of
the date of the beginning of the term, and similar adjustment and proration
shall be made in respect to any such policies taken out by Lessee and in
existence at the end of the Lease term. All policies of fire and other
insurance described in this paragraph 26 shall be for the benefit of, the
Lessor, Lessee, and any lender holding a mortgage on Lessor's interest in the
premises, superior to this lease, as their interests may appear, but with loss
payable to Lessor, provided that the interest of any such mortgagee shall be
covered by the customary mortgagee endorsement.
26.02 Lessee further agrees at all times during the term, at its sole cost
and expense, to carry and pay for rental value insurance (covering loss or
damage by fire with extended coverage) in an amount equal to at least the net
rental for one year. The policy shall be written in favor of Lessor and Lessee,
as their interests may appear, but with loss payable to Lessor. The original
policy shall be delivered to Lessor, and not later than ten (10) days prior to
its expiration, Lessee will deliver renewal policies together with due proof of
payment of premiums thereon. In the event of damage or destruction of the
premises by a risk comprehended within the policy, the proceeds of the rental
value insurance paid to Lessor shall be held by Lessor as security for the
payment of the rental and other charges due for the period of time for which the
loss was paid.
26.03 If any buildings at any time on the Premises shall be damaged or
destroyed by any cause whatsoever, during the term of this Lease, the Lessee
shall, with reasonable promptness, repair and replace the same at its expense,
so that the buildings upon the Premises after that repair and replacement shall
be as nearly as possible in the same condition they were in prior to that damage
or destruction, and shall do so, even though the proceeds of any insurance
policies shall be insufficient to reimburse the Lessee therefor; provided,
however, that if the proceeds of insurance are more than sufficient to pay the
cost of that rebuilding the Lessee, as against the Lessor, shall be entitled to
retain the surplus.
26.04 The Lessee shall not be entitled to any abatement of rent, nor shall
its obligations under this Lease be terminated during the term of this Lease,
notwithstanding any destruction or damage to the Premises by any cause
whatsoever.
-6-
<PAGE>
26.05 In the event of damage to or destruction of any building upon the
Premises during the term of this Lease, any amounts that the Lessor shall
receive as proceeds of any insurance policy paid for by the Lessee covering the
loss shall be held in escrow subject to the joint control of Lessor and Lessee
and shall be disbursed from said escrow as the work of restoration is prosecuted
by Lessee.
27. Liability Insurance. Lessee will carry at all times during the
-------------------
Lease term, at its own cost and expense, steam boiler and general liability
insurance for the benefit of both the Lessor and the Lessee in responsible
insurance companies indemnifying both Lessor and Lessee against claims for
personal injuries sustained in or about the Premises, the sidewalks adjacent
thereto, or the vaults or vault spaces contiguous to the Premises or sidewalk
elevators, in such amounts as Lessor shall from time to time reasonably request,
but not less than One Million Dollars ($1,000,000) for injuries or death to one
person and Two Million Dollars ($2,000,000) for injuries or death arising out of
the same accident when more than one person is involved, and for not less than
Two Hundred Fifty Thousand Dollars ($250,000) in respect to property damage. The
public liability insurance shall extend to any sidewalk elevators or exterior
signs. Lessee will deposit with Lessor a certificate of the insurance carrier or
carriers indicating that this insurance is in full force and effect and that the
premiums therefor have been paid.
28. Taxes.
-----
28.01 The Lessee shall, pay and discharge all duties, taxes, charges for
water, sewer taxes, assessments and payments, extraordinary as well as ordinary,
whether foreseen or unforeseen, as shall, during the term of this Lease, be
laid, levied, assessed, or imposed upon the Demised Premises, or become due and
payable, or liens upon the Demised Premises, or any part thereof, or any
appurtenances thereto, the leasehold estate created by this Lease, the sidewalks
or streets in front of or adjoining the Demised Premises or any vault or values
under those sidewalks, streets, or the Demised Premises, by virtue of any
present or future law, order, or ordinance of the United States of America, or
of the City, County, or other local government, or of any department, office, or
bureau thereof, or any other governmental authority. The duties, taxes,
charges, assessments, and payments described in this paragraph are sometimes
hereinafter referred to collectively as "taxes."
28.02 All taxes shall be paid by the Lessee when they become due and
payable without interest or penalty to the department, officer, or bureau
charged with the collection hereof. But nothing in this Lease shall require the
Lessee to pay any inheritance, franchise, income, payroll, excise, privilege,
rent, capital stock, estate or profit tax, or any tax of similar nature, that
is, or may be, imposed upon the Lessor, unless those taxes shall be levied upon
the rent reserved in this Lease in the place of taxes upon the Premises.
28.03 All taxes to be paid by Lessee shall be prorated and adjusted for
the fiscal years in which the term of this Lease begins and ends.
-7-
<PAGE>
28.04 In the case of assessments for local improvements or betterments
that are assessed or imposed during the term of this Lease and that may be
payable in installments, Lessee shall only be obligated to pay the installments
that fall due during the term of this Lease.
28.05 Lessee upon request of Lessor will promptly exhibit to Lessor all
paid bills for real estate taxes, water rates, and assessments, which bills
after inspection by the Lessor shall be returned to Lessee.
29.01 Curing Lessee's Defaults. Should Lessee fail to perform any of its
-------------------------
obligations under this Lease the Lessor may perform those obligations and add
any such sum or sums paid or expended in the performance to any rent then due or
thereafter falling due under this Lease with like effect as if an original part
of that installment, and that sum or sums shall be and become additional rent.
This paragraph, however, does not grant Lessee any license or privilege to allow
the premises or the Lessee to be without the insurance coverage required under
this lease and the failure of Lessee promptly to comply with such insurance
requirements shall privilege the Lessor to place immediately the necessary
insurance, and the cost thereof shall be additional rent and collectible as
such.
30.01 Quiet Enjoyment. The Lessee, upon paying the rent and performing
----------------
its other obligations under this Lease shall and may, at all times during the
term of this Lease peaceably and quietly have, hold, and enjoy the said Demised
Premises free of molestation by the Lessor.
31.01 Successors and Assigns. The covenants and agreements contained in
----------------------
this Lease inure to the benefit of and are binding upon the parties to this
Lease, their successors and assigns, but this paragraph does not modify the
provisions governing assignment, as elsewhere provided for in this Lease.
32.01 Estoppel Certificates. The Lessee agrees at any time and from
---------------------
time to time upon not less than ten (10) days prior written request by the
Lessor, to execute, acknowledge, and deliver to Lessor a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications), and the dates to which the rent and
other charges have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this paragraph may be relied upon by prospective
purchasers of Lessor's interest or mortgagees of Lessor's interest or assignees
of any mortgage upon Lessor's interest in the Premises.
33.01 Assigning and Subletting. (a) Paragraph 3 of the Lease remains in
------------------------
full force and effect. However, the sale or transfer of more than 50% of the
outstanding stock of the Lessee shall be deemed an assignment under paragraph 3
of this lease; lessor's consent to such assignment, however, shall not be
required so long as more than 50% of the outstanding stock of the Lessee shall
be owned by (1) Joseph M. Jensen or Allan R. Bartel or (2) by Messrs. Jensen and
Bartel in combination.
-8-
<PAGE>
(b) Lessor agrees that Lessor will not arbitrarily refuse to give its
consent to the granting of subleases by the lessee, provided that, (i) Lessee
shall always occupy for its own business purposes at least 65% of the Premises;
and (ii) in the event Lessee shall receive a rental in excess of the rental
charged by Lessor, Lessee shall divide the excess rent with Lessor.
34.01 Option to Extend. Provided that Tenant at the time of the exercise
----------------
of the option herein granted is not in default of any term, covenant, condition
or agreement provided for in this Lease, Lessee shall have the right, option and
privilege of extending the term of this Lease for ten years, that is, from
January 1, 1993 to December 31, 2002. All the terms, covenants and conditions of
this Lease pertaining to the initial term hereof shall equally pertain in all
respects to the extension of this Lease, except that the rental commencing as of
January 1, 1993 shall be $12,000.00 per month and there shall be no option to
purchase the Premises or to extend the lease. The option herein granted shall be
exercised by the Lessee giving notice in writing, addressed to the Lessor, sent
by registered or certified mail, return receipt requested, to the address of the
Lessor at which, the last monthly payment of rent shall have been made. Such
notice must be mailed within the six-month period prior to July 1, 1992.
35.01 Option to Purchase. Provided that Lessee at the time of the
------------------
exercise of this option to purchase is not in default of any term, covenant,
condition or agreement provided for in this Lease, the Lessee shall have the
option to purchase the Premises at the time, for the consideration, and upon the
terms and conditions hereinafter set forth:
35.02 Lessee may purchase the Premises as of the last business day of the
term of this lease which shall be the closing date if the option is exercised.
35.03 (a) The election of the Lessee to exercise the option to purchase
the Premises must be evidenced by two notices in writing, each of which shall be
addressed to the Lessor, sent by registered or certified mail, return receipt
requested, to the address of the Lessor at which, on the occasion of each
notice, the last monthly payment of rent shall have been made. The first such
notice must be mailed within the three-month period prior to April 1, 1992.
(b) The purchase price to be paid by the Lessee to the Lessor for the
Premises if the option is exercised, shall be the fair market value of the
Premises as of April 1, 1992. However, Lessee's first notice shall not bind
Lessee to purchase the Premises.
(c) If within 30 days after the Lessee's first notice to Lessor, the
parties are unable to agree in writing as to the purchase price, each of the
parties hereto shall name an appraiser; the two appraisers thus designated shall
in turn choose a third and the three thus named shall act with promptness in
arriving at their opinions as to the fair market value of the Premises; the
decision of any two as to such fair market value of the Premises shall be
binding on both parties hereto and shall be the purchase price if the property
is purchased by Lessee; provided, however, that this lease and the aforesaid
option to extend shall not be considered by the appraisers when arriving at
their opinions as to the fair market value of the premises.
-9-
<PAGE>
(d) If Lessee desires to purchase the Premises at the purchase price as
determined in accordance with paragraph (c) above, Lessee shall give Lessor a
second notice, in the manner described in paragraph 35.03(a) above, enclosing
with such second notice a certified or cashier's check in the sum of $30,000
payable to Lessor as earnest money to be applied to the purchase price. Such
second notice shall be mailed to lessor as aforesaid, not later than July 1,
1992 and shall bind Lessee to purchase the Premises.
35.04 If the option to purchase is exercised, at the closing and upon
payment of the balance due, the Lessor shall convey or cause to be conveyed to
Lessee title to the Premises by a good and sufficient recordable trustee's deed
subject only to: (a) covenants, conditions and restrictions of record; (b)
private, public and utility easements and roads and highways, if any; (c) party
wall rights and agreements, if any; (d) special taxes or assessments for
improvements not yet completed; (e) installments not due at the date hereof of
any special tax or assessment for improvements not completed; (f) general taxes
for the year 1992 and subsequent years. Lessor shall also deliver to Lessee at
the closing a bill of sale for all heating, lighting and other attached fixtures
as installed.
35.05 Lessor, at his own expense, shall furnish (a) a plat of survey
showing all improvements on the Premises and (b) a title commitment for an
owners title insurance policy in the amount of the purchase price issued by a
title company authorized to do business in Illinois, and showing good title in
seller.
35.06 There shall be no proration of taxes, utilities, or any item of
expenses which Lessee is obligated to pay under this lease.
35.07 Lessor shall pay any transfer fees or costs usually paid by sellers
and Lessee shall pay any transfer fees or costs normally paid by purchasers.
35.08 Lessor does not represent the above legal description is correct.
35.09 If the contract to purchase is terminated without Lessor's fault,
the earnest money shall be returned to Lessee, but if the termination is caused
by the Lessee's fault, then at the option of the Lessor, the earnest money shall
be forfeited to the Lessor as liquidated damages.
36.01 Subordination. This lease shall be subject and subordinate to any
-------------
and all mortgages that may now or hereafter affect the Lessor's interest in the
Premises. This clause shall be self-operative and no further instruments of
subordination shall be required. In confirmation of this subordination Lessee
shall execute promptly any certificate that Lessor may request. Lessee
constitutes and appoints Lessor Lessee's attorney-in-fact to execute any such
certificate or certificates for or on behalf of the Lessee, provided, however,
that so long as Lessee is not in default in the payment of rent or with respect
to the other obligations of Lessee hereunder, Lessee's right to quiet enjoyment
of the Premises as against any such mortgagee shall not be interfered with.
-10-
<PAGE>
37.01 Notice as to Lessee's Defaults. This lease shall not, by reason of
------------------------------
a default on Lessee's part, be terminated because of Lessee's failure to pay
rent or Lessee's failure to keep or perform any other covenant or agreement
herein, unless such a default shall continue for 10 days after written notice to
Lessee, provided that if Lessee's default is of such character that same cannot
be cured within 10 days after written notice from Lessor, such default shall
nevertheless be deemed cured and waived, if Lessee takes prompt steps within
said 10 day period to cure same and prosecutes such steps with due diligence and
continuity. Any default cured within a grace period as aforesaid shall be
deemed waived.
38.01 Notices. Copies of any notices given to Lessor hereunder with
-------
respect to the option to purchase and the option to extend the lease shall also
be forwarded by certified mail, return receipt requested, to each of the
following:
Richard C. Leach
One DLM Park
Allen, Texas 75002
and
Frank A. Karaba
Crowley Barrett & Karaba
111 West Monroe Street
Suite 2200E
Chicago, Illinois 60603
IN WITNESS WHEREOF, the parties hereof have executed this Rider as part of
the aforesaid lease.
LESSOR: LESSEE:
LA SALLE NATIONAL BANK, THE ARGUS PRESS, INC.
as Trustee under
By: /s/ J. Cobb By: /s/ Allan R. Bartel
-------------------- --------------------
/s/ Joseph M. Jensen, Chairman
-------------------------------------
-11-
<PAGE>
RIDER ATTACHED TO AND MADE A PART OF LEASE DATED NOVEMBER 4, 1985
This Lease is executed by LA SALLE NATIONAL BANK, not personally but as Trustee
as aforesaid, in the exercise of the power and authority conferred upon and
vested in it as such trustee, and under the express direction of the
beneficiaries of a certain Trust Agreement dated June 1, 1971, and known as
Trust No. 42560 at LA SALLE NATIONAL BANK, to all provisions of which Trust
Agreement this Lease is expressly made subject. It is expressly understood and
agreed that nothing herein or in said Lease contained shall be construed as
creating any liability whatsoever against said Trustee personally, and in
particular without limiting the generality of the foregoing, there shall be no
personal liability to pay any indebtedness accruing hereunder or to perform any
covenant, either express or implied, herein contained, or to keep, preserve or
sequester any property of said Trust, and that all personal liability of said
Trustee of every sort, if any, is hereby expressly waived by said Lessee, and by
every person now or hereafter claiming any right or security hereunder; and that
so far as said Trustee in concerned the owner of any indebtedness or liability
accruing hereunder shall look solely to the premises hereby leased for the
payment thereof. It is further understood and agreed that said Trustee has no
agents or employees and merely holds naked legal title to the property herein
described; that said Trustee has no control over, and under this Lease, assumed
no responsibility for (1) the management or control of such property, (2) the
upkeep, inspection, maintenance or repair of such property, (3) the collection
of rents or the rental of such property, or (4) the conduct of any business
which is carried on upon such premises.
If this instrument is executed by a corporation, such execution has been
authorized by a duly adopted resolution of the Board of Directors of such
corporation.
This Lease consists of 14 pages, number 1 to 14, including a rider
consisting of 11 pages signed by Lessor and Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the Date of Lease stated above.
LESSEE: LESSOR:
THE ARGUS PRESS, INC.
/s/ Allan R. Bartel, President (SEAL) BY:[EXECUTED BY J. COBB BELOW]
- ----------------------------------------- ------------------------------
LaSalle National Bank, as
Trustee under Trust No. 42560
/s/ Joseph M. Jensen, Chairman (SEAL) BY: /s/ J. Cobb
- ----------------------------------------- ---------------------
-12-
<PAGE>
ASSIGNMENT BY LESSOR
On this ___________________, 19___, for value received, Lessor hereby
transfers assigns and sets over to _________________________________ all right,
title and interest in and to the above Lease and the rent thereby reserved,
except rent due and payable prior to _________________________, 19___.
(Seal)
-----------------------------------
(Seal)
-----------------------------------
GUARANTEE
On this __________________, 19___ in consideration of Ten Dollars ($10.00)
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the undersigned Guarantor hereby guarantees the payment
of rent and performance by Lessee, Lessee's heirs, executors, administrators,
successors or assigns of all covenants and agreements of the above Lease.
(Seal)
-----------------------------------
(Seal)
-----------------------------------
<PAGE>
MEMORANDUM OF LEASE
THE ARGUS PRESS, INC., an Illinois corporation, ("Tenant") is leasing from
LA SALLE NATIONAL BANK, as Trustee of Trust Number 42560, dated June 1 , 1971,
("Landlord") certain land with a building thereon located at 7440 Natchez,
Niles, Illinois, (the "Demised Premises"). An indenture of lease of even date
made between Landlord and Tenant more fully sets forth the covenants and
agreements of Landlord and Tenant with respect to the demised premises. The
legal description of the Demised Premises is as follows:
Lot 2 (except N 277.86 feet of E 271.38 feet as measured along N line of
said lot 2) in Roehri's subdivision in SE 1/4 section 30 township 41 N
range 13 E of 3rd P.M. a metes and bounds description of which is as
follows: commencing at northwestern corner of said lot 2 thence along
northern boundary line of said lot 2 327.00 feet; thence southeasterly
along a line perpendicular to said northern boundary line 277.86 feet;
thence along a line parallel with said northern boundary line 179.12 feet
to eastern boundary line of said lot 2; thence along said eastern boundary
line 31.28 feet to southern boundary line of said lot 2; thence along said
southern boundary line 357.45 feet to western boundary line of said lot 2;
and thence along said western boundary line 337.63 feet to place of
beginning in Cook County, Illinois, commonly known as 7440 N. Natchez
Avenue, Niles, Illinois, together with all buildings and improvements
thereon and appurtenances thereunto appertaining.
Said lease is for an initial term ending on December 31, 1992. In addition,
Tenant has the option to extend the term until December 31, 2002.
Said lease further contains an option to purchase the Demised Premises on
December 31, 1992, on terms and conditions set out in the Lease.
The purpose of this memorandum of lease is to give notice regarding said
lease and the option to renew and the option to purchase set out therein
Dated: November 4, 1995.
<PAGE>
LANDLORD: TENANT:
LA SALLE NATIONAL BANK, as THE ARGUS PRESS, INC.
Trustee of Trust No. 42560
By: /s/ Joseph M. Jensen
-------------------------
By: /s/ M. R. Vornholt Chairman of the Board
--------------------------
Attorney & Agent for Landlord
Attest: [NOT ATTESTED] By: /s/ Allan R. Bartel
----------------------- ------------------------------
President
Attest:
/s/ Joseph M. Jensen
---------------------------------
Secretary
<PAGE>
EXHIBIT 10.39
LEASE AGREEMENT
STATE OF GEORGIA
FULTON COUNTY
The "Landlord": RFTA Associates, Ltd., a Georgia Limited Partnership
The "Tenant": Phoenix Communications, Inc.
The "Building": A Building at 5664 New Peachtree Road, Chamblee,
DeKalb County, Georgia, more particularly described
on Exhibit "A"
The "Premises": The Entire building (formerly differentiated as
Suite 100 Anderson Suite 200).
The "Lease Date": May 1, 1995
The "Term": May 1, 1995 - April 30, 2001 [see (P) 1.1].
[The Exhibit "A" and its text are incorporated into this Lease by reference.]
In consideration of the following Terms and conditions, and for other good and
valuable considerations (the receipt and sufficiency of all of which are hereby
acknowledged) the parties agree to the following terms.
I.
TERM
I.1 Term. The "Term" of this Lease begins on the Lease Date specified
---- ----
above, and ends at midnight on April 30, 2001, unless the Term is extended or
ends sooner according to the provisions below.
II.
THE PREMISES
<PAGE>
II.1 The Premises. Landlord rents to Tenant, and Tenant rents from
------------
Landlord, the Premises defined above (with no easement for light or air
included), according to the provisions of this Lease. The Premises are further
defined as containing approximately 67,000 square feet.
III.
RENT
III.1 Base Rent.
----------
(a) The "RENT COMMENCEMENT DATE" is defined as May 1, 1995.
(b) Beginning on the Rent Commencement Date, Tenant shall pay
Landlord a "BASE ANNUAL RENTAL" of $240,000.00 per year. This shall be the
minimum due during the first twelve consecutive months of the Term
beginning on the Rent Commencement Date.
(c) The Base Annual Rental will increase on May 1, 1996 to
$252,000.00 per year. This shall be the minimum due during the of the next
twelve consecutive months and again for the next twelve consecutive months.
(d) Then the Base Annual Rental will increase on May 1, 1998 to
$264,000.00 per year. This shall be the minimum due during the of the next
twelve consecutive months and again for the next twelve consecutive months.
(e) Finally, the Base Annual Rental will increase on May 1, 2000
to $276,000.00 per year. This shall be the minimum due during the of the
next twelve consecutive months, ending at the end of the term on April 30,
2001.
(Each twelve month period will comprise a "LEASE YEAR.")
III.2 Each year's Base Annual Rental shall be payable in twelve equal
consecutive monthly installments:
. $20,000.00 in the first Lease Year;
. $21,000.00 in the next two (second and third) Lease Years;
. $22,000.00 in the next two (fourth and fifth) Lease Years; and
. $23,000.00 in the final (sixth) Lease Year.
[called the "BASE MONTHLY RENTAL']. Thus, the first Base Monthly Rental is
due and payable on the Rent Commencement Date. Thereafter, each monthly
installment shall be paid in advance of the first day of each calendar
month during the Lease Term, without demand.
-2-
<PAGE>
III.3 Adjusted Rent. Beginning with the first Lease Year, which will start
--------------
on May 1, 1995, the Base Annual Rental (and consequently, the Base Monthly
Rental) above may be increased (but not decreased) annually over and above the
Base Annual Rental determined under (P) 3.1. This increase shall be computed on
the first business day of each Lease Year after the first Lease Year (including
any Lease Year during a renewal term) and shall be the higher of either (a) or
--- ------
(b):
(a) Determine 105% of the prior year's Base Annual Rental.
(b) Determine the following amount:
(i) Multiply the Base Annual Rental specified in (P) 3.1
above by a fraction.
(ii) In that fraction, the numerator will be the latest
Consumer Price Index [defined below] promulgated prior to the date
this computation is made.
(iii) The denominator shall be the Consumer Price Index
established for the month in which the Lease Date occurs.
Once the higher of (a) or (b) is determined, that amount shall be the
Adjusted Annual Rent payable to Landlord by Tenant during the ensuing Lease
Year. Dividing that product by twelve shall be the Adjusted Monthly Rent payable
by Tenant during each month of that ensuing Lease Year.
[As used above, the "Consumer Price Index" means that index established by
the Bureau of Labor Statistics of the United States Department of Labor which is
entitled "Consumer Price Index for Urban Wage Earners and Clerical Workers,
United States City Average, All Items, Series A, 1967 = 100." If that index is
ever not provided by the Bureau, this term shall mean another index furnished by
any governmental agency which most accurately and completely replaces the above-
referenced index, at Landlord's option.
III.4 Additional Rent based on Operating Expenses. In addition, Tenant
-------------------------------------------
shall pay as Additional Rent all "OPERATING EXPENSES" (defined below) for the
Building during the term of the Lease.
(a) Operating Expenses means the total cost and expense incurred in
operating and maintaining the building. They include (but are not limited
to): electricity, gas, water, sewerage and similar expenses to the extent
not metered and billed to tenant; trash removal; cleaning services;
custodial services; public liability and property damage insurance; the
cost of machinery used in the Building and on equipment used in Building
maintenance; toilet supplies; security; building, mechanical, parking lot
and grounds maintenance (except as otherwise provided for herein); and
property insurance on the Building and grounds on which the Premises are
located, as detailed hereinafter and as Landlord deems necessary, both in
type of coverage and amount of coverage.
-3-
<PAGE>
(b) Operating Expenses does not include Landlord's cost and expense
---
of maintaining those items enumerated in (P) 6.1 for which Landlord is
responsible.
(c) As soon as practical after the end of each calendar year,
Landlord shall prepare a Statement of Operating Expenses, along with a
computation of the Additional Rental due the Landlord from Tenant. Tenant
agrees to pay Landlord this Additional Rent within ten days following
receipt of this Statement. However, notwithstanding anything in this
paragraph to the contrary, Landlord shall also have the right to demand,
and Tenant shall pay upon such demand, the estimated current Operating
Expenses on a monthly basis, which will then be subject to annual
adjustment for reconciliation with the Operating Expenses actually
incurred.
(d) If this Lease ends other than upon the end of a calendar year,
Landlord shall make a good-faith prorated computation of the Operating
Expenses due hereunder through the end of the Lease term, and Tenant shall
pay this amount upon demand. At the end of that calendar year in which this
Lease ended, and upon compilation of the actual figures, any excess paid by
Tenant shall be promptly returned by Landlord, or any deficiency shall be
paid to Landlord by Tenant on demand (as the case may be).
III.5 Additional Rent from Taxes. As further Additional Rent during the
--------------------------
term of this Lease, Tenant shall also pay upon demand the amount of all taxes
(including, but not limited to, ad valorem taxes, special assessments and any
other governmental charges) levied on the Building in excess of those taxes
levied for the calendar year 1986.
(a) Tenant's payment shall be payable within fifteen days after
receipt of notice from Landlord of the amount due.
(b) If the final year of the Lease Term fails to coincide with the
tax year, then any excess for the tax year during which the Term ends shall
be reduced by the pro rata part of such tax year beyond the Lease Term. If
such taxes for the year in which the lease ends are not ascertainable
before payment of the last month's rental, then the amount of such taxes
assessed against the property for the previous tax year shall be used as a
basis of determining the pro rata share, if any, to be paid by Tenant for
that portion of the last Lease Year.
III.6 Payment of Rent. Base Rent or Adjusted Rent, plus Additional Rent
---------------
based on Operating Expenses, and Additional Rent from Taxes is defined as
"RENT." All of Tenant's Rent and all other obligations provided for in this
Lease are cumulative; and the payment by Tenant of all such amounts shall be
made to Landlord at its office (or such other place as Landlord specifies),
without deduction or set off for any reason.
III.7 Accord and Satisfaction. No payment by Tenant, or receipt by
-----------------------
Landlord, of a lesser amount other than that stipulated herein for Rent, or any
other charge, shall be deemed to be other
-4-
<PAGE>
than on account for the earliest stipulated Rent or other charge then due. No
endorsement or statement on a check or letter accompanying any check or payment
shall be deemed an accord and satisfaction. Landlord may accept such check or
payment without prejudice to Landlord's rights to recover the balance of such
Rent or other charge, or pursue any other remedy in this Lease, at law or in
equity.
III.8 Interest on Past-Due Rent. Any installment of Rent required to be
-------------------------
paid by Tenant under this Lease which is not paid when due shall bear interest
at the rate of eighteen percent (18%) per annum from the due date until paid.
This interest is intended to reimburse Landlord for expenses incurred by reason
of such failure by Tenant. It is agreed by Tenant that such an interest is not a
penalty.
IV.
USE AND ACCEPTANCE OF PREMISES
IV.1 Use of Premises.
---------------
(a) Tenant's use of the Premises shall not violate any ordinance,
law or regulation of any governmental body or any "Rules and Regulations"
of Landlord.
(b) Tenant shall use and occupy Premises as offices and production
facilities for a printing company. Tenant agrees to conduct its business in
the manner of, and according to, the generally accepted business principles
of the printing industry.
IV.2 Acceptance of Premises. Tenant's taking of possession of Premises at
----------------------
the start of the Term shall be conclusive evidence that Tenant accepts the
Premises "as is," and that the Premises were in good and satisfactory condition
for the use intended at the time such possession was taken.
V.
TENANT'S CARE
V.1 Tenant's Care.
--------------
(a) Tenant will take good care of the Premises and the fixtures and
improvements within it, at Tenant's expense; and Tenant will not suffer or
permit any active or permissive waste or injury to the Premises. Tenant
shall (at its expense but under Landlord's direction) promptly repair any
damage to the Premises caused by the misuse by, or neglect of, the Tenant,
its employees, agents, and all persons permitted on the Premises by Tenant.
(b) Without Landlord's written consent, Tenant will not make
alterations, additions or improvements in the Premises, and will not do
anything to or on the Premises which will increase the rate of insurance on
the Building. All alterations, additions or improvements of a permanent
nature made or installed by Tenant to the Premises shall become the
-5-
<PAGE>
property of Landlord at the expiration of this Lease; but Landlord reserves
the right to require Tenant to remove any improvements or additions made to
the Premises by Tenant, and repair and restore the Premises to its
condition prior to such alteration, addition or improvement. Tenant further
agrees to do so prior to the end of the Term.
(c) No later than the last day of the Term, Tenant will remove all
of its personal property, fixtures and equipment not physically attached to
the Premises, and repair all injury done by (or in connection with) the
installation or removal of this property. Tenant shall thus surrender the
Premises (together with all keys to Premises) in as good a condition as it
was at the beginning of the Term, except for reasonable wear and tear, and
damage by fire or other casualty. All of Tenant's property remaining on the
Premises after expiration of the Term shall be deemed conclusively
abandoned, and may be removed by Landlord. In such case, Tenant shall
reimburse Landlord promptly upon demand for the costs of removal, subject
however to Landlord's right to require Tenant to remove any improvements or
additions made to Premises by Tenant under (P) 5. 1 (b).
(d) In doing any work related to the installation of Tenant's
furnishings, fixtures, or equipment in the Premises, Tenant will use only
contractors or workmen approved in advance and in writing by Landlord, such
approval not to be unreasonably withheld. Tenant shall promptly remove or
bond any Lien for material or labor claimed against the Premises (or
against the Building in which the Premises is located) by such contractors
or workmen if such claim should arise; and Tenant hereby indemnifies and
holds Landlord harmless from and against any and all costs, expenses or
liabilities incurred by Landlord as a result of such claims and liens, and
Landlord's defending against same (including Landlord's attorney's fees).
(e) Tenant shall not place any computers (except minicomputers),
duplicating equipment, food or drink coin-operated or vending machines, or
equipment requiring more than 20 amperes of electricity, within the
Premises without Landlord's written consent, such consent not to be
unreasonably withheld.
VI.
SERVICE AND REPAIRS
VI.1 Landlord's Exclusive Responsibilities. Landlord shall maintain in
--------------------------------------
good repair the roof and exterior walls (but not glass) of the Building at its
own expense. However, if any of these are damaged by Tenant, (or by its agents,
employees, invitees or licensees), Tenant shall be solely responsible for all
costs of repairing such damage, and shall reimburse Landlord for the repair
immediately upon demand, that sum to be considered "Additional Rent."
VI.2 Landlord's Repairs for Tenant. Without limiting (P) 3.4 in any way,
-----------------------------
Landlord shall pay for the following items, but shall be reimbursed under (P)
3.4 for all Repairs and maintenance (except as resolved to the Landlord under
(P) 6.1), including:
-6-
<PAGE>
(a) maintaining in good order at all times: the windows and doors
of the Building; the HVAC, electrical, and plumbing fixtures of the
Building; the HVAC systems of the Building; and the walks, paved areas
(including driveway and parking areas) and landscaping surrounding the
Building;
(b) exterior lighting, signage and grounds care, including the
sweeping of walks and parking areas, and the maintenance of attractive
landscaping;
(c) any increase in property taxes as may be assessed against real
estate by the state, county, city, or other governing authority, as per (P)
3.5;
(d) fire and extended coverage insurance to protect the Landlord's
interest in the property, and comprehensive general liability insurance to
protect Landlord from actions of third parties;
(e) general management, including supervision, inspection, record
keeping, accounting, leasing, and related management functions (but not
including any executive compensation).
VI.3 Usage of Services. The services specified here in Article VI are
------------------
predicated on certain usage of the Premises by Tenant during normal business
hours which shall be from 8:00 a.m. to 6:00 p.m. on Mondays through Fridays, and
from 8:30 a.m. to 1:00 p.m. on Saturdays, except for national holidays. If
. Tenant uses services (or utilities which are not metered and billed
directly to Tenant) in an amount, or for a period in excess of,
normal usage (in Landlord's sole opinion); or
. Tenant places in the Premises appliances or equipment requiring
excessive electrical service (in Landlord's sole opinion),
Landlord shall have the right to charge Tenant as Additional Rent a reasonable
sum as reimbursement for the direct cost of such added services. In the event of
disagreement as to the reasonableness of such charge, the opinion of the
appropriate local utility company, or of an independent professional engineering
firm, shall prevail and shall be binding upon the Landlord and Tenant.
VI.4 Interruption of Services. Landlord shall not be liable for any
-------------------------
damages directly or indirectly resulting from interruption in the furnishing of
services by Tenant by any cause beyond Landlord's control.
VII.
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<PAGE>
UTILITIES
VII.1 Tenant's Expenses. Tenant shall pay all utility bills, including
-----------------
(but not limited to) electricity, water, sewer and gas incurred in connection
with the Premises, or used by Tenant in connection therewith, on or before the
due date for those bills. If Tenant does not pay these expenses, Landlord may
pay the same, and such payment shall be added as Additional Rental of the
Premises, immediately payable upon demand.
VII.2 Landlord's Expenses. lt is acknowledged by both parties that Tenant
--------------------
shall be responsible for all utility expenses associated with the Building, and
Landlord shall have no expenses associated therewith.
VIII.
RULES AND REGULATIONS
VIII.1 Rules and Regulations of Building.
---------------------------------
(a) The sidewalks, entry passages, and other areas of the Building
shall not be obstructed by Tenant, or used by it for purposes other than
those of ingress, egress, and parking, as designated. The water closets and
other water apparatus shall not be used for any other purpose than those
for which they were constructed, and no sweeping, rubbish, or other
obstructing substances shall be thrown in them.
(b) Tenant shall not install or paint any signs on any exterior or
interior doors, plate glass or exterior walls without Landlord's express
written permission. Tenant may place a sign in the vicinity of Tenant's
entrance doors, but such sign shall be of such order, size and style as is
approved by Landlord in advance and in writing; and the approved sign shall
be installed at such place as Landlord designates.
(c) If Tenant wishes to install in, or use on the Premises, any
additional machinery requiring more than 20 amperes of electricity; then
Tenant is required to first obtain Landlord's written consent. If Tenant
requires any interior wiring for any machinery or equipment, such wiring
shall be done by an electrician specified by Landlord, and no outside
electrician shall be allowed to do work of this kind unless with Landlord's
prior written permission.
(d) In all cases, Landlord retains the right to approve the weight
per square foot and position of heavy articles.
VIII.2.Future Rules and Regulations. Landlord reserves the right to
-----------------------------
promulgate additional Rules and Regulations in the future, which shall apply to
all Tenants uniformly.
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<PAGE>
IX.
DEFAULT
IX.1 Default by Tenant. Each of the following shall be ACTS OF DEFAULT:
------------------
(a) If Tenant vacates or abandons the Premises at any time during
the Term: or
(b) If, after three days' written notice of non-payment, Tenant
fails to pay any Rent, or any other payment due under this Lease;
(c) If, after 10 days' written notice of non-performance, Tenant
fails to perform any other term or obligation of this Lease (other than its
non-payment of monetary obligations) which is to be observed or performed
by Tenant; or, if Tenant's such term or obligation cannot be performed
within 10 days, if Tenant fails within said 10-day period to begin and
thereafter to diligently and continually pursue its performance of that
term or obligation; or
(d) If Tenant becomes bankrupt or insolvent; or
(e) If Tenant files any debtor relief proceedings; or
(f) If Tenant voluntarily files in any court pursuant to any
statute (either of the United States or of any other state) a petition in
bankruptcy or insolvency, or for reorganization, or for the appointment of
a receiver or trustee of all or a portion of Tenant's property or for any
other form of debt relief, whether temporary or permanent; or
(g) If an action is brought to appoint a receiver or trustee over
Tenant, or over Tenant's possessions, or to otherwise protect the interests
of any creditor of Tenant, which action is not dismissed within thirty days
of its filing; or
(h) If Tenant makes an assignment for the benefit of creditors; or
(i) If Tenant petitions for, or enters into, an arrangement of any
kind concerning its creditors, or suffers this Lease (or the leasehold
hereunder) to be taken under any writ of execution or attachment; or
(j) If this Lease shall pass by law or otherwise to anyone other
than Tenant, except as may be expressly provided in these terms.
In any one or more of such events, Landlord shall have the rights specified
below in this Article.
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<PAGE>
IX.2 Landlord's Rights on Default. If Tenant shall not have cured any Act
----------------------------
of Default in the manner provided in (P) 9.1, Landlord may at its option pursue
any one or more of the following remedies:
(a) Begin dispossessory proceedings with or without the termination
of this Lease, and without releasing Tenant from any of its obligations
hereunder.
(b) Terminate Tenant's right to possession without termination of
the Agreement. In such a case, Landlord may (at its option) enter onto the
Premises, remove Tenant's signs and other evidences of tenancy, and take
and hold possession of the Premises. This can be done without such entry
and possession terminating this Lease or releasing Tenant from any
obligation, in whole or in part, including Tenant's obligation to pay Rent
due hereunder for the full Term. To this end, if and when Landlord so
elects, Tenant shall pay to Landlord a sum equal to the discounted then-
present value of the Rent (including all other sums provided herein to be
paid by Tenant for the remainder of the Lease Term), computed at a rate of
eight percent (8%) per annum. The payment of these amounts shall not
constitute payment of Rent in advance for the remainder of the Term.
Instead, such sum shall be paid as agreed upon liquidated damages and not
as a penalty; the parties agree that it is difficult or impossible to
calculate the damages which Landlord will suffer as a result of Tenant's
default, and that this provision is intended to provide a reasonable
estimate of such damages. Tenant waives any right to assert that Landlord's
actual damages are less than the amount calculated hereunder; Landlord
waives any right to assert that its damages are greater than the amount
calculated hereunder. Upon the receipt from Tenant of the sum required to
be paid pursuant to this subsection, Landlord shall use reasonable efforts
to relet the Premises. Upon making such payment and after Landlord has
received in full the balance of the Rent and other sums it would have
received over the remainder of the Term, (i.e., the difference between face
amount of Rent due hereunder for the entire Lease Term and the amount paid
to Landlord by Tenant), together with the reimbursement or payment of any
sums expended by Landlord on account of the cost of repairs, alterations,
additions, redecorating, and Landlord's expenses of reletting and
collection of the rental accruing therefrom (including attorney's fees and
broker's commissions), Tenant shall receive from Landlord all Base Rent
received by Landlord from other tenants on account of the Premises during
the Lease Term hereof, provided that the amounts to which Tenant shall
become so entitled shall in no event exceed the entire amount actually paid
by Tenant to Landlord under this paragraph.
(c) Begin proceedings against Tenant for all amounts owed by Tenant
to Landlord, whether as Base Rental, Additional Rental, reasonable damages,
or otherwise.
(d) End the Lease Term, in which event Tenant shall immediately
surrender the Premises to Landlord. Tenant agrees to pay on demand the
amount of all reasonable loss and damage which Landlord may suffer by
reason of the end of the Term under this section or otherwise, which loss
and damage shall include, without limitation:
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<PAGE>
(i) an amount which, at the date of the Default, represents
the present value, as computed using an eight percent (8%) discount
rate, of the excess, if any, of (A) the Base Rent, Additional Rent and
all other amounts which would have otherwise been payable under this
Lease during the remainder of the Term over (B) the aggregate
reasonable rental value of the Premises for the same period; and
(ii) an amount equal to the balance that would still be owing
to Landlord after such termination date if the sum of concessions and
other inducements made available by Landlord and brokerage commissions
paid by Landlord had been treated as a loan from Landlord to Tenant
accruing interest at the rate of eight percent (8%) per annum,
repayable over the original Term of this Lease in equal monthly
installments of principal and interest such that the unpaid balance of
such hypothetical loan upon the expiration of the original Lease Term
shall be $0.
(e) Upon any termination of Tenant's right to possession only, and
without Termination of the Lease, Landlord may (at its option) enter into
the Premises, remove Tenant's signs and other evidences of tenancy, and
take and hold possession as provided below, without such entry and
possession terminating the Lease or releasing the Tenant, in whole or in
part, from any obligation, including Tenant's obligation to pay Rent, for
the full Lease Term. In any such case, Landlord may relet the Premises on
behalf of the Tenant and receive directly the Rent by reason of the
reletting. Tenant agrees to pay Landlord on demand any deficiency that may
arise by reason of reletting of the Premises; further, Tenant agrees to
reimburse Landlord upon demand for any expenditures made by it for
remodeling or repairing in order to relet the Premises and for all other
expenses incurred in connection with such reletting (including, without
limitation, attorney's fees and brokerage commissions).
(f) Enter upon and take possession of the Premises, without being
liable for prosecution of any claim for damages or for trespass or other
tort.
(g) Do or cause to be done whatever Tenant is obligated to do under
the terms of this Lease, in which case Tenant agrees to reimburse Landlord
on demand for any and all costs or expenses which Landlord may thereby
incur. Tenant agrees that Landlord shall not be liable for any damages
resulting to Tenant from effecting compliance with Tenant's obligations
under this section, whether caused by the negligence of Landlord or
otherwise.
(h) Enforce the performance of Tenant's obligations hereunder by
injunction or other equitable relief (which remedy may be exercised upon
any breach or default or any threatened breach or default of Tenant's
obligations hereunder).
(i) Invoke any remedy allowed at law or in equity to enforce re-
entry and other remedies not herein provided. this shall be in addition to
any other remedies which Landlord may have.
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<PAGE>
IX.3. Tenant's Waiver. Tenant waives trial by jury in any action,
---------------
proceeding or counterclaim brought by Landlord against the Tenant on any matter
whatsoever arising out of or in any way connected with:
. this Lease,
. the relationship of Landlord and Tenant created by this Lease,
. Tenant's use or occupancy of the Premises, and
. on any and all claims for injury or damage.
Further, if Landlord begins any action or proceeding for non-payment of any rent
or other charges due hereunder, Tenant agrees not to interpose any non-
compulsory counterclaim of any nature or description in such an action or
proceeding.
X.
ADDITIONAL OBLIGATIONS
X.1 Insurance. During the Term of this Lease, Tenant (at its sole
---------
expense) shall procure and maintain the following types of insurance, with
Landlord specifically named as an additional Insured on that policy:
(a) bodily injury liability insurance, including personal injury
and property damage, insuring against any and all liability of Tenant, its
agents, and employees with respect to the Premises or arising out of the
maintenance, use or occupancy thereof, said liability insurance to have
combined limits in the aggregate of not less than $_____________.
(b) The insurer and the form and content of all such insurance
policies shall be subject to Landlord's reasonable approval. Upon
Landlord's request, Tenant shall immediately furnish Landlord with a
certificate of insurance showing the existence of all insurance required to
be maintained by Tenant under this Lease.
X.2 Waiver.
-------
(a) Tenant agrees that Landlord shall not, at any time or to any
extent whatsoever, be liable for, and Tenant hereby waives all claims of
Tenant, its employees and agents against Landlord for:
(i) any injury or damage to person, property or business
caused by, or arising out of, the condition of the Premises or the
Building; or
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<PAGE>
(ii) the condition or operation of, or defects in, any
equipment, machinery or mechanical systems (including the electrical,
plumbing and H.V.A.C. systems and fixtures) located in the building;
or
(iii) the act or omission of any person or persons, (except to
the extent such damage or injury is directly caused by or due to the
gross negligence or willful misconduct of Landlord, its employees or
agents); or
(iv) the theft, mysterious disappearance, or loss of any
property from the Premises or the Building; or
(v) any interference or disturbance by any third persons,
including (without limitation) any other tenant or tenants of
Landlord.
(b) It is further agreed that the happening of any one or more of
the events described in (P) 10.2(a) shall not be an actual or constructive
eviction of Tenant, nor shall any such event operate to relieve Tenant from
the prompt and punctual performance of the obligations of Tenant under this
Lease.
(c) Nothing contained herein shall render Landlord liable, or any
way accountable, for any loss, damage or injury (whether direct or
indirect, and whether to person or property, suffered or incurred by Tenant
because of Landlord's failure or inability to furnish utilities to the
Premises or the Building, or to maintain and operate the Building. Tenant
hereby waives all claims of Tenant, its employees, agents, licensees and
invitees against Landlord for such failure or inability.
X.3 Indemnification. Except for damages which arise solely from the
---------------
gross negligence or intentional, willful action of Landlord, Tenant agrees to
indemnify and hold harmless Landlord against and from any and all claims,
liabilities, actions, expenses, losses or damages whatsoever on account of (or
in connection with) any loss, injury, death or damage to persons or property or
business arising out of, or caused by, Tenant's use or occupation of the
Premises. This includes (without limitation) the condition of the Premises, and
any act or omission (whether or not negligent) of Tenant, its agents, employees,
licensees, guests or invitees. Tenant shall further indemnify and hold Landlord
harmless:
(a) against the performance of any covenant or agreement on the
Tenant's part to be performed pursuant to the terms of this Lease, and
(b) against any act or negligence of the Tenant or its agents,
contractors, employees or licensees, and
(c) against all cost, counsel fees, expenses and liabilities
incurred in any such claim or action or proceeding brought thereon, or in
any way connected therewith.
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<PAGE>
X.4 Tenant's Taxes. Tenant shall pay before delinquency all taxes,
--------------
assessments and public charges (whether now in effect or subsequently enacted)
during the Term of this Lease which are levied, assessed or imposed upon the
Tenant's business or upon Tenant's fixtures, furniture, appliances or personal
property installed or located in the Premises, or which constitute a lien
against any of the foregoing.
X.5 Landlord's Option to Cure Tenant Defaults. All agreements to be
------------------------------------------
performed by Tenant under this Lease shall be performed at Tenant's sole cost
and expense, without any abatement of rent. If Tenant fails to pay any sum of
money required to be paid by it hereunder other than rent, or fails to perform
any other act on its part to be performed hereunder; and if such failure shall
continue for 10 days after notice by Landlord; then Landlord may (at its sole
and absolute option, and without waiving or releasing Tenant from any of
Tenant's obligations, and without waiving any rights Landlord has) make any
such payment or perform any such other act on Tenant's part to be made or
performed as provided in this Lease. All such sums so paid by Landlord, and all
necessary incidental costs and expenses shall be deemed Additional Rent
hereunder, and shall be payable to Landlord upon demand.
XI.
DAMAGE, DESTRUCTION, CONDEMNATION
XI.1 Damage or Destruction. If all or any part of the Premises are
---------------------
damaged or destroyed by fire or other casualty, this Lease shall continue in
full force and effect, unless terminated as hereinafter provided.
(a) Landlord shall repair, restore or rebuild the Premises to its
condition at the time of the occurrence of the loss, and Landlord agrees to
diligently and continuously pursue to completion any such repairs. However,
Landlord shall not be obligated to begin such repair, restoration or
rebuilding until insurance proceeds are received by Landlord; and
Landlord's obligation to do so shall be limited to the proceeds Landlord
actually receives under any insurance policies which are not required to be
applied towards the reduction of any indebtedness secured by a deed to
secure debt covering the Building or any portion of it.
(b) Tenant covenants and agrees to reopen for business in the
Premises within 60 days after notice from Landlord that the Premises have
been restored and are ready for reoccupancy. In this regard, Tenant shall
repair, restore and refixture all parts of the Premises not insured under
any insurance policies insuring Landlord. This shall be done in a manner,
and to a condition, equal to that existing prior to its destruction. The
proceeds of all insurance carried by Tenant on its property and
improvements shall be held in trust by Tenant for the purpose of said
repair and replacement and used only for that purpose.
(c) No damage or destruction to the Premises shall allow Tenant to
surrender possession of the Premises, nor affect Tenant's liability for the
payment of rents or performance of any other Term, except as may be
specifically provided in this Lease.
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<PAGE>
(d) Notwithstanding anything to the contrary contained in this
1111.1 or elsewhere in this Lease, Landlord at its option may terminate
this Lease on 30 days notice to Tenant if:
(i) The Premises and the Building shall be damaged or
destroyed as a result of an occurrence which is not covered by
Landlord's insurance, or the insurance proceeds are insufficient to
completely pay for the full restoration and repair of the Premises and
the Building; or
(ii) The Premises shall be damaged or destroyed during the
last two years of the Term, or any renewal thereof; or
(iii) Any or all of the Building or its improvements are dam
aged (whether or not the Premises are damaged) to such an extent that
(in the sole judgment of Landlord) the entire Building cannot be
restored and then operated as an economically viable unit.
(e) If the Premises shall be damaged or destroyed and in the event
that Landlord has not elected to terminate this Lease, Landlord and Tenant
shall resume their respective obligations (other than those specified in
this Article as continuing under this Article XI) as soon as is reasonably
possible, and then prosecute the same to completion with all due diligence.
(f) Tenant shall give to Landlord prompt written notice of any
damage to or destruction of any portion of the Premises resulting from fire
or other casualty.
XI.2 Condemnation. If the whole of the Premises shall be taken under the
-------------
power of condemnation, this Lease shall end as of the date possession shall be
so taken.
(a) Anything in this Lease to the contrary notwithstanding, this
(P) 11.2(a) shall apply if
. more than 20% of the Premises, or
. more than 15% of the then-existing paved parking spaces of the
Building, or
. more than 25% of the gross floor area of the Building
(exclusive of the Premises)
shall be taken if a conveyance is made in lieu of either. In such case,
either party shall have the right to cancel and terminate this Lease as of
the date of such taking or
-15-
<PAGE>
conveyance, upon giving notice to the other of such election within thirty
days after the date of such taking or conveyance, in the event of such
cancellation. The parties thereupon shall be released from any further
liability under this Lease, except for obligations existing as of and on
the effective date of such termination. Provided, if more than 15% of the
then-existing paved parking spaces of the Building shall be appropriated or
taken, Landlord may (at its option) nullify and vacate Tenant's right to
cancel this Lease as herein above provided, by giving Tenant notice
within thirty days after the date of such taking as long as Landlord agrees
to provide substitute parking on (or adjacent to) the Building sufficient
to cause the total number of paid parking spaces remaining after such
substitution to be equal to at least 75% of the number of spaces prior to
such taking. In such event, this Lease shall remain in full force and
effect.
(b) All compensation awarded or paid upon such a total or partial
taking of the Premises or the Building shall belong to and be the property
of Landlord, without any participation by Tenant. Tenant shall, however, be
entitled to claim, prove, and receive in such condemnation proceeding such
award as may be allowed for relocation cost and fixtures, and reduce
Landlord's award only if such award shall be in addition to the award for
the land and Building. To the extend that the Tenant has a claim in
condemnation proceedings, as aforesaid, Tenant may claim from condemners,
but not from Landlord, such compensation as may be recoverable by Tenant.
XII.
ADDITIONAL AGREEMENTS
XII.1 Eminent Domain. Landlord and Tenant expressly agree that if all or
--------------
any part of the Premises shall be taken by federal, state, county or city
authority for public use, or under any statute, or by exercise of any right of
eminent domain, or by deed in lieu thereof, then, and in said event, when
possession shall be taken thereunder of said Premises (or any part thereof) the
Lease Term hereby granted and all rights of the Tenant hereunder shall
immediately cease and terminate. Upon the happening of said event, Tenant shall
not have any right or claim whatsoever, and hereby waives all claims to all or
any part of any award made for such taking specified in this Paragraph and all
claims against Landlord other than for an abatement of the rent beyond the date
of such taking.
XII.2 Assignment and Subletting.
-------------------------
(a) Without the prior written consent of Landlord, Tenant may not
assign this Lease or any interest hereunder, or sublet Premises or any part
thereof, or permit the use of Premises by any party other than Tenant.
Consent by Landlord to any one assignment or sublease shall not destroy or
waive this provision, and all later assignments and subleases shall
likewise be made orally with the prior written consent of Landlord.
Sublessees or assignees shall become liable directly to Landlord for all
obligations of the Tenant hereunder without relieving Tenant's liability.
Landlord shall not unreasonably withhold such consent.
(b) Tenant acknowledges the right of Landlord to assign all their
right, title and interest to any entity.
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<PAGE>
XII.3 Entry by Landlord. Landlord and its employees, agents and licensees
-----------------
shall have the right to enter the Premises at any time during the Term of this
Lease at reasonable times: (i) to inspect the condition of the Premises or the
compliance by Tenant with this Lease, although no such inspection or failure to
inspect shall waive any rights of Landlord with respect to any default by
Tenant, whether or not such default was or should have been discovered; (ii) to
exhibit the Premises to prospective Tenants during the last nine months of the
Term; and (iii) to repair, improve, restore, alter or make additions to the
Premises or to the Building (it being understood that this provision does not
obligate Landlord to take any such action). Except for emergency repairs,
Landlord shall exercise the rights granted to Landlord in (iii) above only after
reasonable notice to Tenant, and Landlord shall use its best efforts to
accomplish the above promptly, with minimum interference with Tenant; provided,
however, that the liability of Landlord arising out of such entry shall be
limited as set forth elsewhere in this Lease as this paragraph creates no
further liability of Landlord.
XII.4 Holding Over. In the event Tenant holds possession of the Premises
-------------
after the expiration of the Term set forth herein, with the consent of Landlord,
then this Lease and the Term hereof shall be deemed to be extended on a month-
to-month basis upon all the terms and conditions herein set forth, except that:
(i) such tenancy may be terminated upon not less than thirty (30) days written
notice by Landlord; and (ii) Tenant shall pay to Landlord monthly rent, in
advance on the first day of such extension period and on the first calendar day
of each calendar month thereafter during such extension period, an amount equal
to one hundred fifty (150%) percent of the rent payable in the last full
calendar month preceding the first day of such extension period.
XII.5 Act of God. Landlord shall not be required to perform any covenant
----------
or obligation under this Lease, or be liable in damages to Tenant, Tenant's
invitees, licensees or other visitors to the Premises or Building, so long as
the performance or nonperformance of the covenant or obligation is delayed,
caused or prevented by an Act of God or force majeure, or by Tenant.
XII.6 Entire Agreement - No Waiver. This Lease contains the entire
----------------------------
agreement of the parties. No representations, inducements, promises or
agreements, oral or otherwise, between the parties shall be of any force or
effect unless written herein. The failure of either party to insist in any
instance on strict performance of any term or condition in this Lease, or to
exercise any option herein contained, shall not waive such term, condition or
option in that circumstance, or in any other instance. This Lease cannot be
changed or terminated orally, as any modification or alteration of this Lease's
terms can only be made in writing signed by all parties hereto.
XII.7 Headings. The headings in this Lease are included for convenience
--------
only and shall not be taken into consideration in any construction or
interpretation of this Lease or any of its provisions.
XII.8 Notices and Services.
---------------------
(a) Any notice by a party to the other shall be valid only if in
writing and shall be deemed to be given only if delivered personally or
sent by registered or certified mail
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<PAGE>
addressed (i) if to Tenant, at Premises, and (ii) if to Landlord, c/o
George M. Fox, Esq. 4788 Long Island Drive, Atlanta, Fulton County,
Georgia, 30342-8937 or at such other address for either party as that party
may designate by notice to the other. Notice shall be deemed given if
delivered personally upon its delivery, or if mailed, upon its being
mailed.
(b) Tenant hereby appoints the person in charge of the Premises as
its agent to receive service of all dispossessory or distraint proceedings;
and if there is no person occupying same, then such service may be made by
attachment thereof on the main entrance of the Premises.
XII.9 Heirs and Assigns. The provisions of this Lease shall bind and inure
------------------
to the benefit of the Landlord and Tenant, and- their respective successors,
heirs, legal representatives and assigns.
XII.10 Release of Landlord by Sale. Except as to the Assignment of
---------------------------
Leases and Rents between Landlord and Bank South, N.A., in the event of any sale
or lease of the land or Building or any assignment of this Lease, the Landlord
shall be entirely freed and relieved of all covenants and obligations of the
Landlord hereunder which accrue thereafter; and further, it shall be deemed
without further agreement that the purchaser, sub-tenant or assignee as the case
may be, has assumed and agreed to carry out any and all covenants and
obligations of the respective main party hereunder during the period such
secondary party has possession of the Building. Should the land and the Building
be severed as to ownership by sale or lease, then the owner of the entire
Building that has the right to lease the space in the Building to tenants shall
be deemed the "Landlord." In the event of any such sale or lease of the land or
Building, during the term of this Lease, Tenant hereunder agrees to continue to
be bound by all the terms, covenants, and conditions of this Lease and further
agrees to execute any attornment agreement not in conflict with the terms and
provisions of this Lease at the request of any such succeeding Landlord.
XII.11 Gender. Number. etc. The terms "Landlord," and "Tenant," and the
--------------------
pronouns relating to each, shall include the male, female and neuter, the
singular and plural, as may fit the particular parties.
XII.12 The Captions. The use of captions at the start of certain
-------------
paragraphs is for illustration only; thus, no caption has any effect on any text
in the paragraph which follows.
XII.13 Attorney Fees. If any Rent or other obligations owing under this
------------
lease are collected by or through an attorney at law, then Tenant shall pay as
additional Rent fifteen (15%) percent thereof as attorney's fees. Tenant shall
also pay all attorney's fees incurred by Landlord as a result of any breach or
default by Tenant under this Lease.
XII.14 No Estate. Tenant has only a usufruct under this agreement, not
----------
subject to levy or sale; no estate shall pass out of Landlord.
XII.15 Time of Essence. Time is of the essence of this Agreement.
---------------
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<PAGE>
XII.16 Attornment to Mortgages and Other Documents. Tenant agrees to
--------------------------------------------
execute such documents as may be required by Landlord to evidence Tenant's
attornment to any mortgagee or other secured party relative to the Premises, or
for any other purpose to confirm terms hereunder. Provided, if Tenant is
required to agree that this Lease is to be subordinate to any such mortgage or
secured interest, Tenant shall be entitled to require that such mortgagee or
secured party agree not to disturb Tenant's occupancy of the Premises so long as
Tenant is not in default under this Lease.
XII.17 Tenant's Corporate Authority. Each person signing this Lease on
-----------------------------
behalf of Tenant personally represents and warrants that Tenant is a fully
authorized and existing corporation, that Tenant is qualified to do business in
the State of Georgia, that the corporation has full authority to enter into this
Lease, and that each person signing on behalf of the corporation is authorized
to do so. In the event any representation of warranty is false, all persons
signing this Lease shall be individually liable, as Tenant.
XII.18 LIMITATION OF WARRANTIES. LANDLORD AND TENANT EXPRESSLY AGREE
-------------------------
THAT
. THERE ARE, AND SHALL BE, NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OF ANY OTHER KIND
ARISING FROM THIS LEASE; AND
. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH
IN THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have signed this Lease as of the day and
year first above written and caused their seals to be hereto affixed.
TENANT:
PHOENIX COMMUNICATIONS, INC.
By: /s/ Cary Rosenthal
--------------------------------------
Cary Rosenthal, President
[CORPORATE SEAL]
LANDLORD:
RFTA ASSOCIATES, LTD., a Georgia Limited
Partnership
BY: Phoenix Communications, Inc., its General
Partner
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By: /s/ Joe Segal
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Joe Segal, Vice President
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EXHIBIT 10.40
STANDARD INDUSTRIAL LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated for reference purposes only, October 17, 1994,
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is made by and between RSH PROPERTIES, L.L.C., a Georgia limited liability
company (herein called "Lessor") and KING MAILING SERVICES, INC., a Georgia
corporation (herein called "Lessee").
2. Premises, Parking and Common Areas.
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2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of DeKalb, State of Georgia,
consisting of approximately 10.400 square feet of office/warehouse space in a
free-standing building at 5588 New Peachtree Road, Chamblee, Georgia, herein
referred to as the "Premises. The Premises are a building, herein referred to
as the "Building." The Premises, the Building, the land upon which the same are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center."
3. Term.
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3.1 Term. The term of this Lease shall commence on October 17, 1994 and
end on October 31, 1997 unless sooner terminated pursuant to any provision
hereof.
4. Rent.
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4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly payments
in advance of $2,600.00 for the period October 17, 1994 through October 31,
1995; $2,816.67 for the period November 1, 1995 through ______________________.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
4.2 Operating Expenses. Lessee shall pay to Lessor as reimbursement or
directly all Operating Expenses, as hereinafter defined.
(a) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for
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(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(A) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common area lighting facilities and fences
and gates;
(B) Trash disposal services;
(C) Tenant directories;
(D) Fire detection systems including sprinkler system
maintenance and repair;
(E) Security services;
(F) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense;"
(ii) Any deductible portion of an insured loss concerning any
of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8
hereof;
(iv) The amount of the real property tax to be paid by Lessor
under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(b) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same
or some of them.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$-0- as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease. Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessees default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby.
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If Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount then required of
Lessee. If the monthly rent shall, from time to time, increase during the term
of this Lease, Lessee shall, at the time of such increase, deposit with Lessor
additional money as a security deposit so that the total amount of the security
deposit held by lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the initial Base Rent
set forth in paragraph 4, Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for
office/warehouse or for any other use which is reasonably comparable and for no
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other purpose.
6.2 Compliance with Law.
Lessee shall, at Lessee's expense, promptly comply with all applicable
statutes, ordinances, rules, regulations, orders, covenants and restrictions of
record, and requirements of any fire insurance underwriters or rating bureaus,
now in effect or which may hereafter come into effect, whether or not they
reflect a change in policy from that now existing, during the term or any part
of the term hereof, relating in any manner to the Premises and the occupation
and use by Lessee of the Premises and of the Common Areas. Lessee shall not use
nor permit the use of the Premises or the Common Areas in any manner that will
tend to create waste or a nuisance or shall tend to disturb other occupants of
the Industrial Center.
6.3 Condition of Premises.
Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, which ever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
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7.1 Lessee's Obligations. Lessee, at Lessee's expense, shall keep in
good condition and repair the foundations, exterior walls, structural condition
f interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof. Lessor shall not be obligated to paint the
exterior or interior surface of exterior walls, nor shall Lessor be required to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessor shall have no obligation to make repairs under this paragraph 7.1.
Lessee expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair. Lessor shall not be liable for
damages or loss of any kind or nature by reason of Lessor's failure to furnish
any Common Area Services when such failure is caused by accident, breakage,
repairs, strikes, lockout, or other labor disturbances or disputes or any
character, or by any other cause beyond the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Lessee, at Lessee's expense, shall keep in good order, condition
and repair the Premises and every part thereof (whether or not the damaged
portion of the Premises or the means of repairing the same are reasonably
or readily accessible to Lessee) including, without limiting the generality
of the foregoing, all plumbing, heating, ventilating and air conditioning
systems (Lessee shall procure and maintain, at Lessee's expense, a
ventilating and air conditioning system maintenance contract), electrical
and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.1 or 7.2 or under any other paragraph of this Lease, Lessor may
enter upon the Premises after ten (10) days prior written notice to Lessee
(except in the case of emergency, in which no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good
order, condition and repair, and the cost thereof together with interest
thereon at the maximum rate then allowable by law shall be due and payable
as additional rent to Lessor together with Lessee's next Base Rent
installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear
and tear if the same could have been prevented by good maintenance
practices. Lessee shall repair any damage to the Premises occasioned by
the installation or removal of Lessee's trade fixtures, alterations,
furnishings and equipment. Notwithstanding anything to the contrary
otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing and fencing on the Premises in good operating
condition.
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7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, or about
the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs,
during the term of this Lease. In any event, whether or not in excess of
$2,500 in cumulative cost, Lessee shall make no change or alteration to the
exterior of the Premises nor the exterior of the Building nor the
Industrial Center without Lessor's prior written consent. As used in this
paragraph 7.3 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 and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and material man's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire
to make and which requires the consent of the Lessor shall be presented to
Lessor in written form, with proposed detailed plans. If Lessor shall give
its consent, the consent shall be deemed conditioned upon Lessee acquiring
a permit to do so from appropriate governmental agencies, the furnishing of
a copy thereof to Lessor prior to the commencement of the work and the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) 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 the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days
notice prior to the commencement of any work in the Premises, and Lessor
shall have the right to pose notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good
faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at it 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
or the Industrial Center, 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 and the Industrial
Center free from the effect of such
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lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys fees and costs in participating in such action if Lessor shall
decide it is to Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall be the property of Lessor
and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term. Unless Lessor requires their removal
pursuant to paragraph 7.3(a). Notwithstanding the provisions of this
paragraph 7.3(d), 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, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, including, but not by way of limitation, such
utilities as plumbing, electrical systems, security systems, communication
systems, and fire protection and detection systems, so long as such
installations do not unreasonably interfere with Lessee's use of the Premises.
8. Insurance; Indemnity.
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8.1 Liability Insurance -- Lessee. Lessee shall, at Lessee'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 Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount
not less than $500,000.00 per occurrence. The policy shall insure performance
by Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 Property Insurance. Lessee shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center improvements including Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk" as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition, in
the event that the Premises shall suffer an insured loss as defined in paragraph
9.1(g) hereof, the deductible amounts under the casualty insurance policies
relating to the Premises shall be paid by Lessee.
8.3 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide."
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Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the commencement date of this Lease. No such policy shall be cancelable
or subject to reduction of coverage or other modifications except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewals or
"binders" thereof.
8.4 Waiver of Subrogation. Lessee and lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and lessor shall, upon obtaining the policies of insurance required give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.5 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense, Lessee, as a
material part of the consideration to lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause and lessee hereby waives all claims in respect
thereof against Lessor.
8.6 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center.
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9. Damage or Destruction.
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9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Promises are
damaged or destroyed to the extent that the cost of repair is fifty percent
or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) Insured Loss" shall mean damage or destruction which was covered
by an event required to be covered by the insurance described in paragraph
8. The fact that an Insured Loss has a deductible amount shall not make
the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all
improvements made by lessees.
9.2 Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5. If at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of other Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's
fixtures, equipment or tenant improvements as reasonably possible and this
Lease shall continue in full force and effect.
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(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.6, if at any time during the form of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from using the
Premises, Lessor may at Lessor's option either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease as of the
date of the occurrence of such damage. In the event Lessor elects to give
such notice of Lessor's intention to cancel and terminate this Lease,
Lessee shall have the right within ten (10)days after the receipt of such
notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement form Lessor, in
which event this Lease shall continue in full force and effect, and Lessee
shall proceed to make such repairs as soon as reasonably possible if Lessee
does not give notice within such 10-day period this Lease shall be canceled
and terminated as of the date of the occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which fails into the classifications of either (i)
Premises Total Destruction, or (ii) Premises Building Total Destruction, or
(iii) Industrial Center Buildings Total Destruction, then Lessor may at
Lessor's option either (i) repair such damage or destruction, but not
Lessee's fixtures, equipment or tenant improvements, as soon as reasonably
possible at Lessor's expense, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of occurrence of such damage of Lessor's intention to cancel
and terminate this Lease, in which case this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.4 Damage near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or
not an Insured Loss, which falls within the classification of Premises
Partial Damage, Lessor may at Lessor's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice
to Lessee of Lessor's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend of renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if
it is to be exercised at all, no later than
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twenty (20) days after the occurrence of an Insured Loss falling within the
classification of Premises Partial Damage during the last six months of the
term of this Lease, if Lessee duly exercises such option during said twenty
(20) day period. Lessor shall, at Lessor's expense repair such damage, but
not Lessee' fixtures, equipment or tenant improvements, as soon as
reasonably possible and this Lease shall continue in full force and effect,
if Lessee fails to exercise such option during said twenty 920) day period,
then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to
Lessee of lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the
period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair
or restoration within ninety (90) days after such obligation shall accrue.
Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to
the commencement of such repair or restoration. In such event this Lease
shall terminate as of the date of such notice.
9.6 Termination -- Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
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10.1 Payment of Taxes. Lessee shall pay the real property tax, as defined
in paragraph 10.3 applicable to the Industrial Center.
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10.2 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, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Industrial Center or any portion
thereof by any authority having the direct or indirect power to tax, including
any city, county, 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 Industrial Center or in
any portion thereof, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Industrial Center.
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," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased before June 1, 1978, or (iv) which is imposed as a result of a
transfer, either partial or total, of Lessor's interest in the Industrial Center
or which is added to a tax or charge hereinbefore included within the definition
of real property tax by reason of such transfer, or (v) which is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof.
10.3 Personal Property Taxes.
(a) 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 in 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 of Lessor.
(b) I any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to 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.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
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telephone and other utilities and services supplied to the Premises, together
with any taxes thereon.
12. Assignment and Subletting.
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12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
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12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions of Assignment. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or after
the primary liability of Lessee to pay the Base Rent and to perform all other
obligations to be performed by Lessee hereunder, Lessor may accept rent from any
person other than Lessee pending approval or disapproval of such assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of rent shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the breach of any of the terms or conditions of this
paragraph 12 of this Lese. Consent to one assignment shall not be deemed
consent to any subsequent assignment. In the event of default by any assignee
of Lessee or any successor of Lessee, in the performance of any of the terms
hereof. Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee, or any successor of Lessee, and
without obtaining its or their consent thereto and such action shall not relieve
Lessee of liability under this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessor hereby assigns and transfers to lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any
failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become
due under the sublease. Lessee agrees that such sublessee shall have the
right to rely upon any such statement and request from Lessor, and that
such sublessee shall pay such rents to Lessor without any obligation or
right to inquire as to whether such default exists and
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notwithstanding any notice from or claim from Lessee to the contrary,
Lessee shall have no right or claim against such sublessee or Lessor for
any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with
each and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in
a sublease to which Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto shall not be
effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under the Lease.
(e) The consent by lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of subletting, any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or
sublease and without obtaining their consent and such actions shall not
relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at it option and without any
obligation to do so, may require any subleases to attorn to Lessor in which
event Lessor shall undertake the obligations of Lessee under such sublease
from the time of the exercise of said option to the termination of such
sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to Lessee or for any other
prior defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
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(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default except as may
be otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented
Lessor agrees to deliver a copy of any notice of default by lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee and the sublessee shall have a right of reimbursement and offset
from and against lessee for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Default Remedies.
----------------
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) 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 where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with
a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) Except as otherwise provided in this Lease, 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
paragraph (b) above, where such failure shall continue for a period of
thirty (30) days after written notice thereof from Lessor to Lessee;
provided, however that the nature of Lessee's noncompliance is such that
more than thirty (3) days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure
to completion. To the extent permitted by law, such tared (30) day
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<PAGE>
notice shall constitute the sole and exclusive notice required to be given
to Lessee under applicable Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises
or of Lessee's interest in this Lease where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of
this paragraph 13.1(d) is contrary to any applicable law such provision
shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor
in such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including but not limited
to, the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorney's fees, and any real estate commission actually paid;
the worth at the time of award by the court having jurisdiction thereof of
the amount by which the unpaid rent for the balance of the term after the
time of such award exceeds the amount of such rental loss for the same
period that Lessee proves could be reasonably avoided, that portion of the
leasing commission paid by Lessor pursuant to paragraph 15 applicable to
the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not lessee shall have vacated or
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.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date
due at the maximum rate then allowable by law.
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<PAGE>
13.3 Default by Lender. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessor to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligence prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by the
Lessee to Lessor of Base Rent or other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Property.
Accordingly, if any installment of Base Rent or any other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due then without any requirement for notice to Lessee.
Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder whether or not collected for three (3)
consecutive installments of any of the aforesaid monetary obligations of Lessee
then Base Rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding paragraph 4.1 or any other provision of
this Lease to the contrary.
14. Condemnation. If the Premises or any portion thereof or the industrial
------------
Center are taken under the owner 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 of the floor area of the Premises of more than twenty-five percent of
that portion of the Common Areas designated as parking for the industrial Center
is taken by condemnation. Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have 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 premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. 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,
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<PAGE>
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 his
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Estoppel Certificate.
--------------------
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a
statement in writing (i) certifying that this Lease is unmodified and in
full force and affect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid
in advance. In any, and (ii) acknowledging that there are not to the
responding party's knowledge, any uncured defaults on the part of the
requesting party, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force
and effect, without modification except as may be represented by the
requesting party, (ii) there are no uncured defaults in the requesting
party's performance, and (iii) if Lessor is the requesting party, not more
than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
16. Lessor's Liability. The term "Lessor" as used herein shall mean only the
------------------
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
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17. Severability. The invalidity of any provision of this Lease as determined
------------
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
18. Interest on Past-due Obligations. Except as expressly herein provided, any
--------------------------------
amount due to Lessor not paid when due bear interest at the maximum rate then
allowable by law from the date due. Payment of such interest shall not excuse or
cure any default by lessee under this Lease; provided, however, that interest
shall not be payable on late charges incurred by Lessee nor on any amounts upon
which late charges are paid by Lessee.
19. Time of Essence. Time is of the essence with respect to the obligations to
---------------
be performed under this Lease.
20. Additional Rent. All monetary obligations of Lessee to Lessor under the
---------------
terms of this Lease including but not limited to, Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
21. Incorporation of Prior Agreements; Amendments. This Lease contains all
---------------------------------------------
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease
22. Notices. Any notice required or permitted to be given hereunder shall be
-------
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may be notice to the other specific a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
23. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
-------
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provisions, Lessor's consent to or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
24. Recording. Either Lessor or Lessee shall upon request of the other,
---------
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
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25. Holding Over. If Lessee, with Lessor's consent, remains in possession of
------------
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, out all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
26. Cumulative Remedies. No remedy or election hereunder shall be deemed
-------------------
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. Covenants and Conditions. Each provision of this Lease performable by
------------------------
Lessee shall be deemed both a covenant and a condition.
28. Binding Effect Choices of Law. Subject to any provisions hereof
-----------------------------
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
29. Subordination.
-------------
(a) This Lease and any Option granted hereby at Lessor's option shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial
Center and to any and all advances made on the Security thereto and to all
renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such Subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in
default and so long as Lessee shall pay the rent and observe and perform
all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms, if any mortgagee, trustee or ground
lessor shall elect to have this Lease and any Options granted hereby prior
to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such mortgage, deed of trust or ground lese, whether this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten
(10) days after written demand shall constitute a material default by
Lessee hereunder without further notice to Lessee or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee hereby make constitute and irrevocably appoint
Lessor at Lessee's attorney-in-fact and in Lessee's name, place and stead,
to execute such documents in accordance with this paragraph 30(b).
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30. Attorney's Fees. If either party or the broker(s) named herein bring an
---------------
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
31. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
---------------
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
32. Auctions. Lessee shall not conduct, nor permit to be conducted, either
--------
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease. Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
33. Signs. Lessee shall not place any sign upon the Premises of the Industrial
-----
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
34. Merger. The voluntary or other surrender of this Lease by Lessee, or a
------
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
35. Consents. Except for paragraph 33 hereof, wherever in this Lease the
--------
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
36. Guarantor. In the event that there is a guarantor of this Lease, said
---------
guarantor shall have the same obligations as Lessee under this Lease.
37. Quiet Possession. Upon Lessee paying the rent for the Premises and
----------------
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.
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38. Security Measures. Lessee hereby acknowledges that Lessor shall have no
-----------------
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, Lessor's sole option,
from providing security protection for the Industrial Center or any part thereof
as set forth in paragraph 4.2(b).
39. Easements. Lessor reserves to itself the right, from time to time, to
---------
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material default of this Lease by Lessee without the
need for further notice to Lessor.
40. Performance Under Protest. If at any time a dispute shall arise as to any
-------------------------
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged in at there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
41. Authority. If Lessee is a corporation, trust, or general or limited
---------
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lease corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this Lease
deliver to Lessor evidence of such authority satisfactory to Lessor.
42. Conflict. Any conflict between the printed provisions of this Lease and
--------
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
43. Offer. Preparation of this Lese by lessor or Lessor's agent and submission
-----
of same to Lessee shall not be deemed an offer to lease. This Lease shall
become binding upon Lessor and lessee only when fully executed by lessor and
lessee.
44. Addendum. Attached hereto is an addendum or addenda containing paragraphs
--------
________ through __________ when constitute a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LESE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED THE TERMS OF THIS
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LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF
LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
RSH PROPERTIES, L.L.C., a Georgia
limited liability company KING MAILING SERVICES, INC.
By: /s/ Joseph Segal (SEAL) By: /s/ Cary Rosenthal
----------------------------- -------------------
Member Title: /s/Chairman of the Board
-------------------------
Executed on October 17, 1994 Executed on October 17, 1994
ADDRESS FOR NOTICES AND RENT ADDRESS FOR NOTICES
c/o Phoenix Communications, Inc. c/o Phoenix Communications, Inc.
5664 New Peachtree Road 5664 New Peachtree Road
Atlanta, Georgia 30341 Atlanta, Georgia 30341
For these forms write the American Industrial Real Estate Association, 350 South
Fiqueroa St., Suite 275, Los Angeles, CA 90071 (213) 887-8777
22
<PAGE>
FIRST AMENDMENT TO STANDARD INDUSTRIAL LEASE
THIS FIRST AMENDMENT TO STANDARD INDUSTRIAL LEASE (the "Amendment") is made
and entered into as of the 1st day of July, 1996, by and between RSH PROPERTIES,
L.L.C., a Georgia limited liability company (the "Lessor") and KING MAILING
SERVICES, INC., a Georgia corporation (the "Lessee").
WITNESSETH:
THAT, WHEREAS, Lessor and Lessee entered into a certain Standard industrial
Lease (the "Lease") dated October 17, 1994; and
WHEREAS, Lessor and Lessee desire to amend certain terms and provision of
the Lease, as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) in hand paid by each party hereto to the other party hereto,
the parties hereto, intending to be legally bound, do hereby agree as follows:
45. Paragraph 4.1 of the Lease is hereby amended by deleting the words and
numbers "October 31, 1996; and $3,033.33 for the period of November 1,
1996 through October 31, 1997" and by inserting in lieu thereof the
words and numbers "June 30, 1996; $3,316.67 for the period July 1, 1996
through October 31, 1996; and $3,533.33 for the period November 1, 1996
through October 31, 1997".
46. This Amendment shall be governed by and construed in accordance with
the laws of the State of Georgia.
47. Except as herein specifically amended, all terms and provisions of the
Lease shall remain in full force and effect and unamended.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed, sealed and delivered as of the day and year first above written.
<PAGE>
LESSOR:
RSH PROPERTIES, L.L.C., a Georgia limited
liability company
By: /s/ Joseph Segal (SEAL)
--------------------------
Member
LESSEE:
KING MAILING SERVICES, INC., a Georgia
corporation
By: /s/Cary Rosenthal
---------------------------
Title: Chairman
-----------------------
<PAGE>
SECOND AMENDMENT TO STANDARD INDUSTRIAL LEASE
THIS SECOND AMENDMENT TO STANDARD INDUSTRIAL LEASE (the "Amendment") is
made and entered into as of the 1st day of July, 1997, by and between RSH
PROPERTIES, L.L.C., a Georgia limited liability company (the "Lessor") and KING
MAILING SERVICES, INC., a Georgia corporation (the "Lessee").
WITNESSETH:
THAT, WHEREAS, Lessor and Lessee entered into a certain Standard industrial
Lease dated October 17, 1994, which Standard Industrial Lease was amended by
that certain First Amendment to Standard Industrial Lease between Lessor and
Lessee, dated as of July 1, 1996 (the Standard Industrial Lease, amended by the
First Amendment to Standard Industrial Lease, is hereinafter referred to as the
"Lease"); and
WHEREAS, Lessor and Lessee desire to provide for a five (5) year extension
of the Term of the Lease as hereinafter set forth;
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) in hand paid by each party hereto to the other party hereto,
the parties hereto, intending to be legally bound, do hereby agree as follows:
48. All capitalized words and phrases used in this Amendment shall have the
meanings ascribed to them in the Lease, unless specified herein to the
contrary.
49. The Lease is hereby amended to provide a five (5) year extension of the
Term, which five (5) year extension commences on November 1, 1997 and
continues through October 31, 2002. All terms and provisions of the
Lease during the five (5) year extension shall remain in full force and
effect except that the monthly amount of Base Rent for the Premises
under the Lease shall be as follows:
$3,674.66 for the period November 1, 1997 through October 31, 1998;
$3,821.65 for the period November 1, 1998 through October 31, 1999;
$3,974.52 for the period November 1, 1999 through October 31, 2000;
$4,133.50 for the period November 1, 2000 through October 31, 2001; and
$4,298.84 for the period November 1, 2001 through October 31, 2002;
50. This Amendment shall be governed by and construed in accordance with
the laws of the State of Georgia. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
<PAGE>
51. Except as herein specifically amended, all terms and provisions of the
Lease shall remain in full force and effect and unamended.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed, sealed and delivered as of the day and year first above written.
LESSOR:
RSH PROPERTIES, L.L.C., a Georgia limited
liability company
By: /s/ Joseph Segal (SEAL)
-------------------------------
Member
LESSEE:
KING MAILING SERVICES, INC., a Georgia
corporation
By: Cary Rosenthal
----------------------------------
Title: Chairman
-------------------------------
2
<PAGE>
EXHIBIT 10.41
COMMERCIAL LEASE AGREEMENT
--------------------------
THIS COMMERCIAL LEASE AGREEMENT ("Lease") is made and entered into as of
December 16, 1997, by and between Wendell H. Burns ("Lessor"), and Premier
Graphics, Inc., a Tennessee corporation
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 December 16, 1997, and
expiring on December December 5, 2007 (the "Original Term"), that certain real
property with a municipal address of 1907 Crutchfield Street, Chattanooga,
Tennessee and that certain real property with a municipal address of 2205 Dodson
Avenue, Chattanooga, Tennessee, both of which are more particularly described in
Exhibit A hereto (the "Premises").
2. Basic Rent. Lessee shall pay Lessor, at the address of Lessor
----------
indicated herein, the sum of One Hundred Thirty-Three Thousand Two Hundred and
No/lOOths Dollars ($133,200.00) per year as rent for the Premises (the "Basic
Rent"). The Basic Rent shall be paid to Lessor in monthly installments of Eleven
Thousand One Hundred and No/lOOths Dollars per month ($11,100.00), 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 Original Term does not commence on the
first day of a calendar month, Lessee will pay in advance, on the first day of
the Original Term, a pro rata part of the regular monthly rent installment,
based on the number of days of the Original Term occurring within the calendar
month in which the Original Term commences; and the rent installment due on the
first day of the last calendar month occurring during the Original 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 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 he 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, including,
without limitation, the roof and appurtenances thereof,
<PAGE>
together with any and all alterations, additions, and improvements therein or
thereto, in good order and condition, suffering no waste or injury, and shall,
at Lessee's sole expense, promptly make all needed repairs and replacements, in
and to any building or structure or equipment now or hereafter erected upon the
Premises, including vaults, sidewalks, water, sewer and gas connections, pipes
and mains, and all other fixtures, machinery and equipment now or hereafter
belonging to or connected with the Premises or used in their operation. All
such repairs and replacements shall be of first class quality sufficient for the
proper maintenance and operation of the Premises. If any item of repair or
replacement will cost more than Ten thousand Dollars ($10,000), then Lessee
shall first submit plans and specifications therefor to Lessor for Lessor's
approval, and Lessor shall not unreasonably withhold such approval. 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, replacements 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 structural repairs to the Premises.
(b) 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
3.1. 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 and expenses of planting, replanting and replacing flowers, landscaping,
paving and striping; water and sewerage charges; premiums for liability and
property damage; fees for required licenses and permits.
(c) 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
-----------------------
-2-
<PAGE>
(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.
(d) 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.
(e) Utilities. Lessee shall pay for all water, gas, heat, light,
---------
power, telephone and other utilities and services supplied to the Premises.
(f) 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
Tennessee for use by insurance companies admitted in Tennessee 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.
-3-
<PAGE>
(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 in such amounts as
reasonably requested by 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
-------------------------
manufacturing, 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
-4-
<PAGE>
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.
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.
-5-
<PAGE>
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 one hundred eighty (180) 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 one hundred eighty (180) days, the Lessor covenants and
agrees to make such repairs within one hundred eighty (180) 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 fifteen (15) 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
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
-6-
<PAGE>
by reason of Lessee's default including, but not limited to, the amount by which
the unpaid rent for the balance of the Original Term (or Renewal Term, as the
case may be) 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 Original 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 Original 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, 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. Lessor's Responsibility as to Encroachments Shown by Surveys. It has
------------------------------------------------------------
come to the attention of Lessor and Lessee that certain of the parking areas
appurtenant to the Premises encroach upon the road right-of-way adjacent to the
Premises, all as shown on the plats of surveys dated December 12,
-7-
<PAGE>
1997 by David Barnes (collectively, the "Encroachments"). Accordingly, Lessor
agrees that if any municipal, county or like governmental authority or body
requires that the Encroachments be relocated or removed, Lessor will use its
best efforts to provide replacement parking spaces on the Premises; in no event
shall the number of such parking spaces be less than that required under
applicable subdivision and/or zoning ordinances.
19. 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.
20. 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:
(i) If to Lessor:
Wendell H. Burns
1907 Crutchfield Street
Chattanooga, Tennessee 37406
-8-
<PAGE>
(ii) If to Lessee:
Premier Graphics, Inc.
2500 Lamar Avenue
Memphis, Tennessee 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 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.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR
By: /s/ Wendell Burns
----------------------------------------
Wendell H. Burns
LESSEE:
PREMIER GRAPHICS, INC.
By: /s/ Lance T. Fair
-----------------
Its: Secretary
----------
-10-
<PAGE>
EXHIBIT 10.42
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
<PAGE>
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 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
2
<PAGE>
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
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
3
<PAGE>
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.
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.
4
<PAGE>
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.
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
5
<PAGE>
(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
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.
6
<PAGE>
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
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.
7
<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. 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
8
<PAGE>
(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 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
9
<PAGE>
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
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/John P. Miller
-----------------
Its: President
11
<PAGE>
EXHIBIT 10.43
STANDARD LEASE AGREEMENT
LANDLORD:
THIS AGREEMENT ("Lease"), dated the 14 day of October, 1997, between FL
Building Corp.(hereinafter called "Landlord"),and Hederman Brothers (hereinafter
called "Tenant").
W I T N E S S E T H:
That each of the aforesaid parties acknowledges receipt of a valuable
consideration from the other and they and each of them act herein in further
consideration of the covenants of the other as herein stated.
Landlord and Tenant agree as follows:
ARTICLE I
1.1 Premises. That Landlord does hereby grant, demise and
--------
lease unto Tenant the premises or space in the Lyon Building (hereinafter
referred to as "Building"), 401 W. Capitol, Little Rock, Pulaski County,
Arkansas, as outlined in red on the floor plan attached hereto (hereinafter
referred to as "Exhibit "A"), presently expected to be on the 5th floor(s) of
the Building, consisting in the aggregate of 869 square feet of net rentable
area (hereinafter referred to as "Premises").
The term "net rentable area," as used herein, shall refer to (i) in the
case of a single tenancy floor, all floor area measured from the plan set by the
inside surface of the outer glass of the Building to the inside surface of the
opposite outer wall, excluding only the areas ("service areas") within the
outside walls used for elevators, mechanical rooms, janitor rooms, building
stairs, tire towers, elevator shafts, flues, vents, stacks, pipe shafts and
vertical ducts but including any such areas which are for the specific use of
the particular tenant such as special stairs or elevators, and (iii) in the case
of a partial floor, all floor areas within the plane set by the inside surface
of the outer glass or wall enclosing the tenant occupied portion of the floor
and measured to the mid-point of the walls separating areas leased by or held
for lease to other tenants or from areas devoted to corridors, foyers,
restrooms, for the use of al tenants on the particular floor (hereinafter
sometimes called "common areas"), but including a proportionate part of the
common areas located on such floor based upon the ratio which the tenant's net
rentable area on such floor bears to the aggregate net rentable area on such
floor. No deductions from net rentable area are made for columns or projections
necessary to the Building. The net rentable area in the Premises has been
calculated on the basis of the foregoing definitions and is hereby stipulated
for all purposes hereof to be the aggregate amount of square feet hereinabove
stated, whether the same should be more or less as a result of minor variations
resulting from actual construction and completion of the Premises for occupancy
so long as such work is done in accordance with the terms and provisions hereof.
<PAGE>
1.2 Use of Premises. The Premises are to be used and located
---------------
continuously throughout the term hereof for the business of general business
exclusively, and for no other purpose whatever.
1.3 Term of Lease. The Premises are hereby demised unto Tenant for a
-------------
period of one year, commencing on the date on which the Premises are ready for
occupancy by Tenant as certified to Tenant in writing by or upon written notice
to Tenant by Landlord ("Commencement Date"). In this connection, the parties may
agree to execute a subsequent agreement setting forth the specific Commencing
Date and expiration date of the Lease, commencing November 1, 1997 and expiring
October 31, 1998.
1.4 Rental. (a) Tenant shall pay to landlord as rent for the Premises
------
during the term of this Lease a monthly installment, payable in advance on the
first day of every month without notice, demand, offset or deduction, and such
rental beginning with the commencement of the term; provided, however, that in
the event the term shall commence pursuant to Section 1.3 hereof on a date other
than the first day of a month then the monthly installments for the first month
of the term and the last month of the term shall be prorated accordingly and
such prorated installment for the first month of the term shall be payable with
and in addition to the monthly installment due on the first day of the first
full month following commencement of the term (the date the first monthly
installment of rent is due, whether the term shall have commenced on a date
other than the first day of a month or not, is hereinafter referred to as the
"Initial Rent Payment Date." If rent has not been paid by the 10th of the month
in which it is due, 10% of the monthly payment will be assessed as a late
charge. The amount of each such installment shall be equal to the following:
(i) For the period commencing on the first day of the
term and ending one year subsequent to the initial Rent Payment Date
("Initial Rent Period") the amount of each monthly installment
("Initial Monthly Rent") shall be equal to one-twelfth (1/12) of the
total number of square feet of net rentable area contained in the
Premises leased to Tenant multiplied times ________ per each such
square foot (in the amount of Seven hundred seventeen ($717) Dollars
(per month).
(ii) For the year commencing on the first day immediately
following the expiration of the Initial Rent Period ("Second Year") the
amount of each monthly installment shall be equal to the Initial
Monthly Rent multiplied times ___________;
(iii) For all other years subsequent to the Second Year until the
expiration of the term the amount of each monthly installment shall be
equal to the amount of the monthly installment payable during the
immediately preceding year multiplied times ___________;
(iv) Whenever, by the terms of the Lease, Tenant is required to
make payments or furnish items at the expense of Tenant, all such
additional items required to be paid by Tenant are to be considered as
additional rent and Landlord is to have the same rights and remedies
upon the nonpayment of such as Landlord has for the nonpayment of the
rent provided in this Section 1.4.
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1.5 Security. Landlord acknowledges receipt of Tenant's check in the
--------
amount of ($-0-) to be held as security for the performance of Tenant's
covenants herein contained. Upon default by Tenant in making any payment or
performing any obligation herein provided, Landlord shall have the right but not
the obligation to apply said deposit toward payment of any arrearages of rent or
other payments required of Tenant hereunder, or toward payment of any other
damages, injury, cost or expense incurred by Landlord and caused by Tenant. If
all or any part of the deposit shall be so applied by Landlord, then within ten
(10) days after Landlord shall make demand upon Tenant for a replacement deposit
equal in amount to the deposit so applied, which shall be delivered to Landlord
by Tenant. Upon any transfer by Landlord of its interest in the Premises or this
Lease, Landlord shall have the right without consent of Tenant to assign the
deposit to the transferee who shall assume all liability or obligations to
tenant in regard thereto, and Landlord shall thereupon be released and
discharged of all such liability or obligations. The provisions of this
Subsection 1.5 shall not be construed as liquidated damages, and shall not
operate in any manner to reduce or release the obligations of Tenant hereunder,
except insofar as the application of this money may reduce or satisfy an
obligation to make payment of money. If Tenant is not in default hereunder, any
remaining balance of such deposit shall be returned by Landlord to Tenant
without interest within thirty (30) days after termination of this Lease.
1.6 Substitution Space; Lease Subject to Options. (a) Landlord
--------------------------------------------
shall have the right at any time from the date hereof through the end of the
term of this Lease or any renewal or extension hereof to substitute, in place of
the original Premises, other space in the Building.
(b) If Landlord desires to exercise such right, it shall give Tenant
at least sixty (60) days prior notice thereof specifying the effective date of
such substitution ("Effective Date"), whereupon, on such Effective Date: (1) the
description of the original Premises set forth in this Lease shall, without
further act on the part of Landlord or Tenant, be deemed amended so that the
Substitution Space shall, for all intents and purposes, be deemed the Premises
hereunder, and all of the terms, covenants, conditions, provisions and
agreements of this Lease shall continue in full force and effect and shall apply
to the Substitution Space except that (a) if the then unexpired balance of the
term of this Lease shall be less than one year, the term of this Lease shall be
extended so that the unexpired balance of the term of this Lease shall be for
one year from such Effective Date, and (b) if the Substitution Space contains
more square footage than the original Premises, the rental set out in Section
1.4 above shall be increased proportionately (provided that such rental increase
shall not be in excess of five percent of the rental immediately preceding such
increase); and (2) Tenant shall move from the original Premises into the
Substitution Space and shall vacate and surrender possession to Landlord of the
original Premises and if Tenant continues to occupy the original Premises after
such effective date, then thereafter, during the period of such occupancy,
Tenant shall pay rent for the original Premises at the rate set forth in this
Lease, in addition to the rent for the Substitution Space at the above-described
rate.
(c) Tenant shall have the option either to accept possession of the
Substitution Space in its "as is" condition as the Effective Date or to require
Landlord to alter the Substitution Space in the same manner as the original
Premises were altered or were to be altered. Such option shall be
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<PAGE>
exercised by notice from Tenant to Landlord within ten (10) days after the
aforesaid notice from Landlord to Tenant of such proposed relocation. If Tenant
fails to deliver to Landlord notice of its election within the ten (10) day
period, or if Tenant is in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Tenant shall be deemed to
have elected to accept possession of the Substitution Space in its "as is"
condition. If Tenant elects to require Landlord to alter the Substitution Space,
then (1) notwithstanding the preceding subparagraph (b) regarding the terms of
this Lease, if such then unexpired balance of the term of this Lease is less
than two (2) years, the term of this Lease, without further act on the part of
Landlord or Tenant, shall be deemed extended so that the then unexpired balance
of the term of this Lease shall be two (2) years from such Effective Date, (2)
Tenant shall continue to occupy the original Premises (upon all of the terms,
covenants, conditions, provisions, and agreements of this Lease, including the
covenant for the payment of rent) until the date on which Landlord shall have
substantially completed such alteration work in the Substitution Space. (3)
Tenant shall move from the original Premises into the Substitution Space
immediately upon the date of such substantial completion by Landlord and shall
vacate and surrender possession to Landlord of the original Premises on such
date and if Tenant continues to occupy the original Premises after such date,
then thereafter, during the period of such occupancy, Tenant shall pay rent for
the original Premises at the rate set forth in this Lease, in addition to the
rent for the Substitution Space at the above-described rate. With respect to
such alteration work in the Substitution Space, if Tenant shall make changes in
the work and if such changes shall delay the work to be performed by Landlord,
or if Tenant shall otherwise delay the substantial completion of Landlord's
work, the happening of such delays shall in no event postpone the date for the
commencement of the payment of rent for such Substitution Space beyond the date
on which such work would have been substantially completed but for such delay
and, in addition, Tenant shall continue to pay rent for the original Premises at
the rate set forth in this Lease until Tenant vacates and surrenders same as
aforesaid. Landlord at its discretion may substitute materials of like quality
for the materials originally utilized.
(d) If Landlord exercises its relocation right, Landlord shall
reimburse Tenant for Tenant's reasonable out-of-pocket expenses for moving
Tenant's furniture, equipment, supplies and telephones and telephone equipment
from the original Premises to the Substitution Space and for reprinting Tenant's
stationery of the same quality and quantity of Tenant's stationery supply on
hand immediately prior to Landlord's notice to Tenant of the exercise of this
relocation right. If the Substitution Space contains more square footage than
the original Premises and if the original Premises were carpeted, Landlord shall
supply and install an equal amount of carpeting of the same or equivalent
quality and color.
(e) It is further specifically understood and agreed that this Lease
and the right of Tenant to occupancy of the Premises is subject and subordinate
to any right that any other tenant of Landlord may have to exercise options to
lease additional space in the Building ("Option Space"). In the event that any
such option shall be exercised and the Option Space shall constitute all or any
part of the Premises, notwithstanding the availability of other space in the
building which may be used as Substitution Space, Landlord shall have the option
in its sole discretion to either terminate this Lease or to provide Tenant with
Substitution Space; provided that Landlord shall in either event
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<PAGE>
notify Tenant in writing of its decision within thirty (30) days after Landlord
shall have been notified of the exercise of an option for Option Space by the
other Tenant exercising the same. If Landlord shall elect to terminate this
Lease then without further act the Lease shall terminate as to the entire
Premises sixty (60) days after the receipt by Tenant of the aforesaid written
notice from Landlord, with rent to be pro-rated accordingly if the sixtieth
(60th) day should be a day other than the last day of a month, and Tenant agrees
to vacate the Premises at its own expense by the end of said sixty (60) day
period. If Landlord shall elect to provide Tenant with Substitution Space, then
Landlord shall do so in accordance with and pursuant to the terms and conditions
of Subsections (a) through (d) of this Section 1.6 above.
1.7 Taxes, Special Assessments, License, Etc. Tenant shall pay prior
----------------------------------------
to delinquency at any time during the term of the Lease that they may be
imposed, levied or assessed: (a) all ad valorem real and personal property taxes
and special assessments against the Premises or any personal property thereon
resulting from any improvements or alterations to the above-described use of the
Premises by Tenant which are in excess of the amount of such prior to the
beginning of the Lease term, (b) all license, franchise and permit fees or
taxes.
Promptly after demand therefor, Tenant shall furnish to Landlord
satisfactory proof of payment of any or all items stated herein which are
payable by Tenant.
ARTICLE II
2.1 Finish by Landlord (Building Standards). Landlord shall complete
construction of the Premises in accordance with plans approved by Tenant but
only to the extent described in "Exhibit B" attached hereto and incorporated
herein by reference ("Shell Space Work"). In no event shall Landlord be
obligated to complete or otherwise provide any of the tenant finish work for the
Premises also described in said "Exhibit B" ("Finish Work") beyond the Shell
Space Work. Tenant shall have the right to choose the contractor to perform all
Finish Work; provided, however, that Landlord shall have approved the contractor
in writing, which approval shall not be unreasonably withheld. The contractor
shall have provided a performance bond satisfactory to Landlord as to amount,
form and substance as shall be satisfactory to Landlord and naming both Tenant
and Landlord as additional insureds, and containing a standard mortgagee
endorsement in favor of any mortgagee of Landlord, as their interests may
appear. All plans, drawings and specifications for the Finish Work shall be
approved in writing by Landlord prior to the commencement of the Finish Work;
provided, however, that any denial of such approval must be made in writing by
Landlord within fifteen (15) days following the submission to Landlord of all
such plans, drawings and specifications or else such approval shall be deemed to
have been given. Tenant shall receive from Landlord an allowance for the Finish
Work in the total amount of $_____________ (calculated by multiplying _______
square feet of net usable area in the Premises times $_________ per each such
square foot). For the purposes of this Section 2.1 the term "net usable are"
shall have the same meaning as the term "net rentable area" defined in Section
1.1. above, except that it shall not include any bathrooms or elevator lobby
areas. Landlord shall make disbursements of the allowance directly to Tenant's
contractor at the same time and toward payment of the progress payments due the
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<PAGE>
contractor from Tenant. The maximum amount of each such disbursement shall be
equal to the total amount of the Finish Work allowance multiplied times a
fraction, the numerator of which is the amount of the progress payment then due
the contractor and the denominator of which is the total amount of the
construction contract price for the Finish Work; provided, however, that in no
event shall the amount of any such disbursement exceed the amount of the
progress payment then due.
2.2 Services to be Furnished by Landlord. Landlord shall furnish
------------------------------------
Tenant while occupying the Premises the following services on all days except as
otherwise stated:
(a) Water, including cold water from mains for humidification,
break rooms, drinking, lavatory and toilet purposes drawn through
fixtures installed by Landlord, or by Tenant with Landlord's written
consent, and not water for lavatory and break room purposes from the
regular Building supply at the prevailing temperature. Tenant shall pay
Landlord at rates fixed by Landlord, which such rates shall be
reasonable, and shall not exceed the rates charged by a similar class
of office buildings in Little Rock for water furnished for any other
purposes. Tenant shall not waste or permit the waste of water. If
Tenant fails to promptly pay Landlord's proper charge for water,
Landlord, upon not less than ten days' notice, may discontinue
furnishing that service and no such discontinuance shall be deemed an
eviction or disturbance of Tenant's use of the Premises or render
Landlord liable for damages or relieve Tenant from any obligation.
(b) Heating and air condition (cooling), when necessary in
Landlord's judgment for normal comfort (75 (degrees), 65 (degrees) F)
in the Premises from 7:00 a.m. to 6:00 p.m., Monday through Friday and
on Saturdays which are not holidays from 8:00 a.m. to 1:00 p.m.
Landlord shall furnish Tenant with heating and air conditioning
(cooling) when necessary for normal comfort in the Premises at times
other than set forth in the immediately preceding sentence pursuant to
the terms and conditions of the Building rules and regulations.
Wherever heat generating machines or equipment are used in the Premises
which affect the temperature otherwise maintained by the air
conditioning system. Landlord reserves the right to install
supplementary air conditioning units in the Premises and the cost of
installation, operation and maintenance thereof shall be paid by Tenant
to Landlord at reasonable rates.
(c) Electrical current for standard Building lighting fixtures
provided by Landlord and electrical outlets fro office equipment for
ordinary purposes connected with the aforesaid use of the Premises. It
is understood that services furnished under Section 2.2(b) and 2.2(c)
are Building standards, and all other electrical consumption by Tenant
in the Premises including consumption for lighting fixtures, office
equipment, air conditioning or heating beyond normal Building standards
or Building hours shall be paid for by Tenant to Landlord at a rate
fixed by Landlord which shall be at least equal to the rate charged to
Landlord by the utility company providing the electricity.
(d) Nightly housekeeping and janitor service Monday through Friday
in and about the Premises. Tenant shall not provide any janitor
services without Landlord's prior
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<PAGE>
written consent, and then, only subject to the supervision of Landlord
and at Tenant's sole expense and responsibility and by a janitor
contractor or employee at all times satisfactory to Landlord.
(e) Electrical lighting services and heating and air conditioning
for all public areas and special service areas of the Building in the
manner and to the extent deemed by Landlord to be standard.
(f) Passenger and freight elevator service in common with Landlord
and other tenants, from 7:00 a.m. to 6:00 p.m., Monday through Friday,
and Saturday from 8:00 a.m. to 1:00 p.m. Such normal elevator service,
passenger or freight, if furnished t other times, shall be deemed
optional with Landlord and shall never be deemed a continuing
obligation. Landlord, however, shall provide adequate passenger and
freight elevator service daily at all times when normal passenger and
freight service is not furnished. Automatic elevator service shall be
deemed "elevator service" within the meaning of this paragraph.
Landlord does not warrant that any service will be free form
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, civil commotion, riot,
accidents, inability to obtain electrical power, fuel, steam, water, supplies or
labor or other cause beyond the reasonable control of Landlord. No such
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, or render Landlord
liable to Tenant for damages, by abatement of rent or otherwise, or relive
Tenant from performance of Tenant's obligations under this Lease. Tenant hereby
waives and releases all claims against Landlord for damages for interruption or
stoppage of service.
In the event that by agreement with Tenant, Landlord furnishes extra or
additional services to be paid for by Tenant, a failure to pay for such services
within five (5) days after notice to Tenant shall authorize Landlord. In
Landlord's discretion and without further notice, to immediately discontinue
such services and terminate any agreement for such services.
Any additional service charges paid by Tenant to Landlord for extra or
additional services pursuant to this Section 2.2 shall be subject to adjustment
in the same manner as the rental as provided for in Section 1.4 hereof.
2.3 Quiet Possession. Tenant shall keep and perform all of its
----------------
covenants under this Lease on the part of Tenant to be performed, and Landlord
shall guarantee to Tenant the quiet, peaceful and uninterrupted possession of
the Premises.
ARTICLE III
3.1 Lawful Uses. Tenant will maintain the Premises in a clean and
-----------
healthful condition; and comply with all laws, ordinances, orders, rules, and
regulations (state, federal, municipal and
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<PAGE>
other agencies or bodies having any jurisdiction thereof) with reference to use,
conditions, or occupancy of the Premises.
3.2 Indemnity and Insurance; Waivers; Subrogation; Indemnity. Tenant
--------------------------------------------------------
is or shall become familiar with the Premises and acknowledges that the same are
received by Tenant in a good a state of repair, accepted by Tenant in the
condition in which they are now or shall be when ready for occupancy and that
Landlord shall not be liable to Tenant or Tenant's agents, employees, invitees
or visitors for any injuries, death or damage to persons or property due to any
condition, design or defect in the Building or its mechanical system or
elsewhere in the Premises or the Building which may now exist or hereafter occur
except where due to Landlord's sole negligence. Tenant accepts the Premises as
suitable for the purposes for which the same are leased and assumes all risks of
injury, death or damage to persons or property for which Tenant may become
legally liable, and agrees that no representations, except such as are contained
herein or endorsed hereon have been made to Tenant respecting the condition of
the Premises. Provided, that if the Premises is being constructed or remodeled
for Tenant and the date of this lease is prior to the completion of such
construction or remodeling, the provisions of this Section 3.2 shall not apply
until Tenant has signed a letter of acceptance of the condition of the Premises.
(a) Insurance. Tenant shall at its expense procure and maintain
---------
throughout the Term the following insurance policies: (1) commercial
general liability insurance in amounts of not less than a combined
single limit of 250,000 (the "Liability Insurance Amount"), insuring
Tenant, Landlord, and Landlord's agents against all liability for
injury to or death of a person or persons or damage to property arising
from the use and occupancy of the Premises, (2) contractual liability
insurance coverage sufficient to cover Tenant's indemnity obligations
hereunder, (3) Insurance covering the full value of Tenant's property
and improvements, and other property (including property of others) in
the Premises, and (4) workman's compensation insurance containing a
waiver of subrogation endorsement reasonably acceptable to Landlord.
Tenant shall furnish certificates of such insurance and such other
evidence satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder, and Tenant shall obtain a written
obligation on the part of each insurance company to notify Landlord at
least 30 days before cancellation or (if available) a material change
of any such insurance. All such insurance policies shall be in form,
and issued by companies, reasonably satisfactory to Landlord.
(b) Waiver of Negligence Claims, No Subrogation. Landlord and
-------------------------------------------
Tenant each waive any claim it might have against the other for any
damage to or theft, destruction, loss, or loss of use of any property,
but only to the extent the same is insured against by such party under
any insurance policy that covers the Building, the Premises, Landlord's
or Tenant's fixtures, personal property, leasehold improvement, or
business or is required to be insured against by it under the terms
hereof, regardless of whether the negligence or fault of the other
party caused such loss; however, Landlord's waiver shall not include
any commercially reasonable deductible amounts on insurance policies
carried by Landlord. Each party shall
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cause its insurance carrier to endorse all applicable policies waiving
the carrier's rights of recovery under subrogation or otherwise against
the other party.
(c) Indemnifications. Subject to the provisions herein, Tenant
----------------
shall defend, indemnify, and hold harmless Landlord and Landlord's
agents and their respective shareholders, directors, officers,
employees, and partners from and against all claims, demands,
liabilities, causes of action, suits, judgements, and expenses
(including attorneys' fees) for any bodily injury and property damage
claims arising from the negligence or willful misconduct of Tenant or
its employees, agents, contractors or invitees. Subject to the
provisions herein, Landlord shall defend, indemnify, and hold harmless
Tenant and Tenant's agents and their respective shareholders,
directors, officers, employees, and partners from and against all
claims, demands, liabilities, causes of action, suits, judgments, and
expenses (including attorneys' fees) for any bodily injury and property
damage claims arising from the negligence or willful misconduct of
Landlord, its subtenants, its assignees, or any of their respective
employees, contractors, agents or invitees. These indemnification
provisions shall survive termination or expiration of this Lease.
(d) Landlord's Insurance. Landlord shall maintain fire and
--------------------
extended insurance or similar coverage for the full replacement cost of
the Building (endorsed to provide at least six month's rent-loss
insurance) and public liability insurance in such amounts and with such
deductible amounts as would be maintained by a prudent landlord of a
Class A office building in the Central Business District. Additionally,
Landlord may obtain and carry any other form or forms of insurance as
it may reasonably desire or as any Landlord's Mortgagee may require.
The liability of Landlord to Tenant for any default by Landlord under
the terms of this Lease shall be limited to the proceeds of sale on execution of
the interest of Landlord in the Building in which the Premises are located, and
Landlord shall not be personally liable for any deficiency. This clause shall
not be deemed to limit or deny any remedies which Tenant may have in the event
of default by Landlord hereunder which do not involve the personal liability of
Landlord.
3.3 Waste. Tenant shall not commit or permit any waste to be committed
-----
whatsoever.
3.4 Nuisances. Tenant shall not create or allow any nuisance to exist
---------
in the Premises, and it shall abate promptly and free of expense to Landlord any
nuisance that may arise. Landlord's determination of what constitutes a nuisance
shall be binding on Tenant.
3.5 Invalidation of Insurance. Tenant shall not suffer anything to be
-------------------------
or remain upon or about the Premises which will invalidate any policy of
insurance which Landlord may nor or hereafter have upon the Building.
3.6 Increased Premiums. Tenant shall not suffer anything to be or
------------------
remain upon or about the Premises nor carry on or permit upon the Premises any
trade or occupation or suffer to be done
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anything which may render an increased or extra premium payable for any
insurance of the Premises or the Building against fire, casualty, liability or
any other insurable causes, unless consented to in writing by Landlord.
Regardless of whether Landlord has so consented or not, Tenant shall pay any
such increased or extra premium within ten days after Tenant shall have been
advised by Landlord of the amount thereof.
3.7 Alterations. Except as otherwise permitted herein or in the
-----------
Building rules and regulations, Tenant shall not have the right to make changes,
alterations, or additions to the Premises (including without limitation, floor
coverings and fixtures) until Tenant has first obtained Landlord's approval in
writing, which approval shall not be unreasonably withheld. Such changes,
alterations, or additions, when made to the Premises by Tenant, shall at once
become the property of Landlord and shall be surrendered to Landlord upon the
termination for any reason of this Lease; but this clause shall not apply to
movable equipment or furniture of Tenant or such changes, alterations or
additions to the Premises as may be removed from the Premises without causing
damages thereto other than the diminution in value to the Premises resulting
from such removal. In the event Tenant elects to remove any such item, it shall
do so at its sole expense. Title to any item so removed shall immediately vest
in Tenant without any action on the part of Landlord being required.
3.8 Use of Building Name. Tenant shall not, except to designate
--------------------
Tenant's business address (and then only in a conventional manner and without
emphasis or display) use the name or any simulation or abbreviation of such name
for any purpose whatsoever. Landlord shall have the right to change the name of
the Building at any time after six (6) months notice to all Tenants. Tenant will
discontinue using any such name and any simulation or abbreviation thereof for
the purpose of designating Tenant's business address before the date Landlord
shall specify in its notice to Tenant after which the Building shall no longer
be known by such name.
3.9 Signs. Tenant shall not paint, display, inscribe, maintain or
-----
affix any sign, pictures, advertisement, notice, lettering or direction on any
area outside the Premises except on hallway doors of the Premises, and then only
such name or names or matter and in such color, size, style, character and
materials as may first be approved by Landlord in writing. Landlord shall have
the right to remove, at Tenant's expense, all matter other than that above
provided for without notice to Tenant.
3.10 Defacing Premises and Overloading. Tenant shall not place
---------------------------------
anything or allow anything to be placed near the glass of any door, partition,
wall or window which may be unsightly from outside the Premises, and Tenant
shall not place or permit to be placed any article of any kind on any window
ledge or on the exterior walls. Blinds, shades, awnings or other forms of inside
or outside windows coverings, or window ventilators or similar devices, shall
not be placed in or about the outside windows in the Premises except to the
extent that the character, shape, color, material and make thereof is approved
by Landlord, and Tenant shall not do any painting or decorating in the Premises
or make, paint, cut or drill into, or in any way deface any part of the Premises
or the Building within the written consent of Landlord. Tenant shall not
overload any floor or part thereof in the Premises, or any facility in the
Building or any public corridors or elevators therein while
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bringing in or removing any large or heavy articles, and Landlord may direct and
control the location of safes and all other heavy articles. Furniture and other
large or heavy articles may not be brought into the Building, removed therefrom
or moved from place to place within any portion of the Premises or other portion
of the Building or its equipment that would exceed the standard load limits as
set forth in the rules of the Building.
3.11 Repairs. Tenant shall, at its costs and expense, repair and
-------
replace any damage or injury done to the Premises, or the Building, or any part
thereof, caused by Tenant or its agents, employees, invitees, or visitors; and
should Tenant fail to make such repairs or replacement within 15 days of
occurrence of such damage or injury, Landlord may, at its option, make such
repairs and replacements and Tenant shall pay the cost thereof to Landlord upon
demand.
3.12 Assignment or Subletting. Tenant shall not assign or sublet the
------------------------
Premises, this Lease or any part thereof without the prior written consent of
Landlord, which consent may be withheld by Landlord for any reason whatever,
whether reasonable or not. Notwithstanding any assignment or subletting, Tenant
and any guarantor of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent herein specified
and for compliance with all of Tenant's other obligations under this Lease.
3.13 Attorney Fees. Tenant shall 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 of any attorney, and Tenant shall also pay
reasonable attorney fees in the event it becomes necessary for Landlord to
employ an attorney to force Tenant to comply with any of the covenants,
obligations or conditions imposed by this Lease.
3.14 Rules of Building. Tenant and Tenant's agents, employees and
-----------------
invitees will comply fully with all requirements of Rules of the Building which
are attached hereto and, which are a part of this Lease as though fully set out
herein. Landlord shall at all times have the right to change such rules and
regulations or to amend them in such reasonable manner, not inconsistent with
the terms of this Lease, as may be deemed advisable for safety, care and
cleanliness of the Premises and for preservation of good order therein.
Provided, however, Landlord shall notify Tenant or any change in such rules at
least ninety (90) days before such rules are to go into effect. All rules and
regulation changes and amendments will be forwarded to Tenant in writing and
shall be carried out and observed by Tenant after the effective date.
3.15 Entry for Repairs Inspecting, Inc. Landlord, its officers, agents,
---------------------------------
partners and representatives, and any mortgagee, secured party or other creditor
to whom or for whose benefit a lien against the interest of Landlord in the
Building has been granted as security for the payment of any indebtedness of
Landlord, shall each have the right to enter into and upon the Premises at all
reasonable times, or in the case of emergency at any time, to inspect the same
or make such repairs or alterations as they may deem necessary or desirable.
However, such entry may only be made for a purpose reasonable related to the
preservation of such party's security. Tenant shall also permit Landlord at all
reasonable times or, in case of emergency, at any time to inspect, erect, use
and
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<PAGE>
maintain pipes, ducts, conduits, and similar devices in, above and through the
Premises, and to make any necessary repairs or alterations. Landlord shall be
allowed to take all material into and upon the Premises that may be required
therefor without the same constituting an eviction of Tenant in whole or in part
and the rent reserved shall in no wise abate while said repairs and maintenance
are being made, by reason or loss or interruption of the business of Tenant, or
otherwise. Anything to the contrary contained in this Section 3.15
notwithstanding, except in the case of any emergency, any such repairs or
alterations which are made by Landlord, unless and except they are made at the
request of Tenant, shall not be made at times when they would interrupt the
normal business operations of Tenant, except with prior written approval of
Tenant.
3.16 Surrender of Premises. Upon any termination of this Lease, by
---------------------
expiration, lapse of time or otherwise:
(a) Tenant shall immediately vacate and surrender the Premises to
Landlord in good order, condition and repair, reasonable wear and tear
or casualty damage to be repaired by Landlord pursuant to Section 4.9
excepted.
(b) Tenant shall surrender all door keys for the Premises to
Landlord.
(c) Tenant grants to Landlord full authority and right to enter
upon the Premises and take possession thereof.
(d) All installations, decorations, floor covering, fixtures,
additions, partitions, hardware, light fixtures, non-trade fixtures and
improvements, temporary or permanent, except movable furniture and equipment
belonging to Tenant, in or upon the Premises, whether placed thereby Tenant or
Landlord, shall be Landlord's property and shall remain upon the Premises, all
without compensation, allowance or credit to Tenant; provided, however, all such
installations, decorations, etc. placed there by Tenant may be removed by Tenant
at its sole expense if such removal can be accomplished without causing damage
to the Premises other than the diminution in value to the Premises attributable
to the installations, decoration, etc. that are removed. Title to any items so
removed shall immediately vest in Tenant without any action on the part of
Landlord being required.
3.17 Liens. Tenant shall keep the Premises free from all liens which
-----
might arise from a third party's transaction with Tenant, including but not
limited to the provision of services and the sale of goods and materials. If
such lien does arise, then Tenant shall cause such lien to be removed,
extinguished or satisfied within a reasonable time at the expense of Tenant.
3.18 Real Estate Broker. Tenant represents that Tenant has dealt
------------------
directly with (and only with) FLAKE & KELLEY MANAGEMENT, INC. D/B/A FLAKE &
KELLEY MANAGEMENT, Little Rock, Arkansas, as broker in connection with this
Lease, and that insofar as Tenant knows, no other broker negotiated or
participated in the negotiations of this Lease or submitted or showed the
Premises or is entitled to any commission in connection with this Lease.
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<PAGE>
ARTICLE IV
4.1 Rights Reserved to Landlord. Landlord shall have the following
---------------------------
rights exercisable without notice or demand and without liability to Tenant for
damage or injury to property, persons or business (all claims for damage
therefor being hereby released by Tenant), and without effecting an eviction or
disturbance of Tenant's use or possession of the remises or giving rise to any
claim for setoffs or abatement of rent:
(a) To name the Building and change the name or street address of
the Building as set out in Section 3.8 above.
(b) To install and maintain signs on the exterior and interior of
the Building.
(c) To retain at all times, and to use in appropriate instances,
keys to all doors within and into the Premises, and Tenant shall not
replace any locks without the prior written consent of Landlord.
(d) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy during the last six months of the term hereof,
provided that Tenant shall have then vacated the Premises, or at any
time after Tenant abandons the Premises.
(e) To enter the Premises at reasonable hours to make inspections,
or to exhibit the Premises to prospective tenants, purchasers or
others, or for other reasonable purposes.
(f) To have access to all mail chutes according to the rules of
the United States Post Office.
(g) To take all such reasonable measures as Landlord may deem
advisable for the security of the Building and its occupants, including
without limitation, the search of all persons entering or leaving the
Building, the evacuation of the Building, and the closing of the
Building after normal business hours and on Saturdays, Sundays and
holidays, subject, however, to Tenant's right to admittance when the
Building is closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time which may
include by way of example by not of limitation, that persons entering
or leaving the Building, whether or not during normal business hours,
identify themselves to a security officer by registration or otherwise
and that such persons establish their right to enter or leave the
building.
(h) To approve the weight, size and location of safes, computers
and other heavy articles in and above the Premises and the Building and
to require all such items and other office furniture and equipment to
be moved in and out of the Building and the premises only at such times
and in such manner as Landlord shall direct and in all events at
Tenant's sole risk and responsibility.
-13-
<PAGE>
(i) To decorate and to make at any time or times, at its own
expense, repairs, alterations, additions and improvements, structural
or otherwise, in and to the Premises, the Building or part thereof as
Landlord may deem necessary or desirable and to perform any acts
related to the safety, protection or preservation thereof, and during
such operations to take into and through the Premises or any part of
the Building all material and equipment required; and to close or
temporarily suspend operation of entrances, doors, corridors, elevators
or other facilities, provided that Landlord shall cause only such
inconvenience or annoyance to Tenant as is reasonably necessary in the
circumstances.
(j) To do or permit to be done any work in or about the Premises
or the Building or any adjacent or nearby building, land, street or
alley.
(k) To grant to anyone the exclusive right to conduct any business
or render any service in the Building.
(l) To close the Building at 6:00 p.m. or such other reasonable
time as Landlord may determine, subject, however, to Tenant's right to
admittance under such regulations as shall be prescribed from time to
time by Landlord and set out in the Rules of the Building.
(m) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators and other
similar equipment, and to approve all internal lighting that may be
visible from the exterior of the Building.
(n) To have and retain a paramount title to the Premises free and
clear of any act of Tenant.
(o) To sell, assign or transfer all of Landlord's interest in the
Lease.
(p) To prohibit the placing of bending or dispensing machines of
any kind in or about the Premises without the prior written permission
of Landlord, and to regulate the use thereof.
4.2 Default. The following event shall be deemed to be events of
-------
default by Tenant under the Lease:
(a) Tenant shall fail to pay any installment of rent hereby
reserved and such failure shall continue for a period of ten days.
(b) Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than the payment of rent, and shall not
cure such failure within fifteen days after written notice thereof to
Tenant.
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<PAGE>
(c) Tenant or any guarantor of Tenant's obligations shall make an
assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligations shall file a
petition under any section or chapter of the National Bankruptcy Act,
as amended, or under any similar law or statute of the United States or
any state thereof; or Tenant or any guarantor of Tenant's obligations
shall be adjudged bankrupt or insolvent in proceedings filed against
Tenant or any guarantor of Tenant's obligations thereunder and such
adjudication shall not be vacated or set aside or stayed within the
time permitted by law.
(e) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any guarantor of Tenant's
obligations and such receivership shall not be terminated or stayed
within the time permitted by law.
(f) Tenant shall desert, vacate or abandon any substantial portion
of the Premises.
Upon the occurrence of any of such events of default, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have,
enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying the Premises or any
part thereof, by force if necessary, without being liable for
prosecution or any loss and damage which Tenant may suffer by reason of
such termination, whether through failure to relet the Premises on
satisfactory terms or otherwise.
(2) Without terminating this lease, enter upon and take possession
of the Premises and expel or remove Tenant and any other person who may
be occupying the Premises or any part thereof, make such alterations
and repairs as may be necessary in order to relet the Premises, and
relet the Premises or any part thereof for such term and at such rental
and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable. Upon each such reletting, the rentals
received by Landlord shall be applied: first, to the payment of any
indebtedness other than rent hereunder due from Tenant to Landlord;
second, to the payment of any costs and expenses of such reletting
including brokerage fees and attorney's fees and costs of such
alterations and repairs, third, to the payment of any rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord
and applied in payment of future rent as the same may become due and
payable hereunder. If such rentals received from such reletting during
any month shall be less than the rent to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Landlord upon
demand. No such re-entry or taking of possession by Landlord
-15-
<PAGE>
shall be construed as an election on its part to terminate this Lease
unless a written notice of intention shall be given to a tenant; and
any attempt by Landlord to mitigate its claim for damages against
Tenant by reletting the Premises shall not be construed as a waiver of
its right to damages under this section.
(3) To enter upon the Premises, by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this Lease; and
Tenant agrees to reimburse Landlord on demand for any expenses Landlord
may incur in this effecting compliance with Tenant's obligations under
this Lease, and Tenant further agrees that Landlord shall not be liable
for any damages resulting to Tenant from such action, whether caused by
the negligence of Landlord or otherwise.
(4) Upon any event of default by Tenant all unpaid rent payments
due under the terms of the lease shall be due and payable immediately
upon demand by Landlord.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any other remedies herein provided, or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants herein
contained. No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants contained in this Lease shall be deemed or construed to
constitute a waiver of any other or succeeding violation or breach of any of the
terms, provisions, and covenants herein contained Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default.
Tenant agrees upon any default hereunder on the part of Landlord that
Tenant shall given written notice of such default by certified mail to each
holder of any mortgage, deed of trust, security agreement, assignment of this
Lease or other similar instrument, at such address as is provided under Section
4.11 of this Lease, and each such holder shall have thirty (30) days after
receipt of said notice to cure the default before Tenant shall have any right to
terminate this Lease because of the default.
4.3 Estoppel Certificate by Tenant. From time to time, upon not less than
------------------------------
ten (10) days prior request by Landlord. Tenant shall execute and deliver to
Landlord and to any other person designated by Landlord a written estoppel
certificate stating, among any other thing reasonably requested by Landlord,
that (a) the Lease has commenced and Tenant is paying rent on a current basis in
accordance with the terms of the Lease, subject to no offsets or claims and that
all Shell Space Work and other obligations of Landlord which are conditions
precedent to Tenant's occupying the Premises have been fulfilled, (b) Landlord
is not in default under the Lease and no condition exists which with the passage
of time will become a default, and (c) no modification or amendment will be made
in the Lease without the prior written consent of any mortgagee, secured party
or other
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<PAGE>
creditor to whom or for whose benefit as lien against the interest of Landlord
in the Building has been granted as security for the payment of any indebtedness
of Landlord.
4.4 Subordination of Lease, Attornment Non-Disturbance. This Lease and
--------------------------------------------------
all rights of Tenant hereunder are subject and subordinate to any deeds of
trust, mortgages, security agreements, lease assignments or other instruments of
security, as well as to any ground leases or primary leases, that now or
hereafter cover all or any part of the Building, the land situated beneath the
building or any interest of Landlord therein, and to any and all advances made
on the security thereof, and to any and all increase, renewals, modifications,
consolidations, replacements and extensions of any of the foregoing. This
provision is hereby declared by Landlord and Tenant to be selfoperative and no
further instrument shall be required to effect such subordination of this Lease.
Tenant shall, however, upon demand at any time or times execute, acknowledge and
deliver to Landlord any and all instruments and certificates that in the
judgment of Landlord may be necessary or proper to confirm or evidence such
subordination. Notwithstanding the generality of the foregoing provisions of the
Section 4.4. Tenant agrees that any such mortgagee, secured party or assignee
shall have the right at any time to subordinate any such deeds of trust,
mortgages, security agreements, lease assignments or other instruments of
security to this Lease on such terms and subject to such conditions as they may
deem appropriate in their discretion. Provided, however, so long as Tenant is
not in default in the payment of rent or in the performance of any of the terms
of the Lease, Tenant's possession of the Premises and Tenant's rights and
privileges under the Lease or any renewal thereof shall not be diminished or
interfered with by any aforesaid mortgagee, secured party or assignee. Landlord
shall include such a non-disturbance clause in any instrument creating a lien on
the Building, provided that the form thereof shall be satisfactory to the holder
of such lien. Tenant hereby irrevocably appoints Landlord as attorney in fact
for Tenant with full power and authority to execute and deliver in the name of
mortgagee, secured party or assignee, or as Tenant may be directed by the same,
upon the receipt of notice from the same that Landlord is in default under their
particular security instrument. Tenant agrees in the event it is requested by
such mortgagee, secured party or assignee, or any proceedings are brought for
the foreclosure or enforcement of any such security instrument, to attorn to the
holder of the same and to recognize them as Landlord under this Lease. Tenant
agrees to execute and deliver at any time and from time to time upon the request
of Landlord any instrument which may be necessary or appropriate in any such
event to evidence such attornment. Tenant hereby irrevocably appoints Landlord
and the holder of such security instrument, or any of them, the attorney in fact
for Tenant with full power and authority to execute and deliver in the name of
Tenant any such instrument. Tenant further waives the provisions of any statute
or law now or hereafter in effect which may give or support to give Tenant any
right to terminate or otherwise adversely affect this Lease in the event any
such foreclosure proceeding is brought. Tenant and Landlord further agree that
any agreement by either of them to pay any leasing commissions in regard to the
Lease shall not be enforceable against any party other than the party entering
into such agreement, and such agreement shall at all times be subordinate and
inferior to the lien of any aforesaid security instrument.
4.5 Renewal or Amendment. No renewal or amendment of this Lease shall
--------------------
be binding on either party unless it is in writing and signed by Landlord and
Tenant.
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<PAGE>
4.6 Holding over. Should Tenant or any of its successors in interest hold
------------
over the Premises or any part thereof after the expiration of the term of this
Lease, such holding over shall constitute and be construed as a tenancy from
month to month only. Tenant will pay as liquidated damages on the first day of
each month during the holdover period an amount equal to one hundred twenty-five
percent (125%) of the rent paid or due to be paid during the last month of the
term of this Lease. no receipt of money by landlord from Tenant after
termination of the Lease shall reinstate or extend this Lease or affect any
prior notice given by landlord to Tenant. Any extension of this Lease shall be
in writing signed by Landlord and Tenant.
4.7 Waiver of Liability. As part of the consideration for this Lease,
-------------------
Tenant hereby releases Landlord from all liability for damage to any property of
Tenant located in or upon the Building which results from the negligence of
Landlord to the extent any such loss or damage is covered by insurance
maintained by Tenant. Also, as part of the consideration for the Lease, Landlord
hereby releases Tenant from all liability for damage to any property of Tenant
located in or upon the Building which results from the negligence of Landlord to
the extent any such loss or damage is covered by insurance maintained by Tenant.
Also, as part of the consideration for this Lease, Landlord hereby releases
Tenant from all liability for damage to any property of Landlord located in or
upon the Building which results from the negligence of Tenant to the extent any
such loss or damage is covered by insurance maintained by Landlord. Tenant and
Landlord further covenant that any insurance maintained by either party shall
contain an appropriate provision whereby the insurance company of companies
consent to the foregoing mutual release of liability and so waive insurance
subrogation rights to the extent of the agreement contained in this Section 4.7,
provided that Landlord's release shall only be operative upon proof of insurance
coverage and approval of said insurance by Landlord and its insurer.
4.8 Covenants to Run to Heirs, etc. All covenants, conditions,
------------------------------
agreements, and undertakings in this Lease shall extend and inure to the benefit
of Landlord and its successors and assigns, and to the heirs, executors,
administrators, successors and assigns of Tenant the same as if they were in
every case named and expressed; and except as herein otherwise provided, all
said covenants, conditions and agreements shall be binding upon the successors
and assigns, heirs, executors, and administrators of the respective parties.
4.9 Damage by Fire or Other Casualty. If any part of the Premises or a
---------------------------------
material portion of the building which affects Tenant's occupancy is rendered
untenantable by fire or other casualty, Landlord may elect (a) to terminate this
Lease as of the date of the fire or casualty by notice to Tenant within sixty
(60) days after the date, or (b) to repair, restore or rehabilitate the Building
or the Premises at Landlord's expense, in which event this Lease shall not
terminate but rent shall be pro-rated for that portion of the Premises that are
untenantable and abated on a per diem basis for that portion of the Premises
that is untenantable. If such damage is due to an act or omission of Tenant,
then Landlord shall have such rights as are set forth herein at Tenant's cost
and expense. If Landlord elects so to repair, restore, or rehabilitate the
Building or the Premises, said work shall be undertaken and prosecuted with all
due diligence and speed. In the event of termination of the lease pursuant to
this Section 4.9 rent shall be apportioned on a per diem basis and paid to the
date of the
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<PAGE>
fire or casualty. Further, Landlord shall carry all risk property damage
insurance with flood and earthquake endorsements for the full replacement value
of the Building with Tenant as an additional insured as its interest may appear.
4.10 Condemnation. If the land or the building, or any part thereof, or
------------
any interest therein, be taken by virtue of eminent domain or for any public or
quasi-public use or purpose. Landlord shall have the right to terminate this
Lease at the date of such taking or within six months thereafter by giving
Tenant thirty (30) days' prior notice of the date of such termination. Any
interest which Tenant may have or claim to have in any award resulting from any
condemnation proceedings shall be limited solely to the unamortized value of any
permanent improvements to the structure of the Building paid for directly by
Tenant and any claim for furniture or equipment of any nature whatsoever shall
be excluded. All other condemnation awards, including but not limited to any
award made on the basis of the leasehold estate created by this Lease, shall be
the sole and separate property of Landlord.
4.11 Notices. Any notice required or desired to be given in connection
-------
with this Lease shall be in writing sent by certified mail, postage prepaid.
Such notices shall be sent to the persons at the addresses reflected below or
any other person or addresses designated in writing by any such person entitled
to receive notice pursuant to the terms of this Lease:
LANDLORD:
TENANT:
It shall be the obligation of all person entitled to receive any notice
pursuant to this Lease to provide proper names and addresses to the person
required to give such notice. All persons required to give such notices shall be
deemed to have satisfied their duties to give notice by giving notice to the
name at the address so provided. If no name and address is given by a mortgagee,
secured party or other creditor then Tenant and Landlord have not duty to give
notice to that particular mortgagee, secured party or other creditor failing to
give the proper name and address until such is provided.
4.12 Exhibits and Effective Date. Submission of the Lease for examination
---------------------------
does not constitute a reservation of or option for leasing the Premises. The
Lease becomes effective only upon execution and delivery by both Landlord and
Tenant and approval by Landlord's mortgagee where such approval is required. All
exhibits and riders attached to this Lease and initiated by Landlord and Tenant
are incorporated into and made a part of this Lease.
4.13 Time. Time is of the essence in this Lease.
----
4.14 Captions. The captions used in this Lease are for convenience only
--------
and do not in any way limit or amplify the terms and provisions hereof.
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<PAGE>
4.15 Other Agreements. This Lease contains the entire agreement of the
----------------
parties hereto with respect to the matters contained herein and no other
representations, promises or agreements, oral or otherwise, have been made
between the parties.
4.16 Other Provisions.
----------------
- Landlord to clean carpets and touch up walls
- 1 parking space in basement @ 63.00 per month, 2 @ 6th and
Broadway @ $35.00 per month
IN TESTIMONY WHEREOF, the above named Landlord and the above named Tenant have
executed this instrument on the day and year set forth above in this Lease.
ATTEST: LANDLORD:
FL Building Corp.
By: (No Attestation) By: /s/ Henry Kelly, Jr., President
---------------------------- ---------------------------------
- ------------------------------------------------------------------------------
Date: Date:
-------------------------- -------------------------------
ATTEST: TENANT:
By: /s/ Pamela J. Prisock By: /s/ Hap Hederman
----------------------------- ---------------------------------
Date: 10/17/97 Date: 10/17/97
-------------------------- -------------------------------
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<PAGE>
EXHIBIT 10.44
COMMERCIAL LEASE AGREEMENT
--------------------------
THIS COMMERCIAL LEASE AGREEMENT ("Lease") is made and entered into as of
March 1, 1998, by and between Phil Phillips, Jr. ("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 the date the warehouse
facility is completed and made available to Lessee (the "Commencement Date"),
and expiring on the tenth (10th) anniversary of the Commencement Date (the
"Term"), that certain real property with a municipal address of 807 Old Missouri
Road, Springdale, Arkansas, 72764 and more particularly described in Exhibit A
hereto (the "Premises").
2. Basic Rent. During the first five (5) years of the Term, Lessee shall
-----------
pay Lessor, at the address of Lessor indicated herein, the sum of Ninety -Seven
Thousand Five Hundred and 00/100 Dollars ($97,500.00) per year ($3.25 per square
foot) as rent for the Premises (the "Basic Rent"). The Basic Rent shall be paid
to Lessor in monthly installments of Eight Thousand One Hundred Twenty-Five and
00/100 Dollars per month ($8,125.00), which monthly rental payments shall be
paid in advance on the first day of each calendar month during the term of this
Lease. During the second five (5) years of the Term, the Basic Rent shall
escalate at the beginning of each year at the rate of five percent (5%) per
year. 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 shall 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 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,
<PAGE>
and shall, at Lessee's sole expense, promptly make all needed maintenance
or repairs, in and to any building or structure or equipment now or
hereafter erected upon the Premises, including all fixtures, machinery,
heating, plumbing and electrical systems and other 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,
which shall include repairs to the roof, and load bearing walls unless
caused by Lessee's negligence. Lessee shall immediately report any damage
or malfunction which occurs with respect to the Premises.
(b) 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, 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.
(c) 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.
-----------------------
-2-
<PAGE>
(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.
(d) 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 to 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.
(e) Utilities. Lessee shall pay for all water, gas, heat, light,
----------
power, telephone and all other utilities and services supplied to the
Premises.
(f) Insurance.
----------
(i) Fire and Casualty. During the entire Term hereof, Lessee
------------------
shall procure and maintain at its (updated every two (2) years) sole
expense, insurance covering the Premises, for the full replacement
cost (updated every two (2) years) thereof, insuring against the
perils of fire, lightning, 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
Arkansas for use by insurance companies admitted in Arkansas 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.
-3-
<PAGE>
(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.
(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 Lessor. 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 attorneys' 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. Lessee acknowledges that it has
received the Premises in acceptable condition and accept the Premises in it "AS
IS" condition.
8. Assignment and Subletting. The Premises shall be used for storage,
-------------------------
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.
-4-
<PAGE>
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. Compliance with Environmental Laws.
----------------------------------
(a) Lessee shall comply, and Lessee shall cause any sublessee or any other
authorized occupant or user of the Premises to comply, at all times during the
Term of this Lease, with all Environmental Laws that are applicable to any
activities conducted at the Premises by Lessee or any sublessee or other
authorized occupant or user of the Premises.
For purposes of this Lease, the term "Environmental Laws" shall include any
and all federal, state or local laws, statutes, rules, regulations, ordinances
or orders (and any judicial interpretations thereof) governing, regulating or
otherwise providing for the protection of environmental quality and/or human
health, safety and welfare through the control, management, and/or restriction
of the use, handling, manufacture, generation, processing, treatment, storage,
emission, discharge, disposal, release or spillage of any contaminant, chemical,
material, pollutant or waste that may have hazardous, toxic or other adverse
impacts on the environment or human health, safety and welfare, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. 9601 et seq.) ("CERCLA"), the Hazardous
--
Materials Transportation Act (49 U.S.C. 1002), the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. 6901 et seq.) ("RCRA"), the Toxic Substance
-------
Control Act (15 U.S.C. 2601 et seq.), the Federal Water Pollution Control Act
-------
(33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Safe
------- -------
Drinking Water Act (42 U.S.C. 300f et seq.), and the Emergency Planning and
-------
Community Right-to-Know Ac to l986 (42 U.S.C. 11001 et seq.),each as heretofore
------
and hereafter amended or supplemented, and any analogous present or future
local, state or federal statutes, rules, and regulations promulgated thereunder
or pursuant thereto.
(b) Lessee shall obtain, or cause any sublessee or other authorized user
or occupant of the Premises to obtain, all necessary permits, licenses,
certifications, and other authorizations (hereinafter "Permits") required by any
Environmental Laws in connection with Lessee's or any sublessee's, occupant's or
user's activities at or use of the Premises. Lessee shall comply, and cause
compliance, at all times with the terms and conditions of such Permits. Lessee
shall not use the Premises, or request a permit to use the Premises, as a
treatment, storage or disposal facility under RCRA or any similar federal, state
or local Environmental Law, without the prior written consent of Lessor. Lessee
shall not install any underground storage tanks at the Premises without the
prior written consent of Lessor, and if such consent is granted, Lessee shall be
fully responsible for compliance with all technical, financial responsibility,
and other requirements under any Environmental Law.
-5-
<PAGE>
(c) Lessee shall not generate, manufacture, treat, dispose, release,
recycle, handle, use or otherwise manage, transport or deal with "Hazardous
Material" at or about the Premises; EXCEPT THAT Lessee is authorized to store,
handle, use, process, manufacture, and/or transport a substance or material that
is or contains a Hazardous Material, provided that such Hazardous Material is
not and does not contain a "hazardous waste" (as that term is defined in RCRA
and its implementing regulations) and: (i) such Hazardous Material is stored,
used, processed, manufactured, and/or otherwise handled in strict accordance
with all applicable Environmental Laws and manufacturers' specifications; or
(ii) such Hazardous Material is used by Lessee for cleaning, operation or
maintenance of the Premises, or implementation of health and safety measures at
the Premises, and it is stored, handled, used, and disposed of in strict
accordance with all applicable Environmental Laws and all manufacturers'
instructions.
For purposes of this Lease, the term "Hazardous Material" shall include:
(i) any "hazardous substance", as defined in CERCLA (42 U.S.C. 9601(14)), or
any so-called "superfund" or "superlien" law (and any judicial interpretations
thereof); (ii) any "toxic pollutant" as listed under 33 U.S.C. 1317(a); (iii)
any material defined as "hazardous waste" pursuant to 40 C.F.R. Part 260; (iv)
any petroleum or petroleum products, including crude oil or any fraction
thereof; (v) natural gas, natural gas liquids, liquefied natural gas or
synthetic gas usable for fuel; (vi) any "extremely hazardous substance" as
listed under 42 U.S.C. 11002(a); and (vii) any other substance, regardless of
physical form, that is specifically identified or listed for regulation by an
Environmental Law that is applicable to the Premises or to any activities
conducted at the Premises by Lessee or any sublessee or other authorized
occupant or user of the Premises.
(d) During the Term of this Lease, Lessee shall not cause or permit, as a
result of an intentional or unintentional action or omission on its part, or on
the part of any sublessee or other authorized user or occupant of the Premises,
any releasing, spilling, leaking, pumping, emitting, pouring, emptying or
dumping (hereinafter "Release") of any Hazardous Material into the environment,
including, without limitation, any surface or subsurface waters (including
groundwater), ambient air, or any land surface or subsurface strata. Lessee
shall give immediate oral and written notice to Lessor of any Releases of
Hazardous Material for which notification is required to any governmental
agency, detailing all relevant facts and circumstances. All Releases of
Hazardous Material during the Term of this Lease by Lessee or any sublessee or
other authorized user or occupant of the Premises will be promptly cleaned up or
remediated so as to satisfy any applicable cleanup or remediation standard or
objective established under an Environmental Law, all costs and expenses
associated with such cleanup or remediation shall be borne solely by Lessee, and
Lessee shall be deemed the owner of the Premises for purposes of completing
waste disposal manifests and similar documents.
(e) Lessee shall at all times keep the Premises free of any lien or
encumbrance against the Premises arising out of any environmental law, statute,
ordinance, regulation, rules, judgments or orders (hereinafter "Environmental
Lien") which results from any activity of Lessee or Lessee's sublessees or other
users or occupants of the Premises. In the event that an Environmental Lien
caused by Lessee or any sublessees or any other authorized occupants or users of
the Premises during
-6-
<PAGE>
the time Lessee is in, or has a right to, possession is filed against the
Premises during the Term, then within thirty (30) days from the date that Lessee
is given notice of the filing of the Environmental Lien, or within such shorter
period of time as required to prevent the governmental authority from causing
the sale of the Premises pursuant to the lien, then Lessee shall either (i) pay
the claim and remove the lien from the Premises, or (ii) furnish (a) a bond
satisfactory to Lessor in the amount of the claim out of which the lien arises,
(b) a cash deposit in the amount of the claim out of which the lien arises, or
(c) other security satisfactory to Lessor in an amount sufficient to discharge
the claim out of which the lien arises. If any Environmental Lien is filed
against the Premises which is not caused by Lessee or Lessee's sublessees or any
other authorized occupants or users of the Premises during the time Lessee is
in, or has a right to, possession, Lessee shall promptly notify Lessor upon
Lessee's obtaining knowledge of such lien.
(f) Lessee shall promptly provide to Lessor true and complete copies of
any and all submissions, filings, applications, claims, citations, notices, and
orders (hereinafter "Submissions") made by and between Lessee and the United
States Environmental Protection Agency or any other federal, state or local
authority pursuant to any Environmental Laws. To the extent that the law
governing the Submissions allows Lessee to file the Submissions under claim of
confidentiality, Lessee may request that Lessor retain, in confidence, any
copies of Submissions provided under this Paragraph 11 (f) and Lessor shall
honor that request.
(g) Lessee hereby agrees to defend, indemnify and hold Lessor and his
heirs and assigns harmless from and against any and all claims, proceedings
under any Environmental Law(s), lawsuits, administrative proceedings,
liabilities, losses, demands, fines, penalties, judgments, orders, notice
letters, damages, costs and expenses (including, without limitations, cleanup
costs and reasonable attorneys' fees, engineers' fees and consultants' fees
arising by reason of any of the aforesaid), arising from, out of, or by reason
of (i) any breach of this Paragraph 11, or (ii) any act or omission by Lessee,
Lessee's sublessees, or any other authorized occupants or users of the Premises
during the time Lessee is in, or has a right to, possession of the Premises
under this Lease, even if the act or omission is in compliance with the
provisions of Paragraph 11. This indemnification and the terms and provisions of
this Paragraph 11 shall survive the expiration or sooner termination of this
Lease.
(h) Lessor acknowledges that Lessee has not caused or contributed to any
Release of a Hazardous Material or any other condition of environmental
contamination at the Premises which occurred or came into existence prior to the
commencement of this Lease and Lessee's possession of the Premises thereunder
(hereinafter referred to as a "Preexisting Environmental Condition"); and Lessor
hereby fully and forever releases and discharges Lessee, its directors,
officers, employees, successors and assigns, from any and all claims, causes of
action, liabilities, losses, demands, fines, penalties, judgments, orders,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees, engineers' fees and consultants' fees), which in any way arises
out of, or results from, a Preexisting Environmental Condition.
12. 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
-7-
<PAGE>
necessary or desirable. Lessee shall not be entitled to any abatement or
reduction of rent by reason thereof.
13. 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 thirty-thee and one-third
percent (33 1/3%) 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.
14. Holding Over. Any holding over 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.
15. 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 ninety (90) 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 ninety (90) days, the Lessor covenants and agrees to make such
repairs within ninety (90) 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.
-8-
<PAGE>
16. 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 Basic Rent,
Additional 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, 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, filing of a voluntary or involuntary petition in
bankruptcy or adjudication of Lessee as bankrupt or insolvent.
17. 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
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, all
unpaid Basic Rent and Additional Rent for the balance of the Term (or any
extension thereof), the cost of recovering possession of the Premises and
any other sum of money or damages owed to Lessor pursuant to the terms
hereof. Lessor agrees to use reasonable effort in mitigating any damage
from a breach by Lessee.
(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 accelerate all
remaining rent under the Lease.
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<PAGE>
18. 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 nonstructural 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, at Lessee's sole expense,
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.
19. 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 at law or in equity.
20. Miscellaneous Terms.
--------------------
(a) Benefit. This Lease shall inure to the benefit of the parties hereto,
-------
and their respective heirs, personal representatives, successors and assigns.
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<PAGE>
(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: Phil Phillips, Jr.
c/o Phillips Litho
807 Old Missouri Road
Springdale, Arkansas 72764
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 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
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<PAGE>
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 Arkansas.
(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 nondefaulting 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.
(k) Assignment. Lessor may assign this Lease to an entity controlled by
----------
Lessor and Lessor's family or to any purchaser of the Premises.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR:
By: /s/ Phil Phillips, Jr.
----------------------
PHIL PHILLIPS, JR.
LESSEE:
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
---------------------
Title: President
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<PAGE>
EXHIBIT 10.45
CRESCENT CENTER LEASE
TABLE OF CONTENTS
Page
----
1. Lease Grant .............................................................1
2. Term ....................................................................1
3. Rent ....................................................................1
(a) Basic Rent .......................................................1
(b) Payment ..........................................................1
(c) Operating Costs ..................................................2
4. Delinquent Payment; Handling Charges ....................................4
5. Security Deposit ........................................................4
6. Landlord's Obligations ..................................................4
(a) Services .........................................................4
(b) Excess Utility Use ...............................................5
(c) Restoration of Services: Abatement ...............................5
7. Improvements; Alterations: Repairs; Maintenance .........................6
(a) Improvements: Alterations ........................................6
(b) Repairs: Maintenance .............................................6
(c) Performance of Work ..............................................6
(d) Mechanic's Liens .................................................7
8. Use .....................................................................7
9. Assignment and Subletting ...............................................7
(a) Transfers; Consent ...............................................7
(b) Cancellation .....................................................8
(c) Additional Compensation ..........................................8
10. Insurance; Waivers; Subrogation; Indemnity ..............................8
(a) Insurance ........................................................8
(b) Waiver of Negligence; No Subrogation .............................9
(c) Indemnity ........................................................9
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Page
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11. Subordination; Attornment; Notice to Landlord's Mortgagee ...............9
(a) Subordination ....................................................9
(b) Attornment ......................................................10
(c) Notice to Landlord's Mortgagee ..................................10
12. Rules and Regulations ..................................................10
13. Condemnation ...........................................................10
(a) Total Taking ....................................................10
(b) Partial Taking Tenant's Rights ..................................10
(c) Partial Taking Landlord's Rights ................................10
(d) Award ...........................................................10
14. Fire or Other Casualty .................................................11
(a) Repair Estimate .................................................11
(b) Landlord's and Tenant's Rights ..................................11
(c) Landlord's Rights ...............................................11
(d) Repair Obligation ...............................................11
15. Personal Property Taxes ................................................11
16. Events of Default ......................................................12
17. Remedies ...............................................................12
18. Payment by Tenant: Non-Waiver ..........................................13
(a) Payment by Tenant ...............................................13
(b) No Waiver .......................................................14
19. Landlord's Lien ........................................................14
20. Surrender of Premises ..................................................14
21. Holding Over ...........................................................14
22. Certain Rights Reserved by Landlord ....................................15
23. Substitution Space .....................................................15
24. Miscellaneous ..........................................................16
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Page
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(a) Landlord Transfer ...............................................16
(b) Landlord's Liability ............................................16
(c) Force Majeure ...................................................16
(d) Brokerage .......................................................16
(e) Estoppel Certificates ...........................................16
(f) Notices .........................................................16
(g) Separability ....................................................17
(h) Amendments; and Binding Effect ..................................17
(i) Quiet Enjoyment .................................................17
(j) No Merger .......................................................17
(k) No Offer .......................................................17
(l) Entire Agreement ................................................17
(m) Waiver of Jury Trial ............................................17
(n) Governing Law ...................................................18
(o) Joint and Several Liability .....................................18
(p) Landlord's Fees .................................................18
(q) Telecommunications ..............................................18
(r) General Definitions .............................................18
(s) Confidentiality .................................................18
(t) Parking .........................................................18
(u) List of Exhibits ................................................18
25. Other Provisions .......................................................19
iii
<PAGE>
LEASE
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THIS LEASE AGREEMENT (this "Lease") is entered into as of January 8, 1998.
between CRESCENT CENTER LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"). and MASTER GRAPHICS, a Tennessee corporation ( "Tenant" ).
1. Lease Grant. Subject to the terms of this Lease. Landlord leases to
-----------
Tenant. and Tenant leases from Landlord. Suite No. 401 (the "Premises") outlined
in red in the plan attached as Exhibit A in the office building (the "Building")
located at 6075 Poplar Avenue. Memphis. Tennessee 38119. The land on which the
Building is located is described on Exhibit B. The term "Building" includes the
related land, driveways, parking facilities, and similar improvements.
2. Term. The term of this Lease shall be sixty (60) months, commencing
----
on March 1 1998 (the "Commencement Date"), and expiring at 5:00 p.m., February
28. 2003 (the "Term") which definition shall include all renewals of the initial
Term). If the Commencement Date is not the first day of a calendar month, then
the Term shall be extended by the number of days between the Commencement Date
and the first day of the next month. If the Premises are not ready for occupancy
by Tenant on the Commencement Date. then (a) Tenant's obligation to pay Basic
Rent and Additional Rent (as defined in Section 3) shall be waived until
Landlord tenders possession of the Premises to Tenant, (b) the Term shall be
extended by the time between the scheduled Commencement Date and the date on
which Landlord tenders possession of the Premises to Tenant, (c) Landlord shall
not be in default hereunder or be liable for damages therefor, and (d) Tenant
shall accept possession of the Premises when Landlord tenders possession thereof
to Tenant.
3. Rent.
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(a) Basic Rent. "Basic Rent" (herein so called) shall be the following
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amounts for the following periods of time:
Time Period Monthly Basic Rent
----------- ------------------
03/01/98 - 08/31/00 $6,836.00
09/01/00 - 02/28/03 $7,161.00
(b) Payment. Tenant shall timely pay to Landlord Basic Rent and all
-------
additional sums to be paid by Tenant to Landlord under this Lease (collectively,
the "Rent"), without demand, deduction or set off, at Landlord's address
provided for in this Lease or as otherwise specified by Landlord. Basic Rent,
adjusted as herein provided, shall be payable monthly in advance, and shall be
accompanied by all applicable state and local sales or use taxes. The first
monthly installment of
<PAGE>
Basic Rent shall be payable contemporaneously with the execution of this Lease:
thereafter, Basic Rent shall be payable on the first day of each month beginning
on the first day of the second full calendar month of the Term. The monthly
Basic Rent for any partial month at the beginning of the Term shall equal the
product of 1/365 of the annual Basic Rent in effect during the partial month and
the number of days in the partial month from and after the Commencement Date.
and shall be due on the Commencement Date.
(c) Operating Costs.
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(i) Tenant shall pay an amount (per each rentable square foot in the
Premises) ("Additional Rent") equal to the difference between the Operating
Costs (defined below) per rentable square foot in the Building and the
actual Operating Costs for the calendar year 1998 (the "Expense Stop").
Landlord may collect such amount in a lump sum, which shall be due within
30 days after Landlord furnishes to Tenant the Operating Costs and Tax
Statement (defined below). Alternatively, Landlord may make a good faith
estimate of the Additional Rent to be due by Tenant for any calendar year
or part thereof during the Term. and Tenant shall pay to Landlord. on the
Commencement Date and on the first day of each calendar month thereafter an
amount equal to the estimated Additional Rent for such calendar year or
part thereof divided by the number of months therein. From time to time,
Landlord may estimate and re-estimate the Additional Rent to be due by
Tenant and deliver a copy of the estimate or re-estimate to Tenant.
Thereafter. the monthly installments of Additional Rent payable by Tenant
shall be appropriately adjusted in accordance with the estimations so that.
by the end of the calendar year in question, Tenant shall have paid all of
the Additional Rent as estimated by Landlord. Any amounts paid based on
such an estimate shall be subject to adjustment as herein provided when
actual Operating Costs are available for each calendar year.
(ii) The term "Operating Costs" shall mean all expenses and
disbursements (subject to the limitations set forth below) that Landlord
incurs in connection with the ownership? operation. and maintenance of the
Building, determined in accordance with sound accounting principles
consistently applied. including. but not limited to. the following costs:
(A) wages and salaries (including management fees) of all employees engaged
in the operation. maintenance, and security of the Building. including
taxes. insurance and benefits relating thereto; (B) all supplies and
materials used in the operation. maintenance. repair. replacement, and
security of the Building; (C) costs for improvements made to the Building
which, although capital in nature, are expected to reduce the normal
operating costs of the Building, as well as capital improvements made in
order to comply with any law hereafter promulgated by any governmental
authority, as amortized over the useful economic life of such improvements
as determined by Landlord in its reasonable discretion; (D) cost of all
utilities, except the cost of utilities reimbursable to Landlord by the
Building's tenants other than pursuant to a provision similar to this
Section 3 (d); (E) insurance expenses; (F) repairs,
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<PAGE>
replacements, and general maintenance of the Building; and (G) service or
maintenance contracts with independent contractors for the operation.
maintenance, repair. replacement. or security of the Building (including,
without limitation, alarm service, window cleaning, and elevator
maintenance).
Operating Costs shall not include costs for (i) capital improvements
made to the Building, other than capital improvements described in Section
3.(d)(2)(C) and except for items which are generally considered maintenance
and repair items. such as painting of common areas, replacement of carpet
in elevator lobbies. and the like: (ii) repair. replacements and general
maintenance paid by proceeds of insurance or by Tenant or other third
parties; (iii) interest, amortization or other payments on loans to
Landlord; (iv) depreciation; (v) leasing commissions; (vi) legal expenses
for services. other than those that benefit the Building tenants generally
(e.g., tax disputes); (vii) renovating or otherwise improving space for
occupants of the Building or vacant space in the Building; (viii) Taxes
(defined below), and (ix) federal income taxes imposed on or measured by
the income of Landlord from the operation of the Building.
(iii) Tenant shall also pay its Proportionate Share (defined below) of
any increase in Taxes for each year and partial year falling within the
Term, which shall be determined by multiplying the difference between (A)
the Taxes for the year in question and (B) the Taxes for the year 1998 by
Tenant's Proportionate Share. Tenant shall pay its Proportionate Share of
Taxes in the same manner as provided above for Additional Rent with regard
to Operating Costs. "Taxes" shall mean taxes. assessments, and governmental
charges whether federal, state, county or municipal, and whether they be by
taxing districts or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments attributable to
the Building (or its operation), excluding, however, penalties and interest
thereon and federal and state taxes on income (if the present method of
taxation changes so that in lieu of the whole or any part of any Taxes,
there is levied on Landlord a capital tax directly on the rents received
therefrom or a franchise tax, assessment, or charge based, in whole or in
part. upon such rents for the Building, then all such taxes. assessments,
or charges, or the part thereof so based. shall be deemed to be included
within the term "Taxes" for purposes hereof. Taxes shall include the costs
-----
of consultants retained in an effort to lower taxes and all costs incurred
in disputing any taxes or in seeking to lower the tax valuation of the
Building.
(iv) By April I of each calendar year, or as soon thereafter as
practicable. Landlord shall furnish to Tenant a statement of Operating
Costs for the previous year. adjusted as provided in Section 3.(d)(6). and
of the Taxes for the previous year (the "Operating Costs and Tax
Statement"). If the Operating Costs and Tax Statement reveals that Tenant
paid more for Operating Costs than the actual amount for the year for which
such statement was prepared, or more than its actual share of Taxes for
such year, then Landlord shall promptly
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<PAGE>
credit or reimburse Tenant for such excess; likewise. if Tenant paid less
than Tenant's actual Proportionate Share of Additional Rent or share of
Taxes due, then Tenant shall promptly pay Landlord such deficiency.
(v) As used herein, Tenant's "Proportionate Share" shall be 1.16%.
which is the percentage obtained by dividing the rentable square feet of
area in the Premises. which is stipulated to be 3.906 rentable square feet
by the total number of square feet of area in the Building. which is
stipulated to be 335.932 rentable square feet.
(vi) With respect to any calendar year or partial calendar year in
which the Building is not occupied to the extent of 95% of the rentable
area thereof, the Operating Costs for such period shall, for the purposes
hereof. be increased to the amount which would have been incurred had the
Building been occupied to the extent of 95% of the rentable area thereof.
4. Delinquent Payment; Handling Charges. All past due payments required
------------------------------------
of Tenant hereunder shall bear interest from the date due until paid at the
lesser of 5% per annum (the Interest Rate ') or the maximum lawful rate of
--------------
interest; additionally, Landlord may charge Tenant a fee equal to 5% of the
delinquent payment to reimburse Landlord for its cost and inconvenience incurred
as a consequence of Tenant's delinquency. In no event, however, shall the
charges permitted under this Section 4 or elsewhere in this Lease, to the extent
they are considered to be interest under law. exceed the maximum lawful rate of
interest
5. Security Deposit. Contemporaneously with the execution of this Lease,
----------------
Tenant shall pay to Landlord $6,836.00 (the "Security Deposit"), which shall be
held by Landlord to secure Tenant's performance of its obligations under this
Lease. The Security Deposit is not an advance payment of Rent or a measure or
limit of Landlord's damages upon an Event of Default (defined in Section 16).
Landlord may, from time to time and without prejudice to any other remedy. use
all or a part of the Security Deposit to perform any obligation Tenant fails to
perform hereunder. Following any such application of the Security Deposit.
Tenant shall pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to its original amount. Provided that Tenant has performed
all of its obligations hereunder, Landlord shall, within 30 days after the Term
ends, return to Tenant the portion of the Security Deposit which was not applied
to satisfy Tenant's obligations. The Security Deposit may be commingled with
other funds, and no interest shall be paid thereon. If Landlord transfers its
interest in the Premises and the transferee assumes Landlord's obligations under
this Lease, then Landlord may assign the Security Deposit to the transferee and
Landlord thereafter shall have no further liability for the return of the
Security Deposit.
6. Landlord's Obligations.
----------------------
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<PAGE>
(a) Services. Landlord shall furnish to Tenant (I) water at those points
--------
of supply provided for general use of tenants of the Building; (2) heated and
refrigerated air conditioning as appropriate. at such temperatures and in such
amounts as are standard for comparable buildings in the vicinity of the
Building; (3) janitorial service to the Premises on weekdays, other than
holidays, for Building-standard installations and such window washing as may
from time to time be reasonably required; (4) elevators for ingress and egress
to the floor on which the Premises are located. in common with other tenants,
provided that Landlord may reasonably limit the number of operating elevators
during non-business hours and holidays; and (5) electrical current during normal
business hours for equipment that does not require more than 110 volts and whose
electrical energy consumption does not exceed normal office usage. Landlord
shall maintain the common areas of the Building in reasonably good order and
condition. except for damage caused by a Tenant Party. If Tenant desires any of
the services specified in Section 6.(a)(2) at any time other than (A) between
7:00 a.m. and 6:00 p.m. on weekdays, or (B) on Saturday. Sunday or holidays,
then such services shall be supplied to Tenant upon the written request of
Tenant delivered to Landlord before 3:00 p m. on the business day preceding such
extra usage, and Tenant shall pay to Landlord the cost of such services within
ten days after Landlord has delivered to Tenant an invoice therefor. The costs
incurred by Landlord in providing after-hour HVAC service to Tenant shall
include costs for electricity. water, sewage, water treatment, labor. metering,
filtering, and maintenance reasonably allocated by Landlord to providing such
service.
(b) Excess Utility Use. Landlord shall not be required to furnish
------------------
electrical current for equipment that requires more than 110 volts or other
equipment whose electrical energy consumption exceeds normal office usage. If
Tenant's requirements for or consumption of electricity exceed the electricity
to be provided by Landlord as described in Section 6 (a), Landlord shall. at
Tenant's expense. make reasonable efforts to supply such service through the
then-existing feeders and risers serving the Building and the Premises. and
Tenant shall pay to Landlord the cost of such service within ten days after
Landlord has delivered to Tenant an invoice therefor. Landlord may determine the
amount of such additional consumption and potential consumption by any
verifiable method, including installation of a separate meter in the Premises
installed, maintained, and read by Landlord, at Tenant's expense. Tenant shall
not install any electrical equipment requiring special wiring or requiring
voltage in excess of 110 volts or otherwise exceeding Building capacity unless
approved in advance by Landlord. The use of electricity in the Premises shall
not exceed the capacity of existing feeders and risers to or wiring in the
Premises. Any risers or wiring required to meet Tenant's excess electrical
requirements shall, upon Tenant's written request, be installed by Landlord. at
Tenant's cost. if, in Landlord's judgment, the same are necessary and shall not
cause permanent damage to the Building or the Premises, cause or create a
dangerous or hazardous condition, entail excessive or unreasonable alterations,
repairs. or expenses. or interfere with or disturb other tenants of the
Building. If Tenant uses machines or equipment in the Premises which affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the Premises,
-5-
<PAGE>
and the cost thereof, including the cost of installation, operation, use, and
maintenance, shall be paid by Tenant to Landlord within ten days after Landlord
has delivered to Tenant an invoice therefor.
(c) Restoration of Services: Abatement. Landlord shall use reasonable
----------------------------------
efforts to restore any service required of it that becomes unavailable; however,
such unavailability shall not render Landlord liable for any damages caused
thereby, be a constructive eviction of Tenant, constitute a breach of any
implied warranty, or. except as provided in the next sentence. entitle Tenant to
any abatement of Tenant's obligations hereunder If. however. Tenant is prevented
from using the Premises for more than 5 consecutive business days because of the
unavailability of any such service and such unavailability was not caused by a
Tenant Party, then Tenant shall, as its exclusive remedy be entitled to a
reasonable abatement of Rent for each consecutive day (after such 5 day period)
that Tenant is so prevented from using the Premises.
7. Improvements; Alterations: Repairs; Maintenance.
-----------------------------------------------
(a) Improvements: Alterations. Improvements to the Premises shall be
-------------------------
installed at Tenant's expense only in accordance with plans and specifications
which have been previously submitted to and approved in writing by Landlord. No
alterations or physical additions in or to the Premises may be made without
Landlord's prior written consent. which shall not be unreasonably withheld or
delayed; however. Landlord may withhold its consent to any alteration or
addition that would affect the Building's structure or its HVAC, plumbing,
electrical, or mechanical systems. Tenant shall not paint or install lighting or
decorations. signs, window or door lettering, or advertising media of any type
on or about the Premises without the prior written consent of Landlord. which
shall not be unreasonably withheld or delayed; however, Landlord may withhold
its consent to any such painting or installation which would affect the
appearance of the exterior of the Building or of any common areas of the
Building. All alterations. additions. or improvements made in or upon the
Premises shall. at Landlord's option, either be removed by Tenant prior to the
end of the Term (and Tenant shall repair all damage caused thereby), or shall
remain on the Premises at the end of the Term without compensation to Tenant.
All alterations, additions, and improvements shall be constructed. maintained.
and used by Tenant. at its risk and expense, in accordance with all Laws:
Landlord's approval of the plans and specifications therefor shall not be a
representation by Landlord that such alterations. additions, or improvements
comply with any Law.
(b) Repairs: Maintenance. Tenant shall maintain the Premises in a clean.
--------------------
safe, and operable condition, and shall not permit or allow to remain any waste
or damage to any portion of the Premises. Tenant shall repair or replace.
subject to Landlord's direction and supervision. any damage to the Building
caused by a Tenant Party. If Tenant fails to make such repairs or replacements
within 30 days after the occurrence of such damage, then Landlord may make the
same at Tenant's cost. If any such damage occurs outside of the Premises, then
Landlord may elect to
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<PAGE>
repair such damage at Tenant's expense. rather than having Tenant repair such
damage. The cost of all repair or replacement work performed by Landlord under
this Section 7 shall be paid by Tenant to Landlord within ten days after
Landlord has invoiced Tenant therefor
(c) Performance of Work. All work described in this Section 7 shall be
-------------------
performed only by Landlord or by contractors and subcontractors approved in
writing by Landlord. Tenant shall cause all contractors and subcontractors to
procure and maintain insurance coverage naming Landlord as an additional insured
against such risks, in such amounts, and with such companies as Landlord may
reasonably require. All such work shall be performed in accordance with all Laws
and in a good and workmanlike manner so as not to damage the Premises. the
Building, or the components thereof.
(d) Mechanic's Liens. Tenant shall not permit any mechanic's liens to be
----------------
filed against the Premises or the Building for any work performed. materials
furnished, or obligation incurred by or at the request of Tenant. If such a lien
is filed, then Tenant shall, within ten days after Landlord has delivered notice
of the filing thereof to Tenant, either pay the amount of the lien or diligently
contest such lien and deliver to Landlord a bond or other security reasonably
satisfactory to Landlord. If Tenant fails to timely take either such action,
then Landlord may pay the lien claim, and any amounts so paid, including
expenses and interest. shall be paid by Tenant to Landlord within ten days after
Landlord has invoiced Tenant therefor.
8. Use. Tenant shall continuously occupy and use the Premises only for
---
general office space (the "Permitted Use") and shall comply with all Laws
relating to the use, condition, access to, and occupancy of the Premises. The
Premises shall not be used for any use which is disreputable. creates
extraordinary fire hazards, or results in an increased rate of insurance on the
Building or its contents, or for the storage of any hazardous materials or
substances. If, because of a Tenant Party's acts, the rate of insurance on the
Building or its contents increases, then such acts shall be an Event of Default.
Tenant shall pay to Landlord the amount of such increase on demand, and
acceptance of such payment shall not waive any of Landlord's other rights.
Tenant shall conduct its business and control each other Tenant Party so as not
to create any nuisance or unreasonably interfere with other tenants or Landlord
in its management of the Building.
9. Assignment and Subletting.
-------------------------
(a) Transfers; Consent. Tenant shall not, without the prior written
------------------
consent of Landlord. which shall not be unreasonably withheld, (I) assign,
transfer, or encumber this Lease or any estate or interest herein, whether
directly or by operation of law, (2) permit any other entity to become Tenant
hereunder by merger, consolidation. or other reorganization, (3) if Tenant is an
entity other than a corporation whose stock is publicly traded. permit the
transfer of an ownership interest in Tenant so as to result in a change in the
current control of Tenant, (4) sublet any portion of the Premises. (5) grant any
license. concession. or other right of occupancy of any portion of the
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<PAGE>
Premises. or (6) permit the use of the Premises by any parties other than Tenant
(any of the events listed in Section 9 (a)(1) through 9 (a)(6) being a
"Transfer"). If Tenant requests Landlord's consent to a transfer, then Tenant
shall provide Landlord with a written description of all terms and conditions of
the proposed Transfer, copies of the proposed documentation. and the following
information about the proposed transferee: name and address; reasonably
satisfactory information about its business and business history: its proposed
use of the Premises: banking, financial. and other credit information; and
general references sufficient to enable Landlord to determine the proposed
transferee's creditworthiness and character. Landlord shall not unreasonably
withhold its consent to any assignment or subletting of the Premises, provided
that the proposed transferee (A) is creditworthy, (B) has a good reputation in
the business community, (C) does not engage in business similar to those of
other tenants in the Building, and (D) is not another occupant of the Building
or person or entity with whom Landlord is negotiating to lease space in the
Building; and Tenant shall reimburse Landlord immediately upon request for its
attorneys' fees incurred in connection with considering any request for consent
to a Transfer. If Landlord consents to a proposed Transfer, then the proposed
transferee shall deliver to Landlord a written agreement whereby it expressly
assumes Tenant's obligations hereunder; however, any transferee of less than all
of the space in the Premises shall be liable only for obligations under this
Lease that are properly allocable to the space subject to the Transfer for the
period of the Transfer. No Transfer shall release Tenant from its obligations
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default occurs
while the Premises or any part thereof are subject to a Transfer. then Landlord,
in addition to its other remedies. may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Rent Tenant authorizes
its transferees to make payments of rent directly to Landlord upon receipt of
notice from Landlord to do so. Tenant shall pay for the cost of any demising
walls or other improvements necessitated by a proposed subletting or assignment.
(b) Cancellation. Landlord may, within 30 days after submission of
------------
Tenant's written request for Landlord's consent to an assignment or subletting,
cancel this Lease as to the portion of the Premises proposed to be sublet or
assigned as of the date the proposed Transfer is to be effective. If Landlord
cancels this Lease as to any portion of the Premises. then this Lease shall
cease for such portion of the Premises and Tenant shall pay to Landlord all Rent
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer. Thereafter. Landlord may lease such portion of
the Premises to the prospective transferee without liability to Tenant.
(c) Additional Compensation. Tenant shall pay to Landlord, immediately
-----------------------
upon receipt thereof. the excess of (1) all compensation received by Tenant for
a Transfer less the costs reasonably incurred by Tenant with unaffiliated third
parties in connection with such Transfer (i.e., brokerage commissions, tenant
finish work, and the like) over (2) the Rent allocable to the portion of the
Premises covered thereby.
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<PAGE>
10. Insurance; Waivers; Subrogation; Indemnity.
------------------------------------------
(a) Insurance. Tenant shall maintain throughout the Term the following
---------
insurance policies: (1) comprehensive general liability insurance in amounts of
$1,000,000 per occurrence with $2,000.000 in the aggregate or such other amounts
as Landlord may from time to time reasonably require, insuring Tenant, Landlord,
Landlord's agents and their respective affiliates against all liability for
injury to or death of a person or persons or damage to property arising from the
use and occupancy of the Premises, (2) insurance covering the full value of
Tenant's property and improvements. and other property (including property of
others) in the Premises. (3) contractual liability insurance sufficient to cover
Tenant's indemnity obligations hereunder, (4) worker's compensation insurance.
containing a waiver of subrogation endorsement acceptable to Landlord, and (5)
business interruption insurance. Tenant's insurance shall provide primary
coverage to Landlord when any policy issued to Landlord provides duplicate or
similar coverage, and in such circumstance Landlord's policy will be excess over
Tenant's policy. Tenant shall furnish to Landlord certificates of such insurance
and such other evidence satisfactory to Landlord of the maintenance of all
insurance coverages required hereunder, and Tenant shall obtain a written
obligation on the part of each insurance company to notify Landlord at least 30
days before cancellation or a material change of any such insurance policies.
All such insurance policies shall be in form. and issued by companies.
reasonably satisfactory to Landlord.
(b) Waiver of Negligence; No Subrogation. Landlord and Tenant each
------------------------------------
waives any claim it might have against the other for any injury to or death of
any person or persons or damage to or theft. destruction. loss. or loss of use
of any property (a "Loss"), to the extent the same is insured against under any
insurance policy that covers the Building, the Premises. Landlord's or Tenant's
fixtures. personal property, leasehold improvements, or business. or. in the
case of Tenant's waiver is required to be insured against under the terms
hereof. regardless of whether the negligence of the other party caused such
Loss; however. Landlord's waiver shall not include any deductible amounts on
insurance policies carried by Landlord or to any coinsurance penalty which
Landlord may sustain Each party shall cause its insurance carrier to endorse all
applicable policies waiving the carrier's rights of recovery under subrogation
or otherwise against the other party
(c) Indemnity. Subject to Section 10.(b), Landlord and Tenant shall
---------
defend, indemnify, and hold harmless the other's and their respective
representatives and agents from and against all claims, demands, liabilities,
causes of action. suits, judgments, damages. and expenses (including attorneys'
fees) arising from (1) any Loss arising from any occurrence on the Premises or
the Building or (2) the failure by Landlord or Tenant. as the case may be, to
perform their respective obligations under this Lease, even though caused or
alleged to be caused by the negligence or fault of Landlord or Tenant. as the
case may be. or their respective agents (other than a Loss arising from the sole
or gross negligence of Landlord or Tenant. as the case may be. or their
respective agents), and even though any such claim. cause of action. or suit is
based upon or alleged to be based upon the strict liability of Landlord or
Tenant, as the case may be. or their respective agents. This
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<PAGE>
indemnity is intended to indemnify Landlord and Tenant. as the case may be. or
their respective agents against the consequences of their own negligence when
Landlord or Tenant, as the case may be. or their respective agents are jointly,
comparatively, contributively. or concurrently negligent with the other. This
indemnity provision shall survive termination or expiration of this Lease. If
any proceeding is filed for which indemnity is required hereunder. Tenant or
Landlord, as the case may be. agrees, upon request therefor. to defend the
indemnified party in such proceeding at its sole cost utilizing counsel
satisfactory to the indemnified party.
11. Subordination; Attornment; Notice to Landlord's Mortgagee.
---------------------------------------------------------
(a) Subordination. This Lease shall be subordinate to any deed of trust?
-------------
mortgage. or other security instrument, or any ground lease, master lease. or
primary lease. that now or hereafter covers all or any part of the Premises (the
mortgagee under any such mortgage or the lessor under any such lease is referred
to herein as a "Landlord's Mortgagee"). Any Landlord's Mortgagee may elect. at
any time. unilaterally, to make this Lease superior to its mortgage, ground
lease. or other interest in the Premises by so notifying Tenant in writing.
(b) Attornment. Tenant shall attorn to any party succeeding to Landlord's
----------
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure. power of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements confirming such attornment as
such party may reasonably request.
(c) Notice to Landlord's Mortgagee. Tenant shall not seek to enforce any
------------------------------
remedy it may have for any default on the part of Landlord without first giving
written notice by certified mail, return receipt requested, specifying the
default in reasonable detail, to any Landlord's Mortgagee whose address has been
given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
12. Rules and Regulations. Tenant shall comply with the rules and
---------------------
regulations of the Building which are attached hereto as Exhibit C. Landlord
----------
may, from time to time, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and will not unreasonably
interfere with Tenant's use of the Premises. Tenant shall be responsible for
the compliance with such rules and regulations by each Tenant Party.
13. Condemnation.
------------
(a) Total Taking. If the entire Building or Premises are taken by right
------------
of eminent domain or conveyed in lieu thereof (a "Taking"), this Lease shall
terminate as of the date of the Taking.
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<PAGE>
(b) Partial Taking - Tenant's Rights. If any part of the Building becomes
--------------------------------
subject to a Taking and such Taking will prevent Tenant from conducting its
business in the Premises in a manner reasonably comparable to that conducted
immediately before such Taking for a period of more than 180 days. then Tenant
may terminate this Lease as of the date of such Taking by giving written notice
to Landlord within 30 days after the Taking, and Rent shall be apportioned as of
the date of such Taking. If Tenant does not terminate this Lease, then Rent
shall be abated on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.
(c) Partial Taking - Landlord's Rights. If any material portion. but less
----------------------------------
than all. of the Building becomes subject to a Taking, or if Landlord is
required to pay any of the proceeds received for a Taking to a Landlord's
Mortgagee. then Landlord may terminate this Lease by delivering written notice
thereof to Tenant within 30 days after such Taking, and Rent shall be
apportioned as of the date of such Taking. If Landlord does not so terminate
this Lease, then this Lease will continue, but if any portion of the Premises
has been taken, Rent shall abate as provided in the last sentence of Section 13
(b).
(d) Award. If any Taking occurs. then Landlord shall receive the entire
-----
award or other compensation for the land on which the Building is situated, the
Building. and other improvements taken, and Tenant may separately pursue a claim
(to the extent it will not reduce Landlord's award) against the condemnor for
the value of Tenant's personal property which Tenant is entitled to remove under
this Lease, moving costs, loss of business, and other claims it may have.
14. Fire or Other Casualty.
----------------------
(a) Repair Estimate. If the Premises or the Building are damaged by fire
---------------
or other casualty (a "Casualty"), Landlord shall within 60 days after such
Casualty, deliver to Tenant a good faith estimate (the "Damage Notice") of the
time needed to repair the damage caused by such Casualty.
(b) Landlord's and Tenant's Rights. If a material portion of the Premises
------------------------------
or the Building is damaged by Casualty such that Tenant is prevented from
conducting its business in the Premises in a manner reasonably comparable to
that conducted immediately before such Casualty and Landlord estimates that the
damage caused thereby cannot be repaired within 180 days after the Casualty,
then Tenant may terminate this Lease by delivering written notice to Landlord of
its election to terminate within 30 days after the Damage Notice has been
delivered to Tenant. If Tenant does not so timely terminate this Lease, then
(subject to Section 14.(c)) Landlord shall repair the Building or the Premises,
as the case may be, as provided below, and Rent for the portion of the Premises
rendered untenantable by the damage shall be abated on a reasonable basis from
the date of damage until the completion of the repair, unless a Tenant Party
caused such damage, in which case, Tenant shall continue to pay Rent without
abatement.
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<PAGE>
(c) Landlord's Rights. If a Casualty damages a material portion of the
-----------------
Building, and Landlord makes a good faith determination that restoring the
Premises or Building would be uneconomical, or if Landlord is required to pay
any insurance proceeds arising out of the Casualty to a Landlord's Mortgagee,
then Landlord may terminate this Lease by giving written notice of its election
to terminate within 30 days after the Damage Notice has been delivered to
Tenant, and Basic Rent and Additional Rent shall be abated as of the date of the
Casualty.
(d) Repair Obligation. If neither party elects to terminate this Lease
-----------------
following a Casualty. then Landlord shall. within a reasonable time after such
Casualty, begin to repair the Building and the Premises and shall proceed with
reasonable diligence to restore the Building and Premises to substantially the
same condition as they existed immediately before such Casualty; however,
Landlord shall not be required to repair or replace any of the furniture,
equipment. fixtures, and other improvements which may have been placed by, or at
the request of. Tenant or other occupants in the Building or the Premises. and
Landlord's obligation to repair or restore the Building or Premises shall be
limited to the extent of the insurance proceeds actually received by Landlord
for the Casualty in question.
15. Personal Property Taxes. Tenant shall be liable for all taxes levied
-----------------------
or assessed against personal property, furniture, or fixtures placed by Tenant
in the Premises. If any taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord's property and Landlord elects to pay the same. or
if the assessed value of Landlord's property is increased by inclusion of such
personal property, furniture or fixtures and Landlord elects to pay the taxes
based on such increase. then Tenant shall pay to Landlord, upon demand. the part
of such taxes for which Tenant is primarily liable hereunder; however, Landlord
shall not pay such amount if Tenant notifies Landlord that it will contest the
validity or amount of such taxes before Landlord makes such payment. and
thereafter diligently proceeds with such contest in accordance with law and if
the non-payment thereof does not pose a threat of loss or seizure of the
Building or interest of Landlord therein or impose any fee or penalty against
Landlord.
16. Events of Default. Each of the following occurrences shall be an
-----------------
"Event of Default"
(a) Tenant's failure to pay Rent within five days after Landlord has
delivered notice to Tenant that the same is due; however. an Event of
Default shall occur hereunder without any obligation of Landlord to give
any notice if Landlord has given Tenant written notice under this Section
16.(a) on more than one occasion during the twelve (12) month interval
preceding such failure by Tenant;
(b) Tenant (1) abandons or vacates the Premises or any substantial
portion thereof or (1) fails to continuously operate its business in the
Premises for the Permitted Use set forth herein; and fails to make timely
rental payments.
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<PAGE>
(c) Tenant fails to provide any estoppel certificate as called for in
this Lease and such failure shall continue for 20 days after written notice
thereof from Landlord to Tenant:
(d) Tenant's failure to perform. comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance of
such failure for a period of more than 30 days after Landlord has delivered
to Tenant written notice thereof. or for a period of 45 days if Tenant is
making its best effort to cure: and
(e) The filing of a petition by or against Tenant (the term "Tenant"
------
shall include. for the purpose of this Section 16.(e), any guarantor of
Tenant's obligations hereunder) (1) in any bankruptcy or other insolvency
proceeding; (2) seeking any relief under any state or federal debtor relief
law; (3) for the appointment of a liquidator or receiver for all or
substantially all of Tenant's property or for Tenant's interest in this
Lease; or (4) for the reorganization or modification of Tenant's capital
structure; however. if such a petition is filed against Tenant. then such
filing shall not be an Event of Default unless Tenant fails to have the
proceedings initiated by such petition dismissed within 90 days after the
filing thereof.
17. Remedies. Upon any Event of Default. Landlord may, in addition to all
--------
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions:
(a) Terminate this Lease by giving Tenant written notice thereof. in
which event Tenant shall pay to Landlord the sum of (1) all Rent accrued
hereunder through the date of termination, (2) all amounts due under
Section 18.(a), and (3) an amount equal to (A) the total Rent that Tenant
would have been required to pay for the remainder of the Term discounted to
present value at a per annum rate equal to the "Prime Rate" as published on
the date this Lease is terminated by The Wall Street Journal, Southwest
Edition, in its listing of "Money Rates" minus one percent. minus (B) the
then present fair rental value of the Premises for such period, similarly
discounted; or
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant. in which
event Tenant shall pay to Landlord (1) all Rent and other amounts accrued
hereunder to the date of termination of possession. (2) all amounts due
from time to time under Section 18.(a), and (3) all Rent and other net sums
required hereunder to be paid by Tenant during the remainder of the Term.
diminished by any net sums thereafter received by Landlord through
reletting the Premises during such period. after deducting all costs
incurred by Landlord in reletting the Premises. Landlord shall use
reasonable efforts to relet the Premises on such terms as Landlord in its
sole discretion may determine (including a term different from the Term.
rental concessions. and alterations to. and improvement of. the Premises):
however. Landlord shall not be obligated to relet the Premises before
leasing other portions of the Building. Landlord shall
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<PAGE>
not be liable for, nor shall Tenant's obligations hereunder be diminished
because of: Landlord's failure to relet the Premises or to collect rent due
for such reletting. Tenant shall not be entitled to the excess of any
consideration obtained by reletting over the Rent due hereunder. Reentry by
Landlord in the Premises shall not affect Tenant's obligations hereunder
for the unexpired Term; rather. Landlord may, from time to time. bring an
action against Tenant to collect amounts due by Tenant. without the
necessity of Landlord's waiting until the expiration of the Term. Unless
Landlord delivers written notice to Tenant expressly stating that it has
elected to terminate this Lease all actions taken by Landlord to dispossess
or exclude Tenant from the Premises shall be deemed to be taken under this
Section 17.(b). If Landlord elects to proceed under this Section 17.(b), it
may at any time elect to terminate this Lease under Section 17.(a).
18. Payment by Tenant: Non-Waiver
-----------------------------
(a) Payment by Tenant. Upon any Event of Default. Tenant shall pay to
-----------------
Landlord all costs incurred by Landlord (including court costs and reasonable
attorneys' fees and expenses) in (1) obtaining possession of the Premises. (2)
removing and storing Tenant's or any other occupant's property. (3) repairing,
restoring, altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant. (4) reletting all or any part of the
Premises (including brokerage commissions, cost of tenant finish work. and other
costs incidental to such reletting), (5) performing Tenant's obligations which
Tenant failed to perform. and (6) enforcing, or advising Landlord of. its
rights. remedies. and recourses arising out of the Event of Default. To the full
extent permitted by law. Landlord and Tenant agree the federal and state courts
of Tennessee shall have exclusive jurisdiction over any matter relating to or
arising from this Lease and the parties' rights and obligations under this
Lease.
(b) No Waiver. Landlord's acceptance of Rent following an Event of
---------
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such
term. Landlord's acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the Rent that is due.
regardless of any endorsement or other statement on any instrument delivered in
payment of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute an
accord and satisfaction of the full amount of the Rent that is due.
19. Landlord's Lien. Tenant grants to Landlord, to secure performance of
---------------
Tenant's obligations hereunder. a security interest in all goods (including
equipment and inventory), fixtures, and other personal property of Tenant
situated on the Premises. and all proceeds thereof (the "Collateral"), and the
----------
Collateral shall not be removed from the Premises without the prior written
consent of Landlord (other than in Tenant's ordinary course of business) until
all obligations of Tenant have been fully performed. Upon the occurrence of an
Event of Default, Landlord may, in
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<PAGE>
addition to all other remedies without notice or demand except as provided
below, exercise the rights afforded to a secured party under the Tennessee
Uniform Commercial Code (the "UCC"). To the extent the UCC requires Landlord to
give to Tenant notice of any act or event and such notice cannot be validly
waived before a default occurs, then five-days' prior written notice thereof
shall be reasonable notice of the act or event. Tenant grants to Landlord a
power of attorney to execute and file any financing statement or other
instrument necessary to perfect Landlord's security interest under this Section
19. which power is coupled with an interest and is irrevocable during the Term.
Landlord may also file a copy of this Lease as a financing statement to perfect
its security interest in the Collateral.
20. Surrender of Premises. No act by Landlord shall be deemed an
---------------------
acceptance of a surrender of the Premises. and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord. At the expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises with all improvements located therein in good repair
and condition. broom-clean. reasonable wear and tear (and condemnation and
Casualty damage not caused by Tenant. as to which Sections 13 and 14 shall
control) excepted, and shall deliver to Landlord all keys to the Premises.
Provided that Tenant has performed all of its obligations hereunder. Tenant may
remove all unattached trade fixtures. furniture and personal property placed in
the Premises by Tenant. and shall remove such alterations. additions.
improvements. trade fixtures. personal property. equipment. wiring, and
furniture as Landlord may request. Tenant shall repair all damage caused by such
removal. All items not so removed shall be deemed to have been abandoned by
Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord without notice to Tenant and without any obligation to account
for such items. The provisions of this Section 20 shall survive the end of the
Term.
21. Holding Over. If Tenant fails to vacate the Premises at the end of
------------
the Term, then Tenant shall be a tenant at will, which tenancy shall be
terminable at any time on thirty (30) days notice, and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rent equal to the
greater of (a) 150% of the daily Basic Rent payable during the last month of the
Term The provisions of this Section 21 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom. Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys fees) and
liability resulting from such failure. including, without limiting the
generality of the foregoing. any claims made by any succeeding tenant founded
upon such failure to surrender. and any lost profits to Landlord resulting
therefrom.
22. Certain Rights Reserved by Landlord. Provided that the exercise of
-----------------------------------
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises. Landlord shall have the following rights:
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<PAGE>
(a) To decorate and to make inspections, repairs, alterations,
additions. changes, or improvements. whether structural or otherwise. in
and about the Building, or any part thereof; to enter upon the Premises
and. during the continuance of any such work, to temporarily close doors.
entryways, public space. and corridors in the Building; to interrupt or
temporarily suspend Building services and facilities; to change the name of
the Building; and to change the arrangement and location of entrances or
passageways. doors. and doorways. corridors. elevators. stairs, restrooms,
or other public parts of the Building;
(b) To take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily denying access
to the Building; and closing the Building after normal business hours and
on Sundays and holidays, subject, however, to Tenant's right to enter when
the Building is closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time; and
(c) To enter the Premises at reasonable hours, with one hour notice,
to show the Premises to prospective purchasers, lenders, or, during the
last 6 months of the Term, tenants.
23. Substitution Space. Landlord may. at Landlord's expense, relocate
------------------
Tenant within the Building to space which is comparable in size, location,
visibility, view, utility and condition to the Premises. If Landlord relocates
Tenant, Landlord shall reimburse Tenant for all of Tenant's reasonable out-of-
pocket expenses, including but not limited to, moving Tenant's furniture,
equipment. and supplies from the Premises to the relocation space and for
reprinting Tenant's stationery of the same quality and quantity as Tenant's
stationery supply on hand immediately before Landlord's notice to Tenant of the
exercise of this relocation right. Upon such relocation, the relocation space
shall be deemed to be the Premises and the terms of the Lease shall remain in
full force and shall apply to the relocation space.
24. Miscellaneous.
-------------
(a) Landlord Transfer. Landlord may transfer any portion of the Building
-----------------
and any of its rights under this Lease. If Landlord assigns its rights under
this Lease. then Landlord shall thereby be released from any further obligations
hereunder, provided that the assignee assumes Landlord's obligations hereunder
in writing.
(b) Landlord's Liability. The liability of Landlord to Tenant for any
--------------------
default by Landlord under the terms of this Lease shall be limited to Tenant's
actual direct, but not consequential. damages therefor and shall be recoverable
only from the interest of Landlord in the Building, and Landlord shall not be
personally liable for any deficiency This Section shall not limit any remedies
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<PAGE>
which Tenant may have for Landlord's defaults which do not involve the personal
liability of Landlord.
(c) Force Majeure. Other than for Tenant's obligations under this Lease
-------------
that can be performed by the payment of money (e.g., payment of Rent and
maintenance of insurance), whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes. riots. acts of God, shortages of
labor or materials. war. governmental laws, regulations, or restrictions, or any
other causes of any kind whatsoever which are beyond the control of such Party.
(d) Brokerage. Neither Landlord nor Tenant has dealt with any broker or
---------
agent in connection with the negotiation or execution of this Lease. other than
Trammell Crow Company and CB Commercial Interstate Realty, Inc, whose commission
shall be paid by Landlord. Tenant and Landlord shall each indemnify the other
against all costs. expenses. attorneys' fees, and other liability for
commissions or other compensation claimed by any broker or agent claiming the
same by, through, or under the indemnifying party.
(e) Estoppel Certificates. From time to time. Tenant shall furnish to any
---------------------
party designated by Landlord, within ten days after Landlord has made a request
therefor, a certificate signed by Tenant confirming and containing such factual
certifications and representations as to this Lease as Landlord may reasonably
request.
(f) Notices. All notices and other communications given pursuant to this
-------
Lease shall be in writing and shall be (l) mailed by first class, United States
Mail. postage prepaid. certified, with return receipt requested, and addressed
to the parties hereto at the address specified next to their signature block,
(2) hand delivered to the intended address, or (3) sent by prepaid telegram.
cable, facsimile transmission, or telex followed by a confirmatory letter. All
notices shall be effective upon delivery to the address of the addressee. The
parties hereto may change their addresses by giving notice thereof to the other
in conformity with this provision.
(g) Separability. If any clause or provision of this Lease is illegal,
------------
invalid, or unenforceable under present or future laws, then the remainder of
this Lease shall not be affected thereby and in lieu of such clause or
provision, there shall be added as a part of this Lease a clause or provision as
similar in terms to such illegal, invalid, or unenforceable clause or provision
as may be possible and be legal, valid, and enforceable.
(h) Amendments; and Binding Effect. This Lease may not be amended except
------------------------------
by instrument in writing signed by Landlord and Tenant. No provision of this
Lease shall be deemed to have been waived by Landlord unless such waiver is in
writing signed by Landlord, and no custom or practice which may evolve between
the parties in the administration of the terms hereof
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<PAGE>
shall waive or diminish the right of Landlord to insist upon the performance by
Tenant in strict accordance with the terms hereof. The terms and conditions
contained in this Lease shall inure to the benefit of and be binding upon the
parties hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and, other than Landlord's
Mortgagee, no third party shall be deemed a third party beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed all of its obligations
---------------
hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises for
the Term, without hindrance from Landlord or any party claiming by, through, or
under Landlord, but not otherwise. subject to the terms and conditions of this
Lease.
(j) No Merger. There shall be no merger of the leasehold estate hereby
---------
created with the fee estate in the Premises or any part thereof if the same
person acquires or holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the leasehold Premises or any interest in such
fee estate.
(k) No Offer. The submission of this Lease to Tenant shall not be
--------
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
(l) Entire Agreement. This Lease constitutes the entire agreement between
----------------
Landlord and Tenant regarding the subject matter hereof and supersedes all oral
statements and prior writings relating thereto. Except for those set forth in
this Lease, no representations, warranties, or agreements have been made by
Landlord or Tenant to the other with respect to this Lease or the obligations of
Landlord or Tenant in connection therewith. The normal rule of construction that
any ambiguities be resolved against the drafting party shall not apply to the
interpretation of this Lease or any exhibits or amendments hereto.
(m) Waiver of Jury Trial. To the maximum extent permitted by law.
--------------------
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
(n) Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the State in which the Premises are located.
(o) Joint and Several Liability. If Tenant is comprised of more than one
---------------------------
party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
(p) Landlord's Fees. Whenever Tenant requests Landlord to take any action
---------------
or give any consent required or permitted under this Lease, Tenant will
reimburse Landlord for Landlord's
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<PAGE>
reasonable costs incurred in reviewing the proposed action or consent. including
without limitation reasonable attorneys', engineers' or architects' fees, within
10 days after Landlord's delivery to Tenant of a statement of such costs. Tenant
will be obligated to make such reimbursement without regard to whether Landlord
consents to any such proposed action.
(q) Telecommunications. Tenant and its telecommunications companies,
------------------
including but not limited to local exchange telecommunications companies and
alternative access vendor services companies shall have no right of access to
and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic.
microwave, wireless. and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent.
(r) General Definitions. The following terms shall have the following
-------------------
meanings: "Laws" means all federal, state, and local laws, rules and
regulations. all court orders, all governmental directives and governmental
orders. and all restrictive covenants affecting the Property, and "Law" means
any of the foregoing; "Affiliate" means any person or entity which. directly or
indirectly, controls. is controlled by, or is under common control with the
party in question; "Tenant Party" shall include Tenant, any assignees claiming
------------
by, through, or under Tenant, any subtenants claiming by, through, or under
Tenant, and any agents, contractors, employees, invitees of the foregoing
parties: and "including" means including, without limitation.
---------
(s) Confidentiality. Tenant acknowledges that the terms and conditions of
---------------
this Lease are to remain confidential for Landlord's benefit, and may not be
disclosed by Tenant to anyone. by any manner or means, directly or indirectly.
without Landlord's prior written consent. The consent by Landlord to any
disclosures shall not be deemed to be a waiver on the part of Landlord of any
prohibition against any future disclosure.
(t) Parking. Landlord agrees to provide to Tenant one (I) reserved
-------
parking space free of charge for the term of the Lease.
(u) List of Exhibits. All exhibits and attachments attached hereto are
----------------
incorporated herein by this reference.
Exhibit A - Outline of Premises
Exhibit B - Legal Description of Building
Exhibit C - Building Rules and Regulations
Exhibit D - Tenant Finish-Work
--------------------------------------------------------
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Exhibit E - Right of First Offer
Exhibit F - Larger Space Option
25. Other Provisions. LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED
----------------
WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL
PURPOSE. AND TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE
CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS
HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN. TENANT SHALL
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<PAGE>
CONTINUE TO PAY THE RENT WITHOUT ABATEMENT. DEMAND, SETOFF OR DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER,
WHETHER EXPRESS OR IMPLIED.
Dated as of the date first above written.
TENANT:
MASTER GRAPHICS, INC.
---------------------
By: /s/ Lance T. Fair
-----------------
Name: Lance T. Fair
Title: Senior Vice President
Address:2500 Lamar Avenue
----------------------------
Memphis, Tennessee 38114
------------------------------------
------------------------------------
LANDLORD:
Crescent Center Limited Partnership, a
Delaware Limited Partnership
By: New Crescent Center Corp., a
Delaware Corporation
By: /s/ Brain M. Ainsworth
----------------------
Brian M. Ainsworth,
Vice President
With a copy to:
Archon Group, L.P.
600 Las Colinas Boulevard,
Suite 1900
Irving, Texas 75039
Attention: Asset Manager
-21-
<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 THREE MONTHS ENDED THREE MONTHS ENDED
YEAR SIX MONTHS DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1997
ENDED ENDED ---------------------- -------------------- ----------------------
JUNE 30, DECEMBER 31, PRO FORMA, PRO FORMA
1997 1997 PRO FORMA AS ADJUSTED 1997 1998 PRO FORMA AS ADJUSTED
--------- ------------ --------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings
(loss)............ $ (1,273) $ (3,819) $ (5,482) $ 893 $ (249) $ 443 $ (1,073) $ 156
Less preferred
stock dividends... -- -- 114 114 29 29
Less accretion of
preferred stock
discount.......... -- -- 116 116 -- -- 29 29
--------- --------- --------- --------- --------- --------- --------- ---------
Net earnings
(loss) applicable
to common
shares........... $ (1,273) $ (3,819) $ (5,712) $ 663 (249) 443 $ (1,131) $ 98
========= ========= ========= ========= ========= ========= ========= =========
Basic:
Weighed average
common shares
outstanding...... 4,000,000 4,000,000 4,000,000 7,666,664(3) 4,000,000 4,000,000 4,000,000 7,666,664
========= ========= ========= ========= ========= ========= ========= =========
Basic earnings
(loss) per
share........... $ (0.32) $ (0.95) $ (1.43) $ 0.09 $ (0.06) $ 0.11 $ (0.28) $ 0.01
========= ========= ========= ========= ========= ========= ========= =========
Diluted:
Weighted average
common shares
outstanding...... 4,000,000 4,000,000 4,000,000 7,666,664 4,000,000 4,000,000 4,000,000 7,666,664
Assumed
conversion of
preferred stock.. -- -- 177,776 177,776 -- -- 177,776 177,776
Assumed exercise
of warrants...... -- 355,552 449,997 183,333 -- 444,440 449,997 183,333
Assumed exercise
of the stock
option clause in
the deferred
compensation
agreements....... -- -- -- 83,333 -- -- -- 83,333
--------- --------- --------- --------- --------- --------- --------- ---------
4,000,000 4,355,552 4,627,773 8,111,106 4,000,000 4,444,440 4,627,773 8,111,106
========= ========= ========= ========= ========= ========= ========= =========
Diluted earnings
(loss) per
share(4)........ $ (0.32) $ (0.88) $ (1.18) $ 0.11 $ (0.06) $ 0.10 $ (0.23) $ 0.02
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
----------------------
PRO FORMA,
PRO FORMA AS ADJUSTED
---------- -----------
<S> <C> <C>
Net earnings
(loss)............ $ (656) $ 370
Less preferred
stock dividends... 29 29
Less accretion of
preferred stock
discount.......... 29 29
---------- -----------
Net earnings
(loss) applicable
to common
shares........... $ (714) $ 312
========== ===========
Basic:
Weighed average
common shares
outstanding...... 4,000,000 7,666,664
========== ===========
Basic earnings
(loss) per
share........... $ (0.18) $ 0.04
========== ===========
Diluted:
Weighted average
common shares
outstanding...... 4,000,000 7,666,664
Assumed
conversion of
preferred stock.. 177,776 177,776
Assumed exercise
of warrants...... 449,997 183,333
Assumed exercise
of the stock
option clause in
the deferred
compensation
agreements....... -- 83,333
---------- -----------
4,627,773 8,111,106
========== ===========
Diluted earnings
(loss) per
share(4)........ $ (0.14) $ 0.05
========== ===========
</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 for the six months ended December 31, 1997 were anti-
dilutive and, therefore, are not disclosed in the statement of operations.
Earnings (loss) per share on a pro forma basis were anti-dilutive due to
the preferred stock conversions and the warrant exercise, and, therefore
have 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 for the year ended December 31, 1997 was anti-
dilutive due to the preferred stock conversion, and, therefore, that
conversion was not assumed in the unaudited pro forma condensed
consolidated statement of operations (as adjusted column).
<PAGE>
EXHIBIT 21.1
MASTER GRAPHICS, INC.
LIST OF SUBSIDIARIES
The following is a list of all of the subsidiaries of Master Graphics,
Inc.:
1) Premier Graphics, Inc., a Delaware corporation;
2) Harperprints, Inc., a North Carolina corporation;
3) Phillips Litho Co., Inc., an Arkansas corporation; and
<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
May 12, 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
May 12, 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
May 12, 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
May 13, 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
May 12, 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
May 11, 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
May 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 498
<SECURITIES> 0
<RECEIVABLES> 7,163
<ALLOWANCES> 215
<INVENTORY> 1,737
<CURRENT-ASSETS> 9,657
<PP&E> 24,899
<DEPRECIATION> 4,427
<TOTAL-ASSETS> 37,215
<CURRENT-LIABILITIES> 6,601
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 776
<TOTAL-LIABILITY-AND-EQUITY> 37,215
<SALES> 13,433
<TOTAL-REVENUES> 13,433
<CGS> 11,312
<TOTAL-COSTS> 11,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 156
<INTEREST-EXPENSE> 439
<INCOME-PRETAX> (1,248)
<INCOME-TAX> 25
<INCOME-CONTINUING> (1,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,273)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JUL-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1,174 4,843
<SECURITIES> 0 0
<RECEIVABLES> 15,474 23,741
<ALLOWANCES> 484 683
<INVENTORY> 4,836 5,822
<CURRENT-ASSETS> 22,480 36,693
<PP&E> 35,038 51,311
<DEPRECIATION> 5,488 6,194
<TOTAL-ASSETS> 86,384 127,355
<CURRENT-LIABILITIES> 15,789 20,757
<BONDS> 0 0
0 1,350
0 0
<COMMON> 4 4
<OTHER-SE> 1,600 3,764
<TOTAL-LIABILITY-AND-EQUITY> 86,384 127,355
<SALES> 32,394 28,020
<TOTAL-REVENUES> 32,394 28,020
<CGS> 26,528 20,771
<TOTAL-COSTS> 26,528 20,771
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (33) 50
<INTEREST-EXPENSE> 2,181 2,065
<INCOME-PRETAX> (3,799) 439
<INCOME-TAX> 20 (4)
<INCOME-CONTINUING> (3,819) 443
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,819) 443
<EPS-PRIMARY> (0.95) 0
<EPS-DILUTED> (0.95) 0
</TABLE>
