<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 25, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PREMIER GRAPHICS INC.
AND THE GUARANTORS IDENTIFIED IN FOOTNOTE (1) BELOW
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2572 62-1694320
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL IDENTIFICATION NUMBER)
CLASSIFICATION CODE
NUMBER)
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
PRESIDENT
PREMIER GRAPHICS, INC.
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:
ROBERT J. DELPRIORE, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL
165 MADISON AVENUE, SUITE 2100
MEMPHIS, TENNESSEE 38103
(901) 577-2194
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities begin registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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. [_]
- ------------------
(1) Master Graphics, Inc., a Tennessee corporation (I.R.S. Employer
Identification Number 62-1694322) and the parent of the registrant, and
Harperprints, Inc., a North Carolina corporation, (I.R.S. Employer
Identification Number 56-1074215) and the only other subsidiary of Master
Graphics, Inc., are Guarantors of the Notes and are Co-Registrants.
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SECURITY PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
11 1/2% Senior Notes due
2005 ................. $130,000,000 100% $130,000,000 $36,140
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Guarantee of 11 1/2% Se-
nior Notes due 2005... $130,000,000 (2) (2) (2)
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f) of the Securities Act of 1933, as amended.
(2) No additional consideration for the Guarantees of the 11 1/2% Senior Notes
due 2005 will be furnished. Pursuant to Rule 457(n) under the Securities
Act, no separate fee is payable with respect to such Guarantees.
----------
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 THE 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION AND IS EFFECTIVE. THIS PROSPECTUS IS NOT +
+AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY +
+THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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SUBJECT TO COMPLETION DATED JANUARY , 1999
OFFER TO EXCHANGE
ALL OUTSTANDING 11 1/2% SENIOR NOTES DUE 2005
($130,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
11 1/2% SENIOR NOTES DUE 2005 OF
PREMIER GRAPHICS, INC.
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TERMS OF EXCHANGE OFFER:
. Expires 5:00 p.m. New York City time, 1999, unless extended.
. Not subject to any condition other than that the Exchange Offer not
violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission.
. All outstanding notes that are validly tendered and not validly
withdrawn will be exchanged.
. Tenders of outstanding notes may be withdrawn any time prior to the
expiration of the Exchange Offer.
. The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
. We will not receive any proceeds from the Exchange Offer.
. The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions and
registration rights relating to the outstanding notes.
See "Risk Factors" beginning on page 13 for a discussion of certain matters
that should be considered by prospective investors.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................
Risk Factors.............................................................. 13
The Exchange Offer........................................................ 21
Company Background........................................................ 21
Use of Proceeds........................................................... 21
Capitalization--Premier................................................... 29
Capitalization--Master Graphics........................................... 30
Selected Financial Data................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 38
Management................................................................ 47
Certain Transactions...................................................... 53
Principal Shareholders.................................................... 55
Description of Other Indebtedness......................................... 57
Description of Notes...................................................... 60
Exchange and Registration Rights Agreement................................
Certain United States Income Tax Considerations...........................
Book-Entry; Delivery and Form.............................................
Plan of Distribution...................................................... 92
Legal Matters............................................................. 92
Experts................................................................... 93
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. Because
this is a summary, it does not contain all the information that may be
important to you. To understand this offering fully, you should read the
entire Prospectus, including Risk Factors beginning on page 13 and the
financial statements beginning on page F-1.
Throughout this Prospectus, unless the context indicates otherwise,
when we refer to "us," "we," "our" or the "Company," we are describing
Premier together with our parent company, Master Graphics, Inc. and its
other subsidiary, Harperprints, Inc. References to Premier, Master
Graphics or Harperprints include only the named entity.
THE COMPANY
We acquire, own and operate
general commercial printing
companies and are a leading
consolidator within the general
commercial printing industry.
Since June 1997, we have acquired
14 general commercial printing
companies which we believe are
market leaders in the areas they
serve. The companies we have
acquired have been in business
for nearly 50 years on average.
Our operating method encourages
companies we acquire to market
our overall capabilities to their
existing customers and to
emphasize these capabilities to
potential customers. We intend to
continue acquiring general
commercial printing companies.
We provide service in all areas
of general commercial printing.
We have the expertise and
equipment to perform each step in
the general commercial printing
process. Our products include
annual reports, direct mail
pieces, sales literature, point
of purchase materials, market
letters, newsletters, training
manuals, product brochures and
catalogs. Our customers include
Federal Express, IBM, Provident
Life, W.W. Grainger, Turner
Broadcasting and G.D. Searle.
The following tables provide
some basic financial information
about us as if we had operated
all of our divisions for the
entire period indicated. Please
refer to the tables on pages 9
and 11, the table on page 31 and
the financial statements
beginning on page F-1 for more
financial information about us
and the companies we have
acquired.
Our principal executive office is located at 6075 Poplar Ave., Suite 401,
Memphis, Tennessee 38119. Our telephone number is (901) 685-2020.
OUR PRO FORMA RESULTS FOR THE 12
MONTHS ENDED SEPTEMBER 30, 1998:
<TABLE>
<S> <C>
Consolidated revenue... $223.5 million
Operating income....... $17.2 million
EBITDA................. $26.3 million
Adjusted EBITDA........ $27.0 million
</TABLE>
OUR PRO FORMA RESULTS FOR THE 3
MONTHS ENDED SEPTEMBER 30, 1998:
<TABLE>
<S> <C>
Consolidated revenue.... $56.2 million
Operating income........ $5.6 million
EBITDA.................. $7.8 million
Adjusted EBITDA......... $7.8 million
</TABLE>
THE EXCHANGE OFFER
On December 11, 1998, we
completed the private offering of
$130.0 million of 11 1/2% Senior
Notes due 2005. The initial
purchasers placed the notes with
institutional investors. The
notes are guaranteed by Master
Graphics, Inc., our parent, and
Harperprints, Inc., Master
Graphics only other subsidiary.
When we issued the notes, we
entered into a registration
rights agreement with the initial
purchasers in the private
offering in which we agreed,
among other things, to deliver to
you this Prospectus and to
complete the Exchange Offer
within 150 days of the issuance
of the notes. You are entitled to
exchange in the Exchange Offer
your outstanding notes for
registered notes with
substantially identical terms. If
the Exchange Offer is not
completed within 150 days of the
issuance of the 11 1/2% Senior
Notes due 2005, then the interest
rates on the notes will be
increased based upon a
calculation contained in the
registration rights agreement.
You should read the discussion
under the heading "The Exchange
3
<PAGE>
Offer" and "Description of Notes"
for further information regarding
the registered notes.
We believe that the notes
issued in the Exchange Offer may
be resold by you without
compliance with the registration
and prospectus delivery
provisions of the Securities Act,
subject to certain conditions.
You should read the discussion
under the heading "The Exchange
Offer" for further information
regarding the Exchange Offer and
resale of the notes.
OUR INDUSTRY
The printing industry is one of the largest and most fragmented industries in
the United States. The printing industry includes our business, general
commercial printing, as well as financial printing, printing and publishing of
books, newspapers and magazines and quick printing. Sales for the general
commercial printing segment of the industry totaled approximately $46.8 billion
in 1997 compared to $42.9 billion in 1996, according to estimates by the
Printing Institute of America. The PIA also estimated that in 1997 there were
approximately 25,000 general commercial printing companies in the United
States.
General commercial printing involves a process that starts with developing a
customer's concept into a printable form. Once developed, we then use printing
presses to produce the printed material. We then cut, fold and bind the
material to produce the finished product. Finally, we distribute the finished
product at the customer's direction.
Because the printing industry is fragmented, we believe that there are many
acquisition opportunities. As an industry consolidator, we are motivated to
purchase independent companies because of the economies of scale that we can
achieve from having a large number of printing plants located in different
regions of the country.
OUR STRATEGY
Our operating strategy is to:
. provide premium, high quality
service to customers looking
for service and quality, not
just price;
. cross-sell and efficiently use
the combined production
capabilities of all our
divisions;
. use our size to achieve
economies of scale; and
. provide division presidents
the flexibility to operate
their divisions as they see
fit.
Our acquisition strategy is to:
. acquire only high quality,
well managed companies; and
. retain existing management at
companies we acquire to
preserve local market
knowledge and industry
expertise.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $130.0 million aggregate
principal amount of outstanding notes for an equal aggregate principal amount
of new notes. Both the outstanding notes and the new notes are guaranteed by
Master Graphics and Harperprints. The new notes will be obligations of Premier
Graphics and entitled to the benefits of the indenture governing the
outstanding notes. The form and terms of the new notes are identical in all
material respects to the form and terms of the outstanding notes except that
the new notes have been registered under the Securities Act and therefore are
not entitled to the benefits of the registration rights granted under the
registration rights agreement.
Registration Rights. You are entitled to exchange your notes for registered
notes with substantially identical terms. The Exchange Offer is intended to
satisfy these rights. After the Exchange Offer is complete, you will no longer
be entitled to any exchange or registration rights with respect to your notes.
The Exchange Offer. We are offering to exchange $1,000 principal amount of 11
1/2% Senior Notes due 2005 which have been registered for each $1,000 principal
amount of our outstanding 11 1/2% Senior Notes due 2005 which were issued in
December 1998 in a private offering. In order to be exchanged, an outstanding
note must be properly tendered and accepted. All outstanding notes that are
validly tendered and not validly withdrawn will be exchanged.
4
<PAGE>
As of this date there are $130.0 million principal amount of notes
outstanding.
We will issue registered notes on or promptly after the expiration of the
Exchange Offer.
Resale of the New Notes. Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in no-action letters issued to
third parties, including "Exxon Capital Holdings Corporation" (available May
13, 1988), "Morgan Stanley & Co. Incorporated" (available June 5, 1991), "Mary
Kay Cosmetics, Inc." (available June 5, 1991) "Warnaco, Inc." (available
October 11, 1991) and Shearman & Sterling (available July 2, 1993), we believe
that the notes issued in the Exchange Offer may be offered for resale, resold
and otherwise transferred by you without compliance with the registration and
prospectus delivery requirements of the Securities Act provided that:
. the notes issued in the
Exchange Offer are being
acquired in the ordinary
course of business;
. you are not participating, do
not intend to participate, and
have no arrangement or
understanding with any person
to participate, in the
distribution of the notes
issued to you in the Exchange
Offer;
. you are not a broker-dealer
who purchased such outstanding
notes directly from us for
resale pursuant to Rule 144A
or any other available
exemption under the Securities
Act; and
. you are not an "affiliate" of
ours.
If our belief is inaccurate and you transfer any note issued to you in the
Exchange Offer without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from the registration of the offer and
sale of your notes from such requirements, you may incur liability under the
Securities Act. We do not assume or indemnify you against such liability.
Each broker-dealer that is issued notes in the Exchange Offer for its own
account in exchange for notes which were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, in connection with any resale of the notes issued in the Exchange Offer.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this Prospectus for an offer to resell, resale or other retransfer of the notes
issued to it in the Exchange Offer. We have agreed that, for a period of one
year after the date of this Prospectus, we will make this Prospectus and any
amendment or supplement to this Prospectus available to any such broker-dealer
for use in connection with any such resales. We believe that no registered
holder of the outstanding notes is an affiliate (as such term is defined in
Rule 405 of the Securities Act of 1933) of ours.
The Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Expiration Date. The Exchange Offer will expire at 5:00 p.m., New York City
time, , 1999, unless we decide to extend the expiration date.
Accrued Interest on the Exchange Notes and the Outstanding Notes. The new
notes will bear interest from December 11, 1998. Holders of outstanding notes
whose notes are accepted for exchange will be deemed to have waived the right
to receive any payment of interest on such outstanding notes accrued from
December 11, 1998 to the date of the issuance of the new notes. Consequently,
holders who exchange their outstanding notes for new notes will receive the
same interest payment on June 1, 1999 (the first interest payment date with
respect to the outstanding notes and the new notes to be issued in the Exchange
Offer) that they would have received had they not accepted the Exchange Offer.
5
<PAGE>
Termination of the Exchange Offer. We may terminate the Exchange Offer if we
determine that our ability to proceed with the Exchange Offer could be
materially impaired due to any legal or governmental action, new law, statute,
rule or regulation or any interpretation of the staff of the Securities and
Exchange Commission of any existing law, statute, rule or regulation. We do not
expect any of the foregoing conditions to occur, although there can be no
assurance that such conditions will not occur. Holders of outstanding notes
will have certain rights against us under the registration rights agreement
executed as part of the offering of the outstanding notes should we fail to
consummate the Exchange Offer.
Procedures for Tendering Outstanding Notes. If you are a holder of a note and
you wish to tender your note for exchange pursuant to the Exchange Offer, you
must transmit to United States Trust Company of New York, as exchange agent, on
or prior to the Expiration Date:
either
(1) a properly completed and duly executed Letter of Transmittal, which
accompanies this Prospectus, or a facsimile of the Letter of Transmittal,
including all other documents required by the Letter of Transmittal, to the
Exchange Agent at the address set forth on the cover page of the Letter of
Transmittal; or
(2) a computer-generated message transmitted by means of DTC's Automated Tender
Offer Program system and received by the Exchange Agent and forming a part
of a confirmation of book entry transfer in which you acknowledge and agree
to be bound by the terms of the Letter of Transmittal;
and, either
(1) a timely confirmation of book-entry transfer of your outstanding notes into
the Exchange Agent's account at DTC pursuant to the procedure for book-
entry transfers described in this Prospectus under the heading "The
Exchange Offer--Procedure for Tendering,"
(2) the documents necessary for compliance with the guaranteed delivery
procedures described below.
By executing the Letter of Transmittal, each holder will represent to us
that, among other things, (i) the notes to be issued in the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
new notes whether or not such person is the holder, (ii) neither the holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such new notes and (iii) neither the holder
nor any such other person is our "affiliate," as defined in Rule 405 under the
Securities Act.
Special Procedures for Beneficial Owners. If you are the beneficial owner of
notes and your name does not appear on a security position listing of DTC as
the holder of such notes that are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender such
notes in the Exchange Offer, you should contact the person in whose name your
notes are registered promptly and instruct such person to tender the notes on
your behalf. If such beneficial holder wishes to tender on his own behalf such
beneficial holder must, prior to completing and executing the Letter of
Transmittal and delivering its outstanding notes, either make appropriate
arrangements to register ownership of the outstanding notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Guaranteed Delivery Procedures. If you wish to tender your notes and time
will not permit your required documents to reach the Exchange Agent by the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on time or certificates for registered notes cannot be delivered on time, you
may tender your notes pursuant to the procedures described in this Prospectus
under the heading "The Exchange Offer--Guaranteed Delivery Procedure."
Withdrawal Rights. You may withdraw the tender of your notes at any time
prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date, unless your notes were previously accepted for exchange.
6
<PAGE>
Acceptance of Outstanding Notes and Delivery of Exchange Notes. Subject to
certain conditions (as summarized above in "Termination of the Exchange Offer"
and described more fully under the "The Exchange Offer--Termination"), we will
accept for exchange any and all outstanding notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration
Date. The notes issued pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date.
Certain U.S. Federal Income Tax Consequences. The exchange of the notes will
generally not be a taxable exchange for United States federal income tax
purposes. We believe you will not recognize any taxable gain or loss or any
interest income as a result of such exchange.
Use of Proceeds. We will not receive any proceeds from the issuance of notes
pursuant to the Exchange Offer. We will pay all expenses incident to the
Exchange Offer.
Exchange Agent. United States Trust Company of New York is serving as
exchange agent in connection with the Exchange Offer. The Exchange Agent can be
reached at 114 W. 47th Street, New York, New York 10036-1532. For more
information with respect to the Exchange Offer, the telephone number for the
Exchange Agent is (212) 852-1662 and the facsimile number for the Exchange
Agent is (212) 852-1620.
SUMMARY DESCRIPTION OF NEW NOTES
The term of the notes to be issued in the Exchange Offer and the outstanding
notes are identical in all material respects, except (i) that the notes to be
issued in the Exchange Offer have been registered under the Securities Act,
(ii) for certain transfer restrictions relating to the outstanding notes and
registration rights relating to the outstanding notes, and (iii) that the notes
to be issued in the Exchange Offer will not contain certain provisions relating
to an additional payment to be made to holders of the outstanding notes under
certain circumstances relating to the timing of the Exchange Offer.
Notes Offered. $130,000,000 aggregate principal amount of 11 1/2% Senior
Notes due 2005.
Maturity Date. December 1, 2005
Interest Payments Dates. Interest will accrue at the rate of 11 1/2% per
annum and will be paid on June 1 and December 1 of each year, beginning on June
1, 1999.
Guarantees of Notes. Master Graphics and Harperprints will unconditionally
guarantee the notes on a senior unsecured basis. If Master Graphics forms any
additional subsidiaries that guarantee other debt of Premier or a guarantor,
they will also guarantee the notes. The guarantees make you a general unsecured
senior creditor of the guarantors. The guarantees may be released under the
circumstances described on pages 61 and 62.
Optional Redemption. We can redeem the notes from time to time on or after
December 1, 2002 for the prices set forth on page 62. In addition, if we sell
our common stock or other equity in a public offering before December 1, 2001,
we can use the proceeds to redeem 35% of the notes by paying you 111.5% of the
face amount of the notes plus any interest we owe you.
Mandatory Redemption; Sinking Fund. We are not required to redeem the notes
or make any sinking fund payments.
Ranking of the Notes. The notes are our senior unsecured obligations, which
means:
. you will be one of our general unsecured creditors;
. our senior secured lenders will have prior claims to the collateral securing
their claims. Since you will have no collateral, you will effectively be
junior to the claims of our senior secured lenders; and
. you have the same right to be paid as our other unsecured creditors,
including trade creditors.
If the private offering of the notes had been completed and Premier had
applied the proceeds on September 30, 1998:
. Premier would have been able to borrow a substantial amount of senior
secured debt from its senior secured lenders, whose debt is secured by our
assets and can be paid from proceeds of the sale of those assets before you
are paid;
7
<PAGE>
. Premier would have owed approximately $133.3 million in senior unsecured
debt; and
. Premier would have owed approximately $8.9 million in trade payables, which
have the same right to be paid as you.
Change of Control. As described more fully on pages 63 and 64, if we undergo
a change of control, you have the right to have us redeem the notes for 101% of
the principal amount of the notes plus any interest we owe you. Our senior
secured credit facilities may prohibit us from redeeming your notes after a
change of control.
Covenants. We have agreed to limit our ability to pay dividends or make
distributions, make investments, incur additional debt, issue preferred stock,
incur liens, enter into sale and lease back, consolidation, merger, conveyance,
lease or transfer transactions, enter into transactions with affiliates and
engage in unrelated businesses. Additionally, if we sell a significant amount
of assets, we may be required to use the proceeds to offer to repurchase the
notes.
RISK FACTORS
You should carefully consider all of the information in this Prospectus. In
particular, you should evaluate the specific risk factors set forth under "Risk
Factors," beginning on page 13, for a discussion of certain risks involved with
an investment in the notes.
RECENT DEVELOPMENT
On December 11, 1998, we acquired Technigrafiks, Inc., a general commercial
printing company located in Houston, Texas for aggregate consideration of $11.5
million (including debt assumed).
8
<PAGE>
PREMIER AND HARPERPRINTS
SUMMARY PRO FORMA CONDENSED FINANCIAL INFORMATION
The following is summary pro forma condensed financial information for
Premier and Harperprints on a combined basis. Premier is the issuer of the
notes and primary operating subsidiary of Master Graphics. Harperprints is the
other operating subsidiary of Master Graphics and is a guarantor of the notes.
The summary pro forma condensed financial information reflects historical
combined financial information of Premier and Harperprints adjusted for (i) the
effects of our completed acquisitions, (ii) the effects of pro forma
adjustments directly related to our acquisitions, (iii) the effects of the
initial public offering of Master Graphics and (iv) the effect of the sale of
$130.0 million of 11 1/2% Senior Notes due 2005 and the application of the net
proceeds therefrom, as if each had occurred on January 1, 1997, with respect to
income statement data, and September 30, 1998, with respect to balance sheet
data. You should also review "Management's Discussion and Analysis of Financial
Condition and Results of Operations" starting on page 32, the consolidated
financial statements of Master Graphics and the notes thereto starting on page
F-19 and the Unaudited Pro Forma Condensed Consolidated Financial Statements
and Notes thereto starting on page F-4. The summary pro forma financial
information does not purport to represent what our 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. The
information is not a projection of our results of operations or financial
position for any future date or period.
<TABLE>
<CAPTION>
LATEST TWELVE NINE MONTHS THREE MONTHS
YEAR ENDED MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $215,077 $223,537 $166,276 $56,236
Gross profit............ 53,370 56,076 43,119 14,975
Operating income........ 13,822 17,196 14,422 5,557
OTHER DATA:
EBITDA (1).............. $ 22,279 $ 26,272 $ 21,316 $ 7,760
EBITDA margin (2)....... 10.4% 11.8% 12.8% 13.8%
Adjusted EBITDA (3)..... $ 23,044 $ 27,037 $ 21,316 $ 7,760
Adjusted EBITDA margin.. 10.7% 12.1% 12.8% 13.8%
Cash interest expense
(4).................... $ 15,315 $ 15,315 $ 11,487 $ 3,829
Depreciation and
amortization........... 9,271 9,445 7,103 2,342
Capital expenditures.... 9,805 2,896 1,778 168
Adjusted EBITDA /cash
interest expense....... 1.5x 1.8x 1.9x 2.0x
Ratio of earnings to
fixed charges (5)...... -- 1.1x 1.2x 1.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash................................................. $ 13,869
Working capital...................................... 47,422
Total assets......................................... 252,267
Long-term debt, excluding unamortized discounts of
$1.0 million........................................ 133,338
</TABLE>
(footnotes on following page)
9
<PAGE>
- --------------------
(1) Represents earnings before interest, taxes, depreciation and amortization
("EBITDA"). Based on our experience in the general commercial printing
industry, we believe that EBITDA is an important tool for measuring the
performance of companies in the printing 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 our financing arrangements
contain covenants in which EBITDA is used as a measure of financial
performance. The EBITDA measure for us 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) as an indicator of our
performance or to cash flow from operations (as determined in accordance
with GAAP) as a measure of liquidity.
(2) EBITDA margin is calculated by dividing EBITDA by revenue; revenue for
Master Graphics consolidated and for Premier and Harperprints combined are
the same, as all of our revenue is derived from the operations of Premier
and Harperprints.
(3) EBITDA on an adjusted pro forma basis has been increased by $765,000 to
reflect the elimination of a deferred compensation charge of that amount
which was recorded in the fourth quarter of 1997. Because this charge was
not the result of a contractual requirement of the acquisitions, the
initial public offering of our common stock or the private offering of the
outstanding notes, the charge is not reflected as a pro forma adjustment in
the Unaudited Pro Forma Condensed Consolidated Statements of Operations
starting on page F-6. However, we believe that the elimination of the
charge, which results from the employment of executives who have been
integral to the execution of our acquisition strategy and the offerings,
provides a meaningful presentation of EBITDA on a pro forma basis.
(4) Cash interest expense represents total interest expense less amortization
of deferred financing costs.
(5) In the calculation of the ratio of earnings to fixed charges, earnings for
the year ended December 31, 1997 were inadequate to cover fixed charges by
$2.2 million.
10
<PAGE>
MASTER GRAPHICS
SUMMARY PRO FORMA CONDENSED FINANCIAL INFORMATION
The following is summary pro forma condensed financial information for Master
Graphics and its subsidiaries on a consolidated basis. Master Graphics is a
guarantor of the notes and the sole parent of Premier. Premier is the issuer of
the notes.
The summary pro forma financial information reflects historical consolidated
financial information of Master Graphics and its subsidiaries on a consolidated
basis adjusted for (i) the effects of our completed acquisitions, (ii) the
effects of pro forma adjustments directly related to our acquisitions, (iii)
the effects of the initial public offering of Master Graphics and (iv) the
effect of the sale of $130.0 million of 11 1/2% Senior Notes due 2005 and the
application of the net proceeds therefrom, as if each had occurred on January
1, 1997, with respect to income statement data, and September 30, 1998, with
respect to balance sheet data. You should also review "Management's Discussion
and Analysis of Financial Condition and Results of Operations" starting on page
32, the consolidated financial statements of Master Graphics and the notes
thereto starting on page F-19 and the Unaudited Pro Forma Condensed
Consolidated Financial Statements and notes thereto starting on page F-4. The
summary pro forma financial information does not purport to represent what our
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. The information is not a projection of our results of
operations or financial position for any future date or period.
<TABLE>
<CAPTION>
LATEST TWELVE NINE MONTHS THREE MONTHS
YEAR ENDED MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $215,077 $223,537 $166,276 $56,236
Gross profit............ 53,370 56,076 43,119 14,975
Operating income........ 13,822 17,196 14,422 5,557
Net income (loss) before
extraordinary loss
(1).................... (4,137) (304) 779 634
OTHER DATA:
EBITDA (2).............. $ 22,279 $ 26,272 $ 21,316 $ 7,760
EBITDA margin (3)....... 10.4% 11.8% 12.8% 13.8%
Adjusted EBITDA (4)..... $ 23,044 $ 27,037 $ 21,316 $ 7,760
Adjusted EBITDA margin.. 10.7% 12.1% 12.8% 13.8%
Cash interest expense
(5) (6)................ $ 17,280 $ 17,280 $ 12,960 $ 4,320
Depreciation and
amortization........... 9,271 9,445 7,103 2,342
Capital expenditures.... 9,837 3,020 1,897 171
Adjusted EBITDA /cash
interest expense....... 1.3x 1.6x 1.6x 1.8x
Ratio of earnings to
fixed charges (7)...... -- -- 1.1x 1.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash................................................. $ 13,869
Working capital...................................... 49,593
Total assets......................................... 208,117
Long-term debt, excluding unamortized discounts of
$1.0 million........................................ 149,691
</TABLE>
(footnotes on following page)
11
<PAGE>
- --------------------
(1) We incurred an extraordinary loss of approximately $2.1 million (net of tax
benefit of $1.5 million) related to the write-off of deferred financing
costs and unamortized debt discounts resulting from the repayment of
certain indebtedness in connection with our initial public offering.
(2) Represents earnings before interest, taxes, depreciation and amortization
("EBITDA"). Based on our experience in the general commercial printing
industry, we believe that EBITDA is an important tool for measuring the
performance of companies in the printing 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 our financing arrangements
contain covenants in which EBITDA is used as a measure of financial
performance. The EBITDA measure for us 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) as an indicator of our
performance or to cash flow from operations (as determined in accordance
with GAAP) as a measure of liquidity.
(3) EBITDA margin is calculated by dividing EBITDA by revenue; revenue for
Master Graphics consolidated and for Premier and Harperprints combined are
the same, as all of our revenue is derived from the operations of Premier
and Harperprints.
(4) EBITDA on an adjusted pro forma basis has been increased by $765,000 to
reflect the elimination of a deferred compensation charge of that amount
which was recorded in the fourth quarter of 1997. Because this charge was
not the result of a contractual requirement of the acquisitions, the
initial public offering of our common stock or the private offering of the
outstanding notes, the charge is not reflected as a pro forma adjustment in
the Unaudited Pro Forma Condensed Consolidated Statements of Operations
starting on page F-6. However, we believe that the elimination of the
charge, which results from the employment of executives who have been
integral to the execution of our acquisition strategy and the offerings,
provides a meaningful presentation of EBITDA on a pro forma basis.
(5) Cash interest expense represents total interest expense less amortization
of deferred financing costs.
(6) Payment of interest on approximately $12.5 million of Seller Deferral Notes
issued by Master Graphics may be deferred at the option of Master Graphics
until maturity of such notes on June 30, 2006. See the description of
Seller Deferral Notes on page 35.
(7) In the calculation of the ratio of earnings to fixed charges, earnings for
the year ended December 31, 1997 and the latest twelve months ended
September 30, 1998 were inadequate to cover fixed charges by $4.1 million
and $0.3 million, respectively.
12
<PAGE>
RISK FACTORS
This Prospectus and certain documents incorporated herein by reference
include statements that constitute "forward looking statements." By their
nature, all forward looking statements involve risk and uncertainties. Actual
results may differ materially from those contemplated by the forward looking
statements for a number of reasons including but not limited to: our limited
operating history; our ability to implement our operating and acquisition
strategies; unforseen competitive pressure or other difficulties in maintaining
mutually beneficial relationships with key customers; adverse changes in
exchange rates or raw material prices, both in absolute terms and relative to
competitors' risk profiles; and other risks inherent in the general commercial
printing business.
WHAT ARE THE RISKS RELATED TO THE EXCHANGE OFFER?
If you do not exchange your outstanding notes for new notes pursuant to the
Exchange Offer, you will continue to be subject to the restrictions on transfer
of your outstanding notes, as set forth in the legend on your outstanding note.
The restrictions on transfer of your outstanding notes arise because we issued
the outstanding notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the outstanding notes may not be offered or
sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption from such requirements. We do not
intend to register the outstanding notes under the Securities Act. In addition,
if you exchange your outstanding notes in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes, you may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent outstanding notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the outstanding notes would be adversely effected.
WHAT ARE THE RISKS RELATED TO THE NOTES?
Our high level of debt may affect our operations and our ability to make
payments on the notes.
We have a high level of debt. If the initial offering of 11 1/2% Senior Notes
due 2005 was completed and we had acquired Technigrafiks on September 30, 1998,
Premier would have had long-term debt of $133.3 million and trade payables of
$8.9 million. In addition, under the terms of our credit facilities, we would
be able to borrow substantial amounts of senior secured debt from our senior
secured lenders. Our high level of debt could have a significant adverse future
effect on our business. For example:
. our ability to obtain additional financing may be impaired
which could slow our growth and capital investment;
. a substantial portion of our cash flow will be used to pay
principal and interest on our debt, which will reduce the funds
available for working capital, capital expenditures and
acquisitions;
. our covenants with our senior secured lenders and in the note
indenture require us to meet certain financial objectives and
impose other restrictions on business operations. The covenants
will limit our ability to borrow additional funds or dispose of
assets, and may limit our flexibility in planning for and
reacting to changes in our business;
13
<PAGE>
. we may be more vulnerable to adverse changes in general
economic, industry and competitive conditions;
. our high debt level and the various covenants contained in the
note indenture and our existing credit facilities may place us
at a relative competitive disadvantage as compared to certain
of our competitors; and
. borrowings under our existing senior secured credit facilities
are at floating rates of interest, which could result in higher
interest expense in the event of an increase in interest rates.
Our ability to pay principal of and interest on the notes and to service our
other debt depends on our financial and operating performance, which is subject
to prevailing economic conditions and to financial, business and other factors
beyond our control. Our operating results may not generate sufficient cash flow
to pay our obligations. If we are unable to pay our debts, we must pursue one
or more alternative strategies such as selling assets, refinancing or
restructuring our indebtedness or selling additional equity capital. We must
obtain the consent of our senior secured lenders before we engage in any such
strategy.
Restrictive covenants contained in our existing secured credit facilities may
trigger a default under the notes.
We must continue to satisfy financial and operating covenants contained in
our existing secured credit facilities. If we fail to comply with such
covenants, we will be in default under our existing secured credit facilities.
If we default under our existing or future secured credit facilities, our
lenders could:
. elect to declare all amounts borrowed to be immediately due and
payable, together with accrued and unpaid interest; and/or
. terminate their commitments to make further extensions of
credit under our then existing credit facilities.
If we are unable to pay our obligations to our senior secured lenders, they
could proceed against any or all of the collateral securing the debt under our
existing secured credit facilities. The collateral under our existing secured
credit facilities consists of substantially all of our assets. If our senior
secured lenders accelerate our obligations to them, it will trigger an event of
default under the notes. However, we may not have sufficient assets to repay
the notes in full after we pay our senior secured lenders.
There will be no collateral to secure our payment of the notes.
Substantially all of our assets serve as collateral to secure our obligations
under our secured credit facilities. If we are unable to pay you under the
notes, you will be unable to use our assets to repay the notes and/or to
enforce the guarantees until our senior secured lenders have been paid in full.
We may not have sufficient assets to repay the notes in full after we pay our
senior secured lenders.
We may not be able to make a required repurchase of the notes if we undergo a
change in control.
If a "change of control" occurs under the note indenture, you have the right
to require us to repurchase any or all of the notes you own at a price equal to
101% of the principal amount thereof, together with any interest we owe you.
The definition of a change of control is located on page 80. A change of
control will not occur unless the conditions in the definition are satisfied.
Our ability to repurchase the notes upon a change of control may be limited by
the terms of our existing secured credit facilities. Furthermore, under our
existing secured credit facilities, a "change of control" would constitute an
event of default, and could cause an acceleration of all amounts due under our
existing credit facilities. If we fail to repurchase all of the notes tendered
for purchase upon the occurrence of a change of control, such failure will be
an event of default under the indenture. In addition, the change of control
covenant does not cover all corporate reorganizations, mergers or similar
transactions and may not provide you with protection in a highly leveraged
transaction.
14
<PAGE>
Fraudulent transfer laws may affect our ability to make payments due on the
notes.
The federal government and each state have enacted laws designed to protect
creditors. If a court determines that we:
. issued the notes to hinder, delay or defraud our existing or
future creditors; or
. did not receive a fair price or equivalent value for the notes;
and
. became insolvent because we issued the notes;
. did not have sufficient assets for our business or any
transaction in which we are involved; or
. intended to incur debts beyond our ability to pay as such debts
mature,
the court could set aside or annul all or a portion of our obligations to you,
or subordinate your claims to those of our other creditors. This would entitle
other creditors to be paid in full before any payment could be made on the
notes. We may not have sufficient assets after the payment to other creditors
to repay the notes.
The guarantees issued by Master Graphics and Harperprints could be challenged
on the same grounds as the notes. In addition, a creditor may avoid a guarantee
based on the level of benefits received by a guarantor compared to the amount
of the guarantee. The indenture will contain a savings clause, which generally
will limit the obligations of each guarantor to the maximum amount which is not
a fraudulent conveyance. If a guarantee is avoided, or limited as a fraudulent
conveyance or held unenforceable for any other reason, you would not have any
claim against the guarantors and would be only creditors of Premier and those
guarantors whose guarantee was not avoided or held unenforceable. In such
event, your claims against a guarantor would be subject to the prior payment of
all liabilities (including trade payables) of such guarantor. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy your claims relating to any avoided portions of any of the
guarantees.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, Premier or a guarantor generally
would be considered insolvent at the time it issues the notes or the guarantees
if:
. the fair market value of its assets is less than the amount
required to pay its total existing debts and liabilities as
they become absolute or matured; or
. it is incurring debts beyond its ability to pay as such debts
mature.
At this time, it is impossible to foresee if a court would find that either
Premier was insolvent when it issued the notes or that a guarantor was
insolvent when it issued its guarantee. Even if a court determined that Premier
or a guarantor was not insolvent, their obligations could still be altered by a
court if other grounds exist to declare that the issuance of the notes or the
guarantee constituted a fraudulent conveyance.
There is a risk of a preferential transfer.
If:
. a guarantor declares bankruptcy or its creditors force it to
declare bankruptcy within 90 days (or in certain cases, one
year) after the issuance of the guarantee; or
. a guarantee was made in contemplation of insolvency,
the guarantee could be avoided by a court as a preferential transfer. In
addition, a court could require you to return any payments made on the notes
during the 90-day (or one-year) period.
15
<PAGE>
There is no public market for the notes.
There is no active trading market for the notes and we cannot assure you that
one will develop. If any of the notes are traded after their initial issuance,
they may trade at a discount from their initial offering price. Factors that
could cause the notes to trade at a discount are an increase in prevailing
interest rates, a decline in our credit worthiness, a weakness in the market
for similar securities, and declining general economic conditions. The
liquidity of, and trading markets for, the notes may also be adversely affected
by declines in the markets for high-yield securities generally.
WHAT ARE THE RISKS RELATED TO OUR BUSINESS?
We have a limited combined operating history.
We have acquired 14 general commercial printing companies since June 1997. In
addition, our management team has been assembled only recently, and several of
its members have not worked in the printing industry prior to joining us. The
management team may not be able to:
. manage effectively the combined operations of the companies we
have acquired;
. integrate successfully the operations of the companies we have
acquired and will acquire in the future; or
. achieve our expected operating efficiencies and economies of
scale,
any of which could adversely affect Premier's operating results and cash flow.
We may be unable to integrate our operations or implement our operating systems
and policies.
We are faced with the development, implementation and integration of uniform
policies and systems related to our operations. For the foreseeable future, we
will rely on the separate accounting, information and operating systems of the
companies we have acquired. We plan to put in place centralized information and
operating systems, policies and procedures for all of our divisions. However,
as a result of our decentralized operating philosophy:
. we may not be able to implement effectively our proposed
operating systems and policies; and
. we may experience greater than expected expenses, delays,
complications and expenses in implementing, integrating and
operating such systems and policies,
each of which could have a material adverse effect on Premier's ability to make
payments on the notes.
We designed our "Master Central" equipment utilization and marketing process
to allow us to allocate printing projects more efficiently throughout our
system and to allow our salespersons to sell to a broader range of customers.
Master Central is a new process, and we cannot assure you that it will
accomplish the purposes for which it was designed.
16
<PAGE>
Our acquisition strategy may adversely affect our ability to make payments on
the notes.
A key element of our acquisition strategy is to buy general commercial
printing companies throughout the United States. The risks to you associated
with this strategy include:
. management focusing on acquisitions rather than operations;
. the loss of customers;
. the loss of key personnel; and
. the risks associated with the past operations and other
unanticipated problems arising in the acquired businesses.
The success of our acquisition strategy will be dependent upon a number of
factors, including:
. our ability to locate general commercial printing companies we
want to acquire; and
. our ability to finance acquisitions on satisfactory terms.
The note indenture and our existing and future secured credit facilities may
limit our ability to pursue our acquisition strategy. If our acquisition
strategy is not successful, Premier's ability to make payments on the notes
could be adversely affected. Even if our acquisition strategy is successful,
Premier may still become unable to make payments on the notes due to events
which are beyond our control such as prevailing business, financial and
economic conditions.
Our obligations to the former owners of companies we acquired may adversely
affect our ability to make payments on the notes.
We have agreed to pay the former owners of eight of the companies we have
acquired additional purchase price consideration if the companies surpass
certain EBITDA-based targets. We believe that the former owners will not earn
more than $29 million in additional consideration. We have agreed to pay the
additional purchase price consideration in cash, and the former owners have the
same right to be paid as you, but those payments are due and likely to be made
before we are obligated to repay the notes. If we are required to pay a
significant portion of this additional consideration, it could have a material
adverse effect on Premier's ability to make payments on the notes. For a more
complete description of the additional purchase price consideration we may owe,
please refer to the description of our obligations on pages 35 and 36.
There are risks associated with the general commercial printing business.
We compete 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 orders by existing customers
are dependent upon the customers' satisfaction with the services provided.
Irregular 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 Master Central is designed to smooth
capacity utilization and expand production capabilities, there can be no
assurance that it will have this desired effect. If Premier experiences
unpredicted fluctuations in cash flow, it may not be able to make required
payments on the notes.
We have experienced recent operating losses.
Master Graphics, and certain companies we have acquired have experienced
operating losses in certain of the last several years. 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 we acquired it.
17
<PAGE>
Fluctuating costs of raw materials may adversely affect our profit margins.
The cost of paper is a principal factor in our pricing. We are generally able
to pass increases in the cost of paper to customers, while decreases in paper
costs generally result in lower prices to customers. In the last three years,
paper prices have fluctuated dramatically. To the extent that there are future
paper cost increases and we are not able to pass such increases to our
customers or our customers reduce the size or number of their orders, our
profit margins and cash flows and Premier's ability to make payments on the
notes could be adversely affected.
In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes. In periods of high demand, certain paper grades
have been in short supply, including grades we use. Any loss of the sources for
paper supply or any disruption in their businesses or their failure to meet our
product needs on a timely basis could cause, at a minimum, temporary shortages
in needed materials which could have a material adverse effect on our results
of operations, sales, profit margins and cash flows and Premier's ability to
make payments on the notes. Although we actively manage our paper supply, we do
not maintain large inventories of paper. Our paper supply may not be adequate
and, if our sources are not adequate, we may not be able to develop alternative
sources in a timely manner.
Unavailability of technicians and salespeople may adversely affect operating
results.
To provide high-quality finished printed products in a timely fashion we must
maintain an adequate staff of skilled technicians, including prepress
personnel, pressmen, bindery operators and fulfillment personnel. Accordingly,
our ability to increase our productivity and profitability will be limited by
our ability to employ, train and retain the skilled technicians necessary to
meet our commitments. From time-to-time:
. the printing industry experiences shortages of qualified
technicians, and we may not be able to maintain an adequate
skilled labor force necessary to operate efficiently;
. our labor expenses may increase as a result of shortages of
skilled technicians; or
. we may have to curtail our planned internal growth as a result
of labor shortages.
Also, 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. If we do not retain salespeople with
large customer bases it could adversely affect our sales and cash flows and
Premier's ability to make payments on the notes.
Rapid technological change may adversely affect our operations.
The technology we use in our prepress operations is rapidly evolving. We
could experience delays or difficulties in adjusting our prepress systems on a
timely basis to:
. accommodate changing technology;
. address the increasingly sophisticated needs of our customers;
or
. keep pace with emerging industry standards.
The cost required to respond to and integrate changing technologies may be
greater than we anticipate. If:
. we do 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,
our sales volume, profit margins and cash flows and Premier's ability to make
payments on the notes may be adversely affected.
18
<PAGE>
Our business may not grow as we intend.
Our ability to increase the revenue of the companies we acquire 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 our control, and our operating and internal growth
strategies may not generate cash flow adequate for our operation and for
Premier to make payments on the notes.
The general commercial printing industry is very competitive.
The general commercial printing industry is extremely competitive and
fragmented. In spite of the fragmentation of the industry, recent technological
developments in prepress and design and over-capacity in the printing industry
have increased industry consolidation and competitive pressures. We compete
with numerous large and small printing companies, some of which have greater
financial resources than we do. We compete on the basis of ongoing customer
service, quality of finished products and price. Moreover, we compete for
potential acquisition candidates with other printing industry consolidators,
some of which have greater financial resources than we do. We may not be able
to compete successfully with such competitors.
We are dependent on our key personnel.
Our operation and implementation of our acquisition and operating strategies
are dependent on the continued efforts of Master Graphics' 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, Donald H. Goldman, Chief Information Officer, James B. Duncan, Senior
Vice President--Sales and Marketing and our division presidents. We do not have
key man life insurance on the lives of any of Master Graphics' executive
officers or key managers. Master Graphics has employment contracts with its six
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 Master Graphics' inability in the future to attract
and retain management and other key personnel could have a material adverse
effect on our business, financial condition and results of operations and
Premier's ability to make payments on the notes.
Our operations make us subject to environmental protection laws.
Phase I environmental site assessments have been obtained on all of our
properties. The purpose of a Phase I environmental site assessment is to
identify potential sources of contamination for which we may be responsible and
to assess the status of environmental regulatory compliance. The Phase I
environmental site assessment obtained for the property used by our Stephenson
Printing Division revealed that there are two underground storage tanks listed
with the Virginia Department of Environmental Quality as "currently in use" on
the property. The owner of the property has told us that the underground
storage tanks were removed in the mid-1980's, although there is no
documentation of the removal of the tanks. The storage tanks were previously
used for the storage of alcohol and solvent. There is a potential for soil or
groundwater contamination on the property if there were any releases from the
underground storage tanks.
No other Phase I environmental site assessment revealed any environmental
condition, liability or compliance concern that we believe would have a
material adverse effect on our business, assets or results of operations, nor
are we aware of any such condition, liability or concern by any other means.
However, it is possible that the environmental site assessments relating to any
one of the properties did not reveal all environmental conditions, liabilities
or compliance concerns. It is also possible that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related review was completed. If environmental contamination
exists or existed at a property, we may be liable for the costs of removal or
remediation of the contamination and may be liable for personal injury or
similar claims by private plaintiffs. Moreover, the existence of an
environmental contamination at a property could adversely affect the our
ability to sell or borrow against that property.
19
<PAGE>
There are risks to our business associated with the Year 2000.
Like many other companies, the Year 2000 computer issue creates risks for us.
If our internal systems do not correctly recognize and process date information
beyond the year 1999, there could be an adverse impact on our operations. The
Year 2000 computer issue stems from the computer industry's practice of
conserving data storage by using two digits, instead of four digits, to
represent a year. Systems and hardware which use this two-digit format may
process data incorrectly or fail with the use of dates in the next century.
These types of failures can influence applications that rely on dates to
perform calculations (such as an accounts receivable aging report), as well as
systems such as building security and heating. We believe our exposure to Year
2000 issues is limited to the purchase of computer hardware, and to a lesser
extent software, at certain of our locations. Our Year 2000 risks also include
(i) equipment malfunction and (ii) the inability of our customers to forward
electronic images due to their own Year 2000 malfunctions. To address the Year
2000 computer issue, we have initiated a program that includes a review of all
computers, software and related date-sensitive equipment used in the management
of print jobs, office automation, accounting, process control and other
applications. We anticipate that the cost of corrective actions to address the
Year 2000 computer issue will be approximately $750,000 for our existing
divisions. Our due diligence process for new acquisitions includes a Year 2000
assessment, and any necessary corrective actions will be scheduled for
immediate implementation.
20
<PAGE>
COMPANY BACKGROUND
Premier is the wholly-owned primary operating subsidiary of Master Graphics.
Master Graphics and Premier are the successor entities to Master Printing and
B&M Printing, respectively. Master Printing was originally formed by John
Miller (the current Chairman of Board, Chief Executive Officer and President of
Master Graphics) in 1992 to acquire all of the outstanding stock of B&M
Printing. In 1997, in anticipation of the implementation of an acquisition
strategy, Master Printing merged with and into Master Graphics, and B&M
Printing merged with and into Premier. Harperprints is the only other
subsidiary of Master Graphics. Master Graphics is contractually obligated to
maintain the separate corporate existence of Harperprints until March 31, 1999.
Master Graphics, Premier and Harperprints are collectively referred to herein
as the "Company."
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the new notes pursuant to the Exchange Offer. The net proceeds less estimated
debt issue costs received by the Company from the sale of the outstanding notes
were approximately $125.6 million. The Company (i) used approximately $88.6
million of the net proceeds from the offering of the outstanding notes (the
"Offering"), to repay substantially all outstanding indebtedness under its
senior credit facility with General Electric Capital Corporation, as agent
("GECC") (the "GECC Credit Facility") (approximately $300,000 remained
outstanding after payment); (ii) used approximately $4.8 million of the net
proceeds from the Offering to repay certain indebtedness owed to the sellers of
the companies we have purchased; (iii) used approximately $6.5 million of the
net proceeds from the Offering to repay the then current balance under its
revolving credit facility with Deutsche Financial Services Corporation (the
"Deutsche Credit Facility") and (iv) used approximately $11.5 million of the
net proceeds of the Offering to acquire Technigrafiks. The remainder of the net
proceeds of the Offering are available for general corporate purposes,
including working capital and acquisitions. The Company is currently engaged in
discussions and negotiations for the acquisition of additional general
commercial printing companies.
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the outstanding notes (the "Old Notes"), the
purchasers thereof became entitled to the benefits of certain registration
rights (the "Registration Rights"). Pursuant to the registration rights
agreement executed as part of the Offering (the "Registration Rights
Agreement"), the Company agreed to (i) file within 60 days, and cause to become
effective within 120 days of the date of original issue of the Old Notes, the
Registration Statement of which this Prospectus is a part with respect to the
exchange of the Old Notes for the new notes to be issued in the Exchange Offer
(the "New Notes" and, together with the Old Notes, the "Notes") and (ii) cause
the Exchange Offer to be consummated within 150 days of the original issue of
the Old Notes. The New Notes have terms identical in all material respects to
the terms of the Old Notes. However, in the event that any changes in law or
applicable interpretation of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or if for any other reason the Exchange
Offer is not consummated within 150 days following the date of the original
issue of the Old Notes, or if any holder of the Old Notes other than the
initial purchasers in the Offering (the "Initial Purchasers") is not eligible
to participate in the Exchange Offer, or upon the request of any Initial
Purchaser under certain circumstances, the Company has agreed to use its best
efforts to cause to become effective the 150th day after the original issue of
the Old Notes, a Shelf Registration Statement with respect to the resale of the
Old Notes and to keep the Shelf Registration Statement effective for at least
two years after the effective date thereof. The Company also has agreed that in
the event that either (i) the Registration Statement is not filed with the
Commission on or prior to the 60th calendar day following the date of the
original issue of the Old Notes or (ii) the Registration Statement is not
declared effective on or prior to the 120th calendar day following the date
21
<PAGE>
of the original issue of the Old Notes or (iii) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 150th calendar day following the original issue of the Old Notes
(each such event, a "Registration Default"), the Company will pay additional
interest to the holders of the Old Notes with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of the Old Notes. The
amount of additional interest payable to the holders of the Old Notes will
increase by an additional $.05 per week per $1,000 principal amount of the Old
Notes with respect to each subsequent 90-day period until Registration Defaults
have been cured, up to a maximum of $.50 per week per $1,000 principal amount
of Notes. Upon the cure of all Registration Defaults, the interest rate borne
by the Old Notes from the date of such filing or effectiveness or the day
before the date of consummation, as the case may be, will be reduced to the
original interest rate if the Company is otherwise in compliance with its
registration requirements.
In the event the Exchange Offer is consummated, the Company will not be
required to file a Shelf Registration Statement relating to any outstanding Old
Notes other than those held by persons not eligible to participate in the
Exchange Offer, and the interest rate on such Old Notes will remain at its
initial level of 11 1/2%. The Exchange Offer shall be deemed to have been
consummated upon the earlier to occur of (i) the Company having exchanged New
Notes for all outstanding Old Notes (other than Old Notes held by persons not
eligible to participate in the Exchange Offer) pursuant to the Exchange Offer
and (ii) the Company having exchanged, pursuant to the Exchange Offer, New
Notes for all Old Notes that have been tendered and not withdrawn on the
Expiration Date. Upon consummation, holders of Old Notes seeking liquidity in
their investment would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act.
Upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on , 1999
(the "Expiration Date"). The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in denominations of $1,000 and integral
multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than (i) a broker-dealer who
purchased such Old Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that the holder is
acquiring the New Notes in its ordinary course of business and is not
participating, and has no arrangements or understanding with any person to
participate, in the distribution of the New Notes. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Company that such conditions
have been met.
Each broker-dealer that receives New Notes in Exchange for Old Notes held for
its own account, as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by such broker-dealer in connection with resales of New Notes received in
exchange for Old Notes. The Company has agreed that, for a period of one year
after the Expiration Date, it will make this Prospectus and any amendment or
supplement to this Prospectus available to any such broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
As of the date of this Prospectus, $130.0 million aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes initially purchased by Qualified
Institutional Buyers to be issued and transferable in book-entry form through
the facilities of DTC, acting as depositary. The New Notes will also be
issuable and transferable in book-entry form through DTC.
22
<PAGE>
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of , 1999 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. See "--Exchange Agent." The Exchange Agent will act as agent for the
tendering holders of Old Notes for the purpose of receiving New Notes from the
Company and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expenses, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1999 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "--Termination" shall have occurred and shall not have been waived
by the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of the Old Notes of such amendment.
Without limiting the manner by which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from December 11, 1998, payable semiannually
on June 1 and December 1 of each year commencing on June 1, 1999, at the rate
of 11 1/2% per annum. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from December 11, 1998 until the
date of the issuance of the New Notes. Consequently, holders who exchange their
Old Notes for New Notes will receive the same interest payment on June 1, 1999
(the first interest payment date with respect to the Old Notes and the New
Notes) that they would have received had they not accepted the Exchange Offer.
23
<PAGE>
PROCEDURE FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for book-
entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's procedure for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account with
DTC, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth herein under "--Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letters of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers which authorize such
24
<PAGE>
person to tender the Old Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the Old
Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determinations will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not validly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding on all parties. Unless
waived any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not property tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "--Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
Exchange Offer.
By tendering, each holder of Old Notes will represent to the Company that
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, that neither the Holder
nor any other person has an arrangement or understanding with any person to
participate in the distribution of the New Notes and that neither the holder
nor any such other person is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal, or any other required documents to the Exchange Agent prior to
the Expiration Date, or if such Holder cannot complete the procedure for book-
entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duty executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within five business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Old Notes
25
<PAGE>
to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old
Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the business day prior to the Expiration Date and prior to acceptance for
exchange thereof by the Company. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfers
sufficient to permit the trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the
tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) for such withdrawal
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no New Notes
will be issued with respect thereto unless the Old Notes so withdrawn are
validly tendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be tendered
by following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
therefore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action
or proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule or regulation is
interpreted by the staff of the Commission or court of competent jurisdiction
in a manner, which, in the Company's judgment, might materially impair the
Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date
of the Exchange Offer, subject to the rights of such holders of tendered Old
Notes to withdraw their tendered Old Notes, or (iii) waive such termination
event with respect to the Exchange Offer and accept all property tendered Old
Notes that have not been withdrawn. If such waiver constitutes a material
change in the Exchange Offer, the Company will
26
<PAGE>
disclose such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Old Notes and the Company will extend
the Exchange Offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period.
EXCHANGE AGENT
United States Trust Company of New York, the Trustee under the indenture
governing the Notes (the "Indenture"), has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail or Hand Delivery:114 W. 47th Street
New York, New York 10036-1532
Facsimile Transmission: (212) 852-1620
Confirm by Telephone:
(212) 852-1662
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing the federal income tax consequences of
the Exchange Offer reflects the opinion of Baker, Donelson, Bearman & Caldwell,
counsel to the Company, as to material federal income tax consequences expected
to result from the Exchange Offer. An opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or the courts, and there can be no assurances
that the IRS will not take, and that a court would not sustain, a position to
the contrary to that described below. Moreover, the following discussion does
not constitute comprehensive tax advice to any particular Holder of Old Notes.
The summary is
27
<PAGE>
based on the current provisions of the Internal Revenue Code of 1986, as
amended, and applicable Treasury regulations, judicial authority and
administrative pronouncements. The tax consequences described below could be
modified by future changes in the relevant law, which could have retroactive
effect. Each holder of Old Notes should consult its own tax advisor as to these
and any other federal income tax consequences of the Exchange Offer as well as
any tax consequences to it under foreign, state, local or other law.
In the opinion of Baker, Donelson, Bearman & Caldwell, exchanges of Old Notes
for New Notes pursuant to the Exchange Offer will be treated as a modification
of the Old Notes that does not constitute a material change in their terms, and
the Company intends to treat the exchanges in that manner. Therefore an
exchanging holder, will not recognize any gain or loss, in respect of an
exchange of an Old Note for a New Note, and such holder's basis and holding
period in the New Note will be the same as such holder's basis and holding
period in the Old Note. The Exchange Offer will result in no federal income tax
consequences to a non-exchanging holder.
28
<PAGE>
CAPITALIZATION -- PREMIER
The following table sets forth the capitalization of Premier, the issuer of
the notes, as of September 30, 1998 on an historical basis and on a pro forma
basis adjusted to give effect to (i) the acquisition of Technigrafiks, Inc.
("Technigrafiks"), (ii) the effects of certain pro forma adjustments that are
directly related to the acquisition of Technigrafiks and (iii) the consummation
of the sale of $130.0 million of 11 1/2% Senior Notes due 2005 and the
application of the net proceeds thereof, as if each had occurred on September
30, 1998. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements of Master Graphics and the notes thereto and
the Unaudited Pro Forma Condensed Consolidated Financial Statements of Master
Graphics and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------
HISTORICAL PRO FORMA
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities (1):
Existing credit facilities (2).......................... $ 95,809 --
Senior notes............................................ -- $130,000
Capital leases.......................................... 2,000 2,000
Other................................................... 1,268 1,268
-------- --------
Total long-term debt, including current maturities.... 99,077 133,268
-------- --------
Stockholder's equity:
Common stock, $0.01 par value per share; 1,000 shares
authorized; 100 shares issued and outstanding.......... -- --
Additional paid in capital (3).......................... 85,835 93,347
Retained earnings (deficit)............................. (862) (862)
-------- --------
Total stockholder's equity............................ 84,973 92,485
-------- --------
Total capitalization...................................... $184,050 $225,753
======== ========
</TABLE>
- ---------------------
(1) Does not include the effects of any contingent purchase price consideration
payable to the former owners of the acquired companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Unamortized debt discount of $1.0 million has been added back to long-term
debt.
(3) In addition to the original equity capitalization of B&M Printing Inc, the
predecessor to Premier, Premier has subsequently been capitalized by Master
Graphics with the net purchase price of each of the Acquired Companies.
29
<PAGE>
CAPITALIZATION -- MASTER GRAPHICS
The following table sets forth the capitalization of Master Graphics, a
guarantor of the notes, as of September 30, 1998 on an historical basis and on
a pro forma basis adjusted to give effect to (i) the acquisition of
Technigrafiks, (ii) the effects of certain pro forma adjustments that are
directly related to the acquisition of Technigrafiks and (iii) the consummation
of the sale of $130.0 million of 11 1/2% Senior Notes due 2005 and the
application of the net proceeds thereof, as if each had occurred on September
30, 1998. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements of Master Graphics and the notes thereto and
the Unaudited Pro Forma Condensed Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
HISTORICAL PRO FORMA
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities (1):
Existing credit facilities (2).......................... $ 95,809 $ --
Senior notes............................................ -- 130,000
Seller notes............................................ 16,074 3,853
Seller replacement notes................................ 5,279 --
Seller deferral notes................................... -- 12,500
Capital leases.......................................... 2,000 2,000
Other................................................... 1,338 1,338
-------- --------
Total long-term debt, including current maturities.... 120,500 149,691
5% Series A Cumulative Redeemable Preferred Stock, $.001
par value per share, 177,776 shares issued and outstand-
ing...................................................... 1,408 1,408
-------- --------
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, 7,879,997 shares issued and
outstanding (3)........................................ 8 8
Additional paid in capital.............................. 40,164 40,164
Retained earnings....................................... (4,541) (4,541)
-------- --------
Total shareholders' equity............................ 35,631 35,631
-------- --------
Total capitalization...................................... $157,539 $186,730
======== ========
</TABLE>
- ---------------------
(1) Does not include the effects of any contingent purchase price consideration
payable to the former owners of the acquired companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Unamortized debt discount of $1.0 million has been added back to long-term
debt.
(3) Does not include (i) 177,776 shares of $.001 par value per share common
stock (the "Common Stock") issuable for nominal consideration upon the
conversion of the 5% Series A Cumulative Preferred Stock (the "Series A
Preferred Stock"); (ii) 220,000 shares of Common Stock issuable for nominal
consideration upon the exercise of a warrant issued to GECC in connection
with the acquisition of Harperprints (the "Lender Warrant"); (iii) 43,000
shares of Common Stock issuable at $10 per share upon the exercise of
rights granted to former B&M Printing shareholders; (iv) 1,828,848 shares
of Common Stock issuable at $10 per share upon the exercise of warrants
issued in connection with the Company's acquisition of certain printing
companies (the "Seller Warrants"); (v) 607,294 shares of Common Stock
issuable at $10 per share upon the exercise of outstanding stock options
held by directors and employees of the Company; (vi) 100,000 shares of
Common Stock issuable at $10 per share pursuant to the Company's deferred
compensation plan; and (vii) shares of Common Stock issuable upon
conversion of approximately $3,471,000 in principal amount of Seller Notes
at a conversion ratio equal to the average of the high and low sales price
of the Common Stock on the day immediately preceding the conversion.
30
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
on an historical basis for the Company and its predecessors. The following
information should be read in conjunction with the historical financial
statements of the Company, including the related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
SIX MONTHS ENDED
YEAR ENDED JUNE 30, (1) ENDED SEPTEMBER 30,
------------------------------------------ DECEMBER 31, -----------------
1993 1994 1995 1996 1997 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $10,514 $10,804 $11,426 $13,244 $13,433 $32,394 $19,683 $109,935
Gross profit............ 2,175 2,706 2,498 3,288 2,121 5,866 3,960 28,752
Depreciation and
amortization........... 1,480 867 747 605 623 1,413 926 4,334
Operating income
(loss)................. (56) 119 (72) 597 (900) (222) 326 9,653
Net income (loss) before
extraordinary
loss (2)............... (191) (92) (209) 172 (1,273) (3,819) (1,132) 3,063
Net income.............. (191) (92) (209) 172 (1,273) (3,819) (1,132) 965
Earnings (loss) per
share before
extraordinary item:
Basic.................. $ (0.05) $ (0.02) $ (0.05) $ 0.04 $ (0.32) $ (0.95) $ (0.28) $ 0.53
Diluted................ $ (0.05) $ (0.02) $ (0.05) $ 0.04 $ (0.32) $ (0.95) $ (0.28) $ 0.50
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $ 8,902 $ 6,330 $ 6,102 $ 6,426 $37,215 $86,384 $176,625
Long-term obligations... 5,886 3,566 3,382 2,794 30,612 69,317 117,397
Redeemable common stock
warrants............... -- -- -- -- 638 3,376 --
Redeemable preferred
stock.................. -- -- -- -- -- -- 1,408
Shareholders' equity
(deficit).............. 1,972 1,880 1,671 1,843 780 (1,596) 35,631
OTHER DATA:
Ratio of earnings to
fixed charges (3)...... -- -- -- 1.7x -- -- 1.4x
</TABLE>
- ---------------------
(1) Effective January 1, 1998, the Company changed its annual accounting period
to a calendar year.
(2) The Company incurred an extraordinary loss in June 1998 of approximately
$2.1 million (net of tax benefit of $1.5 million) related to the write-off
of deferred financing costs and unamortized debt discounts resulting from
the repayment of certain indebtedness in connection with the Company's
initial public offering of the Common Stock.
(3) In the calculation of the ratio of earnings to fixed charges, earnings were
inadequate to cover fixed charges in certain of the periods presented, as
follows--June 30, 1993, $234,000; 1994, $117,000; 1995, $296,000; 1997,
$1.2 million; and December 31, 1997, $3.8 million.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements and related notes of the Company, the financial statements
of acquired companies presented herein and Selected Financial Data included
elsewhere in this Offering Memorandum.
INTRODUCTION
Since June 1997, the Company has acquired 14 general commercial printing
companies (the "Acquired Companies") which the Company believes are market
leaders in their respective geographic areas in terms of customer service,
responsiveness and quality. The Company financed the cash portion of the
purchase price for the Acquired Companies primarily with debt. See Note 2 in
"Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements" for
information regarding the consideration paid for the Acquired Companies. 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 Company's results of operations
are also impacted by the effects of purchase accounting applied to in-process
inventory acquired. Such inventory is recorded at its fair value, which may
include manufacturing profit not otherwise recognizable until the goods are
sold. The resulting cost of sales when such goods are sold, usually in the
period immediately following the acquisition date, may be substantially higher
than in a period when acquisitions are not being made.
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.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated (dollars in millions) and such results as a percentage of revenue.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NINE MONTHS NINE MONTHS
YEAR ENDED JUNE 30, (1) DECEMBER ENDED ENDED
----------------------------------------- 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1997 1998
<S> <C> <C> <C> <C> <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% $ 19.7 100.0% $ 109.9 100.0%
Gross profit............ 2.5 21.9 3.3 25.0 2.1 15.7 5.9 18.2 4.0 20.3 28.8 26.2
Selling, general and
administrative
expenses............... 2.6 22.8 2.7 20.5 3.0 22.4 6.0 18.5 3.7 18.8 19.1 17.4
Operating income
(loss)................. (0.1) (0.9) 0.6 4.5 (0.9) (6.7) (0.2) (0.6) 0.3 1.5 9.7 8.8
Interest expense........ (0.3) (2.6) (0.4) (3.0) (0.4) (3.0) (2.2) (6.8) 1.4 7.1 6.6 6.0
Income tax expense
(benefit).............. (0.1) (0.9) 0.2 1.5 -- -- -- -- -- -- -- --
Net earnings (loss)
before extraordinary
loss................... (0.2) (1.8) 0.2 1.5 (1.3) (9.7) (3.8) (11.7) (1.1) (5.6) 3.1 2.8
Extraordinary loss(2)... -- -- -- -- -- -- -- -- -- -- (2.1) (1.9)
Net earnings (loss)..... $(0.2) (1.8)% $ 0.2 1.5% $(1.3) (9.7)% $(3.8) (11.7)% $ (1.1) (5.6)% $ 1.0 0.9%
</TABLE>
- ---------------------
(1) Effective January 1, 1998, the Company changed its annual accounting period
to a calendar year.
(2) The Company incurred an extraordinary loss in June 1998 of approximately
$2.1 million (net of tax benefit of $1.5 million) related to the write-off
of deferred financing costs and unamortized debt discounts resulting from
the repayment of certain indebtedness in connection with the Company's
initial public offering of the Common Stock (the "Initial Offering").
32
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenue. Revenue increased approximately 458% from $19.7 million for the nine
months ended September 30, 1997 to $109.9 for the nine months ended September
30, 1998. Revenue growth was attributable primarily to the implementation of
the Company's acquisition strategy as described above.
Gross Profit. Gross profit increased from $4.0 million for the nine months
ended September 30, 1997 to $28.8 million for the nine months ended September
30, 1998. The increase in gross profit was attributable primarily to the
implementation of the Company's acquisition strategy. Gross profit as a
percentage of sales increased to 26.2% for the nine months ended September 30,
1998, from 20.1% in the corresponding period of the prior year. This
improvement, which is primarily attributable to the mix of operating divisions
acquired, also reflects a decrease in labor and lease costs related to the sale
by the B&M Printing division of a web press whose utilization has been absorbed
by the other divisions, and cost savings generated by the Company's improved
purchasing leverage.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $3.7 million for the nine months ended
September 30, 1997 to $19.1 million for the nine months ended September 30,
1998. Selling expenses increased with increasing revenue mentioned above and
general and administrative expenses increased as a result of the Company's
acquisition strategy and an increase in corporate level expenses incurred in
preparation for the Company's initial public stock offering.
Interest Expense. Interest expense increased from $1.4 million for the nine
months ended September 30, 1997 to $6.6 million for the nine months ended
September 30, 1998. A substantial portion of the purchase price for each of the
Company's acquisitions was financed with debt. Accordingly, the increase in
interest expense is primarily attributable to the Company's acquisition program
and related financing activities.
Extraordinary Loss. The Company incurred an extraordinary loss of
approximately $2.1 million (net of tax benefit of $1.5 million) related to the
write-off of deferred financing costs and unamortized debt discounts resulting
from the repayment of certain indebtedness in connection with the Company's
initial public offering.
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 24.8% to 15.8% 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 $0.4 million in the year ended June 30, 1996 and in the year
ended June 30, 1997.
33
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED JUNE 30, 1997.
Revenue increased by 142%, 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 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.
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 24.8% 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
The Company's primary cash requirements are for debt service, capital
expenditures, acquisitions and working capital. Historically, the Company has
financed its operations and equipment purchases 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 under the GECC Credit Facility
as well as subordinated notes payable to former owners of the acquired
companies. Working capital on September 30, 1998 was $27.0 million, an increase
of $20.3 million from December 31, 1997.
To date, the Company's largest source of capital has been the GECC Credit
Facility, which originally closed in September 1997, and has periodically been
increased to provide for the funding of acquisitions completed since that time.
As of September 30, 1998, $90.0 million was outstanding under the GECC Credit
Facility. Of the outstanding borrowings, (i) $28.0 million was owed pursuant to
a term note due July 1, 2003, payable in quarterly installments (four payments
of $1,120,000, four payments of $1,260,000, four payments of $1,400,000, four
payments of $1,540,000 and four payments of $1,680,000), with interest payable
monthly at a floating rate equal to either the Base Rate for Base Rate Loans or
LIBOR plus 2.5% per annum for LIBOR Loans (7.87% as of November 1, 1998); (ii)
$17.0 million was owed pursuant to a term note payable on or before August
2003, with interest payable monthly at a floating rate equal to either Base
Rate plus .50% for Base Rate Loans or LIBOR plus 3.0% per annum for LIBOR Loans
(8.37% as of November 1, 1998); (iii) $15.0 million was owed pursuant to term
note payable on or before August 2003, with interest payable monthly at a
floating rate equal to the Base Rate plus .50% for Base Rate Loans and LIBOR
plus 3.0% per annum for LIBOR Loans (8.37% as of November 1, 1998); and (iv)
$30.0 million was owed under an
34
<PAGE>
acquisition line facility due on or before August, 2003, payable in quarterly
installments in an amount equal to one-fortieth ( 1/40) of the principal amount
of each advance made under the acquisition line commencing the first day of the
calendar quarter immediately following the date of the advance. Interest under
the acquisition line is payable monthly at a floating rate equal to the Base
Rate plus .25% for Base Rate Loans and LIBOR plus 2.75% per annum for LIBOR
Loans (8.12% as of November 1, 1998). The Company made a $1.1 million principal
payment on the GECC Credit Facility on October 1, 1998 and with a portion of
the net proceeds from the sale of the Old Notes made an $88.6 million principal
payment on the GECC Credit Facility. As of December 31, 1998, the outstanding
balance on the GECC Credit Facility was approximately $300,000. The Company is
subject to certain covenants and restrictions and must meet certain financial
tests as defined in the senior term credit agreement.
The Company also may borrow under the Deutsche Credit Facility, which is a
$15.0 million working capital line of credit. Borrowings under the Deutsche
Credit Facility are limited by a borrowing base formula. Interest is payable
monthly under the Deutsche Credit Facility at a floating rate (8.0% as of
November 1, 1998). As of December 31, 1998, the Company had no amounts
outstanding under the Deutsche Credit Facility and $15 million in available
borrowing capacity.
Premier has received a non-binding term sheet from GECC for a new $80.0
million senior secured credit facility to replace the GECC Credit Facility and
the Deutsche Credit Facility, subject to the negotiation of definitive loan
agreements and satisfaction of certain conditions. Pursuant to the term sheet,
this new credit facility would consist of two term loans and a revolving credit
facility, the maximum principal amounts of which would be $30.0 million, $30.0
million and $20.0 million, respectively. The first term loan will bear interest
at a floating rate equal to LIBOR plus 2.5%. The second term loan will bear
interest at a floating rate equal to LIBOR plus 3.0%. The revolving credit
facility will bear interest at a floating rate equal to LIBOR plus 2.5%. The
first term loan will mature five years after the date of closing, and principal
will be payable based on a five year amortization. The second term loan will
mature six years after the date of closing, and Premier will pay $2.5 million
of principal annually with a final balloon payment at maturity. The revolving
credit facility will be payable in full six years after the date of closing.
Master Graphics financed a portion of the aggregate amount paid for certain
of the Acquired Companies by using unsecured subordinated notes ("Seller
Notes") to the former owners of these companies. The total principal amount of
Seller Notes issued was approximately $14.9 million. Master Graphics also
issued unsecured subordinated notes ("Replacement Notes") to the former owners
of Hederman and Phoenix, which replaced notes between such companies and their
owners. The aggregate principal amount of Replacement Notes issued by Master
Graphics was approximately $5.3 million. In connection with the acquisition of
B&M Printing, Master Graphics issued approximately $1.3 million of unsecured
notes (the "B&M Notes") to the former owners of B&M Printing. Master Graphics
repaid approximately $200,000 on the B&M Notes in May 1998.
In connection with the closing of the offering (the "Offering") of $130
million of 11 1/2% Senior Notes due 2005, Master Graphics restructured
approximately $12.5 million of Seller Notes and Replacement Notes to have the
following features: (i) balloon maturity date of June 30, 2006; (ii) monthly
interest payments at 12% per annum if paid when due or, if not paid when due,
interest will accrue at 16% per annum until all accrued interest has been paid;
(iii) no restrictive covenants; and (iv) no rights or remedies against Master
Graphics until maturity. In addition, Master Graphics used approximately $4.8
million of the net proceeds of the Offering to repay amounts outstanding under
the B&M Notes and certain Seller Notes or Replacement Notes. The remaining $4.0
million of Seller Notes and Replacement Notes generally (i) bear interest at
12% per annum which is payable quarterly; (ii) are subject to prepayment at the
option of Master Graphics only upon payment of a penalty which equals 20% of
the amount prepaid; and (iii) mature seven years from the date of issuance.
As part of the respective purchase agreements, the Company has agreed to pay
the former owners of eight of the Acquired Companies additional purchase price
consideration if such companies surpass certain EBITDA-based
35
<PAGE>
targets, which generally exceed the pre-acquisition performance levels of those
companies. Reaching these targets will result in additional cash inflow to the
Company arising from the incremental EBITDA above the targets and additional
cash outflow from the consideration required to be paid. The periods for which
the targets will be measured vary for each of the companies, and the
measurement periods range from one year to four years of operations. For some
of the companies, additional consideration will be payable by the Company
annually for each year in which the EBITDA-based target is surpassed, and for
other companies, only a single lump sum payment will be made by the Company if
the performance of the company exceeds the target. The maximum additional
purchase price consideration payable to the former owners of seven of the
companies is limited to a specified amount. The amount of additional
consideration payable to the former owners of the other company is not limited
once the EBITDA-based target is surpassed. Assuming that the former owners
become entitled to receive the maximum amount of additional purchase price
consideration at the earliest possible time, the Company would pay the former
owners over $10.6 million in 1999, over $11.8 million in 2000, over $6.2
million in 2001, and $0.8 million in 2002. Any additional purchase price
consideration is payable in cash, which will be recorded as additional goodwill
and amortized into income over approximately 40 years. The first payment of
additional consideration, if earned, will be due and payable on or before May
31, 1999.
The Company anticipates that its cash flow from operating activities will
provide cash adequate to finance its normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment.
Master Graphics is dependent upon the cash flow of and the transfer of funds
from Premier, its primary operating subsidiary, which, under its various credit
facilities, is subject to restrictions on its ability to pay dividends to
Master Graphics. To the extent that cash flow from operating activities is
insufficient to fund the payment of any additional purchase price
consideration, the Company intends to finance the payment of such consideration
through its credit facilities.
YEAR 2000
Like many other companies, the Year 2000 computer issue creates risks for the
Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. There are two other related issues which could also lead
to incorrect calculations or failures: (i) some systems' programming assigns
special meaning to certain dates, such as 9/9/99, and (ii) the year 2000 is a
leap year. The Year 2000 compliance issues stem from the computer industry's
practice of conserving data storage by using two digits to represent a year.
Systems and hardware using this format may process data incorrectly or fail
with the use of dates in the next century. These types of failures can
influence applications that rely on dates to perform calculations (such as an
accounts receivable aging report), as well as systems such as building security
and heating.
The Company believes its exposure to Year 2000 issues is limited to the
purchase of computer hardware, and to a lesser extent software, at certain of
its locations. The Company has initiated a program that includes a review of
all computers, software and related date-sensitive equipment used in the
management of print jobs, office automation, accounting, process control and
other applications. The Company expects its corrective action resulting from
the review to be complete by the end of the third quarter 1999. Testing at each
division will commence as action plans are completed. The Company anticipates
that the cost of such corrective actions will be approximately $750,000 for the
existing divisions. The due diligence process for new acquisitions by the
Company includes a Year 2000 assessment, with corrective action plans scheduled
for immediate implementation.
The Company believes its Year 2000 risk areas are focused on the loss of its
ability to operate due to (i) equipment malfunction or (ii) customer inability
to forward electronic images due to its own Year 2000 malfunctions. As part of
the investigation process, the Company's suppliers and other service vendors
are being asked to provide documentation on their Year 2000 compliance status.
Each operating division has assigned a Year 2000 compliance officer responsible
for identifying local problem areas and managing corrective actions. The
Company also believes it has the capability in place to provide expertise to
customers to develop the electronic images necessary for respective print jobs.
36
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company does not believe that any recently issued accounting standards
will have a material impact on the Company's consolidated financial statements.
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which will be effective for the Company's year ending
December 31, 1998, is not expected to have a material impact on the Company's
disclosures because the Company has no material items comprising "other
comprehensive income" as defined in SFAS 130. SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which will be effective for
the Company's year ending December 31, 1998, is not expected to have a material
impact on the Company's disclosures because the Company currently operates in
the single segment of general commercial printing. SFAS 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which will be
effective for the Company's year ending December 31, 1998, is not expected to
have a material impact on the Company's disclosures because SFAS 132 deals
primarily with disclosures related to deferred benefit pension plans and other
post retirement benefits, neither of which are material to the Company. SFAS
133, Accounting for Derivative Financial Instruments, which will be effective
for the Company's year ending December 31, 2000, is not expected to have a
material impact on the Company's financial statements because SFAS 133 deals
with derivative financial instruments, which presently are not instruments that
the Company is involved in to a material extent.
37
<PAGE>
BUSINESS
GENERAL
The Company is a leading consolidator within the general commercial printing
industry. Since June 1997, the Company has acquired 14 high quality, general
commercial printing companies which the Company believes are market leaders in
their respective geographic areas in terms of customer service, responsiveness
and quality. Each of the Acquired Companies 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 nearly 50 years,
established customer relationships and strong reputations for customer service,
responsiveness and quality. The Company expects that its operating strategy
will enable each division to offer broader services to existing customers and
attract new customers. The Company's acquisition strategy will focus on
continued selective acquisitions of market-leading general commercial printing
companies. The Company's pro forma consolidated revenue, operating income,
EBITDA and adjusted EBITDA for the latest twelve months ended September 30,
1998 were $223.5 million, $17.2 million, $26.3 million and $27.0 million,
respectively. The Company's pro forma consolidated revenue, operating income,
EBITDA and adjusted EBITDA for the three months ended September 30, 1998 were
$56.2 million, $5.6 million, $7.8 million and $7.8 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 and
catalogs 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 GENERAL COMMERCIAL PRINTING MARKET
The printing industry is one of the largest and most fragmented industries in
the United States, with total estimated 1997 sales of $141.7 billion among an
estimated 52,000 printing companies according to the Printing Institute of
America (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 $46.8 billion in
revenue in 1997 compared to $42.9 billion in 1996. In 1997, there were
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
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<PAGE>
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.
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.
. Stimulate Internal Growth. In order to maximize each division's internal
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; (ii) training the Company's sales force to market the
production capacity and capabilities of all of the Company's divisions; and
(iii) expanding the Company's product and service offerings. 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 25.6% of revenue for the nine
months ended September 30, 1998. 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 is currently centralizing 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 reporting systems and financial controls at the
corporate level, will enable it to combine the service and responsiveness of
a
39
<PAGE>
locally-oriented, independent general commercial printing company with the
resources and economies of scale of a large company. Moreover, the Company
provides incentives to its employees and aligns their interests with those
of the Company's shareholders by using equity based compensation and
earnings based bonuses.
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 REVENUES YEAR SHEET FED WEB FED
ACQUIRED COMPANY (IN THOUSANDS) (1) FOUNDED LOCATION PRESSES PRESSES
<S> <C> <C> <C> <C> <C>
B&M Printing............ $ 13,433 1969 Memphis, Tennessee 6 0
Blackwell
Lithographers.......... 4,164 1932 Jackson, Mississippi 4 0
Lithograph Printing..... 20,118 1947 Memphis, Tennessee 3 2
Sutherland Printing..... 7,892 1940 Montezuma, Iowa 6 0
Ozark, Missouri 1 0
The Argus Press......... 23,277 1922 Chicago, Illinois 5 0
Phoenix Communications.. 25,859 1960 Atlanta, Georgia 6 2
Jones Printing Company.. 6,343 1947 Chattanooga, Tennessee 8 1
Hederman Brothers....... 10,459 1898 Jackson, Mississippi 7 0
Phillips Litho.......... 12,727 1973 Springdale, Arkansas 4 4
Harperprints............ 10,904 1974 Henderson, North Carolina 3 0
McQuiddy Printing
Company................ 16,583 1903 Nashville, Tennessee 4 2
Golden Rule Printing.... 11,489 1978 Huntsville, Alabama 6 0
The Printing Company.... 5,589 1983 Indianapolis, Indiana 3 0
Stephenson Printing..... 27,000 1953 Alexandria, Virginia 3 2
Technigrafiks........... 12,360 1977 Houston, Texas 3 0
-------- --- ---
Total Combined
Revenues............... $208,197 72 13
======== === ===
</TABLE>
- --------------------
(1) The Company and several of the individual Acquired Companies had fiscal
years that differed from December 31, which is the Company's year end
effective January 1, 1998.
40
<PAGE>
The Acquired Companies were acquired with a combination of cash, promissory
notes and warrants. The aggregate consideration paid for the Acquired Companies
consists of (i) approximately $78.3 million in cash, (ii) approximately $14.9
million in aggregate principal amount of notes to the former owners of the
Acquired Companies, (iii) warrants to purchase 1,828,848 shares of Common Stock
at an exercise price equal to $10.00 per share, and (iv) 213,333 shares of
Common Stock. See Note 2 in "Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements" for detailed information regarding the
consideration paid for each of the Acquired Companies. Former owners of eight
of the Acquired Companies have the right to receive a substantial amount of
additional consideration, payable in cash, contingent upon meeting certain
EBITDA-based targets. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Liquidity and Capital Resources."
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
41
<PAGE>
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.
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 72
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 13 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 six 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 indicate 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 less than 14% of
sales; no customer accounted for more than 3%.
SALES AND MARKETING
On September 30, 1998, the Company employed 117 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 other general
commercial printing companies, 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
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<PAGE>
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 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 25.6% of
revenue for the nine months ended September 30, 1998. 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.
43
<PAGE>
EMPLOYEES
On September 30, 1998, the Company had approximately 1,450 employees and the
proposed acquisition candidate had approximately 96 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.
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.......................... Owned 73,800
Harperprints Division
Henderson, North Carolina..................... Leased 55,000
McQuiddy Printing Division
Nashville, Tennessee.......................... Owned 83,400
Golden Rule Printing Division
Huntsville, Alabama........................... Leased 65,000
The Printing Company Division
Indianapolis, Indiana......................... Leased 22,000
Stephenson Printing Division
Alexandria, Virginia.......................... Leased 94,000
Technigrafiks Division
Houston, Texas................................ Leased 30,300
</TABLE>
44
<PAGE>
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.
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 a Phase I environmental site
assessment (which does not involve invasive procedures, such as soil sampling
or ground water analysis) by independent environment consultants. The purpose
of a Phase I environmental site assessment is to identify potential sources of
contamination for which the Company may be responsible and to assess the status
of environmental regulatory compliance. The Phase I environmental site
assessment obtained for the property used by the Stephenson Printing Division
revealed that there are two underground storage tanks listed with the Virginia
Department of Environmental Quality as "currently in use" on the property. The
owner of the property has informed the Company that the underground storage
tanks were removed in the mid-1980's, although there is no documentation of the
removal of the tanks. The storage tanks were previously used for the storage of
alcohol and solvent. There is a potential for soil or groundwater contamination
on the property if there were any releases from the underground storage tanks.
No other Phase I environmental site assessment revealed any environmental
condition, liability or compliance concern that the Company believes would have
a material adverse effect on its business, assets or results of operations, nor
is the Company aware of any such condition, liability or concern by any other
means. However, it is possible that the environmental site assessments relating
to any one of the properties did not reveal all environmental conditions,
liabilities or compliance concerns. It is also possible that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related review was completed. If environmental contamination
exists or existed at a property, the Company may be liable for the costs of
removal or remediation of the contamination and may be liable for personal
injury or similar claims by private plaintiffs. Moreover, the existence of an
environmental contamination at a property could adversely affect the Company's
ability to sell or borrow against that property.
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.
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<PAGE>
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.
ADDITIONAL INFORMATION
Master Graphics is subject to the reporting and informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by
Master Graphics may be examined without charge at, or copies obtained upon
payment of prescribed fees from, the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Investors
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800- SEC-0330. Electronic filings made through the
Electronic Data Gathering, Analysis and Retrieval System are publicly available
through the Securities and Exchange Commission's web site (http://www.sec.gov).
Premier is not subject to the reporting and informational requirements of the
Exchange Act. However, for so long as any of the Old Notes remain outstanding,
Premier has agreed to make available, upon request, to any holder of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act of 1933,
as amended (the "Securities Act"). Information may be obtained from Premier at
6075 Poplar Avenue, Suite 401, Memphis, Tennessee 38119 (telephone number (901)
685-2020), Attention: Corporate Secretary.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of Master Graphics.
<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 and Secretary
Robert J. Diehl................. 56 Chief Operating Officer
P. Melvin Henson, Jr. .......... 41 Senior Vice President--Finance and
Administration; Chief Accounting Officer
Donald H. Goldman............... 62 Senior Vice President; Chief Information
Officer
James B. Duncan................. 55 Senior Vice President--Sales and Marketing
H. Henry (Hap) Hederman, Jr. ... 52 Class I Director, President Hederman
Brothers Division
Donald L. Hutson................ 52 Class I Director
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 Master Graphics 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, Chief
Financial Officer and Secretary of Master Graphics 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 Master Graphics 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 Master Graphics 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.
Donald H. Goldman has been a Senior Vice President and the Chief Information
Officer of Master Graphics since July 1998. From 1981 through June 1998, Mr.
Goldman served as the President of ConsultWare, Inc., a graphic arts consulting
firm located in Marblehead, Massachusetts. Mr. Goldman has been a consultant
and speaker to trade organizations within the printing industry. Mr. Goldman
also serves on the
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<PAGE>
advisory board for CIMSPrint, an educational and research service for the
printing industry sponsored by the Rochester Institute of Technology.
James B. Duncan has been the Senior Vice President--Sales and Marketing of
Master Graphics 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 Master Graphics since
March 1998 and has served as the President of the Hederman Brothers Division
since March 1998. Mr. Hederman has over 30 years of experience in the general
commercial printing industry. From 1982 through March 1998, Mr. Hederman served
as the President and Chief Executive Officer of Hederman Brothers, Inc. (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 Master Graphics 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.
Frederick F. Avery has been a Director of Master Graphics 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 Master Graphics 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 Communications, Inc. 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 Master Graphics.
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 term of Mr.
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 Master Graphics 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 Master Graphics 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
48
<PAGE>
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. 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 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 1,000 shares of Common Stock
at a purchase price per share equal to $10.00.
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.
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<PAGE>
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
--------------------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1)
<S> <C> <C> <C>
John P. Miller....................................... 1998 $ 250,000 --
Chairman of the Board, President and Chief Executive
Officer 1997 $ 145,833 --
1996 $ 86,666 --
Lance T. Fair........................................ 1998 $ 120,000 --
Senior Vice President Acquisition and Chief
Financial Officer 1997 $ 34,153 $600,000
Robert J. Diehl Chief Operating Officer.............. 1998 $ 175,000
Chief Operating Officer 1997 -- $300,000
James B. Duncan ..................................... 1998 $ 100,000 --
Senior Vice President--Sales and Marketing 1997 $ 20,833 $ 50,000
</TABLE>
- ---------------------
(1) Includes only 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
($10.00).
Master Graphics 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. The Company also has an employment agreement with Donald H.
Goldman effective July 1, 1998. Each employment 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; Mr. Duncan--$100,000; and Mr. Goldman--$100,000. The
annual salaries are subject to adjustment at 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.
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<PAGE>
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)
-------------------------------------------------- -----------------------------
OPTIONS % OF TOTAL
GRANTED OPTIONS EXERCISE
(NO. OF GRANTED TO PRICE PER
SHARES (1) EMPLOYEES (2) SHARE(3) EXPIRATION DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John P. Miller.......... -- -- --
Lance T. Fair........... 100,000 16.5% $10.00 March 2008 $ 628,895 $ 1,593,742
Robert J. Diehl......... 30,000 4.9 $10.00 March 2008 188,668 478,122
James B. Duncan......... -- -- --
</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 607,284 shares of
Common Stock.
(3) 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 $16.29 and $25.94 respectively, or 62.9% and 159.4%,
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 September 30, 1998, by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
SEPTEMBER 30, 1998
-------------------------
EXERCISABLE UNEXERCISABLE
<S> <C> <C>
John P. Miller........................................ -- --
Lance T. Fair......................................... -- 100,000
Robert J. Diehl....................................... -- 30,000
James B. Duncan....................................... -- --
</TABLE>
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 Offering
Memorandum, the Company has granted options to purchase 607,294 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
51
<PAGE>
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.
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
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<PAGE>
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 Offering Memorandum, the Company has granted options to purchase
1,000 shares of Common Stock to each non-employee Director 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.
CERTAIN TRANSACTIONS
Premier Graphics, through the B&M Printing Division, on December 10, 1992
loaned Mr. Miller $950,000, at a rate of 7% per annum. Mr. Miller repaid this
amount in full in June 1998.
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 $2.8 million which was represented by a promissory note
from Mr. Miller to the Company in the principal amount of $2.8 million. Mr.
Miller repaid all amounts owed to the Company in June 1998. B&M Printing
53
<PAGE>
acquired the web press pursuant to a lease in March 1996 and purchased it in
June 1997 for total consideration of $2.6 million.
In the Company's acquisition of Hederman Brothers, Inc. 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 199,998 shares of Common Stock 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 Communications, Inc. 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 232,500 shares
of Common Stock at a price per share equal to $10.00, and a promissory note in
the principal amount of $557,750 which matures on December 16, 2004 and bears
interest at a rate of 12% per annum. Moreover, the acquisition documents
provide up to $611,100 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 Printing Company of Memphis in
June 1997, Mr. Walter P. 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 375,000 shares of
Common Stock at a price per share equal to $10.00, 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 was a director of Master
Graphics from March 1998 until his death in December 1998. 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. On April 1, 1998, the Company issued to GECC a
warrant to purchase 220,000 shares of Common Stock for nominal consideration
(the "Lender Warrant"). The Company paid $3.0 million in advisory fees to GECC
for GECC's advice and assistance in structuring and negotiating the
acquisitions of certain of the Acquired Companies and approximately $1.8
million in loan origination fees in connection with the GECC Credit Facility.
In addition, GECC is a lender under, and administrative agent for, the GECC
Credit Facility. See "Description of Other Indebtedness."
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Offering Memorandum,
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 and each other executive officer of the
Company; (iii) each person known by the Company to own beneficially more than
5% of the Common Stock; and (iv) all directors and executive officers of the
Company as a group. 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.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER PERCENT (1)
<S> <C> <C>
John P. Miller...................................... 4,138,000 52.5%
6075 Poplar Avenue
Suite 401
Memphis, Tennessee 38119
General Electric Capital Corporation................ 397,776(2) 5.0
977 Long Ridge Road
Building B, First Floor
Stamford, Connecticut 06927
Cary Rosenthal...................................... 232,500(3) 3.0
H. Henry (Hap) Hederman, Jr. ....................... 242,850(4) 3.1
Lance T. Fair....................................... 61,500(5) *
Robert J. Diehl..................................... 30,500(6) *
P. Melvin Henson, Jr. .............................. 5,250(7) *
James B. Duncan..................................... 8,800(8) *
Donald H. Goldman................................... -- --
Frederick F. Avery.................................. 2,000 *
Donald L. Hutson.................................... 7,591 *
All Named Executive Officers and directors of the
Company as a group (11) persons)................... 4,728,991 60.0
</TABLE>
- ---------------------
* Less than 1%
(1) Applicable percent of ownership is based on 7,879,997 shares of Common
Stock outstanding as of the date of this Prospectus. 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 Offering
Memorandum 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 220,000 shares of Common Stock
issuable upon exercise of the Lender Warrant.
(3) Includes 232,500 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Rosenthal.
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<PAGE>
(4) Includes 70,350 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Hederman and 120,000 shares of Common Stock held by the H.
Henry Hederman, Jr. Trust of which Mr. Hederman is a trustee. Includes
20,000 shares held by Arrowhead Properties, L.P. for which Mr. Hederman has
the power to vote or to direct the vote, and to dispose of or to direct the
disposition of such shares.
(5) Includes 60,000 shares of Common Stock issuable to Mr. Fair in connection
with the Company's deferred compensation plan.
(6) Includes 30,000 shares of Common Stock issuable to Mr. Diehl, in connection
with the Company's deferred compensation plan.
(7) Includes 5,000 shares of Common Stock issuable to Mr. Henson in connection
with the Company's deferred compensation plan.
(8) Includes 5,000 shares of Common Stock issuable to Mr. Duncan in connection
with the Company's deferred compensation plan.
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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
EXISTING CREDIT FACILITIES
The following summary does not purport to be complete and is qualified in its
entirety by the loan agreements relating to the Company's existing credit
facilities.
The GECC Credit Facility originally closed in June 1997, and it has
periodically been increased to provide for the funding of acquisitions
completed since that time. In August 1998, the GECC Credit Facility was
increased to $90.0 million, and the facility was restructured to allow for
additional lenders with GECC serving as administrative agent for itself and the
other lenders. The indebtedness under the GECC Credit Facility is evidenced by
the following: (a) Term Loan A Notes in the maximum aggregate principal amount
of $28.0 million with a maturity date of July 1, 2003, payable in quarterly
installments (four payments of $1,120,000, four payments of $1,260,000, four
payments of $1,400,000, four payments of $1,540,000 and four payments of
$1,680,000), with interest payable monthly at a floating rate equal to either
the Base Rate for Base Rate Loans or LIBOR plus 2.5% per annum for LIBOR Loans
(7.87% as of November 1, 1998); (b) Term Loan B Notes in the maximum aggregate
principal amount of $17.0 million, payable on or before August 2003, with
interest payable monthly at a floating rate equal to either Base Rate plus .50%
for Base Rate Loans or LIBOR plus 3.0% per annum for LIBOR Loans (8.37% as of
November 1, 1998); (c) Term Loan C Notes in the maximum aggregate principal
amount of $15.0 million, payable on or before August 2003, with interest
payable monthly at a floating rate equal to the Base Rate plus .50% for Base
Rate Loans and LIBOR plus 3.0% per annum for LIBOR Loans (8.37% as of November
1, 1998); and (d) Acquisition Line Notes in the maximum aggregate principal
amount of $30.0 million, payable in quarterly installments in an amount equal
to one-fortieth ( 1/40) of the principal amount of each advance made under the
acquisition line commencing the first day of the calendar quarter immediately
following the date of the advance and with the unpaid principal balance due on
or before August 2003, with interest payable monthly at a floating rate equal
to the Base Rate plus .25% for Base Rate Loans and LIBOR plus 2.75% per annum
for LIBOR Loans (8.12% as of November 1, 1998).
Premier is subject to certain covenants and restrictions and must meet
certain financial tests as defined in the GECC Credit Facility agreement. The
GECC Credit Facility is secured by a first priority security interest in all
assets of Premier except inventory and accounts receivable, and by a second
priority security interest in inventory and accounts receivable (junior only to
the Deutsche Credit Facility). Under the GECC Credit Facility, the Company is
required to maintain a certain net worth, EBITDA and certain interest coverage,
fixed charge coverage and leverage ratios. The GECC Credit Facility also
contains affirmative and negative covenants, including but not limited to,
covenants limiting capital expenditures and the payment of dividends and
requiring a minimum level of prepayment based on 50% of annual excess cash
flows. The GECC Credit Facility may be prepaid, although a prepayment penalty
will be charged under certain circumstances. At September 30, 1998, the Company
had $90.0 million outstanding under the GECC Credit Facility.
On October 1, 1998, Premier made a $1.1 million principal payment under the
GECC Credit Facility to reduce the outstanding principal balance of the GECC
Credit Facility to $88.9 million. Premier used $88.6 million of the net
proceeds from the Offering to prepay certain existing and outstanding
indebtedness under the GECC Credit Facility. On December 31, 1998, the
outstanding balance on the GECC Credit Facility was approximately $300,000.
Premier also has a $15.0 million working capital line of credit from Deutsche
Financial Services Corporation. Interest is payable monthly under the Deutsche
Credit Facility at a floating rate (8.0% as of November 1, 1998). Borrowings
under the Deutsche Credit Facility are limited by a borrowing base formula
based on eligible receivables and eligible inventory. The Deutsche Credit
Facility is secured by a first priority security interest in Premier's
inventory and accounts receivable and a second priority security interest in
certain of the Company's other assets. The Deutsche Credit Facility contains
various affirmative and negative covenants, including maintenance of certain
financial ratios similar to those required under the GECC Credit
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Facility. At November 13, 1998, the Company had $6.5 million outstanding under
the Deutsche Credit Facility. Premier used a portion of the net proceeds from
the Offering to repay the existing and outstanding indebtedness under the
Deutsche Credit Facility. On December 31, 1998, there was no outstanding
balance on the Deutsche Credit Facility.
The GECC Credit Facility and the Deutsche Credit Facility contain events of
default customary for facilities of that type, including, without limitation,
failure to pay principal, interest, fees or other amounts when due, the breach
of any covenant, representation or warranty, cross default and cross
acceleration, bankruptcy, insolvency or similar events involving the Company,
the unenforceability of any of the credit facility agreements or liens securing
payment obligations under Premier's existing credit facilities, and the
occurrence or existence of any event or circumstance which has a material
adverse effect upon the Company.
PREMIER'S NEW CREDIT FACILITY
Premier has received a non-binding term sheet from GECC to provide a new
$80.0 million senior secured credit facility to replace the GECC Credit
Facility and the Deutsche Credit Facility, (the "New Credit Facility") subject
to the negotiation of definitive loan agreements and satisfaction of certain
conditions. GECC intends to syndicate a portion of the New Credit Facility to
other financial institutions. Pursuant to the term sheet, the New Credit
Facility will consist of two term loans ("Term Loan A" and "Term Loan B") and a
revolving credit facility (the "Revolver"), the maximum principal amounts of
which will be $30.0 million, $30.0 million and $20.0 million, respectively.
Term Loan A will bear interest at a floating rate equal to LIBOR plus 2.5%.
Term Loan B will bear interest at a floating rate equal to LIBOR plus 3.0%. The
Revolver will bear interest at a floating rate equal to LIBOR plus 2.5%. Term
Loan A will mature five years after the date of closing, and principal will be
payable based on a five year amortization. Term Loan B will mature six years
after the date of closing, and Premier will pay $2.5 million of principal
annually with a final balloon payment at maturity. The Revolver will be payable
in full six years after the date of closing.
The security for the New Credit Facility will consist of a lien on all of the
assets of Premier, as well as a pledge by Master Graphics of all of the issued
and outstanding common stock of Premier and Harperprints. In the event Premier
forms or acquires a subsidiary in the future, Premier will pledge the stock of
that subsidiary as additional collateral for the New Credit Facility. The New
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.
Under the New Credit Facility, the Company will be required to maintain
certain financial tests and ratios. The New Credit Facility will also contain
affirmative and restrictive covenants, including, but not limited to, a
covenant requiring a minimum level of prepayment of Term Loan A and Term Loan B
based on 75% of annual excess cash flows.
ACQUISITION NOTES
Master Graphics financed a portion of the aggregate amount paid for certain
of the Acquired Companies by issuing Seller Notes. The total principal amount
of Seller Notes issued was approximately $14.9 million. Master Graphics also
issued Replacement Notes to the former owners of Hederman and Phoenix, which
replaced notes between such companies and their owners. The aggregate principal
amount of Replacement Notes issued by Master Graphics was approximately $5.3
million. In connection with the acquisition of B&M Printing, Master Graphics
issued approximately $1.3 million of B&M Notes to the former owners of B&M
Printing. Master Graphics repaid approximately $200,000 on the B&M Notes in May
1998.
In connection with the closing of the Offering, Master Graphics restructured
$12.5 million of Seller Notes and Replacement Notes to have the following
features: (i) balloon maturity date of June 30, 2006; (ii) monthly interest
payments at 12% per annum if paid when due or, if not paid when due, interest
will accrue at 16% per annum until all accrued interest has been paid; (iii) no
restrictive covenants; and (iv) no rights or
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remedies against Master Graphics until maturity. In addition, Master Graphics
used approximately $4.8 million of the net proceeds of the Offering to repay
amounts outstanding under the B&M Notes and certain Seller Notes or Replacement
Notes. The remaining $4.0 million of Seller Notes and Replacement Notes
generally (i) bear interest at 12% per annum which is payable quarterly; (ii)
are subject to prepayment at the option of Master Graphics only upon payment of
a penalty which equals 20% of the amount prepaid; and (iii) mature seven years
from the date of issuance.
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DESCRIPTION OF NOTES
The Old Notes were issued under an indenture dated as of December 11, 1998
(the "Indenture") between Premier, as issuer, Master Graphics and Harperprints,
as guarantors, and United States Trust Company of New York, as trustee (the
"Trustee"), a copy of the form of which will be made available upon request.
Upon the issuance of the New Notes the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of the material provisions of the Indenture does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. The term "Notes" refers to the Old Notes
which are outstanding and to the New Notes at the time such New Notes become
issued and outstanding.
GENERAL
The Notes will be general unsecured obligations of Premier, limited in
aggregate principal amount at Stated Maturity to $130.0 million. The
Indebtedness evidenced by the Notes will rank pari passu in right of payment
with all other existing and future indebtedness and other liabilities of
Premier that are not subordinated by their express terms to the Notes, and
senior to all Indebtedness of Premier that by its terms is so subordinated. The
Notes will be effectively subordinated to all existing and future secured
Indebtedness of Premier to the extent of the value of the assets securing such
Indebtedness. As of September 30, 1998, after giving effect to the issuance of
the Notes and the application of the proceeds therefrom and the acquisition of
the Technigrafiks acquisition, Premier would have had approximately $133.3
million of Indebtedness and $8.9 million in trade payables. Under the terms of
the Indenture, Premier will be able to borrow a substantial amount of
additional Senior Debt. Premier has received a non-binding term sheet from GECC
to provide the New Credit Facility. The New Credit Facility will be an $80.0
million senior secured facility consisting of two term loans ($30.0 million
each) and a revolving credit facility ($20.0 million). See "--Certain
Covenants--Limitation on Indebtedness".
The Indenture provides that Master Graphics and Harperprints (and any other
Subsidiary that guarantees any Indebtedness of Premier or other Obligor or
Master Graphics in the future) shall be a Guarantor. The Guarantees will be
senior unsecured obligations of each respective Guarantor and will rank pari
passu in right of payment with all other Indebtedness and liabilities of such
Guarantor that are not subordinated by their express terms to the Guarantee of
such Guarantor, and senior in right of payment to all Subordinated Indebtedness
of such Guarantor. However, the Guarantees will be effectively subordinated to
secured Indebtedness of the Guarantors to the extent of the value of the assets
securing such Indebtedness. All of the physical assets of Master Graphics and
Harperprints will secure the Obligations of Master Graphics and Harperprints
under the New Credit Facility. In the event of a bankruptcy, liquidation or
reorganization of a Guarantor, the assets of such Guarantor securing such
secured Indebtedness will be available to satisfy obligations with respect to
such secured Indebtedness before any payment therefrom could be made on the
Notes or the Guarantees.
The Notes will be effectively subordinated to claims of creditors (other than
Premier or any Guarantor) of any Master Graphics' Subsidiaries that are not
Guarantors. Claims of creditors (other than Premier or a Guarantor) of such
Subsidiaries, including trade creditors, tort claimants, secured creditors,
taxing authorities and creditors holding guarantees, will generally have
priority as to assets of such Subsidiaries over the claims and equity interests
of Premier and/or the Guarantors and, thereby indirectly, the holders of the
indebtedness of Premier or the Guarantors, as applicable, including the Notes
and the Guarantees. Under limited circumstances the Indenture permits the
creation of, or the designation of existing Subsidiaries as, Unrestricted
Subsidiaries. The Notes will be effectively subordinated to claims of creditors
(other than Premier or a Guarantor) of any Unrestricted Subsidiaries.
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PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount of $130.0 million and
will mature on December 1, 2005. The Notes will bear interest at the rate per
annum stated on the cover page hereof from the most recent interest payment
date to which interest has been paid or provided for, or, if no interest has
been paid, from the date of original issuance. Interest on the Notes will be
payable semi-annually in arrears on June 1 and December 1 of each year,
commencing June 1, 1999, to the Persons in whose names such Notes are
registered at the close of business on the May 15 or November 15 immediately
preceding such interest payment date. Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
If Premier does not comply with certain deadlines set forth in the
Registration Agreement with respect to the conduct of an exchange offer for the
Notes or the registration of the Notes for resale under a shelf registration
statement, holders of the Notes will be entitled to Special Interest (as
defined below). See "--Exchange Offer; Registration Rights."
The Notes may be presented or surrendered for payment of principal, premium,
if any, and interest, and Special Interest, if any, and for registration of
transfer or exchange, at the office or agency of Premier within the City and
State of New York maintained for such purpose. In addition, in the event the
Notes do not remain in book-entry form, interest may be paid, at the option of
Premier, by check mailed to the registered holders of the Notes at the
respective addresses as set forth on the Security Register. The Notes will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof. No service charge will be made for any
registration of transfer or exchange or redemption of Notes, but Premier or the
Trustee may require in certain circumstances payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
GUARANTEES OF NOTES
Each Guarantor will unconditionally guarantee, jointly and severally, to each
holder of the Notes and to the Trustee, the full and prompt performance of
Premier's Obligations under the Indenture and the Notes, including the payment
of principal of, premium, if any, on and interest (including Special Interest,
if any) on the Notes. Each Guarantee will be a senior unsecured obligation of
the Guarantor. As of the Issue Date, the Initial Guarantors will be the only
Guarantors. All such Guarantors will also guarantee the obligations of Premier
under Premier's New Credit Facility. Each Subsidiary of Master Graphics that
guarantees any Indebtedness of Premier or Master Graphics or any other Obligor
will be required to execute and deliver a supplement to the Indenture pursuant
to which such Subsidiary will guarantee the payment of the Notes on the same
terms and conditions as the Guarantees by the Initial Guarantors.
The Obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the Obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal
or state law or otherwise not being void, voidable or unenforceable under any
bankruptcy reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Guarantor.
Each Guarantor may consolidate with or merge into or sell or otherwise
dispose of all or substantially all of its Property and assets to Premier or
another Guarantor without limitation, except to the extent any such transaction
is subject to the "Consolidation, Merger, Conveyance, Lease or Transfer"
covenant of the Indenture. Each Guarantor may consolidate with or merge into or
sell all or substantially all of its Property and assets to a Person other than
Premier or another Guarantor (whether or not Affiliated with the Guarantor),
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provided that (a) if the surviving Person is not the Guarantor, the surviving
Person agrees to assume such Guarantor's Guarantee and all its Obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Guarantee) and (b) such transaction does not (i)
violate any of the covenants described below under "--Certain Covenants" or
(ii) result in a Default or Event of Default being in existence or continuing
immediately thereafter.
Upon the sale or other disposition (by merger or otherwise) of a Guarantor
(or all or substantially all of its Property and assets) to a Person other than
Premier, Master Graphics or another Guarantor and pursuant to a transaction
that is otherwise in compliance with the Indenture (including as described in
clause (b) of the foregoing paragraph and as described below in the covenant
described "--Certain Covenants--Limitation on Asset Sales"), such Guarantor
(unless it otherwise remains a Subsidiary) shall be deemed released from its
Guarantee and the related Obligations set forth in the Indenture, provided that
any such release shall occur only to the extent that all Obligations of such
Guarantor under all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, other Indebtedness of Premier
or any other Subsidiary of Master Graphics shall also terminate or be released
upon such sale or other disposition. Each Guarantor that is designated as an
Unrestricted Subsidiary in accordance with the Indenture shall be released from
its Guarantee and the related Obligations set forth in the Indenture so long as
it remains an Unrestricted Subsidiary.
The Indenture provides that any Guarantee by a Subsidiary Guarantor (other
than an Initial Guarantor) shall be automatically and unconditionally released
and discharged, as evidenced by a supplemental indenture executed by Premier,
the Guarantors, if any, and the Trustee, upon the release or discharge of the
guarantee which resulted in the creation of such Subsidiary's Guarantee and all
other guarantees of the Obligations of any Obligor on the Notes, except a
discharge or release by, or as a result of, payment under such guarantee.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable at
the option of Premier prior to December 1, 2002. On or after such date, the
Notes will be redeemable at the option of Premier, in whole at any time or in
part from time to time, upon not less than 30 nor more than 60 days' notice, at
the following prices (expressed in percentages of the principal amount
thereof), if redeemed during the twelve-month period beginning December 1 of
the years indicated below, in each case together with interest (and Special
Interest, if any) accrued to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest (and Special
Interest, if any) due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002........................................................... 105.750%
2003........................................................... 102.875%
2004 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months after
the Issue Date, Premier may, at its option, redeem up to a maximum of 35% of
the aggregate principal amount of the Notes with the Net Proceeds of one or
more Public Equity Offerings at a redemption price equal to 111.5% of the
principal amount thereof, plus accrued and unpaid interest (and Special
Interest, if any) thereon to the redemption date; provided that at least 65% of
the aggregate principal amount of Notes originally issued shall remain
outstanding immediately after the occurrence of any such redemption; and
provided, further, that each such redemption shall occur within 90 days of the
closing of such Public Equity Offering.
If fewer than all the Notes are redeemed, selection for redemption will be
made by the Trustee in accordance with the rules of the principal exchange, if
any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by any other means which the Trustee determines to be
fair and appropriate.
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CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Premier shall offer in accordance
with the Indenture (a "Change of Control Offer"), and each holder will have the
right to require Premier, to repurchase such holder's Notes in whole or in part
at a purchase price (the "Change of Control Purchase Price") in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, and Special Interest, if any, to the Change of
Control Payment Date (as defined below) on the terms described below.
Within 30 days following any Change of Control, Premier or the Trustee (at
the expense of Premier) will mail a notice to each holder and to the Trustee
stating, among other things, (i) that a Change of Control has occurred and a
Change of Control Offer is being made as provided for in the Indenture, and
that, although holders are not required to tender their Notes, all Notes that
are validly tendered will be accepted for payment; (ii) the Change of Control
Purchase Price and the repurchase date, which will be no earlier than 30 days
and no later than 60 days after the date such notice is mailed (the "Change of
Control Payment Date"); (iii) that any Note accepted for payment pursuant to
the Change of Control Offer (and duly paid for on the Change of Control Payment
Date) will cease to accrue interest and Special Interest, if applicable, after
the Change of Control Payment Date; (iv) that any Notes (or portions thereof)
not validly tendered will continue to accrue interest and Special Interest, if
applicable; (v) the procedures that holders of Notes must follow to withdraw an
election to tender Notes (or portions thereof); and (vi) the instructions and
any other information necessary to enable holders to tender their Notes (or
portions thereof) and have such Notes (or portions thereof) purchased pursuant
to the Change of Control Offer. Premier will comply with any applicable tender
offer rules (including, without limitation, any applicable requirements of
Rules 13e-4 and 14e-1 under the Exchange Act) in the event that the Change of
Control Offer is triggered under the circumstances described herein.
The existence of the holders' rights to require, subject to certain
conditions, Premier to repurchase Notes upon a Change of Control may deter a
third party from acquiring Master Graphics or Premier in a transaction that
constitutes a Change of Control. If a Change of Control Offer is made, there
can be no assurance that Premier will have available funds sufficient to pay
the Change of Control Purchase Price for all the Notes that might be delivered
by holders seeking to accept the Change of Control Offer; however, a Change of
Control Offer might constitute an event of default under the terms of other
Indebtedness, including the New Credit Facility. In addition, any instruments
governing other Indebtedness may prohibit Premier from purchasing any Notes
prior to their maturity (including pursuant to a Change of Control Offer). In
the event Premier is required to purchase outstanding Notes pursuant to a
Change of Control Offer, Premier expects that it would seek third party
financing to the extent it does not have available funds to meet its purchase
obligations; however, there can be no assurance that Premier would be able to
obtain such financing. See "Risk Factors--Possible Inability to Repurchase the
Notes Upon a Change of Control." In the event that a Change of Control Offer
occurs at a time when Premier does not have sufficient available funds to pay
the Change of Control Purchase Price for all Notes validly tendered pursuant to
such offer or at a time when Premier is prohibited from purchasing the Notes
(and Premier is unable either to obtain the consent of the holders of the
relevant Indebtedness or to repay such Indebtedness), an Event of Default would
occur under the Indenture. In addition, one of the events that constitutes a
Change of Control under the Indenture is a sale, conveyance, transfer or lease
of all or substantially all of the assets of Premier or of Master Graphics and
its Subsidiaries taken as a whole (or Premier and the Subsidiaries taken as a
whole if Premier is not a subsidiary of Master Graphics). The Indenture will be
governed by New York law, and there is no established quantitative definition
under New York law of "substantially all" of the assets of a corporation.
Accordingly, if Premier, Master Graphics or its Subsidiaries were to engage in
a transaction in which it or they disposed of less than all of the assets of
Premier or Master Graphics and its Subsidiaries taken as a whole (or Premier
and the Subsidiaries taken as a whole if Premier is not a subsidiary of Master
Graphics), as applicable, a question or interpretation would arise as to
whether such disposition was of "substantially all" of the assets of Premier or
of Master Graphics and its Subsidiaries taken as a whole (or of Premier and the
Subsidiaries taken as a whole), as applicable, and whether Premier was required
to make a Change of Control Offer.
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Premier will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by Premier and
repurchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders to require Premier to
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar restructuring. The provisions of the Indenture may not afford holders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction affecting Premier or Master
Graphics that may adversely affect holders because (i) such transactions may
not involve a shift in voting power or beneficial ownership or, even if they
do, may not involve a shift of the magnitude required under the definition of
Change of Control to require Premier to make a Change of Control Offer or (ii)
such transactions may include an actual shift in voting power or beneficial
ownership to a Permitted Holder which is excluded under the definition of
Change of Control from the amount of shares involved in determining whether or
not the transaction involves a shift of the magnitude required to trigger the
provisions. A transaction involving the management of Master Graphics, Premier
or their Affiliates, or a transaction involving a recapitalization of Premier
or Master Graphics, will result in a Change of Control only if it is the type
of transaction specified in such definition.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture.
Transactions with Affiliates. Subsequent to the Issue Date, Premier will not,
and will not permit any Subsidiary to, directly or indirectly, enter into or
permit to exist any transaction or series of related transactions (including,
but not limited to, the purchase, sale, lease or exchange of Property, the
making of any Investment, the giving of any guarantee or the rendering of any
service) with any Affiliate of Premier, other than transactions among Premier
and the Subsidiary Guarantors, unless (i) such transaction or series of related
transactions is on terms no less favorable to Premier or such Subsidiary than
those that could be obtained in a comparable arm's length transaction with a
Person that is not such an Affiliate, and (ii) (a) with respect to a
transaction or series of related transactions that has a Fair Market Value in
excess of $1.0 million, the transaction or series of related transactions is
approved by a majority of the Board of Directors of Premier (including a
majority of the disinterested directors), which approval is set forth in a
Board Resolution certifying that such transaction or series of transactions
complies with clause (i) above, and (b) with respect to a transaction or series
of related transactions that has a Fair Market Value in excess of $3.0 million,
Premier delivers an opinion as to the fairness from a financial point of view
to Premier or such Subsidiary issued by an investment banking firm of
nationally recognized standing or other independent appraisal firm or expert of
nationally recognized standing that is qualified, in the reasonable and good
faith judgment of the Board of Directors, to perform the task for which it has
been engaged. The foregoing provisions shall not be applicable to (i)
reasonable and customary compensation, indemnification and other benefits paid
or made available to an officer, director or employee of Premier or a
Subsidiary for services rendered in such Person's capacity as an officer,
director or employee (including reimbursement or advancement of reasonable out-
of-pocket expenses and provisions of directors' and officers' liability
insurance) or (ii) the making of any Restricted Payment otherwise permitted by
the Indenture, (iii) transactions and agreements existing on the Issue Date and
described in this Offering Memorandum under the caption "Certain Transactions"
and (iv) loans to officers and employees of Premier and the Subsidiaries made
in the ordinary course of business and in furtherance of Premier's business in
an aggregate amount not to exceed $500,000 at any one time outstanding.
Limitation on Restricted Payments. Premier will not and will not permit any
Subsidiary to make any Restricted Payment, directly or indirectly, unless at
the time of and after giving effect to the proposed Restricted Payment, (a) no
Default shall have occurred and be continuing (or would result therefrom), (b)
Premier could incur at least $1.00 of additional Indebtedness under the test
described in the first sentence under the caption "--Certain Covenants--
Limitation on Indebtedness" and (c) the aggregate amount of all Restricted
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Payments declared or made on or after the Issue Date by Premier or any
Subsidiary shall not exceed the sum of (i) 50% (or if such Consolidated Net
Income of Premier shall be a deficit, minus 100% of such deficit) of the
aggregate Consolidated Net Income of Premier accrued during the period
beginning on the first day of the fiscal quarter in which the Issue Date falls
and ending on the last day of the fiscal quarter ending immediately prior to
the date of such proposed Restricted Payment, minus (ii) 100% of the amount of
any writedowns, write-offs and other negative extraordinary charges not
otherwise reflected in Consolidated Net Income of Premier during such period,
plus (iii) an amount equal to the aggregate Net Proceeds received by Premier,
subsequent to the Issue Date, from the issuance or sale (other than to a
Subsidiary) of shares of its Capital Stock (excluding Redeemable Stock, but
including Capital Stock issued upon the exercise of options, warrants or rights
to purchase Capital Stock (other than Redeemable Stock) of Premier) subsequent
to the Issue Date, plus (iv) 100% of the liability (expressed as a positive
number) as expressed on the face of a balance sheet in accordance with GAAP in
respect of any Indebtedness of Premier, any of its Subsidiaries or any
Subsidiary Guarantor, or the carrying value of Redeemable Stock, which has been
converted into, exchanged for or satisfied by the issuance of shares of Capital
Stock (other than Redeemable Stock) of Premier or Master Graphics, subsequent
to the Issue Date, plus (v) 100% of the net reduction in Restricted
Investments, subsequent to the Issue Date, in any Person, resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of Property (but only to the extent such interest,
dividends, repayments or other transfers of Property are not included in the
calculation of Consolidated Net Income of Premier), in each case to Premier,
any Subsidiary Guarantor or any Subsidiary of Premier from any Person
(including, without limitation, from Unrestricted Subsidiaries) or from
redesignations of Unrestricted Subsidiaries as Subsidiaries (valued in each
case as provided in the definition of "Investment"), not to exceed in the case
of any Person the amount of Restricted Investments previously made by Premier,
such Subsidiary Guarantor or such Subsidiary in such Person and in each such
case which was treated as a Restricted Payment.
The foregoing provisions will not prevent: (A) the payment of any dividend on
Capital Stock of any class within 60 days after the date of its declaration if
at the date of declaration such payment would be permitted by the Indenture;
(B) any repurchase or redemption of Capital Stock or Subordinated Indebtedness
of Premier or a Subsidiary made by exchange for Capital Stock of Premier (other
than Redeemable Stock) or Capital Stock of Master Graphics, or out of the Net
Proceeds from the substantially concurrent issuance or sale (other than to a
Subsidiary) of Capital Stock of Premier (other than Redeemable Stock) or
Capital Stock of Master Graphics, provided that the Net Proceeds from any such
sale of Capital Stock of Premier are excluded from computations under clause
(c)(iii) above to the extent that such proceeds are applied to purchase or
redeem such Capital Stock or Subordinated Indebtedness; (C) so long as no
Default shall have occurred and be continuing or should occur as a consequence
thereof, any repurchase or redemption of Subordinated Indebtedness of Premier
or a Subsidiary Guarantor solely in exchange for, or out of the net cash
proceeds from the substantially concurrent sale of, new Subordinated
Indebtedness of Premier or a Subsidiary Guarantor, so long as such Subordinated
Indebtedness is permitted under the covenant described under "--Limitation on
Indebtedness" and (x) is subordinated to the Notes or the applicable Guarantee
at least to the same extent as the Subordinated Indebtedness so exchanged,
purchased or redeemed, (y) has a stated maturity later than the stated maturity
of the Subordinated Indebtedness so exchanged, purchased or redeemed and (z)
has an Average Life at the time incurred that is greater than the remaining
Average Life of the Subordinated Indebtedness so exchanged, purchased or
redeemed; (D) Investments in any Person engaged in the Related Business in an
aggregate amount not to exceed $2.0 million; (E) payments to Master Graphics or
any other Person in respect of which Master Graphics or such other Person is a
member of the consolidated tax group of Premier or any Subsidiary Guarantor, as
applicable, for so long as Master Graphics or such other Person owns such
amount of the Capital Stock of Master Graphics, Premier or such Subsidiary
Guarantor, as applicable, as will permit it or a member of the consolidated tax
group of Master Graphics or such other Person to be entitled to file
consolidated federal tax returns with Premier or such Subsidiary Guarantor, for
income taxes pursuant to the Tax Sharing Agreement or for the purpose of
enabling Master Graphics or such other Person or any such member to pay taxes
other than income taxes, to the extent actually owned and attributable to the
operations of Premier and the Subsidiary Guarantors or such other Person's
ownership thereof; (F) payments to Master Graphics for so long as it owns not
less than a majority of the outstanding Common Stock of Premier or a Subsidiary
Guarantor, in
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amounts sufficient to pay the ordinary operating and administrative expenses of
Master Graphics (including all reasonable professional fees and expenses),
including in connection with its complying with its reporting obligations
(including filings with the Commission and any exchange on which Master
Graphics' securities are traded) and obligations to prepare and distribute
business records in the ordinary course of business and Master Graphics' costs
and expenses relating to taxes, other than those referred to in clause (E)
(which taxes are attributable to the operations of Premier or any Guarantor or
to ownership thereof); provided that the aggregate payments paid in each fiscal
year pursuant to this clause (F) will not exceed $2.5 million; (G) any
dividend, obligation or other payment by any Subsidiary on shares of its Common
Stock that is paid pro rata to all holders of such Common Stock; (H) so long as
no Default or Event of Default shall have occurred and be continuing,
dividends, distributions and other payments to Master Graphics for the sole
purpose of making scheduled interest payments on Seller Notes in an aggregate
amount not to exceed $1.0 million; and (I) so long as no Default or Event of
Default shall have occurred and be continuing, repurchases by Premier, or by
Master Graphics so long as Premier is a Wholly Owned Subsidiary of Master
Graphics, of Capital Stock (other than Preferred Stock) of Premier or the
Subsidiary Guarantors from officers and employees of Premier or the Subsidiary
Guarantors or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not to
exceed $1.0 million in any calendar year. See "Certain Transactions."
Notwithstanding the foregoing, the amount available for Investments in a Person
engaged in the Related Business pursuant to clause (D) of the preceding
sentence may be increased by the aggregate amount received by Premier and the
Subsidiaries from such a Person on or before such date resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advances or
other transfers of Property made to such a Person (but only to the extent such
interest, dividends, repayments or other transfers of Property are not included
in the calculation of Consolidated Net Income of Premier). Restricted Payments
permitted to be made as described in the first sentence of this paragraph will
be excluded in calculating the amount of Restricted Payments thereafter for
purposes of clause (c) of the immediately preceding paragraph, except that
amounts expended pursuant to clause (A) (but only if the declaration thereof
has not been counted in a prior period), payments made pursuant to clause (E)
(other than to the extent otherwise reducing Consolidated Net Income of
Premier), any dividends, distributions or other payments made to a Person other
than Premier or a Wholly Owned Subsidiary permitted to be made pursuant to
clause (F) and any repurchases of Capital Stock of Premier or Master Graphics,
as applicable, permitted to be made pursuant to clause (G) will be included in
calculating the amount of Restricted Payments thereafter and except that any
such Restricted Payments permitted to be made pursuant to clause (D) will be
included in calculating the amount of Restricted Payments made pursuant to such
clause (D) thereafter.
For purposes of this covenant, if a particular Restricted Payment involves a
non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of
the non-cash portion of such Restricted Payment.
Limitation on Indebtedness. Premier will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness), unless after giving pro forma effect to the incurrence
of such Indebtedness, the Consolidated Interest Coverage Ratio for the
Determination Period preceding the Transaction Date is at least 2.0 to 1.0.
Notwithstanding the foregoing, Premier or any Subsidiary may incur Permitted
Indebtedness which such Person is permitted thereby to incur. Any Indebtedness
of a Person existing at the time at which such Person becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Subsidiary at the time at which it becomes a Subsidiary.
Limitation on Subsidiary Indebtedness and Preferred Stock. Premier will not
permit any Subsidiary to, directly or indirectly, incur any Indebtedness or
issue any Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by Premier or a
Subsidiary Guarantor, so long as any transfer of such Indebtedness or Preferred
Stock to a Person other than Premier or a Subsidiary Guarantor
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will be deemed to constitute an incurrence of such Indebtedness or Preferred
Stock by the issuer thereof as of the date of such transfer;
(b) Acquired Indebtedness or Preferred Stock of a Subsidiary issued and
outstanding prior to the date on which such Subsidiary was acquired by Master
Graphics (other than Indebtedness or Preferred Stock issued in connection with
or in anticipation of such acquisition);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date and listed
in a schedule attached to the Indenture;
(d) Indebtedness permitted to be incurred by the first sentence of the
covenant described in "Limitation on Indebtedness" and Indebtedness described
in clauses (b), (c), (d), (e), (f), (g), (h), (i) and (l) under the definition
of "Permitted Indebtedness";
(e) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary; and
(f) Indebtedness of a Subsidiary which represents the assumption by such
Subsidiary of Indebtedness of another Subsidiary in connection with a merger of
such Subsidiaries, provided that no Subsidiary or any successor (by way of
merger) thereto existing on the Issue Date shall assume or otherwise become
responsible for any Indebtedness of an entity which is not a Subsidiary on the
Issue Date, except to the extent that a Subsidiary would be permitted to incur
such Indebtedness under this paragraph.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries of Premier. Premier will not, and will not permit any of its
Subsidiaries, directly or indirectly, to create, enter into any agreement with
any Person or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind which by its terms restricts
the ability of any of its Subsidiaries to (a) pay dividends, in cash or
otherwise, or make any other distributions on its Capital Stock to Premier or
any Subsidiary Guarantor, (b) pay any Indebtedness owed to Premier or any
Subsidiary Guarantor, (c) make loans or advances to Premier or any Subsidiary
Guarantor or (d) transfer any of its Property or assets to Premier or any
Subsidiary Guarantor except any encumbrance or restriction contained in any
agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue Date, so
long as such encumbrance or restriction relates only to the Property or assets
so acquired and is not created in anticipation of such acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at the date on
which such Subsidiary was acquired by Master Graphics or any Subsidiary (other
than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long as
the encumbrances and restrictions contained in any such refinancing agreement
are no more restrictive than the encumbrances and restrictions contained in
such agreements;
(v) constituting customary provisions restricting subletting or assignment of
any lease of Premier or any Subsidiary or provisions in license agreements or
similar agreements that restrict the assignment of such agreement or any rights
thereunder;
(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such
Property;
(vii) constituting any temporary encumbrance or restriction with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of or Property and
assets of such Subsidiary; or
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(viii) governing Indebtedness permitted to be incurred under the Indenture,
provided that the terms and conditions of any such restrictions and
encumbrances are not materially more restrictive than those contained in the
Indenture.
Limitation on Asset Sales. Premier will not engage in, and will not permit
any Subsidiary to engage in, any Asset Sale unless: (a) except in the case of
an Asset Sale resulting from the requisition of title to, seizure or forfeiture
of any Property or assets or any actual or constructive total loss or an agreed
or compromised total loss, Premier or such Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the Property or asset; (b) at least 75% of such
consideration consists of Cash Proceeds (or the assumption of Indebtedness of
Premier or such Subsidiary relating to the Capital Stock or Property or asset
that was the subject of such Asset Sale and the unconditional release of
Premier or such Subsidiary from such Indebtedness); (c) after giving effect to
such Asset Sale, the total non-cash consideration held by Premier from all such
Asset Sales does not exceed $2.0 million; and (d) Premier delivers to the
Trustee an Officers' Certificate certifying that such Asset Sale complies with
clauses (a), (b) and (c). Premier or such Subsidiary, as the case may be, may
apply the Net Available Proceeds from each Asset Sale (x) to the acquisition of
one or more Replacement Assets or (y) to repurchase or repay Senior Debt of
Premier or a Subsidiary Guarantor (with a permanent reduction of availability
in the case of revolving credit borrowings); provided that such acquisition or
such repurchase or repayment shall be made within 270 days after the
consummation of the relevant Asset Sale; provided, further, that any such Net
Available Proceeds that are applied to the acquisition of Replacement Assets
useful in the business of Premier or any of its Subsidiaries, or the Subsidiary
making such Asset Sale, pursuant to any binding agreement relating thereto
shall be deemed to have been applied for such purpose within such 270-day
period so long as they are so applied within 30 days of the effective date of
such agreement.
Any Net Available Proceeds from any Asset Sale that are not used to so
acquire Replacement Assets or to repurchase or repay Senior Debt within 270
days after consummation of the relevant Asset Sale constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
Premier shall within 30 days thereafter, or at any time after receipt of Excess
Proceeds but prior to there being $5.0 million of Excess Proceeds, Premier may,
at its option, make a pro rata offer (an "Asset Sale Offer") to all holders of
Notes and holders of Senior Debt, if and to the extent Premier is required by
the instruments governing such Senior Debt to make such an offer, to purchase
Notes and such Senior Debt in an aggregate amount equal to the Excess Proceeds,
at a price in cash (the "Asset Sale Offer Purchase Price") equal to 100% of the
outstanding principal of the Notes plus accrued interest and Special Interest,
if any, to the date of purchase and, in the case of such other Senior Debt,
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero and Premier may use any remaining amount for
general corporate purposes.
Premier will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rules 13e-4 and 14e-1 under
the Exchange Act) in the event that an Asset Sale Offer is required under the
circumstances described herein.
Limitation on Sale and Lease-Back Transactions. Premier will not, and will
not permit any Subsidiary to, directly or indirectly, enter into, assume,
guarantee or otherwise become liable with respect to, any Sale and Lease-Back
Transaction unless (i) the proceeds from such Sale and Lease-Back Transaction
are at least equal to the Fair Market Value of such Property being transferred
and (ii) Premier or such Subsidiary would have been permitted to enter into
such transaction under the covenants described in "--Limitation on
Indebtedness," "--Limitation or Liens" and "--Limitation on Subsidiary
Indebtedness and Preferred Stock."
Limitation on Liens. Premier will not, and will not permit any Subsidiary to,
directly or indirectly, create, affirm, incur, assume or suffer to exist any
Liens of any kind other than Permitted Liens on or with respect to any Property
or assets of Premier or such Subsidiary or any interest therein or any income
or profits therefrom,
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whether owned at the Issue Date or thereafter acquired, without effectively
providing that the Notes or the Guarantees, as applicable, shall be secured
equally and ratably with (or prior to) the Indebtedness so secured for so long
as such obligations are so secured.
Limitation on Guarantees by Subsidiaries. Premier may not permit any
Subsidiary which is not already a Subsidiary Guarantor, directly or indirectly,
to guarantee any Indebtedness of Premier or Master Graphics or any other
Obligor ("Guaranteed Indebtedness") unless (i) such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Guarantee of payment of the Notes by such Subsidiary and (ii) such Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against Premier or any other Subsidiary as a result of any payment
by such Subsidiary under its Guarantee. If the Guaranteed Indebtedness is pari
passu with the Notes or, if the Guaranteed Indebtedness was incurred by Master
Graphics, then the guarantee of such Guaranteed Indebtedness shall be pari
passu with or subordinated to the Guarantee; and if the Guaranteed Indebtedness
is subordinated to the Notes, then the guarantee of such Guaranteed
Indebtedness shall be subordinated to the Guarantee at least to the extent that
all Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Guarantee by a Subsidiary that was
incurred pursuant to the terms of the preceding paragraph (but not otherwise)
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon the release or discharge of the guarantee which
resulted in the creation of such Subsidiary's Guarantee, except a discharge or
release by, or as a result of, payment under such guarantee.
Unrestricted Subsidiaries. The Indenture provides that Premier may designate
a subsidiary (including a newly formed or newly acquired subsidiary) of Master
Graphics or any of its Subsidiaries as an Unrestricted Subsidiary; provided
that (i) immediately after giving effect to the transaction, Premier could
incur $1.00 of additional Indebtedness pursuant to the first sentence of "--
Limitation on Indebtedness" and (ii) such designation is at the time permitted
under "--Limitation on Restricted Payments." Notwithstanding any provisions of
this covenant all subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
The Indenture further provides that Premier will not, and will not permit any
Subsidiary to, take any action or enter into any transaction or series of
transactions that would result in a Person (other than a newly formed
subsidiary having no outstanding Indebtedness (other than Indebtedness to
Premier or a Subsidiary Guarantor) at the date of determination) becoming a
Subsidiary (whether through an acquisition, the redesignation of an
Unrestricted Subsidiary or otherwise) unless, after giving effect to such
action, transaction or series of transactions on a pro forma basis, (i) Premier
could incur at least $1.00 of additional Indebtedness pursuant to the first
sentence of "--Limitation on Indebtedness" and (ii) no Default or Event of
Default would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an
Unrestricted Subsidiary or the designation of an Unrestricted Subsidiary as a
Subsidiary in compliance with the preceding paragraphs shall be made by the
Board of Directors of Premier pursuant to a Board Resolution delivered to the
Trustee and shall be effective as of the date specified in such Board
Resolution, which shall not be prior to the date such Board Resolution is
delivered to the Trustee. Any Unrestricted Subsidiary shall become a Subsidiary
if it incurs any Indebtedness other than Non-Recourse Indebtedness. If at any
time Indebtedness of an Unrestricted Subsidiary which was Non-Recourse
Indebtedness no longer so qualifies, such Indebtedness shall be deemed to have
been incurred when such Non-Recourse Indebtedness becomes Indebtedness.
Limitations on Line of Business. The Indenture provides that neither Premier
nor any of the Subsidiaries will directly or indirectly engage to any
substantial extent in any line or lines of business activity other than a
Related Business.
Reports. The Indenture provides that, whether or not Premier is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
Premier shall file with the Commission the annual reports,
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quarterly reports and other documents which Premier would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if Premier were subject thereto, such documents to
be filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which Premier would have been required to file them;
provided, however, if Premier is not subject to Section 13(a) or 15(d) of the
Exchange Act, Premier shall not be required to file such reports and documents
with the Commission under Section 13(a) or 15(d) of the Exchange Act (or any
successor provisions thereto) so long as (i) Master Graphics files the reports
and documents with the Commission under Section 13(a) or 15(d) of the Exchange
Act that it is required to file, (ii) Premier is a Wholly Owned Subsidiary of
Master Graphics (iii) revenue of Master Graphics and its consolidated
subsidiaries (excluding the combined revenue of Premier and Harperprints, Inc.
and their consolidated subsidiaries) shall not exceed for any financial quarter
2% of the consolidated revenue of Master Graphics and (iv) Premier and Master
Graphics are in compliance with the requirements set forth in the Commission's
Staff Accounting Bulletin No. 53 or its successor. Notwithstanding the
foregoing, all financial information relevant to the holders of the Notes for
Premier and its consolidated subsidiaries shall be disclosed as required and
permitted by GAAP and Regulation S-X under the Exchange Act in the reports and
documents filed with the Commission by Master Graphics or Premier, as the case
may be. Premier shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
applicable Security Register, without cost to such holders or Persons, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and
other documents (without exhibits) which Premier has filed or would have filed,
or which Master Graphics has filed, with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act, any successor provisions thereto or this
covenant. Premier shall not be required to file any report with the Commission
if the Commission does not permit such filing. In addition, Premier shall
furnish to the Trustee, to the holders of the Notes and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144(d)(4) under the Securities Act and the exhibits
omitted from the information furnished pursuant to the preceding sentence, for
so long as the Notes are not freely transferable under the Securities Act.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
Premier will not, in any transaction or series of transactions, consolidate
with or merge into any other Person (other than a merger of a Wholly Owned
Subsidiary of Premier into Premier in which Premier is the continuing
corporation), continue in a new jurisdiction or sell, convey, assign, transfer,
lease or otherwise dispose of all or substantially all of the Property and
assets of Premier and its Subsidiaries, taken as a whole, to any Person, unless
(i) either (a) Premier shall be the continuing corporation or (b) the
corporation (if other than Premier) formed by such consolidation or into which
Premier is merged, or the Person which acquires, by sale, assignment,
conveyance, transfer, lease or disposition, all or substantially all of the
Property and assets of Premier and its Subsidiaries, taken as a whole (such
corporation or Person, the "Surviving Entity"), shall be a corporation
organized and validly existing under the laws of the United States of America,
any political subdivision thereof or any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture, the due and
punctual payment of the principal of (and premium, if any) and interest
(including Special Interest, if any) on all the Notes and the performance of
Premier's covenants and obligations under the Indenture;
(ii) immediately before and after giving effect to such transaction or series
of transaction on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result therefrom;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
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respect of such transaction or series of transactions), Premier (or the
Surviving Entity if Premier is not continuing) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of Premier
immediately prior to such transactions; and
(iv) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, Premier
(or the Surviving Entity if Premier is not continuing) would be permitted to
incur $1.00 of additional Indebtedness pursuant to the test described in the
first sentence under the caption "--Certain Covenants--Limitation on
Indebtedness."
The provision of clause (iv) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of Premier and its Subsidiaries taken as a whole into, Premier.
In connection with any consolidation, merger, continuance, transfer of assets
or other transactions contemplated by this provision, Premier shall deliver, or
cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger, continuance, sale,
assignment, conveyance or transfer and the supplemental indenture in respect
thereto comply with the provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transactions have been complied
with.
Upon any transaction or series of transactions that are of the type described
in, and are effected in accordance with, the foregoing paragraphs, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, Premier under the Indenture and the Notes with the
same effect as if such Surviving Entity had been named as Premier in the
Indenture; and when a Surviving Person duly assumes all of the Obligations and
covenants of Premier pursuant to the Indenture and the Notes, except in the
case of a lease, the predecessor Person shall be relieved of all such
Obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of interest on, or Special Interest with respect
to, any Note issued pursuant to the Indenture when the same becomes due and
payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on) any
Note issued pursuant to the Indenture at its Maturity, whether upon optional
redemption, required repurchase (including pursuant to a Change of Control
Offer or an Asset Sale Offer) or otherwise or the failure to make an offer to
purchase any such Note as required;
(c) Premier fails to comply with any of its covenants or agreements contained
in "--Change of Control," "--Certain Covenants--Limitation on Restricted
Payments," "--Certain Covenants--Limitation on Asset Sales," "--Certain
Covenants--Limitation on Indebtedness," "--Certain Covenants--Limitation on
Subsidiary Indebtedness and Preferred Stock," "--Certain Covenants--Limitation
on Sale and Lease-Back Transactions" or "--Consolidation, Merger, Conveyance
Lease or Transfer";
(d) default in the performance, or breach, of any covenant of Premier in the
Indenture (other than a covenant addressed in clause (a), (b) or (c) above) and
continuance of such Default or breach, for a period of 30 days after written
notice thereof has been given to Premier by the Trustee or to Premier and the
Trustee by holders of at least 25% of the aggregate principal amount at Stated
Maturity of the outstanding Notes;
(e) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by Premier or any of the Subsidiaries
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(or the payment of which is guaranteed by Premier or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10.0 million or more;
(f) the entry by a court of competent jurisdiction of one or more final
judgments against Premier or any Subsidiary in an uninsured or unindemnified
aggregate amount in excess of $5.0 million which is not discharged, waived,
appealed, stayed, bonded or satisfied for a period of 60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a decree
or order for relief in respect of Premier or any Significant Subsidiary in an
involuntary case or proceeding under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state, or foreign bankruptcy,
insolvency, or other similar law or (ii) a decree or order adjudging Premier or
any Significant Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of Premier or any Significant Subsidiary under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal, state
or foreign bankruptcy, insolvency, or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of Premier or any Significant Subsidiary or of any substantial part of the
Property or assets of Premier or any Significant Subsidiary, or ordering the
winding up or liquidation of the affairs of Premier or any Significant
Subsidiary, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive days;
(h) (i) the commencement by Premier or any Significant Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent; or (ii) the consent by Premier or any
Significant Subsidiary to the entry of a decree or order for relief in respect
of Premier or any Significant Subsidiary in an involuntary case or proceeding
under U.S. bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency or other similar
law or to the commencement of any bankruptcy or insolvency case or proceeding
against Premier or any Significant Subsidiary; or (iii) the filing by Premier
or any Significant Subsidiary of a petition or answer or consent seeking
reorganization or relief under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law; or (iv) the consent by Premier or any
Significant Subsidiary to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar officer of Premier or any Significant Subsidiary or of
any substantial part of the Property or assets of Premier or any Significant
Subsidiary, or the making by Premier or any Significant Subsidiary of an
assignment for the benefit of creditors; or (v) the admission by Premier or any
Significant Subsidiary in writing of its inability to pay its debts generally
as they become due; or (vi) the taking of corporate action by Premier or any
Significant Subsidiary in furtherance of any such action; or
(i) any Guarantee shall for any reason cease to be, or be asserted by Premier
or any Guarantor, as applicable, not to be, in full force and effect (except
pursuant to the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount at Stated Maturity of the Notes, may declare the principal
amount at Stated Maturity of, premium, if any, and any accrued and unpaid
interest (and Special Interest, if any) on, all such Notes then outstanding to
be immediately due and payable by a notice in writing to Premier (and to the
Trustee if given by holders of such Notes), and upon any such declaration all
amounts payable in respect of the Notes will become and be immediately due and
payable. If any Event of Default specified in clause (g) or (h) above
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occurs, the principal amount at Stated Maturity of, premium, if any, and any
accrued and unpaid interest (including Special Interest, if any) on, the Notes
then outstanding shall be come immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of such
Notes. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured or waived by the holders of the relevant
Indebtedness within 30 days after such event of default; provided that no
judgment or decree for the payment of the money due on the Notes has been
obtained by the Trustee as provided in the Indenture. Under certain
circumstances, the holders of a majority in principal amount at Stated Maturity
of the outstanding Notes by notice to Premier and the Trustee may rescind an
acceleration and its consequences.
The holders of a majority in aggregate principal amount at Stated Maturity of
the Notes then outstanding by notice to the Trustee may on behalf of the
holders of all such Notes waive any existing Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest (including Special Interest, if any) on, premium, if any on or the
principal of, such Notes. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request, order or
direction of any of the holders, unless such holders have offered to such
Trustee reasonable security or indemnity. Subject to the provisions of the
Indenture and applicable law, the holders of a majority in aggregate principal
amount at Stated Maturity of the Notes at the time outstanding have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee.
Premier is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and Premier is required within five Business
Days after becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement describing such Default or Event of Default, its status and
what action Premier is taking or proposes to take with respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
Premier, the Guarantors and the Trustee may, at any time and from time to
time, without notice to or consent of any holder, enter into one or more
indentures supplemental to the Indenture (a) to evidence the succession of
another Person to Premier and the Guarantors and the assumption by such
successor of the covenants and Obligations of Premier under the Indenture and
contained in the Notes and of the Guarantors contained in the Indenture and the
Guarantees, (b) to add to the covenants of Premier, for the benefit of the
holders, or to surrender any right or power conferred upon Premier or the
Guarantors by the Indenture, (c) to add any additional Events of Default, (d)
to provide for uncertificated Notes in addition to or in place of certificated
Notes, (e) to evidence and provide for the acceptance of appointment under the
Indenture by the successor Trustee, (f) to secure the Notes and/or the
Guarantees, (g) to cure any ambiguity, to correct or supplement any provision
in the Indenture which may be inconsistent with any other provision therein or
to add any other provisions with respect to matters or questions arising under
the Indenture, provided that such actions will not adversely affect the
interests of the holders in any material respect, (h) to add or release any
Guarantor pursuant to the terms of the Indenture or (i) to comply with the
requirements of the Commission to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
With the consent of the holders of not less than a majority in aggregate
principal amount at Stated Maturity of the outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), Premier, the Guarantors and the Trustee may enter into one or more
indentures supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the holders; provided
that no such supplemental indenture will, without the consent of the holder of
each outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof (or premium, if any) upon Maturity thereof, or the
interest thereon that would be due and payable thereon, or change the place of
payment where, or the coin or currency in which,
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any Note or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof, (b) reduce the percentage in principal amount at Stated
Maturity of the outstanding Notes, the consent of whose Holders is necessary
for any such supplemental indenture or required for any waiver of compliance
with certain provisions of the Indenture, or certain Defaults thereunder, (c)
modify the Obligations of Premier to make offers to purchase Notes upon a
Change of Control or from the proceeds of Asset Sales, (d) subordinate in right
of payment the Notes or the Guarantees to any other Indebtedness, (e) amend,
supplement or otherwise modify the provisions of the Indenture relating to
Guarantees or (f) modify any of the provisions of this paragraph (except to
increase any percentage set forth herein).
The holders of not less than a majority in aggregate principal amount at
Stated Maturity of the outstanding Notes may on behalf of the holders of all
the Notes waive any past Default or Event of Default under the Indenture and
its consequences, except a Default or Event of Default (a) in the payment of
the principal of or premium, if any) or interest (including Special Interest,
if any) on any Note or (b) in respect of a covenant or provision hereof which
under the provision to the prior paragraph cannot be modified or amended
without the consent of the holder of each outstanding Note affected thereby.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
Premier may terminate its Obligations and the Obligations of the Guarantors
under the Notes, the Indenture and the Guarantees when (i) either (A) all
outstanding Notes have been delivered to the Trustee for cancellation or (B)
all such Notes not theretofore delivered to the Trustee for cancellation have
become due and payable, will become due and payable within one year or are to
be called for redemption within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of Premier, and Premier has irrevocably
deposited or caused to be deposited with the Trustee, in trust for the benefit
of the holders, funds in an amount sufficient to pay and discharge the entire
debt on the Notes not theretofore delivered to the Trustee for cancellation,
for principal (premium, if any) and interest (including Special Interest, if
any) to the date of Maturity or date of redemption; (ii) Premier has paid or
caused to be paid all sums then due and payable by Premier under the Indenture;
and (iii) Premier has delivered an Officers' Certificate and an opinion of
counsel relating to compliance with the conditions set forth in the Indenture.
Premier, at its election, shall (a) be deemed to have paid and discharged its
debt on the Notes and the Indenture and Guarantees shall cease to be of further
effect as to all outstanding Notes (except as to (i) rights of registration of
transfer, substitution and exchange of Notes, (ii) Premier's right of optional
redemption, (iii) rights of holders to receive payments of principal of,
premium, if any, and interest (including Special Interest, if any) on the Notes
(but not the Change of Control Purchase Price or the Asset Sale Offer Purchase
Price) and any rights of the holders with respect to such amounts, (iv) the
rights, obligations and immunities of the Trustee under the Indenture, and (v)
certain other specified provisions in the Indenture) or (b) cease to be under
any obligation to comply with certain restrictive covenants that are described
in the Indenture, after the irrevocable deposit by Premier with the Trustee, in
trust for the benefit of the holders, at any time prior to the Stated Maturity
of the Notes, of (A) money in an amount, (B) U.S. Government Obligations which
through the payment of interest and principal will provide, not later than one
Business Day before the due date of payment in respect of such Notes, money in
an amount or (C) a combination thereof sufficient to pay and discharge the
principal of, premium, if any on, and interest (including Special Interest, if
any) on, such Notes then outstanding on the dates on which any such payments
are due in accordance with the terms of the Indenture and of such Notes. Such
defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by Premier to
the Trustee of an opinion of outside counsel acceptable to the Trustee to the
effect that (i) such deposit, defeasance and discharge will not be deemed, or
result in, a taxable event for federal income tax purposes with respect to the
holders and (ii) Premier's deposit will not result in the trust or the Trustee
being subject to regulation under the Investment Company Act of 1940, as
amended.
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ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture without charge by writing to Premier at 6075 Poplar Avenue, Suite
401, Memphis, Tennessee 38119; Attn: Lance T. Fair.
BOOK-ENTRY, DELIVERY; FORM AND TRANSFER
The Notes initially will be in the form of one or more registered global
notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee,
in each case for credit to the accounts of DTC's Direct and Indirect
Participants (as defined below).
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described under "Notice to Investors." In
addition, transfer of beneficial interests in any Global Notes will be subject
to the applicable rules and procedures of DTC and its Direct or Indirect
Participants (including, if applicable, those of Euroclear and Cedel), which
may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised Premier that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship
with a Direct Participant (collectively, the "Indirect Participants").
DTC has advised Premier that, pursuant to DTC's procedures, (i) upon deposit
of the Global Notes, DTC will credit the accounts of the Direct Participants
designated by the Initial Purchasers with portions of the principal amount of
the Global Notes allocated by the Initial Purchasers to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Investors in the Global
Notes may hold their interests therein directly through Euroclear or Cedel or
indirectly through organizations that are participants in Euroclear or Cedel.
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Euroclear and Cedel will maintain on their records the ownership interests, and
transfer of ownership interests by and between, their own customer's securities
accounts. DTC will not maintain records of the ownership interests of, or the
transfer of ownership interests by and between, customers of Euroclear or
Cedel. All ownership interests in any Global Notes, including those of
customers' securities accounts held through Euroclear or Cedel, may be subject
to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Note to such persons. Because DTC can act only on behalf
of Direct Participants, which in turn act on behalf of Indirect Participants
and others, the ability of a person having a beneficial interest in a Global
Note to pledge such interest to persons or entities that are not Direct
Participants in DTC, or to otherwise take actions in respect of such interests,
may be affected by the lack of physical certificates evidencing such interests.
For certain other restrictions on the transferability of the Notes see "--
Transfers of Interests in Global Notes for Certificated Notes."
Except as described in "--Transfer of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will
not have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, Premier, the Guarantors and the Trustee
will treat the persons in whose names the Notes are registered (including Notes
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium, Special Interest, if any, and interest on Global Notes
registered in the name of DTC or its nominee will be payable by the Trustee to
DTC or its nominee as the registered holder under the Indenture. Consequently,
neither Premier, the Trustee nor any agent of Premier, or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records
or any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised Premier that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the Notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the Notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the Trustee,
Premier or the Guarantors. Neither Premier, the Guarantors nor the Trustee will
be liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the Notes and Premier and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the Notes through Euroclear or Cedel) who
hold an interest through a Direct Participant will be effected in accordance
with the procedures of such Direct Participant but generally will settle in
immediately available funds. Transfers between and among Indirect Participants
who hold interest in the Notes through Euroclear and Cedel will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
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Subject to compliance with the transfer restrictions applicable to the Notes
described herein, crossmarket transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the Notes through
Euroclear or Cedel, on the other hand, will be effected by Euroclear or Cedel's
respective nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel; however, delivery of instructions relating to cross-market
transactions must be made directly to Euroclear or Cedel, as the case may be,
by the counterparty in accordance with the rules and procedures of Euroclear or
Cedel and within their established deadlines (Brussels time for Euroclear and
UK time for Cedel). Indirect Participants who hold interest in the Notes
through Euroclear and Cedel may not deliver instructions directly to
Euroclear's or Cedel's Nominee. Euroclear or Cedel will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or Cedel's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or Cedel
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to Euroclear or Cedel
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and Cedel customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in a Global Note to a DTC Participant until the European business day
for Euroclear or Cedel immediately following DTC's settlement date.
DTC has advised Premier that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Direct Participants to
whose accounts interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Direct Participant or Direct Participants has or have given direction. However,
if there is an Event of Default under the Notes, DTC reserves the right to
exchange Global Notes (without the direction of one or more of its Direct
Participants) for legended Notes in certificated form, and to distribute such
certificated forms of Notes to its Direct Participants. See "--Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Direct
Participants, Euroclear and Cedel, they are under no obligation to perform or
to continue to perform such procedures, and such procedures may be discontinued
at any time. None of Premier, the Guarantors, the Initial Purchasers and the
Trustee will have any responsibility for the performance by DTC, Euroclear and
Cedel or their respective Direct and Indirect Participants of their respective
obligations under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and Cedel and their
book-entry systems has been obtained from sources that Premier believes to be
reliable, but Premier takes no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies Premier that it is unwilling or unable to continue as depositary
for the Global Notes and Premier thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) Premier, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, Premier will notify the Trustee in
writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related Notes.
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Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
to the Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct and Indirect Participants (in accordance with
DTC's customary procedures).
Neither Premier, the Guarantors nor the Trustee will be liable for any delay
by the holder of the Notes or the DTC in identifying the beneficial owners of
Notes, and Premier, the Guarantors and the Trustee may conclusively rely on,
and will be protected in relying on, instructions from the holder of the Global
Note or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and Special
Interest, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, Premier will make all payments of
principal, premium, if any, interest and Special Interest, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. Premier expects that secondary trading
in the Certificated Notes will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for, which no
definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the amount by
which the fair value of the Property and other assets of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the
Guarantee of such Guarantor.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Asset Acquisition" means (a) an Investment by Premier or any Subsidiary in
any other Person pursuant to which such Person becomes a Subsidiary, or is
merged with or into Premier or any Subsidiary or (b) the acquisition by Premier
or any Subsidiary of the assets of any Person (other than a Subsidiary) which
constitute all or substantially all of the assets of such Person or comprise
any division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by Premier or
any Subsidiary to any Person other than Premier or a Subsidiary Guarantor, in
one transaction or a
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series of related transactions, of (i) any Capital Stock of any Subsidiary of
Premier or any Subsidiary Guarantor (except for directors' qualifying shares or
certain minority interests sold to other Persons solely due to local law
requirements that there be more than one stockholder, but which are not in
excess of what is required for such purpose), or (ii) any other Property or
assets of Premier or any Subsidiary, other than (A) sales of obsolete or worn
out equipment in the ordinary course of business or other assets that, in
Premier's reasonable judgment, are no longer used or useful in the conduct of
the business of Premier or such Subsidiary, as applicable, (B) a Restricted
Payment or Restricted Investment permitted under "--Certain Covenants--
Limitation on Restricted Payments," (C) a Change of Control, (D) a
consolidation, merger, continuance or the disposition of all or substantially
all of the assets of Premier (determined on a consolidated basis) in compliance
with the provision of the Indenture described in "--Consolidation, Merger,
Conveyance, Lease or Transfer" and (E) any transfer, conveyance, sale, lease or
other disposition of Property or assets, the gross proceeds of which (exclusive
of indemnities) do not exceed $250,000. An Asset Sale shall include the
requisition of title to, seizure of or forfeiture of any Property or assets, or
any actual or constructive total loss or an agreed or compromised total loss of
any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease (or to
the first date on which the lessee is permitted to terminate such lease without
the payment of a penalty) included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security, the
quotient obtained by dividing (i) the sum of the products of (x) the number of
years from such date to the date of each scheduled principal payment (including
any sinking fund or mandatory redemption payment requirements) of such debt
security multiplied in each case by (y) the amount of such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" of any Person means the Board of Directors of such
Person, or any authorized committee of such Board of Directors.
"Board Resolution" means a duly authorized resolution of the Board of
Directors in full force and effect of the terms of determination and certified
as such and delivered to the Trustee.
"Borrowing Base" means, at any date of determination, an amount equal to 85%
of the accounts receivable owned by Premier and its Subsidiaries that are not
more than 90 days past due and 60% of the inventory of Premier and its
Subsidiaries, each calculated on a consolidated basis in accordance with GAAP
as shown on the last financial statements delivered to the Trustee pursuant to
the covenant described in "--Certain Covenants--Reports."
"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be
capitalized and accounted for as a capital lease on the balance sheet of such
Person prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof or marketable securities that are
converted into cash or cash equivalents within 30 days of an Asset Sale),
including payments in respect of deferred payment obligations when received in
the form of
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cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to such Person or any subsidiary thereof).
"Change of Control" means (i) at any time prior to any Public Equity Offering
by Premier or Master Graphics of the Common Stock of Premier, Master Graphics
ceases to be directly or indirectly, the beneficial owner of 100% of the Voting
Stock of Premier; (ii) any person or group (as defined in Section 13(d)(3) or
14(d)(2) of the Exchange Act) other than Permitted Holders or Master Graphics
becomes the direct or beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the voting power of the outstanding Voting
Stock of Premier; (iii) Premier is merged with or into or consolidated with
another corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x)
the stockholders of Premier immediately prior to such merger or consolidation,
or (y) if the record date has been set to determine the stockholders of Premier
entitled to vote on such merger or consolidation, the stockholders of Premier
as of such a record date; (iv) Premier or Master Graphics, as the case may be,
either individually or in conjunction with one or more Subsidiaries, sells,
conveys, transfers or leases, or the Subsidiaries sell, convey, transfer or
lease, all or substantially all of the assets of Premier, or of Master Graphics
and the Subsidiaries taken as a whole (or Premier and the Subsidiaries taken as
a whole if Premier is no longer a subsidiary of Master Graphics), as applicable
(either in one transaction or a series or related transactions), including
Capital Stock of the Subsidiaries, to any Person (other than a Wholly Owned
Subsidiary); (v) the liquidation or dissolution of Premier; (vi) the first day
on which a majority of the individuals who constitute the Board of Directors of
Premier are not Continuing Directors; or (vii) at any time prior to any Public
Equity Offering by Premier or Master Graphics of the Common Stock of Premier,
the first day on which a majority of the individuals who constitute the Board
of Directors of Master Graphics are not Continuing Directors.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (a) the aggregate amount
of EBITDA of Premier and the Subsidiaries on a combined consolidated basis for
the four fiscal quarters for which financial information in respect thereof is
available immediately prior to the applicable Transaction Date (the
"Determination Period") to (b) the aggregate Consolidated Interest Expense of
Premier and the Subsidiaries on a combined consolidated basis for such
Determination Period. In addition to and without limitation of the foregoing,
for purposes of this definition, "EBITDA" and "Consolidated Interest Expense"
shall be calculated after giving effect on a pro forma basis to (i)(a) the
incurrence of any Indebtedness of Premier or any of the Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and (b) any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof) occurring on or after the first day of the
Determination Period and on or prior to the Transaction Date, in each case set
forth in clauses (i)(a) and (b), as if such incurrence or repayment, as the
case may be, (and the application of proceeds thereof) occurred on the first
day of the Determination Period (except that Indebtedness under any revolving
credit facility shall be deemed to be the average daily balance of such
Indebtedness during such Determination Period) and (ii) any Asset Sales or
Asset Acquisitions (including (x) any Person who becomes a Subsidiary as a
result of any such Asset Acquisition and including any Asset Sale or Asset
Acquisition during such Determination Period by any such Person determined as
if such Person had been a Subsidiary at the time of such transaction; provided
that all Indebtedness of Premier and any such Subsidiaries shall be deemed to
have been incurred on the first day of the Determination Period and (y) the
increase or decrease, as the case may be, in EBITDA directly attributable to
such Asset Sale or Asset Acquisition, as the case may be) occurring on or after
the first day of the Determination Period and on or prior to the Transaction
Date, as if such Asset Sale or Asset Acquisition, as the case may be,
(including the insurance, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Determination Period. For
purposes of this definition, whenever pro forma effect is to be given to an
Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest
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Expense associated with any Indebtedness incurred in connection therewith shall
be determined in good faith by a responsible financial or accounting officer of
Premier.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and
its subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP (or in respect of Indebtedness of Premier and the
Subsidiaries, on a combined consolidated basis), including, without limitation,
(x) net costs associated with Interest Swap Obligations (including any
amortization of discounts), (y) the interest portion of any deferred payment
obligation calculated in accordance with the effective interest method, and (z)
all accrued interest paid or accrued, or scheduled to be paid or accrued,
during such period; (ii) dividends on Preferred Stock or Redeemable Stock of
such Person (and Preferred Stock or Redeemable Stock of its subsidiaries if
paid to a Person other than such Person or its subsidiaries and in the case of
Premier, also to any Guarantor) declared and payable in cash; (iii) the portion
of any rental obligation of such Person or its subsidiaries in respect of any
Capital Lease Obligation allocable to interest expense in accordance with GAAP;
(iv) the portion of any rental obligation of such Person or its subsidiaries in
respect of any Sale and Lease-Back Transaction allocable to interest expense
(determined as if such were treated as a Capital Lease Obligation); and (v) to
the extent any debt of any other Person is guaranteed by such Person or any of
its subsidiaries, the aggregate amount of interest paid, accrued or scheduled
to be paid or accrued, by such other Person during such period attributable to
any such debt, less (B) to the extent included in (A) above, amortization or
write-off of deferred financing costs of such Person and its subsidiaries
during such period and any charge related or any premium or penalty paid in
connection with redeeming or retiring any Indebtedness of such Person and its
subsidiaries prior to its stated maturity; in the case of both (A) and (B)
above, after elimination of intercompany accounts among such Person and its
subsidiaries and as determined in accordance with GAAP. For purposes of clause
(ii) above, dividend requirements attributable to any Preferred Stock or
Redeemable Stock shall be deemed to be an amount equal to the amount of
dividend requirements on such Preferred Stock or Redeemable Stock times a
fraction, the numerator of which is one, and the denominator of which is one
minus the applicable combined federal, state, local and foreign income tax rate
of Premier and its Subsidiaries (expressed as a decimal), on a consolidated
basis for the fiscal year immediately preceding the date of the transaction
giving rise to the need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis (or in the case of
Premier, Premier and the Subsidiaries on a combined consolidated basis),
determined in accordance with GAAP, provided that there shall be excluded
therefrom, without duplication, (i) any net income of any Unrestricted
Subsidiary, except that Premier's or any Subsidiary's interest in the net
income of such Unrestricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash or cash
equivalents actually distributed by such Unrestricted Subsidiary during such
period to Premier or a Subsidiary as a dividend or other distribution, (ii)
gains and losses, net of taxes, from Asset Sales or reserves relating thereto,
(iii) the net income of any Person that is not a subsidiary or that is
accounted for by the equity method of accounting which shall be included only
to the extent of the amount of dividends or distributions paid to such Person
or its subsidiaries, (iv) items (but not loss items) classified as
extraordinary, unusual or nonrecurring (other than the tax benefit, if any, of
the utilization of net operating loss carryforwards or alternative minimum tax
credits), (v) the net income (or net loss) of any Person acquired by such
specified Person or any of its subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan, (vii) the net income (but not net loss) of any subsidiary of such
specified Person to the extent that the transfer to that Person of that income
is not at the time permitted, directly or indirectly, by any means (including
by dividend, distribution, advance or loan or otherwise), or by operation of
the terms of its charter or any agreement with a Person other than with such
specified Person, instrument held by a Person other than by such specified
Person, judgment, decree, order, statute, law, rule or governmental regulations
applicable to such subsidiary or its stockholders, except for any dividends or
distributions actually paid by such subsidiary to such
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Person, and (viii) with regard to a non-Wholly Owned Subsidiary, any aggregate
net income (or loss) in excess of such Person's or such subsidiary's pro rata
share of such non-Wholly Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum of the
Capital Stock and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of such Person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board of
Directors of Premier or Master Graphics, as the case be, and (ii) either (A)
was a member of the Board of Directors of Premier or Master Graphics, as the
case may be, on the Issue Date or (B) whose nomination for election or election
to the Board of Directors of Premier or Master Graphics, as the case may be,
was approved by vote of at least a majority of the directors then still in
office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage time or both would be, an Event of Default.
"Determination Period" has the meaning specified in clause (a) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period from which Consolidated Net
Income is determined, without duplication, (i) Consolidated Interest Expense,
(ii) income tax expense, (iii) depreciation expense, (iv) amortization expense,
(v) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity, (vi) any
one-time write-off of non-recurring closing costs incurred in connection with
any merger consummated after the Issue Date, and (vii) any other non-cash
charges minus, to the extent reflected in such income statement, any noncash
credits that had the effect of increasing Consolidated Net Income of such
Person for such period.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of
Premier and, in the case of a determination including a Fair Market Value in
excess of $1.0 million, shall be evidenced by a Board Resolution delivered to
the Trustee.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants ("AICPA") and statements of the Financial Accounting Standards
Board, or in such other statements by such other entity as may be designated by
the AICPA, that are applicable to the circumstances as of the date of
determination; provided, however, that all calculations made for purposes of
determining compliance with the provisions set forth in the Indenture shall
utilize GAAP in effect at the Issue Date.
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"Guarantee" means any guarantee of the Notes by any Guarantor in accordance
with the provisions described under "--Guarantees of Notes."
"Guarantor" means the Initial Guarantors and each other future Subsidiary
that is required to guarantee Premier's Obligations under the Notes and the
Indenture as described in "--Guarantees of Notes" and "--Certain Covenants--
Limitation on Guarantees by Subsidiaries" and any other Subsidiary that
executes a supplemental indenture in which such Subsidiary agrees to guarantee
Premier's Obligations under the Notes and the Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP
that results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary
shall be deemed to have been incurred at the time at which it becomes a
Subsidiary. A guarantee otherwise permitted by the Indenture to be incurred by
Premier or a Subsidiary of Indebtedness incurred in compliance with the terms
of the Indenture by Premier or a Subsidiary, as applicable, shall not
constitute a separate incurrence of Indebtedness.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property,
assets or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested
in good faith and by appropriate proceedings; (iii) any obligation of such
Person for all or any part of the purchase price of Property or assets, or for
the cost of Property constructed or of improvements thereto (including any
obligation under or in connection with any letter of credit related thereto),
other than accounts payable incurred in respect of Property and services
purchased in the ordinary course of business which are no more than 90 days
overdue or which are being contested in good faith and by appropriate
proceedings; (iv) any obligation of such Person upon which interest charges are
customarily paid (other than accounts payable incurred in the ordinary course
of business); (v) any obligation of such Person under conditional sale or other
title retention agreements relating to purchased Property; (vi) any obligation
of such Person issued or assumed as the deferred purchase price of Property or
assets (other than accounts payable incurred in the ordinary course of business
which are no more than 90 days overdue or which are being contested in good
faith and by appropriate proceedings); (vii) any Capital Lease Obligation or
Attributable Indebtedness pursuant to any Sale and Lease-Back Transaction of
such Person; (viii) any obligation of any other Person secured by (or for which
the obligee hereof has an existing right, contingent or otherwise, to be
secured by) any Lien on Property owned or acquired, whether or not any
obligation secured thereby has been assumed, by such Person; (ix) any
obligation of such Person in respect of any letter of credit supporting any
obligation of any other Person; (x) the maximum fixed repurchase price of any
Redeemable Stock of such Person (or if such Person is a subsidiary, any
Preferred Stock of such Person); (xi) the notional amount of any Interest Swap
Obligation or Currency Hedge Obligation of such Person at the time of
determination; and (xii) any obligation which is in economic effect a
guarantee, regardless of its characterization (other than endorsements of
negotiable instruments in the ordinary course of business), with respect to any
Indebtedness of another Person, to the extent guaranteed. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Stock
or subsidiary Preferred Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock or
subsidiary Preferred Stock as if such Redeemable Stock or subsidiary Preferred
Stock were repurchased on any date on which Indebtedness shall be required to
be determined pursuant to the Indenture; provided that if such Redeemable Stock
or subsidiary Preferred Stock is not then permitted to be repurchased, the
repurchase price
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shall be the book value of such Redeemable Stock or subsidiary Preferred Stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability of any guarantees at such date; provided, further, that
for purposes of calculating the amount of any non-interest bearing or other
discount security, such Indebtedness shall be deemed to be the principal amount
thereof that would be shown on the balance sheet of the issuer dated such date
prepared in accordance with GAAP but that such security shall be deemed to have
been incurred only on the date of the original issuance thereof.
"Initial Guarantors" means Master Graphics and all of Master Graphics'
Subsidiaries (other than Premier) as of the close of business on the Issue
Date.
"Interest Swap Obligations" means, with respect to any Person, the obligation
of such Person pursuant to any interest rate swap agreement, interest rate cap,
collar or floor agreement or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or similar credit extension constituting
Indebtedness of such other Person, and any guarantee of Indebtedness of any
other Person; provided that the term "Investment" shall not include any
transaction involving the purchase or other acquisition (including by way of
merger) of Property or assets (including Capital Stock) by Premier or any
Subsidiary in exchange for Capital Stock (other than Redeemable Stock) of
Premier or Master Graphics. The amount of any Person's Investment shall be the
original cost of such Investment to such Person, plus the cost of all additions
thereto paid by such Person, and minus the amount of any portion of such
Investment repaid to such Person in cash as a repayment of principal or a
return of capital, as the case may be, but without any other adjustments for
increases or decreases in value, or write-ups, writedowns, or write-offs with
respect to such Investment. In determining the amount of any Investment
involving a transfer of any Property or assets other than cash, such Property
or assets shall be valued at its Fair Value at the time of such transfer as
determined in good faith by the board of directors (or comparable body) of the
Person making such transfer. Premier shall be deemed to make an "Investment" in
the amount of the Fair Value of the Property and assets of a Subsidiary at the
time such Subsidiary is designated an Unrestricted Subsidiary.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment, deposit
arrangement, encumbrance, security interest, lien (statutory or other), or
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or the purchase date established pursuant
to the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, as to any Asset Sale, the Cash Proceeds
therefrom, net of all legal and title expenses, commissions and other fees and
expenses incurred, and all Federal, state, foreign, recording and local taxes
payable, as a consequence of such Asset Sale, net of all payments made to any
Person other than Premier or a Subsidiary on any Indebtedness which is secured
by such assets, in accordance with the terms of any Lien upon or with respect
to such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale and, as for
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any Asset Sale by a Subsidiary, net of the equity interest in such Cash
Proceeds of any holder of Capital Stock of such Subsidiary (other than Premier,
any other Subsidiary or any Affiliate of Premier or any such other Subsidiary).
"Net Proceeds" means (a) in the case of any sale of Capital Stock by a
Person, the aggregate net cash proceeds received by such Person, after payment
of expenses, commissions, and the like incurred in connection therewith and (b)
in the case of any exchange, exercise, conversion or surrender of outstanding
securities of any kind for or into shares of Capital Stock of any Person which
is not Redeemable Stock, the net book value of such outstanding securities on
the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder to Premier or Master
Graphics, as applicable, upon such exchange, exercise, conversion or surrender)
less any and all payments made to the holders, e.g., on account of fractional
shares and less all expenses incurred by such Person in connection therewith.
"New Credit Facility" means that certain credit facility to be entered into
among Premier, Master Graphics, Harperprints and GECC as agent.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary as to which (a) neither Premier nor
any other Subsidiary (other than an Unrestricted Subsidiary) (i) provides
credit support including any undertaking, agreement or instrument which would
constitute Indebtedness or (ii) is directly or indirectly liable for such
Indebtedness and (b) no default with respect to such Indebtedness (including
any rights which the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of Premier or any other Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon and, with respect to the Notes,
Special Interest), penalties, fees, costs, expenses, indemnifications,
reimbursements, damages and other liabilities.
"Obligors" means Premier and the Guarantors, collectively; "Obligor" means
Premier or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of Premier, Master Graphics or a Subsidiary and delivered to the
Trustee, which shall comply with the Indenture.
"Permitted Holders" means John P. Miller and any person related to him by
kinship or marriage, trusts or similar arrangements established solely on the
behalf of one or more of them, and partnerships and other entities that are
controlled by them.
"Permitted Indebtedness" means (a) Indebtedness of Premier under the Notes
and the Indenture; (b) Indebtedness (and any guarantee thereof) under one or
more credit or revolving credit facilities with a bank or financial institution
or syndicate of banks or financial institutions, including the New Credit
Facility, as such may be amended, modified, revised, extended, replaced, or
refunded from time to time, in an aggregate principal amount at any one time
outstanding not to exceed at the time of incurrence the greater of (i) $50.0
million or (ii) the Borrowing Base, less any amounts derived from Asset Sales
and applied to the required permanent reduction of Senior Debt (and a permanent
reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Limitation on Asset Sales" covenant; (c)
Indebtedness of Premier or any Subsidiary under Interest Swap Obligations,
provided that (i) such Interest Swap Obligations are related to payment
obligations on Indebtedness otherwise permitted under the covenants described
in "--Certain Covenants--Limitation on Indebtedness" and (ii) the notional
principal amount of such Interest Swap Obligations does not exceed the
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principal amount of the Indebtedness to which such Interest Swap Obligations
relate; (d) Indebtedness of Premier or any Subsidiary under Currency Hedge
Obligations, provided that (i) such Currency Hedge Obligations are related to
payment obligations on Indebtedness otherwise permitted under the covenants
described in "--Certain Covenants--Limitation on Indebtedness" or to the
foreign currency cash flows reasonably expected to be generated by Premier and
the Subsidiaries and (ii) the notional principal amount of the Indebtedness and
the amount of such Currency Hedge Obligations does not exceed the principal
amount of the Indebtedness and the amount of foreign currency cash flows to
which such Currency Hedge Obligations relate; (e) Indebtedness of Premier or
any Subsidiary outstanding on the Issue Date and listed on a schedule to the
Indenture (excluding Indebtedness under the New Credit Facility and excluding
Indebtedness being repaid with the proceeds of Notes being issued on the Issue
Date), (f) the Guarantees of the Notes (and any assumption of the Obligations
guaranteed thereby); (g) Indebtedness of Premier or any Subsidiary in respect
of bid and performance bonds, surety bonds, appeal bonds and letters of credit
or similar arrangements issued for the account of Premier or any Subsidiary
Guarantor, in each case in the ordinary course of business and other than for
an obligation for money borrowed; (h) Indebtedness of Premier to a Subsidiary
Guarantor and Indebtedness of a Subsidiary Guarantor to Premier or another
Subsidiary Guarantor; provided that upon any subsequent event which results in
any such Subsidiary Guarantor ceasing to be a Subsidiary or any other
subsequent transfer of any such Indebtedness (except to Premier or a Subsidiary
Guarantor), such Indebtedness shall be deemed, in each case, to be incurred and
shall be treated as an incurrence for purposes of the "Limitation on
Indebtedness" covenants at the time the Subsidiary in question ceased to be a
Subsidiary or on which such subsequent transfer occurred; (i) Indebtedness of
Premier in connection with a purchase of the Notes pursuant to a Change of
Control Offer and guarantees of Subsidiaries of such Indebtedness of Premier,
provided that the aggregate principal amount of such Indebtedness does not
exceed 101% of the aggregate principal amount at Stated Maturity of the Notes
purchased pursuant to such Change of Control Offer, provided, further, that
such Indebtedness (A) has an Average Life equal to or greater than the
remaining Average Life of the Notes and (B) does not mature prior to one year
following the Stated Maturity of the Notes; (j) Permitted Refinancing
Indebtedness; (k) Permitted Subsidiary Refinancing Indebtedness; and (l)
additional Indebtedness in an aggregate principal amount not to exceed $5.0
million at any time outstanding. So as to avoid duplication in determining the
amount of Permitted Indebtedness under any clause of this definition,
guarantees permitted to be incurred pursuant to the Indenture of, or
obligations permitted to be incurred pursuant to the Indenture in respect of
letters of credit supporting, Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks organized in the United States, or
foreign branches thereof, having capital and surplus in excess of $500.0
million; (b) commercial paper issued by any corporation, if such commercial
paper has credit ratings of at least "A-1" or its equivalent by S&P and at
least "P-1" or its equivalent by Moody's; (c) U.S. Government Obligations with
a maturity of one year or less; (d) repurchase obligations for instruments of
the type described in clause (c) with any bank meeting the qualifications
specified in clause (a) above; (e) shares of money market mutual or similar
funds having assets in excess of $500.0 million; (f) payroll advances in the
ordinary course of business and other advances and loans to officers and
employees of Premier or any Subsidiary, so long as the aggregate principal
amount of such advances and loan, does not exceed $1.5 million at any one time
outstanding; (g) Investments represented by that portion of the proceeds from
Asset Sales that is not required to be Cash Proceeds by the covenant described
in "--Certain Covenants--Limitation on Asset Sales"; (h) Investments made by
Premier in Subsidiary Guarantors (or any Person that will be a Subsidiary and a
Subsidiary Guarantor as a result of such Investment) or by a Subsidiary in
Premier or in one or more Subsidiary Guarantors (or any Person that will be a
Subsidiary of Premier as a result of such Investment); (i) Investments in
stock, obligations or securities received in settlement of debts owing to
Premier or any Subsidiary as a result of bankruptcy or insolvency proceedings
or upon the foreclosure, perfection or enforcement of any Lien in favor of
Premier or any Subsidiary, in each case as to debt owing to Premier or any
Subsidiary that arose in the ordinary course of business of Premier or any such
Subsidiary; (j) Interest Swap Obligations with respect to any floating rate
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Indebtedness that is permitted by the terms of the Indenture to be outstanding;
(k) Currency Hedge Obligations, provided that such Currency Hedge Obligations
constitute Permitted Indebtedness permitted by clause (d) of the definition
thereof; (m) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility, worker's compensation and performance and other
similar deposits in the ordinary course of business; and (n) Investments
pursuant to any agreement or obligation of Premier or any Subsidiary in effect
on the Issue Date and listed on a schedule attached to the Indenture.
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Notes and/or the Guarantees; (c) Liens on
Property of a Person existing at the time such Person is merged or consolidated
with or into Premier or a Subsidiary (and not incurred as a result of, or in
anticipation of, such transaction), provided that any such Lien relates solely
to such Property; (d) Liens on Property existing at the time of the acquisition
thereof (and not incurred as a result of, or in anticipation of such
transaction), provided that any such Lien relates solely to such Property; (e)
Liens incurred or pledges and deposits made in connection with worker's
compensation, unemployment insurance and other social security benefits,
statutory obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens, and incurred in the ordinary course of business
for sums not delinquent or being contested in good faith, if such reserves or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made with respect thereof; (g) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of Premier or
any Subsidiary to conduct its business presently conducted; (h) Liens for taxes
or assessments or other governmental charges or levies not yet due and payable,
or the validity of which is being contested by Premier or a Subsidiary in good
faith and by appropriate proceedings upon stay of execution or the enforcement
thereof and for which adequate reserves in accordance with GAAP or other
appropriate provision has been made; (i) Liens to secure Indebtedness incurred
for the purpose of financing all or a part of the purchase price or
construction cost of Property or assets acquired or constructed after the Issue
Date, provided that (l) the principal amount of Indebtedness secured by such
Liens shall not exceed 100% of the lesser of cost or Fair Market Value of the
Property or assets so acquired or constructed plus transaction costs related
thereto, (2) such Liens shall not encumber any other assets or Property of
Premier or any Subsidiary (other than the proceeds thereof and accessions and
upgrades thereto) and (3) such Liens shall attach to such Property or assets
within 120 days of the date of the completion of the construction or
acquisition of such Property for assets; (j) Liens to secure any extension,
renewal, refinancing or refunding (or successive extensions, renewals,
refinancings or refundings), in whole or in part, of any Indebtedness secured
by Liens referred to in the foregoing clauses (a), (c) and (d), provided that
such Lien does not extend to any other Property or assets of Premier or any
Subsidiary and the principal amount of the Indebtedness secured by such Lien is
not increased; (k) leases or subleases of real property to other Persons; (l)
judgment liens not giving rise to an Event of Default so long as any
appropriate legal proceedings which may have been initiated for the review of
such judgment shall not have been finally terminated or the period within which
such proceeding may be initiated shall not have expired; (m) rights of off-set
of banks and other Persons; (n) Liens in favor of Premier; (o) Liens securing
Indebtedness described under clause (b) of the definition of Permitted
Indebtedness; and (p) Liens securing Senior Debt if at the time of the
incurrence of such Indebtedness or the granting of such Liens, whichever is
later to occur, and after the giving of pro forma effect to such incurrence of
Indebtedness or granting of Liens, the Senior Debt to EBITDA Ratio does not
exceed 4.0 to 1.0 until December 1, 2000 and thereafter does not exceed 3.75 to
1.0.
"Permitted Refinancing Indebtedness" means Indebtedness of Premier, incurred
in exchange for, or the net proceeds of which are used to renew, extend,
refinance, refund or repurchase, outstanding Indebtedness of Premier which
outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (a) and (e) of the definition of "Permitted
Indebtedness; provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Notes, then such new
Indebtedness is pari passu with or
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subordinated in right of payment (without regard to its being secured) to, as
the case may be, the Notes at least to the same extent as the Indebtedness
being renewed, extended, refinanced, refunded or repurchased, (ii) such new
Indebtedness is scheduled to mature later than the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (iii) such new Indebtedness has
an Average Life at the time such Indebtedness is incurred that is greater than
the Average Life of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, and (iv) such new Indebtedness is in aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or
if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus the amount of reasonable fees, expenses, and
premium, if any, incurred by Premier or such Subsidiary in connection
therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Indebtedness of
such Subsidiary which outstanding Indebtedness was incurred in accordance with,
or is otherwise permitted by, the terms of clauses (e) and (f) of the
definition of Permitted Indebtedness, provided that (i) if the Indebtedness
being renewed, extended, refinanced, refunded or repurchased is pari passu with
or subordinated in right of payment (without regard to its being secured) to
the Guarantee of such Subsidiary, then such new Indebtedness is pari passu with
or subordinated in right of payment (without regard to its being secured) to,
as the case may be, the Guarantee of such Subsidiary at least to the same
extent as the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
(iii) such new Indebtedness has an Average Life at the time Indebtedness is
incurred that is greater than the Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iv) such new
Indebtedness is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount hereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses, and premium, if any, incurred by Premier or such
Subsidiary in connection therewith.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of Premier or Master Graphics for cash pursuant to an
effective registration statement (other than on a Form S-4 or a Form S-8 or any
other form relating to securities issuable under any employee benefit plan of
Premier or Master Graphics) under the Securities Act; provided that in the
event of a Public Equity Offering by Master Graphics, Master Graphics
contributes the Net Proceeds of such Public Equity Offering to the common
equity of Premier.
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"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such
Person or any of its subsidiaries.
"Related Business" means the general commercial printing business and any
business reasonably complementary, related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of Premier as evidenced by a Board Resolution, is used or is
useful in a Related Business.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make any
distribution in respect of, or purchase, redeem, retire or otherwise acquire
for value, any Capital Stock of Premier or any Affiliate of Premier (including,
without limitation, any such dividend, distribution or other payment made as a
payment in connection with any merger or consolidation involving Premier), or
warrants, rights or options to acquire such Capital Stock, other than (x)
dividends payable solely in the Capital Stock (other than Redeemable Stock) of
Premier or such Affiliate, as the case may be, or in warrants, rights or
options to purchase or acquire such Capital Stock and (y) dividends or
distributions by a Subsidiary to Premier or to a Subsidiary Guarantor; (ii)
make any principal payment on, or redeem, repurchase, defease (including an in-
substance or legal defeasance) or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
principal payment, scheduled sinking fund payment or other stated maturity,
Indebtedness of Premier or any Subsidiary Guarantor which is subordinated
(whether pursuant to its terms or by operation of law) in right of payment to
the Notes or the Guarantees, as applicable; (iii) make any Restricted
Investment in any Person; (iv) designate (other than pursuant to clause (xi) of
the definition of Permitted Investments) a Subsidiary as an Unrestricted
Subsidiary, provided that such a designation of a Subsidiary as an Unrestricted
Subsidiary shall be deemed to include the designation of all of the
subsidiaries of such Subsidiary that were Subsidiaries and (vi) forgive any
Indebtedness of an Affiliate of Premier to Premier or a Subsidiary. For
purposes of determining the amount expended for Restricted Payments, cash
distributed or invested shall be valued at the face amount thereof and Property
other than cash shall be valued at its Fair Market Value, except that in
determining the amount of any Restricted Payment made under clause (iv) above,
the amount of such Restricted Payment shall be equal to the greater of (i) the
book value or (ii) the Fair Market Value of Premier's or Master Graphics', as
applicable, direct and indirect proportionate interest in such Subsidiary on
such date or the date of the acquisition by Premier or Master Graphics.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its subsidiaries.
"Senior Debt" means any Indebtedness incurred by Premier or a Guarantor, as
the case may be, unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to the
Notes or such Guarantor's Guarantee, as applicable, provided that Senior Debt
will not include (a) any liability for federal, state, local or other taxes
owed or owing, (b) any Indebtedness owing to any Subsidiaries or to Master
Graphics or to any Affiliate, (c) any trade payables or (d) any Indebtedness
that is incurred in violation of the Indenture.
"Senior Debt to EBITDA Ratio" means, at any time of determination, the ratio
of (i) the aggregate amount of Senior Debt outstanding on the date of
determination, other than Senior Debt secured by Permitted Liens described in
clause (o) of the definition of Permitted Liens, to (ii) the aggregate amount
of EBITDA of Premier and the Subsidiaries on a combined consolidated basis for
the four fiscal quarters for which financial information is available
immediately prior to date of determination; provided that any Senior Debt
incurred or
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retired by Premier or any of the Subsidiaries during the fiscal quarter in
which the date of determination occurs shall be calculated as if such Senior
Debt were so incurred or retired on the first day of the fiscal quarter in
which the date of determination occurs; and provided, further, that (x) if the
transaction giving rise to the need to calculate the Senior Debt to EBITDA
Ratio would have the effect of increasing or decreasing Senior Debt or EBITDA
in the future, Senior Debt or EBITDA shall be calculated on a pro forma basis
as if such transaction had occurred on the first day of such four fiscal
quarter period preceding the date of determination, and (y) if during such four
fiscal quarter period, Premier or any of the Subsidiaries shall have engaged in
any Asset Sale, EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject of such
Asset Sale and any related retirement of Senior Debt as if such Asset Sale and
related retirement of Senior Debt had occurred on the first day of such four
fiscal quarter period or (z) if during such four fiscal quarter period Premier
or any of the Subsidiaries shall have made any Asset Acquisition, EBITDA shall
be calculated on a pro forma basis as if such Asset Acquisition and any related
financing had occurred on the first day of such four fiscal quarter period. For
purposes of this definition, whenever pro forma effect is to be given to an
Asset Acquisition, the amount of income or earnings relating thereto shall be
determined in good faith by a responsible financial or accounting officer of
Premier.
"Significant Subsidiary" means any Subsidiary Guarantor or any other
Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"subsidiary" means, with respect to any Person, (i) any corporation more than
50% of the outstanding Voting Stock of which is owned, directly or indirectly,
by such Person, or by one or more other subsidiaries of such Person, or by such
Person and one or more other subsidiaries of such Person, (ii) any general
partnership, joint venture or similar entity, more than 50% of the outstanding
partnership or similar interest of which is owned, directly or indirectly, by
such Person, or by one or more other subsidiaries or such Person, or by such
Person and one or more other subsidiaries of such Person and (iii) any limited
partnership of which such Person or any subsidiary of such Person is a general
partner.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Subsidiary that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be.
"Subsidiary" means a subsidiary of Master Graphics (or Premier, if Premier is
no longer a Subsidiary of Master Graphics) other than an Unrestricted
Subsidiary.
"Subsidiary Guarantor" means a Guarantor that is a Subsidiary.
"Tax Sharing Agreement" means that certain tax sharing agreement among
Premier, Harperprints and Master Graphics.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) above, are not callable or redeemable at the option
of the issuers thereof; or (iii) depositary receipts issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
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Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation evidenced by such depository receipt.
"Unrestricted Subsidiary" means any subsidiary of Premier or a Subsidiary
that Premier has classified as an Unrestricted Subsidiary, and that has not
been reclassified as a Subsidiary, pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by Master Graphics or Premier, as the case may be, or (ii) such
Subsidiary is organized in a foreign jurisdiction and is required by the
applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Subsidiary to transact
business in such foreign jurisdiction, provided that Master Graphics or
Premier, directly or indirectly, owns the remaining Capital Stock or ownership
interest in such Subsidiary and, by contract or otherwise, controls the
management and business of such Subsidiary and derives the economic benefits of
ownership of such Subsidiary to substantially the same extent as if such
Subsidiary were a Wholly Owned Subsidiary.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of one year after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resales.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have been advised by Donaldson Lufkin & Jenrette Securities Corporation,
Prudential Securities Incorporated and Morgan Keegan & Company, Inc., the
Initial Purchasers of the Old Notes, that following completion of the Exchange
Offer they intend to make a market in the New Notes to be issued in the
Exchange Offer; however, such entities are under no obligation to do so and any
market activities with respect to the New Notes may be discontinued at any
time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the New
Notes offered hereby will be passed upon for the Company by Baker, Donelson,
Bearman & Caldwell, Memphis, Tennessee.
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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 LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated statements of 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 PLC, 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.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-
4 (the "Registration Statement") under the Securities Act with respect to the
New Notes 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 New
Notes, 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 ar 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.
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MASTER GRAPHICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Master Graphics, Inc. and subsidiaries:
Unaudited Pro Forma Condensed Consolidated Financial Statements......... F-4
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1998............................................................... F-5
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1997....................................... F-6
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the latest twelve months ended September 30, 1998...................... F-7
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1998............................... F-8
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended September 30, 1998.............................. F-9
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................................. F-10
HISTORICAL:
Master Graphics, Inc. and subsidiary:
Reports of Independent Public Accountants............................... F-19
Consolidated Balance Sheets as of June 30, 1996 and 1997 and December
31, 1997............................................................... F-21
Consolidated Statements of Operations for the years ended June 30, 1995,
1996, and 1997, and the six months ended December 31, 1997............. F-22
Consolidated Statements of Shareholder's Equity for the years ended June
30, 1995, 1996, and 1997, and the six months ended December 31, 1997... F-23
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1996, and 1997, and the six months ended December 31, 1997............. F-24
Notes to Consolidated Financial Statements.............................. F-25
Condensed Consolidated Balance Sheet as of September 30, 1998
(unaudited)............................................................ F-36
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1998 (unaudited).......................... F-37
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1998 (unaudited).......................... F-38
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-39
Lithograph Printing Company of Memphis:
Report of Independent Public Accountants................................ F-44
Balance Sheets as of December 31, 1995 and 1996, and June 19, 1997...... F-45
Statements of Income for the years ended December 31, 1995 and 1996, and
the period from January 1, 1997 through June 19, 1997.................. F-46
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-47
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-48
Notes to Financial Statements........................................... F-49
Blackwell Lithographers, Inc.:
Report of Independent Public Accountants................................ F-52
Balance Sheet as of June 19, 1997....................................... F-53
Statement of Operations for the period from January 1, 1997 through June
19, 1997............................................................... F-54
Statement of Shareholders' Equity for the period from January 1, 1997
through June 19, 1997.................................................. F-55
Statement of Cash Flows for the period from January 1, 1997 through June
19, 1997............................................................... F-56
Notes to Financial Statements........................................... F-57
</TABLE>
F-1
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<TABLE>
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The Argus Press, Inc.:
Report of Independent Public Accountants............................... F-60
Balance Sheets as of December 31, 1996, and September 22, 1997......... F-61
Statements of Operations for the year ended December 31, 1996, and the
period from January 1, 1997 through September 22, 1997................ F-62
Statements of Shareholders' Equity for the year ended December 31,
1996, and the period from January 1, 1997 through September 22, 1997.. F-63
Statements of Cash Flows for the year ended December 31, 1996, and the
period from January 1, 1997 through September 22, 1997................ F-64
Notes to Financial Statements.......................................... F-65
Phoenix Communications, Inc.:
Reports of Independent Public Accountants.............................. F-68
Balance Sheets as of January 31, 1997, and December 16, 1997........... F-70
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-71
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-72
Notes to Financial Statements.......................................... F-73
Jones Printing Company, Inc.:
Reports of Independent Public Accountants.............................. F-79
Balance Sheets as of December 31, 1996, and December 16, 1997.......... F-81
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-82
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-83
Notes to Financial Statements.......................................... F-84
McQuiddy Printing Company:
Report of Independent Public Accountants............................... F-88
Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998
(unaudited)........................................................... F-89
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-90
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-91
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-92
Notes to Financial Statements.......................................... F-93
Phillips Litho Co., Inc.:
Report of Independent Public Accountants............................... F-99
Balance Sheets as of December 31, 1996 and 1997........................ F-100
Statements of Operations for the years ended December 31, 1995, 1996
and 1997.............................................................. F-101
Statements of Retained Earnings for the years ended December 31, 1995,
1996 and 1997......................................................... F-102
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................. F-103
Notes to Financial Statements.......................................... F-104
Hederman Brothers, Inc.:
Report of Independent Public Accountants............................... F-109
Balance Sheets as of December 31, 1996 and 1997........................ F-110
Statements of Operations for the years ended December 31, 1995, 1996
and 1997.............................................................. F-111
Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997................................................... F-112
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................. F-113
Notes to Financial Statements.......................................... F-114
</TABLE>
F-2
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<TABLE>
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Harperprints, Inc.:
Report of Independent Public Accountants............................... F-118
Balance Sheets as of December 31, 1996 and 1997........................ F-119
Statements of Income for the years ended December 31, 1996 and 1997.... F-120
Statements of Changes In Stockholders' Equity for the years ended
December 31, 1996 and 1997............................................ F-121
Statements of Cash Flows for the years ended December 31, 1996 and
1997.................................................................. F-122
Notes to Financial Statements.......................................... F-123
</TABLE>
F-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet of the Company
as of September 30, 1998 gives effect to: (i) the probable acquisition of a
general commercial printing company located in the Houston, Texas area (the
"Proposed Acquisition"); and (ii) the consummation of the offering of the notes
and the application of the net proceeds thereof, as if such transactions had
occurred on September 30, 1998.
The unaudited pro forma condensed consolidated statements of operations of
the Company for the year ended December 31, 1997, the latest twelve months
ended September 30, 1998, the nine months ended September 30, 1998 and the
three months ended September 30, 1998 give effect to: (i) the acquisitions of
the Acquired Companies and the Proposed Acquisition and the financings thereof;
(ii) the consummation of the Initial Offering and application of the net
proceeds thereof; and (iii) the consummation of the offering of the notes and
the application of the net proceeds thereof, as if such transactions had
occurred on January 1, 1997. Share amounts reflect a 40,000-to-1 stock split
effected in May 1998.
The unaudited pro forma condensed consolidated financial statements 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 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 Offering Memorandum, except for the historical financial statements of
Sutherland, Golden Rule, The Printing Company, Stephenson and the Proposed
Acquisition, which have not been included.
F-4
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS (NOTE 3)
--------------------
PRO FORMA
COMPANY ACQUISITION ACQUISITION OFFERING AS ADJUSTED
<S> <C> <C> <C> <C> <C>
Current assets:
Cash................... -- $ 78 -- $ 13,791 $ 13,869
Trade accounts
receivable, net....... $ 37,188 2,761 -- -- 39,949
Inventories............ 9,375 309 $ 25 -- 9,709
Other current assets... 2,660 320 -- -- 2,980
-------- ------ ------- -------- --------
Total current assets... 49,223 3,468 25 13,791 66,507
Property, plant and
equipment, net......... 71,494 4,590 (490) -- 75,594
Goodwill, net........... 53,765 -- 5,692 -- 59,457
Other assets............ 2,143 16 -- 4,400 6,559
-------- ------ ------- -------- --------
$176,625 $8,074 $ 5,227 $ 18,191 $208,117
======== ====== ======= ======== ========
Current liabilities:
Current installments of
long-term debt........ $ 6,768 $1,151 $(1,151) $ (6,768) --
Accounts payable,
trade................. 8,793 486 -- -- $ 9,279
Accrued expenses and
other liabilities..... 6,628 1,007 -- -- 7,635
-------- ------ ------- -------- --------
Total current
liabilities........... 22,189 2,644 (1,151) (6,768) 16,914
Long-term debt:
Senior notes........... -- -- -- 130,000 130,000
Credit facilities...... 89,041 2,337 8,663 (100,041) --
Discount............... (1,029) -- -- -- (1,029)
Seller notes........... 16,074 -- -- (12,221) 3,853
Seller deferral notes.. -- -- -- 12,500 12,500
Other.................. 8,617 -- -- (5,279) 3,338
-------- ------ ------- -------- --------
Total long-term debt... 112,703 2,337 8,663 24,959 148,662
Other liabilities....... 1,153 -- -- -- 1,153
Deferred income tax..... 3,541 808 -- -- 4,349
-------- ------ ------- -------- --------
Total liabilities...... 139,586 5,789 7,512 18,191 171,078
Redeemable preferred
stock.................. 1,408 -- -- -- 1,408
Shareholders' equity.... 35,631 2,285 (2,285) -- 35,631
-------- ------ ------- -------- --------
$176,625 $8,074 $ 5,227 $ 18,191 $208,117
======== ====== ======= ======== ========
</TABLE>
F-5
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
INITIAL
ACQUISITIONS OFFERING OFFERING PRO FORMA
COMPANY ACQUISITIONS (NOTE 4) (NOTE 5) (NOTE 5) AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $39,470 $175,607 -- -- -- $215,077
Cost of revenue......... 32,460 132,915 $(3,668) -- -- 161,707
------- -------- ------- ------ ------- --------
Gross profit........... 7,010 42,692 3,668 -- -- 53,370
Selling, general &
administrative
expenses............... 7,760 32,143 (1,839) -- -- 38,064
Amortization of
goodwill............... 98 831 555 -- -- 1,484
------- -------- ------- ------ ------- --------
Operating income
(loss)................ (848) 9,718 4,952 -- -- 13,822
Other income (expense):
Redeemable warrant
valuation adjustment.. (1,635) -- 455 $1,180 -- --
Interest income........ 82 53 -- -- -- 135
Interest expense....... (2,345) (4,820) (8,415) 4,703 $(6,403) (17,280)
Deferred loan cost
amortization.......... (90) -- (1,095) 731 (691) (1,145)
Other, net............. 156 175 -- -- -- 331
------- -------- ------- ------ ------- --------
(3,832) (4,592) (9,055) 6,614 (7,094) (17,959)
------- -------- ------- ------ ------- --------
Earnings (loss) before
income taxes.......... (4,680) 5,126 (4,103) 6,614 (7,094) (4,137)
Income tax expense
(benefit).............. 45 1,651 -- -- (1,696) --
------- -------- ------- ------ ------- --------
Net earnings (loss)
before extraordinary
item................... $(4,725) $ 3,475 $(4,103) $6,614 $(5,398) $ (4,137)
======= ======== ======= ====== ======= ========
Net loss before
extraordinary item per
common share:
Basic.................. $ (0.55)
========
Diluted................ $ (0.55)
========
</TABLE>
F-6
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
LATEST TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
INITIAL
ACQUISITIONS OFFERING OFFERING PRO FORMA
COMPANY ACQUISITIONS (NOTE 4) (NOTE 5) (NOTE 5) AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $129,722 $93,815 -- -- -- $223,537
Cost of revenue......... 97,920 72,674 $(3,133) -- -- 167,461
-------- ------- ------- ------ ------- --------
Gross profit........... 31,802 21,141 3,133 -- -- 56,076
Selling, general &
administrative
expenses............... 22,575 15,985 (1,164) -- -- 37,396
Amortization of
goodwill............... 748 212 524 -- -- 1,484
-------- ------- ------- ------ ------- --------
Operating income....... 8,479 4,944 3,773 -- -- 17,196
Other income (expense):
Redeemable warrant
valuation adjustment.. (1,235) -- 455 $ 780 -- --
Interest income........ 128 21 -- -- -- 149
Interest expense....... (7,970) (2,541) (3,356) 2,451 $(5,864) (17,280)
Deferred loan cost
amortization.......... (479) -- (273) 228 (621) (1,145)
Other, net............. 563 (986) 1,199 -- -- 776
-------- ------- ------- ------ ------- --------
(8,993) (3,506) (1,975) 3,459 (6,485) (17,500)
-------- ------- ------- ------ ------- --------
Earnings (loss) before
income taxes.......... (514) 1,438 1,798 3,459 (6,485) (304)
Income tax expense
(benefit).............. 16 1,152 -- -- (1,168) --
-------- ------- ------- ------ ------- --------
Net earnings (loss)
before extraordinary
item................... $ (530) $ 286 $ 1,798 $3,459 $(5,317) $ (304)
======== ======= ======= ====== ======= ========
Net earnings before
extraordinary item per
common share:
Basic.................. $ (0.07)
========
Diluted................ $ (0.07)
========
</TABLE>
F-7
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
INITIAL
ACQUISITIONS OFFERING OFFERING PRO FORMA
COMPANY ACQUISITIONS (NOTE 4) (NOTE 5) (NOTE 5) AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $109,935 $56,341 -- -- -- $166,276
Cost of revenue......... 81,183 43,644 $(1,670) -- -- 123,157
-------- ------- ------- ------ ------- --------
Gross profit........... 28,752 12,697 1,670 -- -- 43,119
Selling, general &
administrative
expenses............... 18,351 9,799 (566) -- -- 27,584
Amortization of
goodwill............... 748 -- 365 -- -- 1,113
-------- ------- ------- ------ ------- --------
Operating income....... 9,653 2,898 1,871 -- -- 14,422
Other income (expense):
Redeemable warrant
valuation adjustment.. -- -- -- -- -- --
Interest income........ 100 13 -- -- -- 113
Interest expense....... (6,692) (1,589) (2,419) $1,305 $(3,565) (12,960)
Deferred loan cost
amortization.......... (434) -- -- -- (424) (858)
Other, net............. 432 (982) 1,199 -- -- 649
-------- ------- ------- ------ ------- --------
(6,594) (2,558) (1,220) 1,305 (3,989) (13,056)
-------- ------- ------- ------ ------- --------
Earnings (loss) before
income taxes.......... 3,059 340 651 1,305 (3,989) 1,366
Income tax expense
(benefit).............. (4) 203 -- -- 388 587
-------- ------- ------- ------ ------- --------
Net earnings (loss)
before extraordinary
item................... $ 3,063 $ 137 $ 651 $1,305 $(4,377) $ 779
======== ======= ======= ====== ======= ========
Net earnings before
extraordinary item per
common share:
Basic.................. $ 0.08
========
Diluted................ $ 0.07
========
</TABLE>
F-8
<PAGE>
MASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------
ACQUISITION OFFERING PRO FORMA
COMPANY ACQUISITIONS (NOTE 4) (NOTE 5) AS ADJUSTED
<S> <C> <C> <C> <C> <C>
Revenue................. $43,390 $12,846 -- -- $56,236
Cost of revenue......... 32,240 9,472 $ (451) -- 41,261
------- ------- --------- ----------- -------
Gross profit........... 11,150 3,374 451 -- 14,975
Selling, general &
administrative
expenses............... 6,968 2,232 (153) 9,047
Amortization of
goodwill............... 297 -- 74 -- 371
------- ------- --------- ----------- -------
Operating income....... 3,885 1,142 530 -- 5,557
Other income (expense):
Redeemable warrant
valuation adjustment.. -- -- -- --
Interest income........ 15 -- -- 15
Interest expense....... (1,881) (443) (478) $(1,518) (4,320)
Deferred loan cost
amortization.......... (251) -- -- (35) (286)
Other, net............. 118 29 -- 147
------- ------- --------- ----------- -------
(1,999) (414) (478) (1,553) (4,444)
------- ------- --------- ----------- -------
Earnings (loss) before
income taxes.......... 1,886 728 52 (1,553) 1,113
Income tax expense...... -- 132 -- 347 479
------- ------- --------- ----------- -------
Net earnings (loss)
before extraordinary
items.................. $ 1,886 $ 596 $ 52 $ (1,900) $ 634
======= ======= ========= =========== =======
Net earnings before
extraordinary item per
common share:
Basic.................. $ 0.07
=======
Diluted................ $ 0.07
=======
</TABLE>
F-9
<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 giving
effect to: (i) the probable acquisition of the Proposed Acquisition and the
financing thereof and (ii) the consummation of the offering and the
application of the net proceeds thereof, as if such transactions had occurred
on September 30, 1998.
The accompanying unaudited pro forma condensed consolidated statements of
operations present the pro forma consolidated results of operations of the
Company giving effect to: (i) the acquisitions of the Acquired Companies
(including the Proposed Acquisition) and the financings thereof; (ii) the
consummation of the Initial Offering (including the exercise by Sirrom Capital
Corporation ("Sirrom") of a warrant to acquire 266,664 shares of Common Stock,
200,000 shares of which were sold by Sirrom in the Initial Offering) and
application of the net proceeds thereof; and (iii) the consummation of the
offering and the application of the net proceeds thereof, as if such
transactions had occurred on January 1, 1997. Share amounts reflect a 40,000
to 1 stock split effected in May 1998.
The pro forma condensed consolidated balance sheet has been derived from the
historical balance sheets of the Company and the Proposed Acquisition as of
September 30, 1998; the pro forma condensed consolidated statements of
operations for the year ended December 31, 1997, the latest twelve months
ended September 30, 1998, the nine months ended September 30, 1998 and the
three months ended September 30, 1998 have been derived from the historical
statements of operations of the Company and the Acquired Companies (including
the Proposed Acquisition) prior to their acquisition by the Company. The
results of operations of the Acquired Companies subsequent to their
acquisitions have been included in the historical statements of operations of
the Company. The acquisition dates of the Acquired Companies were as follows:
Lithograph, Blackwell, and Sutherland (June 19, 1997); Argus (September 22,
1997); Phoenix and Jones (December 16, 1997); Hederman (March 1, 1998);
Phillips (March 1, 1998), Harperprints (March 31, 1998); McQuiddy (May 8,
1998); Golden Rule (August 31, 1998); The Printing Company (September 16,
1998); and Stephenson Printing (September 23, 1998).
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, not 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
acquisitions of the Acquired Companies 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
The acquisitions have been accounted for by the purchase method and,
accordingly, the results of their operations are included in the Company's
consolidated financial statements from their respective acquisition dates. The
estimated $53.4 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.
F-10
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Harperprints, Hederman, Jones, Phillips, Phoenix, The Printing Company,
and Stephenson acquisition 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
$27 million.
Following is a summary of consideration given in each of the acquisitions:
<TABLE>
<CAPTION>
COMMON WARRANT
COMPANY DATE ACQUIRED CASH (1) SELLER NOTES STOCK SHARES (2)
<S> <C> <C> <C> <C> <C>
Lithograph Printing Com-
pany................... June 19, 1997 $ 7,433,727 $ 3,750,000 -- 375,000
Blackwell Lithogra-
phers.................. June 19, 1997 3,000,000 1,000,000 -- 100,000
Sutherland Printing Com-
pany................... June 19, 1997 -- 351,053 -- 32,500
The Argus Press......... September 23, 1997 8,500,000 3,750,000 -- 375,000
Phoenix Communications.. December 16, 1997 6,633,030 1,150,000 -- 465,000
Jones Printing Company.. December 16, 1997 2,672,594 1,250,000 -- 124,999
Hederman Brothers....... March 1, 1998 1,500,000 193,000 -- 199,998
Phillips Litho.......... March 1, 1998 8,113,078 854,219 -- 85,421
Harperprints............ March 31, 1998 4,568,875 1,125,000 -- 50,000
McQuiddy Printing Compa-
ny..................... May 8, 1998 5,012,697 1,502,948 -- 20,930
Golden Rule Printing.... August 31 1998 4,569,630 -- $1,280,000 --
The Printing Company.... September 15, 1998 5,544,426 -- -- --
Stephenson Printing..... September 23, 1998 9,235,926 -- -- --
----------- ----------- ---------- ---------
Total.................................... $66,783,983 $14,926,220 $1,280,000 1,828,848
=========== =========== ========== =========
</TABLE>
- ---------------------
(1) In addition to cash consideration paid to sellers, the Company has
incurred, or will incur, other transaction costs which have totaled
approximately $5.0 million.
(2) The respective acquisition agreements specify a dollar value of Common
Stock which may be acquired by the seller at $10.00 per share.
PROBABLE ACQUISITION
The Company and a general commercial printing company have entered into a
non-binding letter of intent whereby the Company will acquire all of the
outstanding capital stock of the Proposed Acquisition for approximately $11.0
million. The Company will finance the cash purchase price with a portion of the
proceeds of this Offering. The acquisition will be accounted for by the
purchase method. The $5.7 million estimated excess of the purchase price over
the fair value of the net assets acquired will be recorded as goodwill and will
be amortized on a straight-line basis over 40 years. Based on the Company's
history of completing acquisitions after letters of intent have been obtained,
the course of dealings between the Company and the Proposed Acquisition, and
assuming the successful completion of this Offering, the acquisition of the
Proposed Aquisition has been considered to be probable of occurrence and,
therefore, has been included in these pro forma financial statements. However,
there can be no assurance that the acquisition will be consummated.
FINANCING OF ACQUISITIONS
In June 1997, the Company borrowed $4.3 million from Sirrom to partially
finance its June 1997 business acquisitions described above. The Sirrom loan
bore interest at 13.25%, payable monthly, and the principal was due in May
2002. The Company repaid all amounts outstanding under the Sirrom loan with the
proceeds of the Initial Offering, with no penalty for early repayment. 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 effected in May 1998). Sirrom sold
200,000 of such shares in the Initial Offering.
F-11
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1998, $90 million was outstanding under the Company's
Senior Credit Facility. Of the outstanding borrowings, (i) $28 million is owed
pursuant to a term note due in August 2003, payable in quarterly installments
of $1,120,000, plus interest payable monthly at a floating rate equal to the
London Interbank Offered Rate ("LIBOR") plus 2.50%; and (ii) $32 million is
owed pursuant to a term note payable in a single installment in August 2003,
plus interest payable monthly at a floating rate equal to the LIBOR plus 3.00%.
In addition, the Company has a $30 million acquisition line facility to finance
eligible acquisitions (as defined). Loans under the acquisition facility are
due in quarterly installments equal to 1/40th of the amount drawn, with a final
installment due in August 2003, plus interest payable monthly at a floating
rate equal to the LIBOR plus 2.75%. The Company is subject to certain covenants
and restrictions and must meet certain financial tests as defined in the senior
term credit agreement.
The Company also may borrow under its revolving credit facility with a
finance company, which is a $15 million working capital line of credit.
Borrowings under the line of credit facility are limited by a borrowing base
formula. As of September 30, 1998, the Company had $5.8 million outstanding
under the revolving credit facility and $9.2 million in available borrowing
capacity.
In connection with the acquisition of the Acquired Companies, the Company has
issued subordinated unsecured notes to the respective sellers. These
subordinated notes, which totaled approximately $21 million at September 30,
1998, mature seven years from the date of issuance, 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.
In connection with the financings of certain 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) 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 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.
INITIAL OFFERING
In June 1998, the Company completed an initial public offering of 3,400,000
shares of Common Stock at $10.00 per share. In addition, another 200,000 shares
were offered by a selling shareholder of the Company.
F-12
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Proceeds of the initial public offering were used to repay indebtedness owed to
the selling shareholder, to repay a portion of the indebtedness owed to its
Senior Lender and to pay acquisition advisory fees deferred until the
completion of the offering. The repayment of indebtedness totaled $29.5 million
and includes the $10.0 million Harperprints term loan, the $15.0 million
Phillips Litho term loan, and the $4.3 million Sirrom loan. The write-off of
the related deferred loan costs ($.6 million) and unamortized debt discounts
($3.0 million) has been recorded as a $2.1 million extraordinary loss, net of
tax benefit of $1.5 million.
THE OFFERING
The Company will issue $130.0 million of 11.5% Senior Notes due 2005.
3. PRO FORMA ACQUISITION AND OFFERING ADJUSTMENTS--BALANCE SHEET
a) to record the purchase of the Proposed Acquisition, including the
elimination of the historical equity accounts of the Proposed Acquisition.
b) to record the proceeds from the issuance of $130.0 million aggregate
principal amount of the Notes, net of $3.9 million of discounts and
estimated offering costs of $500,000 primarily consisting of accounting and
legal fees and printing expenses, and the anticipated uses of the net
proceeds (approximately $125.6 million) as follows: (i) $11.0 million to
finance the purchase of the Proposed Acquisition; (ii) $95.8 million to
repay the amounts owed under the existing credit facilities; (iii) $5.0
million to repay certain other indebtedness outstanding under the Seller
Notes; (iv) $13.8 million cash for working capital and other general
corporate purposes and (v) the restructuring of certain of the Seller Notes
into Seller Deferral Notes.
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------
PRO FORMA
(A) (B) ADJUSTMENT
<S> <C> <C> <C>
Cash............................................... -- $ 13,791 $13,791
Inventory.......................................... $ 25 -- 25
Property, Plant & Equipment........................ (490) -- (490)
Goodwill........................................... 5,692 -- 5,692
Other Assets....................................... -- 4,400 4,400
Current installments of long-term debt............. (1,151) (6,768) (7,919)
Long-term debt: --
Senior notes..................................... -- 130,000 130,000
Existing credit facilities....................... 8,663 (100,041) (91,378)
Seller notes..................................... -- (12,221) (12,221)
Seller deferral notes............................ -- 12,500 12,500
Other............................................ -- (5,279) (5,279)
Shareholders' equity............................... (2,285) -- (2,285)
------ -------- -------
Total.......................................... -- -- --
</TABLE>
4. 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) conforming changes in estimated useful
lives and depreciation methods.
F-13
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
b) To record reductions in rent expense related to equipment previously leased,
which was 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 ($1.5 million annually) of goodwill ($59.1
million) arising as a result of applying purchase accounting to the
acquisitions over a 40-year estimated life, net of goodwill amortization
previously recorded by an acquired company.
f) To record a reduction in compensation from historical amounts to amounts
agreed to as a part of the acquisition agreements.
g) To record additional interest expense and related amortization arising from
the financings of the acquisitions, including interest on seller
subordinated notes at 12% and senior debt at rates ranging from 9% to
13.25%.
h) To record the elimination of the adjustment of a redeemable warrant to fair
value; on a pro forma basis, effective January 1, 1997 the warrant was
exchanged for redeemable preferred stock as a part of the financing of
certain of the 1998 acquisitions.
i) To eliminate the effect of the write-off of the stepped-up basis in
inventory arising as a result of the application of purchase accounting.
j) To eliminate other expenses that will not be recurring after the respective
acquisitions.
The following table summarizes the pro forma statement of operations
adjustments necessary to reflect the acquisition of the Acquired Companies and
financings thereof:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... (3,086) (1,227) 300 148 -- -- -- -- 197 -- (3,668)
Selling, general and
administrative
expenses............... 147 (179) -- -- -- (1,691) -- -- -- (116) (1,839)
Interest expense........ -- -- -- -- -- -- (9,510) -- -- -- (9,510)
Amortization of
goodwill............... -- -- -- -- 555 -- -- -- -- -- 555
Other expense........... -- -- -- -- -- -- -- 455 -- -- 455
</TABLE>
LATEST TWELVE MONTHS ENDED SEPTEMBER 30, 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) conforming changes in estimated useful
lives and depreciation methods.
b) To record adjustments to rent expense related to acquired equipment
previously leased, and leased facilities owned by an acquired company
previously
c) To record the amortization ($1.5 million annually) of goodwill ($59.1
million) arising as a result of applying purchase accounting to the
acquisition over a 40-year estimated life, net of goodwill amortization
previously recorded by an acquired company.
F-14
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d) To record a reduction in compensation from historical amounts to amounts
agreed to as a part of the acquisition agreements.
e) 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%.
f) To eliminate other expenses that will not be recurring after the respective
acquisitions.
g) To record (1) 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 ($455,000), and (2) to eliminate the loss on the sale of a
building as a result of an acquisition ($1.2 million).
h) To eliminate the effect of the write-off of the stepped-up basis in
inventory arising as a result of the application of purchase accounting.
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) ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... (815) (1,864) -- -- -- -- -- (454) (3,133)
Selling, general and
administrative
expenses............... -- (280) -- (820) -- (64) -- -- (1,164)
Interest expense........ -- -- -- -- (3,629) -- -- -- (3,629)
Amortization of
goodwill............... -- -- 524 -- -- -- -- -- 524
Other expense........... -- -- -- -- -- -- 1,654 -- 1,654
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 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 (c below), and (3) conforming changes in estimated useful
lives and depreciation methods.
b) To record adjustments to 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, and equipment previously leased by acquired
companies which was purchased in the acquisitions.
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 record a reduction in compensation from historical amounts to amounts
agreed to as a part of the acquisition agreements.
g) To eliminate the effect of the write-off of the stepped-up basis in
inventory arising as a result of the application of purchase accounting.
F-15
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(h) To eliminate other expenses that will not be recurring after the respective
acquisitions.
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, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) (H) ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of sales........... (968) (578) -- -- -- -- (124) -- (1,670)
Selling, general and
administrative
expenses............... (101) (106) -- -- -- (269) -- (90) (566)
Interest expense........ -- -- -- (2,419) -- -- -- -- (2,419)
Amortization of
goodwill............... -- -- 365 -- -- -- -- -- 365
Other expense........... -- -- -- -- 1,199 -- -- -- 1,199
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 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 (c) below), and (3) conforming changes in estimated useful
lives and depreciation methods.
(b) To record adjustments to 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, and equipment previously leased by acquired
companies which was purchased in the acquisitions.
(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 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 8.2% to
13.25%.
(e) To record a reduction in compensation from historical amounts to amounts
agreed to as part of the acquisition agreements.
(f) To eliminate historical write off of the stepped up basis of inventory for
purchase accounting.
The following table summarizes the pro forma statement of operations
adjustments necessary to reflect the acquisitions of the Acquired Companies and
financings thereof:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of sales...................... (220) (174) -- -- -- (57) (451)
Selling, general and administrative
expenses.......................... -- (61) -- -- (92) -- (153)
Interest expense................... -- -- -- (478) -- -- (478)
Amortization of goodwill........... -- -- 74 -- -- -- 74
</TABLE>
5. PRO FORMA INITIAL OFFERING AND OFFERING ADJUSTMENTS -- STATEMENT OF
OPERATIONS (ALL PERIODS)
(a) To record the elimination of the adjustment of the redeemable warrant to
fair value; on a pro forma basis, the warrant was exercised and shares of
Common Stock were issued effective January 1, 1997.
F-16
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 Initial
Offering.
(c) To record the increase in interest expense, including deferred loan cost
amortization, from the refinancing of debt contemplated by the Offering.
Pro forma interest expense assuming the Acquisitions, the Initial
Offering, and this offering of the notes is as follows on an annual basis:
<TABLE>
<CAPTION>
SENIOR SELLER
NOTES NOTES OTHER TOTAL
-------- ------- ------ --------
<S> <C> <C> <C> <C>
Principal amount........................... $130,000 $16,353 $3,338 $149,691
========
Interest rate.............................. 11.5% 12.0% 11.0%
-------- ------- ------
Annual cash interest....................... $ 14,950 $ 1,962 $ 367 $ 17,280
======== ======= ====== ========
Amortization of deferred financing costs:
Notes offering............................. $ 629
Previous financings........................ 516
--------
$ 1,145
========
</TABLE>
(d) To record the income tax effect of all of the above adjustments indicated
in Note 4 and Note 5 (a) through (c); income tax expense is provided at a
combined 43% rate, reflecting federal and state taxes at the estimated
statutory rates adjusted for nondeductible goodwill. Income tax benefits
were not assumed for the year ended December 31, 1997 or for the latest
twelve months ended September 30, 1998, as pre-tax losses were incurred in
those periods.
6. PRO FORMA EARNINGS PER SHARE
Basic earnings per share ("EPS") are computed by dividing net earnings
(loss) less the preferred stock dividend requirement and discount accretion by
the weighted-average number of common shares outstanding (4,000,000 in 1997);
as adjusted for the Initial Offering, outstanding shares also include
3,400,000 shares issued by the Company in the Initial Offering; 266,664 shares
issued to a warrant holder in April, 1998 (200,000 shares of which were sold
in the Initial Offering), and 213,333 shares issued in connection with the
Golden Rule Acquisition.
Diluted EPS are computed assuming the conversion or exercise of dilutive
potential equity instruments. In the calculation of pro forma Diluted EPS,
conversion of the Series A Preferred Stock is not assumed because of its
antidilutive effect. Exercise of the option effect of the deferred
compensation contracts is not assumed in the pro forma calculation because the
effect would have been antidilutive. Exercise of employee stock options is not
assumed because the effect, using the treasury stock method, would have been
antidilutive.
F-17
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the numerator and denominator of EPS calculations
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
----------------- -------------------- ------------------ -----------------
LATEST TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED NINE MONTHS ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30,1998
----------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net earnings (loss)..... $ (4,137) $ (304) $ 779 $ 634
Less preferred stock
dividend requirement... 114 114 86 28
Less accretion of
preferred stock
discount............... 116 116 87 29
---------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders........... $ (4,367) $ (534) $ 606 $ 577
========== ========== ========== ==========
Basic-Average shares
outstanding............ 7,879,997 7,879,997 7,879,997 7,879,997
========== ========== ========== ==========
Basic EPS........... $ (0.55) $ (0.07) $ 0.08 $ 0.07
========== ========== ========== ==========
Diluted:
Average shares
outstanding.......... 7,879,997 7,879,997 7,879,997 7,879,997
Assumed exercise of
warrant.............. 220,000 220,000 220,000
---------- ---------- ---------- ----------
7,879,997 8,099,997 8,099,997 8,099,997
========== ========== ========== ==========
Diluted EPS......... $ (0.55) $ (0.07) $ 0.07 $ 0.07
========== ========== ========== ==========
</TABLE>
7. OTHER MATTERS
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 $765,000 related to employment arrangements with
certain officers. Since these arrangements were not directly related to the
acquisitions, the Initial Offering, or the Offering, the provision has not
been eliminated from the pro forma condensed consolidated balance sheet or
statement of operations.
F-18
<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 LLP
Memphis, Tennessee
April 7, 1998, except as to the third
paragraph of Note 1, which is as of
May 14, 1998.
F-19
<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 PLC
Memphis, Tennessee
March 20, 1998
F-20
<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-21
<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
administrative 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
valuation 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
(expense), net....... (223,468) (263,685) (347,644) (3,577,514)
----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (295,572) 333,742 (1,247,937) (3,799,429)
Income tax expense
(benefit)................ (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-22
<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-
incorporation........ (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-23
<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-24
<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-25
<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-26
<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 16 "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-27
<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 by
substantially all of the Company's tangible and intangible assets. The Term
Loans are subject to various covenants, including limits on dividends
(including distributions from Premier Graphics, Inc. to Master Graphics, Inc.),
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-28
<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 16).
(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-29
<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-30
<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-31
<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-32
<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 April, 1998, the holder exercised the
warrant and was issued 266,664 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-33
<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.
F-34
<PAGE>
MASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) PREMIER GRAPHICS, INC.
Following is summarized financial information as of and for the six months
ended December 31, 1997 of Premier Graphics, Inc., a wholly-owned subsidiary
of the Company formed in June, 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Balance sheet information:
Current assets.............................................. $ 24,657
Property, plant and equipment............................... 29,351
Goodwill, net............................................... 27,653
Other non-current assets.................................... 26,992
--------
Total assets.............................................. $108,653
========
Current liabilities, including current installments of long-
term debt of $3,834........................................ 15,044
Long-term debt, net......................................... 46,793
Other liabilities........................................... 2,049
--------
Total liabilities......................................... 63,886
Stockholder's equity........................................ 44,767
--------
Total liabilities and stockholder's equity................ $108,653
========
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
1997
------------
<S> <C>
Statement of operations data:
Net revenue................................................. $ 32,394
Gross profit................................................ 5,926
Operating income............................................ 1,248
Net loss.................................................... (2,471)
</TABLE>
(16) 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-35
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
ASSETS (UNAUDITED)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 0
Trade accounts receivable, net................................. 37,188
Inventories:
Raw materials and supplies................................... 3,348
Work-in-process.............................................. 6,027
--------
Total inventories.......................................... 9,375
Deferred income taxes.......................................... 162
Other current assets........................................... 2,498
--------
Total current assets......................................... 49,223
Property, plant and equipment, net............................... 71,494
Goodwill, net.................................................... 53,765
Deferred loan costs, net......................................... 1,073
Other............................................................ 1,070
--------
Total assets................................................... $176,625
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt......................... $ 6,768
Accounts payable............................................... 8,793
Accrued expenses............................................... 6,628
--------
Total current liabilities.................................... 22,189
Long-term debt, net of current installments...................... 112,703
Deferred income taxes............................................ 3,541
Other liabilities................................................ 1,153
Redeemable preferred stock....................................... 1,408
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock ($0.001 par value; 100,000,000 shares authorized;
7,879,997 shares issued and outstanding at September 30,
1998)......................................................... 8
Additional paid-in capital..................................... 40,164
Retained earnings (deficit).................................... (4,541)
--------
Total shareholders' equity................................... 35,631
--------
Total liabilities and shareholders' equity................... $176,625
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1997 1998
--------- ----------
(UNAUDITED)
<S> <C> <C>
Net revenue.............................................. $ 19,683 $ 109,935
Cost of revenue.......................................... 15,723 81,183
--------- ----------
Gross profit........................................... 3,960 28,752
Selling, general and administrative expenses............. 3,634 19,099
--------- ----------
Operating income....................................... 326 9,653
Other income (expense):
Interest expense....................................... (1,067) (7,126)
Other, net............................................. (366) 532
--------- ----------
Income (loss) before income taxes and extraordinary
loss................................................ (1,107) 3,059
Income tax expense (benefit)............................. 25 (4)
--------- ----------
Net earnings (loss) before extraordinary loss.......... (1,132) 3,063
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $1,458...................... 0 (2,098)
--------- ----------
Net earnings (loss).................................... $ (1,132) $ 965
========= ==========
Basic earnings per share:
Net earnings (loss) before extraordinary loss.......... $ (0.28) $ 0.53
Extraordinary loss..................................... 0.00 (0.38)
--------- ----------
Net earnings (loss).................................... $ (0.28) $ 0.15
========= ==========
Diluted earnings per share:
Net earnings (loss) before extraordinary loss.......... $ (0.28) $ 0.50
Extraordinary loss..................................... 0.00 (0.35)
--------- ----------
Net earnings (loss).................................... $ (0.28) $ 0.15
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................... $ (1,132) $ 965
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 926 4,334
Extraordinary loss on extinguishment of debt, net of
income tax benefit.................................. 0 2,098
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Trade accounts receivable.......................... (916) (7,390)
Inventories........................................ (192) 1,418
Other assets....................................... (644) (544)
Accounts payable................................... 651 (2,156)
Accrued expenses................................... 585 (649)
--------- ---------
Net cash used in operating activities............ (722) (1,924)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired............ (28,329) (83,059)
Purchases of equipment................................. (4,533) (867)
Repayment of shareholder note receivable............... 0 3,895
--------- ---------
Net cash used in investing activities............ (32,862) (80,031)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on lines of credit......... (111) 5,301
Proceeds from issuance of long-term debt............... 36,249 76,316
Net proceeds from initial public offering of stock..... 0 30,087
Issuance of common stock to finance acquisitions....... 0 1,280
Principal payments on long-term debt................... (1,973) (31,453)
Loan costs incurred.................................... (777) (750)
--------- ---------
Net cash provided by in financing activities..... 33,388 80,781
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................ (196) (1,174)
CASH AND CASH EQUIVALENTS, beginning of period........... (91) 1,174
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ (287) $ 0
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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.
The results of operations for the periods presented are not necessarily
indicative of the results of operations for a full fiscal year.
Effective January 1, 1998, the company changed its fiscal year-end to
December 31. Prior to 1998, the company's fiscal year ended on June 30.
Comparative nine-month financial information for 1997 contained herein has
been restated on a December 31 year-end basis.
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 unaudited 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) EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net earnings less
preferred stock dividend and discount accretion by the weighted average number
of common shares outstanding. For the nine months ended September 30, 1997 and
1998, the basic weighted average shares outstanding were 4,000,000 and
5,540,413, respectively. Conversion of the preferred stock is not assumed in
the diluted earnings per share calculations as the effect is anti-dilutive on
an incremental basis. Exercise of employee stock options and certain other
warrants are not assumed because their effect would be anti-dilutive using the
treasury stock method. For the nine months ended September 30, 1997 and 1998,
the diluted weighted average shares outstanding were 4,093,772 and 5,919,162
respectively.
<TABLE>
<CAPTION>
INCOME
(NUMERATOR) SHARES PER-SHARE
NINE MONTHS ENDED SEPTEMBER 30, 1998 (000'S) (DENOMINATOR) AMOUNT
------------------------------------ ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings before extraordinary loss..... $3,063
Less: Redeemable preferred stock divi-
dends..................................... (56)
Less: Redeemable preferred stock discount.. (58)
------
Basic Earnings Per Share................... 2,949 5,540,413 $0.53
=====
Effect of Dilutive Securities
Lender Warrants............................ 278,749
Deferred compensation contract............. 31 100,000
------ ---------
Diluted Earnings Per Share................. $2,980 5,919,162 $0.50
====== ========= =====
</TABLE>
F-39
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
INCOME
(NUMERATOR) SHARES PER-SHARE
NINE MONTHS ENDED SEPTEMBER 30, 1997 (000'S) (DENOMINATOR) AMOUNT
------------------------------------ ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings before extraordinary loss..... $(1,132)
Less: Redeemable preferred stock divi-
dends..................................... 0
Less: Redeemable preferred stock discount.. 0
-------
Basic earnings per share................... (1,132) 4,000,000 $ (.28)
======
Effect of Dilutive Securities
Lender warrants............................ 0 0
Deferred compensation contract............. 0 0
------- ---------
Diluted earnings per share................. $(1,132) 4,000 000 $ (.28)
======= ========= ======
</TABLE>
(3) 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), sellers notes ($2.3
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 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 $61,000). The
acquisition has been accounted for by the purchase method and, accordingly, the
results of its operations have been included in the Company's 1998 consolidated
financial statements from the date of acquisition. There was no goodwill
recognized from this acquisition.
In August 1998, the Company acquired all of the outstanding common stock of
Rainbow Group, Inc. (dba "Golden Rule Printing"), a general commercial printer
along with certain operating assets owned by a related entity. The acquisition
was paid for with a combination of cash ($4.1 million) and common stock ($1.28
million). The acquisition has been accounted for by the purchase method, and,
accordingly, the results of its operations have been included in the Company's
1998 consolidated financial statements from the date of acquisition. The excess
of the purchase price over the fair value of the net identifiable assets
acquired is approximately $5 million, which has been recorded as goodwill and
is being amortized on a straight-line basis over 40 years.
In September 1998, the Company acquired all of the outstanding common stock
of David A. Harding Enterprises, Inc. (d/b/a "The Printing Company") and
Stephenson Incorporated. Both of these businesses are engaged in commercial
printing. These acquisitions were paid for with cash ($13.7 million). These
acquisitions have been accounted for by the purchase method, and, accordingly,
the results of operations of the Printing Company and Stephenson have been
included in the Company's 1998 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 $6.6 million,
which has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years.
F-40
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
The cash portion of the Hederman and McQuiddy acquisitions were funded by
draws of $5.9 million and $7.9 million, respectively, on the Company's
acquisition line of credit under its Amended and Restated Credit Agreement, as
well as a $1.1 million draw under the Company's revolving line of credit. The
cash portions of the Phillips and Harperprints acquisitions were funded by two
separate $15.0 million and $10.0 million term loans, both of which were repaid
with proceeds from the Company's initial public offering of common stock.
In August 1998, the Company entered into a Second Amended and Restated Loan
and Security Agreement (the "Credit Agreement") whereby the $60.0 million
outstanding was restructured with quarterly principal payments ranging from
$1.1 million in the first year to $1.7 million in year five with the entire
balance due in August 2003. In addition, the Credit Agreement was amended to
add a $30 million acquisition line of credit. The interest rate varies from
LIBOR plus 2.5% to LIBOR plus 3.00%. In addition, the Company entered into a
new $15.0 million Revolving Credit and Letter of Credit Facility (the
"Revolving Line of Credit"). The Revolving Line of Credit is due in August 2001
and has an interest rate of LIBOR plus 2.5% or Prime Rate.
The cash portion of the Golden Rule acquisition was funded by an $8 million
draw from the Company's acquisition line of credit. The cash portion of the
Stephenson acquisition was funded by at $22 million draw from the Company's
acquisition line of credit. The cash portion of The Printing Company
acquisition was funded by at $4.4 million draw from the Company's Revolving
Line of Credit as well as approximately $2 million in cash from the Company.
The Company and its Senior Lender also effectively entered into an exchange
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 accrued. The Series A Preferred
Stock is convertible into common stock at the holder's option at a ratio of 1
share of common stock per each share of Series A Preferred Stock. The Series A
Preferred Stock is redeemable by the holder at the end of seven years 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 Series A
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 $1.35 million) and is subsequently being accreted to
its mandatory redemption value.
In June 1998, the Company completed an initial public offering of 3,400,000
shares ($.001 par value; 100,000,000 shares authorized) of common stock at
$10.00 per share. In addition, another 200,000 shares were offered by a selling
shareholder of the Company. Proceeds of the initial public offering were used
to repay indebtedness owed to the selling shareholder, to repay a portion of
the indebtedness owed to its Senior Lender and to pay acquisition advisory fees
deferred until the completion of the offering. The repayment of indebtedness
totaled $29.5 million and includes the $10 million Harperprints term loan, the
$15 million Phillips Litho term loan, and the $4.3 million Sirrom loan. The
write-off of the related deferred loan costs ($.6 million) and unamortized debt
discounts ($3.0 million) has been recorded as a $2.1 million extraordinary
expense, net of tax of $1.5 million.
(4) LENDER WARRANTS
In connection with the obtaining of the Harperprints acquisition financing,
the Company issued to its Senior Lender a warrant to acquire 220,000 shares of
common stock. The warrant expires, if unexercised, on September 26, 2007. The
Senior Lender was granted demand and piggyback registration rights. The Company
F-41
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
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 paid-in capital. The initial fair market value of the
lender's warrant was netted against the related debt and was being amortized as
a component of interest expense over the life of the debt. As discussed above
in note 3, the remaining unamortized discount was written off upon the
extinguishment 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 the exercise, the carrying value of the Sirrom warrant was reclassified
to additional paid-in capital.
(5) LONG-TERM DEBT
The following is a summary of the Company's long-term debt instruments (in
thousands) as of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
Term loans, net of discount of $1,029.......................... $ 88,951
Seller notes................................................... 16,084
Revolving line of credit....................................... 5,809
Other.......................................................... 8,627
--------
119,471
Less current installments...................................... 6,768
--------
Long-term debt, net............................................ $112,703
========
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the Company's property, plant and equipment (in
thousands) as of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
Land........................................................... $ 489
Buildings...................................................... 3,637
Leasehold improvements......................................... 1,103
Machinery and equipment........................................ 70,312
Furniture and fixtures......................................... 3,291
Vehicles....................................................... 1,402
-------
80,234
Less accumulated depreciation.................................. 8,740
-------
$71,494
=======
</TABLE>
(7) RELATED PARTY TRANSACTIONS
In June 1998, the sole shareholder prior to the Company's initial public
offering repaid a promissory note of $2.8 million, a note payable of $950,000
and accrued interest on the obligations.
F-42
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(8) INCOME TAXES
The deferred tax asset valuation allowance has been reduced by approximately
$1,300,000 during the nine months ended September 30, 1998. Management has
concluded that it is more likely than not that a portion of the previously
reserved deferred tax asset will be realized based on consideration of current
levels of taxable operating income and projections of future taxable income.
(9)WHOLLY-OWNED SUBSIDIARIES
Following is summarized financial information of Premier Graphics, Inc. and
Harperprints, Inc., the wholly-owned subsidiaries of the Company; balance sheet
information is as of September 30, 1998, and statement of operations data is
for the nine months then ended for Premier Graphics, Inc. and for the six
months then ended for Harperprints (acquired by the Company effective March 31,
1998).
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------
PREMIER
GRAPHICS, HARPERPRINTS,
INC. INC.
--------- -------------
<S> <C> <C>
Balance sheet information:
Current assets........................................ $ 44,723 $ 2,456
Property, plant, and equipment........................ 66,531 4,700
Goodwill, net......................................... 49,245 3,321
Other non-current assets.............................. 39,246 --
-------- -------
Total assets......................................... $199,744 $10,477
======== =======
Current liabilities................................... 21,452 888
Long-term debt, net................................... 91,425 44
Other liabilities..................................... 1,894 440
-------- -------
Total liabilities.................................... 114,771 1,372
Stockholder's equity.................................. 84,973 9,105
-------- -------
Total liabilities and stockholder's equity........... $199,744 $10,477
======== =======
Statement of operations data:
Net revenue........................................... $101,098 $ 6,681
Gross profit.......................................... 27,267 2,053
Operating income ..................................... 11,016 1,235
Net earnings.......................................... 3,156 976
</TABLE>
F-43
<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 LLP
Memphis, Tennessee
March 6, 1998
F-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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 LLP
Memphis, Tennessee
February 18, 1998
F-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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 LLP
Memphis, Tennessee
March 5, 1998
F-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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 LLP
Memphis, Tennessee
March 6, 1998
F-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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 LLP
Memphis, Tennessee
March 6, 1998
F-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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-86
<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-87
<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-88
<PAGE>
MCQUIDDY PRINTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
--------------------- ----------
1996 1997 1998
---------- ---------- ----------
AUDITED UNAUDITED
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 1).......... $ 240,548 37,759 132,805
Receivables:
Trade accounts, less allowance for
doubtful accounts........................ 2,768,626 3,327,517 2,501,305
Inventories (notes 1 and 2)................. 1,379,486 1,022,100 1,428,184
Prepaid expenses and deposits............... 184,328 127,980 35,606
Income taxes receivable (note 5)............ 109,765 31,057 182,208
Deferred income taxes--current (note 5)..... 55,312 110,721 66,124
---------- ---------- ----------
Total current assets.................... 4,738,065 4,657,134 4,346,232
---------- ---------- ----------
Property, plant and equipment, net (notes 1, 3
and 4)....................................... 3,340,244 5,589,759 5,912,363
Other assets:
Notes receivable............................ 3,584 3,584 --
Investment ................................. 67,448 34,951 --
Cash surrender value of officers' life
insurance (note 9)......................... 335,445 396,513 394,379
---------- ---------- ----------
Total other assets...................... 406,477 435,048 394,379
---------- ---------- ----------
$8,484,786 10,681,941 10,652,974
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note
4)......................................... $ 528,625 867,242 1,054,551
Accounts payable............................ 445,816 601,273 788,392
Accrued liabilities......................... 325,641 356,879 336,318
Income taxes payable........................ -- -- 15,512
---------- ---------- ----------
Total current liabilities............... 1,300,082 1,825,394 2,194,773
---------- ---------- ----------
Deferred income taxes (note 5)................ 192,412 270,261 309,185
Long-term debt (note 4)....................... 2,349,742 3,655,679 3,024,420
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 6,193,131
---------- ---------- ----------
7,062,831 7,190,880 7,264,670
---------- ---------- ----------
Less reduction in stockholders' equity for
note payable of 401(k) and Employee Stock
Ownership Plan (notes 5 and 7)............. 773,332 613,324 493,125
Less treasury stock, at cost................ 1,646,949 1,646,949 1,646,949
---------- ---------- ----------
Total stockholders' equity.............. 4,642,550 4,930,607 5,124,596
---------- ---------- ----------
$8,484,786 10,681,941 10,652,974
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Sales................... $15,680,821 15,574,308 16,583,201 12,176,357 13,205,659
Cost of sales........... 12,176,152 12,558,905 13,145,115 9,849,054 10,609,706
----------- ---------- ---------- ---------- ----------
Gross profit........ 3,504,669 3,015,403 3,438,086 2,327,303 2,595,953
Selling, general and
administrative
expenses............... 2,589,315 2,605,816 2,741,593 1,978,482 2,236,820
----------- ---------- ---------- ---------- ----------
Earnings from
operations......... 915,354 409,587 696,493 348,821 359,133
Other income (expenses),
net.................... 466,367 (170,451) (483,848) (374,717) (229,812)
----------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
for income taxes... 1,381,721 239,136 212,645 (25,896) 129,321
Income taxes (note 6):
Current provision..... 563,949 52,416 62,156 -- 49,090
Deferred benefit...... 6,470 87,107 22,440 (3,522) 6,436
----------- ---------- ---------- ---------- ----------
Total income taxes.. 570,419 139,523 84,596 (3,522) 55,526
----------- ---------- ---------- ---------- ----------
Net earnings
(loss)............. $ 811,302 99,613 128,049 (22,374) 73,795
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
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) (1,646,949) (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 (22,374) 73,790
Increase (reduction)
in Equity for ESOP
note................. -- (773,332) 160,008 120,007 120,199
Dividends paid........ (33,924) (8,479) -- -- --
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,740,183 5,124,596
=========== ========== ========== ========== ==========
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 5,968,919 6,193,131
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) (653,326) (493,125)
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,740,183 5,124,596
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE>
MCQUIDDY PRINTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings........... $ 811,302 99,613 128,049 (22,374) 73,795
---------- --------- ---------- ---------- ---------
Adjustments to
reconcile net earnings
to net cash provided
by operating
activities:
Depreciation........... 844,216 735,348 788,839 549,712 625,054
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 (3,522) 83,520
Gain on sale of
property.............. (638,314) (2,601) (8,700) 8,100 --
(Increase) decrease in
accounts receivable... 329,057 (465,139) (558,891) 532,729 826,212
(Increase) decrease in
investment in joint
venture............... (61,950) (5,498) 32,497 31,508 34,951
(Increase) decrease in
income taxes
receivable............ -- (109,765) 78,708 11,745 (151,151)
(Increase) decrease in
inventory............. (924,607) 276,487 357,386 379,998 (406,084)
(Increase) decrease in
prepaid expenses and
deposits.............. (729) (122,011) 56,348 151,515 92,374
Increase (decrease) in
accounts payable...... (209,647) 73,293 155,457 93,370 187,119
Increase (decrease) in
accrued liabilities... 121,540 (62,464) 31,238 (14,048) (20,561)
Increase (decrease) in
income taxes payable.. 346,605 (359,240) -- 680 15,512
---------- --------- ---------- ---------- ---------
Total adjustments..... (88,654) 82,460 955,322 1,741,787 1,286,946
---------- --------- ---------- ---------- ---------
Net cash provided by
operating
activities........... 722,648 182,073 1,083,371 1,719,413 1,360,741
---------- --------- ---------- ---------- ---------
Cash flows from
investing activities:
(Increase) decrease in
cash surrender value
of officers' life
insurance............. (8,161) (57,639) (61,068) (42,534) 2,134
Purchase of property,
plant and equipment... (757,137) (512,970) (3,038,354) (2,989,525) (947,663)
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) (3,032,059) (941,945)
---------- --------- ---------- ---------- ---------
Cash flows from
financing activities:
Proceeds from the
issuance of ESOP
note.................. -- 800,000 -- -- --
Increase (reduction) in
equity for ESOP note
payable............... -- (773,332) 160,008 120,006 120,199
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) (427,959) (692,625)
Dividends paid......... (33,923) (8,479) -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
(used in) financing
activities........... (744,134) (505,321) 1,804,562 1,910,947 (323,750)
---------- --------- ---------- ---------- ---------
Net increase (decrease)
in cash................ (48,334) (894,840) (202,789) 598,301 95,046
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 37,759 838,849 132,805
========== ========= ========== ========== =========
Supplemental disclosures
of cash flows
information:
Cash paid (received)
during the year for:
Interest............... $ 208,972 186,892 314,585 230,723 237,992
Income taxes........... 211,179 496,490 (98,020) -- --
========== ========= ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-92
<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-93
<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, MARCH 31,
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Raw materials:
Paper....................................... $ 969,993 549,400 552,868
Bindery materials........................... 6,509 2,965 4,204
Litho materials............................. 6,160 6,775 14,830
Ink......................................... 517 1,854 32,313
Indigo...................................... -- -- 5,271
---------- --------- ---------
983,179 560,994 609,486
Manufactured stock.......................... 37,593 49,367 47,756
Work in process............................. 291,603 379,135 601,757
Finished goods.............................. 67,111 32,604 169,185
---------- --------- ---------
$1,379,486 1,022,100 1,428,184
========== ========= =========
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
AUDITED UNAUDITED
------------------------ ----------
JUNE 30, JUNE 30, MARCH 31,
1996 1997 1998
----------- ----------- ----------
<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 13,041,595
Furniture and fixtures.................. 374,658 405,569 535,281
Automobiles and trucks.................. 87,629 54,779 54,778
----------- ----------- ----------
11,958,753 14,488,636 15,429,918
Less accumulated depreciation........... (8,618,509) (8,898,877) 9,517,555
----------- ----------- ----------
$ 3,340,244 5,589,759 5,912,363
=========== =========== ==========
</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 $549,712 and $625,054 for the nine months ended
March 31, 1997 and 1998 using principally accelerated methods.
F-94
<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 UNAUDITED
-------------------- ---------
JUNE 30, JUNE 30, MARCH 31,
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
SunTrust Bank Equipment note................ $ -- 2,218,900 2,003,174
SunTrust Bank--ESOP note payable............ 773,332 613,324 493,125
Capital lease obligation--Fleet Credit
Corporation................................ -- -- --
Capital lease obligation--NationsBanc
Leasing Corporation........................ 2,105,035 1,690,697 1,360,069
PBCC lease.................................. -- -- 222,603
---------- --------- ---------
2,878,367 4,522,921 4,078,971
Less current maturities..................... 528,625 867,242 1,054,551
---------- --------- ---------
$2,349,742 3,655,679 3,024,420
========== ========= =========
</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 March 31, 1998 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, MARCH 31,
1997 1998
---------- ---------
AUDITED UNAUDITED
<S> <C> <C>
1998.................................................... $ 867,242 --
1999.................................................... 961,331 1,054,551
2000.................................................... 1,252,795 1,496,400
2001.................................................... 484,102 484,133
2002.................................................... 484,102 484,127
Thereafter.............................................. 473,349 559,760
---------- ---------
$4,522,921 4,078,971
========== =========
</TABLE>
F-95
<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>
JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Federal:
Current..................... $471,886 46,127 56,093 -- 41,331
Deferred.................... 5,423 74,167 49,836 (2,965) 5,419
State:
Current..................... 92,063 (379) 6,063 -- 7,759
Deferred.................... 1,047 19,608 (27,396) (557) 1,017
-------- ------- ------- ------ ------
$570,419 139,523 84,596 (3,522) 55,526
======== ======= ======= ====== ======
</TABLE>
A reconciliation of the "expected" tax expense computed at the federal
statutory rate of 34% to actual expense is as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit)........... $469,786 81,306 72,300 (9,830) 43,969
State income tax (benefit),
net of federal income tax
benefits and industrial
excise tax credit......... 61,453 12,691 (29,983) (1,025) 9,108
Other, net................. 39,180 45,526 42,279 7,333 2,449
-------- ------- ------- ------ ------
Actual tax expense........... $570,419 139,523 84,596 (3,522) 55,526
======== ======= ======= ====== ======
</TABLE>
F-96
<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, MARCH 31,
1996 1997 1998
--------- -------- ---------
AUDITED UNAUDITED
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts--current.. $ 55,312 66,252 66,252
Industrial machinery credit carryforward--
current.................................. -- 44,469 (128)
--------- -------- --------
55,312 110,721 66,124
Deferred tax liabilities:
Depreciation--long-term................... 192,412 270,261 309,185
--------- -------- --------
Net deferred tax liability.............. $(137,100) (159,540) (243,061)
========= ======== ========
</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 nine months ended March 31, 1997 and 1998 were $143,226 and $147,998,
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
March 31, 1998 was $493,125. 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-97
<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, MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C>
$335,445 396,513 394,379
</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 nine months ended
March 31, 1997 and 1998, 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-98
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Phillips Litho Co., Inc.
Springdale, Arkansas
We have audited the accompanying balance sheets of Phillips Litho Co., Inc.
as of December 31, 1996 and 1997, and the related statements of operations,
retained earnings, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the management of Phillips Litho Co., Inc. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phillips Litho Co., Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
S.F. Fiser & Company, P.A.
Springdale, Arkansas
February 19, 1998
F-99
<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-100
<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-101
<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-102
<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-103
<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-104
<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-105
<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-106
<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-107
<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-108
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors Hederman Brothers, Inc.:
We have audited the accompanying balance sheets of Hederman Brothers, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hederman Brothers, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG LLP
Memphis, Tennessee
February 27, 1998
F-109
<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-110
<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-111
<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-112
<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-113
<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-114
<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-115
<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-116
<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-117
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
HARPERPRINTS, INC.
We have audited the accompanying Balance Sheets of HARPERPRINTS, INC. (the
"Company") as of December 31, 1996 and 1997, and the related Statements of
Income, Changes in Stockholders' Equity and Cash Flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the Company's financial position as of December 31, 1996
and 1997, and the results of its operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Becker & Company, P.C.
February 26, 1998, except for Note 14, which is as of March 25, 1998
Lanham, Maryland
F-118
<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-119
<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-120
<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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Premier is incorporated under the laws of the State of Delaware. Section 145
of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys, fees), judgments, fines
and amount paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any person who is, or is threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests except that no indemnification
is permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred. Premier's Certificate of
Incorporation provides for the indemnification of directors and officers of the
Company to the fullest extent permitted by Section 145.
Master Graphics is incorporated under the laws of the State of Tennessee. 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 an 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 Charter (the "Charter") and Bylaws of the Company 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, as amended from time to time, or any subsequent law, rule, or regulation
adopted in lieu thereof. Additionally, the Charter provides that no director of
the Company will be personally liable to the Company or any of its shareholders
for monetary damages for breach of any fiduciary duty except for liability
arising from (i) any breach of a director's duty of loyalty to the Company or
II-1
<PAGE>
its shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any unlawful
distributions, or (iv) receiving any improper personal benefit. The Company has
entered into indemnification agreements with each of the Company's directors
and executive officers.
Harperprints is incorporated under the laws of the State of North Carolina.
Sections 55-8-50 et seq. of the North Carolina Business Corporation Act
prescribe the conditions under which indemnification may be obtained by a
present or former director or officer of the Registrant who incurs expenses or
liability as a consequence of certain proceedings arising out of his or her
activities as a director or officer. Harperprints Charter and Bylaws also
provide for indemnification of directors and officers under certain
circumstances.
Master Graphics has purchased a standard liability policy, which, subject to
any limitations set forth in the policy, indemnifies the directors and officers
of Master Graphics, Premier and Harperprints for damages that they become
legally obligated to pay as a result of any negligent act, error or omission
committed while serving in their official capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
(b) Financial Statement Schedules--Not applicable
(c) Not Applicable
ITEM 22. UNDERTAKINGS
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant for expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect any facts or events arising after the effective date (or
most recent post-effective amendment) which, individually, or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
II-2
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed or any material change to such
information set forth in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8, and the information
required [or] to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to section 13 or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(e) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement-
Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<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 JANUARY 22
1999.
Premier Graphics, Inc.a Delaware
corporation
/s/ John P. Miller
By: _________________________________
JOHN P. MILLER,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John P. Miller and Lance T. Fair, and each or either of them, with full power
to act without the other, his true and lawful attorney-in-fact with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (until revoked in writing), to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto) and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing whatsoever requisite or desirable to be done, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
and agents, or either of them, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John P. Miller President and Director January 22, 1999
______________________________________
JOHN P. MILLER
/s/ Lance T. Fair Secretary January 22, 1999
______________________________________
LANCE T. FAIR
/s/ H. Henry Hederman Director, President January 22, 1999
______________________________________ Hederman Brothers
H. HENRY (HAP) HEDERMAN Division
/s/ Cary Rosenthal Director, President January 22, 1999
______________________________________ Phoenix Division
CARY ROSENTHAL
/s/ Frederick F. Avery Director January 22, 1999
______________________________________
FREDERICK F. AVERY
/s/ Donald L. Hutson Director January 22, 1999
______________________________________
DONALD L. HUTSON
</TABLE>
II-4
<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 JANUARY 22,
1999.
Master Graphics, Inc. a Tennessee
corporation
/s/ John P. Miller
By: _________________________________
JOHN P. MILLER,
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John P. Miller and Lance T. Fair, and each or either of them, with full power
to act without the other, his true and lawful attorney-in-fact with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (until revoked in writing), to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto) and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing whatsoever requisite or desirable to be done, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
and agents, or either of them, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John P. Miller Chief Executive Officer, January 22, 1999
______________________________________ President and Chairman of
JOHN P. MILLER the Board of Directors
/s/ Lance T. Fair Senior Vice President-- January 22, 1999
______________________________________ Acquisitions; Chief
LANCE T. FAIR Financial Officer
/s/ H. Henry Hederman Director, President January 22, 1999
______________________________________ Hederman Brothers
H. HENRY (HAP) HEDERMAN Division
/s/ Cary Rosenthal Director, President January 22, 1999
______________________________________ Phoenix Division
CARY ROSENTHAL
/s/ Frederick F. Avery Director January 22, 1999
______________________________________
FREDERICK F. AVERY
/s/ Donald L. Hutson Director January 22, 1999
______________________________________
DONALD L. HUTSON
</TABLE>
II-5
<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 JANUARY 22,
1999.
Harperprints, Inc.a North Carolina
corporation
/s/ John P. Miller
By: _________________________________
JOHN P. MILLER,
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John P. Miller and Lance T. Fair, and each or either of them, with full power
to act without the other, his true and lawful attorney-in-fact with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (until revoked in writing), to sign any and all
amendments to this Registration Statement (including post-effective amendments
and amendments thereto) and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing whatsoever requisite or desirable to be done, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
and agents, or either of them, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John P. Miller President and Director January 22, 1999
______________________________________
JOHN P. MILLER
/s/ Lance T. Fair Secretary and Director January 22, 1999
______________________________________
LANCE T. FAIR
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Purchase Agreement dated December 11, 1998 by and among Premier
Graphics, Inc., Master Graphics, Inc., Harperprints, Inc., Donaldson
Lufkin & Jenrette Securities Corporation and Morgan Keegan & Company,
Inc.
3.1* Certificate of Incorporation of Premier Graphics, Inc.
3.2* Bylaws of Premier Graphics, Inc.
3.3* Charter of Harperprints, Inc.
3.4* Bylaws of Harperprints, Inc.
3.5+ Charter of Master Graphics, Inc.
3.6+ Bylaws of Master Graphics, Inc.
4.1 Indenture, dated December 11, 1998, among Premier Graphics, Inc., as
issuer, the Guarantors party thereto and United States Trust Company
of New York, as trustee relating to the 11 1/2% Senior Notes due 2005
(the "Indenture")
4.2 Form of 11 1/2% Senior Note due 2005 of Premier Graphics, Inc. (the
"Old Note") (included as Exhibit A to the Indenture filed as Exhibit
4.1)
4.3* Form of 11 1/2% Senior Note due 2005 of Premier Graphics, Inc. (the
"New Note")
4.4 Form of Guarantee of Master Graphics, Inc. and Harperprints (included
as a part of Exhibit A to the Indenture filed as Exhibit 4.1)
4.5 Registration Rights Agreement, dated as of December 11, 1998, by and
among Premier Graphics, Inc., Master Graphics, Inc., Harperprints,
Inc and the Initial Purchasers relating to $130,000,000 aggregate
principal amount of Old Notes.
Opinion of Baker, Donelson, Bearman & Caldwell regarding the legality
5.1 of the New Notes
11.1 Computation of Per Share Earnings
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Premier Graphics, Inc.
23.1 Consent of KPMG LLP
23.2 Consent of Thompson Dunavent PLC
23.3 Consent of Joseph Decosimo and Company, LLP
23.4 Consent of Arthur Anderson LLP
23.5 Consent of Marlin & Edmondson, P.C.
23.6 Consent of S.F. Fiser & Company, P.A.
23.7 Consent of Becker & Company, P.C.
Consent of Baker, Donelson, Bearman & Caldwell (included in its
23.8 opinion filed as Exhibit 5.1)
25.1* Form T-1 with respect to the eligibility of United States Trust
Company of New York with respect to the Indenture
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
99.3 and other Nominees
99.4 Form of Letter to Clients
</TABLE>
- ---------------------
*To be filed by amendment
+ Incorporated by reference to Master Graphics' Registration Statement on Form
S-1 (Registration No. 333-49861)
<PAGE>
EXHIBIT 1.1
PREMIER GRAPHICS, INC.
AND ITS GUARANTORS
$130,000,000
11 1/2% Senior Notes due 2005
PURCHASE AGREEMENT
DECEMBER 8, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
<PAGE>
$130,000,000
11 1/2% Senior Notes Due 2005
PREMIER GRAPHICS, INC.
AND ITS GUARANTORS
PURCHASE AGREEMENT
December 8, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
As Initial Purchasers
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Premier Graphics, Inc., a Delaware corporation (the "Company"), proposes to
-------
issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
---
Prudential Securities Incorporated and Morgan Keegan & Company, Inc. (each, an
"Initial Purchaser" and, collectively, the "Initial Purchasers") an aggregate
- ------------------ ------------------
of $130,000,000 in principal amount of its 11 1/2% Senior Notes due 2005 (the
"Restricted Notes"), subject to the terms and conditions set forth herein. The
- -----------------
Restricted Notes are to be issued pursuant to the provisions of an indenture
(the "Indenture"), to be dated as of the Closing Date (as defined below), among
---------
the Company, the Guarantors (as defined below) and United States Trust Company
of New York, as trustee (the "Trustee"). The Restricted Notes and the Exchange
-------
Notes (as defined below), issuable in exchange therefor, are collectively
referred to herein as the "Notes." The Notes will be guaranteed (the
-----
"Guarantees") initially by Master Graphics, Inc., a Tennessee corporation and
- -----------
the sole parent of the Company, and Harperprints, Inc., a North Carolina
corporation (each, a "Guarantor" and collectively the "Guarantors").
--------- ----------
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
1. Offering Memorandum. The Restricted Notes will be offered and sold to
-------------------
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
---
Company and the Guarantors have prepared a preliminary offering memorandum,
dated November 24, 1998 (the "Preliminary Offering Memorandum"), and a final
-------------------------------
offering memorandum, dated December 8, 1998 (the "Offering Memorandum"),
-------------------
relating to the Restricted Notes and the Guarantees.
1
<PAGE>
Upon original issuance thereof, and until such time as the same is no longer
required pursuant to the Indenture, the Restricted Notes (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. ACCORDINGLY, THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS,
EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B)
IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) TO AN AIA THAT, PRIOR TO
SUCH TRANSFER, FURNISHES THE TRUSTEE WITH A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
2
<PAGE>
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE
OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION
S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
NOTE IN VIOLATION OF THE FOREGOING.
2. Agreements to Sell and Purchase. On the basis of the representations,
-------------------------------
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, the Company agrees to issue and sell to the
Initial Purchasers, and each Initial Purchaser agrees, severally and not
jointly, to purchase from the Company, the principal amount of Restricted Notes
set forth opposite the name of such Initial Purchaser on Schedule A HERETO AT A
PURCHASE PRICE EQUAL TO 97% OF THE PRINCIPAL AMOUNT THEREOF (THE "PURCHASE
--------
PRICE").
3. Terms of Offering. The Initial Purchasers have advised, and represent
-----------------
and warrant to, the Company that the Initial Purchasers will make offers and
sales (the "Exempt Resales") of the Restricted Notes purchased hereunder on the
--------------
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to (i) persons whom the Initial Purchasers reasonably believe to be "qualified
institutional buyers" ("QIBs"), and (ii) to persons permitted to purchase the
----
Restricted Notes in offshore transactions in reliance upon Regulation S under
the Act (each a "Regulation S Purchaser") (QIB's and Regulation S Purchasers
----------------------
being referred to herein as the "Eligible Purchasers"). The Initial Purchasers
-------------------
will offer the Restricted Notes to Eligible Purchasers initially at a price
equal to the percentage of the principal amount thereof set forth on the cover
page of the Offering Memorandum.
Holders (including subsequent transferees) of the Restricted Notes
will have the registration rights set forth in the registration rights agreement
(the "Registration Rights Agreement"), to be dated the Closing Date, in
-----------------------------
substantially the form of Exhibit A hereto, for so long as such Restricted Notes
constitute "Transfer Restricted Securities" (as defined in the Registration
------------------------------
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
and the Guarantors will agree to file with the Securities and Exchange
Commission (the "Commission") under the circumstances set forth therein (i) a
----------
registration statement under the Act (the "Exchange Offer Registration
---------------------------
Statement") relating to the Company's 11 1/2% Senior Notes due 2005 (the
"Exchange Notes"), to be offered in exchange for the Restricted Notes (such
- ---------------
offer to exchange being referred to as the "Exchange Offer") and the Guarantees
--------------
thereof and/or (ii) a shelf registration statement pursuant to Rule 415 under
the Act (the "Shelf Registration Statement" and, together with the Exchange
----------------------------
Offer Registration Statement, the "Registration Statements") relating to the
-----------------------
resale by certain holders of the Restricted Notes and to use its reasonable best
efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer. This Agreement, the Indenture,
the Notes, the Guarantees and the Registration Rights Agreement are herein
referred to collectively as the "Operative Documents."
-------------------
3
<PAGE>
4. Delivery and Payment.
--------------------
(a) Delivery of, and payment of the Purchase Price for, the
Notes shall be made at the offices of Baker, Donelson, Bearman & Caldwell,
Memphis, Tennessee, or such other location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m. New York City time, on December
11, 1998 or at such other time or date as shall be agreed upon by the Initial
Purchasers and the Company in writing. The time and date of such delivery and
the payment for the Notes are herein called the "Closing Date."
------------
(b) One or more of the Restricted Notes in definitive global
form, registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
---
aggregate principal amount of the Restricted Notes (collectively, the "Global
------
Notes"), shall be delivered by the Company to the Initial Purchasers (or as the
- ------
Initial Purchasers direct) in each case with any transfer taxes thereon duly
paid by the Company against payment by the Initial Purchasers of the Purchase
Price thereof by wire transfer in same day funds to the order of the Company.
The Global Notes shall be made available to the Initial Purchasers for
inspection not later than 9:30 a.m., New York City time, on the business day
immediately preceding the Closing Date.
5. Agreements of the Company and the Guarantors. Each of the Company and
---------------------------------------------
the Guarantors hereby agrees with the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Restricted Notes for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(e) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose and (ii) of the happening of any event during the period
referred to in Section 5(c) below that makes any statement of a material fact
made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or
that requires any additions to or changes in the Preliminary Offering Memorandum
or the Offering Memorandum in order to make the statements therein not
misleading. The Company and the Guarantors shall use their best efforts to
prevent the issuance of any stop order or order suspending the qualification or
exemption of any Restricted Notes under any state securities or Blue Sky laws
and, if at any time any state securities commission or other federal or state
regulatory authority shall issue an order suspending the qualification or
exemption of any Restricted Notes under any state securities or Blue Sky laws,
the Company and the Guarantors shall use their best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchasers may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchasers'
compliance with their representations and warranties and agreements set forth in
Section 7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection with
Exempt Resales.
(c) During such period as in the opinion of counsel for the
Initial Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers and in connection with
market-making activities of the Initial Purchasers for so long as any Restricted
Notes are outstanding, (i) not to make any amendment or supplement to the
Offering
4
<PAGE>
Memorandum of which the Initial Purchasers shall not previously have been
advised or to which the Initial Purchasers shall reasonably object after being
so advised and (ii) to prepare promptly upon the Initial Purchasers' reasonable
request based on the opinion of its counsel, any amendment or supplement to the
Offering Memorandum which may be necessary or advisable in connection with such
Exempt Resales or such market-making activities.
(d) If, during the period referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Restricted Notes pursuant to
Exempt Resales as contemplated hereby, to cooperate with the Initial Purchasers
and counsel to the Initial Purchasers in connection with the registration or
qualification of the Restricted Notes for offer and sale to the Initial
Purchasers and pursuant to Exempt Resales under the securities or Blue Sky laws
of such jurisdictions as the Initial Purchasers may reasonably request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, that neither the Company nor any Guarantor
shall be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Preliminary Offering Memorandum,
the Offering Memorandum or Exempt Resales, in any jurisdiction in which it is
not now so subject.
(f) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Notes a financial report of the Company, the
Guarantors and their subsidiaries on a consolidated basis or of Master Graphics,
Inc. if such report is required to be made available pursuant to Section 4.6 of
the Indenture (and a similar financial report of all unconsolidated
subsidiaries, if any), all such financial reports to include a consolidated
balance sheet, a consolidated statement of operations, a consolidated statement
of cash flows and a consolidated statement of shareholders' equity as of the end
of and for such fiscal year, together with comparable information as of the end
of and for the preceding year, certified by the independent public accountants
of the Company or Master Graphics, Inc., as applicable, and (ii) to mail and
make generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, a consolidated balance sheet, a consolidated statement of operations
and a consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods of
the preceding year of the Company or Master Graphics, Inc., as applicable.
(g) So long as the Notes are outstanding, to furnish to the
Initial Purchasers as soon as available copies of all reports or other
communications furnished by the Company or any of the Guarantors to its security
holders or furnished to or filed with the Commission or any national securities
5
<PAGE>
exchange on which any class of securities of the Company or any of the
Guarantors is listed and such other publicly available information concerning
the Company and/or its subsidiaries as the Initial Purchasers may reasonably
request.
(h) So long as any of the Restricted Notes remain outstanding
and during any period in which the Company and the Guarantors are not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder of Restricted Notes in
------------
connection with any sale thereof and any prospective purchaser of such
Restricted Notes from such holder, the information ("Rule 144A Information")
---------------------
required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Company
and the Guarantors under this Agreement, including: (i) the fees, disbursements
and expenses of counsel to the Company and the Guarantors and accountants of the
Company and the Guarantors in connection with the sale and delivery of the
Restricted Notes to the Initial Purchasers and pursuant to Exempt Resales, and
all other fees and expenses in connection with the preparation, printing, filing
and distribution of the Preliminary Offering Memorandum, the Offering Memorandum
and all amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Restricted Notes to the Initial Purchasers and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Restricted Notes, (iv) all expenses in connection with the
registration or qualification of the Restricted Notes and the Guarantees for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any preliminary and supplemental Blue Sky
memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Initial Purchasers in connection with such
registration or qualification and memoranda relating thereto), (v) the cost of
printing certificates representing the Restricted Notes and the Guarantees, (vi)
all expenses and listing fees in connection with the application for quotation
of the Restricted Notes in the National Association of Securities Dealers, Inc.
("NASD") Private Offerings, Resales and Trading through Automatic Linkages
----
Market ("PORTAL"), (vii) the fees and expenses of the Trustee and the Trustee's
------
counsel in connection with the Indenture, the Notes and the Guarantees, (viii)
the costs and charges of any transfer agent, registrar and/or depositary
(including DTC), (ix) any fees charged by rating agencies for the rating of the
Notes, (x) all costs and expenses of the Exchange Offer and any Registration
Statement, as set forth in the Registration Rights Agreement, and (xi) and all
other costs and expenses incident to the performance of the obligations of the
Company and the Guarantors hereunder for which provision is not otherwise made
in this Section.
(j) To use its best efforts to effect the inclusion of the
Restricted Notes in PORTAL and to maintain the listing of the Restricted Notes
on PORTAL for so long as the Restricted Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of
the Notes, and to comply with all of its agreements set forth in the
representation letters of the Company and the Guarantors to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
(l) Except as described in the Offering Memorandum, during the
period beginning on the date hereof and continuing to and including the Closing
Date, not to offer, sell, contract to sell or otherwise transfer or dispose of
any debt securities of the Company or any Guarantor or any
6
<PAGE>
warrants, rights or options to purchase or otherwise acquire debt securities of
the Company or any Guarantor substantially similar to the Notes and the
Guarantees (other than (i) the Notes and the Guarantees and (ii) commercial
paper issued in the ordinary course of business), without the prior written
consent of the Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Restricted Notes to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Restricted Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Notes and the related Guarantees.
(o) To cause the Exchange Offer to be made in the appropriate
form to permit Exchange Notes and guarantees thereof by the Guarantors
registered pursuant to the Act to be offered in exchange for the Restricted
Notes and the Guarantees and to comply with all applicable federal and state
securities laws in connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(q) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Restricted Notes and the Guarantees.
6. Representations, Warranties and Agreements of the Company and the
-----------------------------------------------------------------
Guarantors. As of the date hereof, each of the Company and the Guarantors
- -----------
represents and warrants to, and agrees with, the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and the Guarantors has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and the Guarantors, taken as a whole (a
"Material Adverse Effect"). Neither the Company nor Harperprints, Inc. has any
-----------------------
subsidiaries. The only
7
<PAGE>
subsidiaries of Master Graphics, Inc. are the Company and Harperprints, Inc.
(c) All outstanding shares of capital stock of the Guarantors
and the Company have been duly authorized and validly issued and are fully paid,
non-assessable, are owned by Master Graphics, Inc., and not subject to any
preemptive or similar rights.
(d) All of the outstanding shares of capital stock of the
Company and Harperprints, Inc. are owned by Master Graphics, Inc., free and
clear of any security interest, claim, lien, encumbrance or adverse interest of
any nature (each, a "Lien"), other than the security interests of General
Electric Capital Corporation and Deutsche Financial Services Corporation and the
right of Michael Harper to reacquire the common stock of Harperprints, Inc. upon
the occurrence of certain events.
(e) This Agreement has been duly authorized, executed and
delivered by the Company and each of the Guarantors.
(f) The Indenture has been duly authorized by the Company and
each of the Guarantors and, on the Closing Date, will have been validly executed
and delivered by the Company and each of the Guarantors. When the Indenture has
been duly executed and delivered by the Company and each of the Guarantors, the
Indenture will be a valid and binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance with
its terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA" or "Trust Indenture Act"), and the
--- -------------------
rules and regulations of the Commission applicable to an indenture which is
qualified thereunder.
(g) The Restricted Notes have been duly authorized and, on the
Closing Date, will have been validly executed and delivered by the Company. When
the Restricted Notes have been issued, executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement, the
Restricted Notes will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable in accordance with
their terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Restricted Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(h) On the Closing Date, the Exchange Notes will have been
duly authorized by the Company. When the Exchange Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Exchange Notes will be entitled to the benefits of the Indenture
and will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(i) The notation of the Guarantees to be endorsed on the
Restricted Notes by each Guarantor has been duly authorized by such Guarantor
and, on the Closing Date, will have been duly executed and delivered by each
such Guarantor. When the Restricted Notes have been issued, executed and
authenticated in accordance with the Indenture and delivered to and paid for by
the Initial Purchasers in
8
<PAGE>
accordance with the terms of this Agreement, the Guarantee of each Guarantor
will be entitled to the benefits of the Indenture and will be the valid and
binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Guarantees will conform as to legal matters to the description
thereof contained in the Offering Memorandum.
(j) The notation of the Guarantees to be endorsed on the
Exchange Notes by each Guarantor has been duly authorized by such Guarantor and,
when issued, will have been duly executed and delivered by each such Guarantor.
When the Exchange Notes have been issued, executed and authenticated in
accordance with the terms of the Exchange Offer and the Indenture, the Guarantee
of each Guarantor endorsed thereon will be entitled to the benefits of the
Indenture and will be the valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles of
general applicability. When the Exchange Notes are issued, authenticated and
delivered, the Guarantees will continue to conform as to legal matters to the
description thereof in the Offering Memorandum.
(k) The Registration Rights Agreement has been duly authorized
by the Company and each of the Guarantors and, on the Closing Date, will have
been duly executed and delivered by the Company and each of the Guarantors. When
the Registration Rights Agreement has been duly executed and delivered, the
Registration Rights Agreement will be a valid and binding agreement of the
Company and each of the Guarantors, enforceable against the Company and each
Guarantor in accordance with its terms except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Registration Rights Agreement will
conform as to legal matters to the description thereof in the Offering
Memorandum.
(l) Neither the Company nor any of the Guarantors is in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and the Guarantors, taken as a whole, to which the
Company or any of the Guarantors is a party or by which the Company or any of
the Guarantors or their respective property is bound.
(m) The execution, delivery and performance of this Agreement
and the other Operative Documents by the Company and each of the Guarantors,
compliance by the Company and each of the Guarantors with all provisions hereof
and thereof and the consummation of the transactions contemplated hereby and
thereby will not (i) require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various states),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of the Company or any of the
Guarantors or any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Company and the Guarantors, taken as a
whole, to which the Company or any of the Guarantors is a party or by which the
Company or any of the Guarantors or their respective property is bound, (iii)
violate or conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of the Guarantors or their
9
<PAGE>
respective property, (iv) result in the imposition or creation of (or the
obligation to create or impose) a Lien under, any agreement or instrument to
which the Company or any of the Guarantors is a party or by which the Company or
any of the Guarantors or their respective property is bound, or (v) result in
the termination, suspension or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or result in any other
impairment of the rights of the holder of any such Authorization.
(n) There are no legal or governmental proceedings pending or
threatened to which the Company or any of the Guarantors is or could be a party
or to which any of their respective property is or could be subject, which might
result, singly or in the aggregate, in a Material Adverse Effect.
(o) Except as disclosed in the Offering Memorandum, neither
the Company nor any of the Guarantors has violated any foreign, federal, state
or local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), any provisions of the Employee
------------------
Retirement Income Security Act of 1974, as amended ("ERISA"), or any provisions
-----
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
(p) Except as disclosed in the Offering Memorandum, there are
no costs or liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any Authorization, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a Material Adverse
Effect.
(q) Each of the Company and the Guarantors has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to, all
-------------
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
the Guarantors is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; except where such burden or failure to be
valid and in full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not, singly or in the
aggregate, have a Material Adverse Effect and such Authorizations contain no
restrictions that are burdensome to the Company or any of the Guarantors.
(r) The accountants, KPMG Peat Marwick LLP, Thompson Dunavant
PLC, Joseph Decosimo and Company, LLP, Arthur Andersen LLP, Marlin & Edmondson,
P.C., S.F. Fiser & Company, P.A., Becker & Company, P.C., that have certified
the financial statements and supporting schedules included in the Preliminary
Offering Memorandum and the Offering Memorandum are independent public
accountants with respect to the Company and the Guarantors, as required by the
Act and the Exchange Act. The historical financial statements, together with
related schedules and notes, set forth in the Preliminary Offering Memorandum
and the Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
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(s) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any amendment
or supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of Master Graphics, Inc.
and its subsidiaries on the basis stated in the Offering Memorandum at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of Master Graphics, Inc.
(t) The pro forma financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements of the Company
and the Guarantors and give effect to assumptions used in the preparation
thereof on a reasonable basis and in good faith and such pro forma financial
statements comply as to form in all material respects with the requirements
applicable to pro forma financial statements included in registration statements
on Form S-1 under the Act. The other pro forma financial and statistical
information and data included in the Offering Memorandum are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(u) Neither the Company nor any of the Guarantors is and,
after giving effect to the offering and sale of the Restricted Notes and the
application of the net proceeds thereof as described in the Offering Memorandum,
will be, an "investment company," as such term is defined in the Investment
Company Act of 1940, as amended.
(v) There are no contracts, agreements or understandings
between the Company or any Guarantor and any person granting such person the
right to require the Company or such Guarantor to file a registration statement
under the Act with respect to any securities of the Company or such Guarantor or
to require the Company or such Guarantor to include such securities with the
Notes and Guarantees registered pursuant to any Registration Statement.
(w) Neither the Company nor any of the Guarantors nor any
agent thereof acting on the behalf of them has taken, and none of them will
take, any action that might cause this Agreement or the issuance or sale of the
Restricted Notes to violate Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors
of the Federal Reserve System.
(x) No "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Company or any Guarantor that it is considering
imposing) any condition (financial or otherwise) on the Company's or any
Guarantor's retaining any rating assigned to the Company, any Guarantor or any
securities of the Company or any Guarantor or (ii) has indicated to the Company
or any Guarantor that it is considering (a) the downgrading, suspension, or
withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company, any Guarantor or any securities of
the Company or any Guarantor.
(y) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material
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<PAGE>
adverse change or any development involving a prospective material adverse
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and the Guarantors, taken as a whole,
(ii) there has not been any adverse change or any development involving a
prospective adverse change in the capital stock or in the long-term debt of the
Company or any of the Guarantors and (iii) neither the Company nor any of the
Guarantors has incurred any material liability or obligation, direct or
contingent.
(z) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act with the
exception of the Company's financial statements which are omitted pursuant to
the Securities Exchange Commission Staff Accounting Bulletin No. 53 and
Harperprints financial statements which are omitted in reliance on previous
staff no-action letters.
(aa) When the Restricted Notes and the Guarantees are issued
and delivered pursuant to this Agreement, neither the Restricted Notes nor the
Guarantees will be of the same class (within the meaning of Rule 144A under the
Act) as any security of the Company or the Guarantors that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(bb) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, the Guarantors
or any of their respective representatives (other than the Initial Purchasers,
as to whom the Company and the Guarantors make no representation) in connection
with the offer and sale of the Restricted Notes contemplated hereby, including,
but not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Restricted Notes have been issued and sold by the Company within the six-month
period immediately prior to the date hereof.
(cc) Prior to the effectiveness of any Registration Statement,
the Indenture is not required to be qualified under the TIA.
(dd) None of the Company, the Guarantors nor any of their
respective affiliates or any person acting on its or their behalf (other than
the Initial Purchasers, as to whom the Company and the Guarantors make no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S under the Act ("Regulation S") with respect
------------
to the Restricted Notes or the Guarantees.
(ee) The sale of the Restricted Notes pursuant to Regulation S
is not part of a plan or scheme to evade the registration provisions of the Act.
(ff) No registration under the Act of the Restricted Notes or
the Guarantees is required for the sale of the Restricted Notes and the
Guarantees to the Initial Purchasers as contemplated hereby or for the Exempt
Resales assuming the accuracy of the Initial Purchasers' representations and
warranties and agreements set forth in Section 7 hereof.
(gg) Each certificate signed by any officer of the Company or
any Guarantor and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company or
such Guarantor to the Initial Purchasers as to the matters covered thereby.
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<PAGE>
(hh) The Company and the Guarantors have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and the Guarantors, in each case free and clear of all Liens and defects, except
such as are described in the Offering Memorandum or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and the Guarantors. Except
as otherwise described in the Offering Memorandum, the Company and the
Guarantors do not own any real property or buildings and any real property and
buildings held under lease by the Company and the Guarantors are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and the Guarantors, in each case except as
described in the Offering Memorandum.
(ii) All indebtedness of the Company and the Guarantors that
will be repaid with the proceeds of the issuance and sale of the Restricted
Notes was incurred, and the indebtedness represented by the Restricted Notes is
being incurred, for proper purposes and in good faith and each of the Company
and the Guarantors was, at the time of the incurrence of such indebtedness that
will be repaid with the proceeds of the issuance and sale of the Restricted
Notes, and will be on the Closing Date (after giving effect to the application
of the proceeds from the issuance of the Restricted Notes) solvent, and had at
the time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Restricted Notes and will have on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Restricted Notes) sufficient capital for carrying on their
respective business and were, at the time of the incurrence of such indebtedness
that will be repaid with the proceeds of the issuance and sale of the Restricted
Notes, and will be on the Closing Date (after giving effect to the application
of the proceeds from the issuance of the Restricted Notes) able to pay their
respective debts as they mature.
(jj) The Company, the Guarantors and their respective
affiliates and all persons acting on their behalf (other than the Initial
Purchasers, as to whom the Company and the Guarantors make no representation)
have complied with and will comply with the offering restrictions requirements
of Regulation S in connection with the offering of the Restricted Notes outside
the United States and, in connection therewith, the Offering Memorandum will
contain the disclosure required by Rule 902(h).
(kk) Master Graphics, Inc. is a "reporting issuer" as defined
in Rule 902 under the Act.
Each of the Company and the Guarantors acknowledges that the Initial
Purchasers and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and hereby consents to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the
--------------------------------------------------
Initial Purchasers represents and warrants to, and agrees with, the Company and
the Guarantors:
(a) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in financial and
business matters as is necessary in order to evaluate the merits and risks of an
investment in the Restricted Notes.
(b) Such Initial Purchaser (A) is not acquiring the Restricted
Notes with a view to any distribution thereof or with any present intention of
offering or selling any of the Restricted
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<PAGE>
Notes in a transaction that would violate the Act or the securities laws of any
state of the United States or any other applicable jurisdiction and (B) will be
reoffering and reselling the Restricted Notes only to (x) QIBs in reliance on
the exemption from the registration requirements of the Act provided by Rule
144A and (y) in offshore transactions in reliance upon Regulation S under the
Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Restricted Notes
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Restricted
Notes only from, and will offer to sell the Restricted Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell the
Restricted Notes only to, and will solicit offers to buy the Restricted Notes
only from (A) Eligible Purchasers that the Initial Purchaser reasonably believes
are QIBs and (B) Regulation S Purchasers, in each case, that agree that (x) the
Restricted Notes purchased by them may be resold, pledged or otherwise
transferred within the time period referred to under Rule 144(k) (taking into
account the provisions of Rule 144(d) under the Act, if applicable) under the
Act, as in effect on the date of the transfer of such Restricted Notes, only (I)
to the Company or any of its subsidiaries, (II) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A under the Act,
(III) in an offshore transaction (as defined in Rule 902 under the Act) meeting
the requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) to an Accredited Institution that,
prior to such transfer, furnishes the Trustee a signed letter containing certain
representations and agreements relating to the registration of transfer of such
Restricted Note and, if such transfer is in respect of an aggregate principal
amount of Restricted Notes less than $250,000, an opinion of counsel acceptable
to the Company that such transfer is in compliance with the Act, (VI) in
accordance with another exemption from the registration requirements of the Act
(and based upon an opinion of counsel acceptable to the Company) or (VII)
pursuant to an effective registration statement and, in each case, in accordance
with the applicable securities laws of any state of the United States or any
other applicable jurisdiction and (y) they will deliver to each person to whom
such Restricted Notes or an interest therein is transferred a notice
substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person
acting on its or their behalf have not engaged or will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Restricted Notes or the Guarantees.
(f) The Restricted Notes, if any, offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S have been and will
be offered and sold only in offshore transactions.
(g) The sale of the Restricted Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Restricted Notes in the United States or to,
or for the benefit or account of, a U.S. Person (other than a distributor), in
each case, as defined in Rule 902 under the Act (i) as part of its distribution
at any time and (ii) otherwise until 40 days after the later of the commencement
of the
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<PAGE>
offering of the Restricted Notes pursuant hereto and the Closing Date, other
than in accordance with Regulation S of the Act or another exemption from the
registration requirements of the Act. Such Initial Purchaser agrees that, during
such 40-day restricted period, it will not cause any advertisement with respect
to the Restricted Notes (including any "tombstone" advertisement) to be
published in any newspaper or periodical or posted in any public place and will
not issue any circular relating to the Restricted Notes, except such
advertisements as are permitted by and include the statements required by
Regulation S.
(i) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Restricted Notes by it to any distributor, dealer or
person receiving a selling concession, fee or other remuneration during the 40-
day restricted period referred to in Rule 903(c)(2) under the Act, it will send
to such distributor, dealer or person receiving a selling concession, fee or
other remuneration a confirmation or notice to substantially the following
effect:
"The Restricted Notes covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of your distribution at any time or
(ii) otherwise until 40 days after the later of the commencement of the
Offering and the Closing Date, except in either case in accordance with
Regulation S under the Securities Act (or Rule 144A or to Accredited
Institutions in transactions that are exempt from the registration
requirements of the Securities Act), and in connection with any subsequent
sale by you of the Restricted Notes covered hereby in reliance on
Regulation S during the period referred to above to any distributor, dealer
or person receiving a selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing effect. Terms used
above have the meanings assigned to them in Regulation S."
Such Initial Purchaser acknowledges that the Company and the
Guarantors and, for purposes of the opinions to be delivered to each Initial
Purchaser pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchaser will rely upon the accuracy and
truth of the foregoing representations and such Initial Purchaser hereby
consents to such reliance.
8. Indemnification.
---------------
(a) The Company and each Guarantor agree, jointly and
severally, to indemnify and hold harmless the Initial Purchasers, their
directors, their officers and each person, if any, who controls such Initial
Purchasers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any legal or other expenses
incurred in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Company or any Guarantor to any holder or
prospective purchaser of Restricted Notes pursuant to Section 5(h) 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 judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Initial Purchasers furnished in
writing to the Company by such Initial Purchasers; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure to the benefit of any Initial Purchaser who failed to
deliver a Final Offering Memorandum (as then amended or supplemented, provided
by the Company to the several Initial Purchasers in the requisite quantity and
on
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<PAGE>
a timely basis to permit proper delivery on or prior to the Closing Date) to
the person asserting any losses, claims, damages and liabilities and judgements
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Offering Memorandum, 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, if such material
misstatement or omission or alleged material misstatement or omission was cured
in the Final Offering Memorandum.
(b) The Initial Purchasers agree to indemnify and hold
harmless the Company and the Guarantors, and their respective directors and
officers and each person, if any, who controls (within the meaning of Section 15
of the Act or Section 20 of the Exchange Act) the Company or the Guarantors, to
the same extent as the foregoing indemnity from the Company and the Guarantors
to the Initial Purchasers but only with reference to information relating to the
Initial Purchasers furnished in writing to the Company by the Initial Purchasers
expressly for use in the Preliminary Offering Memorandum or the Offering
Memorandum.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "indemnified party"), the indemnified party shall promptly notify the
----------- -----
person against whom such indemnity may be sought (the "indemnifying party") in
------------ -----
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company, in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with its written consent
or (ii) effected without its written consent if the settlement is entered into
more than twenty business days after the indemnifying party shall have received
a request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the
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<PAGE>
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Initial Purchasers on the
other hand from the offering of the Restricted Notes or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantors, on the one hand and the Initial Purchasers, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Restricted Notes (after underwriting discounts and commissions,
but before deducting expenses) received by the Company, and the total discounts
and commissions received by the Initial Purchasers bear to the total price to
investors of the Restricted Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Guarantors, on the one hand, or the Initial Purchasers, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Guarantors, and the Initial Purchasers agree that
it would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such indemnified party in connection with investigating or defending any
matter, including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, the Initial Purchasers shall not be required to contribute any amount
in excess of the amount by which the total discounts and commissions received by
such Initial Purchasers exceeds the amount of any damages which the Initial
Purchasers have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The obligations of the
---------------------------------------------
Initial Purchasers to purchase the Restricted Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
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<PAGE>
(a) All the representations and warranties of the Company and
the Guarantors contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Company or any Guarantor or any securities of the Company or any
Guarantor (including, without limitation, the placing of any of the foregoing
ratings on credit watch with negative or developing implications or under review
with an uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any rating of
the Company or any Guarantor or any securities of the Company or any Guarantor
by any such rating organization and (iii) no such rating organization shall have
given notice that it has assigned (or is considering assigning) a lower rating
to the Notes than that on which the Notes were marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any adverse change or
any development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, or Master Graphics, Inc. and its
subsidiaries, taken as a whole, (ii) there shall not have been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Company or any of
the Guarantors and (iii) neither the Company nor any of the Guarantors shall
have incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Restricted Notes on the terms and in the manner
contemplated in the Offering Memorandum.
(d) The Initial Purchasers shall have received on the Closing
Date a certificate dated the Closing Date, signed by the President and the
Secretary of the Company and each of the Guarantors, confirming the matters set
forth in Sections 6(x), 9(a) and 9(b) and stating that each of the Company and
the Guarantors has complied with all the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied on or
prior to the Closing Date.
(e) The Initial Purchasers shall have received on the Closing
Date an opinion (satisfactory to you and counsel for the Initial Purchasers),
dated the Closing Date, of Baker, Donelson, Bearman & Caldwell, counsel for the
Company and the Guarantors, to the effect that:
(i) each of the Company and the Guarantors has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as
described in the Offering Memorandum and to own, lease and operate its
properties;
(ii) each of the Company and the Guarantors is duly
qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of
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<PAGE>
property requires such qualification, or application has been made and
is pending except where the failure to be so qualified would not have
a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of
the Company and each of the Guarantors have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to
any preemptive or similar rights;
(iv) all of the outstanding shares of capital stock of
the Company and Harperprints, Inc. are owned by Master Graphics, Inc.,
free and clear of any Lien other than the security interests of
General Electric Capital Corporation and Deutsche Financial Services
Corporation and the right of Michael Harper to reacquire the common
stock of Harperprints, Inc. upon the occurrence of certain events. The
Company and Harperprints, Inc. are the only subsidiaries of Master
Graphics, Inc.;
(v) each of the Company and the Guarantors have the
corporate power and authority to perform the obligations under this
Agreement, the Indenture, the Notes, the Guarantees and the
Registration Rights Agreement;
(vi) the Restricted Notes have been duly authorized
and, when executed and authenticated in accordance with the provisions
of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, will be
entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with
their terms except as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (y) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability;
(vii) the guarantees of each Guarantor have been duly
authorized and, when the Restricted Notes are executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Agreement, the Guarantees endorsed thereon will be
entitled to the benefits of the Indenture and will be valid and
binding obligations of the Guarantors, enforceable in accordance with
their terms except as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (y) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability;
(viii) the Indenture has been duly authorized, executed
and delivered by the Company and each Guarantor and is a valid and
binding agreement of the Company and each Guarantor, enforceable
against the Company and each Guarantor in accordance with its terms
except as (x) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
(y) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability;
(ix) this Agreement has been duly authorized, executed
and delivered
19
<PAGE>
by the Company and each of the Guarantors;
(x) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the Guarantors
and is a valid and binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in
accordance with its terms, except as (x) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (y) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(xi) the Exchange Notes have been duly authorized;
(xii) the statements under the captions "Risk Factors,"
"Description of Notes, " "Certain Federal Income Tax Considerations,"
"ERISA Considerations" and "Plan of Distribution" in the Offering
Memorandum, insofar as such statements constitute a summary of the
legal matters, fairly present in all material respects such legal
matters;
(xiii) neither the Company nor any of the Guarantors is
in violation of its respective charter or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor
any of the Guarantors is in default in the performance of any
obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and the Guarantors, taken
as a whole, to which the Company or any of the Guarantors is a party
or by which the Company or any of the Guarantors or their respective
property is bound;
(xiv) the execution, delivery and performance of this
Agreement and the other Operative Documents by the Company and each of
the Guarantors, the compliance by the Company and each of the
Guarantors with all provisions hereof and thereof and the consummation
of the transactions contemplated hereby and thereby will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except
such as may be required under the securities or Blue Sky laws of the
various states), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws
of the Company or any of the Guarantors or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and the Guarantors, taken as a whole, to which
the Company or any of the Guarantors is a party or by which the
Company or any of the Guarantors or their respective property is
bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of the
Guarantors or their respective property, (iv) result in the imposition
or creation of (or the obligation to create or impose) a Lien under,
any agreement or instrument to which the Company or any of the
Guarantors is a party or by which the Company or any of the Guarantors
or their respective property is bound, or (v) to the knowledge of such
counsel result in the termination, suspension or revocation of any
Authorization of the Company or any of the Guarantors or result in any
other impairment of the rights of the holder of any such
Authorization.
20
<PAGE>
(xv) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to which
the Company or any of the Guarantors is or could be a party or to
which any of their respective property is or could be subject, which
might result, singly or in the aggregate, in a Material Adverse
Effect.
(xvi) except as disclosed in the Offering Memorandum,
neither the Company nor any of the Guarantors has violated any
Environmental Law or any provisions of ERISA, any provisions of the
Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the
aggregate, would not have a Material Adverse Effect;
(xvii) each of the Company and the Guarantors has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without
limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to
conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly
or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the
Company and the Guarantors is in compliance with all the terms and
conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect
thereto; and no event has occurred (including the receipt of any
notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension
or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the
rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the
Company or any of the Guarantors; except where such failure to be
valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a Material Adverse Effect;
(xviii) neither the Company nor any of the Guarantors is
and, after giving effect to the offering and sale of the Restricted
Notes and the application of the net proceeds thereof as described in
the Offering Memorandum, will be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
(i) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings (other
than the Registration Rights Agreement) between the Company or any
Guarantor and any person granting such person the right to require the
Company or such Guarantor to file a registration statement under the
Act with respect to any securities of the Company or such Guarantor or
to require the Company or such Guarantor to include such securities
with the Notes and Guarantees registered pursuant to any Registration
Statement;
(xix) the Indenture complies as to form in all material
respects with the requirements of the TIA, and the rules and
regulations of the Commission
21
<PAGE>
applicable to an indenture which is qualified thereunder; it is not
necessary in connection with the offer, sale and delivery of the
Restricted Notes to the Initial Purchasers in the manner contemplated
by this Agreement or in connection with the Exempt Resales to qualify
the Indenture under the TIA;
(xx) no registration under the Act of the Restricted
Notes is required for the sale of the Restricted Notes to the Initial
Purchasers as contemplated by this Agreement or for the Exempt Resales
assuming that (i) each Initial Purchaser is a QIB or a Regulation S
Purchaser, (ii) the accuracy of, and compliance with, the Initial
Purchasers' representations and agreements contained in Section 7 of
this Agreement and (iii) the accuracy of the representations of the
Company and the Guarantors set forth in Sections 5(f) and 6(dd), (ee)
and (ff) of this Agreement; and
(xxi) such counsel has participated in conferences with
officers and other representatives of the Company, representatives of
the Company's accountants, the Initial Purchasers' representatives and
counsel for the Initial Purchasers, at which conferences the contents
of the Offering Memorandum and related matters were discussed and,
although such counsel is not passing upon and do not assume any
responsibility for and shall not be deemed to have independently
verified the accuracy, completeness or fairness of the statements
contained in the Offering Memorandum no facts have come to the
attention of such counsel that lead such counsel to believe that the
Offering Memorandum contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading or
that the Offering Memorandum on the date thereof or on the date hereof
(other than the financial statements and notes thereto and the other
financial information, including the information referred to under the
caption "Experts" as to which such counsel does not comment) contained
any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The opinion of Baker, Donelson, Bearman & Caldwell described in
Section 9(e) above shall be rendered to you at the request of the Company and
the Guarantors and shall so state therein. In giving such opinion with respect
to the matters covered by Section 9(e)(xxi), Baker, Donelson, Bearman & Caldwell
may state that their opinion and belief are based upon their participation in
the preparation of the Offering Memorandum and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(g) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from KPMG Peat Marwick LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(h) The Restricted Notes shall have been approved by the NASD
for trading
22
<PAGE>
and duly listed in PORTAL.
(i) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company, the Guarantors and the Trustee.
(j) The Company and the Guarantors shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received an
original copy thereof, duly executed by the Company and the Guarantors.
(k) Neither the Company nor the Guarantors shall have failed
at or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company or
the Guarantors, as the case may be, at or prior to the Closing Date.
(l) Master Graphics, Inc. shall have restructured no less than
$12.5 million of outstanding Seller Notes and Replacement Notes into Seller
Deferral Notes as defined and described in the Offering Memorandum.
(m) The Company shall have consummated the acquisition of all
of the outstanding capital stock of Technigrafiks, Inc., and merged
Technigrafiks, Inc. into the Company (with the Company being the surviving
corporation) prior to or simultaneously with the Closing.
(n) The firm of Baker, Donelson, Bearman & Caldwell shall
permit the Initial Purchasers and their counsel to rely on its opinion rendered
to the Company in connection with the purchase of Technigrafics, Inc.
10. Effectiveness of Agreement and Termination. This Agreement shall
------------------------------------------
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchasers by written notice to the Company if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Restricted Notes on
the terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company or any Guarantor on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and the Guarantors, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
11. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall
23
<PAGE>
be addressed as follows: (i) if to the Company or any Guarantor, to Premier
Graphics, Inc. c/o Master Graphics, Inc., 6075 Poplar Avenue, Suite 401,
Memphis, TN 38119 (telephone number: 901-685-2020)and (ii) if to the Initial
Purchasers, Donaldson, Lufkin & Jenrette Securities Corporation, Prudential
Securities Incorporated, Morgan Keegan & Company, Inc. c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Guarantors and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Restricted Notes, regardless of (i) any investigation, or statement as
to the results thereof, made by or on behalf of the Initial Purchasers, the
officers or directors of the Initial Purchasers, any person controlling the
Initial Purchasers, the Company, any Guarantor, the officers or directors of the
Company or any Guarantor, or any person controlling the Company or any
Guarantor, (ii) acceptance of the Restricted Notes and payment for them
hereunder and (iii) termination of this Agreement.
If for any reason the Restricted Notes are not delivered by or on
behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company and each
Guarantor, jointly and severally, agree to reimburse the Initial Purchasers for
all out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the Company
shall be liable for all expenses which it has agreed to pay pursuant to Section
5(i) hereof. The Company and each Guarantor also agree, jointly and severally,
to reimburse the Initial Purchasers and their officers, directors and each
person, if any, who controls such Initial Purchasers within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this Agreement
(including without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Guarantors,
the Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors and officers of the
Company and the Guarantors and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Restricted Notes from the
Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York, without regard to the conflict of law rules
thereof.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
24
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and the Initial Purchasers.
Very truly yours,
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
--------------------------------------
Name: John P. Miller
Title: President
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
--------------------------------------
Name: John P. Miller
Title: President
HARPERPRINTS, INC.
By: /s/ John P. Miller
--------------------------------------
Name: John P. Miller
Title: President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Thomas H. Roberts
--------------------------------------
Name: Thomas H. Roberts
Title: Vice President Investment Banking
<PAGE>
SCHEDULE A
Initial Purchasers Principal Amount
- ------------------ ----------------
of Notes
--------
Donaldson, Lufkin & Jenrette
Securities Corporation................. $ 94,250,000
Prudential Securities Incorporated........ $ 29,250,000
Morgan Keegan & Company, Inc.............. $ 6,500,000
Total..................................... $130,000,000
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
<PAGE>
EXHIBIT 4.1
PREMIER GRAPHICS, INC.
as Issuer
$130,000,000
11 1/2% Senior Notes due 2005
_______________
INDENTURE
Dated as of December 11, 1998
_______________
United States Trust Company of New York
as Trustee
______________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Article 1 DEFINITIONS AND INCORPORATION BY REFERENCE............................................................. 1
SECTION 1.1 Definitions..................................................................................... 1
SECTION 1.2 Other Definitions............................................................................... 23
SECTION 1.3 Incorporation By Reference of Trust Indenture Act............................................... 24
SECTION 1.4 Rules of Construction........................................................................... 24
Article 2 THE NOTES.............................................................................................. 25
SECTION 2.1 Form and Dating................................................................................. 25
SECTION 2.2 Execution and Authentication.................................................................... 27
SECTION 2.3 Registrar and Paying Agent...................................................................... 28
SECTION 2.4 Paying Agent to Hold Money in Trust............................................................. 29
SECTION 2.5 Holder Lists.................................................................................... 29
SECTION 2.6 Transfer and Exchange........................................................................... 29
SECTION 2.7 Replacement of Notes............................................................................ 39
SECTION 2.8 Outstanding Notes............................................................................... 40
SECTION 2.9 Treasury Notes.................................................................................. 40
SECTION 2.10 Temporary Notes................................................................................ 40
SECTION 2.11 Cancellation................................................................................... 41
SECTION 2.12 Payment of Interest; Interest Rights Preserved................................................. 41
SECTION 2.13 Computation of Interest........................................................................ 42
SECTION 2.14 CUSIP Number................................................................................... 42
Article 3 REDEMPTION AND PREPAYMENT.............................................................................. 42
SECTION 3.1 Notices to Trustee.............................................................................. 42
SECTION 3.2 Selection of Notes to be Redeemed............................................................... 42
SECTION 3.3 Notice of Redemption............................................................................ 43
SECTION 3.4 Effect of Notice of Redemption.................................................................. 44
SECTION 3.5 Deposit of Redemption Price..................................................................... 44
SECTION 3.6 Notes Redeemed in Part.......................................................................... 44
SECTION 3.7 Optional Redemption............................................................................. 45
Article 4 COVENANTS.............................................................................................. 45
SECTION 4.1 Payment of Notes................................................................................ 45
SECTION 4.2 Maintenance of Office or Agency................................................................. 46
SECTION 4.3 Corporate Existence............................................................................. 46
SECTION 4.4 Maintenance of Properties and Insurance......................................................... 47
SECTION 4.5 Compliance With Laws............................................................................ 47
SECTION 4.6 Reports......................................................................................... 47
SECTION 4.7 Taxes and Other Claims.......................................................................... 48
SECTION 4.8 Stay, Extension and Usury Laws.................................................................. 48
SECTION 4.9 Change of Control............................................................................... 49
SECTION 4.10 Transactions With Affiliates................................................................... 51
SECTION 4.11 Limitation on Restricted Payments.............................................................. 51
SECTION 4.12 Limitation on Indebtedness..................................................................... 54
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.13 Limitation on Subsidiary Indebtedness and Preferred Stock...................................... 54
SECTION 4.14 Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries.................. 55
SECTION 4.15 Limitation on Asset Sales...................................................................... 56
SECTION 4.16 Limitation on Sale and Lease-Back Transactions................................................. 59
SECTION 4.17 Limitation on Liens............................................................................ 59
SECTION 4.18 Limitation on Guarantees by Subsidiaries....................................................... 59
SECTION 4.19 Unrestricted Subsidiaries...................................................................... 60
SECTION 4.20 Limitations on Line of Business................................................................ 60
SECTION 4.21 Compliance Certificate; Notice of Default or Event of Default.................................. 60
SECTION 4.22 Prohibition on Company and Guarantors Becoming an Investment Company........................... 61
Article 5 CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER................................................... 62
SECTION 5.1 Consolidation, Merger, Conveyance, Lease or Transfer............................................ 62
SECTION 5.2 Successor Corporation Substituted............................................................... 63
Article 6 DEFAULTS AND REMEDIES.................................................................................. 64
SECTION 6.1 Events of Default............................................................................... 64
SECTION 6.2 Acceleration.................................................................................... 66
SECTION 6.3 Other Remedies.................................................................................. 67
SECTION 6.4 Waiver of Past Defaults......................................................................... 67
SECTION 6.5 Control By Majority............................................................................. 68
SECTION 6.6 Limitation on Suits............................................................................. 68
SECTION 6.7 Rights of Holders of Notes to Receive Payment................................................... 68
SECTION 6.8 Collection Suit by Trustee...................................................................... 69
SECTION 6.9 Trustee May File Proofs of Claim................................................................ 69
SECTION 6.10 Priorities..................................................................................... 70
SECTION 6.11 Undertaking For Costs.......................................................................... 70
SECTION 6.12 Restoration of Rights and Remedies............................................................. 70
SECTION 6.13 Rights and Remedies Cumulative................................................................. 71
SECTION 6.14 Delay or Omission Not Waiver................................................................... 71
Article 7 TRUSTEE................................................................................................ 71
SECTION 7.1 Duties of Trustee............................................................................... 71
SECTION 7.2 Rights of Trustee............................................................................... 72
SECTION 7.3 Individual Rights of Trustee.................................................................... 74
SECTION 7.4 Trustee's Disclaimer............................................................................ 74
SECTION 7.5 Notice of Defaults.............................................................................. 74
SECTION 7.6 Reports by Trustee to Holders of the Notes...................................................... 74
SECTION 7.7 Compensation and Indemnity...................................................................... 75
SECTION 7.8 Replacement of Trustee.......................................................................... 76
SECTION 7.9 Successor Trustee by Merger, Etc................................................................ 77
SECTION 7.10 Eligibility; Disqualification.................................................................. 77
SECTION 7.11 Preferential Collection of Claims Against the Company.......................................... 78
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Article 8 SATISFACTION AND DISCHARGE............................................................................. 78
SECTION 8.1 Satisfaction and Discharge...................................................................... 78
SECTION 8.2 Application of Trust Money...................................................................... 79
SECTION 8.3 Repayment of the Company........................................................................ 79
SECTION 8.4 Reinstatement................................................................................... 79
Article 9 DEFEASANCE AND COVENANT DEFEASANCE..................................................................... 80
SECTION 9.1 Option to Effect Defeasance or Covenant Defeasance.............................................. 80
SECTION 9.2 Defeasance and Discharge........................................................................ 80
SECTION 9.3 Covenant Defeasance............................................................................. 81
SECTION 9.4 Conditions to Defeasance or Covenant Defeasance................................................. 81
SECTION 9.5 Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous
Provisions................................................................................................. 83
SECTION 9.6 Repayment to the Company........................................................................ 83
SECTION 9.7 Reinstatement................................................................................... 84
Article 10 AMENDMENT, SUPPLEMENT AND WAIVER...................................................................... 84
SECTION 10.1 Without Consent of Holders of Notes............................................................ 84
SECTION 10.2 With Consent of Holders of Notes............................................................... 85
SECTION 10.3 Effect of Supplemental Indentures.............................................................. 87
SECTION 10.4 Compliance with Trust Indenture Act............................................................ 87
SECTION 10.5 Revocation and Effect of Consents.............................................................. 87
SECTION 10.6 Notation on or Exchange of Notes............................................................... 87
SECTION 10.7 Trustee to Sign Supplemental Indentures........................................................ 87
SECTION 10.8 Payment for Consent............................................................................ 88
Article 11 MISCELLANEOUS......................................................................................... 89
SECTION 11.1 Trust Indenture Act Controls................................................................... 89
SECTION 11.2 Notices........................................................................................ 89
SECTION 11.3 Communication By Holders of Notes With Other Holders of Notes.................................. 90
SECTION 11.4 Certificate and Opinion as to Conditions Precedent............................................. 90
SECTION 11.5 Statements Required in a Certificate or Opinion................................................ 91
SECTION 11.6 Acts of Holders................................................................................ 91
SECTION 11.7 Rules by Trustee and Agents.................................................................... 93
SECTION 11.8 No Personal Liability of Directors, Officers, Employees and Stockholders....................... 93
SECTION 11.9 Governing Law.................................................................................. 93
SECTION 11.10 Agent for Service; Submission to Jurisdiction; Waiver of Immunities........................... 93
SECTION 11.11 No Adverse Interpretation of Other Agreements................................................. 94
SECTION 11.12 Successors.................................................................................... 94
SECTION 11.13 Severability.................................................................................. 94
SECTION 11.14 Counterpart Originals......................................................................... 94
SECTION 11.15 Table of Contents, Headings, Etc.............................................................. 95
Article 12 GUARANTEES............................................................................................ 95
SECTION 12.1 Guarantors..................................................................................... 95
SECTION 12.2 Limitation on Liability........................................................................ 97
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 12.3 Execution and Delivery of Guarantees........................................................... 98
SECTION 12.4 When A Guarantor May Merge, Etc................................................................ 98
SECTION 12.5 No Waiver...................................................................................... 98
SECTION 12.6 Modification................................................................................... 99
SECTION 12.7 Release of Guarantor........................................................................... 99
SECTION 12.8 Future Guarantors; Execution of Supplemental Indentures for Future Guarantors.................. 99
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.1(a) ........... Existing Investments
Schedule 4.13 ........... Existing Indebtedness and Preferred Stock of Subsidiaries
Schedule A ........... Guarantors
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A ........... Form of Note
Exhibit B-1 ........... Form of Certificate for Exchange or Registration of Transfer
from U.S. Global Note to Regulation S Global Note
Exhibit B-2 ........... Form of Certificate for Exchange or Registration of Transfer
from Regulation S Global Note to U.S. Global Note
Exhibit B-3 ........... Form of Certificate for Exchange or Registration of Transfer
of Certificated Notes
Exhibit B-4 ........... Form of Certificate for Exchange or Registration of Transfer
from U.S. Global Note or Regulation S Permanent Global Note to
Certificated Note
Exhibit C ........... Form of Certificate From Acquiring Institutional Accredited
Investor
</TABLE>
<PAGE>
INDENTURE, dated as of March 14, 1997, among Anvil Knitwear, Inc.,
a Delaware corporation ("Anvil"), Anvil Holdings, Inc., a Delaware corporation
("Holdings"), Cottontops, Inc., a Delaware corporation and the other Subsidiary
Guarantors (as "Indenture", dated as of December 11, 1998, among Premier
Graphics, Inc., a Delaware corporation (the "Company"), each of the guarantors
listed on Schedule A hereto (each a "Guarantor" and, collectively, the
"Guarantors"), and United States Trust Company of New York as trustee (the
"Trustee").
RECITALS
The Company has duly authorized the creation and issuance of its
11 1/2% Senior Notes due 2005 (the "Initial Notes") of substantially the tenor
and amount hereinafter set forth; and to provide therefor and for, if and when
issued as further evidence of the Company's indebtedness and in substitution
for the Initial Notes pursuant to this Indenture and the Registration Rights
Agreement (as defined herein), the Company's 11 1/2% Senior Notes due 2005 (the
"Exchange Notes," and together with the Initial Notes, the "Notes"), the
Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid instrument of the Company and the Guarantors, in accordance
with their respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and the purchase of the Initial Notes by the
Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 Definitions.
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For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the amount by
which the fair value of the Property and other assets of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and
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contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee of such Guarantor.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial interest in a Global Note, the rules and procedures of the Depositary
and the Trustee that apply to such transfer and exchange.
"Asset Acquisition" means (a) an Investment by the Company or any Subsidiary
in any other Person pursuant to which such Person becomes a Subsidiary, or is
merged with or into the Company or any Subsidiary or (b) the acquisition by the
Company or any Subsidiary of the assets of any Person (other than a Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by the Company
or any Subsidiary to any Person other than the Company or a Subsidiary
Guarantor, in one transaction or a series of related transactions, of (i) any
Capital Stock of any Subsidiary of the Company or any Subsidiary Guarantor
(except for directors' qualifying shares or certain minority interests sold to
other Persons solely due to local law requirements that there be more than one
stockholder, but which are not in excess of what is required for such purpose),
or (ii) any other Property or assets of the Company or any Subsidiary, other
than (A) sales of obsolete or worn out equipment in the ordinary course of
business or other assets that, in the Company's reasonable judgment, are no
longer used or useful in the conduct of the business of the Company and its
Subsidiaries, (B) a Restricted Payment or Restricted Investment permitted under
Section 4.11, (C) a Change of Control, (D) a consolidation, merger, continuance
or the disposition of all or substantially all of the assets of the Company and
the Subsidiaries (determined on a consolidated basis) in compliance with the
provisions of Article 5 described in Section 5.1 and (E) any transfer,
conveyance, sale, lease or other disposition of Property or assets, the gross
proceeds of which (exclusive of indemnities) do not exceed $250,000. An Asset
Sale shall include the requisition of title to, seizure of or forfeiture of any
Property or assets, or any actual or constructive total loss or an agreed or
compromised total loss of any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the Notes,
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compounded annually) of the total obligations of the lessee for rental payments
during the remaining term of the lease (or to the first date on which the
lessee is permitted to terminate such lease without the payment of a penalty)
included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security, the
quotient obtained by dividing (i) the sum of the products of (x) the number of
years from such date to the date of each scheduled principal payment (including
any sinking fund or mandatory redemption payment requirements) of such debt
security multiplied in each case by (y) the amount of such principal payment by
(ii) the sum of all such principal payments.
"Board of Directors" of any Person means the Board of Directors of such
Person, or any authorized committee of such Board of Directors.
"Board Resolution" means a copy of a resolution certified by a Secretary or
Assistant Secretary of a Person to have been duly adopted by the Board of
Directors thereof and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Borrowing Base" means, at any date of determination, an amount equal to 85%
of the accounts receivable owned by the Company and its Subsidiaries that are
not more than 90 days past due and 60% of the inventory of the Company and its
Subsidiaries, each calculated on a consolidated basis in accordance with GAAP as
shown on the last financial statements delivered to the Trustee pursuant to
Section 4.6.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at any time as to any Person with respect to
any Property leased by such Person as lessee, the amount of the liability with
respect to such lease that would be required at such time to be capitalized and
accounted for as a capital lease on the balance sheet of such Person prepared in
accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests, partnership
interests, participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than debt securities
convertible into an equity interest), warrants or options to acquire any equity
interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof or marketable securities that are
converted into cash or cash equivalents within 30 days of an Asset Sale),
including payments in respect of deferred payment obligations when received in
the form of cash or cash equivalents (except to the extent that such obligations
are financed or sold with recourse to such Person or any subsidiary thereof).
"Cedel" means Cedel Bank, societe anonyme (or any successor securities
clearing agency).
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"Certificated Notes" means Notes that are substantially in the form of the
Note attached hereto as Exhibit A that do not include the information or text
called for by footnotes 1, 2 and 3 thereto.
"Change of Control" means (i) at any time prior to any Public Equity Offering
by the Company or Master Graphics of the Common Stock of the Company, Master
Graphics ceases to be directly or indirectly, the beneficial owner of 100% of
the Voting Stock of the Company; (ii) any person or group (as defined in Section
13(d)(3) or 14(d)(2) of the Exchange Act) other than Permitted Holders or Master
Graphics becomes the direct or beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of more than 50% of the voting power of the outstanding Voting
Stock of the Company; (iii) the Company is merged with or into or consolidated
with another corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x)
the stockholders of the Company immediately prior to such merger or
consolidation, or (y) if the record date has been set to determine the
stockholders of the Company entitled to vote on such merger or consolidation,
the stockholders of the Company as of such a record date; (iv) the Company or
Master Graphics, as the case may be, either individually or in conjunction with
one or more Subsidiaries, sells, conveys, transfers or leases, or the
Subsidiaries sell, convey, transfer or lease, all or substantially all of the
assets of the Company, or of Master Graphics and the Subsidiaries taken as a
whole (or the Company and the Subsidiaries taken as a whole if the Company is no
longer a subsidiary of Master Graphics), as applicable (either in one
transaction or a series of related transactions), including Capital Stock of the
Subsidiaries, to any Person (other than a Wholly Owned Subsidiary); (v) the
liquidation or dissolution of the Company; (vi) the first day on which a
majority of the individuals who constitute the Board of Directors of the Company
are not Continuing Directors; or (vii) at any time prior to any Public Equity
Offering by the Company or Master Graphics of the Common Stock of the Company,
the first day on which a majority of the individuals who constitute the Board of
Directors of Master Graphics are not Continuing Directors.
"Commission" means the U.S. Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or if at any time after the
date of execution of this Indenture, such commission is not existing and
performing the duties assigned to it under the Trust Indenture Act, the body
performing such duties at such time.
"Common Stock" means Capital Stock other than Preferred Stock.
"Company Order" means a written order or request signed in the name of an
Officer and delivered to the Trustee.
"Company" means the Person named as such in the preamble of this Indenture
unless and until a successor replaces it pursuant to the applicable provisions
hereof and thereafter means such successor.
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"Consolidated Interest Coverage Ratio" means as of the date of the transaction
giving rise to the need to calculate the Consolidated Interest Coverage Ratio
(the "Transaction Date"), the ratio of (a) the aggregate amount of EBITDA of the
Company and the Subsidiaries on a combined consolidated basis for the four
fiscal quarters for which financial information in respect thereof is available
immediately prior to the applicable Transaction Date (the "Determination
Period") to (b) the aggregate Consolidated Interest Expense of the Company and
the Subsidiaries on a combined consolidated basis for such Determination Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "EBITDA" and "Consolidated Interest Expense" shall be calculated
after giving effect on a pro forma basis to (i)(a) the incurrence of any
Indebtedness of the Company or any of the Subsidiaries (and the application of
the proceeds thereof) giving rise to the need to make such calculation and (b)
any incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof) occurring on or after the first day of the Determination
Period and on or prior to the Transaction Date, in each case set forth in
clauses (i)(a) and (b), as if such incurrence or repayment, as the case may be,
(and the application of proceeds thereof) occurred on the first day of the
Determination Period (except that Indebtedness under any revolving credit
facility shall be deemed to be the average daily balance of such Indebtedness
during such Determination Period) and (ii) any Asset Sales or Asset Acquisitions
(including (x) any Person who becomes a Subsidiary as a result of any such Asset
Acquisition and including any Asset Sale or Asset Acquisition during such
Determination Period by any such Person determined as if such Person had been a
Subsidiary at the time of such transaction; provided that all Indebtedness of
the Company and any such Subsidiaries shall be deemed to have been incurred on
the first day of the Determination Period and (y) the increase or decrease, as
the case may be, in EBITDA directly attributable to such Asset Sale or Asset
Acquisition, as the case may be) occurring on or after the first day of the
Determination Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition, as the case may be, (including the issuance,
assumption or liability for any such Acquired Indebtedness) occurred on the
first day of the Determination Period. For purposes of this definition, whenever
pro forma effect is to be given to an Asset Acquisition, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness incurred in connection therewith shall be
determined in good faith by a responsible financial or accounting officer of the
Company.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP (or in respect of the Company and the Subsidiaries, on a combined
consolidated basis), including, without limitation, (x) net costs associated
with Interest Swap Obligations (including any amortization of discounts), (y)
the interest portion of any deferred payment obligation calculated in accordance
with the effective interest method, and (z) all accrued interest and paid or
accrued, or scheduled to be paid or accrued, during such period; (ii) dividends
on Preferred Stock or Redeemable Stock of such Person (and Preferred Stock or
Redeemable Stock of its subsidiaries if paid to a Person other than such Person
or its subsidiaries and in the case of the Company, also to any Guarantor)
declared and payable in cash; (iii) the portion of any rental obligation of such
Person or its subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP; (iv) the portion of any rental
obligation of such Person or its
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subsidiaries in respect of any Sale and Lease-Back Transaction allocable to
interest expense (determined as if such were treated as a Capital Lease
Obligation); and (v) to the extent any debt of any other Person is guaranteed
by such Person or any of its subsidiaries, the aggregate amount of interest
paid, accrued or scheduled to be paid or accrued, by such other Person during
such period attributable to any such debt, less (B) to the extent included in
(A) above, amortization or write-off of deferred financing costs of such Person
and its subsidiaries during such period and any charge related or any premium
or penalty paid in connection with redeeming or retiring any Indebtedness of
such Person and its subsidiaries prior to its stated maturity; in the case of
both (A) and (B) above, after elimination of intercompany accounts among such
Person and its subsidiaries and as determined in accordance with GAAP. For
purposes of clause (ii) above, dividend requirements attributable to any
Preferred Stock or Redeemable Stock shall be deemed to be an amount equal to
the amount of dividend requirements on such Preferred Stock or Redeemable Stock
times a fraction, the numerator of which is one, and the denominator of which
is one minus the applicable combined federal, state, local and foreign income
tax rate of the Company and its Subsidiaries (expressed as a decimal), on a
consolidated basis for the fiscal year immediately preceding the date of the
transaction giving rise to the need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss, as the case may be) of such Person and its subsidiaries
for such period on a consolidated basis (or in the case of the Company, the
Company and the Subsidiaries on a combined consolidated basis), determined in
accordance with GAAP, provided that there shall be excluded therefrom, without
duplication, (i) any net income of any Unrestricted Subsidiary, except that the
Company's or any Subsidiary's interest in the net income of such Unrestricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash or cash equivalents actually distributed by such
Unrestricted Subsidiary during such period to the Company or a Subsidiary as a
dividend or other distribution, (ii) gains and losses, net of taxes, from Asset
Sales or reserves relating thereto, (iii) the net income of any Person that is
not a subsidiary or that is accounted for by the equity method of accounting
which shall be included only to the extent of the amount of dividends or
distributions paid to such Person or its subsidiaries, (iv) items (but not loss
items) classified as extraordinary, unusual or nonrecurring (other than the tax
benefit, if any, of the utilization of net operating loss carryforwards or
alternative minimum tax credits), (v) the net income (or net loss) of any Person
acquired by such specified Person or any of its subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition, (vi)
any gain or loss, net of taxes, realized on the termination of any employee
pension benefit plan, (vii) the net income (but not net loss) of any subsidiary
of such specified Person to the extent that the transfer to that Person of that
income is not at the time permitted, directly or indirectly, by any means
(including by dividend, distribution, advance or loan or otherwise), or by
operation of the terms of its charter or any agreement with a Person other than
with such specified Person, instrument held by a Person other than by such
specified Person, judgment, decree, order, statute, law, rule or governmental
regulations applicable to such subsidiary or its stockholders, except for any
dividends or distributions actually paid by such subsidiary to such Person, and
(viii) with regard to a non-Wholly Owned Subsidiary, any aggregate net income
(or net loss) in excess of such Person's or such subsidiary's pro rata share of
such non-Wholly Owned Subsidiary's net income (or net loss).
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"Consolidated Net Worth" of any Person means, as of any date, the sum of the
Capital Stock and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of such Person and its subsidiaries on a consolidated basis
at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board of
Directors of the Company or Master Graphics, as the case be, and (ii) either (A)
was a member of the Board of Directors of the Company or Master Graphics, as the
case may be, on the Issue Date or (B) whose nomination for election or election
to the Board of Directors of the Company or Master Graphics, as the case may be,
was approved by vote of at least a majority of the directors then still in
office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved.
"Corporate Trust Office of the Trustee" shall be at the address of the Trustee
specified in Section 11.2 hereof or such other address as to which the Trustee
may give notice to the Company.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to protect
against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Depositary" means, with respect to the Notes issuable or issued in whole or
in part in global form, the Person specified in Section 2.3 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such Depositary pursuant to the applicable provision of
this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
"Determination Period" has the meaning specified in clause (a) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period from which Consolidated Net
Income is determined, without duplication, (i) Consolidated Interest Expense,
(ii) income tax expense, (iii) depreciation expense, (iv) amortization expense,
(v) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity, (vi) any
one-time write-off of non-recurring closing costs incurred in connection with
any merger consummated after the Issue Date, and (vii) any other non-cash
charges minus, to the extent reflected in such income
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statement, any noncash credits that had the effect of increasing Consolidated
Net Income of such Person for such period.
"Euroclear" means the Euroclear System (or any successor securities clearing
agency).
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Global Note" means one or more Global Notes that do not and are not
required to bear the Private Placement Legend.
"Exchange Notes" has the meaning set forth in the Recitals to this Indenture
and more particularly means any of the Notes authenticated and delivered under
this Indenture pursuant to the Exchange Offer.
"Exchange Offer" means the offer that may be made by the Company pursuant to
the Registrations Rights Agreement to exchange Exchange Notes for Initial Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of the
Company and, in the case of a determination including a Fair Market Value in
excess of $1,000,000, shall be evidenced by a Board Resolution delivered to the
Trustee.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be designated by the AICPA, that
are applicable to the circumstances as of the date of determination; provided,
however, that all calculations made for purposes of determining compliance with
the provisions set forth in the Indenture shall utilize GAAP in effect at the
Issue Date.
"Global Note" means, individually and collectively, the Regulation S Temporary
Global Note, the Regulation S Permanent Note, the U.S. Global Notes and the
Exchange Global Notes.
"Guarantee" means any guarantee of the Notes by any Guarantor in accordance
with the provisions described in Article 12.
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"Guarantor" means the Initial Guarantors and each other future Subsidiary that
is required to guarantee the Company's Obligations under the Notes and this
Indenture as described in Section 4.18 and Article 12 and any other Subsidiary
of the Company that executes a supplemental indenture in which such Subsidiary
agrees to guarantee the Company's Obligations under the Notes and this
Indenture.
"Harperprints" means Harperprints, Inc., a North Carolina corporation.
"Holder" means a Person in whose name a Note is registered on the Registrar's
books.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary shall
be deemed to have been incurred at the time at which it becomes a Subsidiary. A
guarantee otherwise permitted by the Indenture to be incurred by the Company or
a Subsidiary of Indebtedness incurred in compliance with the terms of this
Indenture by the Company or a Subsidiary, as applicable, shall not constitute a
separate incurrence of Indebtedness.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property, assets
or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested in
good faith and by appropriate proceedings; (iii) any obligation of such Person
for all or any part of the purchase price of Property or assets, or for the cost
of Property constructed or of improvements thereto (including any obligation
under or in connection with any letter of credit related thereto), other than
accounts payable incurred in respect of Property and services purchased in the
ordinary course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings; (iv) any
obligation of such Person upon which interest charges are customarily paid
(other than accounts payable incurred in the ordinary course of business); (v)
any obligation of such Person under conditional sale or other title retention
agreements relating to purchased Property; (vi) any obligation of such Person
issued or assumed as the deferred purchase price of Property or assets (other
than accounts payable incurred in the ordinary course of business which are no
more than 90 days overdue or which are being contested in good faith and by
appropriate proceedings); (vii) any Capital Lease Obligation or Attributable
Indebtedness pursuant to any Sale and Lease-Back Transaction of such Person;
(viii) any obligation of any other Person secured by (or for which the obligee
hereof has an existing right, contingent or otherwise, to be secured by) any
Lien on Property owned or acquired, whether or not any obligation secured
thereby has been assumed, by
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such Person; (ix) any obligation of such Person in respect of any letter of
credit supporting any obligation of any other Person; (x) the maximum fixed
repurchase price of any Redeemable Stock of such Person (or if such Person is a
subsidiary, any Preferred Stock of such Person); (xi) the notional amount of
any Interest Swap Obligation or Currency Hedge Obligation of such Person at the
time of determination; and (xii) any obligation which is in economic effect a
guarantee, regardless of its characterization (other than endorsements of
negotiable instruments in the ordinary course of business), with respect to any
Indebtedness of another Person, to the extent guaranteed. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Stock
or subsidiary Preferred Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock or
subsidiary Preferred Stock as if such Redeemable Stock or subsidiary Preferred
Stock were repurchased on any date on which Indebtedness shall be required to
be determined pursuant to this Indenture; provided that if such Redeemable
Stock or subsidiary Preferred Stock is not then permitted to be repurchased,
the repurchase price shall be the book value of such Redeemable Stock or
subsidiary Preferred Stock. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided, further, that for purposes of calculating the amount of
any non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
"Indenture" means this Indenture, as amended or supplemented from time to time
by one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof, including for all purposes of this Indenture and
any supplemental indenture the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this Indenture and any supplemental indenture.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Initial Guarantors" means Master Graphics and all of Master Graphics'
Subsidiaries (other than the Company) as of the close of business on the Issue
Date.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation, Prudential Securities Incorporated and Morgan Keegan & Company,
Inc.
"Initial Notes" has the meaning set forth in the Recitals to this Indenture
and more particularly means any of the Notes authenticated and delivered under
this Indenture other than Exchange Notes.
"Institutional Accredited Investor" means an entity which is an "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act.
"Interest Swap Obligation" means, with respect to any Person, the obligation
of such Person pursuant to any interest rate swap agreement, interest rate cap,
collar or floor agreement or other
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similar agreement or arrangement designed to protect against or manage such
Person's or any of its subsidiaries' exposure to fluctuations in interest
rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or similar credit extension constituting Indebtedness of
such other Person, and any guarantee of Indebtedness of any other Person;
provided that the term "Investment" shall not include any transaction involving
the purchase or other acquisition (including by way of merger) of Property or
assets (including Capital Stock) by the Company or any Subsidiary in exchange
for Capital Stock (other than Redeemable Stock) of the Company or Master
Graphics. The amount of any Person's Investment shall be the original cost of
such Investment to such Person, plus the cost of all additions thereto paid by
such Person, and minus the amount of any portion of such Investment repaid to
such Person in cash as a repayment of principal or a return of capital, as the
case may be, but without any other adjustments for increases or decreases in
value, or write-ups, writedowns, or write-offs with respect to such Investment.
In determining the amount of any Investment involving a transfer of any Property
or assets other than cash, such Property or assets shall be valued at its Fair
Value at the time of such transfer as determined in good faith by the board of
directors (or comparable body) of the Person making such transfer. The Company
shall be deemed to make an "Investment" in the amount of the Fair Value of the
Property and assets of a Subsidiary at the time such Subsidiary is designated an
Unrestricted Subsidiary.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which federal offices
or banking institutions in The City of New York, in the city of the Corporate
Trust Office of the Trustee, or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday, payment may be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment, deposit
arrangement, encumbrance, security interest, lien (statutory or other), or
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Master Graphics" means Master Graphics, Inc., a Tennessee corporation.
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or the purchase date established pursuant
to the terms of this Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
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"Moody's" means Moody's Investors Service, Inc., or if Moody's Investors
Services, Inc. shall cease rating the specified debt securities and such ratings
business with respect thereto shall have been transferred to a successor Person,
such successor Person.
"Net Available Proceeds" means, as to any Asset Sale, the Cash Proceeds
therefrom, net of all legal and title expenses, commissions and other fees and
expenses incurred, and all Federal, state, foreign, recording and local taxes
payable, as a consequence of such Asset Sale, net of all payments made to any
Person other than the Company or a Subsidiary on any Indebtedness which is
secured by such assets, in accordance with the terms of any Lien upon or with
respect to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Sale, or by applicable law, be repaid out of the
proceeds from such Asset Sale and, as for any Asset Sale by a Subsidiary, net of
the equity interest in such Cash Proceeds of any holder of Capital Stock of such
Subsidiary (other than the Company, any other Subsidiary or any Affiliate of the
Company or any such other Subsidiary).
"Net Proceeds" means (a) in the case of any sale of Capital Stock by a Person,
the aggregate net cash proceeds received by such Person, after payment of
expenses, commissions, and the like incurred in connection therewith and (b) in
the case of any exchange, exercise, conversion or surrender of outstanding
securities of any kind for or into shares of Capital Stock of any Person which
is not Redeemable Stock, the net book value of such outstanding securities on
the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder to the Company or Master
Graphics, as applicable, upon such exchange, exercise, conversion or surrender)
less any and all payments made to the holders, e.g., on account of fractional
shares and less all expenses incurred by such Person in connection therewith.
"New Credit Facility" means that certain credit facility to be entered into
among the Company, Master Graphics, Harperprints and General Electric Capital
Corporation, as agent.
"Non-Recourse Indebtedness" means Indebtedness or that portion of Indebtedness
of an Unrestricted Subsidiary as to which (a) neither the Company nor any other
Subsidiary (other than an Unrestricted Subsidiary) (i) provides credit support
including any undertaking, agreement or instrument which would constitute
Indebtedness or (ii) is directly or indirectly liable for such Indebtedness and
(b) no default with respect to such Indebtedness (including any rights which the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or any other Subsidiaries to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Note Custodian" means the Trustee, as custodian for the Depositary with
respect to the Notes in global form, or any successor entity thereto.
"Notes" has the meaning set forth in the Recitals of this Indenture and more
particularly means any of the Notes authenticated and delivered under this
Indenture.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest
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thereon and, with respect to the Notes, Special Interest), penalties, fees,
costs, expenses, indemnifications, reimbursements, damages and other
liabilities.
"Obligors" means the Company and the Guarantors, collectively; "Obligor" means
the Company or any Guarantor.
"Offering Memorandum" means the Offering Memorandum, dated December 8, 1998,
relating to the Company's offering and placement of the Initial Notes.
"Offering" means the Offering of the Initial Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, a Vice
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, the Chief Accounting Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary, an Assistant Secretary or any Vice
President of such Person.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, Master Graphics or a Subsidiary and delivered to the
Trustee, which shall comply with this Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Sections 11.4 and 11.5
hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary or the Trustee.
"Participant" means, with respect to DTC, Euroclear or Cedel, a Person who has
an account with DTC, Euroclear or Cedel, respectively (and, with respect to DTC,
shall include Euroclear and Cedel).
"Permitted Holders" means John P. Miller and any person related to him by
kinship or marriage, trusts or similar arrangements established solely on the
behalf of one or more of them, and partnerships and other entities that are
controlled by them.
"Permitted Indebtedness" means (a) Indebtedness of the Company under the Notes
and the Indenture; (b) Indebtedness (and any guarantee thereof) under one or
more credit or revolving credit facilities with a bank or financial institution
or syndicate of banks or financial institutions, including the New Credit
Facility, as such may be amended, modified, revised, extended, replaced, or
refunded from time to time, in an aggregate principal amount at any one time
outstanding not to exceed at the time of incurrence the greater of (i) $50.0
million or (ii) the Borrowing Base, less any amounts derived from Asset Sales
and applied to the required permanent reduction of Senior Debt (and a permanent
reduction of the related commitment to lend or amount available to be reborrowed
in the case of a revolving credit facility) under such credit facilities as
contemplated by Section 4.15; (c) Indebtedness of the Company or any Subsidiary
under Interest Swap Obligations, provided that (i) such Interest Swap
Obligations are related to payment obligations on Indebtedness otherwise
permitted under the covenants
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described in Section 4.12 and Section 4.13 and (ii) the notional principal
amount of such Interest Swap Obligations does not exceed the principal amount
of the Indebtedness to which such Interest Swap Obligations relate; (d)
Indebtedness of the Company or any Subsidiary under Currency Hedge Obligations,
provided that (i) such Currency Hedge Obligations are related to payment
obligations on Indebtedness otherwise permitted under the covenants described
in Section 4.12 and Section 4.13 or to the foreign currency cash flows
reasonably expected to be generated by the Company and the Subsidiaries and
(ii) the notional principal amount of the Indebtedness and the amount of such
Currency Hedge Obligations does not exceed the principal amount of the
Indebtedness and the amount of foreign currency cash flows to which such
Currency Hedge Obligations relate; (e) Indebtedness of the Company or any
Subsidiary outstanding on the Issue Date and listed on Schedule 1.1(a) attached
hereto (excluding Indebtedness under the New Credit Facility and excluding
Indebtedness being repaid with the proceeds of Notes being issued on the Issue
Date), (f) the Guarantees of the Notes (and any assumption of the Obligations
guaranteed thereby); (g) Indebtedness of the Company or any Subsidiary in
respect of bid and performance bonds, surety bonds, appeal bonds and letters of
credit or similar arrangements issued for the account of the Company or any
Subsidiary Guarantor, in each case in the ordinary course of business and other
than for an obligation for money borrowed; (h) Indebtedness of the Company to a
Subsidiary Guarantor and Indebtedness of a Subsidiary Guarantor to the Company
or another Subsidiary Guarantor; provided that upon any subsequent event which
results in any such Subsidiary Guarantor ceasing to be a Subsidiary or any
other subsequent transfer of any such Indebtedness (except to the Company or a
Subsidiary Guarantor), such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of Section 4.12 and
Section 4.13 at the time the Subsidiary in question ceased to be a Subsidiary
or on which such subsequent transfer occurred; (i) Indebtedness of the Company
in connection with a purchase of the Notes pursuant to a Change of Control
Offer and guarantees of Subsidiaries of such Indebtedness of the Company,
provided that the aggregate principal amount of such Indebtedness does not
exceed 101% of the aggregate principal amount at Stated Maturity of the Notes
purchased pursuant to such Change of Control Offer, provided, further, that
such Indebtedness (A) has an Average Life equal to or greater than the
remaining Average Life of the Notes and (B) does not mature prior to one year
following the Stated Maturity of the Notes; (j) Permitted Refinancing
Indebtedness; (k) Permitted Subsidiary Refinancing Indebtedness; and (l)
additional Indebtedness in an aggregate principal amount not to exceed
$5,000,000 at any time outstanding. So as to avoid duplication in determining
the amount of Permitted Indebtedness under any clause of this definition,
guarantees permitted to be incurred pursuant to this Indenture of, or
obligations permitted to be incurred pursuant to this Indenture in respect of
letters of credit supporting, Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks organized in the United States, or
foreign branches thereof, having capital and surplus in excess of $500,000,000;
(b) commercial paper issued by any corporation, if such commercial paper has
credit ratings of at least "A-1" or its equivalent by S&P and at least "P-1" or
its equivalent by Moody's; (c) U.S. Government Obligations with a maturity of
one year or less; (d) repurchase obligations for instruments of the type
described in clause (c) with any bank meeting the
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qualifications specified in clause (a) above; (e) shares of money market mutual
or similar funds having assets in excess of $500,000,000; (f) payroll advances
in the ordinary course of business and other advances and loans to officers and
employees of the Company or any Subsidiary, so long as the aggregate principal
amount of such advances and loan, does not exceed $1,500,000 at any one time
outstanding; (g) Investments represented by that portion of the proceeds from
Asset Sales that is not required to be Cash Proceeds by the covenant described
in Section 4.15; (h) Investments made by the Company in Subsidiary Guarantors
(or any Person that will be a Subsidiary and a Subsidiary Guarantor as a result
of such Investment) or by a Subsidiary in the Company or in one or more
Subsidiary Guarantors (or any Person that will be a Subsidiary of the Company
as a result of such Investment); (i) Investments in stock, obligations or
securities received in settlement of debts owing to the Company or any
Subsidiary as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection or enforcement of any Lien in favor of the Company or
any Subsidiary, in each case as to debt owing to the Company or any Subsidiary
that arose in the ordinary course of business of the Company or any such
Subsidiary; (j) Interest Swap Obligations with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be outstanding;
(k) Currency Hedge Obligations, provided that such Currency Hedge Obligations
constitute Permitted Indebtedness permitted by clause (d) of the definition
thereof; (m) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility, worker's compensation and performance and other
similar deposits in the ordinary course of business; and (n) Investments
pursuant to any agreement or obligation of the Company or any Subsidiary in
effect on the Issue Date and listed on Schedule 1.1(b) attached hereto.
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Notes and/or the Guarantees; (c) Liens on
Property of a Person existing at the time such Person is merged or consolidated
with or into the Company or a Subsidiary (and not incurred as a result of, or in
anticipation of, such transaction), provided that any such Lien relates solely
to such Property; (d) Liens on Property existing at the time of the acquisition
thereof (and not incurred as a result of, or in anticipation of such
transaction), provided that any such Lien relates solely to such Property; (e)
Liens incurred or pledges and deposits made in connection with worker's
compensation, unemployment insurance and other social security benefits,
statutory obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens, and incurred in the ordinary course of business
for sums not delinquent or being contested in good faith, if such reserves or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made with respect thereof; (g) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of the Company
or any Subsidiary to conduct its business presently conducted; (h) Liens for
taxes or assessments or other governmental charges or levies not yet due and
payable, or the validity of which is being contested by the Company or a
Subsidiary in good faith and by appropriate proceedings upon stay of execution
or the enforcement thereof and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made; (i) Liens to secure
Indebtedness incurred for the purpose of financing all or a part of the purchase
price or construction cost of Property or
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assets acquired or constructed after the Issue Date, provided that (l) the
principal amount of Indebtedness secured by such Liens shall not exceed 100% of
the lesser of cost or Fair Market Value of the Property or assets so acquired
or constructed plus transaction costs related thereto, (2) such Liens shall not
encumber any other assets or Property of the Company or any Subsidiary (other
than the proceeds thereof and accessions and upgrades thereto) and (3) such
Liens shall attach to such Property or assets within 120 days of the date of
the completion of the construction or acquisition of such Property for assets;
(j) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, of any Indebtedness secured by Liens referred to in the foregoing clauses
(a), (c) and (d), provided that such Lien does not extend to any other Property
or assets of the Company or any Subsidiary and the principal amount of the
Indebtedness secured by such Lien is not increased; (k) leases or subleases of
real property to other Persons; (l) judgment liens not giving rise to an Event
of Default so long as any appropriate legal proceedings which may have been
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall
not have expired; (m) rights of off-set of banks and other Persons; (n) Liens
in favor of the Company; (o) Liens securing Indebtedness described under clause
(b) of the definition of Permitted Indebtedness; and (p) Liens securing Senior
Debt if at the time of the incurrence of such Indebtedness or the granting of
such Liens, whichever is later to occur, and after the giving of pro forma
effect to such incurrence of Indebtedness or granting of Liens, the Senior Debt
to EBITDA Ratio does not exceed 4.0 to 1.0 until December 1, 2000 and
thereafter does not exceed 3.75 to 1.0.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company,
incurred in exchange for, or the net proceeds of which are used to renew,
extend, refinance, refund or repurchase, outstanding Indebtedness of the Company
which outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (a) and (e) of the definition of "Permitted
Indebtedness; provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Notes, then such new
Indebtedness is pari passu with or subordinated in right of payment (without
regard to its being secured) to, as the case may be, the Notes at least to the
same extent as the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (iii)
such new Indebtedness has an Average Life at the time such Indebtedness is
incurred that is greater than the Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iv) such new
Indebtedness is in aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses, and premium, if any, incurred by the Company or such
Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance,
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refund or repurchase, outstanding Indebtedness of such Subsidiary which
outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (e) and (f) of the definition of Permitted
Indebtedness, provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Guarantee of such
Subsidiary, then such new Indebtedness is pari passu with or subordinated in
right of payment (without regard to its being secured) to, as the case may be,
the Guarantee of such Subsidiary at least to the same extent as the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (ii)
such new Indebtedness is scheduled to mature later than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, (iii) such new
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is greater than the Average Life of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iv) such new Indebtedness is in an
aggregate principal amount (or, if such Indebtedness is issued at a price less
than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is) not in excess of the aggregate principal amount then outstanding
of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased (or if the Indebtedness being renewed, extended, refinanced,
refunded or repurchased was issued at a price less than the principal amount
thereof, then not in excess of the amount of liability in respect thereof
determined in accordance with GAAP) plus the amount of reasonable fees,
expenses, and premium, if any, incurred by the Company or such Subsidiary in
connection therewith.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of the Company or Master Graphics for cash pursuant to an
effective registration statement (other than on a Form S-4 or a Form S-8 or any
other form relating to securities issuable under any employee benefit plan of
the Company or Master Graphics) under the Securities Act; provided that in the
event of a Public Equity Offering by Master Graphics, Master Graphics
contributes the Net Proceeds of such Public Equity Offering to the common equity
of the Company.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified in
Rule 144A under the Securities Act.
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"Record Date" means, for the interest payment on any Interest Payment Date,
the date specified in Section 2.12 hereof.
"Redeemable Stock" means, with respect to any Person, any equity security that
by its terms or otherwise is required to be redeemed, or is redeemable at the
option of the holder thereof, at any time prior to one year following the Stated
Maturity of the Notes or is exchangeable into Indebtedness of such Person or any
of its subsidiaries.
"Redemption Date" means, when used with respect to any Note or part thereof to
be redeemed hereunder, the date fixed for redemption of such Notes pursuant to
the terms of the Notes and this Indenture.
"Redemption Price" means, when used with respect to any Note or part thereof
to be redeemed hereunder, the price fixed for redemption of such Note pursuant
to the terms of the Notes and this Indenture, plus accrued and unpaid interest,
if any, and Special Interest, if any, thereon, to the Redemption Date.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
as of the date of this Indenture, by and among the Company, the Initial
Guarantors and the Initial Purchasers, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S under the Securities Act (including any
successor regulation thereto), as it may be amended from time to time.
"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global senior note that
contains the paragraph referred to in footnote 1, the phrase referred to in
footnote 1 and the additional schedule referred to in footnote 5 to the form of
the Note attached hereto as Exhibit A, and that is deposited with the Note
Custodian and registered in the name of the Depositary or its nominee,
representing the Initial Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Note" means a single temporary global senior
note that contains the paragraphs referred to in footnotes 1 and 3, the phrase
referred to in Footnote 4 and the additional schedule referred to in footnote 4
to the form of the Senior Note attached hereto as Exhibit A, in the form of the
Note attached hereto as Exhibit A that is deposited with the Note Custodian and
registered in the name of the Depositary or its nominee, representing the
Initial Notes sold in reliance on Regulation S.
"Related Business" means the general commercial printing business and any
business reasonably complementary, related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the Board
of Directors of the Company as evidenced by a Board Resolution, is used or is
useful in a Related Business.
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"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee with direct responsibility of the administration of this
Indenture and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make any
distribution in respect of, or purchase, redeem, retire or otherwise acquire for
value, any Capital Stock of the Company or any Affiliate of the Company
(including, without limitation, any such dividend, distribution or other payment
made as a payment in connection with any merger or consolidation involving the
Company), or warrants, rights or options to acquire such Capital Stock, other
than (x) dividends payable solely in the Capital Stock (other than Redeemable
Stock) of the Company or such Affiliate, as the case may be, or in warrants,
rights or options to purchase or acquire such Capital Stock and (y) dividends or
distributions by a Subsidiary to the Company or to a Subsidiary Guarantor; (ii)
make any principal payment on, or redeem, repurchase, defease (including an in-
substance or legal defeasance) or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
principal payment, scheduled sinking fund payment or other stated maturity,
Indebtedness of the Company or any Subsidiary Guarantor which is subordinated
(whether pursuant to its terms or by operation of law) in right of payment to
the Notes or the Guarantees, as applicable; (iii) make any Restricted Investment
in any Person; (iv) designate (other than pursuant to clause (xi) of the
definition of Permitted Investments) a Subsidiary as an Unrestricted Subsidiary,
provided that such a designation of a Subsidiary as an Unrestricted Subsidiary
shall be deemed to include the designation of all of the subsidiaries of such
Subsidiary that were Subsidiaries and (vi) forgive any Indebtedness of an
Affiliate of the Company to the Company or a Subsidiary. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and Property other than cash
shall be valued at its Fair Market Value, except that in determining the amount
of any Restricted Payment made under clause (iv) above, the amount of such
Restricted Payment shall be equal to the greater of (i) the book value or (ii)
the Fair Market Value of the Company's or Master Graphics', as applicable,
direct and indirect proportionate interest in such Subsidiary on such date or
the date of the acquisition by the Company or Master Graphics.
"Rule 144A" means Rule 144A under the Securities Act (including any successor
regulation thereto), as it may be amended from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.,
or if Standard & Poor's Ratings Group shall cease rating the specified debt
securities and such ratings business with respect thereto shall have been
transferred to a successor Person, such successor Person.
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"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its subsidiaries.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller Notes" means unsecured, subordinated promissory notes issued by Master
Graphics to the sellers of businesses acquired by Master Graphics and its
subsidiaries, provided that after giving effect to such Asset Acquisitions, the
Person so acquired becomes a Subsidiary Guarantor or the assets so acquired are
held by the Company or a Subsidiary Guarantor.
"Senior Debt" means any Indebtedness incurred by the Company or a Guarantor,
as the case may be, unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to the
Notes or such Guarantor's Guarantee, as applicable, provided that Senior Debt
will not include (a) any liability for federal, state, local or other taxes owed
or owing, (b) any Indebtedness owing to any Subsidiaries or to Master Graphics
or to any Affiliate, (c) any trade payables or (d) any Indebtedness that is
incurred in violation of this Indenture.
"Senior Debt to EBITDA Ratio" means, at any time of determination, the ratio
of (i) the aggregate amount of Senior Debt outstanding on the date of
determination, other than Senior Debt secured by Permitted Liens described in
clause (o) of the definition of Permitted Liens, to (ii) the aggregate amount of
EBITDA of the Company and the Subsidiaries on a combined consolidated basis for
the four fiscal quarters for which financial information is available
immediately prior to date of determination; provided that any Senior Debt
incurred or retired by the Company or any of the Subsidiaries during the fiscal
quarter in which the date of determination occurs shall be calculated as if such
Senior Debt were so incurred or retired on the first day of the fiscal quarter
in which the date of determination occurs; and provided, further, that (x) if
the transaction giving rise to the need to calculate the Senior Debt to EBITDA
Ratio would have the effect of increasing or decreasing Senior Debt or EBITDA in
the future, Senior Debt or EBITDA shall be calculated on a pro forma basis as if
such transaction had occurred on the first day of such four fiscal quarter
period preceding the date of determination, and (y) if during such four fiscal
quarter period, the Company or any of the Subsidiaries shall have engaged in any
Asset Sale, EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject of such
Asset Sale and any related retirement of Senior Debt as if such Asset Sale and
related retirement of Senior Debt had occurred on the first day of such four
fiscal quarter period or (z) if during such four fiscal quarter period the
Company or any of the Subsidiaries shall have made any Asset Acquisition, EBITDA
shall be calculated on a pro forma basis as if such Asset Acquisition and any
related financing had occurred on the first day of such four fiscal quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to an Asset Acquisition, the amount of income or earnings relating thereto
shall be determined in good faith by a responsible financial or accounting
officer of the Company.
20
<PAGE>
"Significant Subsidiary" means any Subsidiary Guarantor or any other
Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act.
"Special Interest" means all "special interest" owing pursuant to the
Registration Rights Agreement.
"Special Record Date" means a date fixed by the Trustee pursuant to Section
2.12 hereof for the payment of Defaulted Interest.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Subsidiary that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be.
"subsidiary" means, with respect to any Person, (i) any corporation more than
50% of the outstanding Voting Stock of which is owned, directly or indirectly,
by such Person, or by one or more other subsidiaries of such Person, or by such
Person and one or more other subsidiaries of such Person, (ii) any general
partnership, joint venture or similar entity, more than 50% of the outstanding
partnership or similar interest of which is owned, directly or indirectly, by
such Person, or by one or more other subsidiaries or such Person, or by such
Person and one or more other subsidiaries of such Person and (iii) any limited
partnership of which such Person or any subsidiary of such Person is a general
partner.
"Subsidiary" means a subsidiary of Master Graphics (or the Company, if the
Company is no longer a Subsidiary of Master Graphics) other than an Unrestricted
Subsidiary.
"Subsidiary Guarantor" means a Guarantor that is a Subsidiary.
"Tax Sharing Agreement" means that certain tax sharing agreement among the
Company, Harperprints and Master Graphics.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"Transfer Restricted Notes" means Notes that bear or are required to bear the
Private Placement Legend.
"Trust Indenture Act" or "TIA" means the U.S. Trust Indenture Act of 1939 (15
U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the Trust Indenture Act except as required by Section 9.3
hereof, provided that if the Trust Indenture Act of 1939 is amended after such
date, "Trust Indenture Act" or "TIA" means, if so required by such amendment,
the Trust Indenture Act of 1939, as so amended.
21
<PAGE>
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"U.S. Global Note" means a permanent Global Note that contains the paragraphs
referred to in footnote 1, in the phrase referred to in footnote 4 and the
additional schedule referred to in footnote 5 to the form of the Note attached
hereto as Exhibit A, and that is deposited with the Note Custodian and
registered in the name of the Depositary or its nominee, representing Notes sold
in reliance on Rule 144A or in reliance on another exemption from the
registration requirements of the Securities Act.
"U.S. Government Obligations" means securities that are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case under clauses
(i) or (ii) above, are not callable or redeemable at the option of the issuers
thereof; or (iii) depository receipts issued by a bank or trust company as
custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such depository receipt.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respects to its assets), (iv) any trust of which any trustee is
a U.S. Person (other than a trust of which at least one trustee is an non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned, by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
provided, however, that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international
22
<PAGE>
organizations set forth in Section 902(o)(7) of Regulation S and any other
similar international organizations, and their agencies, affiliates and pension
plans.
"Unrestricted Subsidiary" means any subsidiary of the Company or a Subsidiary
that the Company has classified as an Unrestricted Subsidiary, and that has not
been reclassified as a Subsidiary, pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether at
all times or at the times that such class of Capital Stock has voting power by
reason of the happening of any contingency) to vote in the election of members
of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by Master Graphics or the Company, as the case may be, or (ii) such
Subsidiary is organized in a foreign jurisdiction and is required by the
applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Subsidiary to transact
business in such foreign jurisdiction, provided that Master Graphics or the
Company, directly or indirectly, owns the remaining Capital Stock or ownership
interest in such Subsidiary and, by contract or otherwise, controls the
management and business of such Subsidiary and derives the economic benefits of
ownership of such Subsidiary to substantially the same extent as if such
Subsidiary were a Wholly Owned Subsidiary.
SECTION 1.2 Other Definitions.
-----------------
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Act" 11.6
"Asset Sale Offer" 4.15(b)
"Asset Sale Offer Amount" 4.15(c)
"Asset Sale Offer Period" 4.15(c)
"Asset Sale Offer Purchase Price" 4.15(b)
"Asset Sale Purchase Date" 4.15(b)
"Change of Control Offer" 4.9(a)
"Change of Control Purchase Price" 4.9(a)
"Change of Control Offer Period" 4.9(a)
"Change of Control Payment Date" 4.9(a)
"Covenant Defeasance" 9.3
"DTC" 2.3
"Defaulted Interest" 2.12
"Defeasance" 9.2
"Event of Default" 6.1
"Excess Proceeds" 4.15(b)
"40-day restricted period" 2.1(b)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
"Guaranteed Indebtedness" 4.18, 12.8
"Interest Payment Date" 2.12
"Paying Agent" 2.3
"Payment Default" 6.1(e)
"Private Placement Legend" 2.6(e)(i)
"Process Agent" 11.10
"Registrar" 2.3
"Required Filing Dates" 4.6
"Securities Register" 2.3
"Surviving Entity" 5.1(a)(i)
</TABLE>
SECTION 1.3 Incorporation By Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture.
The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company or any other obligor on
the Notes.
All other terms used in this Indenture that are defined by the
Trust Indenture Act, defined by the Trust Indenture Act reference to another
statute or defined by Commission rule under the Trust Indenture Act have the
meanings so assigned to them therein.
SECTION 1.4 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) the words "herein," "hereof" and "hereunder," and other words
of similar import, refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(2) a term has the meaning assigned to it;
(3) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
24
<PAGE>
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular;
(6) provisions apply to successive events and transactions;
(7) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the Commission from time to time;
(8) the principal amount of any non-interest bearing or other
discount security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the issuer dated such date prepared in
accordance with generally accepted accounting principles;
(9) when used with respect to the Notes, the term "principal
amount" shall mean the principal amount thereof at Maturity;
(10) unless otherwise expressly provided herein, the principal
amount of any preferred stock shall be greater of (i) the maximum liquidation
value of such preferred stock or (ii) the maximum mandatory redemption or
mandatory repurchase price with respect to such preferred stock; and
(11) all references to amounts of money or $ mean U.S. Dollars.
ARTICLE 2
THE NOTES
SECTION 2.1 Form and Dating.
---------------
(a) General. The Notes, together with the Trustee's certificate
of authentication and the Guarantors' notation of Guarantees, shall be
substantially in the form set forth in Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof. The Initial Notes
and the Exchange Notes will be the same except that the Private Placement
Legend and paragraph 18 will be omitted from the Exchange Notes.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
25
<PAGE>
(b) Initial Notes. Initial Notes, with the notations of the
Guarantees endorsed thereon, shall be issued in the form of one or more
permanent Global Notes in definitive fully registered form without interest
coupons. Notes offered and sold to QIBs in reliance on Rule 144A, shall be
issued initially in the form of the U.S. Global Notes, which shall be deposited
on behalf of the purchasers of the Notes represented thereby with the Note
Custodian, and registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as hereinafter
provided. Initial Senior Notes offered and sold in reliance on Regulation S
shall be issued initially in the form of the Regulation S Temporary Global
Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Note Custodian, and registered in the name of the
Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The "40-day
restricted period" (as defined in Regulation S) shall be terminated upon the
receipt by the Trustee of a written certificate from the Depositary, together
with copies of certificates from Euroclear and Cedel certifying that they have
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Note (except to
the extent of any beneficial owners thereof who acquired an interest therein
pursuant to another exemption from registration under the Securities Act and
who will take delivery of a beneficial ownership interest in a 144A Global
Note, all as contemplated by Section 2.6(a)(ii) hereof). Following the
termination of the 40-day restricted period, beneficial interests in the
Regulation S Temporary Global Note shall be exchanged for beneficial interests
in Regulation S Permanent Global Note pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent Global Note,
the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate
principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed on Schedule A
thereto and that the aggregate amount of outstanding Notes represented thereby
may from time to time be reduced or increased, as appropriate, to reflect
exchanges, redemptions and transfers of interests. Any endorsement of Schedule A
of a Global Note to reflect the amount of any increase or decrease in the amount
of outstanding Notes represented thereby shall be made by the Trustee or the
Note Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.6 hereof.
The provisions of the "Operating Procedures of the Euroclear
Clearance System" and "Terms and Conditions Governing Use of Euroclear" and the
"Management Regulations" and "Instructions to Participants" of Cedel shall be
applicable to interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Note that are held by Participants through
Euroclear or Cedel. The Trustee shall have no obligation to notify Holders of
any such procedures or to monitor or enforce compliance with the same.
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<PAGE>
Except as set forth in Section 2.6 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(c) Book-Entry Provisions. This Section 2.1(c) shall apply only
to Global Notes deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(c), authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the Depositary and
(ii) shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instructions or held by the Note Custodian.
Participants shall have no rights either under this Indenture with
respect to any Global Note held on their behalf by the Depositary or by the Note
Custodian as custodian for the Depositary or under such Global Note, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in any Global Note.
(d) Certificated Notes. Notes issued in certificated form shall
be substantially in the form of Exhibit A attached hereto (but without
including the text referred to in footnotes 1, 3 and 4 thereto) and shall be
printed, typewritten, lithographed or engraved or produced by any combination
of these methods or may be produced by any other method permitted by the rules
of any securities exchange on which the Notes may be listed, as evidenced by
the execution of such Notes.
(e) Provisions Applicable to Forms of Notes. The Notes may also
have such additional provisions, omissions, variations or substitutions as are
not inconsistent with the provisions of this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with this Indenture,
any applicable law or with any rules made pursuant thereto or with the rules of
any securities exchange or governmental agency or as may be determined
consistently herewith by the Officers of the Company executing such Notes, as
conclusively evidenced by their execution of such Notes. All Notes will be
otherwise substantially identical except as provided herein.
Subject to the provisions of this Article 2, a Holder of a Global
Note may grant proxies and otherwise authorize any Person to take any action
that a Holder is entitled to take under this Indenture or the Notes.
SECTION 2.2 Execution and Authentication.
----------------------------
27
<PAGE>
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially
as set forth in Exhibit A hereto.
The Trustee shall authenticate (i) Initial Notes for original
issue in an aggregate principal amount not to exceed $130,000,000 and (ii)
Exchange Notes for issue only in the Exchange Offer pursuant to the Exchange
Offer Registration Statement for a like principal amount of Initial Notes
exchanged in such Exchange Offer, in each case upon the receipt of a Company
Order directing the Trustee to authenticate such Notes and certifying that all
conditions precedent to the issuance of the relevant Notes contained herein
have been complied with. The aggregate principal amount of Notes outstanding at
any time may not exceed $130,000,000, except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain (i) an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar"), (ii)
an office or agency where Notes may be presented for payment ("Paying Agent"),
and (iii) and an office or agency where notices or demands to or upon the
Company and the Guarantors in respect of the Notes and this Indenture may be
served. The Registrar shall keep a register of the Notes and of their transfer
and exchange (the "Securities Register"). The Company may appoint one or more
co- registrars and one or more additional paying agents except as otherwise
provided in this Indenture. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
28
<PAGE>
The Company initially appoints the Trustee (at the Corporate Trust
Office of the Trustee) to act as the Registrar and Paying Agent and to act as
Note Custodian with respect to the Global Notes.
SECTION 2.4 Paying Agent to Hold Money in Trust.
-----------------------------------
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, on, interest on, and Special Interest, if any,
on, the Notes, and shall notify the Trustee of any default by the Company in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.5 Holder Lists.
------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes, and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.6 Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Global Notes. The transfer and
exchange of beneficial interests in Global Notes shall be effected through the
Depositary, in accordance with this Indenture and the Applicable Procedures,
which shall include restrictions on transfer comparable to those set forth
herein to the extent required by the Securities Act. Beneficial interests in a
Global Note may be transferred to Persons who take delivery thereof in the form
of a beneficial interest in the same Global Note in accordance with the
transfer restrictions set forth in the legend in subsection (e) of this Section
2.6. Transfers of beneficial interests in the Global Notes to Persons required
to take delivery thereof in the form of an interest in another Global Note
shall be permitted as follows:
(i) U.S. Global Note to Regulation S Global Note. Prior to the
expiration of the 40-day restricted period, an owner of a
beneficial interest in a U.S. Global Note deposited with the
Depositary (or the Note Custodian) will not be permitted to
transfer its interest to a Person who wishes to take delivery
thereof in the form of an interest in the Regulation S Global
Note.
29
<PAGE>
If, at any time after the expiration of the 40-day restricted
period, an owner of a beneficial interest in a U.S. Global
Note deposited with the Depositary (or the Note Custodian)
wishes to transfer its beneficial interest in such U.S.
Global Note to a Person who is required or permitted to take
delivery thereof in the form of an interest in a Regulation S
Global Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest
for an equivalent beneficial interest in a Regulation S
Global Note as provided in this Section 2.6(a)(i). Upon
receipt by the Trustee of (1) instructions given in
accordance with the Applicable Procedures from a Participant
directing the Trustee to credit or cause to be credited a
beneficial interest in the Regulation S Global Note in an
amount equal to the beneficial interest in the U.S. Global
Note to be exchanged, (2) a written order given in accordance
with the Applicable Procedures containing information
regarding the Participant account of the Depositary and the
Euroclear or Cedel account to be credited with such increase,
and (3) a certificate in the form of Exhibit B-1 hereto given
by the owner of such beneficial interest stating that the
transfer of such interest has been made in compliance with
the transfer restrictions applicable to the Global Notes and
pursuant to and in accordance with Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct
the Depositary to reduce or cause to be reduced the aggregate
principal amount at Maturity of the applicable U.S. Global
Note and to increase or cause to be increased the aggregate
principal amount at Maturity of the applicable Regulation S
Global Note by the principal amount at Maturity of the
beneficial interest in the U.S. Global Note to be exchanged
or transferred, to credit or cause to be credited to the
account of the Person specified in such instructions, a
beneficial interest in the Regulation S Global Note equal to
the reduction in the aggregate principal amount at Maturity
of the U.S. Global Note, and to debit, or cause to be
debited, from the account of the Person making such exchange
or transfer the beneficial interest in the U.S. Global Note
that is being exchanged or transferred.
(ii) Regulation S Global Note to U.S. Global Note. Prior to the
expiration of the 40-day restricted period, an owner of a
beneficial interest in a Regulation S Global Note deposited
with the Depositary (or the Note Custodian) will not be
permitted to transfer its interest to a Person who wishes to
take delivery thereof in the form of an interest in a U.S.
Global Note. If, at any time, after the expiration of the
40-day restricted period, an owner of a beneficial interest
in a Regulation S Global Note deposited with the Depositary
or with the Note Custodian wishes to transfer its beneficial
interest in such Regulation S Global Note to a Person who is
required or permitted to take delivery thereof in the form of
an interest in a U.S. Global Note, such owner shall, subject
to the Applicable Procedures, exchange or cause the exchange
of such interest for an equivalent beneficial interest in a
U.S. Global Note as provided in this Section
30
<PAGE>
2.6(a)(ii). Upon receipt by the Trustee of (1) instructions
from Euroclear or Cedel, if applicable, and the Depositary,
directing the Trustee, as Registrar, to credit or cause to be
credited a beneficial interest in the U.S. Global Note equal
to the beneficial interest in the Regulation S Global Note to
be exchanged, such instructions to contain information
regarding the Participant account with the Depositary to be
credited with such increase, (2) a written order given in
accordance with the Applicable Procedures containing
information regarding the Participant account of the
Depositary and (3) a certificate in the form of Exhibit B-2
attached hereto given by the owner of such beneficial
interest stating (A) if the transfer is pursuant to Rule
144A, that the Person transferring such interest in a
Regulation S Global Note reasonably believes that the Person
acquiring such interest in a U.S. Global Note is a QIB and is
obtaining such beneficial interest in a transaction meeting
the requirements of Rule 144A and any applicable blue sky or
securities laws of any state of the United States, (B) that
the transfer complies with the requirements of Rule 144 under
the Securities Act, (C) if the transfer is to an
Institutional Accredited Investor that such transfer is in
compliance with the Securities Act and that a certificate in
the form of Exhibit C attached hereto is attached thereto,
together with, if the Company should so request or if the
transfer is in respect of an aggregate principal amount of
Notes less than $250,000, an Opinion of Counsel in form
reasonably acceptable to the Company that such transfer is in
compliance with the Securities Act or (D) if the transfer is
pursuant to any other exemption from the registration
requirements of the Securities Act, that the transfer of such
interest has been made in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to
and in accordance with the requirements of the exemption
claimed, such statement to be supported by an Opinion of
Counsel from the transferee or the transferor in form
reasonably acceptable to the Company and to the Registrar
and, in each case, in accordance with any applicable
securities laws of any state of the United States or any
other applicable jurisdiction, then the Trustee, as
Registrar, shall instruct the Depositary to reduce or cause
to be reduced the aggregate principal amount at Maturity of
such Regulation S Global Note and to increase or cause to be
increased the aggregate principal amount at Maturity of the
applicable U.S. Global Note by the principal amount at
Maturity of the beneficial interest in the Regulation S
Global Note to be exchanged or transferred, and the Trustee,
as Registrar, shall instruct the Depositary, concurrently
with such redemption, to credit or cause to be credited to
the account of the Person specified in such instructions a
beneficial interest in the applicable U.S. Global Note equal
to the reduction in the aggregate principal amount at
Maturity of such Regulation S Global Note and to debit or
cause to be debited from the account of the Person making
such transfer the beneficial interest in the Regulation S
Global Note that is being exchanged or transferred.
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(iii) U.S. Global Notes to Institutional Accredited Investor. If,
at any time, an owner of a beneficial interest in a U.S.
Global Note deposited with the Depositary (or the Senior Note
Custodian) wishes to transfer its beneficial interest in such
U.S. Global Note to a Person who is an Institutional
Accredited Investor, such owner shall, subject to the
Applicable Procedures and the other provisions of this
Section 2.6, exchange or cause the exchange of such interest
for an equivalent beneficial interest in a U.S. Global Note
as provided in this Section 2.6(a)(iii). Upon receipt by the
Trustee of (1) instructions given in accordance with the
Applicable Procedures from a Participant directing the
Trustee to credit or cause to be credited a beneficial
interest in the U.S. Global Note in an amount equal to the
beneficial interest in the U.S. Global Note to be exchanged,
(2) a written order given in accordance with the Applicable
Procedures containing information regarding the Participant
account of the Depositary to be credited with such increase,
and (3) a certificate in the form of Exhibit C hereto given
by the proposed transferee, and, if the Company should so
request, an Opinion of Counsel provided by the transferor or
the transferee (a copy of which the Transferor attaches to
such certificate), in form reasonably acceptable to the
Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act, then the
Trustee, as Registrar, shall instruct the Depositary to
credit or cause to be credited to the account of the Person
specified in such instructions, a beneficial interest in the
U.S. Global Note equal to the aggregate principal amount
being transferred, and to debit, or cause to be debited, from
the account of the Person making such exchange or transfer
the beneficial interest in the U.S. Global Note that is being
exchanged or transferred.
(b) Transfer and Exchange of Certificated Notes. When
Certificated Notes are presented by a Holder to the Registrar with a request to
register the transfer of the Certificated Notes or to exchange such
Certificated Notes for an equal principal amount of Certificated Notes of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested only if the Certificated Notes are presented or
surrendered for registration of transfer or exchange, are endorsed and contain
a signature guarantee or are accompanied by a written instrument of transfer in
form satisfactory to the Registrar duly executed by such Holder or by his
attorney and contains a signature guarantee, duly authorized in writing and the
Registrar received the following documentation (all of which may be submitted
by facsimile):
in the case of Certificated Notes that are Transfer Restricted
Notes, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Note is being delivered to
the Registrar by a Holder for registration in the name
of such Holder, without transfer, or such Transfer
Restricted Note is being transferred to the Company, a
certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto); or
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(B) if such Transfer Restricted Note is being transferred to
a QIB in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or in
an offshore transaction pursuant to and in compliance
with Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities
Act, a certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto); or
(C) if such Transfer Restricted Note is being transferred in
reliance on any other exemption from the registration
requirements of the Securities Act, a certification to
that effect from such Holder (in substantially the form
of Exhibit B-3 hereto) and an Opinion of Counsel from
such Holder or the transferee in form reasonably
acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the
Securities Act.
(c) Transfer of a Beneficial Interests in Global Notes for
Certificated Notes.
(i) The Global Notes that are Transfer Restricted Notes or the
Exchange Global Notes, as the case may be, shall be exchanged
by the Company for one or more Certificated Notes
representing Initial Notes or Exchange Notes, as the case may
be, if (x) the Depositary (i) has notified the Company that
it is unwilling or unable to continue as, or ceases to be, a
"Clearing Agency" registered under Section 17A of the
Exchange Act and (ii) a successor to the Depositary
registered as a "Clearing Agency" under Section 17A of the
Exchange Act is not able to be appointed by the Company
within 90 calendar days or (y) the Depositary is at any time
unwilling or unable to continue as Depositary and a successor
to the Depositary is not able to be appointed by the Company
within 90 calendar days or (iii) the Company, at its option,
delivers a notice in the form of an Officers' Certificate
that it elects to cause the issuance of Certificated Notes.
If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder thereof, exchange all or
part of a Global Note that is a Transfer Restricted Note or
an Exchange Global Note, as the case may be, for one or more
Certificated Notes representing Initial Notes or Exchange
Notes, as the case may be; provided that the principal amount
of each of such Certificated Notes, and such Global Note,
after such exchange, shall be $1,000 or an integral multiple
thereof. Whenever a Global Note is exchanged as a whole for
one or more Certificated Notes, it shall be surrendered by
the Holder thereof to the Trustee for cancellation. Whenever
a Global Note is exchanged in part for one or more
Certificated Notes, it shall be surrendered by the Holder
thereof to the Trustee and the Trustee shall make the
appropriate notations to Schedule A thereof pursuant to
Section 2.1 hereof. All Certificated Notes or Exchange
Notes,
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as the case may be, issued in exchange for a Global Note or
any portion thereof shall be registered in such names, and
delivered, as the Depositary shall instruct the Trustee. Any
Certificated Notes issued pursuant to this Section 2.6(c)(i)
shall include the Private Placement Legend, except as
otherwise provided for by Section 2.6 hereof. Interests in a
Global Note may not be exchanged for Certificated Notes other
than as provided in this Section 2.6. If a beneficial
interest in a Transfer Restricted Note is being transferred,
the following additional documents and information must be
submitted (including by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the
beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit B-4
hereto);
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or in
an offshore transaction pursuant to and in compliance
with Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities
Act, a certification to that effect from the transferor
(in substantially the form of Exhibit B-4 hereto);
(C) if such beneficial interest is being transferred in
reliance on any other exemption from the registration
requirements of the Securities Act, a certification to
that effect from the transferor (in substantially the
form of Exhibit B-4 hereto) and an Opinion of Counsel
from the transferee or the transferor in form reasonably
acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the
Securities Act, in which case the Trustee or the Note
Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures
existing between the Depositary and the Note Custodian,
cause the aggregate principal amount of U.S. Global
Notes or Regulation S Permanent Global Notes, as
applicable, to be reduced accordingly and, following
such reduction, the Company shall execute and, the
Trustee shall authenticate and deliver to the transferee
a Certificated Note in the appropriate principal amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in a U.S. Global Note or Regulation S Permanent
Global Note, as applicable, pursuant to this Section 2.6(c)
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions
from its Participants or Indirect Participants or otherwise,
shall instruct the
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Trustee. The Trustee shall deliver such Certificated Notes to
the Persons in whose names such Notes are so registered.
Following any such issuance of Certificated Notes, the
Trustee, as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate principal amount
at maturity of the applicable Global Note to reflect the
transfer.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (e) of this Section 2.6), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. Any Holder of
a beneficial interest in a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Notes represented hereby shall be required to be reflected in book entry form.
Interests of beneficial owners in a Global Note may be transferred in
accordance with the rules and procedures of the Depositary (or its successors).
(e) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii)
and (iv), each Note certificate evidencing Global Notes and
Certificated Notes (and all Notes issued in exchange therefor
or substitution thereof) shall bear a legend (the "Private
Placement Legend") in substantially the following form:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, THIS NOTE
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER REGULATION D UNDER THE SECURITIES ACT (AN "IAI")),
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(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN
AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO
AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE
WITH A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF
WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.
(ii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Note that is a
Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Note for a
Certificated Note that does not
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bear the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted
Note upon receipt of a certification from the
transferring Holder substantially in the form of Exhibit
B-4 hereto; and
(B) in the case of any Transfer Restricted Note represented
by a Global Note, such Transfer Restricted Note shall
not be required to bear the legend set forth in (i)
above, but shall continue to be subject to the
provisions of Section 2.6(a) and (b) hereof; provided,
however, that with respect to any request for an
exchange of a Transfer Restricted Note that is
represented by a Global Note for a Certificated Note
that does not bear the legend set forth in (i) above,
which request is made in reliance upon Rule 144, the
Holder thereof shall certify in writing to the Registrar
that such request is being made pursuant to Rule 144
(such certification to be substantially in the form of
Exhibit B-4 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a
Global Note) in reliance on any exemption from the
registration requirements of the Securities Act (other than
exemptions pursuant to Rule 144A or Rule 144 under the
Securities Act) in which the Holder or the transferee
provides an Opinion of Counsel to the Company and the
Registrar in form and substance reasonably acceptable to the
Company and the Registrar (which Opinion of Counsel shall
also state that the transfer restrictions contained in the
legend are no longer applicable):
(A) in the case of any Transfer Restricted Note that is a
Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Note for a
Certificated Note that does not bear the legend set
forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Note; and
(B) in the case of any Transfer Restricted Note represented
by a Global Note, such Transfer Restricted Note shall
not be required to bear the legend set forth in (i)
above, but shall continue to be subject to the
provisions of Section 2.6(a) and (b) hereof.
(iv) By its acceptance of any Initial Note represented by a
certificate bearing the Private Placement Legend, each Holder
of, and beneficial owner of an interest in, such Initial Note
acknowledges the restrictions on transfer of such Initial
Note set forth in the Private Placement Legend and under the
heading "Notice to Investors" in the Offering Memorandum and
agrees that it will transfer such Initial Note only in
accordance with the Private Placement Legend and the
restrictions set forth under the heading "Notice to
Investors" in the Offering Memorandum.
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(v) Notwithstanding the foregoing, upon the occurrence of the
Exchange Offer in accordance with the Registration Rights
Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.2 hereof,
the Trustee shall authenticate (i) one or more unrestricted
Global Notes in aggregate principal amount equal to the
principal amount of the restricted beneficial interests
validly tendered and not properly withdrawn by Persons that
certify in the letter of transmittal delivered in the
Exchange Offer that they are not (x) broker-dealers, (y)
Persons participating in the distribution of the Exchange
Notes or (z) Persons who are affiliates (as defined in Rule
144 under the Securities Act) of the Company and accepted for
exchange in the Exchange Offer and (ii) Certificated Notes
that do not bear the Private Placement Legend in an aggregate
principal amount equal to the principal amount of the
Certificated Notes that are Transfer Restricted Notes
accepted for exchange in the Exchange Offer. Concurrently
with the issuance of such Notes, the Trustee shall cause the
aggregate principal amount of the applicable Global Notes to
be reduced accordingly and the Company shall execute and the
Trustee shall authenticate and deliver to the Persons
designated by the Holders of Certificated Notes so accepted
Certificated Notes in the appropriate principal amount.
(f) Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or cancelled, all Global Notes shall
be returned to or retained and cancelled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for Certificated Notes, redeemed,
repurchased or cancelled, the principal amount of Notes represented by such
Global Note shall be reduced accordingly and an endorsement shall be made on
such Global Note, by the Trustee or the Note Custodian, at the direction of the
Trustee, to reflect such reduction.
(g) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Global Notes and Certificated Notes at the Registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any stamp or
transfer tax or similar governmental charge payable in
connection therewith (other than any such stamp or transfer
taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.6, 4.9, 4.15 and 10.6
hereto).
(iii) All Global Notes and Certificated Notes issued upon any
registration of transfer or exchange of Global Notes or
Certificated Notes shall be the
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valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as
the Global Notes or Certificated Notes surrendered upon such
registration of transfer or exchange.
(iv) The Registrar shall not be required: (A) to issue, to
register the transfer of or to exchange Notes during a period
beginning at the opening of fifteen (15) Business Days before
the day of any selection of Notes for redemption under
Section 3.2 hereof and ending at the close of business on the
day of selection, (B) to register the transfer of or to
exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being
redeemed in part, or (C) to register the transfer of or to
exchange a Note between a Record Date and the next succeeding
Interest Payment Date.
(v) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as
the absolute owner of such Note for the purpose of receiving
payment of principal of and interest on such Notes and for
all other purposes, and neither the Trustee, any Agent nor
the Company shall be affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and Certificated
Notes in accordance with the provisions of Section 2.2
hereof.
Notwithstanding anything herein to the contrary, as to any certifications or
certificates delivered to the Trustee or Registrar pursuant to this Section 2.6,
the Trustee's or the Registrar's duties shall be limited to confirming that any
such certifications and certificates delivered to it are in the form of Exhibits
B-1 through B-4 and C attached hereto. The Trustee or Registrar shall not be
responsible for confirming the truth or accuracy of representations made in any
such certifications or certificates.
SECTION 2.7 Replacement of Notes.
--------------------
If any mutilated Note is surrendered to the Trustee or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue, and the Trustee, upon the
receipt of a Company Order, shall authenticate, a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the
judgment of the Trustee and the Company to protect the Company, each Guarantor,
the Trustee, any Agent and any authenticating agent from any loss that any of
them may suffer if a Note is replaced. The Company may charge for its expenses
in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder. The provisions of
this Section 2.7 are exclusive and shall preclude (to the extent
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<PAGE>
lawful) all other rights and remedies with respect to the replacement of
mutilated, destroyed, lost or stolen Notes.
SECTION 2.8 Outstanding Notes.
-----------------
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest (including Special
Interest, if any) on it ceases to accrue.
If the Paying Agent (other than the Company, a Guarantor, a
Subsidiary or an Affiliate of any thereof) holds, on a Redemption Date or
Maturity, money sufficient to pay Notes payable on that date, then on and after
that date such Notes shall be deemed to be no longer outstanding and shall
cease to accrue interest (including Special Interest, if any).
SECTION 2.9 Treasury Notes.
--------------
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company or any Guarantor, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any Guarantor, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that
a Responsible Officer knows are so owned shall be so disregarded.
SECTION 2.10 Temporary Notes.
---------------
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a Company
Order. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes and as shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
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SECTION 2.11 Cancellation.
------------
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall upon the
written request of the Company, return such cancelled Notes to the Company. The
Company may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee for cancellation.
SECTION 2.12 Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest (including Special Interest, if any) on any Note which is
payable, and is punctually paid or duly provided for, on any December 1 or June
1 (an "Interest Payment Date"), commencing on June 1, 1999, shall be paid to the
Person in whose name such Note is registered at the close of business on the
Record Date for such interest payment, which shall be the May 15 or November 15
(whether or not a Business Day) immediately preceding such Interest Payment
Date.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder on the relevant Record Date, and, except as hereinafter provided, such
Defaulted Interest and any interest payable on such Defaulted Interest may be
paid by the Company, at its election, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to the Persons
in whose names the Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on the Notes and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest (including Special Interest, if any) or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as provided
in this clause (a). Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 calendar
days and not less than 10 calendar days prior to the date of the proposed
payment and not less than 10 calendar days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be sent, first class mail, postage
prepaid, to each Holder at such Holder's address as it appears in the
Securities Register, not less than 10 calendar days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names the
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Notes are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest
(including Special Interest, if any), and any interest payable on such
Defaulted Interest, on the Notes in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each Note
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, or in substitution for, any other Note, shall carry the
rights to interest (and Special Interest, if any) accrued and unpaid, and to
accrue, which were carried by such other Note.
SECTION 2.13 Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 2.14 CUSIP Number.
------------
The Company in issuing the Notes may use a "CUSIP" number, and if
it does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
shall promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1 Notices to Trustee.
------------------
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof and of the Notes, it shall furnish
to the Trustee, at least 45 days (unless a shorter period is acceptable to the
Trustee) but not more than 60 days before a Redemption Date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the Redemption Date, (iii) the principal amount of
Notes to be redeemed and (iv) the Redemption Price.
SECTION 3.2 Selection of Notes to be Redeemed.
---------------------------------
If less than all of the Notes are to be redeemed at any time,
selection of the Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal
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national securities exchange, if any, on which the Notes are listed or, if the
Notes are not so listed, on a pro rata basis, by lot or by such method as the
Trustee considers fair and appropriate. In the event of partial redemption by
lot, the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the Redemption
Date by the Trustee from the outstanding Notes not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the portion of the principal amount thereof to be redeemed. Notes
and portions of Notes selected shall be in amounts of $1,000 or integral
multiples of $1,000, except that if all of the Notes of a Holder are to be
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not an integral multiple of $1,000, shall be redeemed. Except as provided in
the preceding sentence, provisions of this Indenture that apply to Notes called
for redemption also apply to portions of Notes called for redemption.
SECTION 3.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at its
registered address as it appears in the Securities Register.
The notice shall identify the Notes to be redeemed including CUSIP
number and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption (other than a Global Note)
must be surrendered to the Paying Agent to collect the Redemption Price;
(f) that, unless the Company defaults in making such Redemption
Payment, interest (and Special Interest, if any) on Notes (or portions thereof)
called for redemption cease to accrue on and after the Redemption Date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 30 days prior to the
Redemption Date (unless a shorter time is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
SECTION 3.4 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
Redemption Date at the Redemption Price including interest and Special Interest,
if any, accrued and unpaid on the Redemption Date. Upon surrender to the Paying
Agent, such Notes shall be paid at the Redemption Price stated in such notice.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder. A notice of redemption
may not be conditional.
SECTION 3.5 Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit with
the Trustee or with the Paying Agent immediately available funds sufficient to
pay the Redemption Price of and accrued and unpaid interest, if any, on (and
Special Interest, if any, on) all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the Redemption Price of, and accrued interest
(including Special Interest, if any) on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the Redemption Date, interest (and Special Interest, if
any) shall cease to accrue on the Notes or the portions of Notes called for
redemption. If a Note is redeemed on or after a Record Date but on or prior to
the related Interest Payment Date, then any accrued and unpaid interest (and
Special Interest, if any) shall be paid to the Person in whose name such Note
was registered at the close of business on such Record Date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest (and
Special Interest, if any) shall be paid on the unpaid principal, from the
Redemption Date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided in
the Notes and in Section 4.1 hereof.
SECTION 3.6 Notes Redeemed in Part.
----------------------
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered. The records
of the Registrar and the Depositary shall reflect any partial redemption of any
Global Note.
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SECTION 3.7 Optional Redemption.
-------------------
(a) Except as set forth in subsection (b) of this Section 3.7,
the Notes shall not be redeemable at the Company's option prior to December 1,
2002. On or after such date, the Notes shall be redeemable at the option of
the Company, in whole at any time or in part from time to time, at the
following prices (expressed in percentages of the principal amount thereof) if
redeemed during the twelve-month period beginning December 1 of each of the
years indicated below, in each case together with interest (and Special
Interest, if any) accrued to the Redemption Date (subject to the right of
Holders of record on the relevant Record Date to receive interest (and Special
Interest, if any), due on the relevant Interest Payment Date):
Year Percentage
2002................................. 105.750 %
2003................................. 102.875 %
2004 and thereafter.................. 100.000 %
(b) Notwithstanding the provisions of subsection (a) of this
Section 3.7, at any time during the first 36 months after the Issue Date, the
Company may at its option redeem up to a maximum of 35% of the original
aggregate principal amount of the Notes with the net cash proceeds of one or
more Public Equity Offerings at a Redemption Price equal to 111.5% of the
principal amount thereof, plus accrued and unpaid interest (and Special
Interest, if any), thereon to the Redemption Date; provided that at least 65%
of the aggregate principal amount of the Notes originally issued shall remain
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 90 days of the date of the
closing of such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Section 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
SECTION 4.1 Payment of Notes.
----------------
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest (and Special Interest, if any) on, the Notes on
the dates and in the manner provided in the Notes and in this Indenture.
Principal, premium, if any, and interest (and Special Interest, if any) shall
be considered paid on the date due if the Trustee or the Paying Agent, if other
than the Company or a Subsidiary thereof, holds as of 11:00 noon, New York
Time, on the due date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal, premium, if any,
and interest (and Special Interest, if any) then due. The Company shall pay all
Special Interest, if any, in the same manner on the dates and in the amounts
set forth in
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the Registration Rights Agreement. The Company will promptly notify the Trustee
of a Registration Default (as defined in the Registration Rights Agreement)
under the Registration Rights Agreement and any cure thereof.
The Company shall pay interest (including post-petition interest in
any proceeding under any applicable Federal, state or foreign bankruptcy law) on
Defaulted Interest and Special Interest, if any, (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3 hereof.
SECTION 4.3 Corporate Existence.
-------------------
Subject to the provisions of Article 5 hereof, the Company shall
do or cause to be done all things necessary to preserve and keep in full force
and effect (i) its corporate existence, and the corporate, partnership or other
existence of each of the Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of each
of the Company or any such Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of each of the Company and the
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of the Subsidiaries, if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and the Subsidiaries taken as a
whole and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
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SECTION 4.4 Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material Properties owned by or
leased by it or any of the Subsidiaries useful and necessary to the conduct of
its business or the business of any of its Subsidiaries to be maintained and
kept in good condition, repair and working order (reasonable wear and tear
excepted) and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this
Section 4.4 shall prevent the Company or any of the Subsidiaries from
discontinuing the use, operation or maintenance of any of such Properties, or
disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors of the Company or the Subsidiary so
concerned, or of an officer (or other agent employed by the Company or of the
Subsidiary so concerned) of the Company or a Subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or such Subsidiary of the Company, and if such discontinuance or
disposal is not adverse in any material respect to the Holders.
(b) To the extent available at commercially reasonable rates, the
Company shall maintain, and shall cause the Subsidiaries, to the extent such
Subsidiaries maintain operations, to maintain, insurance with responsible
carriers against such risks and in such amounts, and with such deductibles,
retentions, self-insured amounts and co-insurance provisions, as are
customarily carried by similar businesses, of similar size.
SECTION 4.5 Compliance With Laws.
--------------------
The Company shall comply, and shall cause each of the Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions in respect of the conduct of their respective businesses and the
ownership of their respective properties, except for such noncompliances as
would not in the aggregate have a material adverse effect on the financial
condition or results of operations of the Company and the Subsidiaries taken as
a whole.
SECTION 4.6 Reports.
-------
(a) Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company
shall file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Company were subject thereto, such documents to be filed with
the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required to file them; provided,
however, if the Company is not subject to Section 13(a) or 15(d) of the
Exchange Act, the Company shall not be required to file such reports and
documents with the Commission under Section 13(a) or 15(d) of the Exchange Act
(or any successor provisions thereto) so long as (i) Master Graphics files the
reports and documents with the Commission under Section 13(a) or 15(d) of the
Exchange Act that it is required to file, (ii) the Company is a Wholly Owned
Subsidiary of Master Graphics (iii) revenue of Master Graphics and its
consolidated subsidiaries (excluding the combined revenue of the
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Company and Harperprints and their consolidated subsidiaries) shall not exceed
for any financial quarter 2% of the consolidated revenue of Master Graphics and
(iv) the Company and Master Graphics are in compliance with the requirements
set forth in the Commission's Staff Accounting Bulletin No. 53 or its
successor. Notwithstanding the foregoing, all financial information relevant to
the Holders of the Notes for the Company and its consolidated subsidiaries
shall be disclosed as required and permitted by GAAP and Regulation S-X under
the Exchange Act in the reports and documents filed with the Commission by
Master Graphics or the Company, as the case may be. The Company shall also
(whether or not it is required to file reports with the Commission), within 30
days of each Required Filing Date, (i) transmit by mail to all Holders of
Notes, as their names and addresses appear in the applicable Security Register,
without cost to such Holders or Persons, and (ii) file with the Trustee, copies
of the annual reports, quarterly reports and other documents (without exhibits)
which the Company has filed or would have filed, or which Master Graphics has
filed, with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act, any successor provisions thereto or this covenant. The Company shall not
be required to file any report with the Commission if the Commission does not
permit such filing.
(b) For so long as any Notes remain outstanding, the Company
shall furnish to all Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act and the exhibits omitted
from the information furnished pursuant to the last sentence of Section 4.6(a)
for so long as the Notes are not freely transferred under the Securities Act.
SECTION 4.7 Taxes and Other Claims.
----------------------
The Company shall pay, and shall cause each of the Subsidiaries to
pay, prior to delinquency, (a) all material taxes, assessments, and governmental
charges levied or imposed upon the Company or any of the Subsidiaries or upon
the income, profits or property or assets of the Company or any of the
Subsidiaries and (b) all lawful claims for labor, materials and supplies, which,
if unpaid, might by law become a Lien upon the property or assets of the Company
or any of the Subsidiaries, except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes and for which
adequate reserves in accordance with GAAP or other appropriate provisions have
been made.
SECTION 4.8 Stay, Extension and Usury Laws.
------------------------------
The Company and each of the Guarantors covenant (to the extent that
they may lawfully do so) that they shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each of the Guarantors (to the extent that they may lawfully do so)
hereby expressly waive all benefit or advantage of any such law, and covenant
that they shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
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SECTION 4.9 Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the Company to repurchase such Holder's Notes in
whole or in part (the "Change of Control Offer") at a purchase price (the
"Change of Control Purchase Price") in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, and
Special Interest, if any, to the Change of Control Payment Date. The Change of
Control Offer will remain open for a period of at least 30 days following its
commencement but no longer than 60 days, except to the extent that a longer
period is required by applicable law (the "Change of Control Offer Period").
On the first Business Day after the termination of the Change of Control Offer
Period (the "Change of Control Payment Date"), the Company will purchase all
Notes validly tendered and not properly withdrawn pursuant to the Change of
Control Offer. Payment for any Notes so purchased will be made in the same
manner as interest payments are made on the Notes. If the Change of Control
Payment Date is on or after a Record Date and on or before the related Interest
Payment Date, any accrued and unpaid interest and Special Interest (to the
extent involving interest that is due and payable on such Interest Payment
Date), if any, shall be paid to the Person in whose name a Note is registered
at the close of business on such Record Date, and no additional interest (or
Special Interest, if any) (to the extent involving interest that is due and
payable on such Interest Payment Date)) shall be payable to Holders who validly
tender Notes pursuant to the Change of Control Offer.
(b) Within 30 days following any Change of Control, the Company
or the Trustee (at the expense of the Company) shall mail by first class mail,
a notice to each Holder, with a copy of such notice to the Trustee. The notice,
which shall govern the terms of the Change of Control Offer, shall state, among
other things:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made as provided for herein, and that,
although Holders are not required to tender their Notes, all
Notes that are validly tendered shall be accepted for
payment;
(ii) the Change of Control Purchase Price and the Change of
Control Payment Date, which will be no earlier than 30 days
and no later than 60 days after the date such notice is
mailed;
(iii) that any Note accepted for payment pursuant to the Change of
Control Offer (and duly paid for on the Change of Control
Payment Date) shall cease to accrue interest and Special
Interest, if applicable, after the Change of Control Payment
Date;
(iv) that any Notes (or portions thereof) not validly tendered
shall continue to accrue interest and Special Interest, if
applicable;
(v) that any Holder electing to have a Note purchased pursuant
to any Change of Control Offer shall be required to
surrender the Note, with the form
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entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, or transfer by book-entry transfer,
to the Company, a depositary, if appointed by the Company,
or a Paying Agent at the address specified in the notice at
least one (1) Business Day before the Change of Control
Purchase Date;
(vi) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case
may be, receives, not later than the expiration of the
Change of Control Offer Period, a telegram, facsimile
transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his
election to have such Note purchased; and
(vii) the instructions and any other information necessary to
enable Holders to tender their Notes (or portions thereof)
and have such Notes (or portions thereof) purchased pursuant
to the Change of Control Offer.
(c) On or before the Change of Control Payment Date, the Company
shall, to the extent lawful, (1) accept for payment all Notes or portions
thereof validly tendered and not properly withdrawn pursuant to the Change of
Control Offer, (2) deposit by 12:00 noon, New York City time, on such date with
the Paying Agent an amount equal to the Change of Control Purchase Price in
respect of all Notes or portions thereof so validly tendered and not properly
withdrawn and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company. The Paying
Agent shall promptly (but in any case not later than five days after the Change
of Control Payment Date) mail to each Holder of Notes so validly tendered and
not properly withdrawn the Change of Control Purchase Price for such Notes.
(d) Upon surrender and cancellation of a Certificated Note that
is purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee shall authenticate and mail (or cause to be
transferred by book entry) to the surrendering Holder of such Certificated
Note, a new Certificated Note equal in principal amount to the unpurchased
portion of such surrendered Certificated Note; provided that each such new
Certificated Note shall be in a principal amount of $1,000 or an integral
multiple thereof.
Upon surrender of a Global Note that is purchased in part pursuant
to a Change of Control Offer, the Paying Agent shall forward such Global Note
to the Trustee who shall make a notation on Schedule A thereof to reduce the
principal amount of such Global Note to an amount equal to the unpurchased
portion of such Global Note, as provided in Section 2.6 hereof. The Company
shall publicly announce the results of the Change of Control Offer on the
Change of Control Payment Date. For purposes of this Section 4.9, the Trustee
shall act as the Paying Agent.
(e) The Company shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at
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the times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
(f) The Company shall comply with the requirements of Rules 13e-4
and 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
SECTION 4.10 Transactions With Affiliates.
----------------------------
Subsequent to the Issue Date, the Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, enter into or permit to exist
any transaction or series of related transactions (including, but not limited
to, the purchase, sale, lease or exchange of Property, the making of any
Investment, the giving of any guarantee or the rendering of any service) with
any Affiliate of the Company, other than transactions among the Company and the
Subsidiary Guarantors, unless (i) such transaction or series of related
transactions is on terms no less favorable to the Company or such Subsidiary
than those that could be obtained in a comparable arm's length transaction with
a Person that is not such an Affiliate, and (ii) (a) with respect to a
transaction or series of related transactions that has a Fair Market Value in
excess of $1,000,000, the transaction or series of related transactions is
approved by a majority of the Board of Directors of the Company (including a
majority of the disinterested directors), which approval is set forth in a Board
Resolution certifying that such transaction or series of transactions complies
with clause (i) above, and (b) with respect to a transaction or series of
related transactions that has a Fair Market Value in excess of $3,000,000, the
Company delivers an opinion as to the fairness from a financial point of view to
the Company or such Subsidiary issued by an investment banking firm of
nationally recognized standing or other independent appraisal firm or expert of
nationally recognized standing that is qualified, in the reasonable and good
faith judgment of the Board of Directors, to perform the task for which it has
been engaged. The foregoing provisions shall not be applicable to (i) reasonable
and customary compensation, indemnification and other benefits paid or made
available to an officer, director or employee of the Company or a Subsidiary for
services rendered in such Person's capacity as an officer, director or employee
(including reimbursement or advancement of reasonable out-of-pocket expenses and
provisions of directors' and officers' liability insurance) or (ii) the making
of any Restricted Payment otherwise permitted by this Indenture, (iii)
transactions and agreements existing on the Issue Date and described in the
Offering Memorandum under the caption "--Certain Transactions" and (iv) loans to
officers and employees of the Company and the Subsidiaries made in the ordinary
course of business and in furtherance of the Company's business in an aggregate
amount not to exceed $1,500,000 at any one time outstanding.
SECTION 4.11 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Subsidiary
to, make any Restricted Payment, directly or indirectly, unless at the time of
and after giving effect to the proposed Restricted Payment, (i) no Default
shall have occurred and be continuing (or would result therefrom), (ii) the
Company could incur at least $1.00 of additional Indebtedness under
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the test described in the first sentence of Section 4.12 and (iii) the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date by the Company or any Subsidiary shall not exceed the sum of (A) 50%
(or if such Consolidated Net Income of the Company shall be a deficit, minus
100% of such deficit) of the aggregate Consolidated Net Income of the Company
accrued during the period beginning on the first day of the fiscal quarter in
which the Issue Date falls and ending on the last day of the fiscal quarter
ending immediately prior to the date of such proposed Restricted Payment, minus
(B) 100% of the amount of any writedowns, write- offs and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income of the
Company during such period, plus (C) an amount equal to the aggregate Net
Proceeds received by the Company, subsequent to the Issue Date, from the
issuance or sale (other than to a Subsidiary) of shares of its Capital Stock
(excluding Redeemable Stock, but including Capital Stock issued upon the
exercise of options, warrants or rights to purchase Capital Stock (other than
Redeemable Stock) of the Company) subsequent to the Issue Date, plus (D) 100%
of the liability (expressed as a positive number) as expressed on the face of a
balance sheet in accordance with GAAP in respect of any Indebtedness of the
Company, any of its Subsidiaries or any Subsidiary Guarantor, or the carrying
value of Redeemable Stock, which has been converted into, exchanged for or
satisfied by the issuance of shares of Capital Stock (other than Redeemable
Stock) of the Company or Master Graphics, subsequent to the Issue Date, plus
(E) 100% of the net reduction in Restricted Investments, subsequent to the
Issue Date, in any Person, resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of Property (but
only to the extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net Income of the
Company), in each case to the Company, any Subsidiary Guarantor or any
Subsidiary of the Company from any Person (including, without limitation, from
Unrestricted Subsidiaries) or from redesignations of Unrestricted Subsidiaries
as Subsidiaries (valued in each case as provided in the definition of
"Investment"), not to exceed in the case of any Person the amount of Restricted
Investments previously made by the Company, such Subsidiary Guarantor or such
Subsidiary in such Person and in each such case which was treated as a
Restricted Payment.
(b) The provisions of Section 4.11(a) above shall not prevent (A)
the payment of any dividend on Capital Stock of any class within 60 days after
the date of its declaration if at the date of declaration such payment would be
permitted by this Indenture; (B) any repurchase or redemption of Capital Stock
or Subordinated Indebtedness of the Company or a Subsidiary made by exchange
for Capital Stock of the Company (other than Redeemable Stock) or Capital Stock
of Master Graphics, or out of the Net Proceeds from the substantially
concurrent issuance or sale (other than to a Subsidiary) of Capital Stock of
the Company (other than Redeemable Stock) or Capital Stock of Master Graphics,
provided that the Net Proceeds from any such sale of Capital Stock of the
Company are excluded from computations under clause (a)(iii)(C) of this Section
to the extent that such proceeds are applied to purchase or redeem such Capital
Stock or Subordinated Indebtedness; (C) so long as no Default shall have
occurred and be continuing or should occur as a consequence thereof, any
repurchase or redemption of Subordinated Indebtedness of the Company or a
Subsidiary Guarantor solely in exchange for, or out of the Net Proceeds from
the substantially concurrent sale of, new Subordinated Indebtedness of the
Company or a Subsidiary Guarantor, so long as such Subordinated Indebtedness is
permitted under the covenant described in Sections 4.12 and 4.13 and (x) is
subordinated to the Notes or
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the applicable Guarantee at least to the same extent as the Subordinated
Indebtedness so exchanged, purchased or redeemed, (y) has a stated maturity
later than the stated maturity of the Subordinated Indebtedness so exchanged,
purchased or redeemed and (z) has an Average Life at the time incurred that is
greater than the remaining Average Life of the Subordinated Indebtedness so
exchanged, purchased or redeemed; (D) Investments in any Person engaged in the
Related Business in an aggregate amount not to exceed $2,000,000; (E) payments
to Master Graphics or any other Person in respect of which Master Graphics or
such other Person is a member of the consolidated tax group of the Company or
any Subsidiary Guarantor, as applicable, for so long as Master Graphics or such
other Person owns such amount of the Capital Stock of Master Graphics, the
Company or such Subsidiary Guarantor, as applicable, as will permit it or a
member of the consolidated tax group of Master Graphics or such other Person to
be entitled to file consolidated federal tax returns with the Company or such
Subsidiary Guarantor, for income taxes pursuant to the Tax Sharing Agreement or
for the purpose of enabling Master Graphics or such other Person or any such
member to pay taxes other than income taxes, to the extent actually owned and
attributable to the operations of the Company and the Subsidiary Guarantors or
such other Person's ownership thereof; (F) payments to Master Graphics for so
long as it owns not less than a majority of the outstanding Common Stock of the
Company or a Subsidiary Guarantor, in amounts sufficient to pay the ordinary
operating and administrative expenses of Master Graphics (including all
reasonable professional fees and expenses), including in connection with its
complying with its reporting obligations (including filings with the Commission
and any exchange on which Master Graphics' securities are traded) and
obligations to prepare and distribute business records in the ordinary course
of business and Master Graphics' costs and expenses relating to taxes, other
than those referred to in clause (E) (which taxes are attributable to the
operations of the Company or any Guarantor or to ownership thereof); provided
that the aggregate payments paid in each fiscal year pursuant to this clause
(F) will not exceed $2,500,000; (G) any dividend, obligation or other payment
by any Subsidiary on shares of its Common Stock that is paid pro rata to all
holders of such Common Stock; (H) so long as no Default or Event of Default
shall have occurred and be continuing, dividends, distributions and other
payments to Master Graphics for the sole purpose of making scheduled interest
payments on Seller Notes in an aggregate amount not to exceed $1,000,000; and
(I) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by the Company, or by Master Graphics so long as the
Company is a Wholly Owned Subsidiary of Master Graphics, of Capital Stock
(other than Preferred Stock) of the Company or the Subsidiary Guarantors from
officers and employees of the Company or the Subsidiary Guarantors or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $1,000,000
in any calendar year. Notwithstanding the foregoing, the amount available for
Investments in a Person engaged in the Related Business pursuant to clause (D)
of the preceding sentence may be increased by the aggregate amount received by
the Company and the Subsidiaries from such a Person on or before such date
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances or other transfers of Property made to such a Person (but
only to the extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net Income of the
Company). Restricted Payments permitted to be made as described in the first
sentence of this Section 4.11(b) will be excluded in calculating the amount of
Restricted Payments thereafter for purposes of clause (iii) of Section 4.11(a),
except that amounts expended pursuant to clause (A) (but only if the
declaration thereof has not been
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counted in a prior period), payments made pursuant to clause (E) (other than to
the extent otherwise reducing Consolidated Net Income of the Company), any
dividends, distributions or other payments made to a Person other than the
Company or a Wholly Owned Subsidiary permitted to be made pursuant to clause
(F) and any repurchases of Capital Stock of the Company or Master Graphics, as
applicable, permitted to be made pursuant to clause (G) will be included in
calculating the amount of Restricted Payments thereafter and except that any
such Restricted Payments permitted to be made pursuant to clause (D) will be
included in calculating the amount of Restricted Payments made pursuant to such
clause (D) thereafter.
(c) For purposes of this covenant, if a particular Restricted
Payment involves a non-cash payment, including a distribution of assets, then
such Restricted Payment shall be deemed to be an amount equal to the cash
portion of such Restricted Payment, if any, plus an amount equal to the Fair
Market Value of the non-cash portion of such Restricted Payment.
(d) If the Board of Directors of the Company designates a
subsidiary (including a newly formed or newly acquired subsidiary) of the
Company or any of the Subsidiaries as an Unrestricted Subsidiary pursuant to
Section 4.19, all outstanding Investments by the Company and the Subsidiaries
in the subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under Section 4.11(a)(iii) above.
SECTION 4.12 Limitation on Indebtedness.
--------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness), unless after giving pro forma effect to the incurrence of such
Indebtedness, the Consolidated Interest Coverage Ratio for the Determination
Period preceding the Transaction Date is at least 2.0 to 1.0. Notwithstanding
the foregoing, the Company or any Subsidiary may incur Permitted Indebtedness
which such Person is permitted thereby to incur. Any Indebtedness of a Person
existing at the time at which such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Subsidiary at the time at which it becomes a Subsidiary.
SECTION 4.13 Limitation on Subsidiary Indebtedness and Preferred Stock.
---------------------------------------------------------
The Company shall not permit any Subsidiary to, directly or
indirectly, incur any Indebtedness or issue any Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the
Company or a Subsidiary Guarantor, so long as any transfer of such Indebtedness
or Preferred Stock to a Person other than the Company or a Subsidiary Guarantor
shall be deemed to constitute an incurrence of such Indebtedness or Preferred
Stock by the issuer thereof as of the date of such transfer;
(b) Acquired Indebtedness or Preferred Stock of a Subsidiary
issued and outstanding prior to the date on which such Subsidiary was acquired
by Master Graphics (other than Indebtedness or Preferred Stock issued in
connection with or in anticipation of such acquisition);
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(c) Indebtedness or Preferred Stock outstanding on the Issue Date
and listed in Schedule 4.13 attached hereto;
(d) Indebtedness permitted to be incurred by the first sentence
of the covenant described in Section 4.12 and Indebtedness described in clauses
(b), (c), (d), (e), (f), (g), (h), (i) and (l) under the definition of
"Permitted Indebtedness";
(e) Permitted Subsidiary Refinancing Indebtedness of such
Subsidiary; and
(f) Indebtedness of a Subsidiary which represents the assumption
by such Subsidiary of Indebtedness of another Subsidiary in connection with a
merger of such Subsidiaries, provided that no Subsidiary or any successor (by
way of merger) thereto existing on the Issue Date shall assume or otherwise
become responsible for any Indebtedness of an entity which is not a Subsidiary
on the Issue Date, except to the extent that a Subsidiary would be permitted to
incur such Indebtedness under this Section 4.13.
SECTION 4.14 Limitation on Dividends and Other Payment Restrictions Affecting
----------------------------------------------------------------
Subsidiaries.
- ------------
The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to create, enter into any agreement with
any Person or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind which by its terms restricts
the ability of any of its Subsidiaries to (a) pay dividends, in cash or
otherwise, or make any other distributions on its Capital Stock to the Company
or any Subsidiary Guarantor, (b) pay any Indebtedness owed to the Company or
any Subsidiary Guarantor, (c) make loans or advances to the Company or any
Subsidiary Guarantor or (d) transfer any of its Property or assets to the
Company or any Subsidiary Guarantor except any encumbrance or restriction
contained in any agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue
Date, so long as such encumbrance or restriction relates
only to the Property or assets so acquired and is not and
are not created in anticipation of such acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at
the date on which such Subsidiary was acquired by Master
Graphics or any Subsidiary (other than Indebtedness incurred
in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to
an agreement referred to in the foregoing clauses (i)
through (iii) of this Section, so long as the encumbrances
and restrictions contained in any such refinancing agreement
are no more restrictive than the encumbrances and
restrictions contained in such agreements;
(v) constituting customary provisions restricting subletting or
assignment of any lease of the Company or any Subsidiary or
provisions in license
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agreements or similar agreements that restrict the
assignment of such agreement or any rights thereunder;
(vi) constituting restrictions on the sale or other disposition
of any Property securing Indebtedness as a result of a
Permitted Lien on such Property;
(vii) constituting any temporary encumbrance or restriction with
respect to a Subsidiary pursuant to an agreement that has
been entered into for the sale or disposition of all or
substantially all of the Capital Stock of or Property and
assets of such Subsidiary; or
(viii) governing Indebtedness permitted to be incurred hereunder,
provided that the terms and conditions of any such
restrictions and encumbrances are not materially more
restrictive than those contained in this Indenture.
SECTION 4.15 Limitation on Asset Sales.
-------------------------
(a) The Company shall not engage in, and shall not permit any
Subsidiary to engage in, any Asset Sale unless: (i) except in the case of an
Asset Sale resulting from the requisition of title to, seizure or forfeiture of
any Property or assets or any actual or constructive total loss or an agreed or
compromised total loss, the Company or such Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the Property or asset; (ii) at least 75% of such
consideration consists of Cash Proceeds (or the assumption of Indebtedness of
the Company or such Subsidiary relating to the Capital Stock or Property or
asset that was the subject of such Asset Sale and the unconditional release of
the Company or such Subsidiary from such Indebtedness); (iii) after giving
effect to such Asset Sale, the total non-cash consideration held by the Company
from all such Asset Sales does not exceed $2,000,000; and (iv) the Company
delivers to the Trustee an Officers' Certificate certifying that such Asset
Sale complies with clauses (i), (ii) and (iii). The Company or such Subsidiary,
as the case may be, may apply the Net Available Proceeds from each Asset Sale
(x) to the acquisition of one or more Replacement Assets or (y) to repurchase
or repay Senior Debt of the Company or a Subsidiary Guarantor (with a permanent
reduction of availability in the case of revolving credit borrowings); provided
that such acquisition or such repurchase or repayment shall be made within 270
days after the consummation of the relevant Asset Sale; provided, further, that
any such Net Available Proceeds that are applied to the acquisition of
Replacement Assets useful in the business of the Company or any of its
Subsidiaries, or the Subsidiary making such Asset Sale, pursuant to any binding
agreement relating thereto shall be deemed to have been applied for such
purpose within such 270-day period so long as they are so applied within 30
days of the effective date of such agreement.
(b) Any Net Available Proceeds from any Asset Sale that are not
used to so acquire Replacement Assets or to repurchase or repay Senior Debt
within 270 days after consummation of the relevant Asset Sale constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds
$5,000,000, the Company shall within 30 days thereafter, or at any time after
receipt of Excess Proceeds but prior to there being $5,000,000 of Excess
Proceeds, the Company may, at its option, make a pro rata offer (an "Asset Sale
Offer") to all
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Holders of Notes and holders of Senior Debt, if and to the extent the Company
is required by the instruments governing such Senior Debt to make such an
offer, to purchase Notes and such Senior Debt in an aggregate amount equal to
the Excess Proceeds, at a price in cash (the "Asset Sale Offer Purchase Price")
equal to 100% of the outstanding principal of the Notes plus accrued interest
and Special Interest, if any, to the date of purchase and, in the case of such
other Senior Debt, 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of purchase, in accordance with
the procedures set forth in this Section 4.15. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset to zero and the
Company may use any remaining amount for general corporate purposes.
(c) The Asset Sale Offer will remain open for a period of at
least 30 days following its commencement but no longer than 60 days, except to
the extent that a longer period is required by applicable law (the "Asset Sale
Offer Period"). On the Business Day following the termination of the Asset
Sale Offer Period (the "Asset Sale Purchase Date"), the Company will purchase
the principal amount of Notes required to be purchased pursuant to this Section
4.15 (the "Asset Sale Offer Amount") or, if less than the Asset Sale Offer
Amount has been so validly tendered and not properly withdrawn, all Notes
validly tendered and not properly withdrawn in response to the Asset Sale
Offer. Payment for any Notes so purchased will be made in the same manner as
interest payments are made on the Notes. If the Asset Sale Purchase Date is on
or after a Record Date and on or before the related Interest Payment Date, any
accrued and unpaid interest and Special Interest, if any, shall be paid to the
Person in whose name a Note is registered at the close of business on such
Record Date, and no additional interest (or Special Interest (to the extent
involving interest that is due and payable on such Interest Payment Date), if
any) shall be payable to Holders who tender Notes pursuant to the Asset Sale
Offer.
(d) Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 4.15 and the Asset Sale Offer Period during which
the Asset Sale Offer shall remain open;
(ii) the Asset Sale Offer Amount, the Asset Sale Offer Purchase
Price and the Asset Sale Purchase Date;
(iii) that any Notes which are not validly tendered or are not
otherwise accepted for payment shall continue to accrue
interest and Special Interest, if applicable;
(iv) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest and Special Interest,
if applicable, after the Asset Sale Purchase Date;
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(v) that any Holder electing to have a Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, or transfer
by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address
specified in the notice at least (1) one Business Day
before the Asset Sale Purchase Date;
(vi) that Holders shall be entitled to withdraw their election
if the Company, the depositary or the Paying Agent, as the
case may be, receives, no later than the expiration of the
Asset Sale Offer Period, a telegram, facsimile transmission
or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;
(vii) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Asset Sale Offer Amount,
the Trustee shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in
denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(viii) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or
transferred by book-entry transfer).
(e) On or before the Asset Sale Purchase Date, the Company
shall, to the extent lawful, (1) accept for payment, on a pro rata basis to the
extent necessary, the Asset Sale Offer Amount of Notes or portions thereof so
validly tendered and not properly withdrawn pursuant to the Asset Sale Offer,
or if less than the Asset Sale Offer Amount has been so validly tendered and
not properly withdrawn, all Notes validly tendered and not properly withdrawn,
(2) deposit by 12:00 noon New York City time, on such date with the Paying
Agent an amount equal to Asset Sale Offer Amount, plus accrued and unpaid
interest, and Special Interest, if any, in respect of all Notes, or portions
thereof, so accepted and (3) shall deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 4.15. The
Company, the Depositary or the Paying Agent, as the case may be, shall promptly
(but in any case not later than five days after the Asset Sale Purchase Date)
mail or deliver to each tendering Holder an amount equal to the Asset Sale
Offer Purchase Price of the Notes validly tendered and not properly withdrawn
by such Holder and accepted by the Company for purchase. Upon surrender and
cancellation of a Certificated Note that is purchased in part, the Company
shall promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Certificated Note a new Certificated Note equal in
principal amount to the unpurchased portion of such surrendered Certificated
Note; provided that each such new Certificated Note shall be in a principal
amount at Maturity of $1,000 or an integral multiple thereof. Upon surrender
of a Global Note that is purchased in part pursuant to an Asset Sale Offer, the
Paying Agent shall forward such Global
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Note to the Trustee who shall make a notation on Schedule A thereof to reduce
the principal amount of such Global Note to an amount equal to the unpurchased
portion of such Global Note, as provided in Section 2.6 hereof. Any Note not
so accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale
offer on the Asset Sale Purchase Date. For purposes of this Section 4.15, the
Trustee shall act as the Paying Agent.
(f) The Company shall comply with any applicable tender offer
rules (including, without limitation, any applicable requirements of Rules
13e-4 and 14e-1 under the Exchange Act) in the event that an Asset Sale Offer
is required under the circumstances described herein.
SECTION 4.16 Limitation on Sale and Lease-Back Transactions.
----------------------------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, enter into, assume, guarantee or otherwise become liable
with respect to, any Sale and Lease-Back Transaction unless (i) the proceeds
from such Sale and Lease-Back Transaction are at least equal to the Fair Market
Value of such Property being transferred and (ii) the Company or such Subsidiary
would have been permitted to enter into such transaction under the covenants
described in Sections 4.12, 4.13 and 4.17.
SECTION 4.17 Limitation on Liens.
-------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, create, affirm, incur, assume or suffer to exist any
Liens of any kind other than Permitted Liens on or with respect to any Property
or assets of the Company or such Subsidiary or any interest therein or any
income or profits therefrom, whether owned at the Issue Date or thereafter
acquired, without effectively providing that the Notes or the Guarantees, as
applicable, shall be secured equally and ratably with (or prior to) the
Indebtedness so secured for so long as such obligations are so secured.
SECTION 4.18 Limitation on Guarantees by Subsidiaries.
----------------------------------------
The Company shall not permit any Subsidiary which is not already a
Subsidiary Guarantor, directly or indirectly, to guarantee any Indebtedness of
the Company or Master Graphics or any other Obligor ("Guaranteed Indebtedness")
unless (i) such Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for a Guarantee of payment of the Notes by
such Subsidiary and (ii) such Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by such Subsidiary under its
Guarantee. If the Guaranteed Indebtedness is pari passu with the Notes or, if
the Guaranteed Indebtedness was incurred by Master Graphics, then the guarantee
of such Guaranteed Indebtedness shall be pari passu with or subordinated to the
Guarantee; and if the Guaranteed Indebtedness is subordinated to the Notes, then
the guarantee of such Guaranteed Indebtedness shall be subordinated to the
Guarantee at least to the extent that all Guaranteed Indebtedness is
subordinated to the Notes. Notwithstanding
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the foregoing, any Guarantee by a Subsidiary that was incurred pursuant to the
terms of the preceding sentence (but not otherwise) shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
the release or discharge of the guarantee which resulted in the creation of
such Subsidiary's Guarantee, except a discharge or release by, or as a result
of, payment under such guarantee.
SECTION 4.19 Unrestricted Subsidiaries.
-------------------------
(a) The Company may designate a subsidiary (including a newly
formed or newly acquired subsidiary) of Master Graphics or any of its
Subsidiaries as an Unrestricted Subsidiary; provided that (i) immediately after
giving effect to the transaction, the Company could incur $1.00 of additional
Indebtedness pursuant to the first sentence of Section 4.12 and (ii) such
designation is at the time permitted under Section 4.11. Notwithstanding any
provisions of this covenant all subsidiaries of an Unrestricted Subsidiary
shall be Unrestricted Subsidiaries.
(b) The Company shall not, and shall not permit any Subsidiary
to, take any action or enter into any transaction or series of transactions
that would result in a Person (other than a newly formed subsidiary having no
outstanding Indebtedness (other than Indebtedness to the Company or a
Subsidiary Guarantor) at the date of determination) becoming a Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted
Subsidiary or otherwise) unless, after giving effect to such action,
transaction or series of transactions on a pro forma basis, (i) the Company
could incur at least $1.00 of additional Indebtedness pursuant to the first
sentence of Section 4.12 and (ii) no Default or Event of Default would occur.
(c) Subject to the preceding provisions of this Section 4.19, an
Unrestricted Subsidiary may be redesignated as a Subsidiary. The designation of
a subsidiary as an Unrestricted Subsidiary or the designation of an
Unrestricted Subsidiary as a Subsidiary in compliance with the preceding
provisions of this Section 4.19 shall be made by the Board of Directors of the
Company pursuant to a Board Resolution delivered to the Trustee and shall be
effective as of the date specified in such Board Resolution, which shall not be
prior to the date such Board Resolution is delivered to the Trustee. Any
Unrestricted Subsidiary shall become a Subsidiary if it incurs any Indebtedness
other than Non-Recourse Indebtedness. If at any time Indebtedness of an
Unrestricted Subsidiary which was Non-Recourse Indebtedness no longer so
qualifies, such Indebtedness shall be deemed to have been incurred when such
Non-Recourse Indebtedness becomes Indebtedness.
SECTION 4.20 Limitations on Line of Business.
-------------------------------
Neither the Company nor any of the Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than a Related Business.
SECTION 4.21 Compliance Certificate; Notice of Default or Event of Default.
-------------------------------------------------------------
(a) The Company and each Guarantor shall deliver to the Trustee,
within 90 days after the end of each fiscal year, an Officers' Certificate
(which shall be signed by Officers
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satisfying the requirements of Section 314 of the Trust Indenture Act) stating
that a review of the activities of the Company and the Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, interest, if any, or Special Interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) The year-end financial statements delivered pursuant to
Section 4.6(a) hereof shall be accompanied by a written statement of the
independent public accountants of the Company or Master Graphics, as
applicable, (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
(except that, such written statement need not address the Company's compliance
with the provisions of Sections 4.2, 4.5, 4.6, 4.8, 4.9, 4.10 or 4.22 hereof)
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon, but in any event within
five Business Days after, any Officer's becoming aware of any Default or Event
of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
(d) For purposes of this Section 4.21, compliance shall be
determined without required by any period of grace or requirement of notice
under this Indenture.
SECTION 4.22 Prohibition on Company and Guarantors Becoming an Investment
------------------------------------------------------------
Company.
- -------
None of the Company or the Subsidiary Guarantors shall become an
"Investment Company" as defined in the Investment Company Act of 1940, as
amended.
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ARTICLE 5
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.1 Consolidation, Merger, Conveyance, Lease or Transfer
----------------------------------------------------
(a) The Company shall not, in any transaction or series of
transactions, consolidate with or merge into any other Person (other than a
merger of a Wholly Owned Subsidiary into the Company in which the Company is
the continuing corporation), continue in a new jurisdiction or sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Property and assets of the Company and its Subsidiaries, taken as a whole, to
any Person, unless:
(i) either (a) the Company shall be the continuing corporation
or (b) the corporation (if other than the Company) formed by
such consolidation or into which the Company is merged, or
the Person which acquires, by sale, assignment, conveyance,
transfer, lease or disposition, all or substantially all of
the Property and assets of the Company and its Subsidiaries,
taken as a whole (such corporation or Person, the "Surviving
Entity"), shall be a corporation organized and validly
existing under the laws of the United States of America, any
political subdivision thereof or any state thereof or the
District of Columbia, and shall expressly assume, by a
supplemental indenture, the due and punctual payment of the
principal of (and premium, if any) and interest (including
Special Interest, if any) on all the Notes and the
performance of the Company's covenants and obligations under
this Indenture;
(ii) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect
of such transaction or series of transactions), no Event of
Default or Default shall have occurred and be continuing or
would result therefrom;
(iii) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such
transaction or series of transactions), the Company (or the
Surviving Entity if the Company is not continuing) shall
have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to
such transactions; and
(iv) immediately after giving effect to any such transaction or
series of transactions on a pro forma basis as if such
transaction or series of transactions had occurred on the
first day of the Determination Period, the
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Company (or the Surviving Entity if the Company is not
continuing) would be permitted to incur $1.00 of additional
Indebtedness pursuant to the test described in the first
sentence of Section 4.12.
The provision of clause (iv) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of the Company and its Subsidiaries, taken as a whole, into the
Company.
(b) In connection with any consolidation, merger, continuance,
transfer of assets or other transactions contemplated by this provision, the
Company shall deliver, or cause to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger,
continuance, sale, assignment, conveyance or transfer and the supplemental
indenture in respect thereto comply with the provisions of this Indenture and
that all conditions precedent in this Indenture relating to such transactions
have been complied with.
(c) Upon any transaction or series of transactions that are of
the type described in, and are effected in accordance with, this Section 5.1,
the Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture and the Notes with
the same effect as if such Surviving Entity had been named as the Company in
this Indenture; and when a Surviving Person duly assumes all of the Obligations
and covenants of the Company pursuant to this Indenture and the Notes, except
in the case of a lease, the predecessor Person shall be relieved of all such
Obligations.
SECTION 5.2 Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger by the Company with or into any
other corporation, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, in accordance with Section 5.1 hereof, the
successor corporation formed by such consolidation into or with which the
Company is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted
for (so that from and after the date of such consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of this Indenture
referring to "the Company" shall refer instead to the Surviving Entity and not
to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such Surviving Entity had been named
as the Company herein; provided, however, that the predecessor of the Company
shall not be relieved from the obligation to pay the principal, premium, if
any, and interest and Special Interest, if any, on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.1 hereof.
If the Surviving Entity shall have succeeded to and been
substituted for the Company, such Surviving Entity may cause to be signed, and
may issue either in its own name or in the name of the Company prior to such
succession any or all of the Notes issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee; and, upon the
order of such Surviving Entity, instead of the Company, and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall
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deliver any Notes which previously shall have been signed and delivered by the
Officers of the Company to the Trustee for authentication, and any Notes which
such Surviving Entity thereafter shall cause to be signed and delivered to the
Trustee for that purpose (in each instance with notations of Guarantees thereon
by the Guarantors). All of the Notes so issued and so endorsed shall in all
respects have the same legal rank and benefit under this Indenture as the Notes
theretofore or thereafter issued and endorsed in accordance with the terms of
this Indenture and the Guarantees as though all such Notes had been issued and
endorsed at the date of the execution hereof.
In case of any such consolidation, merger, continuance, sale,
transfer, conveyance or other disposal, such changes in phraseology and form
(but not in substance) may be made in the Notes thereafter to be issued or the
Guarantees to be endorsed thereon as may be appropriate.
For all purposes of this Indenture and the Notes, Subsidiaries of
any Surviving Entity will, upon such transaction or series of transactions,
become Subsidiaries or Unrestricted Subsidiaries as provided pursuant to this
Indenture and all Indebtedness, and all Liens on Property or assets, of the
Surviving Entity and its Subsidiaries immediately prior to such transaction or
series of transactions shall be deemed to have been incurred upon such
transaction or series of transactions.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 Events of Default.
-----------------
Each of the following is an "Event of Default" hereunder:
(a) default in the payment of interest on, or Special Interest
with respect to, any Note issued pursuant to this Indenture when the same
becomes due and payable, and the continuance of such default for a period of 30
days;
(b) default in the payment of the principal of (or premium, if
any, on) any Note issued pursuant to this Indenture at its Maturity, whether
upon optional redemption, required repurchase (including pursuant to a Change
of Control Offer or an Asset Sale Offer) or otherwise or the failure to make an
offer to purchase any such Note as required;
(c) the Company fails to comply with any of its covenants or
agreements contained in Sections 4.9, 4.11, 4.12, 4.13, 4.15, 4.16, 4.21(c) and
5. 1;
(d) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty
addressed in clause (a), (b) or (c) above) and continuance of such Default or
breach for a period of 30 days after written notice thereof has been given to
the Company by the Trustee or to the Company and the Trustee by Holders of at
least 25% of the aggregate principal amount at Stated Maturity of the
outstanding Notes;
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(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of the Subsidiaries (or
the payment of which is guaranteed by the Company or any of the Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of this Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10,000,000 or more;
(f) the entry by a court of competent jurisdiction of one or more
final judgments against the Company or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5,000,000 which is not discharged,
waived, appealed, stayed, bonded or satisfied for a period of 60 consecutive
days;
(g) the entry by a court having jurisdiction in the premises of
(i) a decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or order
adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Significant
Subsidiary under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency, or similar
law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of the Property or assets of the Company
or any Significant Subsidiary, or ordering the winding up or liquidation of the
affairs of the Company or any Significant Subsidiary, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days;
(h) (i) the commencement by the Company or any Significant
Subsidiary of a voluntary case or proceeding under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal,
state or foreign bankruptcy, insolvency or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent; or
(ii) the consent by the Company or any Significant Subsidiary to the
entry of a decree or order for relief in respect of the Company or any
Significant Subsidiary in an involuntary case or proceeding under U.S.
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency or other
similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against the Company or any Significant Subsidiary; or
(iii) the filing by the Company or any Significant Subsidiary of a
petition or answer or consent seeking reorganization or relief under
U.S. bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by the Company or any Significant
Subsidiary to the filing of such
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petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or any Significant Subsidiary or of any
substantial part of the Property or assets of the Company or any
Significant Subsidiary, or the making by the Company or any Significant
Subsidiary of an assignment for the benefit of creditors; or (v) the
admission by the Company or any Significant Subsidiary in writing of
its inability to pay its debts generally as they become due; or (vi)
the taking of corporate action by the Company or any Significant
Subsidiary in furtherance of any such action; or
(ii) any Guarantee shall for any reason cease to be, or be
asserted by the Company or any Guarantor, as applicable, not to be, in
full force and effect (except pursuant to the release of any such
Guarantee in accordance with this Indenture).
SECTION 6.2 Acceleration.
------------
If any Event of Default (other than an Event of Default specified
in clause (g) or (h) of Section 6.1) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% of the
outstanding aggregate principal amount at Stated Maturity of the Notes, may
declare the principal amount at Stated Maturity of, premium, if any, and any
accrued and unpaid interest (and Special Interest, if any) on all such Notes
then outstanding to be immediately due and payable by a notice in writing to
the Company (and to the Trustee if given by Holders of such Notes), and upon
any such declaration all amounts payable in respect of the Notes will become
and be immediately due and payable. If any Event of Default specified in clause
(g) or (h) of Section 6.1 occurs, the principal amount at Stated Maturity of,
premium, if any, and any accrued and unpaid interest (including Special
Interest, if any) on, the Notes then outstanding shall become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder of such Notes. In the event of a declaration of acceleration because
an Event of Default set forth in clause (e) of Section 6.1 has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) of Section 6.1 shall be remedied or cured or waived by the
holders of the relevant Indebtedness within 30 days after such event of
default; provided that no judgment or decree for the payment of the money due
on the Notes has been obtained by the Trustee as provided in this Indenture.
After any such acceleration, but before a judgment or decree based
on acceleration, Holders of a majority in principal amount at Stated Maturity
of the outstanding Notes by notice to the Company and the Trustee may rescind
an acceleration and its consequences if:
(a) the Company or any Guarantor has paid or deposited with the
Trustee a sum sufficient to pay
(i) all money paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursement and advances
of the Trustee, its agents and counsel, and any other amounts
due to the Trustee under Section 7.7;
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(ii) all overdue installments of interest and Special Interest, if
any, on, and any other amounts due in respect of, all Notes;
(iii) the principal of (and premium, if any, on) any Notes that
have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates
prescribed therefor in the Notes and this Indenture; and
(iv) to the extent that payment of such interest is lawful,
interest upon Defaulted Interest at the rate or rates
prescribed therefor in the Notes and this Indenture;
(b) all Events of Default, other than the nonpayment of
principal of Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.4;
(c) the annulment of such acceleration would not conflict with
any judgment or decree of a court of competent jurisdiction; and
(d) the Company has delivered an Officers' Certificate to the
Trustee to the effect of clauses (b) and (c) of this sentence.
No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of, premium, on,
if any, any interest on, Special Interest, if any, on, and any other amounts
owing and unpaid on, the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.4 Waiver of Past Defaults.
-----------------------
Subject to Section 6.7 hereof, Holders of not less than a majority
in aggregate principal amount of the then outstanding Notes by notice to the
Trustee may on behalf of the Holders of all of the Notes waive an existing
Default or Event of Default and its consequences hereunder, except (i) an
existing Default or Event of Default in the payment of the principal of,
premium, if any, on, or interest and Special Interest, if any, on, the Notes
(including in connection with an offer to purchase) or (ii) an existing Default
or Event of Default in respect of a provision
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that under Section 10.2 cannot be amended without the consent of each Holder
affected thereby. Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 6.5 Control By Majority.
-------------------
The Holders of a majority in aggregate principal amount of the
Notes then outstanding may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.1
hereof, that the Trustee determines may be unduly prejudicial to the rights of
other Holders of Notes or that may involve the Trustee in personal liability;
provided that the Trustee may take any other action deemed by the Trustee that
is not inconsistent with such direction. Prior to taking any action hereunder,
the Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6 Limitation on Suits.
-------------------
No Holder of any Note shall have the right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, the
Guarantees or the Notes, or for the appointment of a receiver or a trustee, or
for any other remedy, unless:
(a) the Holder of a Note has given to the Trustee written notice
of a continuing Event of Default;
(b) a Holder or Holders of at least 25% in principal amount of
the then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the Notes then outstanding do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
SECTION 6.7 Rights of Holders of Notes to Receive Payment.
---------------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium, if any, on, and interest
and Special Interest, if any, on, the Notes held by such Holder, on or after the
respective due dates expressed in the Note or this Indenture (including in
connection with an offer to purchase), or to bring suit for the enforcement of
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any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.1(a) or (b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own
name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, on, interest and Special Interest, if
any, remaining unpaid on, the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due to the Trustee under Section 7.7.
SECTION 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee shall be entitled and empowered, without regard to
whether the Trustee or any Holder shall have made any demand or performed any
other act pursuant to the provisions of this Article and without regard to
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise, by intervention in any proceedings
relative to the Company or any Obligor upon the Notes, or to the creditors or
property or assets of the Company, any Guarantor or any other Obligor or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be entitled and empowered in such
instances:
(a) to file and prove a claim or claims for the whole amount of
principal (and premium, if any), interest, Special Interest, if any, and any
other amounts owing and unpaid in respect of the Notes, and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including all amounts owing to the Trustee and each
predecessor Trustee pursuant to Section 7.7 hereof) and of the Holders allowed
in any judicial proceedings relative to the Company or other Obligor upon the
Notes, or to the creditors or property of the Company, any Guarantor, or any
such other Obligor,
(b) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of the Notes in any election of a trustee or a standby
trustee in arrangement, reorganization, liquidation or other bankruptcy or
insolvency proceedings or Person performing similar functions in comparable
proceedings, and
(c) to collect and receive any moneys or other Property or assets
payable or deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Holders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other similar
official is hereby authorized by each of the Holders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to the Holders, to pay to the Trustee such amounts as shall
be sufficient to cover all amounts owing to the Trustee and each predecessor
Trustee pursuant to Section 7.7 hereof.
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Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Notes, and it shall not be necessary to make any Holders of the
Notes parties to any such proceedings.
SECTION 6.10 Priorities.
----------
If the Trustee collects any money or property pursuant to this
Article, it shall pay out the money or property in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, interest, and Special Interest, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal (premium, if any), interest, and
Special Interest, if any, respectively; and
Third: to the Company or to the Guarantors or to such other party
as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders of Notes pursuant to this Section 6.10. At least 15 days before such
record date, the Company shall mail to each Holder and the Trustee a notice
that states the record date, the payment date and amount to be paid. The
Trustee may mail such notice in the name and at the expense of the Company.
SECTION 6.11 Undertaking For Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.
SECTION 6.12 Restoration of Rights and Remedies.
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If the Trustee or any Holder of Notes has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Guarantors, the Trustee and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding has been
instituted.
SECTION 6.13 Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided in Section 2.7 hereof, no right or
remedy conferred herein, upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14 Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article 6 or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
ARTICLE 7
TRUSTEE
SECTION 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in
this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
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(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability
or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the Trust
Indenture Act.
SECTION 7.2 Rights of Trustee.
-----------------
(a) Subject to the provisions of Section 7.1(a) hereof, the
Trustee may rely upon any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it
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takes or omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel. The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel with respect to legal matters
relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture; provided, however, that
the Trustee's conduct does not constitute willful misconduct or negligence.
(e) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(f) Except with respect to Section 4.1 hereof, the Trustee shall
have no duty to inquire as to the performance of the Company's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.1(a) (except that the Trustee shall not be
deemed to have knowledge of a default in the payment of Special Interest) or
6.1(b), or (ii) any Default or Event of Default of which a Responsible Officer
of the Trustee shall have received written notification; provided that the
Trustee shall comply with the "automatic stay" provisions contained in U.S.
bankruptcy laws, if applicable. As used herein, the term "actual knowledge"
means the actual fact or statement of knowing, without any duty to make any
investigation with regard thereto.
(g) Prior to the occurrence of an Event of Default hereunder and
after the curing and waiving of all Events of Default, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document unless requested in writing to do so by
the Holders of not less than a majority in aggregate principal amount of the
Notes then outstanding; provided that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms
of this Indenture, the Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding; the reasonable expenses
of every such examination shall be paid by the Company or, if advanced by the
Trustee, shall be repaid by the Company upon demand. The Trustee shall not be
bound to ascertain or inquire as to the performance or observance of any
covenants, conditions, or agreements on the part of the Company, except as
otherwise set forth herein, but the Trustee may, in its discretion, make such
further inquiry or investigation into such facts or matters as it may see fit
and if the Trustee shall determine to make such further inquiry or
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investigation, it shall be entitled to examine the books, records and premises
of the Company personally or by agent or attorney.
(h) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(i) The permissive rights of the Trustee to do things enumerated
in this Indenture shall not be construed as a duty.
SECTION 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the Trust Indenture Act) it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.4 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, any Guarantee
or the Notes, it shall not be accountable for the Company's use of the proceeds
from the Notes or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.5 Notice of Defaults.
------------------
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after it occurs. Except in
the case of a Default or Event of Default in payment of principal of, premium,
if any, or interest on any Note (including payments pursuant to the mandatory
repurchase provisions of such Notes, if any), the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Notes.
SECTION 7.6 Reports by Trustee to Holders of the Notes.
------------------------------------------
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the
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reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee whenever the Notes become
listed on any stock exchange and of any delisting thereof.
SECTION 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee promptly from time to time
such compensation for its acceptance of this Indenture and services hereunder
as agreed to by the parties from time to time. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it,
including the costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses (including reasonable attorneys' fees) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.7) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
Person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive
the resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or Property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall be a Permitted Lien and survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Sections 6.1(g) or 6.1(h) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any applicable bankruptcy laws.
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The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.8 Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of Notes
of a majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. If at any time:
(a) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request thereof by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
unless the Trustee's duty to resign is stayed in accordance with the provisions
of TIA Section 310(b); or
(b) the Trustee shall cease to be eligible under Section 7.10
hereof and shall fail to resign after written request therefor by the Company
or by any Holder; or
(c) the Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall have been
entered in respect of the Trustee in an involuntary case under the U.S.
bankruptcy laws, as now or hereinafter constituted, or a decree or order by a
court having jurisdiction in the premises shall have been entered for the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trustee or of its Property and
assets or affairs, or any public officer shall take charge or control of the
Trustee or of its Property and assets or affairs for the purpose of
rehabilitation, conservation, winding-up or liquidation; or
(d) the Trustee shall commence a voluntary case under the U.S.
bankruptcy laws, as now or hereafter constituted, or shall consent to the
appointment of or taking possession by a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trustee or
of its Property and assets or affairs, or shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall take corporate action in furtherance of
any such action; or
(e) the Trustee becomes incapable of acting,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Notes, or (ii) subject to Section 6.11 hereof, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee for the Notes.
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If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee notifies the Company of its resignation or is removed, the
retiring Trustee, the Company, or the Holders of Notes of at least 10% in
principal amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all Property held by it as Trustee to the successor Trustee, provided that all
sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee.
SECTION 7.9 Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the Surviving Entity without any further act shall be the
successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force
which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Trustee shall have.
SECTION 7.10 Eligibility; Disqualification.
-----------------------------
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or
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examination by federal or state authorities and that has a combined capital and
surplus of at least $100,000,000 as set forth in its most recent published
annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee shall comply
with TIA Section 310(b); provided, however, that there shall be excluded from
the operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such exclusion
set forth in TIA Section 310(b)(1) are met.
SECTION 7.11 Preferential Collection of Claims Against the Company.
-----------------------------------------------------
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8
SATISFACTION AND DISCHARGE
SECTION 8.1 Satisfaction and Discharge.
--------------------------
This Indenture shall upon the request of the Company cease to be of
further effect (except as to surviving rights of registration of transfer,
substitution or exchange of Notes herein expressly provided for, the Company's
obligations under Sections 7.7 and 8.4 hereof, the Company's rights of optional
redemption under Article 3 hereof, and the Company's, the Trustee's and the
Paying Agent's obligations under Section 8.3 hereof) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when:
(a) either
(i) all outstanding Notes have been delivered to the Trustee for
cancellation, or
(ii) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption
within one year under irrevocable arrangements satisfactory
to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the Company, and
the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to
pay and discharge the entire debt on the Notes not
theretofore delivered to the Trustee for cancellation, for
principal of (premium, if any, on) and interest (including
Special Interest, if any) to the date of deposit or Maturity
or date of redemption;
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(b) the Company has paid or caused to be paid all sums then due
and payable by the Company under this Indenture; and
(c) the Company has delivered an Officers' Certificate and an
Opinion of Counsel relating to compliance with the conditions set forth in this
Indenture.
Notwithstanding the satisfaction and discharge of this Indenture,
the Company's obligations in Sections 2.3, 2.4, 2.6, 2.7, 2.11, 2.13, 7.7, 7.8,
8.2, 8.3 and 8.4, and the Trustee's and Paying Agent's obligations in Section
8.3 shall survive until the Notes are no longer outstanding. Thereafter, only
the Company's obligations in Sections 7.7, 8.3 and 8.4 and the Trustee's and
Paying Agent's obligations in Section 8.3 shall survive.
In order to have money available on a payment date to pay principal
(and premium, if any, on) or interest (and Special Interest, if any) on the
Notes, the U.S. Government Obligations shall be payable as to principal (and
premium, if any) or interest (and Special Interest, if any) at least one
Business Day before such payment date in such amounts as will provide the
necessary money. U.S. Government Obligations shall not be callable at the
issuer's option.
SECTION 8.2 Application of Trust Money.
--------------------------
All money deposited with the Trustee pursuant to Section 8.1 shall
be held in trust and, at the written direction of the Company, be invested
prior to maturity in non-callable U.S. Government Obligations, and applied by
the Trustee in accordance with the provisions of the Notes and this Indenture,
to the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest (and Special Interest, if any) for the payment of which money
has been deposited with the Trustee; but such money need not be segregated from
other funds except to the extent required by law.
SECTION 8.3 Repayment of the Company.
------------------------
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal or interest
that remains unclaimed for two years after the date upon which such payment
shall have become due; provided that the Company shall have either caused
notice of such payment to be mailed to each Holder of the Notes entitled
thereto no less than 30 days prior to such repayment or within such period
shall have published such notice in a financial newspaper of widespread
circulation published in The City of New York, including, without limitation,
The Wall Street Journal (national edition). After payment to the Company,
Holders entitled to the money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another
Person, and all liability of the Trustee and such Paying Agent with respect to
such money shall cease.
SECTION 8.4 Reinstatement.
-------------
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If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 8.1 by reason of any
legal proceeding or by reason of any order or judgment of any court of
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and Guarantors' obligations under this Indenture,
the Notes and the Guarantees shall be revived and reinstated as though no
deposit has occurred pursuant to Section 8.1 until such time as the Trustee or
Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 8.2; provided, however, that if the
Company or the Guarantors have made any payment of interest on or principal of
any Notes because of the reinstatement of their Obligations, the Company or
such Guarantors shall be subrogated to the rights of the Holders of such Notes
to receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE 9
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 9.1 Option to Effect Defeasance or Covenant Defeasance.
--------------------------------------------------
The Company may, at the option of its Board of Directors evidenced
by a Board Resolution, at any time, elect to have either Section 9.2 or 9.3
hereof be applied to all outstanding Notes upon compliance with the conditions
set forth below in this Article 9.
SECTION 9.2 Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 9.1 hereof of the option
applicable to this Section 9.2, the Company and the Guarantors shall, subject to
the satisfaction of the conditions set forth in Section 9.4 hereof, be deemed to
have been discharged from their respective Obligations with respect to all
outstanding Notes, this Indenture and the Guarantees on the date the conditions
set forth below are satisfied (hereinafter, "Defeasance"). For this purpose,
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes and the Company and
the Guarantors shall be deemed to have satisfied all of their obligations under
such Notes, this Indenture and the Guarantees (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same),
subject to the following which shall survive until otherwise terminated or
discharged hereunder:
(a) the rights of Holders of such Notes to receive, solely from
the trust fund described in Section 9.4 hereof and as more fully set forth in
Section 9.4, payments in respect of the principal and of and any premium and
interest (including Special Interest, if any), on such Notes when payments are
due, (but not the Change of Control Purchase Price or the Asset Sale Offer
Price).
(b) the Company's obligations with respect to such Notes under
Sections 2.6, 2.7, 2.10, and 4.2 hereof,
(c) the rights, powers, trusts, duties and immunities of the
Trustee under this Indenture,
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(d) Article 3 hereof, and
(e) this Article 9.
Subject to compliance with this Article 9, the Company may exercise its option
under this Section 9.2 notwithstanding the prior exercise of its option under
Section 9.3 hereof.
SECTION 9.3 Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 9.1 hereof of the option
applicable to this Section 9.3, (i) the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 9.4 hereof,
be released from its obligations under the covenants contained in Sections 4.4,
4.6, 4.7, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19 and
4.20 and Section 5.1(iv) hereof and any covenant added to this Indenture
subsequent to the Issue Date pursuant to Section 10.1 hereof with respect to the
outstanding Notes and (ii) the occurrence of any event specified in Section
6.1(c) or 6.1(d) hereof, with respect to any of Sections 4.4, 4.6, 4.7, 4.9,
4.10, 4.11, 4.12, 4.12, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 and Section
5.1(iv) hereof, and any covenant added to this Indenture subsequent to the Issue
Date pursuant to Section 10.1 hereof, shall be deemed not to be or result in an
Event of Default, in each case with respect to such Notes as provided in this
Section 9.3 on and after the date on which the conditions set forth in Section
9.4 hereof are satisfied, and the Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, "Covenant Defeasance" means that,
with respect to the outstanding Notes, the Company and the Guarantors may omit
to comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant (to the extent so specified in the
case of Section 6.1(c) or 6.1(d) hereof), whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.1 hereof, but, except as specified above, the
remainder of this Indenture, the Guarantees and the Notes shall be unaffected
thereby.
SECTION 9.4 Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to the application of either
Section 9.2 or 9.3 hereof to the outstanding Notes:
In order to exercise either Defeasance or Covenant Defeasance:
(a) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to the benefits of the Holders of such Notes, (i) money in an amount, or
(ii) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one Business Day before the due date of any payment,
money in an amount, or (iii)
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a combination thereof, in each case sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge the
principal of (premium, if any, on) and any installment of interest on and
Special Interest, if any, on the Notes at the Maturity thereof or Redemption
Date therefor in accordance with the terms of this Indenture and the Notes;
(b) in the case of an election under Section 9.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this Indenture,
there has been a change in the applicable U.S. federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of such
Defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
Defeasance had not occurred;
(c) in the case of an election under Section 9.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Notes pursuant to this Article 9
concurrently with such incurrence) or insofar as Sections 6.1(g) or 6.1(h)
hereof is concerned, shall have occurred at any time on or prior to the 91st
day after the date of such deposit and be continuing on such 91st day (it being
understood that this condition shall not be deemed satisfied until after such
91st day);
(e) such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming for the purpose of this clause (f) that all Notes are
in default within the meaning of such Act);
(g) such Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such
trust shall be registered under such Act or exempt from registration
thereunder;
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that on the 91st day following the deposit, the trust
funds will not be subject to the
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effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(i) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company; and
(j) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Defeasance or the Covenant Defeasance
have been complied with.
SECTION 9.5 Deposited Money and U.S. Government Obligations To Be Held in
-------------------------------------------------------------
Trust; Other Miscellaneous Provisions.
- -------------------------------------
Subject to Section 9.6 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 9.5, the
"Trustee") pursuant to Section 9.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any such Paying Agent as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest (including Special Interest, if any), but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 9.4 hereof or the principal and
interest received in respect thereof.
Anything in this Article 9 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or U.S. Government Obligations held by it as provided
in Section 9.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
9.4(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Defeasance or Covenant Defeasance.
SECTION 9.6 Repayment to the Company.
------------------------
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, Special Interest, if any, or interest on any Note and remaining unclaimed
for two years after such principal, and premium, if any Special Interest, if
any, or interest has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as a creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of
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the Company as trustee thereof, shall thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in The
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 9.7 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 9.2 or 9.3
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's Obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 9.2 or 9.3 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 9.2 or 9.3 hereof,
as the case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, interest, Special Interest, if any, on any Note
following the reinstatement of its Obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 10
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 10.1 Without Consent of Holders of Notes.
-----------------------------------
Notwithstanding Section 9.2 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without the consent of any Holder of a Note:
(a) to evidence the succession of another Person to the Company
and the Guarantors and the assumption by such successor of the covenants and
Obligations of the Company under this Indenture and contained in the Notes and
of the Guarantors contained in this Indenture and the Guarantees,
(b) to add to the covenants of the Company, for the benefit of
Holders, or to surrender any right or power conferred upon the Company or the
Guarantors by this Indenture,
(c) to add any additional Events of Default,
(d) to provide for uncertificated Notes in addition to or in
place of Certificated Notes,
(e) to evidence and provide for the acceptance of appointment
under this Indenture by the successor Trustee,
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(f) to secure the Notes and/or the Guarantees,
(g) to cure any ambiguity, to correct or supplement any provision
in this Indenture which may be inconsistent with any other provision herein or
to add any other provisions with respect to matters or questions arising under
this Indenture, provided that such actions will not adversely affect the
interests of Holders in any material respect,
(h) to add or release any Guarantor pursuant to the terms of this
Indenture, or
(i) to comply with the requirements of the Commission to effect
or maintain he qualification of the Indenture under the Trust Indenture Act.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 10.7 hereof,
the Trustee shall join with the Company in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 10.2 With Consent of Holders of Notes.
--------------------------------
Except as provided below in this Section 10.2, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture and the Notes
may be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at Stated Maturity of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and, subject to Sections 6.4 and 6.7 hereof, any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premium, if any, or, interest on, or Special
Interest, if any, on, the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount at Stated Maturity of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 10.7 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of such amended or supplemental
Indenture unless such amended or supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 10.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a non-
consenting Holder):
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof
(or premium, if any), or the interest thereon that would be due and payable
upon Maturity thereof, or change the place of payment where, or the coin or
currency in which, any Note or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on
or after the Stated Maturity thereof;
(b) reduce the percentage in principal amount at Stated Maturity
of the outstanding Notes, the consent of whose Holders is necessary for any
such supplemental indenture or required for any waiver of compliance with
certain provisions of this Indenture, or certain Defaults hereunder;
(c) modify the Obligations of the Company to make offers to
purchase Notes upon a Change of Control or from the proceeds of Asset Sales;
(d) subordinate in right of payment the Notes or the Guarantees
to any other Indebtedness;
(e) amend, supplement or otherwise modify the provisions of this
Indenture relating to Guarantees or
(f) make any change in Sections 6.4 or 6.7 or modify any of the
provisions of this Section 10.2 (except to increase any percentage set forth
therein or herein).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.2 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental Indenture unless such
amended or supplemental Indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 10.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
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SECTION 10.3 Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article
10, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby. After a supplemental indenture becomes
effective, the Company shall mail to Holders a notice briefly describing such
amendment. The failure to give such notice to all Holders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 10.4 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment or supplement to this Indenture or the Notes shall
be set forth in an amended or supplemental Indenture that complies with the
Trust Indenture Act as then in effect.
SECTION 10.5 Revocation and Effect of Consents.
---------------------------------
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
(b) The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to give their consent
or take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding subsection, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than
120 days after such record date.
SECTION 10.6 Notation on or Exchange of Notes.
--------------------------------
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.7 Trustee to Sign Supplemental Indentures.
---------------------------------------
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The Trustee shall sign any supplemental Indenture authorized
pursuant to this Article 10 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Neither
the Company nor a Guarantor may sign a supplemental Indenture until the Board
of Directors of such Person approves it. In executing any supplemental
indenture, the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive and (subject to Section 7.1) shall be fully
protected in relying upon, in addition to the documents required by Section
11.4, an Officers' Certificate and an Opinion of Counsel stating that:
(a) such supplemental indenture is authorized or permitted by
this Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company and the Guarantors have all necessary corporate
power and authority to execute and deliver the supplemental indenture and that
the execution, delivery and performance of such supplemental indenture has been
duly authorized by all necessary corporate action of the Company and the
Guarantors;
(c) the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) this Indenture,
(ii) the charter documents and by-laws of the Company or any Guarantor, or
(iii) any material agreement or instrument to which the Company or any
Guarantor is subject and of which such counsel is aware;
(d) to the knowledge of legal counsel writing such Opinion of
Counsel, the execution, delivery and performance of the supplemental indenture
do not conflict with, or result in the breach of any of the terms, conditions
or provisions of (i) any law or regulation applicable to the Company or any
Guarantor, or (ii) any material order, writ, injunction or decree of any court
or governmental instrumentality applicable to the Company or any Guarantor;
(e) such supplemental indenture has been duly and validly
executed and delivered by the Company and the Guarantors, and this Indenture
together with such supplemental indenture constitutes a legal, valid and
binding obligations of the Company and the Guarantors enforceable against the
Company and the Guarantors, as applicable, in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles (whether considered in a proceeding at law or in equity); and
(f) this Indenture together with such amendment or supplement
complies with the Trust Indenture Act.
SECTION 10.8 Payment for Consent.
-------------------
Neither the Company nor any Affiliate of the Company shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or
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provisions of this Indenture or the Notes unless such consideration is offered
to be paid to all Holders that so consent, waive or agree to amend in the time
frame set forth in solicitation documents relating to such consent, waiver or
agreement.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by, or with another provision included in this
Indenture by operation of Sections 310 to 318, inclusive, of the Trust
Indenture Act, such imposed duties or incorporated provision shall control. If
any provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that can be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or excluded, as the case
may be.
SECTION 11.2 Notices.
-------
Any notice or communication by the Company, the Guarantors or the
Trustee to the others is duly given if in writing and delivered in person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or any Guarantor:
Premier Graphics, Inc. c/o Master Graphics, Inc.
6075 Poplar, Suite 401
Memphis, Tennessee 38119
Telephone No.: (901) 685-2020
Attention: Lance T. Fair
Telephone No.: (901) 685-2020
Telecopier No.: (901) 685-3600
If to the Trustee:
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Division
Telephone No.: (212) 852-1662
Telecopier No.: (212) 852-1626
The Company, the Guarantors, or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices
or communications.
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All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the
Securities Register kept by the Registrar and shall be given if so sent within
the time prescribed. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the Trust
Indenture Act. Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it; a notice or communication, however, shall not be effective unless,
in the case of the Company, the Guarantors or the Trustee, actually received.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give notice by mail to
Holders, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 11.3 Communication By Holders of Notes With Other Holders of Notes.
-------------------------------------------------------------
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.4 Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company, upon request, shall furnish
to the Trustee, to the extent required by this Indenture or the Trust Indenture
Act:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
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In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more such Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company or any
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such Officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, and may state that it is so based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an Officer or Officers of the Company or such Guarantor stating that the
information with respect to such factual matters is in the possession of the
Company or such Guarantor, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate of opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 11.5 Statements Required in a Certificate or Opinion.
-----------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Persons making such certificate or
opinion have read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Persons, they have
made such examination or investigation as is necessary to enable them to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Persons, such condition or covenant has been satisfied.
SECTION 11.6 Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by a specified percentage of Holders may be embodied in and evidenced by one or
more instruments of substantially similar tenor
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signed by such specified percentage of Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are received
by the Trustee and, where it is hereby expressly required, by the Company and
the Guarantors. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Sections 7.1 and 7.2) conclusive
in favor of the Trustee, the Company and the Guarantors, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient, including the execution
of such instrument or writing without more.
(c) The ownership, principal amount and serial numbers of Notes
held by any Person, and the date of holding the same, shall be proved by the
Securities Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other
Act, but the Company shall have no obligation to do so. Such record date shall
be the record date specified in or pursuant to such Board Resolution, which
shall be a date not earlier than the date 30 days prior to the first
solicitation is completed. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on
such record date shall be deemed effective unless it shall become pursuant to
the provisions of this Indenture not later than eleven months after the record
date.
(e) Except to the extent otherwise expressly provided in this
Indenture, any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Note.
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(f) Without limiting the foregoing, a Holder entitled hereunder
to give or take any action with regard to any particular Note may do so with
regard to all or any part of the principal amount of such Note or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any different part of such principal amount.
SECTION 11.7 Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions; provided that no such rule shall
conflict with the terms of this Indenture or the Trust Indenture Act.
SECTION 11.8 No Personal Liability of Directors, Officers, Employees and
-----------------------------------------------------------
Stockholders.
- ------------
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or the Guarantors under the Notes, this Indenture, the Guarantees
or for any claim based on, in respect of, or by reason of, such Obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SECTION 11.9 Governing Law.
-------------
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES, WITHOUT REGARD TO THE CONFLICTS
OF LAWS PRINCIPLES THEREOF.
SECTION 11.10 Agent for Service; Submission to Jurisdiction; Waiver of
--------------------------------------------------------
Immunities.
- ----------
By the execution and delivery of this Indenture or any amendment
or supplement hereto, each of the Company and the Guarantors (i) acknowledges
that it has, by separate written instrument, designated and appointed CT
Corporation System (the "Process Agent") currently located at 1633 Broadway,
New York, New York 10019, as its authorized agent upon which process may be
served in any suit, action or proceeding with respect to, arising out of, or
relating to, this Indenture, the Guarantees, or the Notes or brought under U.S.
federal or state securities laws, may be instituted in any U.S. federal or
state court located in The City of New York, New York, and acknowledges that
the Process Agent has accepted such designation, (ii) irrevocably submits to
the jurisdiction of any such court in any such suit, action or proceeding and
irrevocably waives, to the fullest extent that it may effectively and lawfully
do so, any obligation to the laying of venue of any such suit, action or
proceeding and the defense of an inconvenient forum to the maintenance of any
such suit action or proceeding in such court, and (iii) agrees that service of
process upon the Process Agent shall be deemed in every respect effective
service of process upon the Company and the Guarantors in any such suit, action
or proceeding. The Company and the Guarantors further agree to take any and all
action, including the execution and filing of any and all such documents and
instruments as may be necessary to continue such designation and appointment of
the Process Agent in full force and effect so long as this Indenture shall be
in full force and effect; provided that the Company and the Guarantors may and
shall (to the extent the Process Agent ceases to be able to
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be served on the basis contemplated herein), by written notice to the Trustee,
designate such additional or alternative agents for service of process under
this Section 11.10 that (i) maintains an office located in the Borough of
Manhattan, The City of New York in the State of New York, (ii) are either (a)
counsel for the Company or (b) a corporate service company which acts as agent
for service of process for other persons in the ordinary course of its business
and for other persons in the ordinary course of its business and (iii) agrees
to act as agent for service of process in accordance with this Section 11.10.
Such notice shall identify the name of such agent for process and the address
of such agent for process in the Borough of Manhattan, The City of New York,
State of New York. Upon the request of any Holder of a Note, the Trustee shall
deliver such information to such Holder. Notwithstanding the foregoing, there
shall, at all times, be at least one agent for service of process for the
Company and each Guarantor appointed and acting in accordance with this Section
11.10.
To the extent that the Company or any Guarantor has or hereafter
may acquire any immunity from jurisdiction of any court or from any legal
process (whether through service of notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, each of the Company and the Guarantors hereby irrevocably
waives such immunity in respect of its Obligations under this Indenture, the
Guarantees and the Notes, to the extent permitted by law.
SECTION 11.11 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company, the Guarantors or the Company's
Subsidiaries or of any other Person. Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.
SECTION 11.12 Successors.
----------
All agreements of the Company and the Guarantors in this
Indenture, the Notes and the Guarantors shall bind its successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.13 Severability.
------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.14 Counterpart Originals.
---------------------
The parties may sign any number of copies of this Indenture and
by the parties thereto in separate counterparts. Each of which when signed
shall be deemed to be an original, but all of them together represent the same
agreement.
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SECTION 11.15 Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
ARTICLE 12
GUARANTEES
SECTION 12.1 Guarantors.
----------
(a) For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the Guarantors, together
with each Subsidiary of the Company which in accordance with Sections 4.18 and
12.8(a) hereof is required in the future to guarantee the Obligations of the
Company and the Guarantors under the Notes, the Guarantees and this Indenture
upon execution of a supplemental indenture, hereby jointly and severally and
irrevocably and unconditionally guarantees to the Trustee and to each Holder
irrespective of the validity or enforceability of this Indenture or the Notes
or the Obligations of the Company and the Guarantors under this Indenture,
that: (i) the principal of, premium, if any, any interest, and Special
Interest, if any, on the Notes (including, without limitation, any interest
that accrues after the filing of a proceeding of the type described in Sections
6.1(g) and (h)) and any fees, expenses and other amounts owing under this
Indenture will be duly and punctually paid in full when due, whether at
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise, and interest on the overdue principal
and (to the extent permitted by law) interest, if any, on the Notes and any
other amounts due in respect of the Notes, and all other Obligations of the
Company and the Guarantors, including the Company's obligations under the New
Credit Facility to the Holders of the Notes under this Indenture, the Notes and
the Guarantees, whether now or hereafter existing, will be promptly paid in
full or performed, all strictly in accordance with the terms hereof and of the
Notes; and (ii) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at Maturity, by acceleration, call for redemption, upon Change of
Control Offer, Asset Sale Offer, purchase or otherwise. If payment is not made
when due of any amount so guaranteed for whatever reason, each Guarantor shall
be jointly and severally obligated to pay the same individually whether or not
such failure to pay has become an Event of Default which could cause
acceleration pursuant to Section 6.2. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection. An Event of Default
under this Indenture or the Notes shall constitute an Event of Default under
each Guarantee, and shall entitle the Holders to accelerate the Obligations of
each Guarantor hereunder in the same manner and to the same extent as the
Obligations of the Company. Each Guarantee is intended to be superior to or
pari passu in right of payment with all Indebtedness of the Guarantors and each
Guarantor's Obligations are independent of any Obligation of the Company or any
other Guarantor.
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(b) Each Guarantor waives presentation to, demand of, payment from
and protest to the Company of any of the Obligations under this Indenture or
the Notes and also waives notice of protest for nonpayment. Each Guarantor
waives notice of any default under the Notes or the Obligations. The
Obligations of each Guarantor hereunder shall not be affected by (i) the
failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under this
Indenture, the Notes or any other agreement or otherwise; (ii) any extension or
renewal of any thereof; (iii) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Indenture, the Notes or any other
agreement; (iv) the release of any security held by any Holder or the Trustee
for the Obligations or any of them; (v) the failure of any Holder or the
Trustee to exercise any right or remedy against any other guarantor of the
Obligations; or (f) any change in the ownership of such Guarantor.
(c) The Obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise,
and shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations of the Company or otherwise. Without
limiting the generality of the foregoing, the Obligations of each Guarantor
herein shall not be discharged or impaired or otherwise affected by the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
remedy under this Indenture, the Notes or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations of the Company, or by any
other act or thing or omission or delay to do any other act or thing which may
or might in any manner or to any extent vary the risk of such Guarantor or
would otherwise operate as a discharge of such Guarantor as a matter of law or
equity.
(d) Each Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of, premium, if any, on or interest
(or Special Interest, if any) on any Obligation of the Company is rescinded or
must otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
(e) In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of the Company to pay the
principal of, premium, if any, on or interest (or Special Interest, if any) on
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any
other Obligation, each Guarantor hereby promises to and will, upon receipt of
written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to
the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount
of such Obligations, (ii) accrued and unpaid interest on such Obligations (but
only to the extent not prohibited by law) and (iii) all other monetary
Obligations of the Company to the Holders and the Trustee.
(f) Until such time as the Notes and the other Obligations of the
Company guaranteed hereby have been satisfied in full, each Guarantor hereby
irrevocably waives any
96
<PAGE>
claim or other rights that it may now or hereafter acquire against the Company
or any other Guarantor that arise from the existence, payment, performance or
enforcement of such Guarantor's Obligations under each Guarantee, including,
without limitation, any right of subrogation, reimbursement, exoneration,
contribution or indemnification and any right to participate in any claim or
remedy of the Holders or the Trustee against the Company or any other Guarantor
or any security, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from the Company or any other Guarantor, directly or
indirectly, in cash or other Property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right. If any amount
shall be paid to such Guarantor in violation of the preceding sentence at any
time prior to the later of the payments in full of the Notes and all other
amounts payable under this Indenture and each Guarantee upon the Maturity of
the Notes, such amount shall be held in trust for the benefit of the Holders
and the Trustee and shall forthwith be paid to the Trustee to be credited and
applied to the Notes and all other amounts payable under each Guarantee,
whether matured or unmatured, in accordance with the terms of this Indenture,
or to be held as security for any Obligations or other amounts payable under
any Guarantee thereafter arising.
(g) Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that the waiver set forth in this Section 12.1 is knowingly made in
contemplation of such benefits. Each Guarantor further agrees that, as between
it, on the one hand, and the Holders and the Trustee, on the other hand, (x)
subject to this Article 12, the maturity of the Obligations guaranteed hereby
may be accelerated as provided in Article 6 for the purposes of each Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any acceleration of such Obligations guaranteed hereby as provided in
Article 6, such Obligations (whether or not due and payable) shall further then
become due and payable by the Guarantors for the purposes of each Guarantee.
(h) A Guarantor that makes a distribution or payment under a
Guarantee shall be entitled to contribution from each other Guarantor in a pro
rata amount based on the Adjusted Net Assets of each such other Guarantor for
all payments, damages and expenses incurred by that Guarantor in discharging
the Company's obligations with respect to the Notes and this Indenture or any
other Guarantor with respect to its Guarantee, so long as the exercise of such
right does not impair the rights of the Holders of the Notes under the
Guarantees.
(i) Each Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 12.2 Limitation on Liability.
-----------------------
The Obligations of each Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, result in the Obligations of
such Guarantor under
97
<PAGE>
its Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under federal or state law or otherwise not being void, voidable or
unenforceable under any bankruptcy, reorganization, receivership, insolvency,
liquidation or other similar legislation or legal principles under any
applicable foreign law. Each Guarantor that makes a payment or distribution
under a Guarantee shall be entitled to a contribution from each other Guarantor
in a pro rata amount based on the Adjusted Net Assets of each Guarantor.
SECTION 12.3 Execution and Delivery of Guarantees.
------------------------------------
To further evidence its Guarantee set forth in Section 12.1
hereof, each Guarantor hereby agrees that notation of such Guarantee shall be
endorsed on each Note authenticated and delivered by the Trustee and executed
by either manual or facsimile signature of an authorized officer of such
Guarantor. Each Guarantor hereby agrees that its Guarantee set forth in Section
12.1 hereof shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee. If an officer of a
Guarantor whose signature is on this Indenture or a Note no longer holds that
office at the time the Trustee authenticates such Note or at any time
thereafter, such Guarantor's guarantee of such Note shall be valid
nevertheless. The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
SECTION 12.4 When A Guarantor May Merge, Etc.
--------------------------------
Each Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its Property and assets to the
Company or another Guarantor without limitation, except to the extent any such
transaction is subject to Section 5.1 hereof. Each Guarantor may consolidate
with or merge into or sell all or substantially all of its Property and assets
to a Person other than the Company or another Guarantor (whether or not
Affiliated with the Guarantor), provided that (a) if the surviving Person is
not the Guarantor, the surviving Person agrees to assume such Guarantor's
Guarantee and all its Obligations pursuant to this Indenture (except to the
extent the provisions of Section 12.7(a) would result in the release of such
Guarantee) and (b) such transaction does not (i) violate any of the covenants
described in Article 4 hereof or (ii) result in a Default or Event of Default
being in existence or continuing immediately thereafter.
SECTION 12.5 No Waiver.
---------
Neither a failure nor a delay on the part of either the Trustee or
the Holders in exercising any right, power or privilege under this Article 12
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege. The rights, remedies and benefits of the Trustee and the Holders
herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 12 at
law, in equity, by statute or otherwise.
98
<PAGE>
SECTION 12.6 Modification.
------------
No modification, amendment or waiver of any provision of this
Article 12, nor the consent to any departure by any Guarantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand
on any Guarantor in any case shall entitle such Guarantor to any other or
further notice or demand in the same, similar or other circumstances.
SECTION 12.7 Release of Guarantor.
--------------------
(a) Upon the sale or other disposition (by merger or otherwise)
of a Guarantor (or all or substantially all of its Property and assets) to a
Person other than the Company, Master Graphics or another Guarantor and
pursuant to a transaction that is otherwise in compliance with this Indenture
(including as described in clause (b) of Section 12.4 and as described in
Section 4.15 hereof), such Guarantor (unless it otherwise remains a Subsidiary)
shall be deemed released from its Guarantee and the related Obligations set
forth in this Indenture; provided that any such termination shall occur only to
the extent that all Obligations of such Guarantor under all of its guarantees
of and under all of its pledges of assets or other security interests which
secure, other Indebtedness of the Company or any other Subsidiary shall also
terminate or be released upon such sale or other disposition. Each Guarantor
that is designated as an Unrestricted Subsidiary in accordance with this
Indenture shall be released from its Guarantee and the related Obligations set
forth in this Indenture so long as it remains an Unrestricted Subsidiary.
(b) Any Guarantee by a Subsidiary (including an Initial
Guarantor) shall be automatically and unconditionally released and discharged,
as evidenced by a supplemental indenture executed by the Company, the
Guarantors, if any, and the Trustee, upon the release or discharge of the
guarantee which resulted in the creation of such Subsidiary's Guarantee and all
other guarantees of the Obligations of any Obligor on the Notes, except a
discharge or release by, or as a result of, payment under such guarantee.
SECTION 12.8 Future Guarantors; Execution of Supplemental Indentures for Future
------------------------------------------------------------------
Guarantors.
- ----------
(a) The Company may not permit any Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company or any other Obligor
("Guaranteed Indebtedness") unless (i) such Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee of payment of the Notes by such Subsidiary and (ii) such Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Subsidiary as a result of any
payment by such Subsidiary under its Guarantee. If the Guaranteed Indebtedness
is pari passu with the Notes, then the guarantee of such Guaranteed
Indebtedness shall be pari passu with or subordinated to the Guarantee; and if
the Guaranteed Indebtedness is subordinated to the Notes, then the guarantee of
such Guaranteed Indebtedness shall be subordinated to the Guarantee at least to
the extent that all Guaranteed Indebtedness is subordinated to the Notes.
99
<PAGE>
(b) Any Subsidiary that guarantees any Indebtedness of the
Company or another Obligor is required pursuant to Section 12.8(a) or 4.18
hereof to become a Guarantor and the Company shall cause each such Subsidiary
to promptly execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiary shall become a Guarantor under this Article
12 and shall guarantee the Obligations of the Company under the Notes and this
Indenture. Concurrently with the execution and delivery of such supplemental
indenture, the Company shall deliver to the Trustee an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized, executed
and delivered by such Subsidiary and that, subject to the application of
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
transfer and other similar laws relating to creditors' rights generally and to
the principles of equity, whether considered in a proceeding at law or in
equity, the Guarantee of such Guarantor is a legal, valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms, and as to any such other matters as the Trustee may reasonably
request.
100
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
----------------------------
Name: John P. Miller
Title: President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ Jason Gregory
----------------------------
Name: Jason Gregory
Title Vice President
<PAGE>
Each of the following entities as Guarantors:
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
-----------------------------------------
Name: Lance T. Fair
Title: Vice President/Chief Executive Officer
HARPERPRINTS, INC.
By: /s/ John P. Miller
-----------------------------------------
Name: John P. Miller
Title: President
<PAGE>
SCHEDULE A
Initial Guarantors
MASTER GRAPHICS, INC.
HARPERPRINTS, INC.
<PAGE>
(Face of Note) Exhibit A
---------
[THIS GLOBAL NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE REFERRED
TO ON THE REVERSE THEREOF.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO PREMIER
GRAPHICS, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THIS GLOBAL NOTE IS EXCHANGEABLE FOR A NOTE IN DEFINITIVE, FULLY REGISTERED
FORM, WITHOUT INTEREST COUPONS, IF (A) DTC NOTIFIES THE COMPANY THAT IT IS
UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL NOTE OR IF AT ANY
TIME DTC CEASES TO BE A "CLEARING AGENCY" REGISTERED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND A SUCCESSOR DEPOSITORY IS NOT APPOINTED BY
THE COMPANY WITHIN 90 DAYS OF SUCH NOTICE, (B) THE COMPANY EXECUTES AND DELIVERS
TO THE TRUSTEE A NOTICE THAT THIS GLOBAL NOTE SHALL BE SO TRANSFERABLE,
REGISTRABLE, AND EXCHANGEABLE, AND SUCH TRANSFER SHALL BE SO REGISTRABLE, OR (C)
AN EVENT OF DEFAULT (AS HEREINAFTER DEFINED) HAS OCCURRED AND IS CONTINUING WITH
RESPECT TO THE NOTES.]/1/
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. ACCORDINGLY, THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
- -----------------------------------
/1/ These paragraphs should be included if the Notes are issued in global form.
<PAGE>
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS ACQUIRING THIS NOTE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER REGULATION D UNDER THE SECURITIES ACT (AN
"IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.]/2/
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF
- -----------------------------------
/2/ These paragraphs (the Private Placement Legend) should be omitted upon the
exchange of Initial Notes for Exchange Notes in the Exchange Offer or upon
the registration of Initial Notes pursuant to the Registration Rights
Agreement.
<PAGE>
INTEREST HEREON PRIOR TO THE EXCHANGE OF THIS NOTE FOR A REGULATION S PERMANENT
GLOBAL NOTE AS CONTEMPLATED BY THE INDENTURE.]/3/
- -----------------------------------
/3/ This should be included only if the Note is a Regulation S Temporary Global
Note.
<PAGE>
11 1/2% Senior Notes due 2005
PREMIER GRAPHICS, INC.
No.
CUSIP No.
$___________________
PREMIER GRAPHICS, INC. promises to pay to _______________________ or
registered assigns, the principal sum of ___________________ United States
Dollars, [or such greater or lesser amount as may from time to time be endorsed
on Schedule A hereto]4 on [_________], 2005.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit of this Indenture or be valid or obligatory
for any purpose.
- --------------------------
4 This is included on Global Notes only.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
as of the date written below.
PREMIER GRAPHICS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Dated: Name:
------------------ ---------------------------------
Title:
--------------------------------
Certificate of Authentication:
This is one of the Notes
referred to in the within-mentioned
Indenture:
United States Trust Company of New York
as Trustee
By:
------------------------------
Authorized Signatory
<PAGE>
(Reverse of Note)
11 1/2% Senior Note due 2005
Capitalized terms used herein shall have the meanings assigned to them
in this Indenture referred to below unless otherwise indicated.
1. Interest. Premier Graphics, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being called the "Company"), promises to pay interest on the
principal amount of this Note at 11 1/2% per annum until Maturity and shall pay
Special Interest, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest, if any, and
Special Interest, if any, semi-annually in arrears on June 1 and December 1 of
each year (each, an "Interest Payment Date"), or if any such day is not a
Business Day, on the next succeeding Business Day. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a Record Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 1, 1999. The Company shall pay interest (including post-petition interest
in any proceeding under any applicable Federal, State or foreign bankruptcy law)
on overdue installments of interest ("Defaulted Interest"), and Special
Interest, if any, if any, (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes
(except Defaulted Interest) and Special Interest, if any, to the Persons who are
registered Holders of Notes at the close of business on May 15 or November 15
immediately preceding the Interest Payment Date (each, a "Record Date"), even if
such Notes are canceled after such Record Date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to Defaulted Interest. The Notes will be payable as to principal, premium,
interest and Special Interest at the office or agency of the Company maintained
for such purpose within the City and State of New York, or, at the option of the
Company, payment of interest and Special Interest may be made by check mailed to
the Holders at their addresses set forth in the register of Holders, provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium, if any, and Special
Interest, if any, on, all Global Notes and all other Notes the Holders of which
shall have provided wire transfer instructions to the Company and the Paying
Agent prior to the applicable Record Date for such payment. Such payment shall
be in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee under the
Indenture will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. In certain situations,
the Company or any of its Subsidiaries may act in any such capacity.
<PAGE>
4. Indenture. The Company issued the Notes under an Indenture dated
as of December 11, 1998 ("Indenture") between the Company, the Persons acting as
guarantors and named therein (the "Guarantors") and United States Trust Company
of New York, as trustee (the "Trustee," which term includes any successor
trustee under the Indenture). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the U.S. Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) as in
effect on the date of the Indenture. The Notes are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are unsecured obligations of the Company limited to
$130,000,000 in aggregate principal amount (subject to Section 2.7 of the
Indenture). This Note is one of the Notes referred to in the Indenture.
5. Optional Redemption. (a) Except as set forth in clause 5(b) of
this Note, the Notes shall not be redeemable at the Company's option prior to
December 1, 2002. On or after such date, the Notes shall be redeemable at the
option of the Company, in whole at any time or in part from time to time, at the
following prices (expressed in percentages of principal amount thereof) if
redeemed during the twelve-month period beginning December 1 of each of the
years indicated below, in each case together with interest (and Special
Interest, if any) accrued to Redemption Date (subject to the right of Holders of
record on the relevant Record Date to receive interest (and Special Interest, if
any), due on the relevant Interest Payment Date):
Year Percentage
2002 105.750%
2003 102.875%
2004 and thereafter 100.000%
(b) Notwithstanding the provisions of clause (a) of this clause 5, at
any time during the first 36 months after the Issue Date, the Company may at its
option redeem up to a maximum of 35% of the original aggregate principal amount
of the Notes with the net cash proceeds of one or more Public Equity Offerings
at a Redemption Price equal to 111.5% of the principal amount thereof, plus
accrued and unpaid interest (and Special Interest, if any), thereon to the
Redemption Date; provided that at least 65% of the aggregate principal amount of
the Notes originally issued shall remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 90 days of the date of the closing of such Public Equity Offering.
(c) Notices of redemption will be mailed by first class mail at least
30 days but not more than 60 days before the Redemption Date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. Unless the
Company defaults in making such redemption payment, on and after the Redemption
Date interest (including Special Interest, if any) ceases to accrue on Notes or
portions thereof called for redemption.
6. Mandatory Redemption. Except as contemplated by clause 7 below,
the Company shall not be required to make any mandatory redemption, purchase or
sinking fund payments with respect to the Notes prior to the maturity date.
<PAGE>
7. Repurchase at Option of Holder. (a) Upon the occurrence of a
Change of Control, each Holder will have the right to require the Company to
repurchase such Holder's Notes in whole or in part (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price") in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, and Special Interest, if any, to the Change of Control
Payment Date on the terms described in the Indenture.
Within 30 days following any Change of Control, the Company shall
send, or cause to be sent, by first class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Notes. The Holder of
this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Payment with respect thereto, all Notes or portions thereof accepted for
payment pursuant to the Change of Control Offer will cease to accrue interest
(and Special Interest, if any) from and after the Change of Control Purchase
Date.
(b) If at any time the Company or any Subsidiary engages in an Asset
Sale as result of which the aggregate amount of Excess Proceeds exceeds
$5,000,000, the Company shall within 30 days thereafter, or at any time after
receipt of Excess Proceeds but prior to there being $5,000,000 of Excess
Proceeds, the Company may, at its option, make a pro rata offer (an "Asset Sale
Offer") to all Holders of Notes and holders of Senior Debt, if and to the extent
the Company is required by the instruments governing such Senior Debt to make
such an offer, to purchase Notes and such Senior Debt in an aggregate amount
equal to the Excess Proceeds, at a price in cash (the "Asset Sale Offer Purchase
Price") equal to 100% of the outstanding principal amount of the Notes plus
accrued interest and Special Interest, if any, to the date of purchase and, in
the case of such other Senior Debt, 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the date of purchase. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset to zero and the Company may use any remaining amount for general corporate
purposes.
Within 30 days of the date the amount of Excess Proceeds exceeds $5,000,000,
the Company shall send, or cause to be sent, by first class mail, postage
prepaid, a notice regarding the Asset Sale Offer to each Holder of Notes. The
Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Offer Purchase Price with respect thereto, all Notes or portions thereof
selected for payment pursuant to the Asset Sale Offer will cease to accrue
interest from and after the Asset Sale Offer Purchase Date.
8. Denominations; Transfer and Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
(including in certain cases, opinions of counsel) and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not
<PAGE>
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a Record Date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. With the consent of the holders
of not less than a majority in aggregate principal amount at Stated Maturity of
the outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes), the Company, the Guarantors and the
Trustee may enter into one or more indentures supplemental to the Indenture for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of modifying in any manner the rights
of the holders; provided that no such supplemental indenture will, without the
consent of the Holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, or reduce the principal amount thereof (or premium, if any), or the
interest thereon that would be due and payable thereon, or change the place of
payment where, or the coin or currency in which, any Note or any premium or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof, (b)
reduce the percentage in principal amount at Stated Maturity of the outstanding
Notes, the consent of whose Holders is necessary for any such supplemental
indenture or required for any waiver of compliance with certain provisions of
the Indenture, or certain Defaults thereunder, (c) modify the Obligations of the
Company to make offers to purchase Notes upon a Change of Control or from the
proceeds of Asset Sales, (d) subordinate in right of payment the Notes or the
Guarantees to any other Indebtedness, (e) amend, supplement or otherwise modify
the provisions of the Indenture relating to Guarantees or (f) make any changes
in Sections 6.4 or 6.7 of the Indenture or modify any of the provisions of this
clause (except to increase any percentage set forth therein or herein).
11. Defaults and Remedies. Events of Default include in summary form:
(i) default for 30 days in the payment when due of interest on, or Special
Interest with respect to, the Notes; (ii) default in payment when due of the
principal of or premium, if any, on the Notes; (iii) failure by the Company to
comply with Sections 4.9, 4.11, 4.12, 4.13, 4.15, 4.16, 4.21(c) or 5.1 of the
Indenture; (iv) failure by the Company for 30 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) Indebtedness of
the Company or any Subsidiary is not paid when due within the applicable grace
period, if any, or is accelerated by the holders thereof and, in either case,
the aggregate principal amount of such unpaid or accelerated Indebtedness
exceeds $10,000,000 or more; (vi) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments aggregating in excess of
$5,000,000, which judgments are not paid, discharged or stayed for a period of
60 days; (viii) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary; and (ix) any Guarantee shall for any
reason cease to be, or be asserted by the Company or any Guarantor, as
applicable, not to be, in full force as effect (except pursuant to the release
of any Guarantee in accordance with the Indenture).
Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the
<PAGE>
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium, if any, interest or Special
Interest, if any) if it determines that withholding notice is in their interest.
Subject to certain limitations, the Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes then outstanding waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
premium, if any, on, interest on, and, if any, on, the Notes. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
12. Defeasance Prior to Maturity or Redemption. The Company, at its
election, shall (a) be deemed to have paid and discharged its debt on the Notes
and the Indenture and Guarantees shall cease to be of further effect as to all
outstanding Notes (except as to (i) rights of registration of transfer,
substitution and exchange of Notes, (ii) the Company's right of optional
redemption, (iii) rights of Holders to receive payments of principal of,
premium, if any, and interest on the Notes (but not the Change of Control
Purchase Price or the Asset Sale Offer Purchase Price) and any rights of the
Holders with respect to such amounts, (iv) the rights, obligations and
immunities of the Trustee under the Indenture, and (v) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants that are described in the Indenture, after
the irrevocable deposit by the Company with the Trustee, in trust for the
benefit of the Holders, at any time prior to the Stated Maturity of the Notes,
of (i) money in an amount, (ii) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one Business Day
before the due date of payment in respect of such Notes, money in an amount, or
(C) a combination thereof sufficient to pay and discharge the principal of,
premium, if any on, and interest (including Special Interest, if any) on, such
Notes then outstanding on the dates on which any such payments are due in
accordance with the terms of the Indenture and of such Notes.
13. Trustee Dealings with the Company. Subject to certain
limitations imposed by the Trust Indenture Act, the Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder of the Company or a Guarantor, as such, shall not
have any liability for any obligations of the Company or the Guarantors under
the Notes, the Indenture, the Guarantees or for any claim based on, in respect
of, or by reason of, such Obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
15. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS NOTE, WITHOUT REGARD TO THE CONFLICTS OF
LAWS PRINCIPLES THEREOF.
<PAGE>
16. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Notes (as defined in the Registration Rights
Agreement) shall have all the rights set forth in the Registration Rights
Agreement dated as of the date of the Indenture, between the Company and the
parties named on the signature pages thereof (the "Registration Rights
Agreement").
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Premier Graphics, Inc.
6075 Poplar, Suite 401
Memphis, Tennessee 38119
Telephone No.: (901) 685-2020
Attention: Lance T. Fair
Telephone No.: (901) 685-2020
Telecopier No.: (901) 685-3600
<PAGE>
GUARANTEE
Subject to the limitations set forth in the Indenture, the Guarantors (as
defined in the Indenture referred to in this Note and each hereinafter referred
to as a "Guarantor," which term includes any successor or additional Guarantor
under the Indenture) have jointly and severally, irrevocably and unconditionally
guaranteed (a) the due and punctual payment of the principal (and premium, if
any) of and interest (and Special Interest, if any), on the Notes, whether at
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest (and Special Interest, if
any), on the Notes to the extent lawful, (c) the due and punctual performance of
all other Obligations of the Company and the Guarantors to the Holders under the
Indenture and the Notes and (d) in case of any extension of time of payment or
renewal of any Notes or any of such other Obligations, the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at Maturity, by acceleration, call for redemption, upon a
Change of Control Offer, Asset Sale Offer, purchase or otherwise. Capitalized
terms used herein shall have the same meanings assigned to them in the Indenture
unless otherwise indicated.
Payment on each Note is guaranteed, jointly and severally, by the
Guarantors pursuant to Article 12 of the Indenture and reference is made to such
Indenture for the precise terms of the Guarantees.
The Obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Guarantor, and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, result in the Obligations of such
Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under any applicable Federal, State or foreign bankruptcy
law or not otherwise being void, voidable or unenforceable under any such
applicable bankruptcy law. Each Guarantor that makes a payment or distribution
under a Guarantee shall be entitled to a contribution from each other Guarantor
in a pro rata amount based on the Adjusted Net Assets of each Guarantor.
Certain of the Guarantors may be released from their Guarantees upon the
terms and subject to the conditions provided in the Indenture.
<PAGE>
The Guarantee shall be binding upon each Guarantor listed below and its
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions in the Indenture.
[Remainder of page intentionally left blank.]
<PAGE>
MASTER GRAPHICS, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
HARPERPRINTS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
_______________________________________________________________________________
(Insert assignee's Social Security or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company or the agent appointed by the
Company to maintain such books. The agent appointed hereby may substitute
another to act for him.
_______________________________________________________________________________
Date: ________________________
Your signature: __________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.9 or 4.15 of the Indenture, check the box below:
[ ] Section 4.9 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.9 or Section 4.15 of the Indenture, state the
amount you elect to have purchased (must be an integral multiple of $1,000):
$__________________
Your Signature:
-----------------------------------
(Sign exactly as your name appears on
the Note)
Signature Guarantee: Social Security or Tax Identification No.:
--------
<PAGE>
SCHEDULE A
CHANGES IN PRINCIPAL AMOUNT OF NOTE/5/
The following changes in the principal amount of this Global Note have
been recorded:
<TABLE>
<CAPTION>
Principal Amount of this
Amount of decrease in Amount of increase in Global Note Signature of
Principal Amount of Principal Amount of following such decrease authorized officer
Date of Transaction this Global Note this Global Note (or increase) of Trustee
- ------------------- --------------------- --------------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------------
/5/ This should only be included if the Note is issued in global form.
<PAGE>
Exhibit B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM U.S. GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.6(a)(1) of the Indenture)
United States Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: 11 1/2% Senior Notes due 2005 of Premier Graphics, Inc.
Reference is hereby made to the Indenture, dated as of December 11,
1998 (the "Indenture"), between Premier Graphics, Inc. (the "Company"), the
Persons acting as guarantors and named therein (the "Guarantors") and United
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$___________ principal amount of Notes
which are evidenced by one or more U.S. Global Notes and held with the
Depositary in the name of _____________ (the "Transferor"). The Transferor has
requested a transfer of such beneficial interest in the Notes to a Person who
will take delivery thereof in the form of an equal principal amount of Notes
evidenced by one or more Regulation S Global Notes, which amount, immediately
after such transfer, is to be held with the Depositary through Euroclear or
Cedel or both.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United
States and, if the 40-day restricted period has not yet expired
and the Transferor is a dealer (as defined in Section 2(12) of
the Securities Act), or a person receiving a selling concession,
fee or other remuneration in respect of the Notes being sold
(collectively, "Dealers"), (i) neither the Transferor or any
person acting on its behalf knows that the transferee is a U.S.
person and (ii) if the Transferor or any person acting on its
behalf knows that the transferee is a Dealer, the Transferor or
person acting on its behalf has sent a confirmation or other
notice to the transferee stating that the Notes may be offered or
sold during the 40-day restricted period only in accordance with
the provisions of Regulation S, pursuant to registration under
the Securities Act or pursuant to an available exemption from the
registration requirements of the Securities Act;
<PAGE>
(2) either:
(a) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person
acting on its behalf reasonably believed and believes that
the transferee was outside the United States; or
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and
neither the Transferor nor any person acting on its behalf
knows that the transaction was prearranged with a buyer in
the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary
through Euroclear or Cedel or both.
Upon giving effect to this request to exchange a beneficial interest
in a U.S. Global Note for a beneficial interest in a Regulation S Global Note.
The resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act and, if such transfer occurs prior to the end of the 40-day
restricted period associated with the initial offering of Notes, the additional
restrictions applicable to transfers of interest in the Regulation S Temporary
Global Note.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Prudential Securities Incorporated and Morgan Keegan &
Company, Inc. (collectively, the "Initial Purchasers"), the Initial Purchasers
of such Notes being transferred. We acknowledge that you, the Company and the
Initial Purchasers will rely upon our confirmations, acknowledgments and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our representations or warranties herein ceases to be accurate and
complete. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------------------------
Name:
--------------------------------------
Title:
---------------------
Dated:
---------------------
cc: Premier Graphics, Inc.
Initial Purchasers
<PAGE>
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO U.S. GLOBAL NOTE
(Pursuant to Section 2.6(a)(ii) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: 11 1/2% Senior Notes due 2005 of Premier Graphics, Inc.
Reference is hereby made to the Indenture dated as of December 11,
1998 (the "Indenture"), between Premier Graphics, Inc. (the "Company"), the
Persons acting as guarantors and named therein (the "Guarantors") and United
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $____________ principal amount of Notes which
are evidenced by one or more Regulation S Global Notes and held with the
Depositary through Euroclear or Cedel in the name of _________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Notes to a Person who will take delivery thereof in the form of
an equal principal amount of Notes evidenced by one or more U.S. Global Notes,
to be held with the Depositary.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that:
[CHECK ONE]
o such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the
"Securities Act") and, accordingly, the Transferor hereby further certifies
that the Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Notes for its own account, or for one
or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
[ ] such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
<PAGE>
[ ] the Surrendered Notes are being transferred to Institutional Accredited
Investor pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies that the
Transfer complies with the transfer restrictions applicable to beneficial
interests in Global Notes and Certificated Notes bearing the Private
Placement Legend and the requirements of the exemption claimed, which
certification is supported by a certificate attached hereto executed by the
Transferee in the form of Exhibit C to the Indenture, and, if the Company
should so request, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification), in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the
Securities Act to the effect that such Transfer is in compliance with the
Securities Act;
or
o such transfer is being effected in an offshore transaction pursuant to and
in accordance with Rule 904 under the Securities Act;
or
o such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
o such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than those
contemplated above, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and such Notes are being transferred in compliance with any applicable blue sky
or securities laws of any state of the United States or any other applicable
jurisdiction.
Upon giving effect to this request to exchange a beneficial interest
in Regulation S Global Notes for a beneficial interest in U.S. Global Notes, the
resulting beneficial interest shall be subject to the restrictions on transfer
applicable to U.S. Global Notes pursuant to the Indenture and the Securities
Act.
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporations, Prudential Securities Corporation and Morgan Keegan &
Company, Inc. (collectively, the "Initial Purchasers"), the Initial Purchasers
of such Notes being transferred. We acknowledge that you, the Company and the
Initial Purchasers will rely upon our confirmations, acknowledgments and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our representations or warranties herein ceases to be accurate and
complete. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Dated: _______________________
cc: Premier Graphics, Inc.
Initial Purchasers
<PAGE>
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE NOTES
(Pursuant to Section 2.6(b) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: 11 1/2% Senior Notes due 2005 of Premier Graphics, Inc.
Reference is hereby made to the Indenture dated as of December 11,
1998 (the "Indenture"), between Premier Graphics, Inc. (the "Company"), the
Persons acting as guarantors and named therein (the "Guarantors") and United
States Trust Company of New York as trustee (the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This relates to $_________ principal amount of Notes which are
evidenced by one or more Certificated Notes in the name of ______________ (the
"Transferor"). The Transferor has requested an exchange or transfer of such
Certificated Note(s) in the form of an equal principal amount of Notes evidenced
by one or more Certificated Notes, to be delivered to the Transferor or, in the
case of a transfer of such Notes, to such Person as the Transferor instructs the
Trustee.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"), the
Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
o the Surrendered Notes are being acquired for the Transferor's own account,
without transfer;
or
o the Surrendered Notes are being transferred to the Company;
or
o the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being
<PAGE>
transferred to a Person that the Transferor reasonably believes is
purchasing the Surrendered Notes for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A;
or
o the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
o the Surrendered Notes are being transferred in an offshore transaction
pursuant to and in accordance with Rule 904 under the Securities Act;
or
o the Surrendered Notes are being transferred to Institutional Accredited
Investor pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies that the
Transfer complies with the transfer restrictions applicable to beneficial
interests in Global Notes and Certificated Notes bearing the Private
Placement Legend and the requirements of the exemption claimed, which
certification is supported by a certificate attached hereto executed by the
Transferee in the form of Exhibit C to the Indenture, and, if the Company
should so request, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification), in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the
Securities Act to the effect that such Transfer is in compliance with the
Securities Act;
or
o the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
o such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than those
contemplated above, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
<PAGE>
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky or securities laws of any state of the United States or any
other applicable jurisdiction.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Prudential Securities Incorporated and Morgan Keegan &
Company, Inc. (collectively, the "Initial Purchasers"), the Initial Purchasers
of such Notes being transferred. We acknowledge that you, the Company and the
Initial Purchasers will rely upon our confirmations, acknowledgments and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our representations or warranties herein ceases to be accurate and
complete. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Dated: ________________________
cc: Premier Graphics, Inc.
Initial Purchasers
<PAGE>
Exhibit B-4
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM U.S. GLOBAL NOTE OR REGULATION S PERMANENT GLOBAL NOTE
TO DEFINITIVE NOTE
(Pursuant to Section 2.6(c) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: 11 1/2% Senior Notes due 2005 of Premier Graphics, Inc.
Reference is hereby made to the Indenture dated as of December 11,
1998 (the "Indenture"), between Premier Graphics, Inc.. (the "Company"), the
Persons acting as guarantors and named therein (the "Guarantors") and United
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to $_____________ principal amount of Notes which
are evidenced by a beneficial interest in one or more U.S. Global Notes or
Regulation S Permanent Global Notes in the name of __________________ (the
"Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest in the form of an equal principal amount of Notes evidenced
by one or more Certificated Notes, to be delivered to the Transferor or, in the
case of a transfer of such Notes, to such Person as the Transferor instructs the
Trustee.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"), the
Holder of such surrendered Notes hereby certifies that:
[CHECK ONE]
o the Surrendered Notes are being transferred to the beneficial owner of such
Notes;
or
o the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a Person that
the Transferor reasonably believes is
<PAGE>
purchasing the Surrendered Notes for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A;
or
o the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
o such transfer is being effected in an offshore transaction pursuant to and
in accordance with Rule 904 under the Securities Act;
or
o the Surrendered Notes are being transferred to Institutional Accredited
Investor pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies that the
Transfer complies with the transfer restrictions applicable to beneficial
interests in Global Notes and Certificated Notes bearing the Private
Placement Legend and the requirements of the exemption claimed, which
certification is supported by a certificate attached hereto executed by the
Transferee in the form of Exhibit C to the Indenture, and, if the Company
should so request, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification), in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the
Securities Act to the effect that such Transfer is in compliance with the
Securities Act;
or
o the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
o the Surrendered Notes are being transferred pursuant to an exemption from
the registration requirements of the Securities Act other than those
contemplated above, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
<PAGE>
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Prudential Securities Incorporated and Morgan Keegan &
Company, Inc. (collectively, the "Initial Purchasers"), the Initial Purchasers
of such Notes being transferred. We acknowledge that you, the Company and the
Initial Purchasers will rely upon our confirmations, acknowledgments and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our representations or warranties herein ceases to be accurate and
complete. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Dated: ________________________
cc: Premier Graphics, Inc.
Initial Purchasers
<PAGE>
Exhibit C
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Reference is hereby made to the Indenture, dated as of December 11,
1998 (the "Indenture"), between Premier Graphics, Inc., as issuer, and Persons
acting as guarantors and named therein (the "Guarantors") and United States
Trust Company of New York, as trustee. Capitalized terms used but not defined
herein shall have the meanings given them in the Indenture.
In connection with our proposed purchase of $________________
aggregate principal amount of:
(a) o Beneficial interests, or
(b) o Certificated Notes,
we confirm that:
(i) we are an entity which is an "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933, as amended (the "Securities Act"), or an entity in which all of the
equity owners are accredited investors within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional
Accredited Investor");
(ii) any purchase of Notes by us will be for our own account or
for the account of one or more other Institutional Accredited Investors;
(iii) in the event that we purchase any Notes, we will acquire
Notes having a minimum purchase price of at least $100,000 for our own
account and for each separate account for which we are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks of
purchasing Notes;
(v) we are not acquiring Notes with a view to any distribution
thereof in a transaction that would violate the Securities Act or the
securities laws of any State of the United States or any other applicable
jurisdiction; provided that the disposition of our
<PAGE>
property and the property of any accounts for which we are acting as
fiduciary shall remain at all times within our control; and
(vi) we have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions
of representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase Notes.
We understand that the Notes are being offered in a transaction not
involving any public offering within the meaning of the Securities Act and that
the Notes have not been registered under the Securities Act, and we agree, on
our own behalf and on behalf of each account for which we acquire any notes,
that (A) such Notes may be offered, resold, pledged or otherwise transferred
only (i) to a person whom we reasonably believe to be a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144A, in a transaction meeting the requirements
of Rule 144 under the Securities Act, outside the United States in a transaction
meeting the requirements of Rule 904 under the Securities Act or in accordance
with another exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel if the Company so requests), (ii) to the
Company or (iii) pursuant to an effective registration statement under the
Securities Act, and, in each case, in accordance with any applicable securities
laws of any State of the United States or any other applicable jurisdiction and
(B) that we will, and each subsequent Holder is required to, notify any
subsequent purchaser from it of the resale restrictions set forth in (A) above.
We understand that the registrar and transfer agent will not be required to
accept for registration of transfer any Notes, except upon presentation of
evidence satisfactory to the Company that the foregoing restrictions on transfer
have been complied with. We further understand that the Notes purchased by us
will bear a legend reflecting the substance of this paragraph.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Prudential Securities Incorporated and Morgan Keegan &
Company, Inc. (collectively, the "Initial Purchasers"), the Initial Purchasers
of such Notes being transferred. We acknowledge that you, the Company and the
Initial Purchasers will rely upon our confirmations, acknowledgments and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our representations or warranties herein ceases to be accurate and
complete. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
____________________________________
(Name of Purchaser)
By:
---------------------------------
Name:
-------------------------------
<PAGE>
Title:
------------------------------
Address:
----------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1).................................................. 7.10
(a)(2)................................................... 7.10
(a)(3)................................................... N.A.
(a)(4)................................................... N.A.
(b)...................................................... 7.3; 7.8; 7.10
(c)...................................................... N.A.
311(a)..................................................... 7.11
(b)...................................................... 7.11
(c)...................................................... N.A.
312(a)..................................................... 2.5
(b)...................................................... 11.3
(c)...................................................... 11.3
313(a)..................................................... 7.6
(b)(1)................................................... N.A.
(b)(2)................................................... 7.6
(c)...................................................... 7.6; 11.2
(d)...................................................... 7.6
314(a)..................................................... 4.6; 4,22; 11.2
(b)...................................................... N.A.
(c)(1)................................................... 11.4, 11.5
(c)(2)................................................... 7.2; 11.4; 11.5
(c)(3)................................................... N.A.
(d)...................................................... N.A.
(e)...................................................... 10.5
(f)...................................................... N.A.
315(a)..................................................... 7.1(a)
(b)...................................................... 4.22; 7.5; 11.4
(c)...................................................... 7.1
(d)...................................................... 7.1
(e)...................................................... 6.11
316(a)(last sentence)...................................... 2.9
(a)(1)(A)................................................ 6.5
(a)(1)(B)................................................ 6.4
(a)(2)................................................... N.A.
(b)...................................................... 6.7
317(a)(1).................................................. 6.3; 6.8
(a)(2)................................................... 6.9
(b)...................................................... 2.4
318(a)..................................................... 11.1
</TABLE>
---------------
N.A. means not applicable.
* This Cross-Reference Table is not part of the Indenture.
<PAGE>
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
as of December 11, 1998
by and among
PREMIER GRAPHICS, INC.
AND ITS GUARANTORS
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into as of December 11, 1998, by and among Premier Graphics, Inc., a Delaware
corporation (the "Company"), and each of its guarantors set forth on Exhibit B
-------
hereto (the "Guarantors"), and Donaldson, Lufkin & Jenrette Securities
----------
Corporation ("DLJ"), Prudential Securities Incorporated and Morgan Keegan &
---
Company, Inc. (each an "Initial Purchaser" and, collectively, the "Initial
----------------- -------
Purchasers"), who have agreed to purchase the Company's 11 1/2% Senior Notes due
- ----------
2005 (the "Restricted Notes") pursuant to the Purchase Agreement (as defined
----------------
below).
This Agreement is made pursuant to the Purchase Agreement, dated December
8, 1998, (the "Purchase Agreement"), by and among the Company, the Guarantors
------------------
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Restricted Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and
not otherwise defined shall have the meaning assigned to them in the Indenture,
dated December 11, 1998, among the Company, the Guarantors and United States
Trust Company of New York, as Trustee, relating to the Restricted Notes and the
Exchange Notes (the "Indenture").
---------
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended, and the rules and
---
regulations promulgated thereunder.
Affiliate: As defined in Rule 144 of the Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Certificated Securities: As defined in the Indenture.
-----------------------
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
----------
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Exchange
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Restricted Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
---------------------
Effectiveness Deadline: As defined in Section 3(a) or 4(a) hereof, as
----------------------
applicable.
1
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations promulgated thereunder.
Exchange Notes: The Company's 11 1/2% Notes due 2005, and unless the
--------------
context otherwise requires, the Guarantees thereof, to be issued pursuant to the
Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4
hereof.
Exchange Offer: The exchange and issuance by the Company of a principal
--------------
amount of Exchange Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Restricted Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
--------------
to sell the Restricted Notes to certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Act, to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act and pursuant to Regulation S under the Act.
Filing Deadline: As defined in Sections 3(a) or 4(a) hereof, as
---------------
applicable.
Holders: As defined in Section 2 hereof.
-------
Prospectus: The prospectus included in a Registration Statement at the
----------
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company and the
----------------------
Guarantors relating to (a) an offering of Exchange Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including post-
effective amendments) and all exhibits and material incorporated by reference
therein.
Regulation S: Regulation S promulgated under the Act.
------------
Rule 144: Rule 144 promulgated under the Act.
--------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
2
<PAGE>
Transfer Restricted Securities: Each Restricted Note, until the earliest
------------------------------
to occur of (a) the date on which such Restricted Note is exchanged in the
Exchange Offer for an Exchange Note which is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Restricted Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Exchange Notes), or (c) the date on which
such Restricted Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Exchange Notes) and each Exchange
Note until the date on which such Exchange Note is disposed of by a Broker-
Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including the delivery of the Prospectus contained
therein).
Trustee: The United States Trust Company of New York.
-------
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person is a beneficial owner of Transfer Restricted
------
Securities in the security register of the Trustee.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company and the Guarantors shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as practicable
after the Closing Date, but in no event later than 60 days after the Closing
Date (such 60th day being the "Filing Deadline"), (ii) use its best efforts to
---------------
cause such Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 120 days after the Closing
Date (such 120th day being the "Effectiveness Deadline"), (iii) in connection
----------------------
with the foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Exchange Notes to be offered
in exchange for the Restricted Notes that are Transfer Restricted Securities and
(ii) resales of Exchange Notes by Broker-Dealers that tendered into the Exchange
Offer Restricted Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Restricted Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 30 days (or longer if required by applicable law). The Company and
the Guarantors shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Exchange Notes
and Guarantees shall be included in the Exchange Offer Registration Statement.
The Company and the Guarantors shall use their respective best efforts to cause
the Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become
3
<PAGE>
effective, but in no event later than 30 days thereafter (such 30th day being
the "Consummation Deadline").
---------------------
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Restricted Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the Prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Exchange Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Section 6(a) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
one year from the Consummation Deadline or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold pursuant thereto. The Company and the Guarantors shall provide
sufficient copies of the latest version of such Prospectus to such Broker-
Dealers, promptly upon request, and in no event later than one day after such
request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
------------------
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Restricted Notes acquired directly from the Company or any of its Affiliates,
then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above,
(such earlier date, the "Filing Deadline"), a shelf registration statement
---------------
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "Shelf Registration Statement")), relating to
----------------------------
all Transfer Restricted Securities, and
4
<PAGE>
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60th day the
"Effectiveness Deadline").
- -----------------------
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and
the Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (as extended
pursuant to Section 6(c)(i)) following the Closing Date, or such shorter period
as will terminate when all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. SPECIAL INTEREST
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company and the Guarantors hereby jointly and
- ---------------------
severally agree to pay to each Holder of Transfer Restricted Securities affected
thereby additional interest ("Special Interest") in an amount equal to $.05 per
----------------
week per $1,000 in principal amount of Transfer Restricted Securities held by
such Holder for each week or portion thereof that the Registration Default
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the Special Interest shall increase by
an additional $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until all
5
<PAGE>
Registration Defaults have been cured, up to a maximum amount of special
interest of $.50 per week per $1,000 in principal amount of Transfer Restricted
Securities; provided that the Company and the Guarantors shall in no event be
required to pay special interest for more than one Registration Default at any
given time. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the Special
Interest payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall immediately cease.
All accrued Special Interest shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which Special Interest
are due cease to be Transfer Restricted Securities, all obligations of the
Company and the Guarantors to pay Special Interest with respect to securities
shall survive until such time as such obligations with respect to such
securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Exchange Notes by
Broker-Dealers that tendered in the Exchange Offer Restricted Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Restricted Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange Offer,
that in the reasonable opinion of counsel to the Company raises a substantial
question as to whether the Exchange Offer is permitted by applicable federal
law, the Company and the Guarantors hereby agree to seek a no-action letter
or other favorable decision from the Commission allowing the Company and the
Guarantors to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company and the Guarantors hereby agree to pursue the
issuance of such a decision to the Commission staff level. In connection
with the foregoing, the Company and the Guarantors hereby agree to take all
such other reasonable actions as may be requested by the Commission or
otherwise required in connection with the issuance of such decision,
including without limitation (A) participating in telephonic conferences with
the Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation, any
Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate
6
<PAGE>
of the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer and (C)
it is acquiring the Exchange Notes in its ordinary course of business. As a
condition to its participation in the Exchange Offer, each Holder using the
Exchange Offer to participate in a distribution of the Exchange Notes shall
acknowledge and agree that, if the resales are of Exchange Notes obtained by
such Holder in exchange for Restricted Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission policy as
in effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
----------------------------
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
----------------------------------
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
-------------------
1993, and similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental letter
to the Commission (A) stating that the Company and the Guarantors are
registering the Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988),
----------------------------------
Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the
----------------------------
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
-------------------
applicable, any no-action letter obtained pursuant to clause (i) above, (B)
including a representation that neither the Company nor any Guarantor has
entered into any arrangement or understanding with any Person to distribute
the Exchange Notes to be received in the Exchange Offer and that, to the best
of the Company's and each Guarantor's information and belief, each Holder
participating in the Exchange Offer is acquiring the Exchange Notes in its
ordinary course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes received in
the Exchange Offer and (C) any other undertaking or representation required
by the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall (i) comply with all
the provisions of Section 6(c) below and use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof and (ii)
issue, upon the request of any Holder or purchaser of Restricted Notes covered
by any Shelf Registration Statement contemplated by this Agreement, Exchange
Notes having an aggregate principal amount equal to the aggregate principal
amount of Restricted Notes sold pursuant to the Shelf Registration Statement and
surrendered to the Company for cancellation; the Company shall register Exchange
Notes on the Shelf Registration Statement for this purpose and issue the
Exchange Notes to the purchaser(s) of securities subject to the Shelf
Registration Statement in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration Statement and
------------------
any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
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<PAGE>
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain an
untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Guarantors shall file
promptly an appropriate amendment to such Registration Statement curing such
defect, and, if Commission review is required, use their respective best
efforts to cause such amendment to be declared effective as soon as
practicable.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to comply
fully with Rules 424, 430A and 462, as applicable, under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus;
(iii) advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been filed, and,
with respect to any applicable Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by
the Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document incorporated
by reference therein untrue, or that requires the making of any additions to
or changes in the Registration Statement in order to make the statements
therein not misleading, or that requires the making of any additions to or
changes in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company and the
Guarantors shall use their respective best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(v) furnish to the Initial Purchasers in connection with such
exchange or sale, if any, before
8
<PAGE>
filing with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents incorporated by
reference after the initial filing of such Registration Statement), which
documents will be subject to the review and comment of the Initial Purchasers
in connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration Statement
or Prospectus (including all such documents incorporated by reference) to
which the Initial Purchasers shall reasonably object within five Business
Days after the receipt thereof. The Initial Purchasers shall be deemed to
have reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be filed,
contains an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading or fails to
comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the Initial Purchasers in connection with
such exchange or sale, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other customary
due diligence matters, and include such information in such document prior to
the filing thereof as the Initial Purchasers may reasonably request;
(vii) make available, at reasonable times, for inspection by the
Initial Purchasers and any attorney or accountant retained by the Initial
Purchasers, all financial and other records, pertinent corporate documents of
the Company and the Guarantors and cause the Company's and the Guarantors
officers, directors and employees to supply all information reasonably
requested by the Initial Purchasers, attorney or accountant in connection
with such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with such exchange or
sale, promptly include in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information as
such Holders may reasonably request to have included therein, including,
without limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities and make all required filings of such
Prospectus supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be included in such
Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such exchange or sale,
without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company and
the Guarantors hereby consent to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each selling Holder in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement thereto,
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such reasonable representations
and warranties and take all such other reasonable actions in connection
therewith in order to expedite or facilitate the disposition of the
9
<PAGE>
Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to any applicable
Registration Statement. In such connection, the Company and the Guarantors
shall:
(A) upon request of any Holder, furnish (or in the case of paragraphs
(2) and (3), use its best efforts to cause to be furnished) to each
Holder, upon Consummation of the Exchange Offer or upon the effectiveness
of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed on behalf of the Company
and each Guarantor by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company and such
Guarantor, confirming, as of the date thereof, the matters set forth in
Sections 6(x), 9(a) and 9(b) of the Purchase Agreement and such other
similar matters as such Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration Statement,
as the case may be, of counsel for the Company and the Guarantors
covering matters similar to those set forth in Section 9(e) of the
Purchase Agreement and such other matter as such Holder may reasonably
request, and in any event including a statement to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company and the Guarantors, representatives of
the independent public accountants for the Company and the Guarantors
and have considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the basis of the
foregoing (relying as to materiality to the extent such counsel deems
appropriate upon the statements of officers and other representatives
of the Company and the Guarantors) and without independent check or
verification), no facts came to such counsel's attention that caused
such counsel to believe that the applicable Registration Statement, at
the time such Registration Statement or any post-effective amendment
thereto became effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the Exchange
Offer, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in the
case of the opinion dated the date of Consummation of the Exchange
Offer, as of the date of Consummation, contained an untrue statement of
a material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and
schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of Consummation of
the Exchange Offer, or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 9(g) of the
Purchase Agreement; and
10
<PAGE>
(B) deliver such other documents and certificates as may be reasonably
requested by the selling Holders to evidence compliance with the matters
covered in clause (A) above and with any customary conditions contained in
the any agreement entered into by the Company and the Guarantors pursuant
to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling Holders
may reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that neither the Company nor any Guarantor shall be
required to register or qualify as a foreign corporation where it is not now
so qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are in
a form eligible for deposit with The Depository Trust Company;
(xvi) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement meeting
the requirements of Rule 158 (which need not be audited) covering a twelve-
month period beginning after the effective date of the Registration Statement
(as such term is defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such Indenture
to be so qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
11
<PAGE>
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
- ------------------
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
--------------
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
- ----
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses
whether for exchanges, sales, market making or otherwise), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company the Guarantors and the Holders of Transfer Restricted Securities;
(v) all application and filing fees, if any, in connection with listing the
Exchange Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantors internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Restricted Notes in the Exchange Offer and/or
selling or reselling Restricted Notes or Exchange Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Akin, Gump, Strauss,
Hauer & Feld, L.L.P., unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
12
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any Holder or any prospective purchaser of
Exchange Notes or registered Restricted Notes, 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 judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors and officers, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company or the Guarantors to the same extent as the foregoing indemnity from
the Company and the Guarantors set forth in section (a) above, but only with
reference to information relating to such Holder furnished in writing to the
Company by such Holder expressly for use in any Registration Statement. In no
event shall any Holder, its directors, officers or any Person who controls such
Holder be liable or responsible for any amount in excess of the amount by which
the total amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages that such Holder, its directors, officers or any Person
who controls such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "indemnifying person") in writing
-------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general
13
<PAGE>
allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of
the Holders, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company and Guarantors, in the case of parties indemnified pursuant
to Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company and the Guarantors, on the one hand,
and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company and the Guarantors, on the one hand, and of the Holder, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or such Guarantor, on the one hand, or by the Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors,
14
<PAGE>
its officers or any Person, if any, who controls such Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
(e) The Company and Guarantors agree that the indemnity and contribution
provisions of this Section 8 shall apply to any Broker-Dealers who is deemed to
be an Affiliate of the Company to the same extent, on the same conditions, as it
applies to Holders.
SECTION 9. RULE 144A and RULE 144
The Company and each Guarantor agree with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the
Exchange Act, to make available, upon request of any Holder, to such Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A, subject to Section 4.6 of the Indenture, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144, subject to Section 4.6 of the
Indenture.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree that
--------
any failure by the Company and/or the Guarantors to comply with their respective
obligations under Sections 3 and 4 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Initial Purchasers or
any Holder may obtain such relief as may be required to specifically enforce the
Company's and the Guarantor's obligations under Sections 3 and 4 hereof. The
Company and the Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantors securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other
15
<PAGE>
provisions hereof, the Company has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities
(excluding Transfer Restricted Securities held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose Transfer Restricted Securities are being tendered pursuant to the Exchange
Offer, and that does not affect directly or indirectly the rights of other
Holders whose Transfer Restricted Securities are not being tendered pursuant to
such Exchange Offer, may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities subject to such
Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantor:
Premier Graphics, Inc. c/o Master Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee
Telecopier No.: (901) 685-3600
Attention: Lance Fair
With a copy to:
Baker, Donelson, Bearman, & Caldwell
Twentieth Floor
First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
Telecopier No.: (901) 577-2303
Attention: Robert J. DelPriore
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders; provided, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms hereof or
16
<PAGE>
of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities in any manner, whether by operation
of law or otherwise, such Transfer Restricted Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PREMIER GRAPHICS, INC.
By: /s/ John P. Miller
------------------------
Name: John P. Miller
Title: President
MASTER GRAPHICS, INC.
By: /s/ John P. Miller
-------------------------
Name: John P. Miller
Title: President
HARPERPRINTS, INC.
By: /s/ John P. Miller
-------------------------
Name: John P. Miller
Title: President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Thomas H. Roberts
--------------------------
Name: Thomas H. Roberts
Title: Vice President--Investment Banking
18
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Premier Graphics
11 1/2% Senior Notes due 2005
Date: , 199
--- -
For your information only (NO ACTION REQUIRED):
Today, , 199 , we filed [an A/B Exchange Registration Statement/a Shelf
------ -
Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
<PAGE>
EXHIBIT B
GUARANTORS
Master Graphics, Inc.
Harperprints, Inc.
<PAGE>
EXHIBIT 5.1
[BAKER, DONELSON, BEARMAN & CALDWELL LETTERHEAD]
January 25, 1999
Premier Graphics, Inc.
Master Graphics, Inc.
Harperprints, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Re: Premier Graphics, Inc. -- Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as your counsel in connection with the above-referenced
Registration Statement on Form S-4 (the "Registration Statement") filed today
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act"), in respect of the 11 1/2% Senior Notes due 2005
(the "Exchange Notes"), to be offered in exchange for all outstanding 11 1/2%
Senior Notes due 2005 (the "Initial Notes"). The Exchange Notes will be issued
pursuant to an indenture (the "Indenture"), dated as of December 11, 1998,
between Premier Graphics, Inc. (the "Company"), the guarantors thereto and
United States Trust Company of New York, as trustee.
We have participated in the Registration Statement and have reviewed
originals or copies certified or otherwise identified to our satisfaction of
such documents and records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, and subject to the further assumptions and
qualifications set forth below, it is our opinion that when the Exchange Notes,
in the form filed as an exhibit to the Registration Statement, have been duly
executed and authenticated in accordance with the Indenture, and duly issued and
delivered by the Company in exchange for an equal principal amount of Initial
Notes pursuant to the terms of the Registration Rights Agreement in the form
filed as an exhibit to the Registration Statement, the Exchange Notes will be
legal, valid, binding and enforceable obligations of the Company, entitled to
the benefits of the Indenture, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles of
equity.
The foregoing opinion is limited to the law of the States of Tennessee and
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the
<PAGE>
Registration Statement. In giving such consent, we do not thereby admit that we
are "experts" within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this exhibit.
Very truly yours,
BAKER, DONELSON, BEARMAN & CALDWELL,
a professional corporation
By: /s/ John A. Good
-------------------------------------------
John A. Good, a shareholder
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
MASTER GRAPHICS, INC
COMPUTATION OF NET EARNINGS (LOSS) PER COMMON SHARE (1)(2)
(dollars in thousands, except per share amounts)
YEAR SIX MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997 1998
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
BASIC:
- ------
Net earnings (loss) before
extraordinary loss $ (1,273) $ (3,819) $ (1,132) $ 3,063
Less preferred stock
dividend requirement - - - (56)
Less accretion of
preferred stock discount - - - (58)
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders (1,273) (3,819) (1,132) 2,949
Extraordinary loss, net - - - (2,098)
---------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders (1,273) (3,819) (1,132) 851
========== ========== ========== ==========
Basic - average shares
outstanding 4,000,000 4,000,000 4,000,000 5,540,413
========== ========== ========== ==========
Basic earnings per share:
Net earnings (loss)
before extraordinary
loss $ (0.32) $ (0.95) $ (0.28) $ 0.53
========== ========== ========== ==========
Extraordinary loss, net $ - $ - $ - $ (0.38)
========== ========== ========== ==========
Net earnings (loss)
available for common
shareholders $ (0.32) $ (0.95) $ (0.28) $ 0.15
========== ========== ========== ==========
DILUTED:
- --------
Net earnings (loss)
available to common
shareholders $ (1,273) $ (3,819) $ (1,132) $ 2,949
Plus preferred stock
dividend requirement
and discount accretion - - - 114
Plus deferred compensation
provision - - - 31
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders (1,273) (3,819) (1,132) 3,094
Extraordinary loss, net - - - (2,098)
---------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders (1,273) (3,819) (1,132) 996
========== ========== ========== ==========
Basic - average shares
outstanding 4,000,000 4,000,000 4,000,000 5,540,413
Assumed conversion of
preferred stock - - - 177,776
Assumed exercise of
warrants - 355,552 93,772 278,749
Assumed exercise of the
stock option clause in the
deferred compensation
agreements - - - 100,000
---------- ---------- ---------- ----------
Diluted - average shares
outstanding 4,000,000 4,355,552 4,093,772 6,096,938
========== ========== ========== ==========
Diluted earnings per share (3)
Net earnings (loss)
before extraordinary
loss $ (0.32) $ (0.88) $ (0.28) $ 0.51
========== ========== ========== ==========
Extraordinary loss, net $ - $ - $ - $ (0.34)
========== ========== ========== ==========
Net earnings (loss)
available for common
shareholders $ (0.32) $ (0.88) $ (0.28) $ 0.16
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------------------
LATEST TWELVE NINE MONTHS THREE MONTHS
YEAR ENDED MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BASIC:
- ------
Net earnings (loss) before
extraordinary loss $ (4,137) $ (304) $ 779 $ 634
Less preferred stock
dividend requirement (114) (114) (86) (28)
Less accretion of
preferred stock discount (116) (116) (87) (29)
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders (4,367) (534) 606 577
========== ========== ========== ==========
Extraordinary loss, net
Net earnings (loss)
available for common
shareholders
Basic - average shares
outstanding 7,879,997 7,879,997 7,879,997 7,879,997
========== ========== ========== ==========
Basic earnings per share:
Net earnings (loss)
before extraordinary
loss $ (0.55) $ (0.07) $ 0.08 $ 0.07
========== ========== ========== ==========
Extraordinary loss, net
Net earnings (loss)
available for common
shareholders
DILUTED:
- --------
Net earnings (loss)
available to common
shareholders $ (4,367) $ (534) $ 606 $ 577
Plus preferred stock
dividend requirement
and discount accretion 230 230 173 57
Plus deferred compensation
provision - 31 31 10
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders (4,137) (273) 810 644
========== ========== ========== ==========
Extraordinary loss, net
Net earnings (loss)
available for common
shareholders
Basic - average shares
outstanding 7,879,997 7,879,997 7,879,997 7,879,997
Assumed conversion of
preferred stock 177,776 177,776 177,776 177,776
Assumed exercise of
warrants 220,000 220,000 220,000 220,000
Assumed exercise of the
stock option clause in the
deferred compensation
agreements 100,000 100,000 100,000 100,000
---------- ---------- ---------- ----------
Diluted - average shares
outstanding 8,377,773 8,377,773 8,377,773 8,377,773
========== ========== ========== ==========
Diluted earnings per share (3)
Net earnings (loss)
before extraordinary
loss $ (0.49) $ (0.03) $ 0.10 $ 0.08
========== ========== ========== ==========
Extraordinary loss, net
Net earnings (loss)
available for common
shareholders
</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 shares of common stock and
there were no potential equity instruments issued.
(2) Shares for all periods presented are adjusted to reflect a 40,000 to 1
stock split which occurred on May 14, 1998.
(3) 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.
Historical earnings per share for the nine months ended September 30, 1998
were anti-dilutive due to the preferred stock conversion, and, therefore,
that conversion was not assumed in the unaudited condensed consolidated
statements of operations. Earnings per share on a pro forma basis for the
year ended December 31, 1997 were anti-dilutive due to the preferred stock
conversion, the warrant exercise, and the stock option clause in the
deferred compensation agreement, and, therefore, have not been assumed in
the unaudited pro forma condensed consolidated statement of operations.
Earnings per share on a pro forma basis for the twelve, nine, and three
months ended September 30, 1998 were anti-dilutive due to the preferred
stock conversions and the stock option clause in the deferred compensation
agreement, and, therefore have not been assumed in the unaudited pro forma
condensed consolidated statement of operations.
<PAGE>
EXHIBIT 12.1
MASTER GRAPHICS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------------------------------------
Master Graphics, Inc.
--------------------------------------------------------------------------------
Year Twelve Months Nine Months Three Months
Ended Ended Ended Ended
December 31, September 30, September 30, September 30,
1997 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 17,280 17,280 12,960 4,320
Amortization of deferred loan costs 1,145 1,145 858 286
Interest factor in rents 763 789 591 199
------------ ------------- ------------- -------------
Total Fixed Charges $ 19,187 19,213 14,409 4,805
============ ============= ============= =============
Earnings:
Income (loss) before income taxes and
extraordinary items $ (4,137) (304) 1,366 1,113
Fixed charges 19,187 19,213 14,409 4,805
------------ ------------- ------------- -------------
Total Earnings $ 15,050 18,909 15,775 5,918
============ ============= ============= =============
Ratio of Earnings to Fixed Charges - - 1.1 1.2
============ ============= ============= =============
Amount by which fixed charges
exceeded earnings $ 4,137 304 - -
============ ============= ============= =============
<CAPTION>
Pro Forma
--------------------------------------------------------------------------------
Premier Graphics, Inc.
--------------------------------------------------------------------------------
Year Twelve Months Nine Months Three Months
Ended Ended Ended Ended
December 31, September 30, September 30, September 30,
1997 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed Charges:
Interest expense 15,315 15,315 11,487 3,829
Amortization of deferred loan costs 1,145 1,145 858 286
Interest factor in rents 743 751 564 189
------------ ------------- ------------- -------------
Total Fixed Charges 17,203 17,211 12,909 4,304
============ ============= ============= =============
Earnings:
Income (loss) before income taxes and
extraordinary items (2,172) 1,661 2,839 1,604
Fixed charges 17,203 17,211 12,909 4,304
------------ ------------- ------------- -------------
Total Earnings 15,031 18,872 15,748 5,908
============ ============= ============= =============
Ratio of Earnings to Fixed Charges - 1.1 1.2 1.4
============ ============= ============= =============
Amount by which fixed charges
exceeded earnings 2,172 - - -
============ ============= ============= =============
</TABLE>
<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 LLP
Memphis, Tennessee
January 19, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Master Graphics, Inc.
We consent to the inclusion 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-4, and to
the reference to our firm under the heading "Experts" in the Prospectus.
/s/ Thompson Dunavant PLC
Memphis, Tennessee
January 18, 1999
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS CONSENT
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-4 and the related Prospectus filed with the
Securities and Exchange Commission by Premier Graphics Inc. and to the inclusion
therein of our report, dated February 17, 1997, with respect to the financial
statements of Jones Printing Company, Inc. as of December 31, 1996 and for such
of the years in the two-year period ended December 31, 1996.
/s/ Joseph Decosimo and Company, LLP
JOSEPH DECOSIMO AND COMPANY, LLP
Chattanooga, Tennessee
January 18,1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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.
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
January 15, 1999
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF MARTIN & EDMONDSON, P.C APPEARS HERE]
CERTIFIED PUBLIC ACCOUNTANTS
January 19,1999
Premier Graphics, Inc., a wholly-owned
subsidiary of Master Graphics, Inc.
Memphis, Tennessee
Dear Sirs:
We have audited the balance sheets of McQuiddy Printing Company (the Company) as
of June 30, 1996 and 1997, and the related statements of earnings, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1997, included in the registration statement on form S-4 filed by Premier
Graphics, a wholly-owned subsidiary of Master Graphics, Inc. under the
Securities Act of 1933 (the Act): our report with respect thereto is also
included in that registration statement. The registration statement on Form S-4,
is herein referred to as the registration statement. Also, we have reviewed the
unaudited condensed financial statements as of March 31, 1998 and for the nine-
month periods ended March 31, 1997 and 1998, as indicated in our report dated
June 3, 1998.
In connection with the registration statement:
1. We are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published rules
and regulations thereunder.
2. In our opinion the financial statements audited by us and the financial
statements reviewed by us, all included in the registration statement,
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations.
3. We have not audited any financial statements of the Company as of any
date or for any period subsequent to June 30, 1997; although we have
conducted an audit for the year ended June 30, 1997, the purpose (and
therefore the scope) of the audit was to enable us to express our
opinion on the financial statements as of June 30, 1997, and for the
year then ended, but not on the financial statements for any interim
period within that year. Therefore, we are unable to and do not express
any opinion on the unaudited balance sheet as of March 31, 1998, and the
unaudited statements of earnings, stockholders' equity, and cash flows
for the nine-month periods ended March 31, 1997 and 1998, included in
the registration statement, or on the financial position, results of
operations, or cash flows as of any date or for any period subsequent to
June 30, 1997.
<PAGE>
Page 2
4. With respect to the nine-month periods ended March 31, 1997 and 1998, we
have performed the procedures specified by the American Institute of
Certified Public Accountants for a review of interim financial information
as described in SAS No. 71, Interim Financial Information on the unaudited
balance sheet as of March 31, 1998, and unaudited statements of earnings
stockholders' equity and cash flows for the nine-month periods ended March
31, 1997 and 1998, included in the registration statement.
5. For purposes of this letter, we have also read the item identified by you
on page 40 from the registration statement, and have performed the
following procedures, which were applied as indicated with respect to the
symbols explained below:
Page 40 Section on Acquired Companies -
-------------------------------------
McQuiddy Printing Company 1997 Revenues (in thousands)
We have compared the revenues reported in the prospectus of the year ended
June 30, 1997 to the Company's financial statements and found them to be in
agreement.
6. Our audits of the financial statements for the periods referred to in the
introductory paragraph of this letter comprised audit tests and procedures
deemed necessary for the purpose of expressing an opinion on such financial
statements taken as a whole. For none of the periods referred to therein,
or any other period, did we perform audit tests for the purpose of
expressing an opinion on individual balances of accounts or summaries of
selected transactions such as those enumerated above, and, accordingly, we
express no opinion thereon.
7. It should be understood that we make no representations regarding
questions of legal interpretation or regarding the sufficiency for your
purposes enumerated in the preceding paragraph; also, such procedures
would not necessarily reveal any material misstatement of the amount listed
above. Further, we have addressed ourselves solely to the foregoing data as
set forth in the registration statement and make no representations
regarding the adequacy of disclosure or regarding whether any material
facts have been omitted.
<PAGE>
Page 3
8. This letter is solely for the information of the addressees and to assist
the underwriters in conducting and documenting their investigation of the
affairs of the Company in connection with the debt offering covered by the
registration statement, and it is not to be used, circulated, quoted, or
otherwise referred to within or without the underwriting group for any
purpose, including but not limited to the registration, purchase, or sale of
securities, nor is it to be filed with or referred to in whole or in part in
the registration statement or any other document, except that reference may
be made to it in the underwriting agreement or in any list of closing
documents pertaining to the offering of the securities covered by the
registration statement.
Very truly yours,
Marlin & Edmondson, P.C.
/s/ Marlin & Edmondson, P.C.
<PAGE>
EXHIBIT 23.6
[LETTERHEAD OF S.F. FISER & COMPANY APPEARS HERE]
The Board of Directors
Master Graphics, Inc.
We consent to the use of our report on the financial statements of Phillips
Litho Co., Inc. included in the registration statement of Premier Graphics, Inc.
on Form S-4 and to the reference to our firm under the heading "Experts" in the
Prospectus.
/s/ S.F. Fiser & Company
Springdale, Arkansas
January 18, 1999
<PAGE>
EXHIBIT 23.7
[LETTERHEAD BECKER & COMPANY, P.C. APPEARS HERE]
Certified Public Accountants
To 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-4
and to the reference to our firm under the heading "Experts" in the Prospectus.
/s/Becker & Company, P.C.
January 15, 1999
Lanham, Maryland
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001059363
<NAME> Master Graphics, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 38,309
<ALLOWANCES> 1,121
<INVENTORY> 9,375
<CURRENT-ASSETS> 49,223
<PP&E> 80,234
<DEPRECIATION> 8,740
<TOTAL-ASSETS> 176,625
<CURRENT-LIABILITIES> 22,189
<BONDS> 112,703
1,408
0
<COMMON> 8
<OTHER-SE> 35,623
<TOTAL-LIABILITY-AND-EQUITY> 176,625
<SALES> 109,935
<TOTAL-REVENUES> 109,935
<CGS> 81,183
<TOTAL-COSTS> 81,183
<OTHER-EXPENSES> 19,099
<LOSS-PROVISION> 92
<INTEREST-EXPENSE> 7,126
<INCOME-PRETAX> 3,059
<INCOME-TAX> (4)
<INCOME-CONTINUING> 3,063
<DISCONTINUED> 0
<EXTRAORDINARY> 2,098
<CHANGES> 0
<NET-INCOME> 965
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<PAGE>
EXHIBIT 99.1
Letter of Transmittal
Premier Graphics, Inc.
Offer to Exchange
up to $130,000,000 11 1/2% Senior Notes due 2005
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding
11 1/2% Senior Notes due 2005
Pursuant to the Prospectus, dated _________________, 1999.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
______________________, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery to: United States Trust Company of New York, Exchange Agent:
- --------------------------------------------------------------------------------
By Mail: By Hand:
United States Trust Company of New York United States Trust Company of New York
114 W. 47th Street 114 W. 47th Street
New York, New York 10036-1532 New York, New York 10036-1532
Attention: Jason Gregory Attention: Jason Gregory
- --------------------------------------------------------------------------------
Telephone: (212) 852-1662
Facsimile: (212) 852-1620
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated
__________________, 1999 (the "Prospectus"), of Premier Graphics, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter"), which together constitute the offer (the "Exchange Offer") to
exchange an aggregate principal amount of up to $130,000,000 11 1/2% Senior
Notes due 2005 (the "Exchange Notes") for an equal principal amount of the
outstanding $130,000,000 11 1/2% Senior Notes due 2005 (the "Initial Notes").
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount at maturity equal
to that of the surrendered Initial Note. The Exchange Notes will accrue interest
at the applicable per annum rate from the date of issuance of the Initial Notes
(the "Issue Date"). Interest on the Exchange Notes is payable on June 1 and
December 1 of each year commencing June 1, 1999. In the event that (i) the
Registration Statement or the Shelf Registration Statement, as the case may be,
has not been filed with the Commission on or prior to 60 days after the Issue
Date, (ii) the Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 120 days after the Issue Date,
(iii) the Exchange Offer is not consummated on or prior to 150 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date but shall thereafter cease to be
effective (at any time that Master Graphics, Inc. and Harperprints, Inc. (the
"Guarantors") and the Company are obligated to maintain the effectiveness
<PAGE>
thereof) without being succeeded within 30 days by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default"), the Company and the Guarantors will
be obligated to pay liquidated damages to each holder of Transfer Restricted
Securities (as defined in the Registration Rights Agreement), during the period
of one or more such Registration Defaults, in an amount equal to $0.05 per week
per $1,000 principal amount of Transfer Restricted Securities held by such
holder until (i) the Registration Statement or Shelf Registration Statement is
filed, (ii) the Registration Statement is declared effective and the Exchange
Offer is consummated, (iii) the Shelf Registration Statement is declared
effective or (iv) the Shelf Registration Statement again becomes effective, as
the case may be. Following the cure of all Registration Defaults, the accrual
of liquidated damages will cease. The Company reserves the right, at any time or
from time to time, to extend the Exchange Offer at its discretion, in which
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended. In order to extend the Expiration Date, the
Company will notify the Exchange Agent of any extension by oral or written
notice and may notify the holders of the Initial Notes by mailing an
announcement or by means of a press release or other public announcement prior
to 9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
This Letter is to be completed by a holder of Initial Notes either if
Initial Notes are to be forwarded herewith or if a tender of Initial Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure set forth in "The Exchange Offer" section
of the Prospectus. Holders of Initial Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Initial Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedure" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE>
List below the Initial Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Initial Notes should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------
Description of Initial Notes 1 2 3
- --------------------------------------------------------------------------------
Name(s) and Address(es) of Aggregate
Registered Holder(s) Certificate Principal Amount Principal Amount
(Please fill in, if blank) Number(s) * of Initial Note(s) Tendered **
- --------------------------------------------------------------------------------
============
- --------------------------------------------------------------------------------
* Need not be completed if Initial Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Initial Notes indicated in column 2. See Instruction 2.
---
Initial Notes tendered hereby must be in denominations of principal amount
of $1,000 and any integral multiple thereof. See Instruction 1.
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_____________________________________________
Account Number:________________ Transaction Code Number:__________________
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):___________________________________________
Window Ticket Number (if any):_____________________________________________
Date of Execution of Notice of Guaranteed Delivery:________________________
Name of Institution which guaranteed delivery:_____________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number:________________ Transaction Code Number:__________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Initial Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Initial Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Initial Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company.
The undersigned hereby further represents that any Exchange Notes acquired
in exchange for Initial Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such Exchange Notes, whether
or not such person is the undersigned, that neither the holder of such Initial
Notes nor any such other person receiving such Exchange Notes is engaged in, or
intends to engage in a distribution of such Exchange Notes, or has an
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and that neither the holder of such Initial Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made
based upon the Company's understanding of an interpretation by the staff of the
Securities and Exchange Commission (the "Commission") as set forth in no-action
letters issued to third parties, including Exxon Capital Holdings Corporation,
SEC No-Action Letter (available April 13, 1989), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993), that the Exchange Notes
issued in exchange for the Initial Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than a broker-dealer who acquires such Exchange Notes directly from the Company
for resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such Exchange Notes and have no
arrangement with any person to participate in the distribution of such Exchange
Notes. If a holder of Initial Notes is engaged in or intends to engage in a
distribution of the Exchange Notes or has any arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, such holder may not rely on the applicable interpretations of
the staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Initial Notes, it represents
that the Initial Notes to be exchanged for the Exchange Notes were acquired by
it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Initial Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Initial Notes for any Initial Notes not
exchanged)
<PAGE>
in the name of the undersigned or, in the case of a book-entry delivery of
Initial Notes, please credit the account indicated above maintained at the Book-
Entry Transfer Facility. Similarly, unless otherwise indicated under the box
entitled "Special Delivery Instructions" below, please send the Exchange Notes
(and, if applicable, substitute certificates representing Initial Notes for any
Initial Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Initial Notes".
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
INITIAL NOTES AS SET FORTH IN SUCH BOX ABOVE.
________________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Initial Notes not exchanged and/or
----
Exchange Notes are to be issued in the name of and sent to someone other than
the person(s) whose signature(s) appear(s) on this Letter above, or if Initial
Notes delivered by book-entry transfer which are not accepted for exchange are
to be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue Exchange Notes and/or Initial Notes to:
Name(s):________________________________________________________________________
(Please Type or Print)
Address:________________________________________________________________________
(Including Zip Code)
(Complete accompanying Substitute Form W-9)
Credit unexchanged Initial Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
________________________________________________________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
________________________________________________________________________________
________________________________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Initial Notes not exchanged and/or
----
Exchange Notes are to be sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above or to such person(s) at an address
other than shown in the box entitled "Description of Initial Notes" on this
Letter above.
Mail Exchange Notes and/or Initial Notes to:
Name(s):________________________________________________________________________
(Please Type or Print)
Address:________________________________________________________________________
(Including Zip Code)
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR INITIAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
________________________
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
Dated:___________________, 1999
x
x
(Signature(s) of Owner) (Date)
Area Code and Telephone Number:_________________________________________
If a holder is tendering any Initial Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Initial Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):____________________________________________________________________
(Please Type or Print)
Capacity:___________________________________________________________________
Address:____________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:____________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name and Firm)
Dated:____________________, 1999
________________________________________________________________________________
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer to Exchange
up to $130,000,000 11 1/2% Senior Notes due 2005
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding
11 1/2% Senior Notes due 2005
Premier Graphics, Inc.
1. Delivery of this Letter and Initial Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Initial Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Initial Notes, or Book-Entry Confirmation, as the case may
be, as well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Initial Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof.
Holders of Initial Notes whose certificates for Initial Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Initial Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedure" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Initial Notes and the amount of Initial Notes tendered,
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered
Initial Notes, or a Book-Entry Confirmation, as the case may be, and any other
documents required by this letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Initial Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Initial Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Initial Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to holders of Initial Notes who tender by
book-entry transfer).
If less than all of the Initial Notes evidenced by a submitted certificate
are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Initial Notes to be tendered in the box above entitled
"Description of Initial Notes--Principal Amount Tendered". A reissued
certificate representing the balance of nontendered Initial Notes will be sent
to such tendering holder, unless otherwise provided in the appropriate box on
this Letter, promptly after the Expiration Date. All of the Initial Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
<PAGE>
3. Signatures of this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Initial Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Initial Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Initial Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Initial Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Initial Notes are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificates
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Initial Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934 (an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Initial Notes are tendered: (i) by a registered holder
of Initial Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Initial Notes) tendered who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Initial Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Initial Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. A holder of Initial Notes tendering Initial Notes by book-entry
transfer may request that Initial Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such holder of Initial
Notes may designate hereon. If no such instructions are given, such Initial
Notes not exchanged will be returned to the name or address of the person
signing this Letter.
<PAGE>
5. Tax Identification Number.
Federal income tax law generally requires that a tendering holder whose
Initial Notes are accepted for exchange must provide the Company (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which, in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption, such tendering holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
of Exchange Notes to such tendering holder may be subject to backup withholding
in an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Initial Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Initial Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Initial Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Initial Notes are in more than one name or are not in the name of the actual
owner, such holder should consult the W-9 Guidelines for information on which
TIN to report. If such holder does not have a TIN, such holder should consult
the W-9 Guidelines for instructions on applying for a TIN, check the box in Part
2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Initial Notes to it or its order pursuant to the Exchange Offer. If, however,
Exchange Notes and/or substitute Initial Notes not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Initial Notes tendered hereby, or if tendered Initial
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Initial Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it is not necessary for transfer
tax stamps to be affixed to the Initial Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Initial Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Initial Notes
for exchange.
<PAGE>
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Initial Notes nor shall any of them incur any liability for failure to give any
such notice.
9. Mutilated, Lost, Stolen or Destroyed Initial Notes.
Any holder whose Initial Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: [NAME OF COMPANY]
- --------------------------------------------------------------------------------
SUBSTITUTE Part 1-- PLEASE PROVIDE YOUR TIN:___________________
Form W-9 TIN IN THE BLANK AT RIGHT (Social Security Number
AND CERTIFY BY SIGNING or Employer Identification
AND DATING BELOW.
-----------------------------------------------------------------
Department of Part 2 -- TIN Applied For [_]
the Treasury
-----------------------------------------------------------------
Internal CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Revenue (1) the number shown on this form is my correct Taxpayer Payor's
Identification Service Number (or I am waiting for a
number to be issued to me).
Payor's (2) I am not subject to backup withholding either because:
Request For (a) I am exempt from backup withholding, or (b) I have not
Taxpayer been notified by the Internal Revenue Service (the "IRS")
Identification that I am subject to backup withholding as a result of a
Number ("TIN") failure to report all interest or dividends, or (c) the IRS
and has notified me that I am no longer subject to backup
Certification withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE:___________________________ DATE:________________
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
______________________________
Signature Date
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
PREMIER GRAPHICS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Premier Graphics, Inc. (the "Company") made pursuant to the
Prospectus, dated ______________, 1999 (the "Prospectus"), and the enclosed
Letter of Transmittal (the "Letter of Transmittal") if certificates for Initial
Notes are not immediately available or if the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all required
documents to reach the Company prior to 5:00 P.M., New York City time, on the
Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to United States
Trust Company of New York (the "Exchange Agent") as set forth below. In
addition, in order to utilize the guaranteed delivery procedure to tender
Initial Notes pursuant to the Exchange Offer, a completed, signed and dated
Letter of Transmittal (or facsimile thereof) must also be received by the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
Delivery to: United States Trust Company of New York, Exchange Agent
- --------------------------------------------------------------------------------
By Mail: By Hand:
United States Trust Company of New York United States Trust Company of New York
114 W. 47th Street 114 W. 47th Street
New York, New York 10036-1532 New York, New York 10036-1532
Attention: Jason Gregory Attention: Jason Gregory
- --------------------------------------------------------------------------------
Telephone: (212) 852-1662
Facsimile: (212) 852-1620
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Initial Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Initial Notes Tendered: Name(s) of Record Holders(s):
$__________________________________________ __________________________________
Certificate Nos. (if available): Addresses:
__________________________________
If Initial Notes will be delivered by Area Code and Telephone Number(s):
transfer to The Depositary Trust
Company, provide account number. __________________________________
Account Number:____________________________ Signature(s):
__________________________________
<PAGE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm that is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office correspondent in the United
States or any "eligible guarantor" institution within the meaning of Rule 17Ad-
15 of the Exchange Act of 1934, as amended, hereby (a) guarantees to deliver to
the Exchange Agent, at one of its addresses set forth above, the certificates
representing all tendered Initial Notes, in proper form for transfer, or a Book-
Entry Confirmation, together with a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required signature guarantees,
and any other documents required by the Letter of Transmittal within three New
York Stock Exchange, Inc. trading days after the date of execution of this
Notice of Guaranteed Delivery.
Name of Firm:______________________________ __________________________________
(Authorized Signature)
Address:___________________________________ Title:_____
Name:___________________
Area Code and Date:___________________
Telephone Number:__________________________
<PAGE>
EXHIBIT 99.3
Premier Graphics Inc.
Offer to Exchange
up to $130,000,000 11 1/2% Senior Notes due 2005
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding
11 1/2% Senior Notes due 2005
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Upon and subject to the terms and conditions set forth in the Prospectus,
dated ___________________, 1999 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal"), an offer to exchange (the "Exchange
Offer") the registered $130,000,000 11 1/2% Senior Notes (the "Exchange Notes")
for any and all outstanding $130,000,000 11 1/2% Senior Notes (the "Initial
Notes") (CUSIP No. ___________) is being made pursuant to such Prospectus. The
Exchange Offer is being made in order to satisfy certain obligations of Premier
Graphics, Inc. (the "Company") contained in the Registration Rights Agreement,
dated as of December 11, 1998 between the Company and Donaldson Lufkin &
Jenrette Securities Corporation, Prudential Securities Incorporated and Morgan
Keegan & Company, Inc. (the "Initial Purchasers").
We are requesting that you contact your clients for whom you hold Initial
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Initial Notes registered in your name or in the
name of your nominee, or who hold Initial Notes registered in their own names,
we are enclosing the following documents:
1. Prospectus dated ___________________, 1999;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Initial Notes are not immediately available
or time will not permit all required documents to reach the Exchange
Agent prior to the Expiration Date (as defined below) or if the
procedure for book-entry transfer cannot be completed on a timely
basis; and
4. A form of letter which may be sent to your clients for whose account
you hold Initial Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions
with regard to the Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on _______________, 1999 (the "Expiration Date")
unless extended by the Company. The Initial Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Initial Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
<PAGE>
If holders of Initial Notes wish to tender, but it is impracticable for
them to forward their certificates for Initial Notes prior to the expiration of
the Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer - Guaranteed
Delivery Procedures".
Additional copies of the enclosed material may be obtained from United
States Trust Company of New York, 114 W. 47th Street, New York, New York 10036-
1532, Attention: Jason Gregory.
<PAGE>
EXHIBIT 99.4
Premier Graphics, Inc.
Offer to Exchange
up to $130,000,000 11 1/2% Senior Notes due 2005
which have been registered under the Securities Act of 1933, as amended,
for any and all outstanding
11 1/2% Senior Notes due 2005
To Our Clients:
Enclosed for your consideration is a Prospectus of Premier Graphics, Inc.,
a Delaware corporation (the "Company"), dated _______________, 1999 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal") relating to the offer to exchange (the "Exchange Offer") of
registered $130,000,000 11 1/2% Senior Notes due 2005 (the "Exchange Notes")
for any and all outstanding $130,000,000 11 1/2% Senior Notes due 2005 (the
"Initial Notes") (CUSIP No. ___________), upon the terms and subject to the
conditions described in the Prospectus. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement, dated as of December 11, 1998, between the
Company and Donaldson Lufkin & Jenrette Securities Corporation, Prudential
Securities Incorporated and Morgan Keegan & Company, Inc. (the "Initial
Purchasers").
This material is being forwarded to you as the beneficial owner of the
Initial Notes carried by us in your account but not registered in your name. A
tender of such Initial Notes may only be made by us as the holder of record and
pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Initial Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
We also request that you confirm that we may, on your behalf, make the
representations and warranties contained in the Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Initial Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on _________________, 1999 (the "Expiration Date") (30
calendar days following the commencement of the Exchange Offer), unless extended
by the Company. Any Initial Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before 5:00 p.m., New York City time on the Expiration
Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Initial Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer -- Conditions".
3. Any transfer taxes incident to the transfer of Initial Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
the Expiration Date unless extended by the Company.
<PAGE>
If you wish to have us tender your Initial Notes, please so instruct us by
completing, executing and returning to us the instruction form set forth below.
The Letter of Transmittal is furnished to you for information only and may not
be used directly by you to tender Initial Notes.
Instructions with Respect to the Exchange Offer
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus, dated _______________, 1999, of Premier Graphics, Inc., a Delaware
corporation, and the related specimen Letter of Transmittal.
This will instruct you to tender the number of Initial Notes indicated
below held by you for the account of the undersigned, pursuant to the terms and
conditions set forth in the Prospectus and the related Letter of Transmittal.
(Check one).
Box 1 [_] Please tender my Initial Notes held by you for my account. If I do
not wish to tender all of the Initial Notes held by you for my
account, I have identified on a signed schedule attached hereto the
number of Initial Notes that I do not wish tendered.
Box 2 [_] Please do not tender any Initial Notes held by you for my account.
Date:_________________________ ________________________________________
Signature(s)
________________________________________
Please print name(s) here
________________________________________
Area Code and Telephone No.
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all Initial
Notes.
