<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
FILE
NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PHOENIX COLOR CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2735 22-2269911
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
540 WESTERN MARYLAND PARKWAY
HAGERSTOWN, MD 21740
(301) 733-0018
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
LOUIS LASORSA, PRESIDENT
540 WESTERN MARYLAND PARKWAY
HAGERSTOWN, MD 21740
(301) 733-0018
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
------------------------------
COPIES TO:
ANDREW J. GOODMAN, ESQ. MARC WEINGARTEN, ESQ.
SEYMOUR H. BUCHOLZ, ESQ. Schulte Roth & Zabel LLP
Rosner Bresler Goodman 900 Third Avenue
& Unterman, LLP New York, NY 10022
521 Fifth Avenue (212) 756-2000
New York, NY 10175
(212) 661-2150
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practical after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value......... 4,600,000 shs. $10.00 $46,000,000 $13,570.00
</TABLE>
(1) Includes 600,000 shares which may be purchased by the Underwriters from the
Registrant pursuant to an over-allotment option. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (a).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 24, 1998
4,000,000 SHARES
PHOENIX COLOR CORP.
COMMON STOCK
------------------
All of the shares of common stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Phoenix Color Corp. (the "Company").
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is anticipated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "PHNX".
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNT PROCEEDS TO
PUBLIC (1) COMPANY (2)
<S> <C> <C> <C>
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Per Share.............................................. $ $ $
Total (3).............................................. $ $ $
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</TABLE>
(1) See " Underwriting" for information concerning indemnification of the
Underwriters and for other information.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted an option to the Underwriters exercisable within 30
days of the date hereof, to purchase up to 600,000 additional shares of
Common Stock for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered hereby are offered severally by the
Underwriters when, as and if delivered to and accepted by them, subject to their
right to withdraw, cancel or reject orders in whole or in part and subject to
certain other conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made against payment on or about
, 1998 at the office of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower,
World Financial Center, New York, New York 10281.
------------------------
CIBC OPPENHEIMER PAINEWEBBER INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
[INSIDE FRONT COVER]
PHOTOS / GRAPHICS
[THIS SPACE INTENTIONALLY LEFT BLANK]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK,
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION HEREIN ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO A RECAPITALIZATION OF
THE COMPANY (THE "RECAPITALIZATION") COMPLETED APRIL , 1998, BY WHICH (I) THE
COMPANY'S TOTAL AUTHORIZED SHARES WERE INCREASED AND (II) EACH OF THE COMPANY'S
PREVIOUSLY OUTSTANDING CLASS A AND CLASS B SHARES WAS CONVERTED INTO 483 SHARES
OF A NEW, SINGLE CLASS OF COMMON STOCK. SEE "CAPITALIZATION" AND "DESCRIPTION OF
CAPITAL STOCK". UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" INCLUDE PHOENIX COLOR CORP. AND ITS CONSOLIDATED
SUBSIDIARIES.
THE COMPANY
The Company is a leader in the manufacture and supply of book components to
publishers and book manufacturers. Book components include paperback covers,
book jackets, pre-printed case covers (which
are glued to hardboard and used for hardcover books), endpapers, illustrations
and inserts. The Company is the largest independent book component printer in
North America, and is a fully integrated provider of digital prepress,
computer-to-plate, single-pass multi-color printing and a complete range of
finishing services. In 1997, the Company completed over 55,000 separate printing
jobs and serviced over 200 customers, including Simon & Schuster, HarperCollins
Publishers, Pearson Putnam Publishing, Bantam Doubleday Dell Publishing Group,
Inc., Random House, Inc., The McGraw-Hill Companies, Inc., Time Warner, Inc. and
R.R. Donnelley & Sons Company.
The manufacture of books requires both the printing of text and the
production of book components. Due to publishers' demand for high quality,
intricate book covers to enhance book sales, and the need for specialized
equipment, materials and finishes to produce such covers, many leading
publishers rely on specialty printers such as the Company to produce book
components, and use other commercial printers to produce text and assemble
books. During 1998, the Company intends to add complete book manufacturing
capabilities for certain categories of books in order to provide its publishing
customers with the opportunity to purchase complete books from a single source.
From 1993 through 1997, the Company's net sales increased from $40.9 million
to $104.8 million, reflecting a compound annual growth rate of approximately
26.5%. During such period, the Company's EBITDA increased from $7.0 million to
$22.1 million, reflecting a compound annual growth rate of approximately 33.3%
and an improvement in the EBITDA margin from 17.1% in 1993 to 21.1% in 1997.
(See Footnotes 7 and 8 to Summary Consolidated Financial Information.) The
Company's financial results include the effect of the acquisition in February
1996 of New England Book Holding Corporation and its wholly-owned subsidiary,
New England Book Components, Inc. (collectively, "NEBC"). See "Business-Growth
Strategy-STRATEGIC ACQUISITIONS."
Management attributes the Company's growth and profitability to its record
of providing superior customer service and product quality, expanding and
enhancing its product offerings and adding state-of-the-art manufacturing
capacity. Management emphasizes service and responsiveness to customer needs,
and the Company believes it consistently offers its customers the most modern
and complete line of printing and finishing facilities and provides the shortest
work-order turnaround time in U.S. book component manufacturing.
The Company has invested extensively in technologically-advanced prepress
and pressroom equipment and has developed a sophisticated management information
system, which digitally links all of its facilities, permitting real-time
measurement of operational results and optimization of workflow among
facilities. The Company's ability to respond quickly is also due to the
strategic location of its four modern, computerized production plants near major
book manufacturers, and the use of its own tractor-trailers to reduce delivery
times. The Company's production efficiency is further enhanced by its long-term,
single-
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<PAGE>
source relationships with suppliers of paper, ink and other production
materials, which provide a reliable supply of raw materials and advantageous
pricing. See "Business."
The key elements of the Company's growth strategy are: (i) enhanced sales
and marketing, (ii) expansion into complementary areas of book manufacturing,
(iii) continuing capital investment to increase production capabilities, (iv)
geographic expansion and (v) strategic acquisitions. See "Business-Growth
Strategy."
The Company was founded in 1979 by 15 individuals, each with extensive
experience in the production of book components. The Company's principal offices
are at 540 Western Maryland Parkway, Hagerstown, Maryland 21740, and its
telephone number is (301) 733-0018. The Company has two production facilities in
Hagerstown and additional plants in Long Island City, New York and in Taunton,
Massachusetts. The Company maintains local sales offices at each of its plants
and in various other cities in the United States. See "Business-Facilities and
Equipment."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... 4,000,000 shares(1)
Common Stock to be outstanding after the Offering....... 13,125,802 shares(1)
Use of Proceeds......................................... To fund capital expenditures for building and equipping
two new complete book manufacturing plants and a new
book component plant, to purchase additional prepress
equipment, to repay a portion of long-term and
short-term debt, to increase working capital and for
general corporate purposes. See "Use of Proceeds."
Proposed NASDAQ National Market Symbol.................. PHNX
</TABLE>
- ------------------------
(1) Excludes 600,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net sales................................................. $ 40,860 $ 50,971 $ 60,907 $ 95,262 $ 104,794
Gross profit............................................ 8,469 13,503 15,778 24,146 31,072
Selling and marketing expenses............................ 1,280 1,827 3,036 6,089 5,881
General and administrative expenses....................... 3,733 4,803 4,505 9,010 10,980
Impairment loss (2)....................................... -- -- -- 1,268 --
--------- --------- --------- --------- ----------
Income from operations.................................. 3,456 6,873 8,237 7,779 14,211
Net income (3) (4)........................................ 1,261 3,200 3,710 1,796 5,767
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma basic and diluted earnings per share (5)........ $ 0.15 $ 0.34 $ 0.41 $ 0.20 $ 0.63
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma weighted average number of shares outstanding
(5)..................................................... 8,681 9,426 9,033 9,126 9,126
OTHER FINANCIAL DATA:
Depreciation and amortization expense (4)................. $ 3,527 $ 3,265 $ 3,119 $ 8,479 $ 7,856
Capital expenditures (6).................................. 6,981 6,083 17,841 11,052 15,131
EBITDA (7)................................................ 6,983 10,138 11,355 17,527 22,067
EBITDA margin (8)......................................... 17.1% 19.9% 18.6% 18.4% 21.1%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(9)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 1,045 $ 25,145
Working capital (deficit) surplus..................................................... (19,192) 14,908
Total assets.......................................................................... 86,709 110,809
Total debt............................................................................ 46,726 34,226
Total stockholders' equity............................................................ 17,870 54,470
</TABLE>
- ------------------------
(1) The Company's operating expenses include the following amounts as
discretionary management incentive compensation for the years ended December
31: 1993, $257,000; 1994, $2,120,000; 1995, $2,298,000; 1996, none; and
1997, $2,050,000.
(2) Reflects the write-down of real estate assets held for sale to their
estimated net realizable value.
(3) Net income in 1996 includes a non-recurring pretax gain of $916,000 on the
sale of printing press equipment obtained in the NEBC acquisition.
(4) In 1997, the Company revised the amortization period for goodwill resulting
from the 1996 acquisition of NEBC from eight years to 20 years. The effect
of this change was to increase 1997 net income and basic net income per
share by $1,383,000 and $.15 per share, respectively. See Note 2 to the
Consolidated Financial Statements.
(5) The pro forma basic and diluted earnings per share and pro forma weighted
average number of shares of Common Stock outstanding is unaudited and
assumes that the Recapitalization had been given effect as of January 1 in
each year presented. See "Description of Capital Stock" and Note 1 to the
Consolidated Financial Statements.
(6) Includes property and equipment financed through notes and capital leases.
See Consolidated Statements of Cash Flows in the Consolidated Financial
Statements.
(7) EBITDA represents the operating income of the Company plus depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles ("GAAP") and may not be comparable
to other similarly titled measures by other companies. EBITDA does not
represent income or cash flows from operations as defined by GAAP and does
not necessarily indicate that cash flows will be sufficient to fund cash
needs. As a result, EBITDA should not be considered an alternative to net
income as an indicator of operating performance or to cash flows as a
measure of liquidity. EBITDA is included in this Prospectus because it is a
basis on which the Company assesses its financial performance, and certain
covenants in the Company's borrowing arrangements have been tied to similar
measurements. EBITDA for the year ended December 31, 1996 excludes an
impairment loss of $1,268,000. See Note 2 to Consolidated Financial
Statements.
(8) EBITDA margin represents EBITDA divided by Net sales.
(9) Adjusted to give effect to the sale of 4,000,000 shares of the Company's
Common Stock by the Company at an assumed public offering price of $10.00
per share after deducting the underwriting discount, estimated offering
expenses and the application of a portion of the net proceeds to repay
certain of the Company's outstanding indebtedness as described in "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THE
FOLLOWING IS NOT INTENDED AS, AND SHOULD NOT BE CONSIDERED, AN EXHAUSTIVE LIST
OF RELEVANT FACTORS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS ARE BASED ON CURRENT
EXPECTATIONS AND INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING,
AMONG OTHERS, THOSE SET FORTH BELOW. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.
EXPANSION INTO BOOK MANUFACTURING
The Company intends to supplement its book components printing business by
investing in new equipment and facilities for manufacturing certain types of
complete books. During 1998, the Company intends to establish two new
facilities, both of which are expected to be operational by December. One plant
will produce complete, high-quality, multi-color, thin, flat back, hardcover
books suitable for juvenile publishing and other markets. The second plant will
produce workbook-size paperbacks, suitable for the higher education market, and
digest-size paperbacks for juvenile publishing and other markets.
The manufacture and sale of complete books is a different business from the
manufacture and sale of book components, and there can be no assurance that the
Company will be able to compete effectively in complete book manufacturing.
Expansion into the manufacture of complete books may present operating and
marketing challenges that are different from those currently encountered by the
Company, as well as unforeseen expenses, difficulties, complications or delays.
There are no present commitments from any customers to place orders for complete
book manufacturing, and there can be no assurance that such orders in the
future, if any, will be sufficient to offset the cost of such expansion or that
the Company's expansion into complete book manufacturing operations will prove
successful.
MANAGEMENT OF GROWTH
In addition to developing facilities for the manufacture of complete books,
the Company plans to increase its existing book component printing capacity
through the construction in 1999 of a new book components printing facility in
Lebanon, Indiana. The Company also intends to develop additional book component
manufacturing facilities and to acquire other book component and book
manufacturing companies as opportunities arise. These activities, particularly
when pursued concurrently, could place significant demands on the Company's
managerial, operational and financial resources.
The Company's future performance and profitability will depend on a number
of factors, including the successful maintenance of existing customer
relationships, the effective marketing of expanded service capabilities, the
ability to maintain a consistently high quality of services, and the ability to
recruit, train, motivate and retain qualified personnel. There can be no
assurance that the Company will maintain or accelerate its growth or anticipate
all of the changing demands that expanding operations will impose on its
management, financial systems and management information systems. Any failure by
the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON MAJOR CUSTOMERS; NO CONTRACTUAL COMMITMENTS
The Company's two largest customers accounted for 17.7% and 17.3%,
respectively, of 1996 net sales and 17.1% and 13.7%, respectively, of 1997 net
sales. The Company's ten largest customers accounted for approximately 75.0% of
net sales in 1997. The Company has no long-term commitments for continuing
orders from its customers, and there can be no assurance that the Company will
be able to maintain or increase the current level of sales derived from these or
any other existing customers or attract additional customers. The loss of any of
the Company's major customers could have a materially adverse affect on the
Company's business, financial condition and results of operations.
6
<PAGE>
RELIANCE ON BOOK PUBLISHING; CONCENTRATION OF SALES IN TRADE BOOK SEGMENT
Because the Company derives all of its revenues from customers in the book
publishing and book printing industries, the Company's business, financial
condition and results of operations could be adversely affected by changes which
have a negative impact on these industries. In addition, approximately 44.9% of
the Company's net sales in 1997 were generated from the sale of book components
used in the adult trade segment of the consumer book market. Between 1993 and
1997, consumer spending on adult trade books, as a percentage of end-user
spending for all consumer book segments, ranged from 46.6% in 1994 to an
estimated 43.7% of total consumer book expenditures in 1997. The adult trade
book segment experienced modest declines in total sales in 1995 and 1996, while
a number of other consumer book market segments experienced increased sales.
Accordingly, future weakness in the adult trade book segment, particularly if
not offset by improvement in other segments of the book market, could have a
material adverse affect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON KEY MANAGEMENT
The Company's success is substantially dependent on the efforts, abilities
and continued services of its senior management, including Louis LaSorsa,
Chairman, President and Chief Executive Officer. The loss of the services of any
one or more of such senior management could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's future success also depends on its ability to recruit, train, motivate
and retain other highly skilled managerial, technical, marketing and customer
service personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in meeting its personnel needs.
The failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
AVAILABILITY AND INTEGRATION OF ACQUISITIONS
The Company completed a substantial acquisition in 1996 and intends to
acquire other book component and book manufacturing companies whose geographic
location, customer base and type of business can be effectively integrated with
those of the Company. However, there can be no assurance that the Company will
succeed in identifying and acquiring such companies on terms that the Company
considers appropriate. In addition, acquisitions generally involve numerous
risks, including the diversion of management's attention from other business
concerns and the potential loss of key employees. The contribution of any
acquisition to the Company's future revenues and profitability, and the
realization of economies of scale from any such acquisition, will depend to a
large extent on the Company's ability to integrate effectively the customer
base, operations and personnel of the acquired company, and there can be no
assurance that the Company will be able to do so successfully. The Company has
no present agreements or commitments with respect to any acquisitions of other
businesses.
COMPETITION
The printing industry in general, and the printing and manufacture of books
in particular, are extremely competitive. Although the Company is the largest
independent book component printer in North America, it faces competition from
other independent book component printers, as well as from such commercial
printing firms as R.R. Donnelley & Sons Company, Quebecor Printing Inc., Banta
Corporation and World Color Press, Inc., all of whom offer component printing
services within the context of their complete book manufacturing businesses, and
all of whom have significantly larger revenues and assets than the Company. In
addition, when the Company commences the manufacture of certain types of
complete books later this year, the Company will be competing with various book
printing concerns which are approximately equal to or smaller than the Company
in revenues and assets. Competitive factors in the printing of book components
and in the manufacture of complete books include price, quality, speed of
production and delivery, use of technology and ability to service specialized
customer needs on a consistent basis. There can be no assurance that major
commercial printing firms such as R.R. Donnelley & Sons Company, Quebecor
Printing Inc., Banta Corporation and World Color Press, Inc. will not seek to
expand
7
<PAGE>
their book component business significantly, which could have a material adverse
effect on the Company's business, financial condition and results of operations,
or that the Company will be able to compete effectively in the larger market for
the manufacture of complete books.
NEW TECHNOLOGY AND CAPITAL INVESTMENT
The Company has invested substantial resources in modern printing technology
and must continue to do so in order to remain competitive in the printing
industry. While management is committed to making such continuing investment and
the Company intends to devote a portion of the net proceeds of the Offering to
completing and equipping additional modern production facilities, there can be
no assurance that the Company will have sufficient capital or be able to obtain
sufficient financing to fund such capital expenditures in the future, or that
subsequent technological change will not cause newly acquired equipment to
become less efficient than subsequent versions of such equipment.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active market will develop or be sustained
after the consummation of the Offering. The initial public offering price of the
Common Stock offered hereby was determined by negotiations among the Company and
the Underwriters and may not be indicative of future prices. See "Underwriting"
for information relating to the method of determining the initial public
offering price.
The market price for the Common Stock may be significantly affected by such
factors as the Company's operating results, changes in any earnings estimates
publicly announced by the Company or by analysts, announcements of significant
business developments by the Company or its competitors and various factors
affecting the overall economic environment. In addition, the stock market has
experienced a high level of price and volume volatility, and market prices for
the stock of many companies, especially newly public companies, have experienced
wide price fluctuations not necessarily related to the fundamentals or operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. See "Underwriting."
CONTROL BY PRINCIPAL STOCKHOLDERS
After the consummation of the Offering, the Company's 12 principal
stockholders will own a total of 55.5% of the Company's outstanding shares, of
which 44.2% will be owned beneficially and directly by such stockholders and
11.4% will be owned beneficially and indirectly by 11 of such stockholders
through their interests in the Company's Employee Stock Bonus and Ownership Plan
("Stock Bonus Plan"). Louis LaSorsa and Edward Lieberman, officers and directors
of the Company, are Trustees of the Stock Bonus Plan, which will hold a total of
25.0% of the Company's outstanding shares at such consummation. Consequently,
the principal stockholders of the Company, including Messrs. LaSorsa and
Lieberman, individually and in their capacity as Trustees of the Stock Bonus
Plan, will, if they vote together, be able to elect the Company's directors and
determine other corporate actions, such as the Company's response to merger or
acquisition proposals by third parties. See "Principal Stockholders" and
"Certain Transactions."
IMMEDIATE AND SUBSTANTIAL DILUTION
The amount by which the assumed initial public offering price of $10.00 per
share of Common Stock exceeds the pro forma net tangible book value per share of
Common Stock after the Offering constitutes dilution to investors in the
Offering. Persons purchasing in the Offering will experience an immediate
dilution in pro forma net tangible book value per share of $7.02. See
"Dilution."
ABSENCE OF DIVIDENDS; RESTRICTIONS ON DIVIDENDS
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying cash dividends on the Common Stock at any time in the
foreseeable future. See "Dividend Policy." In addition, pursuant to certain of
the Company's credit and capital lease agreements, the Company and its
subsidiaries are restricted from paying dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
8
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock and also
could impair the Company's ability to raise capital through subsequent offerings
of securities. Upon the consummation of the Offering, the Company will have
13,125,802 shares of Common Stock outstanding. The 4,000,000 shares of Common
Stock being sold in the Offering will be freely tradeable unless acquired by
affiliates of the Company. The remaining 9,125,802 shares of Common Stock to be
held by existing stockholders (including 3,281,502 shares held by the Stock
Bonus Plan) after the Offering may be sold publicly only following their
effective registration under the Securities Act of 1933, as amended (the
"Securities Act") or pursuant to an available exemption under Rule 144 of the
Securities and Exchange Commission, as follows: (i) 2,941,800 shares which have
been held by non-affiliates for more than two years will be freely tradeable
without restriction or further registration under the Securities Act and (ii)
4,730,502 shares, including 3,281,502 shares held by the Stock Bonus Plan, which
have been held by affiliates for one year or more will be eligible for sale in
the public market, subject to the volume of sale, manner of sale and notice
conditions of Rule 144. Owners of all of the outstanding Common Stock
immediately prior to the Offering, as well as the Company and its directors and
officers, have agreed not to offer for sale, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus, without the prior written consent of CIBC Oppenheimer. See "Shares
Eligible for Future Sale" and "Underwriting."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER AND BY LAW PROVISIONS
Upon the closing of the Offering, the Company's Board of Directors will have
the authority under the Company's Certificate of Incorporation to issue up to
5,000,000 shares of preferred stock ("Preferred Stock") and to determine the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The Company has no present plans to issue
shares of Preferred Stock.
In addition, certain provisions of the Company's Certificate of
Incorporation and By Laws may delay or make more difficult unsolicited
acquisitions or changes of control of the Company. Such provisions could have
the effect of discouraging third parties from making proposals involving an
unsolicited acquisition or change of control of the Company, although such
proposals, if made, might be considered desirable by a majority of the Company's
stockholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current Board. See
"Description of Capital Stock."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of 4,000,000 shares of Common
Stock offered hereby, based on an assumed initial public offering price of
$10.00 per share, after deducting estimated offering expenses and underwriting
discounts, are estimated to be $36.6 million ($42.2 million if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use the estimated net proceeds from the Offering as
follows: (i) approximately $6.8 million will be used to build and equip two new
book manufacturing plants; (ii) approximately $2.1 million will be used to
establish a new book components manufacturing plant in Lebanon, Indiana; (iii)
approximately $5.0 million will be used to purchase additional prepress
equipment for existing and new facilities; (iv) approximately $6.5 million will
be used to prepay a portion of an outstanding bank term loan; (v) approximately
$6.0 million will be used to reduce the outstanding balance owed under the
Company's revolving credit arrangements; and (vi) approximately $10.2 million
will be used for additional working capital and general corporate purposes.
Approximately $6.5 million of the net proceeds of the Offering will be used
to prepay a term loan maturing February 1, 2000, and approximately $6.0 million
of such net proceeds will be used to reduce the outstanding balance under a
revolving line of credit expiring on February 1, 1999. Both the term loan and
the credit line were obtained in 1996 by the Company under a Loan and Security
Agreement (the "Loan Agreement") with two banks. Under the terms of such
agreement, prepayment of the term loan is required in the event of a public
offering of securities by the Company. The applicable interest rates on such
term loan and revolving credit line fluctuate in accordance with formulas
contained in the agreement and amounted to 9.0% for the term loan and 8.5% for
the credit line as of December 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company's capital expansion plans for 1998 include two new complete book
manufacturing plants, one producing high quality, multi-color, thin, flat back
hardcover books for the juvenile publishing and other markets, and another
producing workbook-size and digest-size paperbacks for the higher education and
juvenile publishing markets. It is anticipated that the hardcover book facility
will be leased and the paperback facility will be purchased either with mortgage
financing which the Company expects to be able to obtain, or through borrowings
under the Loan Agreement. In addition, the Company plans to establish a new book
components facility in Lebanon, Indiana, which is expected to be in operation in
1999, which will be financed either through a joint venture, third-party
mortgage or borrowings under the Loan Agreement. A portion of the proceeds of
the Offering will be used to establish and equip such facilities. See
"Business--Growth Strategy."
Pending such use of the net proceeds for the above purposes, the Company
intends to invest the net proceeds in short-term, investment-grade,
interest-bearing obligations.
10
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of December 31, 1997, (ii) the pro forma capitalization of the Company after
giving effect, as of such date, to the Recapitalization, as set forth in
"Description of Capital Stock", and (iii) the pro forma capitalization of the
Company as adjusted to give effect to the sale of 4,000,000 shares of Common
Stock by the Company at an assumed public offering price of $10.00 per share
after deducting the underwriting discount and estimated offering expenses and
after the application of a portion of the net proceeds to repay certain of the
Company's outstanding indebtedness as described in "Use of Proceeds." The table
should be read in conjunction with the Selected Consolidated Financial Data and
the Consolidated Financial Statements of the Company and Notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND
SHARE DATA)
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED
--------- ------------- -----------
<S> <C> <C> <C>
Total short-term debt...................................................... $ 25,347 $ 25,347 $ 15,347
Total long-term debt....................................................... $ 21,380 $ 21,380 $ 18,880
--------- ------------- -----------
Stockholders' equity:
Preferred Stock, par value $.01; 5,000,000 shares authorized; none issued
or outstanding actual, pro forma and pro forma as adjusted............. -- --
Common Stock, Class A, par value $0.01 per share; 20,000 shares
authorized; 14,560 shares issued actual; 11,100 shares outstanding
actual; none issued or outstanding pro forma and pro forma as
adjusted............................................................... -- (2) -- --
Common Stock, Class B, par value $0.01 per share; 200,000 shares
authorized; 9,794 shares issued actual; 7,794 shares outstanding
actual; none issued or outstanding pro forma and pro forma as
adjusted............................................................... -- (2) -- --
Common Stock, par value $0.01 per share, 25,000,000 shares authorized;
none issued and outstanding actual; 9,125,802 shares issued and
outstanding pro forma; 13,125,802 issued and outstanding pro forma as
adjusted............................................................... 91 131
Additional paid-in capital............................................... 2,127 267 36,827
Retained earnings........................................................ 17,783 17,783 17,783
Stock subscriptions receivable........................................... (271) (271) (271)
Treasury stock, at cost: Class A 3,460 shares; Class B, 2,000 shares;
none pro forma and pro forma as adjusted............................... (1,769) -- --
--------- ------------- -----------
Total stockholders' equity............................................. 17,870 17,870 54,470
--------- ------------- -----------
Total capitalization................................................. $ 64,597 $ 64,597 $ 88,697
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
- ------------------------
(1) Gives effect to the Recapitalization as of January 1, 1997. See Note 1 of
Notes to Consolidated Financial Statements and "Description of Capital
Stock."
(2) No amounts have been presented because the above table is presented in
thousands. The actual aggregate par value of outstanding shares of Class A
and Class B Common Stock is $146.60 and $97.94, respectively.
11
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate that it will pay dividends in the foreseeable future.
The Company currently intends to retain any future earnings for the operation
and expansion of the Company's business. Any determination to pay dividends in
the future will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations, restrictions imposed
by any applicable law and other factors deemed relevant by the Board of
Directors. Furthermore, the Company and its subsidiaries are restricted from
paying dividends under certain of the Company's credit and capital lease
agreements. See "Risk Factors-Absence of Dividends; Restrictions on Dividends"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operation-Liquidity and Capital Resources."
DILUTION
As of December 31, 1997, the pro forma net tangible book value of the
Company prior to the Offering was approximately $2.6 million, or $0.28 per share
of outstanding Common Stock. "Pro forma net tangible book value per share"
represents the total amount of tangible assets of the Company reduced by the
amount of total liabilities and divided by the number of shares of Common Stock
outstanding after giving effect to the Recapitalization. See "Description of
Capital Stock-Recapitalization." After giving effect to the sale by the Company
of the 4,000,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $10.00 per share and after deducting the estimated
underwriting discounts and offering expenses, the pro forma net tangible book
value of the Company at December 31, 1997 would have been approximately $39.2
million or $2.98 per share of Common Stock. This amount represents an immediate
increase in pro forma net tangible book value of approximately $2.70 per share
of Common Stock to existing stockholders and an immediate dilution of
approximately $7.02 per share of Common Stock to new investors in the Offering.
Dilution per share represents the difference between the price per share paid by
new investors and the pro forma net tangible book value per share immediately
after the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $ 10.00
Pro forma net tangible book value per share at December 31, 1997........ $ 0.28
Increase in pro forma net tangible book value per share attributable to
new investors in the Offering......................................... 2.70
---------
Pro forma net tangible book value per share after the Offering............ 2.98
---------
Dilution to new investors in the Offering................................. $ 7.02
---------
---------
</TABLE>
The following table sets forth, after giving effect to the Recapitalization,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share of Common
Stock paid by existing stockholders and by new investors purchasing shares of
Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................................. 9,125,802 69.5% $ 357,818(1) 0.9% $ 0.04
New Investors......................................... 4,000,000 30.5% 40,000,000 99.1% $ 10.00
------------ ----- ------------- -----
Total................................................. 13,125,802 100.0% $ 40,357,818 100.0%
</TABLE>
- ------------------------
(1) Amount shown is net of prior stock redemptions and includes stock
subscriptions receivable of $270,544 as of December 31, 1997.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below is certain selected consolidated historical financial
information of the Company and its subsidiaries as of December 31, 1993, 1994,
1995, 1996 and 1997, and for the years then ended. The following selected
consolidated financial data as of December 31, 1995, 1996 and 1997 and for each
of the years then ended have been derived from the Company's Consolidated
Financial Statements and related Notes thereto as of such dates and with respect
to such periods, which Consolidated Financial Statements have been audited by
Coopers & Lybrand L.L.P., independent accountants. Such firm's report on the
Company's Consolidated Financial Statements as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997 is
included elsewhere in this Prospectus. See the Consolidated Financial Statements
and related Notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data presented below as of
December 31, 1993 and 1994 and for the years then ended is unaudited and was
prepared by management of the Company on the same basis as the audited
Consolidated Financial Statements included elsewhere in this Prospectus and, in
the opinion of management, includes all adjustments necessary to present fairly
the information set forth therein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
STATEMENTS OF OPERATIONS DATA (1)
Net sales................................................. $ 40,860 $ 50,971 $ 60,907 $ 95,262 $ 104,794
Cost of sales............................................. 32,391 37,468 45,129 71,116 73,722
--------- --------- --------- --------- ----------
Gross profit............................................ 8,469 13,503 15,778 24,146 31,072
--------- --------- --------- --------- ----------
Operating expenses:
Selling and marketing expenses............................ 1,280 1,827 3,036 6,089 5,881
General and administrative expenses....................... 3,733 4,803 4,505 9,010 10,980
Impairment loss (2)....................................... -- -- -- 1,268 --
--------- --------- --------- --------- ----------
Total operating expenses................................ 5,013 6,630 7,541 16,367 16,861
--------- --------- --------- --------- ----------
Income from operations.................................. 3,456 6,873 8,237 7,779 14,211
Interest expense.......................................... 1,386 1,341 1,827 4,937 4,484
Other (income) expense.................................... (16) (70) 10 (1,093) 62
--------- --------- --------- --------- ----------
Income before income taxes.............................. 2,086 5,602 6,400 3,935 9,665
Income tax provision...................................... 825 2,402 2,690 2,139 3,898
--------- --------- --------- --------- ----------
Net income (3) (4)...................................... $ 1,261 $ 3,200 $ 3,710 $ 1,796 $ 5,767
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma basic and diluted earnings per share (5)........ $ 0.15 $ 0.34 $ 0.41 $ 0.20 $ 0.63
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma weighted average number of shares outstanding
(5)..................................................... 8,681 9,426 9,033 9,126 9,126
OTHER FINANCIAL DATA:
Depreciation and amortization expense (4)................. $ 3,527 $ 3,265 $ 3,119 $ 8,479 $ 7,856
Capital expenditures (6).................................. 6,981 6,083 17,841 11,052 15,131
EBITDA (7)................................................ 6,983 10,138 11,355 17,527 22,067
EBITDA margin (8)......................................... 17.1% 19.9% 18.6% 18.4% 21.1%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 68 $ 299 $ 370 $ 158 $ 1,045
Working capital (deficit) surplus......................... (37,251) 264 (3,727) (12,337) (19,192)
Total assets.............................................. 22,718 30,609 50,038 76,544 86,709
Total debt................................................ 12,398 14,488 26,411 49,939 46,726
Total stockholders' equity................................ 4,527 7,689 10,154 12,041 17,870
</TABLE>
- ------------------------
(1) The Company's operating expenses include the following amounts as
discretionary management incentive compensation for the years ended December
31: 1993, $257,000; 1994, $2,120,000; 1995, $2,298,000; 1996, none; and
1997, $2,050,000.
(2) Reflects the write-down of real estate assets held for sale to their
estimated net realizable value.
(3) Net income in 1996 includes a non-recurring pretax gain of $916,000 on the
sale of printing press equipment obtained in the NEBC acquisition.
(4) In 1997, the Company revised the amortization period for goodwill resulting
from the 1996 acquisition of NEBC from eight years to 20 years. The effect
of this change was to increase 1997 net income and basic net income per
share by $1,383,000 and $.15 per share, respectively. See Note 2 to the
Consolidated Financial Statements.
(5) The pro forma basic and diluted earnings per share and pro forma weighted
average number of shares of Common Stock outstanding is unaudited and
assumes that the Recapitalization had been given effect as of January 1 in
each year presented. See "Description of Capital Stock" and Note 1 to the
Consolidated Financial Statements.
(6) Includes property and equipment financed through notes and capital leases.
See Consolidated Statements of Cash Flows in the Consolidated Financial
Statements.
(7) EBITDA represents the operating income of the Company plus depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles ("GAAP") and may not be comparable
to other similarly titled measures by other companies. EBITDA does not
represent income or cash flows from operations as defined by GAAP and does
not necessarily indicate that cash flows will be sufficient to fund cash
needs. As a result, EBITDA should not be considered an alternative to net
income as an indicator of operating performance or to cash flows as a
measure of liquidity. EBITDA is included in this Prospectus because it is a
basis on which the Company assesses its financial performance, and certain
covenants in the Company's borrowing arrangements have been tied to similar
measurements. EBITDA for the year ended December 31, 1996 excludes an
impairment loss of $1,268,000. See Note 2 to Consolidated Financial
Statements.
(8) EBITDA margin represents EBITDA divided by Net sales.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leader in the manufacture and supply of book components to
publishers and book manufacturers, and is the largest independent book component
printer in North America. Book components include paperback covers, book
jackets, pre-printed case covers (which are glued to hardboard and used for
hardcover books), endpapers, illustrations and inserts.
The Company's revenues are derived from the sale of book components.
Operating expenses include primarily the cost of paper, printing plates, various
finishing materials, wages and employee benefits, occupancy, depreciation and
amortization and other general and administrative expenses.
There continues to be pricing pressure on commercial printing enterprises,
including the Company. The price of paper, the primary raw material used by the
Company, is subject to market fluctuations as was demonstrated in the years 1994
and 1995, when paper prices increased significantly. Nevertheless, the Company's
prices remained stable during the period due to its policy of single source
purchasing. The Company believes that, should it experience price increases in
the future, it will be able to pass them along to customers. See "Business-Raw
Materials, Purchasing and Inventory."
ACQUISITION
On February 1, 1996, the Company acquired NEBC, whose annual sales
approximated $40 million. The Company believes the acquisition, which created
the largest independent book component printer in North America, strengthened
its relationships with existing customers, expanded the Company's presence in
various segments of the book publishing industry and enhanced the Company's
purchasing power with its single-source suppliers. Management improved the
acquired operations by increasing labor productivity, upgrading equipment and
reducing overhead and material consumption costs.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain information
derived from the Company's Consolidated Statements of Operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
OPERATING DATA: (1)
Net sales................................................................. 100.0% 100.0% 100.0%
Cost of sales............................................................. 74.1 74.7 70.3
--------- --------- ---------
Gross profit.............................................................. 25.9 25.3 29.7
Operating Expenses:
Selling and marketing expenses............................................ 5.0 6.4 5.6
General and administrative expenses....................................... 7.4 9.5 10.5
Impairment loss........................................................... -- 1.2 --
--------- --------- ---------
Total operating expenses.................................................. 12.4 17.1 16.1
--------- --------- ---------
Income from operations.................................................... 13.5 8.2 13.6
Interest expense.......................................................... 3.0 5.2 4.3
Other (income) expense.................................................... -- (1.1) 0.1
--------- --------- ---------
Income before income taxes................................................ 10.5 4.1 9.2
Income tax provision...................................................... 4.4 2.2 3.7
--------- --------- ---------
Net income................................................................ 6.1% 1.9% 5.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) The Company's operating expenses include the following amounts as
discretionary management incentive compensation expressed as a percentage of
net sales for the years ended December 31, 1995, 3.8%; 1996, 0.0%; and 1997,
2.0%.
15
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales increased $9.5 million, or 10.0%, to $104.8 million in 1997, from
$95.3 million in 1996, which included only 11 months of sales resulting from the
acquisition of NEBC. If, for comparison purposes, 1996 net sales had included
the January operations of NEBC, net sales for 1997 would have shown an increase
of $6.5 million or 6.6%. These increases occurred despite difficult conditions
in the publishing industry in 1997, including increased returns from book
retailers and a 7.2% decline in industry sales of hardcover books in the adult
trade segment.
Gross profit increased $6.9 million or 28.7% to $31.1 million in 1997 from
$24.1 million in 1996, increasing the gross profit margin to 29.7% from 25.3% in
1996. This improvement resulted from increased sales and from reductions in
material consumed, direct labor and overhead. Savings in material were the
result of efficiencies created by new equipment, use of the Company's
computerized sheeter and management efforts to eliminate waste.
Operating expenses increased $0.5 million or 3.0% to $16.9 million in 1997
from $16.4 million in 1996, attributable to the payment of $2.1 million of
discretionary management incentive compensation to certain Company officers and
others, a contribution of $0.8 million to the Stock Bonus Plan, the addition of
sales and marketing personnel and higher depreciation expense, all of which were
partially offset by reduced delivery expenses and lower goodwill amortization
expense. The decrease in such amortization expense was due to a revision in the
goodwill amortization period resulting from the acquisition of NEBC, from eight
years to 20 years. Operating expenses in 1996 were adversely impacted by a
non-recurring impairment loss of $1.3 million relating to the write-down of real
estate assets held for sale to their net realizable value. See Note 2 of Notes
to Consolidated Financial Statements.
Interest expense decreased $0.5 million or 9.2% to $4.5 million in 1997 from
$4.9 million in 1996. The decrease was attributable to the reduction of both the
Company's revolving loan indebtedness and the term debt incurred in connection
with the acquisition of NEBC.
In 1997 the Company had a loss of $0.1 million on the disposition of assets,
compared with a gain of $1.1 million in 1996, which included the sale of
printing equipment obtained in the NEBC acquisition.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was 40.3% for 1997 compared to 54.4% for 1996. The reduction
was primarily attributable to a decrease in non-deductible amortization expense
for goodwill resulting from the acquisition of NEBC. Such reduction in
non-deductible amortization expense was due to the change in the amortization
period from eight to 20 years. See Note 2 of Notes to Consolidated Financial
Statements.
Net income grew by $3.9 million to $5.7 million for 1997 from $1.8 million
for the prior year, an increase of 216.7%. The increase was due to the factors
described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales increased $34.4 million or 56.4% to $95.3 million in 1996 from
$60.9 million in 1995. The increase was due to the inclusion of sales resulting
from the acquisition of NEBC as of February 1, 1996.
Gross profit increased $8.4 million or 53.0% to $24.1 million in 1996 from
$15.8 million in 1995, as a result of increased sales. The gross profit margin
decreased to 25.3% in 1996 from 25.9% in 1995 as a result of higher material
costs and direct labor costs associated with the integration of NEBC operations
in 1996.
Operating expenses increased $8.8 million or 117.0% to $16.4 million in 1996
from $7.5 million in 1995. The increase is primarily attributable to the NEBC
acquisition, including added personnel expenses, additional amortization expense
for goodwill, and increased selling expenses related to higher sales volume. In
addition, 1996 operating expenses were increased by a non-recurring impairment
loss of $1.3 million relating to the write-down of real estate assets held for
sale to their net realizable value. Operating
16
<PAGE>
expenses in 1996 did not include any discretionary management incentive
compensation nor any contribution to the Stock Bonus Plan, compared with a
payment of $2.3 million in discretionary management incentive compensation and
$0.8 million contribution to the Stock Bonus Plan in 1995.
Interest expense increased $3.1 million or 170.2% to $4.9 million in 1996
from $1.8 million in 1995. The increase is attributable to higher average
borrowings incurred, both to fund the NEBC acquisition and related working
capital requirements and to fund additional capital expenditures. The 1996
results included a gain of $1.1 million from the sale of equipment, compared
with a nominal loss in 1995.
The effective income tax rate was approximately 54.4% for 1996 and 42.0% for
1995, and was primarily composed of the combined federal and state statutory
rates. The increase was primarily due to the additional non-deductible
amortization expense for goodwill resulting from the NEBC acquisition.
Net income declined by $1.9 million to $1.8 million for 1996 from $3.7
million for the prior year, a decrease of 51.6%. The decrease was due to the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations, including funding for
the NEBC acquisition, with internally generated funds and external short and
long-term borrowings. Cash flows from operating activities amounted to $6.8
million, $13.9 million and $19.1 million for the years 1995, 1996 and 1997,
respectively.
In February 1996, the Company entered into a $40.0 million Loan and Security
Agreement (the "Loan Agreement") with two commercial banks, consisting of an
$18.0 million revolving line of credit, a four-year term loan ("Term Loan A") of
$16.0 million, and a five-year term loan ("Term Loan B") of $6.0 million.
Borrowings under Term Loan A, Term Loan B and the revolving line of credit bear
interest at a base rate, as defined in the Loan Agreement, or the LIBOR rate,
plus a margin based on the Company's achievement of certain financial ratios.
Term Loan A is to be repaid over four years in quarterly installments, with
additional payments based on net free cash flow, and is required to be prepaid
in the event of a public offering of securities. A portion of the proceeds of
the Offering will be used for the prepayment of Term Loan A and to reduce the
outstanding balance under the revolving credit line. See "Use of Proceeds."
At December 31, 1997, the Company had $14.3 million of short-term revolving
loans outstanding, $8.5 million of Term Loan A outstanding, and $4.9 million of
Term Loan B outstanding. At December 31, 1997, the interest rate on the
revolving line of credit was 8.5% and the interest rate on the Term Loan A and
Term Loan B balances was 9.0%.
Borrowings under the Loan Agreement are collateralized by the Company's
accounts receivable, inventory, and all other tangible and intangible assets.
Also, the Company's principal stockholders have pledged the shares of Common
Stock directly owned by them as security for such borrowings, and six
stockholders of the Company, including Louis LaSorsa and Edward Lieberman, have
entered into individual surety agreements guaranteeing repayment of such
borrowings. See "Related Party Transactions."
The Loan Agreement has required the Company to maintain certain defined
levels of tangible net worth and to comply with various financial and
non-financial covenants. Such financial covenants have been amended from time to
time by agreement among the Company and the lending banks, and any non-
compliance by the Company with such conditions has been waived by such banks.
The Loan Agreement also contains provisions restricting the payment of dividends
by the Company.
In addition to the Loan Agreement, the Company has credit arrangements with
various financial institutions to finance the purchase of equipment. A number of
such arrangements provide for restrictions
17
<PAGE>
on the payment of dividends. The Company has operating lease arrangements for
two printing presses. Rental expense related to such leases was approximately
$0.6 million for 1996 and $0.5 million for 1997.
The Company had working capital deficits of $3.7 million, $12.3 million and
$19.2 million at December 31, 1995, 1996 and 1997, respectively. The increase in
the Company's working capital deficit was due to capital expenditures and
deposits totaling $9.3 million on new press and binding equipment to be
delivered in 1998, and the use of cash to repay $8.5 million of long-term debt.
Capital expenditures totaled $17.8 million, $11.1 million and $15.1 million
in 1995, 1996 and 1997, respectively. The Company has traditionally provided for
increased capacity through the acquisition of capital assets to maintain high
levels of productivity and to meet customer demands. Capital expenditures have
been primarily related to prepress, pressroom and finishing equipment and plant
construction.
The Company's capital expenditures over the next 18 months are currently
estimated to total $53.0 million. The Company's capital expansion plans include
two new complete book manufacturing plants, one producing high quality,
multi-color, thin, flat back hardcover books and another producing workbook-size
and digest-size paperbacks, plus a new book components facility in Lebanon,
Indiana. Projected capital expenditures over the period include approximately
$34.0 million to equip the new plants and to add and replace equipment for
existing facilities. In accordance with past practices, the Company intends to
finance such equipment through capital leases and has obtained commitments for
such financing. The hardcover book facility is being leased, and the paperback
book facility will be constructed at a cost of approximately $15.0 million, for
which the Company expects to obtain long-term financing. No definitive
commitment has been obtained for financing such construction, although the
Company has received an expression of interest in providing such financing from
a lending institution. The new Indiana facility, expected to be in operation in
1999, will cost approximately $4.0 million to construct and will be financed in
the same manner as the paperback book facility. A portion of the proceeds of the
Offering will be used to establish and equip these facilities. See "Use of
Proceeds" and "Business--Growth Strategy."
The Company expects to use the increased working capital resulting from the
Offering to reduce the amount owed under its revolving line of credit facility
by approximately $6.0 million. Accordingly, the Company expects to have
available a total borrowing capacity of $18.0 million under the Loan Agreement
and $3.5 million of available cash on hand. In addition, the Company will seek
to amend the Loan Agreement in order to provide greater resources and more
favorable terms to assist the Company in pursuing its business strategy.
The Company believes that funds generated from operations, together with
existing cash, the net proceeds of the Offering and available credit under its
revolving bank facility, will be sufficient to finance its current operations
and planned capital expenditure requirements and internal growth at least
through 1999. However, if the Company were to make any significant acquisitions
for cash, it may be necessary for the Company to obtain additional debt or
equity financing. The Company has no current commitments or agreements with
respect to any acquisitions, and there can be no assurances that any
acquisitions will be consummated.
The Company's digital communications and information network has been
continuously upgraded, and management does not anticipate that the Company will
be subject to disruption in its information systems because of computer
calendaring and date change problems associated with the year 2000.
The Financial Accounting Standards Board has issued two new standards that
became effective for reporting periods beginning after December 15, 1997: SFAS
No. 130, "Reporting Comprehensive Income" and SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company will begin
making the disclosures required by SFAS 130 in the third quarter of 1998 and by
SFAS 131 at year-end.
18
<PAGE>
BUSINESS
THE COMPANY
The Company is a leader in the manufacture and supply of book components to
publishers and book manufacturers. Book components include paperback covers,
book jackets, pre-printed case covers (which are glued to hardboard and used for
hardcover books), endpapers, illustrations and inserts. The Company is the
largest independent book component printer in North America, and is a fully
integrated provider of digital prepress, computer-to-plate, single-pass
multi-color printing and a complete range of finishing services. In 1997, the
Company completed over 55,000 separate printing jobs and serviced over 200
customers, including Simon & Schuster, HarperCollins Publishers, Pearson Putnam
Publishing, Bantam Doubleday Dell Publishing Group, Inc., Random House, Inc.,
The McGraw-Hill Companies, Inc., Time Warner, Inc. and R.R. Donnelley & Sons
Company.
The manufacture of books requires the printing of text and the production of
book components which are assembled into complete books. The Company has
specialized in the manufacture of book components, which involves a variety of
special materials, finishes and services, such as film lamination, embossing and
metallic foil stamping, die-cutting and liquid coating. Due to publishers'
demand for high quality, intricate book covers to enhance book sales, and the
need for specialized equipment, materials and finishes to produce such covers,
many leading publishers rely on specialty printers such as the Company to
produce book components, and use other commercial printers to produce text and
assemble books.
From 1993 through 1997, the Company's net sales increased from $40.9 million
to $104.8 million, reflecting a compound annual growth rate of approximately
26.5%. During such period, the Company's EBITDA increased from $7.0 million to
$22.1 million, reflecting a compound annual growth rate of approximately 33.3%
and an improvement in the EBITDA margin from 17.1% in 1993 to 21.1% in 1997.
(See Footnotes 7 and 8 to Summary Consolidated Financial Information.) The
Company's financial results include the effect of the acquisition in February
1996 of NEBC. See "Business-Growth Strategy-Strategic Acquisitions."
Management attributes the Company's growth and profitability to its record
of providing superior customer service and product quality, expanding and
enhancing its product offerings and adding state-of-the-art manufacturing
capacity. Management emphasizes service and responsiveness to customer needs,
and the Company believes it consistently offers its customers the most modern
and complete line of printing and finishing facilities and provides the shortest
work-order turnaround times in U.S. book component manufacturing.
The Company has invested extensively in technologically-advanced prepress
and pressroom equipment and has developed a sophisticated management information
system, which digitally links all of its facilities, permitting real-time
measurement of operational results and optimization of workflow among
facilities. The Company's ability to respond quickly is also due to the
strategic location of its four modern, computerized production plants near major
book manufacturers, and the use of its own tractor-trailers to reduce delivery
times. The Company's production efficiency is further enhanced by its long-term,
single-source relationships with suppliers of paper, ink and other production
materials, which provide a reliable supply of raw materials and advantageous
pricing. See "Business."
INDUSTRY OVERVIEW
The U.S. commercial printing industry is the world's largest, with estimated
1997 shipments totaling $74.0 billion. Commercial printing includes the
printing, manufacture and distribution of books, periodicals, catalogues,
directories and advertising, promotional and direct mail materials. The Company
operates in the book manufacturing segment of the commercial printing industry.
19
<PAGE>
Shipments by U.S. book manufacturers amounted to approximately $6.0 billion
in 1997 and are projected by the U.S. Department of Commerce to exceed $6.3
billion in 1998. The U.S. book manufacturing industry is comprised of
approximately 600 U.S. enterprises, ranging from small independent printers to
large book printing divisions of multi-national printing companies such as
R.R.Donnelley & Sons Company and Quebecor Printing Inc. Total consumer spending
on books in the United States amounted to $27.4 billion in 1997 and is projected
to reach $33.0 billion by the year 2001. Demographic factors such as an aging
population, increasing enrollments in elementary and high schools, and growth in
public education spending, are all expected to have a positive impact on book
sales over the next decade.
The book printing industry, like the commercial printing industry in
general, is extremely competitive and capital intensive. In response to
competitive pressures, book publishers have instituted practices such as
just-in-time purchases of inventory, reduction in the size of book print runs,
more frequent reprints, shorter production cycles, and insistence on digital
proofs to make the printing process faster and less costly. In addition,
constantly changing production technology requires manufacturers to continue to
invest in more efficient and versatile pressroom and prepress equipment.
Management believes that small scale book printers will be increasingly subject
to consolidation pressures, since only larger, well-capitalized enterprises such
as the Company (after giving effect to the Offering) will generally be capable
of making the capital expenditures and meeting the staffing requirements
necessary to build and operate state-of-the-art production facilities offering a
full range of services and rapid work-order turnaround time.
GROWTH STRATEGY
The Company has grown by providing superior customer service and product
quality, expanding and enhancing its product offerings and adding
state-of-the-art manufacturing capacity. The key elements of the Company's
growth strategy are: (i) enhanced sales and marketing, (ii) expansion into
complementary areas of book manufacturing, (iii) continuing capital investment
to increase production capabilities, (iv) geographic expansion and (v) strategic
acquisitions. Each of these is discussed below.
ENHANCED SALES AND MARKETING. The Company intends to expand the size of its
sales force over the next 18 months to capture a greater share of business from
its existing publishing customers and to identify and solicit new customers,
including smaller regional publishers. The Company also intends to emphasize
customer training and educational programs in printing processes and technology
and other marketing techniques to reach a larger segment of the book publishing
market.
EXPANSION INTO COMPLEMENTARY AREAS OF BOOK MANUFACTURING. In late 1998, the
Company will begin a vertical integration of its business by expanding from book
component printing to selected categories of complete book manufacturing. Two
new plants are in various phases of development and are expected to be placed in
operation by December, 1998. One facility, to be located in New Jersey, will
produce complete, high-quality, multi-color, thin, flat back, hardcover books
suitable for juvenile publishing and other markets. A second facility, to be
located in Maryland, will produce workbook-size paperbacks suitable for the
higher education market and digest-size paperbacks suitable for juvenile
publishing and other markets. State-of-the-art prepress, press and binding
equipment have been ordered for these plants.
The Company intends initially to operate in these areas of complete book
manufacturing because it believes it can obtain orders from its existing
customers and attract new customers it believes are currently underserviced. The
Company has targeted the manufacture of those types of books which existing
publishing customers have indicated an interest in having the Company produce,
and which are not being manufactured by book manufacturers to whom the Company
now supplies book components. Accordingly, the Company will be able to offer
"one-stop shopping" to publishing customers without jeopardizing the Company's
relationships with its book manufacturing customers. The Company intends to
cross-sell both component printing and complete book manufacturing to its
existing customer base and to potential new customers.
20
<PAGE>
Continuing Capital Investment to Increase Production Capabilities. The
Company intends to continue to invest in technologically advanced prepress and
pressroom equipment and in computerized operations and information systems. The
Company's goal in its ongoing capital investment program is to increase
production capacity, lower production costs, and continually improve product
quality and turnaround time. In addition to the installation of state-of-the-art
equipment in the Company's new book manufacturing facilities, the Company is
upgrading the speed and capacity of the Company's digital storage facilities and
information network.
GEOGRAPHIC EXPANSION. During 1999, the Company intends to establish a book
component printing facility in Lebanon, Indiana to increase service to book
manufacturers and publishers located in the Midwest. The Company believes that
the new plant's physical proximity to Midwest-based book manufacturers and
publishers will shorten the Company's turnaround time in delivering orders for
these customers and thereby enhance the Company's ability to obtain increased
orders. The Company continues to consider other geographic expansion
opportunities, both in the Midwest and elsewhere.
STRATEGIC ACQUISITIONS. The fragmented printing industry continues to
undergo significant consolidation due primarily to increasing customer demand
for a full range of sophisticated services and the high levels of capital
investment necessary to meet such demand. The Company believes that there
continue to be numerous viable acquisition opportunities among book component
and book printing companies, and the Company will continue to seek out potential
acquisition targets whose geographic location, customer base and type of
business would complement those of the Company. The Company believes its
management expertise, modern production technology, single-source purchasing
relationships and financial resources, will enable it to achieve revenue growth
and further economies of scale through the acquisition of such other companies.
In February 1996, the Company acquired NEBC, a Massachusetts-based specialty
book components printer with approximately $40.0 million of annual sales.
Management improved the acquired operations by increasing labor productivity,
upgrading equipment and reducing overhead and material consumption costs.
PRODUCTION OPERATIONS
As a result of publishers' desire to manage book inventory levels more
efficiently, book component printers, such as the Company, are under increasing
pressure to improve turnaround time. The Company believes it provides the
quickest turnaround time in the book component segment of the U.S. commercial
printing industry and, once customer approval of a proof is given, it is able to
complete the production of an order in less than 24 hours. The Company's
printing facilities generally operate on a 24-hour basis, six days a week. The
Company has upgraded its digital communications and information network which
links all Company locations. The upgrade permits the network to transfer large
amounts of digital information more quickly and is expected to lead to even
further efficiencies.
The Company has also developed, and during 1998 made available to customers,
its Phoenix Colornet-Registered Trademark- system. Phoenix
Colornet-Registered Trademark-serves as a digital link between the Company and
its customers and permits electronic transfer of digital files, together with
reliable, consistently color-accurate, remote digital proofing, and includes an
electronic interface for sending invoices, schedules and other data.
ORDER PROCESSING. Customer orders are received at the Company's various
plant locations by physical delivery or electronic file transfer. Once entered
into the Company's order processing system, a customer order can be monitored on
a real-time basis throughout the entire manufacturing process. At the time
orders are entered, management allocates work orders among the Company's plants
through the Company's data network in order to maximize plant efficiency and
minimize operating cost.
DIGITAL PREPRESS SERVICES. The Company provides a complete range of
prepress services, including color separations, high speed imaging, assembly,
electronic retouching and archiving, digital file transfer,
21
<PAGE>
color-accurate digital proofing and computer-generated platemaking. The
Company's prepress services are available at each of its plants, and are linked
through a high speed telecommunications network. The Company does not rely on
any subcontractors for its prepress needs.
Prior to printing a customer order, the customer must approve the size,
layout, colors and general appearance of the image or "proof" created by the
prepress department. Virtually all of the Company's proofs are generated
digitally through its Phoenix Colornet-Registered Trademark- system, which
permits the colors and images in such proofs to be accurately reproduced on the
printing press. Phoenix Colornet-Registered Trademark-proofs are transmitted
electronically within the Company's facilities and can be transmitted to a
customer location for review and approval, thereby eliminating delays caused by
manual delivery of a proof. When a Phoenix Colornet-Registered Trademark- proof
is transmitted electronically between the Company and a customer, the Company
generally is able to complete all prepress operations on a given job in less
than one day.
PRINTING AND FINISHING SERVICES. The Company operates more than 30 modern
high-speed, sheetfed printing presses capable of printing up to six colors in a
single pass. New equipment expected to be in operation by the third quarter of
1998 will be capable of printing up to ten colors in a single pass. Certain of
the Company's presses are capable of printing both sides of a sheet at the same
time. The Company also has presses that are equipped with in-line coaters which
permit multi-color printing and coating processes to be completed
simultaneously. The quality and efficiency of the Company's pressroom operations
are augmented by computer-to-plate technology, which permits the creation of a
printing plate directly from a digital file and eliminates the use of negative
film. The Company uses computer-to-plate technology on virtually all new jobs,
and maintains traditional platemaking equipment primarily for reorders of older
jobs originally produced using negative film. As a service to customers, the
Company archives such negative films to facilitate reorders.
The Company uses three printing processes--offset lithography, offset
gravure and ultraviolet. Of the three processes, offset lithography is the most
technologically advanced due to its compatibility with computer-to-plate
technology. The Company has been able, through its in-house printing technology
staff, to improve the quality of the Company's ultraviolet printing process so
that the output of such equipment is comparable to the quality available from
conventional offset lithography. The Company believes that the capabilities and
variety of its presses and other production equipment allow it to provide a wide
range of services to meet its customers needs.
After book components have been printed, they are treated through special
finishing operations to protect and enhance the printed image. The Company's
finishing services include liquid coatings applied to full sheets or selected
areas, film lamination, foil stamping, embossing and die-cutting. The Company
believes it provides the most extensive in-house line of such finishing services
of any manufacturer of book components in North America.
DISTRIBUTION AND LOGISTICS. The Company uses its own tractor-trailers to
deliver the majority of its products. The use of its own delivery equipment
instead of reliance on outside commercial carriers enables the Company to reduce
transportation costs and to save approximately one day of delivery time in the
processing of most orders. The tractor-trailers are also used to distribute raw
materials among the Company's manufacturing plants.
RAW MATERIALS, PURCHASING AND INVENTORY
The Company uses substantial quantities of paper, ink, laminating film, foil
and other materials in its operations. Management generally favors "single
sourcing" of its raw materials purchases, believing that establishing strong
commercial relationships with a relatively small number of suppliers enables the
Company to negotiate favorable prices and to maintain reliable supplies of such
materials. For example, in 1996 the Company's long-time supplier of laminating
film located its new plant adjacent to the Company's headquarters at the
Company's request, thereby providing the Company with immediate access to such
film. Nevertheless, the Company is not party to any long-term supply agreements,
is not dependent on any
22
<PAGE>
single source for its raw materials and believes it could replace any individual
supplier without disruption to its business. The Company uses centralized
purchasing and storage at its Hagerstown plants to help control raw material
costs.
The Company generally obtains annual pricing commitments from its suppliers,
but such commitments are not legally binding. Nevertheless, during 1994 and
1995, when many commercial printers experienced significantly increased paper
costs as paper manufacturers raised prices in response to strong demand and
limited supplies, the Company did not receive any paper price increases other
than those which had been agreed to in advance with its supplier.
The Company purchases paper in large rolls and converts the paper into
sheets in the sizes required by its sheetfed presses, using its own computerized
sheeter. By converting in excess of 30 million pounds of paper in-house
annually, the Company is able to reduce paper costs, avoid delays in obtaining
properly-sized sheets and minimize the need to maintain an inventory of specific
sheet paper sizes.
NEW BOOK MANUFACTURING FACILITIES
While the Company has historically focused on the manufacture of book
components, management believes that complete book manufacturing represents a
natural outgrowth of the Company's core capabilities. Two new plants for the
manufacturing of complete books are in various phases of development by the
Company and are expected to be placed in operation by December, 1998. One
facility, to be located in New Jersey and consisting of approximately 90,000
square feet, will produce complete, high-quality, multi-color, thin, flat back,
hardcover books suitable for juvenile publishing and other markets. A second
facility consisting of approximately 200,000 square feet, to be located in
Maryland, will produce workbook-size paperbacks suitable for the higher
education market and digest-size paperbacks suitable for juvenile publishing and
other markets. State-of-the-art prepress, press and binding equipment has been
ordered for these plants. The facilities' manufacturing processes will be fully
automated and entirely self-sufficient.
The Company intends initially to operate in these areas of complete book
manufacturing because it believes it can build on its established relationships
and its reputation for quality book component printing to obtain orders from its
existing customers and attract new customers it believes are currently
underserviced. The Company expects that the availability of high-quality
components and book text from the same source should enable publishers to reduce
production cycle time as well as inventory risk. The Company has targeted the
manufacture of those types of books which existing publishing customers have
indicated an interest in having the Company produce, and which are not being
manufactured by book manufacturers that outsource component printing to the
Company. Accordingly, the Company will be able to offer "one-stop shopping" to
publishing customers without jeopardizing the Company's relationships with its
present book manufacturing customers.
SALES AND MARKETING
The Company has a large customer base, including many of the leading
publishing companies in the world. Among its largest customers are Simon &
Schuster, HarperCollins Publishers, Pearson Putnam Publishing, Random House,
Inc., Von Holtzbrink Publishing Services, The McGraw-Hill Companies, Inc., Time
Warner, Inc., International Thompson Publishing, John Wiley & Sons, Inc., Bantam
Doubleday Dell Publishing Group, Inc., R.R. Donnelley & Sons Company, Oxford
University Press, Microsoft Publishing, Houghton Mifflin Company, Harcourt Brace
& Company, Walt Disney Company, Barnes & Noble, Inc., Thomas Nelson, Inc. and
Wolters Kluwer NV, many of whom have been customers of the Company since its
inception in 1979. Many of such customers have decentralized operations in which
purchasing decisions are made by various divisions. HarperCollins Publishers and
Simon & Schuster accounted for 17.7 % and 17.3%, respectively, of the Company's
1996 net sales, and 13.3% and 17.1%, respectively, of the Company's 1997 net
sales.
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<PAGE>
The book components which the Company produces are used in books distributed
in various segments within the consumer book market. The breakdown of the
Company's net sales for 1996 and 1997 by consumer book market segments is as
follows:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Adult Trade............................................................................ 47.3 44.9
Juvenile............................................................................... 6.7 6.1
Education.............................................................................. 12.7 14.9
Business............................................................................... 13.1 14.3
Book Club.............................................................................. 3.4 4.2
Religion............................................................................... 5.5 5.1
Miscellaneous.......................................................................... 11.3 10.5
--------- ---------
100.0% 100.0%
</TABLE>
The Company has a direct sales force consisting of 26 sales representatives
located in seven offices throughout the U.S. The Company intends to expand the
size of its sales force over the next 18 months to capture a greater share of
the business from its existing publishing customers and to identify and solicit
new customers, including smaller regional publishers. The Company promotes its
services by participating in publishers' trade shows, providing training and
educational programs in printing processes and technology to publishing house
personnel and by utilizing other marketing techniques to reach a larger segment
of the book printing market.
New sales representatives are required to participate in a three-month
manufacturing and sales orientation program, including spending at least two
weeks in a working pressroom, and all sales personnel are required to
participate annually in a two-week continuing education program. Various forms
of monitoring by management are used to ensure that goals for individual sales
representatives are achieved, including sales call reports, monthly sales
analyses and customer ranking reports.
The Company does not operate with any backlog, since its goal and that of
its customers is to produce products on demand in the shortest possible time
frame.
IMPROVEMENTS IN MANUFACTURING OPERATIONS
The Company emphasizes the development of new products and services, and
continues to evaluate emerging technologies while assessing their
cost-effectiveness and relevance to current and future needs. The Company
created Lithoflex-Registered Trademark-, a substitute for liquid coated,
pre-printed case covering material, and developed an innovative line of
luminescent metallic colors. The Company was among the first to use offset
gravure printing extensively in order to reduce costs and improve the quality of
book component printing, and supplemented it with more advanced processes as
they became commercially available. The Company also developed and has made
available to customers its Phoenix Colornet-Registered Trademark-
color-accurate, digital proofing system.
FACILITIES AND EQUIPMENT
The Company's corporate and administrative offices are located in one of its
two adjacent manufacturing facilities in Hagerstown, Maryland. A third
manufacturing plant is located in Long Island City, New York, and the Company's
fourth components printing plant, previously in Hingham, Massachusetts, has been
replaced by a new plant opened in January, 1998 in Taunton, Massachusetts. The
Company also
24
<PAGE>
leases various regional sales offices. A summary of the location, size and
nature of the principal facilities appears below:
<TABLE>
<CAPTION>
LEASED/OWNED;
LOCATION USE EXPIRATION DATE SQUARE FOOTAGE
- --------------------------------------- --------------------------------------- --------------- --------------
<S> <C> <C> <C>
Hagerstown, MD (No. 1) Corporate offices; printing, prepress
and finishing Owned 114,000
Hagerstown, MD (No. 2) Printing, prepress and finishing Owned 86,000
Long Island City, NY Printing, prepress and finishing Leased;
12/31/06 54,000
Taunton, MA Printing, prepress and finishing Leased;
12/31/12 53,000
</TABLE>
The Company's facilities contain various state-of-the-art prepress,
pressroom and finishing equipment. The prepress facilities include high-speed
digital scanning, composition, proofing, file transfer and platemaking
equipment, and the press rooms contain Heidelberg, Akiyama and Mitsubishi
lithographic presses, silk screen presses, and laminating, embossing and
stamping machinery.
The Company believes that its facilities provide adequate capacity for its
current needs in the production of book components. Further, the Company
believes that, when the Lebanon, Indiana, facility is completed, it will enhance
the Company's ability to increase orders for book component printing from
Midwest-based book manufacturers and publishers. In addition, the Company is
also developing two new facilities to be used for the manufacture of complete
books. See "--New Book Manufacturing Facilities."
COMPETITION
The printing industry in general, and the printing and manufacture of books
in particular, are extremely competitive. Although the Company is the largest
independent book component printer in North America, it faces competition from
other independent book component printers, as well as from such large commercial
printing firms as R.R. Donnelley & Sons Company, Quebecor Printing Inc., Banta
Corporation and World Color Press, Inc., all of whom offer component printing
services within the context of their complete book manufacturing businesses, and
all of whom have significantly larger revenues and assets than the Company. In
addition, when the Company commences the manufacture of certain types of
complete books later this year, the Company will be competing with various book
printing concerns which are approximately equal to or smaller than the Company
in revenues and assets. Competitive factors in the printing of book components
and manufacture of complete books include price, quality, speed of production
and delivery, use of technology and the ability to service specialized customer
needs on a consistent basis.
EMPLOYEES
As of December 31, 1997, the Company had 506 employees, of whom 10 were
engaged in management, 39 in finance and administration, 66 in sales, sales
support and customer service, 11 in information systems and technological
development, nine in transportation and 371 in manufacturing. None of the
employees are represented by unions, and the Company believes it has
satisfactory relations with its workforce.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, other than claims and
lawsuits arising in the normal course of the Company's business. The Company
does not believe that such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's business,
financial condition and results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is composed of seven members. Andrew J.
Goodman, a current director, has indicated his intention to resign as a director
upon completion of the Offering, and will be replaced by an outside director who
has not yet been identified. Directors generally serve for one-year terms and
until their successors are duly elected and qualified.
The following table sets forth certain information regarding the Company's
existing directors and executive officers.
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Louis LaSorsa 52 Chairman, President, Chief Executive Officer and
Director
Edward Lieberman 55 Executive Vice President, Chief Financial Officer,
Secretary and Director
Dion von der Lieth 54 Senior Vice President, Sales and Marketing, and
Director
John Carbone 39 Vice President, Manufacturing, Book Components, and
Director
Andrew J. Goodman 44 Director and Assistant Secretary
Govi C. Reddy 52 Director
David Rubin 41 Director
John Biancolli 48 Vice President, Purchasing
Thomas Newell 54 Chief Information Officer
Franklin Ervin 45 Vice President, Training and Technology
Donald Tyler 40 Vice President, Quality Service Management
Mitchell Weiss 35 Vice President, Manufacturing, Commercial Print/Book
Manufacturing
</TABLE>
LOUIS LASORSA has been with the Company since its inception in 1979, when he
became Vice President, Sales and Marketing. Mr. LaSorsa has been President of
the Company since 1982, was elected Chairman and Chief Executive Officer in
1996, and is involved in the management of all areas of the Company's
operations, planning and growth.
EDWARD LIEBERMAN joined the Company in 1981, has been Executive Vice
President, Chief Financial Officer and Secretary since February 1988, and is
responsible for financial information, general financing, legal matters, human
resources and benefits. From 1967 to 1981, Mr. Lieberman, a certified public
accountant, was a principal of Louis Lieberman & Company, an independent public
accounting firm.
DION VON DER LIETH has been Senior Vice President Sales and Marketing, since
November 1993, directing the sales and marketing efforts of the Company. Prior
to joining the Company, Mr. von der Lieth was President of the Book Group of
Quebecor Printing Inc., a major commercial printing company.
JOHN CARBONE joined the Company in 1981, has been Vice President,
Manufacturing, for the Book Component Divisions since December 1997, and is
responsible for all component printing operations.
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<PAGE>
Mr. Carbone was Vice President of Manufacturing/Hagerstown from June 1996 to
December 1997, Vice President of Operations/New York from 1993 to 1996 and Vice
President of Sales from 1990 to 1993.
ANDREW J. GOODMAN is a partner of the New York City law firm of Rosner
Bresler Goodman & Unterman, LLP, which acts as counsel to the Company. Mr.
Goodman has been engaged in the private practice of law in New York City since
1978 and has served as a director of the Company since 1994 and as Assistant
Secretary since February 1998. At the consummation of the Offering, Mr. Goodman
will resign as a director, will continue as Assistant Secretary and will provide
legal services to the Company through his law firm.
GOVI C. REDDY was elected a director of the Company in February 1998, and is
President, Chief Executive Officer and a director of General Binding Corp., a
publicly owned manufacturer and supplier of binding equipment and materials for
the printing and office supply industries. Mr. Reddy has been employed by
General Binding Corp. in a variety of management positions since 1978. General
Binding Corp. is one of the Company's suppliers of raw materials.
DAVID RUBIN was elected a director of the Company in February 1998, and is
Corporate Vice President and a director of Don Aux Associates, a privately-held
management consulting firm which services a wide range of manufacturing,
distribution and service-oriented client companies. Mr. Rubin has been employed
by Don Aux Associates since 1984, and has served as Director of Corporate
Analysis and Director of Consulting Services. Don Aux Associates provides
management consulting services to the Company. See "Certain Transactions."
JOHN BIANCOLLI has been Vice President of Purchasing since November 1996 and
is responsible for negotiating purchasing agreements with major vendors and
manages estimating and invoicing functions and inventory control. Until assuming
the title of Vice President, Mr. Biancolli was Manager of Estimating and Billing
and also managed purchasing. Mr. Biancolli joined the Company in 1979.
FRANKLIN ERVIN has been Vice President of Training and Technology since
January 1996 and is responsible for training customers and employees in new
technologies in the printing industry. Prior to joining the Company, Mr. Ervin
was a Commander in the United States Navy and worked as a systems engineer with
the Naval Surface Warfare Center.
THOMAS NEWELL has been Chief Information Officer since May 1988 and is
responsible for developing, implementing and managing the Company's digital
communications and information network.
DONALD TYLER has been Vice President Quality Service Management since August
1997 and is responsible for ensuring customer satisfaction in all aspects of
Company service. In 1994 Mr. Tyler assumed the duties of Customer Service
Manager and prior thereto was a Customer Service Representative since joining
the Company in 1992.
MITCHELL WEISS joined the Company in 1984, first in customer service and
later as a sales representative. In 1993, Mr. Weiss joined R.R. Donnelley & Sons
Company as a salesman, and returned to the Company as a sales representative in
1995, becoming a Regional Sales Manager in 1996. Since January 1998 Mr. Weiss
has been responsible for developing the Company's new complete book
manufacturing facility in New Jersey and will manage the facility's operations.
DIRECTORS COMPENSATION
Directors who are not employees of the Company will receive an annual
retainer fee of $10,000.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the consummation of the Offering, the Board of Directors will create an
Audit Committee and Compensation Committee.
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<PAGE>
The Audit Committee's principal responsibilities will be to recommend
annually a firm of independent auditors to the Board of Directors, to review the
annual audit of the Company's Consolidated Financial Statements and to meet with
the independent auditors of the Company from time to time in order to review the
Company's general policies and procedures with respect to audits and accounting
and financial controls. Upon consummation of the Offering, the members of the
Audit Committee will be Govi C. Reddy, David Rubin and Edward Lieberman.
The principal responsibilities of the Compensation Committee will include
the establishment of compensation policies for the executive officers of the
Company and administration of any stock-based compensation plans. Upon
consummation of the Offering, the members of the Compensation Committee will be
Govi C. Reddy, David Rubin and Louis LaSorsa.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not had a Compensation Committee and the
functions of such a committee have been previously performed by the Company's
Board of Directors. Louis LaSorsa, Chairman, Chief Executive Officer and a
director of the Company, will serve as one of three members of the Compensation
Committee after the consummation of the Offering. Neither Govi C. Reddy nor
David Rubin, the other two members of the Compensation Committee, are or have
ever been officers or employees of the Company, and no interlocking relationship
exists between the Compensation Committee or the Board of Directors and any
other company's board of directors or compensation committee.
OTHER MANAGEMENT COMMITTEES
In addition to the Board, the Company has a number of management committees
made up of various officers and directors, each of which is responsible for a
particular policy or operational area. Management committees meet regularly and
report to the Chairman and/or the Board of Directors. At present the management
committees consist of: the Executive Committee (eight members, monitors
execution of annual business and financial plans adopted by the Board), the Core
Values Committee (six members, monitors compliance and changes in Company's
basic purposes and values), the Corporate Growth Committee (five members,
examines and recommends growth strategies), the Information Committee (three
members, reports on corporate information systems and services), the Quality
Service Management Committee (six members, reports on quality and customer
service and responsiveness issues), and the Training and Technology Committee
(four members, handles assignments related to training and technology matters).
EMPLOYMENT AGREEMENTS
At the consummation of the Offering, Messrs. LaSorsa, Lieberman, Carbone and
von der Lieth will each enter into five-year employment agreements providing for
an initial annual base salary of $495,700 for Mr. LaSorsa, $345,500 for Mr.
Lieberman, $249,500 for Mr. von der Lieth and $250,000 for Mr. Carbone. Such
salaries will be increased annually by the greater of 5% or the then percentage
increase in the Consumer Price Index over the preceding year, or may be
increased by a larger amount if determined by the Board upon the recommendation
of the Compensation Committee. The employment agreements contain confidentiality
and non-competition provisions.
If the employment of Messrs. LaSorsa, Lieberman, Carbone or von der Lieth
were to be terminated without cause or by reason of an involuntary
change-in-control of the Company (as provided in the employment agreement), the
terminated officer will be entitled to receive his base salary to the date of
termination, unpaid installments of any annual bonus in respect of the year
prior to the date of termination, and a severance payment equal to 2.99 times
the sum of the prior year's base salary and any annual bonus awarded in respect
of such prior year.
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<PAGE>
BONUS POOL FOR MANAGEMENT AND SUPERVISORY EMPLOYEES
The Company intends to establish a Bonus Pool for 1998 and subsequent years,
to provide incentive compensation for its officers and other supervisory
personnel such as departmental, facilities, operations and work-shift managers.
The aggregate amount to be contributed annually to the Bonus Pool out of Company
profits will be proposed by the Compensation Committee based on the Company's
achievement of certain measures of operating performance, including net sales
and earnings per share. After the Board of Directors acts on the recommendation,
the amount of the Bonus Pool to be allocated to individual officers and
supervisory employees in each year will be determined by the Compensation
Committee.
EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK BONUS AND OWNERSHIP PLAN. The Company's Employee Stock Bonus
and Ownership Plan (the "Stock Bonus Plan"), was established in 1980, initially
as a profit-sharing, tax-qualified retirement plan, and later as a stock bonus
plan, effective. Employees become participants on any June 30 or December 31
after they complete one year of service. Annual Company contributions to the
Stock Bonus Plan are discretionary, and have been made in the form of Company
stock and cash. Contributions are allocated among all Stock Bonus Plan
participants, based on the proportion which each participant's eligible
compensation bears to the total compensation of all participants. Company
contributions for participants become vested for each participant in equal
installments over a six-year period of continuing service. The Trustees of the
Stock Bonus Plan are Louis LaSorsa and Edward Lieberman. See "Certain
Transactions."
EMPLOYEES' SAVINGS AND INVESTMENT PLAN. The Employees' Savings and
Investment Plan (the "401(k) Plan") was established in 1984, and permits all
eligible employees completing one year of service to make salary deferral
contributions up to the statutory limitations established under the Internal
Revenue Code. The 401(k) Plan allows the Company also to make discretionary
profit-sharing contributions based on Company performance during a given year.
To date, no Company contributions have been made.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the three
years ended December 31, 1997 for the Chief Executive Officer and the four other
most highly compensated executive officers of the Company, including both fixed
salary compensation and discretionary management incentive compensation
("Bonus"):
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
------------------------------------------------------------------
1995 1996 1997
-------------------- ---------------------- --------------------
SALARY BONUS SALARY BONUS SALARY BONUS
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Louis LaSorsa.............................. $ 528,403 $ 949,157 $ 556,309 $ -0- $ 599,420 $ 847,096
Edward Lieberman........................... 367,497 466,891 375,955 -0- 392,729 478,840
Anthony DiMartino (1)...................... 388,763 394,527 375,839 -0- 399,751 249,043
Dion von der Lieth......................... 265,526 48,243 274,818 -0- 289,402 211,774
John Carbone............................... 197,117 48,243 195,850 -0- 201,468 190,366
</TABLE>
- ------------------------------
(1) As of March 23, 1998, Mr. DiMartino was no longer employed by the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date of the
Prospectus, and as adjusted to reflect the sale of shares offered hereby, by (i)
each person known by the Company to own beneficially more than 5.0% of the
outstanding Common Stock, (ii) each director of the Company, (iii) each of the
named executive officers listed under "Management--Executive Compensation", and
(iv) all officers and directors as a group. Except as otherwise noted, the
persons named in the table have sole voting and investment powers with respect
to all shares of Common Stock shown as beneficially owned by them..
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING (1) AFTER THE OFFERING (1)
(2) (2)
------------------------- -------------------------
<S> <C> <C> <C> <C>
SHARES PERCENTAGE SHARES PERCENTAGE
---------- ------------- ---------- -------------
Louis LaSorsa....................................... 738,054 8.1 738,054(4) 5.6
Edward Lieberman.................................... 660,755 7.2 660,755(4) 5.0
John Biancolli...................................... 577,538 6.3 577,538 4.4
John Carbone........................................ 574,597 6.3 574,597 4.4
Thomas Newell....................................... 544,902 6.0 544,902 4.2
Mitchell Weiss...................................... 531,168 5.8 531,168 4.1
Dion von der Lieth.................................. 490,620 5.4 490,620(4) 3.7
Henry Burk.......................................... 700,921 7.7 700,921 5.3
Ronald Burk......................................... 691,554 7.6 691,554 5.3
Anthony DiMartino................................... 676,316 7.4 676,316 5.2
Bruno Jung.......................................... 619,739 6.8 619,739 4.7
Judith Lieberman.................................... 483,000 5.3 483,000 3.7
Andrew J.Goodman.................................... -- -- -- --
Govi C. Reddy....................................... -- -- -- --
David Rubin......................................... -- -- -- --
Louis LaSorsa and Edward Lieberman, as Trustees
(3)............................................... 3,281,502 36.0 3,281,502 25.0
All Directors and Executive Officers As a Group (10
persons).......................................... 4,117,634 45.1 4,117,634(4) 31.3
</TABLE>
- ------------------------
(1) Adjusted to reflect the Recapitalization as set forth under "Description of
Capital Stock."
(2) Includes shares owned directly as well as shares owned indirectly through
vested participation in the Stock Bonus Plan, except for Judith Lieberman,
who is not a participant in such Plan.
(3) Reflects all shares held by the Company's Stock Bonus Plan (including the
individual beneficial interests in such shares of the stockholders listed in
the table), of which Messrs. LaSorsa and Lieberman are Trustees. See
"Management- Employee Benefit Plans" and "Certain Transactions."
(4) Does not include an aggregate of approximately 18,000 shares of Common Stock
which Messrs. LaSorsa, Lieberman and von der Lieth have indicated an
intention to purchase in the Offering.
The address of all stockholders listed in the above table is c/o Phoenix
Color Corp., 540 Western Maryland Parkway, Hagerstown, MD 21740.
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<PAGE>
CERTAIN TRANSACTIONS
On February 1, 1996, in connection with entering into the Loan Agreement
between the Company and two commercial banks, Louis LaSorsa, Edward Lieberman,
Anthony DiMartino, Thomas Newell, Henry Burk and Ronald Burk executed individual
surety agreements with the lending banks, under which each such person
guaranteed all of the Company's obligations under the Loan Agreement. At the
same time, each of the Company's principal stockholders other than Judith
Lieberman executed a Stock Pledge Agreement, under which all of their respective
shares of the Company's stock (except for shares held in the Stock Bonus Plan in
which they have separate beneficial interests) were pledged as security for the
Company's obligations under the Loan Agreement. See "Principal Stockholders."
The Stock Pledge Agreement requires such pledge of shares to remain in effect
until the outstanding principal balance of Term Loan A under the Loan Agreement
is reduced to $4,000,000. Accordingly, since a portion of the proceeds of the
Offering will be used to prepay the outstanding balance of Term Loan A, it is
anticipated that the Stock Pledge Agreement will be terminated shortly after the
consummation of the Offering and that the pledged shares will be returned to the
principal stockholders.
Louis LaSorsa and Edward Lieberman act as Trustees for the Stock Bonus Plan.
Under the terms of the Plan, Messrs. La Sorsa and Lieberman have full power and
discretion to vote the shares of Company stock held by the Plan as they see fit,
subject to their responsibilities as fiduciaries for the participating
beneficiaries of the Plan. The Stock Bonus Plan holds a total of 3,281,502
shares of Common Stock, which presently amounts to 36.0% of the outstanding
shares of the Company, and will constitute 25.0% of shares to be outstanding
upon consummation of the Offering. See "Principal Stockholders."
Louis LaSorsa, Edward Lieberman and other stockholders have made loans to
the Company from time to time, the proceeds of which were used as working
capital. The outstanding principal balance of such loans as of December 31, 1997
is $452,765. Such loans are represented by demand notes bearing interest at a
rate equal to 1% over the prime rate and are subordinated to the Company's
indebtedness to third-party lenders under various loan and capital lease
agreements. The noteholders have indicated that they do not intend to make
demand for payment of such notes in the near future, and, in any, the Company is
prohibited from making such payment under the terms of the Loan Agreement and
various capital leases.
A law firm of which Andrew J. Goodman, a director and Assistant Secretary of
the Company, is a partner, acts as counsel to the Company. During 1997, the
Company paid Mr. Goodman's firm total fees of $ 127,168 for legal services
rendered.
David Rubin, a director of the Company, is an officer and principal of Don
Aux Associates, which furnishes management consulting services to the Company.
During 1997, the Company paid Don Aux Associates a total of $180,000 in
management consulting fees.
Govi C. Reddy, a director of the Company, is President of General Binding
Corp., which supplies certain raw materials to the Company. During 1997, the
Company purchased a total of $9,492,065 of such raw materials from General
Binding Corp.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of the Company's capital stock is qualified in its
entirety by reference to the Certificate of Incorporation and By Laws of the
Company, which are included as exhibits to the Registration Statement of which
this Prospectus forms a part.
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<PAGE>
AUTHORIZED CAPITAL STOCK; RECAPITALIZATION
The Company's authorized shares previously consisted of 20,000 shares of
Class A Common Stock ("Class A") and 200,000 shares of Class B Common Stock
("Class B"). Class A and Class B had equal rights, except that Class B shares
did not have voting rights. To effect the Recapitalization, on April ,
1998, the Company filed an Amended and Restated Certificate of Incorporation
which increased the Company's authorized capitalization to 30,000,000 shares, of
which 5,000,000 shares are designated Preferred Stock and 25,000,000 shares are
Common Stock, and converted each outstanding share of Class A and Class B into
483 shares of Common Stock. All Class A and Class B shares held in Treasury were
canceled. As a result of the Recapitalization, there are 9,125,802 shares of
Common Stock outstanding.
COMMON STOCK
Subject to any preferential rights of any Preferred Stock created by the
Board of Directors, each outstanding share of Common Stock will be entitled to
such dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. See "Dividend Policy." Each outstanding share
is entitled to one vote on all matters submitted to a vote of stockholders
except on matters which are required to be voted exclusively by holders of
Preferred Stock or any class of shares of Preferred Stock. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to receive on a pro rata basis any assets remaining after provision
for payment of creditors and after payment of any liquidation preferences to
holders of Preferred Stock. There are no redemption provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and non-
assessable and the shares of Common Stock to be issued upon completion of the
Offering will be fully paid and non-assessable.
PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
5,000,000 shares of Preferred Stock. The Board has the authority to prescribe
for each series of Preferred Stock it establishes the number of shares in that
series, the voting rights (if any) to which such shares in that series are
entitled, the consideration for such shares in that series and the designations,
powers, preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions of the shares in
that series, without further action or vote by the Stockholders. Depending upon
the rights of such preferred stock, the issuance of preferred stock could have
an adverse effect on holders of Common Stock by delaying or preventing a change
in control of the Company, making removal of the present management of the
Company more difficult or resulting in restrictions upon the payment of
dividends and other distribution to the holders of Common Stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. At present, the Company has no plans to issue any of the
preferred stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED CAPITAL STOCK
Under the Company's Certificate of Incorporation, upon consummation of the
Offering, assuming no exercise of the Underwriters' over-allotment option, there
will be 11,874,198 shares of Common Stock available for future issuance. These
additional shares may be used for a variety of corporate purposes, including
future public or private offerings to raise additional capital or to facilitate
corporate acquisitions. In addition, the Board has the authority to issue shares
of Preferred Stock, as noted above.
One of the effects of the existence of unissued and unreserved Common Stock
or preferred stock may be to enable the Board to issue shares to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
the Company's management
32
<PAGE>
and possibly deprive the stockholders of opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company. The Company currently does not have any plans to
issue additional shares of Common Stock or preferred stock.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company authorized and issued at the
time of the Offering will have any preemptive or conversion rights of any other
right to subscribe to any securities of the Company of any kind or class.
CERTAIN PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("DGCL"). Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage in any of the broad range of business combinations,
such as mergers, consolidations and sales of assets, with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless (a) the transaction that results in the
person's becoming an interested stockholder or the business combinations is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (b) upon consummation of the transaction which
results in the stockholder becoming an interested stockholder, the interested
stockholder owns 85.0% or more of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares owned by
persons who are directors and also officers and shares owned by certain employee
stock plans or (c) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by holders of at least two-thirds of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at a meeting
of stockholders. Under Section 203, an "interested stockholder" is defined as
any person, other than the corporation and any direct or indirect majority-owned
subsidiary, that is (a) the owner of 15.0% or more of the outstanding voting
stock of the corporation or (b) an affiliate or associate of the corporation and
was the owner of 15.0% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder. Section 203 does not apply to a corporation that so provides in an
amendment to its certificate of incorporation or By Laws passed by a majority of
its outstanding shares, but such stockholder action does not become effective
for 12 months following its adoption and would not apply to persons who were
already interested stockholders at the time of the amendment. The Company's
Certificate of Incorporation does not exclude the Company from the restrictions
imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the company to
negotiate in advance with the Company's Board of Directors, because the
stockholder approval requirement would be avoided if the Board of Directors
approves either the business combination or the transaction which results in the
stockholder becoming an interested stockholder. Such provisions also may have
the effect of preventing changes in the Board. It is further possible that such
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION
AND BY LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the Certificate of Incorporation and By Laws may delay
or make more difficult unsolicited acquisitions or changes of control of the
Company. It is believed that such provision will enable the Company to develop
its business in a manner that will foster its long-term growth without
disruption
33
<PAGE>
caused by the threat of a takeover not deemed by its Board of Directors to be in
the best interests of the Company and its stockholders. Such provisions could
have the effect of discouraging third parties from making proposals involving an
unsolicited acquisition or change of control of the Company, although such
proposals, if made, might be considered desirable by a majority of the Company's
stockholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current Board. These
provisions include (i) the availability of capital stock for issuance from time
to time at the discretion of the Board of Directors (see "Certain Effects of
Authorized but Unissued Capital Stock"), (ii) prohibitions against stockholders
calling a special meeting of stockholders, (iii) requirements for advance notice
for raising business or making nominations at stockholders' meetings, (iv) the
ability of the Board of Directors to increase the size of the board and to
appoint directors to newly created directorship and (v) higher than majority
requirements to make certain amendments to the By Laws and Certificate of
Incorporation.
SPECIAL MEETINGS
The Certificate of Incorporation and By Laws also provide that special
meetings of the stockholders can be called only by the Chairman of the Board of
Directors, the Chief Executive Officer of the Company or by a vote of the
majority of the Board of Directors. Furthermore, the By Laws of the Company
provide that only such business as is specified in the notice of any such
special meeting of stockholders may come before such meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The By Laws of the Company establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of the Company who is entitled to vote at the
meeting who has given to the Secretary of the Company timely written notice, in
proper form, of the stockholders' intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the discretion of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
directors of the Company.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of the Company at the
principal executive offices of the Company not less than 70 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 20 days, or delayed by more than 70 days, from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of the Company
at the principal executive offices of the Company not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
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<PAGE>
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of the Company held by,
the stockholder who intends to make the nomination and the beneficial owner, if
any on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and the consent of each nominee to serve as a director if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES
The Certificate of Incorporation and By Laws provide that newly created
directorships resulting from any increase in the authorized number of directors
(or any vacancy) may be filled by a vote of a majority of directors then in
office. Accordingly, the Board may be able to prevent any stockholder from
obtaining majority representation on the Board of Directors by increasing the
size of the board and filling the newly created directorships with its own
nominees.
AMENDMENTS TO THE BY LAWS
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least two-thirds in voting power of all the shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class, shall be required in order for the stockholders to alter, amend or
repeal any provision of the By Laws which is to the same effect as provisions
contained in the Certificate of Incorporation relating to (i) the amendments of
the By Laws, (ii) the filling of director vacancies and (iii) calling and taking
actions at meetings of stockholders.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
The Certificate of Incorporation requires the affirmative vote of the
holders of at least two-thirds in voting power of all the shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class, to alter, amend or repeal provisions of the Certificate of
Incorporation relating to (i) the amendment of the Certificate of Incorporation
and/or the By Laws, (ii) the filling of director vacancies and (iii) calling and
taking actions at meetings of stockholders.
INDEMNIFICATION AND LIMITATION OF
LIABILITY FOR DIRECTORS AND OFFICERS
The Company's By Laws provide that the Company may indemnify directors and
officers to the fullest extent permitted by the laws of the State of Delaware.
The Certificate of Incorporation also provides that a director of the Company
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended.
The indemnification rights conferred by the Certificate of Incorporation of
the Company are not exclusive of any other right to which a person seeking
indemnification may otherwise be entitled. The Company will also provide
liability insurance for the directors and officers for certain losses arising
from claims or charges made against them while acting in their capacities as
directors or officers.
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<PAGE>
The effect of such indemnification arrangements may be to exempt or limit
the liability of such directors to the Company or its stockholders for monetary
damages for breach of fiduciary duty to the Company, except to the extent such
exemption or limitation is not permitted under applicable law.
TRANSFER AGENT
The transfer agent and registrar of the Company's Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have 13,125,802
shares of Common Stock outstanding. Of such shares the 4,000,000 shares offered
hereby will be freely tradeable by persons other than affiliates of the Company,
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). As defined in Rule 144, an "affiliate" of an issuer is a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an "affiliate" as that term is defined
above, who has paid for shares is entitled, beginning one year from the later of
the date of acquisition of the shares from the Company or from an affiliate of
the Company, to sell within any three-month period up to that number of shares
that does not exceed the greater of 1.0% of the then outstanding shares or the
average weekly trading volume of the then outstanding shares during the four
calendar weeks preceding each such sale. A person (or persons whose shares are
aggregated) who is not deemed an affiliate of the Company and who has paid for
his shares is entitled, beginning two years from the later of the date of the
acquisition from the Company or from an affiliate of the Company, to sell such
shares under Rule 144(k) without regard to the volume limitations described
above. Affiliates continue to be subject to such volume limitations after the
two year holding period.
The Company, its officers and directors and its other current stockholders,
who collectively hold 9,125,802 shares of Common Stock, have agreed that they
will not dispose of any shares of Common Stock, or any securities convertible or
exchangeable for shares of Common Stock, for a period of 180 days after the date
of the Underwriting Agreement without the written consent of CIBC Oppenheimer,
on behalf of the Representatives. See "Underwriting." Upon expiration of such
180 day period, an aggregate of 2,941,800 shares will become eligible for sale
without restriction pursuant to Rule 144(k) under the Securities Act.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and CIBC Oppenheimer Corp. and
PaineWebber Incorporated, as representatives (the"Representatives") of the
underwriters of the Offering (the "Underwriters"), the Company has agreed to
sell to the Underwriters, and the Underwriters have severally agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite their
names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C>
CIBC Oppenheimer...............................................................................
PaineWebber Incorporated.......................................................................
</TABLE>
The Underwriters propose to offer the Common Stock directly to the public at
the public offering price set forth on the cover page of this Prospectus, and at
such price less a concession not in excess of $ per share of Common
Stock to certain securities dealer, of which a concession not in excess of
$ per share of Common Stock may be re-allowed to certain other
securities dealers. After the Offering, the offering price and other selling
terms may be changed by the Underwriters.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
the Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for and purchase shares of Common Stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the Offering, if the syndicate repurchases previously distributed
Common Stock in transactions to cover syndicate short provisions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Company has granted an option to the Underwriters exercisable within 30
days after the date of this Prospectus, to purchase from the Company up to an
aggregate of 600,000 additional shares of Common Stock, to cover
over-allotments, if any, at the initial public offering price less the
underwriting discount set forth on the cover pages of this Prospectus. If the
Underwriters exercise their over-allotment option to purchase any of the
additional 600,000 shares of Common Stock, each of the Underwriters has
severally agreed, subject to certain conditions, to purchase approximately the
same percentage as the number of shares of Common Stock to be purchased by each
of them bears to the 4,000,000 shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the over-allotment option, to sell Common
Stock to the Underwriters to the extent such over-allotment option is exercised.
37
<PAGE>
The Company and each of its officers and directors and present stockholders
have agreed that without the consent of CIBC Oppenheimer Corp., on behalf of the
Representatives, they will not, for a period of 180 days after the date of the
Underwriting Agreement (i) offer, pledge, sell, distribute, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, subject to certain limited
exceptions, including the sale of by the Company and the Selling Stockholder of
shares of Common Stock in the Offering.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Representatives do not intend to confirm sales of the Common Stock to
accounts over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that any active trading market will develop for the
Common Stock or as to the price at which the Common Stock may trade in the
public market from time to time subsequent to the Offering made hereby. The
initial price to the public for shares of Common Stock offered hereby will be
negotiated between the Company and the Representatives. Among the factors to be
considered in determining the initial price to the public are (i) the history of
and prospects for the industry in which the Company competes, (ii) the ability
of the Company's management, (iii) the past and present operations of the
Company, (iv) the historical results of operations of the Company, (v) the
prospects for future earnings and business potential of the Company, (vi) the
general condition of the securities markets at the time of the Offering, (vii)
the recent market prices of securities of generally comparable companies, (viii)
the market capitalization and stages of development of other companies which the
Company and Representatives believe to be comparable to the Company and (ix)
other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Rosner Bresler Goodman & Unterman, LLP, and for the
Underwriters by Schulte Roth & Zabel LLP, both of New York, New York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1997 and the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997,
included in this Prospectus, have been included herein in reliance upon the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated balance sheet of NEBC as of December 31, 1995, and the
consolidated statements of income, stockholders' equity and cash flows for the
year then ended included in this Prospectus, have been included herein in
reliance upon the report of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments, exhibits and schedules, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain
38
<PAGE>
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, reference is
hereby made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each such instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. As a
result of the Offering, the Company will become subject to the information
requirements of the Exchange Act, and in accordance therewith will file reports,
proxy statements and other information with the Commission. The Registration
Statement, as well as all periodic reports and other information to be filed by
the Company pursuant to the Exchange Act, may be inspected without charge and
copied upon payment of fees prescribed by the Commission at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, NW,
Washington, DC 20549, and at the Commission's regional offices located at Seven
World Trade Center, 7th Floor, New York, New York 10048 and Citicorp Center, 500
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a
worldwide web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing consolidated audited financial statements which have been certified
by its independent public accountant, and quarterly reports containing unaudited
summary consolidated financial information for each of the first three quarters
of each fiscal year.
39
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
PHOENIX COLOR CORP.
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity................................................ F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
CONSOLIDATED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
NEW ENGLAND BOOK HOLDING CORPORATION
Report of Independent Accountants........................................................................ F-17
Consolidated Balance Sheet............................................................................... F-18
Consolidated Statement of Income......................................................................... F-19
Consolidated Statement of Stockholders' Equity........................................................... F-20
Consolidated Statement of Cash Flows..................................................................... F-21
Notes to Consolidated Financial Statements............................................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Phoenix Color Corp.
We have audited the accompanying consolidated balance sheets of Phoenix
Color Corp. and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the 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 consolidated financial position of Phoenix Color
Corp. and subsidiaries as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
McLean, Virginia
March 13, 1998,
except for the Recapitalization
described in Note 1, for
which the date is April 23, 1998
F-2
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
(NOTE 1)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 158,254 $ 1,044,966 $1,044,966
Accounts receivable, net of allowance for doubtful accounts and
rebates of $687,431 in 1996 and $674,463 in 1997.................... 17,191,001 19,695,780 19,695,780
Inventory............................................................. 4,729,197 4,388,276 4,388,276
Income tax receivable................................................. 301,522 1,376,977 1,376,977
Prepaid expenses and other current assets............................. 1,011,041 95,607 95,607
Deferred income taxes................................................. 438,222 423,606 423,606
----------- ----------- ------------
Total current assets.............................................. 23,829,237 27,025,212 27,025,212
Property, plant and equipment, net...................................... 35,436,085 36,472,549 36,472,549
Goodwill, net........................................................... 15,917,433 15,079,677 15,079,677
Deferred financing costs, net........................................... 390,000 210,000 210,000
Other assets............................................................ 971,233 7,921,463 7,921,463
----------- ----------- ------------
Total assets...................................................... $76,543,988 $86,708,901 $86,708,901
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit.............................................. $11,561,352 $14,325,745 $14,325,745
Notes payable......................................................... 7,194,651 7,250,834 7,250,834
Obligations under capital leases...................................... 3,774,767 3,770,178 3,770,178
Accounts payable...................................................... 11,855,925 16,844,510 16,844,510
Accrued expenses...................................................... 1,779,337 4,026,006 4,026,006
----------- ----------- ------------
Total current liabilities......................................... 36,166,032 46,217,273 46,217,273
Notes payable........................................................... 17,772,276 15,498,930 15,498,930
Obligations under capital leases........................................ 9,636,284 5,880,781 5,880,781
Deferred income taxes................................................... 928,558 1,242,047 1,242,047
----------- ----------- ------------
Total liabilities................................................. 64,503,150 68,839,031 68,839,031
----------- ----------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 authorized 5,000,000 shares; none
issued and outstanding (unaudited).................................... --
Common Stock, Class A, voting, par value $0.01 per share, authorized
20,000 shares, 14,560 issued shares, 11,100 outstanding shares as of
December 31, 1997 and 1996; none authorized, issued or outstanding pro
forma (unaudited)..................................................... 146 146 --
Common Stock, Class B, non-voting, par value $0.01 per share, authorized
200,000 shares, 9,794 issued shares and 7,794 outstanding shares, as
of December 31, 1997 and 1996; none authorized, issued or outstanding
pro forma (unaudited)................................................. 98 98 --
Common Stock, par value $0.01 per share; authorized 25,000,000 shares;
none issued and outstanding as of December 31, 1996 and 1997; issued
and outstanding 9,125,802 shares pro forma (unaudited)................ 91,258
Additional paid in capital.............................................. 2,126,804 2,126,804 266,560
Retained earnings....................................................... 12,015,264 17,782,596 17,782,596
Stock subscriptions receivable.......................................... (332,244) (270,544) (270,544)
Treasury stock, at cost: Class A, 3,460 shares and Class B, 2,000
shares, as of December 31, 1997 and 1996; none pro forma
(unaudited)........................................................... (1,769,230) (1,769,230) --
----------- ----------- ------------
Total stockholders' equity........................................ 12,040,838 17,869,870 17,869,870
----------- ----------- ------------
Total liabilities & stockholders' equity.......................... $76,543,988 $86,708,901 $86,708,901
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- --------------
Net sales.......................................................... $ 60,906,547 $ 95,262,245 $ 104,793,705
Cost of sales...................................................... 45,129,104 71,115,953 73,721,630
------------- ------------- --------------
Gross profit................................................... 15,777,443 24,146,292 31,072,075
------------- ------------- --------------
Operating expenses:
Selling and marketing expenses................................... 3,036,099 6,088,693 5,880,844
General and administrative expenses.............................. 4,504,786 9,009,800 10,979,654
Impairment loss.................................................. -- 1,268,271 --
------------- ------------- --------------
Total operating expenses....................................... 7,540,885 16,366,764 16,860,498
------------- ------------- --------------
Income from operations............................................. 8,236,558 7,779,528 14,211,577
------------- ------------- --------------
Other expenses:
Interest expense................................................. 1,827,117 4,937,315 4,483,820
Loss (gain) on disposal of assets................................ 9,752 (1,093,370) 62,436
------------- ------------- --------------
Income before income taxes....................................... 6,399,689 3,935,583 9,665,321
Income tax provision............................................. 2,689,688 2,139,286 3,897,989
------------- ------------- --------------
Net income......................................................... $ 3,710,001 $ 1,796,297 $ 5,767,332
------------- ------------- --------------
------------- ------------- --------------
Pro forma basic and diluted net income per share after giving
effect to the Recapitalization (See Note 1)...................... $ 0.41 $ 0.20 $ 0.63
------------- ------------- --------------
------------- ------------- --------------
Pro forma weighted average common shares outstanding after giving
effect to the Recapitalization (See Note 1)...................... 9,033,062 9,125,802 9,125,802
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------
CLASS A CLASS B COMMON STOCK ADDITIONAL
---------------------- ------------------------ ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994....................... 13,560 $ 136 9,794 $ 98 -- $ -- $2,126,804 $6,508,966
Redemption of capital
stock...................... -- -- -- -- -- -- -- --
Sale of common stock......... 1,000 10 -- -- -- -- -- --
Payment of stock
subscription............... -- -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- 3,710,001
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
Balance at December 31,
1995....................... 14,560 146 9,794 98 -- -- 2,126,804 10,218,967
Payment of stock
subscription............... -- -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- 1,796,297
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
Balance at December 31,
1996....................... 14,560 146 9,794 98 -- -- 2,126,804 12,015,264
Payment of stock
subscription............... -- -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- 5,767,332
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
Balance as of December 31,
1997....................... 14,560 146 9,794 98 -- -- 2,126,804 17,782,596
Pro forma recapitalization of
capital stock (Note 1)
(unaudited)................ (14,560) (146) (9,794) (98) 91,258 9,125,802 (1,860,244) --
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
Pro forma balance as of
December 31, 1997
(unaudited)................ -- $ -- -- $ -- 91,258 $9,125,802 $ 266,560 $17,782,596
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
--------- ----------- ----------- ----------- ----------- --------- ---------- ----------
<CAPTION>
STOCK TREASURY STOCK TOTAL
SUBSCRIPTIONS ----------------------- STOCKHOLDERS'
RECEIVABLE AMOUNT SHARES EQUITY
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994....................... $ (516,544) 3,460 $ (671,230) $7,448,230
Redemption of capital
stock...................... -- 2,000 (1,098,000) (1,098,000)
Sale of common stock......... -- -- -- 10
Payment of stock
subscription............... 94,200 -- -- 94,200
Net income................... -- -- -- 3,710,001
------------ ----------- ---------- ------------
Balance at December 31,
1995....................... (422,344) 5,460 (1,769,230) 10,154,441
Payment of stock
subscription............... 90,100 -- -- 90,100
Net income................... -- -- -- 1,796,297
------------ ----------- ---------- ------------
Balance at December 31,
1996....................... (332,244) 5,460 (1,769,230) 12,040,838
Payment of stock
subscription............... 61,700 -- -- 61,700
Net income................... -- -- -- 5,767,332
------------ ----------- ---------- ------------
Balance as of December 31,
1997....................... (270,544) (5,460) (1,769,230) 17,869,870
Pro forma recapitalization of
capital stock (Note 1)
(unaudited)................ -- 5,460 1,769,230 --
------------ ----------- ---------- ------------
Pro forma balance as of
December 31, 1997
(unaudited)................ $ (270,544) -- $ -- $17,869,870
------------ ----------- ---------- ------------
------------ ----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ------------- -------------
Operating activities:
Net Income.......................................................... $ 3,710,001 $ 1,796,297 $ 5,767,332
Adjustments to reconcile net income to net cash provided by
operating activities, net of effect of purchase of New England
Book Holding Corp. ("NEBC") in 1996
Depreciation and amortization....................................... 3,118,574 6,628,111 7,017,749
Amortization of goodwill............................................ -- 1,850,864 837,756
Amortization of deferred financing costs............................ -- 150,000 180,000
Provision for uncollectible accounts................................ -- 687,431 532,618
Deferred income taxes............................................... 335,660 374,538 328,105
Loss on disposal of assets.......................................... -- 174,901 62,435
Increase (decrease) in cash resulting from changes in assets and
liabilities:
Accounts receivable................................................. (3,918,687) 3,327,127 (3,037,397)
Inventory........................................................... (773,289) 98,584 340,921
Prepaid expenses and other assets................................... 56,030 425,110 878,409
Accounts payable.................................................... 4,658,072 534,820 4,988,585
Accrued expenses.................................................... (364,206) (2,193,241) 2,246,669
Income tax refund receivable........................................ -- 61,332 (1,075,455)
----------- ------------- -------------
Net cash provided by operating activities....................... 6,822,155 13,915,874 19,067,727
----------- ------------- -------------
Investing Activities:
Proceeds from sale of equipment..................................... -- 411,300 101,875
Capital expenditures................................................ (9,325,756) (1,735,063) (3,294,066)
Increase in equipment deposits...................................... -- -- (6,056,372)
Purchase of NEBC net of cash acquired............................... -- (21,307,354) --
----------- ------------- -------------
Net cash used in investing activities........................... (9,325,756) (22,631,117) (9,248,563)
----------- ------------- -------------
Financing Activities:
Net borrowings from revolving line of credit........................ 2,066,579 2,534,913 2,764,393
Proceeds from long term borrowings.................................. 6,384,748 22,000,000 473,760
Principal payments on long term borrowings.......................... (1,588,903) (11,065,841) (8,472,215)
Principal payments on capital lease obligations..................... (3,483,811) (4,516,156) (3,760,090)
Debt financing costs................................................ -- (540,000) --
Purchase of treasury stock.......................................... (1,098,000) -- --
Sale of common stock................................................ 170,000 -- --
Payment of stock subscription....................................... 94,200 90,100 61,700
Net cash provided by (used in) financing activities............. 2,574,813 8,503,016 (8,932,452)
----------- ------------- -------------
Net increase (decrease) in cash................................. 71,212 (212,227) 886,712
Cash and cash equivalents at beginning of year........................ 299,269 370,481 158,254
----------- ------------- -------------
Cash and cash equivalents at end of year.............................. $ 370,481 $ 158,254 $ 1,044,966
----------- ------------- -------------
----------- ------------- -------------
Supplemental cash flow disclosures:
Cash paid for interest.............................................. $ 2,208,206 $ 4,476,115 $ 4,104,020
Cash paid for income taxes, net of refunds received................. $ 3,237,904 $ 1,764,524 $ 4,645,339
Non-cash investing and financing activities:
Equipment acquired under capital leases............................. $ 8,019,718 $ 5,278,959 $ --
Equipment acquired under notes payable.............................. $ 495,000 $ 4,037,634 $ 5,781,290
Equipment sold on account........................................... $ -- $ 916,089 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
BUSINESS
Phoenix Color Corp. (the "Company") manufactures book jackets, paperback
covers, pre-printed case covers, inserts and endpapers at its headquarters in
Hagerstown, MD and other locations in Long Island City, NY and Taunton, MA.
Customers consist of major publishing companies as well as smaller publishing
companies throughout the United States.
RECAPITALIZATION
In April 1998, the Board of Directors authorized the filing of an Amended
and Restated Certificate of Incorporation (the "Recapitalization") which will
provide that: (i) each share of voting Class A and non-voting Class B Common
Stock will be exchanged for 483 shares of a single class of voting common stock
("Common Stock"), (ii) all shares held in treasury will be retired and (iii) the
Company's authorized capitalization will be increased to 30,000,000 shares
consisting of 25,000,000 shares of Common Stock and 5,000,000 shares of a new
class of preferred stock ("Preferred Stock"). Currently, the Recapitalization is
pending shareholder approval. The pro forma unaudited balance sheet as of
December 31, 1997, and the pro forma unaudited statement of changes in
stockholders' equity for the year ended December 31, 1997, give effect to the
Recapitalization.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at date of acquisition to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market value as determined by
the first-in, first-out ("FIFO") method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation for all fixed assets
is provided on the straight-line method over the assets' estimated useful lives.
Depreciable lives range from 3-40 years. Equipment under capital leases is
depreciable over the term of the lease or the estimated useful life of the
assets, whichever is shorter.
Expenditures for maintenance and repairs are charged to operations when
incurred. Expenditures determined to represent additions and betterments are
capitalized. Gains and losses from disposals, if any, are included in earnings.
The Company has purchased additional equipment which is either on order or
in various stages of installation. Depreciation begins at the time installation
is completed.
F-7
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts receivable, accounts
payable, accrued expenses, and obligations under capital leases approximate fair
value due to the relatively short maturity of these instruments. See Note 5 for
information regarding the fair value of the Company's long-term debt and notes
payable.
CONCENTRATION OF RISK
Financial instruments that subject the Company to significant concentration
of credit risk consist primarily of accounts receivable and cash equivalents.
The Company sells products to customers located throughout the United States
without requiring collateral. However, the Company assesses the financial
strength of its customers and provides allowances for anticipated losses when
necessary. The Company has invested its excess cash in a money market fund with
a commercial bank. The Company has not experienced any losses on its
investments.
At December 31, 1997, the Company had approximately $862,500 and $142,000 in
two banks, which exceed FDIC insured limits by $762,500 and $42,000,
respectively. For cash balances held greater than the FDIC insured amount, the
Company assumes a certain degree of associated risk. The Company has not
experienced any losses on its cash equivalents.
Customers that accounted for more than 10% of net sales or accounts
receivable are as follows:
<TABLE>
<CAPTION>
CUSTOMERS
-------------------------------
<S> <C> <C> <C>
A B C
-- -- --
Net sales
1997................................................................ 17% 14% --
1996................................................................ 18% 17% --
1995................................................................ 20% 13% 12%
Accounts receivable
1997................................................................ -- 23% --
1996................................................................ 18% 21% --
</TABLE>
The Company currently purchases its paper and printing supplies from a
limited number of suppliers. There are a number of other suppliers of these
materials throughout the U.S. and management believes that these other suppliers
could provide similar printing supplies and paper on comparable terms. A change
in suppliers, however, could cause a delay in manufacturing, and a possible loss
of sales, which could adversely affect operating results.
Because the Company derives all of its revenues from customers in the book
publishing and book printing industries, the Company's business, financial
condition and results of operations could be adversely affected by changes which
have a negative impact on these industries.
INTANGIBLE ASSETS
Goodwill represents the excess of cost of an acquired business over the fair
value of identifiable net tangible assets acquired. As discussed in Note 7, the
Company acquired New England Book Holding Corporation ("NEBC") in 1996. At that
time, management established an eight year useful life for the
F-8
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
resulting goodwill. During 1997, management re-evaluated the performance of the
acquired business and anticipated future results and concluded that a 20 year
useful life was appropriate. Accordingly, commencing in 1997, the Company began
amortizing the remaining goodwill over 19 years. The effect of this change in
estimate was to increase 1997 net income and basic net income per share by
$1,383,284 and $0.15, respectively.
Deferred financing costs were incurred in connection with the Company's bank
credit agreement with its financial institutions in 1996 (See Note 5) and are
being amortized using the straight-line method, which approximates the interest
method, over the life of the related loan.
LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of the carrying value
of property and equipment and intangible assets. The Company considers
historical performance and anticipated future results in its evaluation of any
potential impairment. Accordingly, when the indicators of impairment are
present, the Company evaluates the carrying value of these assets in relation to
the operating performance of the business and future and undiscounted cash flows
expected to result from the use of these assets. Impairment losses are
recognized when the sum of the expected future cash flows is less than the
assets' carrying value.
The Company is planning to sell certain of its real estate holdings in
Connecticut with an original carrying value of $1,631,271. The Company has
classified these assets as assets held for sale at their estimated net
realizable value of $364,000, which is included in other assets on the balance
sheets. Accordingly, the Company recognized an impairment loss of $1,268,271 in
the statement of operations for the year ended December 31, 1996. As of December
31, 1997, these assets are still held for sale.
SELF INSURANCE
The Company is generally self insured for losses and liabilities related to
primary health claims. Losses are accrued based on the Company's estimates of
the aggregate liability for claims incurred based on Company experience for such
claims. Management believes that they have provided an adequate reserve for
claims incurred but not reported as of December 31, 1997 and 1996.
REVENUE RECOGNITION
The Company recognizes revenue on product sales upon shipment on behalf of
the customer.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in the future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at year end, based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Income tax expense is the tax payable for the period and
the change during the period in deferred tax assets and liabilities. Valuation
allowances are provided when necessary to reduce deferred tax assets to the
amount expected to be realized.
F-9
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company presents earnings per share pursuant to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding after giving effect to all dilutive potential common shares that
were outstanding during the period. The Company did not have any potential
common shares during the periods presented. Net income as reported was not
adjusted for the computation of basic or diluted earnings per share.
Basic and diluted earnings per share have been presented on a pro forma
basis to give effect to the Recapitalization described in Note 1. Historical
earnings per share is not presented because, as a result of the
Recapitalization, it is no longer meaningful.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and contingent liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
period. Actual results could differ from these estimates.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards that
become effective for reporting periods beginning after December 15, 1997: SFAS
No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company will begin
making the disclosures required by SFAS Nos. 130 and 131 in 1998.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1997
financial statement presentation.
F-10
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
Raw materials..................................................... $ 4,266,933 $ 3,591,421
Work in process................................................... 462,264 796,855
------------ ------------
$ 4,729,197 $ 4,388,276
------------ ------------
------------ ------------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Land........................................................... $ 803,416 $ 803,416
Buildings and improvements..................................... 12,339,943 11,851,659
Machinery and equipment........................................ 47,062,551 52,280,002
Transportation equipment....................................... 1,056,210 2,651,691
------------- -------------
61,262,120 67,586,768
Less: Accumulated depreciation and amortization................ 25,826,035 31,114,219
------------- -------------
$ 35,436,085 $ 36,472,549
------------- -------------
------------- -------------
</TABLE>
Included in other assets are equipment deposits in the amount of $396,994
and $7,310,199 as of December 31, 1996 and 1997, respectively.
The Company leases certain printing presses under capital lease
arrangements. Included in machinery and equipment on the balance sheet are the
following amounts under capital lease arrangements:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Machinery and equipment........................................ $ 20,534,598 $ 17,741,894
Less: Accumulated depreciation and amortization................ 6,739,274 7,092,705
------------- -------------
$ 13,795,324 $ 10,649,189
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MATURITY ----------------------------
NOTES DATE 1996 1997
- ---------------------------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Equipment Notes....................................................... 1998-2004 $ 5,180,162 $ 8,473,999
Term Loan A........................................................... 2000 13,200,000 8,505,000
Term Loan B........................................................... 2001 5,450,000 4,850,000
Former shareholder notes (see Note 9)................................. 2000 684,000 468,000
Shareholder notes (see Note 9)........................................ Demand 452,765 452,765
------------- -------------
Total............................................................... 24,966,927 22,749,764
Less current portion................................................ 7,194,651 7,250,834
------------- -------------
Long-term portion................................................... $ 17,772,276 $ 15,498,930
------------- -------------
------------- -------------
</TABLE>
In February 1996 the Company entered into a joint $40.0 million Loan and
Security Agreement (the "Loan Agreement") with two commercial banks. The Loan
Agreement consists of an $18.0 million revolving line of credit, a four year
term loan ("A") for $16.0 million, and a five year term loan ("B") for $6.0
million.
The revolving line of credit is payable on demand and expires in February
1999. Borrowings under the revolving line of credit are subject to
borrowing-base limitations, as defined in the Loan Agreement, and reduced by
outstanding letters of credit. As of December 31, 1997, the Company had
outstanding letters of credit of $418,500. The Company's unused availability
under the revolving line of credit was $6,438,648 and $3,255,755 as of December
31, 1996 and December 31, 1997, respectively. Pursuant to the Loan Agreement the
Company must pay an annual commitment fee on the unused portion of the revolving
line of credit at the rate of 0.5% per annum.
Borrowings under the term loans and revolving line of credit bear interest
at a base rate, as defined in the Loan Agreement, or the LIBOR rate plus a
margin. The applicable margin is based upon the Company's achievement of certain
financial ratios. The interest rate was 8.8% and 8.5% on the revolving line of
credit and 9.8% and 9.0% on the term loans as of December 31, 1996 and December
31, 1997, respectively. Borrowings under the term loan and the revolving line of
credit are collateralized by all of the assets of the Company. The Company's
principal stockholders have also pledged the shares of common stock directly
owned by them as security for such borrowings, and six shareholders of the
Company have entered into individual surety agreements guaranteeing repayment of
such borrowings.
The Company also has borrowings with various financial institutions that
financed the purchase of certain equipment. Borrowings bear interest at rates
ranging from 7.4% to 11.6%. These borrowings are collateralized by the
underlying equipment.
Annual maturities of the long-term debt during the next five years are as
follows: 1998, $7,250,834; 1999, $6,573,755; 2000, $3,007,567; 2001, $4,729,661;
and 2002, $782,729.
The fair value of the Company's long term debt at December 31, 1997, based
on discounted cash flows based on currently available borrowing rates, was
$22,847,003 compared to its carrying value of $22,749,764.
F-12
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
The Company's borrowing agreements require the Company to maintain certain
financial and non financial covenants, the most restrictive of which requires
the Company to maintain certain defined levels of tangible net worth and certain
financial ratios defined in the Loan Agreement. Such financial covenants have
been amended from time to time by agreement among the Company and the lending
banks, and any event of non-compliance by the Company has been waived by such
banks. The Company was not in compliance with these covenants for any of its
compliance periods during 1996 or 1997. The Company has obtained waivers for all
events of noncompliance with respect to these covenants.
6. INCOME TAXES
Provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------ ------------ ------------
Current:
Federal........................................... $ 1,705,138 $ 1,445,825 $ 2,924,739
State............................................. 648,890 318,923 645,145
------------ ------------ ------------
2,354,028 1,764,748 3,569,884
------------ ------------ ------------
Deferred:
Federal........................................... 243,135 306,044 268,103
State............................................. 92,525 68,494 60,002
------------ ------------ ------------
335,660 374,538 328,105
------------ ------------ ------------
$ 2,689,688 $ 2,139,286 $ 3,897,989
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The source and tax effects of the temporary differences giving rise to the
Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
Covenant not to compete......................................... $ 19,196 $ 40,134
Allowance for doubtful accounts................................. 47,557 54,837
Fixed assets.................................................... (1,100,838) (1,282,181)
Loss on disposal of assets...................................... 153,083 --
Accrued liabilities............................................. 513,998 469,495
Inventory....................................................... (123,332) (100,726)
------------- -------------
Net deferred tax liability...................................... $ (490,336) $ (818,441)
------------- -------------
------------- -------------
</TABLE>
The provision for income taxes differed from the amount of income tax
determined by applying the applicable U.S. statutory rate to income before taxes
as a result of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Statutory U.S. tax rate................................................. 34.0% 34.0% 34.0%
State taxes net of Federal benefit...................................... 4.7 4.7 4.7
Goodwill amortization................................................... -- 16.0 3.4
Other permanent differences............................................. 3.3 (0.3) (1.8)
--- --- ---
Effective tax rate...................................................... 42.0% 54.4% 40.3%
--- --- ---
--- --- ---
</TABLE>
F-13
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS
On February 1, 1996, the Company acquired all of the outstanding stock of
New England Book Holding Corporation ("NEBC") for $21.5 million, including
acquisition costs, in a transaction accounted for as a purchase. NEBC was
immediately merged into the Company on the date of acquisition. NEBC was a
competitor of the Company and was principally engaged in the manufacturing of
book components for the publishing industry. The purchase price, which was
financed with borrowings under the Company's Loan Agreement (See Note 5), has
been allocated to the assets and liabilities of NEBC based upon their respective
fair values. Resulting goodwill totaled $17.8 million.
The following unaudited pro forma information sets forth the consolidated
results of operations of the Company had the above mentioned acquisition
occurred on January 1, 1995. This unaudited pro forma information does not
purport to be indicative of the actual results that would have occurred if the
combination had been in effect on January 1, 1995. In addition, this information
does not purport to be indicative of future results of operations of the
consolidated entities.
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Net sales.................................................... $ 103,145,890 $ 98,267,032
Net income................................................... $ 1,565,828 $ 1,908,696
Basic and diluted earnings per share......................... $ 0.17 $ 0.21
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office and warehouse facilities under operating
leases in Long Island City, NY; Grand Rapids, MI; Taunton, MA; Pleasanton, CA;
and Hingham, MA. Lease terms generally range from 1 to 10 years with options to
renew at varying terms. The leases generally provide for the lessee to pay
taxes, maintenance, insurance and other operating costs of the leased property.
Rent expense under all leases is recognized ratably over the lease terms. Rent
expense under all operating leases was approximately $566,045, $1,617,445 and
$1,434,708 for the years ending December 31, 1995, 1996, and 1997, respectively.
Future minimum lease payments under the operating leases as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $1,765,892
1999........................................................... 1,696,918
2000........................................................... 1,592,656
2001........................................................... 1,279,870
2002........................................................... 1,279,870
Thereafter..................................................... 9,680,320
----------
$17,295,526
----------
----------
</TABLE>
In 1997, the Company entered into an agreement to lease a build-to-suit
facility in Taunton, Massachusetts. In connection with this agreement, the
Company advanced the developer $175,000 in the form of a note which is included
in other assets on the balance sheet at December 31, 1997. The note bears
F-14
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
interest at 14% and is payable in full on May 13, 2007. The Company will receive
monthly installments of interest at 10%, while the remaining 4% will be accrued
and payable upon repayment of the debt.
CAPITAL LEASES
Future minimum lease payments under capital leases as of December 31, 1997
are as follows
<TABLE>
<S> <C>
1998........................................................... $4,461,784
1999........................................................... 3,787,528
2000........................................................... 2,196,832
2001........................................................... 413,621
----------
Total minimum payments......................................... 10,859,765
Less: portion representing interest at 8.1% to 13.6%........... 1,208,806
----------
Present value of capital lease obligations..................... $9,650,959
----------
----------
</TABLE>
LEGAL CONTINGENCIES
The Company is a party to legal actions arising in the ordinary course of
business. Management believes that any unfavorable outcome arising from these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
9. RELATED PARTY TRANSACTIONS
In February 1995 the Company redeemed 2,000 shares from two former
stockholders in accordance with a stockholders' agreement which has been
subsequently terminated effective January 1, 1998. The total purchase price of
$1,098,000 is being paid in monthly installments of $18,000 plus interest at
1.0% below the prime rate (8.0% and 8.3% at December 31, 1997 and 1996,
respectively). The balance due to these stockholders was $468,000 and $684,000
as of December 31, 1997 and 1996, respectively, and is included in notes payable
on the balance sheet.
The Company utilizes the services of a law firm in which a director of the
Company is also a partner. The Company paid the law firm approximately $127,000,
$250,000 and $100,000 for the years ended December 31, 1997, 1996 and 1995.
In 1988, the Company issued $452,765 of demand notes payable to six
stockholders of the Company. These notes bear interest at the prime rate plus 1%
(8.0% and 8.3% at December 31, 1997 and 1996, respectively). Five of the
stockholders have agreed to subordinate their claims to these notes to all other
obligations of the Company. The Company has classified all the notes payable to
the aforementioned stockholders as current liabilities.
10. RETIREMENT PROGRAMS
Phoenix Color Corp.'s Employee Stock Bonus and Ownership Plan (the "Plan")
is the primary retirement program of the Company. Contributions to the Plan are
made at the discretion of management. There was a $750,000 contribution made in
each of the years ended December 31, 1995 and 1997; however, no contribution was
made for the year ended December 31, 1996.
F-15
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RETIREMENT PROGRAMS (CONTINUED)
The Company offers a 401(k) Employee Savings and Investment Plan to all
employees of the Company who have completed at least one year of service (1,000
hours) during the plan year. The Company may, at its discretion, make
contributions to the plan. No contributions were made to the plan during the
three year period ended December 31, 1997.
11. UNAUDITED QUARTERLY FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1997: FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $23,714,635 $23,746,341 $28,649,934 $28,682,795 $104,793,705
Cost of sales...................... 16,685,085 16,811,694 19,549,477 20,675,374 73,721,630
Income from operations............. 2,899,200 2,883,878 5,095,676 3,332,823 14,211,577
Net income......................... 917,541 986,022 2,154,789 1,708,981 5,767,332
Pro forma basic and diluted
earnings per share after giving
effect to the Recapitalization
(See Note 1)..................... 0.10 0.11 0.24 0.19 0.63
Pro forma weighted average common
shares outstanding after giving
effect to the Recapitalization
(See Note 1)..................... 9,125,802 9,125,802 9,125,802 9,125,802 9,125,802
1996:
Net sales.......................... $19,537,339 $25,461,229 $27,585,325 $22,678,352 $95,262,245
Cost of sales...................... 14,671,679 18,540,637 20,702,050 17,201,587 71,115,953
Income from operations............. 1,775,150 3,082,882 3,114,056 (192,560) 7,779,528
Net income (loss).................. (75,838) 943,968 1,415,989 (487,822) 1,796,297
Pro forma basic and diluted
earnings per share after giving
effect to the Recapitalization
(See Note 1)..................... (0.01) 0.10 0.16 (0.05) 0.20
Pro forma weighted average common
shares outstanding after giving
effect to the Recapitalization
(See Note 1)..................... 9,125,802 9,125,802 9,125,802 9,125,802 9,125,802
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
New England Book Holding Corporation.
We have audited the accompanying consolidated balance sheet of New England
Book Holding Corporation (a Delaware corporation) and subsidiary as of December
31, 1995, and the related consolidated statement of income, stockholders' equity
and cash flows for the year 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 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.
As discussed in Note 9, on February 1, 1996, all of the outstanding common
stock of the Company was purchased by Phoenix Color Corp.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New England
Book Holding Corporation and subsidiary as of December 31, 1995, and the results
of their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 22, 1996 (except with respect to the
matter discussed in Note 9, as to which the
date is February 1, 1996)
F-17
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 704,971
Accounts receivable, less reserves of approximately $123,000..................................... 7,845,625
Inventories...................................................................................... 1,789,549
Prepaid income taxes............................................................................. 263,853
Deferred income taxes............................................................................ 356,636
Prepaid insurance................................................................................ 8,786
-------------
Total current assets........................................................................... 10,969,420
-------------
Property, plant and equipment, at cost:
Machinery and equipment.......................................................................... 7,508,840
Furniture, fixtures and office equipment......................................................... 2,331,148
Leasehold improvements........................................................................... 878,898
Motor vehicles................................................................................... 285,150
-------------
11,004,036
Less--accumulated depreciation and amortization.................................................. 8,603,250
-------------
2,400,786
-------------
Deferred financing costs and other, net............................................................ 110,543
-------------
$ 13,480,749
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................................. $ 1,356,084
Accounts payable and other accrued expenses...................................................... 2,592,055
Accrued payroll and payroll taxes................................................................ 704,917
Accrued profit sharing........................................................................... --
Income taxes payable............................................................................. --
-------------
Total current liabilities...................................................................... 4,653,056
-------------
Long-term debt, less current maturities............................................................ 5,150,713
-------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value, authorized 1,500,000 shares issued and outstanding 1,000,000
shares......................................................................................... 10,000
Additional paid in capital....................................................................... 2,144,000
Retained earnings, net of stockholder distributions.............................................. 1,522,980
-------------
Total stockholders' equity..................................................................... 3,676,980
-------------
$ 13,480,749
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
Sales.............................................................................................. $ 42,239,343
Cost of goods sold................................................................................. 33,228,186
-------------
Gross profit..................................................................................... 9,011,157
Operating costs and expenses....................................................................... 6,319,452
-------------
Income from operations........................................................................... 2,691,705
Interest expense, net.............................................................................. 634,048
-------------
Income before restructuring expenses and provision for income taxes.............................. 2,057,657
Restructuring expenses (Note 2).................................................................... 378,522
-------------
Income before provision for income taxes......................................................... 1,679,135
Provision for income taxes......................................................................... 694,000
-------------
Net income....................................................................................... $ 985,135
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
STOCK ADDITIONAL TO NEBC TOTAL
$.01 PAR PAID-IN STOCKHOLDERS RETAINED STOCKHOLDERS'
VALUE CAPITAL NET EARNINGS EQUITY
--------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994................ $ 10,000 $ 1,994,000 $ (8,881,592) $ 9,419,437 $2,541,845
Net income.................................. -- -- -- 985,135 985,135
Stockholder contributions................... -- 150,000 -- -- 150,000
--------- ------------ ------------- ------------- ------------
Balance as of December 31, 1995............. $ 10,000 $ 2,144,000 $ (8,881,592) $ 10,404,572 $3,676,980
--------- ------------ ------------- ------------- ------------
--------- ------------ ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
Cash flows from operating activities:
Net Income....................................................................................... $ 985,135
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................................. 797,418
Deferred income taxes.......................................................................... 88,000
Changes in assets and liabilities:
Accounts receivable.......................................................................... (901,927)
Inventories.................................................................................. 801,693
Other assets................................................................................. 72,121
Prepaid income taxes......................................................................... (263,853)
Accounts payable and other accrued expenses.................................................. (901,922)
Accrued payroll and payroll taxes............................................................ (251,644)
Accrued profit sharing....................................................................... (513,000)
Income taxes payable......................................................................... (405,942)
-------------
Net cash used in operating activities...................................................... (493,921)
Cash flows from Investing activities:
Purchases of property and equipment, net......................................................... (1,031,613)
-------------
Net cash used in investing activities...................................................... (1,031,613)
-------------
Cash flows from financing activities:
Repayment of term loan........................................................................... (1,250,000)
Net proceeds from revolving line of credit....................................................... 2,110,000
Principal payment of capital lease obligations................................................... (94,103)
Stockholder contributions........................................................................ 150,000
-------------
Net cash provided by financing activities.................................................. 915,897
-------------
Net decrease in cash and cash equivalents.......................................................... (609,637)
Cash and cash equivalents, beginning of year....................................................... 1,314,608
-------------
Cash and cash equivalents, end of year............................................................. $ 704,971
-------------
-------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest....................................................................................... $ 626,915
-------------
-------------
Income taxes................................................................................... $ 1,239,624
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements include the accounts of
New England Book Holding Corporation (the Company) and its wholly owned
subsidiary, New England Book Components, Inc. (NEBC), a Massachusetts
corporation.
The Company was formed and is owned by the three former stockholders of
NEBC, who contributed shares of NEBC stock valued at historical book value, and
an outside investor, who contributed $1,500,000 in cash. Effective September 1,
1987, pursuant to an agreement and plan of merger (the Merger), NEBC became a
wholly owned subsidiary of the Company. The Merger provided that all issued and
outstanding shares of NEBC stock, excluding shares held by the Company, be
converted into the right to receive approximately $14,414,000. Since the former
stockholders of NEBC have a controlling interest in the Company, the transaction
was accounted for as a redemption, and the amount paid in excess of the net
assets of NEBC, on an historical basis, was recorded as a distribution of
stockholders' equity.
Through NEBC, the Company is principally engaged in the manufacturing of
book components, primarily book jackets and covers, for the publishing industry.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue on product sales upon shipment to the
customer. All other income is recognized as earned.
INVENTORIES
Inventories consist of raw materials and work-in-process, including labor
and overhead, and are stated at the lower of cost, as calculated under the
last-in, first-out (LIFO) method, or market. As of December 31, 1995,
inventories stated on a first-in, first-out (FIFO) basis would have been higher
by approximately $245,000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed primarily using the straight-line
method for financial reporting purposes and accelerated methods for income tax
reporting purposes. The depreciable lives used are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------------------------------------------------------------------- ------------
<S> <C>
Machinery and equipment 5-10 Years
Furniture, fixtures and office equipment 5-10 Years
Leasehold improvements 5-10 Years
Motor vehicles 3 Years
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of acquisition to be cash equivalents. No repurchase
agreements existed at December 31, 1995.
F-22
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
In December 1995, the Company capitalized approximately $37,000 of costs
incurred related to obtaining the revolving line of credit and term loan (see
Note 3).
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK, requires disclosure of
any significant off-balance-sheet and credit risk concentrations. Financial
instruments that subject the Company to credit risk consist primarily of trade
accounts receivable. Two customers had amounts due to the Company aggregating
approximately $2,798,000, as of December 31, 1995. These customers accounted for
an aggregate of approximately 33% of product sales for 1995.
RESTRUCTURING EXPENSES
In conjunction with and as a result of the pending sale of the Company, as
described in Note 9, certain expenses have been incurred which are not typical
for the operations of the Company. These expenses are classified as
restructuring expenses in the accompanying consolidated statements of income.
3. LONG-TERM DEBT
At December 31, 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995
------------
<S> <C>
Revolving line of credit with a bank, expiring December 31, 1998 with interest
payable monthly at the bank's base rate plus 1% (9.5% at December 31,
1995)......................................................................... $ 2,110,000
Term note to a bank, principal payments due through December 31, 1998, interest
payable quarterly at the bank's base rate plus 1.25% (9.75% at December 31,
1995)......................................................................... 4,000,000
Capital lease obligations for office equipment, requiring monthly payments of
$12,345 through March 1999.................................................... 396,797
------------
6,506,797
Less--current maturities........................................................ 1,356,084
------------
$ 5,150,713
------------
------------
</TABLE>
Long-term debt is scheduled to mature as follows:
<TABLE>
<S> <C>
Year ending December 31,
1996.......................................................... $1,356,084
1997.......................................................... 1,119,591
1998.......................................................... 3,994,817
1999.......................................................... 36,305
---------
$6,506,797
---------
---------
</TABLE>
F-23
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
During 1993, the Company entered into a credit agreement with a bank which
provides for a revolving line of credit and a $6,000,000 term note. Under the
revolving line of credit, the Company may borrow up to the lesser of $7,000,000
or a certain percentage of accounts receivable and inventory, as defined
(approximately $6,600,000 at December 31 , 1995).
Under the term note, the Company is required to make quarterly payments at
the end of each calendar quarter, or the first business day thereafter, of
$250,000 for the first four years and $500,000 for the final year. The Company
is also required to make additional principal payments on the term note based
on, among other things, excess cash flow, as defined. The Company made one
additional principal payment in 1995 which will reduce the 1998 principal
payments. Interest under the note accrues at the bank's base rate plus 1.25%,
although the Company has the option to fix the rate for intervals of up to six
months at the London Interbank Offered Rate (LIBOR), subject to a floor of 3.5%
and a ceiling of 7.5%, plus 3.25%. Interest under the revolving line of credit
accrues at the bank's base rate plus 1%, although the Company has a similar
option to fix the rate at the LIBOR, within the same range above, plus 3%. The
term note and line-of-credit facility are secured by substantially all assets of
the Company.
Under the credit agreement, the Company has agreed, among other things, to
maintain certain financial covenants and ratios, as defined. As of December 31,
1995, the Company violated certain of these covenants and has obtained a
temporary waiver of these covenants from the holder of this debt.
4. INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109,
the Company recognizes a current tax liability or asset for current taxes
payable or refundable and a deferred tax liability or asset for the estimated
future tax effects of temporary differences and carryforwards to the extent they
are realizable.
The income tax provision at December 31, 1995 is comprised of the following:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Current:
Federal......................................................................... $ 463,000
State........................................................................... 143,000
----------
606,000
----------
Deferred (prepaid):
Federal......................................................................... 67,000
State........................................................................... 21,000
----------
88,000
----------
$ 694,000
----------
----------
</TABLE>
The difference between the Company's effective tax rate and its statutory
tax rate is principally a result of the effect of state income taxes.
F-24
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Pursuant to the provisions of SFAS No. 109, the Company has recorded a net
deferred tax asset of approximately $357,000 and no valuation reserve in the
accompanying consolidated balance sheets as of December 31, 1995.
Deferred income taxes result from timing differences of expenses for tax and
financial reporting purposes. The differences relate primarily to reserves and
accruals not currently deductible for tax purposes.
5. PROFIT SHARING 401(K) PLAN
Through November 30, 1995, the Company maintained a profit sharing 401(k)
plan for all employees who had completed at least six months of service. As of
November 30, 1995, the plan was terminated, and all funds were placed in a trust
as of December 27, 1995 pending final distribution, anticipated in the first
quarter of 1996, to the plan's participants. Contributions to the plan were at
the discretion of the Company's Board of Directors. The Company made no
contributions to the plan for the year ended December 31, 1995.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
The Company leases manufacturing and office facilities from New England Book
Real Estate Trust (the Trust), a partnership that is wholly owned by three
stockholders of the Company. The lease agreement is for a period of 10 years,
expiring in August 1997. The agreement requires the payment of a minimum annual
rental of $420,000 in the initial year plus an escalation amount based on the
change in the consumer price index. The Company also leases a warehouse and
office facility, and certain machinery and equipment under operating leases from
unrelated parties.
The minimum rental commitments as of December 31, 1995 under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1996............................................................................ $ 1,376,000
1997............................................................................ 1,223,000
1998............................................................................ 593,000
1999............................................................................ 443,000
2000............................................................................ 295,000
------------
$ 3,930,000
------------
------------
</TABLE>
Total rent expense under these noncancelable operating leases for the years
ended December 31, 1995 was approximately $1,781,000 of which approximately
$553,000 was paid to the Trust.
F-25
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SELF-INSURANCE
The Company maintains a self-insured program of health coverage for its
employees. The program is administered by an outside party that processes
payments and submits monthly statements to the Company. Through an excess
liability insurance policy, the Company is covered for aggregate payments in
excess of approximately $129,000 per month. Related insurance expense included
in the accompanying consolidated statements of income is approximately $898,000
for the year ended December 31, 1995.
POSTRETIREMENT BENEFITS
The Company has no obligations for postretirement benefits.
PURCHASE COMMITMENTS
On March 24, 1995, the Company entered into an agreement to purchase certain
printing equipment amounting to approximately $3,900,000. The delivery date was
originally scheduled for September 1995. Due to the pending sale of the Company
(see Note 9), the Company had requested that the manufacturer of the printing
equipment cancel the agreement. The manufacturer, therefore, has not delivered
the equipment but has requested that the Company honor the agreement. The
Company is currently in negotiations with the manufacturer to resolve the
dispute. The manufacturer has requested a lump-sum payment from the Company to
release the Company from its obligation to purchase and take possession of the
equipment; however, no agreement has been reached. The Company has written off
approximately $228,000 of deposits on the equipment and related financing costs,
included in restructuring expenses in the accompanying consolidated statements
of income, as of December 31, 1995. The amount of additional liability, if any,
cannot presently be estimated.
7. STOCK OPTIONS
The Company maintains a nonqualified stock option plan (the 1987 Plan) under
which 30,000 shares of the Company's common stock has been reserved for issuance
to key employees. At December 31, 1995, the Company had no outstanding stock
options under the 1987 Plan.
During 1991, the Company entered into a stock option agreement with an
employee of the Company granting the employee the option to purchase 30,000
shares of the Company's common stock at an exercise price of $15 per share,
expiring on September 15, 2001. The options vested at the rate of 3,000 shares
per year on each anniversary date, commencing on January 15, 1992. in the event
the Company is sold, as defined in the agreement, all 30,000 shares vest
approximately 30 days prior to consummation of the sale. Effective November 1,
1995, the employee became fully vested as a result of the pending sale of the
Company as described in Note 9. The employee has not exercised any of the
options as of December 31, 1995.
8. INCENTIVE COMPENSATION PLAN
During 1992, the Company instituted a management incentive compensation plan
for top management. The plan is administered by the principals committee and
provides for annual bonuses based on predefined levels of operating results.
During 1995, the Company provided for no bonuses related to this plan.
F-26
<PAGE>
NEW ENGLAND BOOK HOLDING CORPORATION
AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITION OF COMPANY
On December 27, 1995, the stockholders of the Company entered into a stock
purchase agreement with Phoenix Color Corp. (Phoenix) to sell all of their
common stock to Phoenix. The final closing occurred on February 1, 1996, on
which date all of the outstanding common stock of the Company was sold to
Phoenix.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................................. 3
Risk Factors................................................... 6
Use of Proceeds................................................ 10
Capitalization................................................. 11
Dividend Policy................................................ 12
Dilution....................................................... 12
Selected Financial Data........................................ 13
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 15
Business....................................................... 19
Management..................................................... 26
Principal Stockholders......................................... 30
Certain Transactions........................................... 31
Description of Capital Stock................................... 31
Shares Eligible for Future Sale................................ 36
Underwriting................................................... 37
Legal Matters.................................................. 38
Experts........................................................ 38
Additional Information......................................... 38
Index to Financial Statements.................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,000,000 SHARES
PHOENIX COLOR CORP.
COMMON STOCK
--------------------
P R O S P E C T U S
------------------------
CIBC OPPENHEIMER
PAINEWEBBER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
\
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
Offering:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $13,570.00
NASD Filing Fee................................................. 5,560.00
Accounting Fees and Expenses.................................... *
Legal Fees and Expenses, including Blue Sky..................... *
Printing and Engraving Expenses................................. *
Transfer Agent and Registrar Fees............................... *
Miscellaneous Fees and Expenses................................. *
---------
Total Expenses.............................................. $ *
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b) (7) of the Delaware General Corporation Law
(the "DGCL), the Company's Amended and Restated Certificate of Incorporation and
the Company's Amended and Restated By-Laws eliminate in certain circumstances
the liability of directors of the Company for monetary damages for breach of
their fiduciary duty as directors. This provision does not eliminate the
liability of a director: (i) for breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions by the director not in
good faith or which involve intentional misconduct or a knowing violation of the
law; (iii) under Section 174 of the DGCL; or (iv) for transactions from which
the director derived an improper personal benefit. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party 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 the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party 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 to procure a judgment in its favor by reason of the fact that
such a person acted in any of the capacities set forth above, against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that
II-1
<PAGE>
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee, or agent of a corporation has been successful in the defense
of any action, suit, or proceeding referred to in subsections (s) and (b) or in
the defense of any claim, issue, or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145 of
the DGCL shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of any person acting in any of the capacities set
forth in the second preceding paragraph against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145 of the DGCL.
The Company's Bylaws require the Company, under certain circumstances, to
indemnify any person who is or was a director or officer against expense
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Bylaws of the Company
also provide that expenses incurred by a director or officer in defending or
investigating a threatened or pending action, suit or proceeding shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitle to be indemnified by the Company as authorized in the Bylaws.
In addition, the Company will apply for directors' and officers' liability
insurance which, if issued, insures against liabilities that directors and
officers of the Company may incur in such capacities. The risks covered by such
policies do not exclude liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
No securities have been issued or sold by Registrant within the past three
years.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
<TABLE>
<C> <S>
(a) Exhibits
-------------------------------------------------------------------------------------
1.01 Form of Underwriting Agreement
3.01 Certificate of Incorporation
3.02 Amended and Restated Certificate of Incorporation*
3.03 Plan and Agreement of Merger of Phoenix Color Corp. (New York) into Phoenix Merger
Corp. (Delaware)
3.04 By-Laws of the Registrant
3.05 Amended and Restated By-Laws*
4.01 Form of Certificate for shares of Common Stock*
5.01 Opinion of Rosner Bressler Goodman & Unterman, LLP ( including the consent of such
firm) regarding the legality of the securities being offered*
10.01 Stock Purchase Agreement dated as of December 27, 1995 among Phoenix Color Corp. and
various stockholders of New England Book Holding Corporation
10.02 Escrow Agreement dated February 1, 1996 among Phoenix Color Corp. and various
stockholders of New England Book Holding Corporation
10.03 Form of Employment Agreement dated , 1998 between the Company and Louis La
Sorsa
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.04 Form of Employment Agreement dated , 1998 between the Company and Edward
Lieberman
10.05 Form of Employment Agreement dated , 1998 between the Company and Dion von der
Lieth
10.06 Form of Employment Agreement dated , 1998 between the Company and John Carbone
10.07 Loan and Security Agreement with CoreStates Bank, N.A. and Fleet Bank dated as of
February 1, 1996
10.08 Form of Stock Pledge Agreement with CoreStates Bank, N.A. and Fleet Bank dated as of
February 1, 1996
10.09 Form of Surety Agreement dated as of February 1, 1996 with Corestates Bank, N.A. and
Fleet Bank
21.01 Subsidiaries of Registrant
23.01 Consent of Rosner Bresler Goodman & Unterman, LLP (included as part of Exhibit 5.01
hereto)
23.02 Consent of Coopers & Lybrand L.L.P.
23.03 Consent of Arthur Andersen LLP
24. Power of Attorney**
</TABLE>
(b) Supplemental Financial Statement Schedules
Schedule of Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(i) 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 of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(ii) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(iii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(iv) To provide to the Underwriter, at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
- ------------------------
* To be filed by amendment
** Included with signatures
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 24th day of April , 1998.
PHOENIX COLOR CORP.
BY: /S/ LOUIS LASORSA
-----------------------------------------
Louis LaSorsa
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints LOUIS LASORSA and EDWARD LIEBERMAN and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agents or any
of them or their or his substitute or substitutes, may unlawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or thereto has been signed below by the following persons
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ LOUIS LASORSA Chairman, President, Chief
- ------------------------------ Executive Officer and April 24, 1998
Louis LaSorsa Director
Executive Vice President,
/s/ EDWARD LIEBERMAN Principal Financial
- ------------------------------ Officer, Secretary and April 24, 1998
Edward Lieberman Director
/s/ DION VON DER LIETH Senior Vice President Sales
- ------------------------------ and Marketing, and April 24, 1998
Dion Von Der Lieth Director
/s/ JOHN CARBONE Vice President
- ------------------------------ Manufacturing, Book April 24, 1998
John Carbone Components, and Director
/s/ ANDREW J. GOODMAN Assistant Secretary and
- ------------------------------ Director April 24, 1998
Andrew J. Goodman
/s/ GOVI C. REDDY Director
- ------------------------------ April 24, 1998
Govi C. Reddy
/s/ DAVID RUBIN Director
- ------------------------------ April 24, 1998
David Rubin
II-4
<PAGE>
SCHEDULE OF
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- ---------------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997
Trade receivables allowance..................................... $ 153 -- $ (11) $ 142
Trade receivables rebates....................................... $ 534 $ 532 $ (534) $ 532
----- ----- ----- -----
$ 687 $ 532 $ (545) $ 674
----- ----- ----- -----
----- ----- ----- -----
For the year ended December 31, 1996
Trade receivables allowance..................................... -- $ 153 -- $ 153
Trade receivables rebates....................................... -- $ 534 -- $ 534
----- ----- ----- -----
-- $ 687 -- $ 687
----- ----- ----- -----
----- ----- ----- -----
For the year ended December 31, 1995
Trade receivables allowance..................................... -- -- -- --
Trade receivables rebates....................................... -- -- -- --
----- ----- ----- -----
-- -- -- --
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
S-1
<PAGE>
Exhibit 1.01
4,000,000 Shares
PHOENIX COLOR CORP.
Common Stock
UNDERWRITING AGREEMENT
----------------------
[__________ __, 1998]
CIBC Oppenheimer Corp.
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
Phoenix Color Corp., a Delaware corporation (the "Company"), proposes
to sell to you and the other underwriters named on Schedule I to this Agreement
(the "Underwriters"), for whom you are acting as Representatives, an aggregate
of 4,000,000 shares (the "Firm Shares") of the Company's Common Stock, $0.01 par
value per share (the "Common Stock"). In addition, the Company proposes to
grant to the Underwriters an option to purchase up to an additional 600,000
shares (the "Option Shares") of Common Stock from it for the purpose of covering
over-allotments in connection with the sale of the Firm Shares. The Firm Shares
and the Option Shares are together called the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $_____ per share (the "Initial Price"), the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule I to
this Agreement.
<PAGE>
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in whole
or in part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined below), and
only once thereafter within 30 days after the date of this Agreement, in
each case upon written or telegraphic notice, or verbal or telephonic
notice confirmed by written or telegraphic notice, by the Representatives
to the Company no later than 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date or at least two business
days before the Option Shares Closing Date (as defined below), as the case
may be, setting forth the number of Option Shares to be purchased and the
time and date (if other than the Firm Shares Closing Date) of such
purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares
to the Representatives for the respective accounts of the Underwriters, and
payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds to the Company, shall take
place at the offices of Oppenheimer & Co., Inc., at Oppenheimer Tower, World
Financial Center, New York, New York 10281, at 10:00 a.m., New York City time,
on the fifth business day following the date of this Agreement, or at such time
on such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by certified or official bank check or checks payable in New York Clearing
House (next day) funds to the Company shall take place at the offices of
Oppenheimer & Co., Inc. specified above at the time and on the date (which may
be the same date as, but in no event shall be earlier than, the Firm Shares
Closing Date) specified in the notice referred to in Section 1(b) (such time and
date of delivery and payment are called the "Option Shares Closing Date"). The
Firm Shares Closing Date and the Option Shares Closing Date are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
-2-
<PAGE>
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
33-_____), including a preliminary prospectus relating to the Shares, and has
filed with the Commission the Registration Statement (as hereinafter defined)
and such amendments thereof as may have been required to the date of this
Agreement. Copies of such Registration Statement (including all amendments
thereof) and of the related preliminary prospectus have heretofore been
delivered by the Company to you. The term "preliminary prospectus" means any
preliminary prospectus (as described in Rule 430 of the Rules) included at any
time as a part of the Registration Statement. The Registration Statement as
amended at the time and on the date it becomes effective (the "Effective Date"),
including all exhibits and information, if any, deemed to be part of the
Registration Statement pursuant to Rule 424(b) and Rule 430A of the Rules, is
called the "Registration Statement." The term "Prospectus" means the prospectus
in the form first used to confirm sales of the Shares (whether such prospectus
was included in the Registration Statement at the time of effectiveness or was
subsequently filed with the Commission pursuant to Rule 424(b) of the Rules).
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus (as from time to time
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date the Registration Statement complied, and on
the date of the Prospectus, on the date any post-effective amendment to the
Registration Statement shall become effective, on the date any supplement
or amendment to the Prospectus is filed with the Commission and on each
Closing Date, the Registration Statement and the Prospectus (and any
amendment thereof or supplement thereto) will comply, in all material
respects, with the applicable provisions of the Securities Act and the
Rules and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder; the
Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and on the other dates referred to above neither
the Registration Statement nor the Prospectus, nor any amendment thereof or
supplement thereto, will contain any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. When any
related preliminary prospectus was first filed with the Commission (whether
filed as part of the Registration Statement or any amendment
-3-
<PAGE>
thereto or pursuant to Rule 424(a) of the Rules) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus as amended or supplemented complied in all material
respects with the applicable provisions of the Securities Act and the Rules
and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty as to the
paragraph with respect to stabilization on the inside front cover page of
the Prospectus and the statements contained under the caption
"Underwriting" in the Prospectus. The Company acknowledges that the
statements referred to in the previous sentence constitute the only
information furnished in writing by the Representatives on behalf of the
several Underwriters specifically for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus.
(b) All contracts and other documents required to be filed as
exhibits to the Registration Statement have been filed with the Commission
as exhibits to the Registration Statement.
(c) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus
present fairly the financial position, the results of operations and cash
flows and the stockholders' equity and the other information purported to
be shown therein of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of the results for such periods have been
made.
(d) Coopers & Lybrand L.L.P., whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants as
required by the Securities Act and the Rules.
(e) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
The Company's only subsidiary is PCC Express, Inc. and the Company does not
control, directly or indirectly, any corporation, partnership, joint
venture, association or other business organization other than PCC Express,
Inc. The Company and its subsidiary are duly qualified and in good
standing as foreign corporations in each jurisdiction in which the
character or location of their assets or properties (owned, leased or
licensed) or the nature of their respective businesses makes such
qualification necessary except for such jurisdictions where the failure to
so qualify would not have a material adverse effect on the assets or
properties, business, results of operations or financial condition of the
Company or its subsidiary. Except as disclosed in the Registration
Statement and the Prospectus, the Company does not own, lease or license
any asset or property or conduct any business outside the United States of
America. The Company has all requisite
-4-
<PAGE>
corporate power and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity, to own,
lease and license its assets and properties and conduct its businesses as
now being conducted and as described in the Registration Statement and the
Prospectus except for such authorizations, approvals, consents, orders,
material licenses, certificates and permits the failure to so obtain would
not have a material adverse effect upon the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of
the Company; no such authorization, approval, consent, order, license,
certificate or permit contains a materially burdensome restriction other
than as disclosed in the Registration Statement and the Prospectus; and the
Company has all such corporate power and authority, and such
authorizations, approvals, consents, orders, licenses, certificates and
permits to enter into, deliver and perform this Agreement and to issue and
sell the Shares.
(f) The Company owns or possesses adequate and enforceable rights to
use all trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how and other similar
rights and proprietary knowledge (collectively, "Intangibles") necessary
for the conduct of its business as described in the Registration Statement
and the Prospectus. The Company has not received any notice of, or to its
best knowledge is not aware of, any infringement of or conflict with
asserted rights of others with respect to any Intangibles which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect upon the assets or
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company.
(g) The Company has good title to each of the items of personal
property which are reflected in the financial statements referred to in
Section 4(c) or are referred to in the Registration Statement and the
Prospectus as being owned by it and valid and enforceable leasehold
interests in each of the items of real and personal property which are
referred to in the Registration Statement and the Prospectus as being
leased by it, in each case free and clear of all liens, encumbrances,
claims, security interests and defects, other than those described in the
Registration Statement and the Prospectus and those which do not and will
not have a material adverse effect upon the assets or properties, business,
results of operations or financial condition of the Company.
(h) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or, to the Company's best knowledge, threatened (and the Company
does not know of any basis therefor) against, or involving the assets,
properties or business of, the Company which would materially adversely
affect the value or the operation of any such assets or properties or the
business, results of operations, prospects or condition (financial or
otherwise) of the Company.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not
-5-
<PAGE>
been any material adverse change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise), of
the Company, whether or not arising from transactions in the ordinary
course of business; (ii) the Company has not sustained any material loss or
interference with its assets, businesses or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree; and (iii) since
the date of the latest balance sheet included in the Registration Statement
and the Prospectus, except as reflected therein, the Company has not (a)
issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except such liabilities or obligations
incurred in the ordinary course of business, (b) entered into any
transaction not in the ordinary course of business or (c) declared or paid
any dividend or made any distribution on any shares of its stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its stock.
(j) There is no document or contract of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by and
against the Company in accordance with its terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto. Neither the Company, nor to the best of the Company's knowledge,
any other party is in default in the observance or performance of any term
or obligation to be performed by it under any such agreement, and no event
has occurred which with notice or lapse of time or both would constitute
such a default, in any such case which default or event would have a
material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company.
No default exists, and no event has occurred which with notice or lapse of
time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company of any other
agreement or instrument to which the Company is a party or by which it or
its properties or business may be bound or affected which default or event
would have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of
the Company.
(k) The Company is not in violation of any term or provision of its
charter or by-laws or of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of such
violation would have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company.
(l) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or
-6-
<PAGE>
an event which with notice or lapse of time or both would constitute a
default) under, or require any consent or waiver under, or result in the
execution or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company pursuant to the terms of, any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which it or any of its properties or
businesses is bound, or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation applicable to the Company or violate any
provision of the charter or by-laws of the Company, except for such
consents or waivers which have already been obtained and are in full force
and effect.
(m) The Company has an authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of Common Stock have been duly and validly issued and
are fully paid and nonassessable and none of them was issued in violation
of any preemptive or other similar right. The Shares, when issued and sold
pursuant to this Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar right. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant or
other right calling for the issuance of, and there is no commitment, plan
or arrangement to issue, any share of stock of the Company or any security
convertible into, or exercisable or exchangeable for, such stock. The
Common Stock and the Shares conform in all material respects to all
statements in relation thereto contained in the Registration Statement and
the Prospectus.
(n) No holder of any security of the Company has the right to have
any security owned by such holder included in the Registration Statement or
to demand registration of any security owned by such holder during the
period ending 180 days after the date of this Agreement. Each of the
Company, its officers and directors and each of its current stockholders
has delivered to the Representatives its or his enforceable written
agreement that he will not, for a period of 180 days after the date of this
Agreement, offer for sale, sell, distribute, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for any
shares of Common Stock) owned by him, without the prior written consent of
CIBC Oppenheimer Corp., on behalf of the Representatives.
(o) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly authorized, executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except (A) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles and (B) to the extent that rights to indemnity or contribution
under this Agreement may be limited by federal and state securities laws or
the public policy underlying such laws.
-7-
<PAGE>
(p) The Company is not involved in any labor dispute nor, to the
knowledge of the Company, is any such dispute threatened, which dispute
would have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of
the Company.
(q) No transaction has occurred between or among the Company and any
of its officers or directors or any affiliate or affiliates of any such
officer or director that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(r) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of any of the Shares.
(s) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has
received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material
and have become due.
(t) The Shares have been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System.
(u) The Company has complied with all of the requirements and filed
the required forms as specified in Florida Statutes Section 517.075.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(A)(a) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as
if made on such date and the
-8-
<PAGE>
Company shall have performed all covenants and agreements and satisfied all
the conditions contained in this Agreement required to be performed or
satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
of the chief executive or chief operating officer and the chief financial
officer or chief accounting officer of the Company to the effect that the
signers of such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the representations
and warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on such Closing
Date and the Company has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date.
(e) The Representatives shall have received on the Effective Date, at
the time this Agreement is executed and on each Closing Date a signed
letter from Coopers & Lybrand L.L.P. addressed to the Representatives and
dated, respectively, the Effective Date, the date of this Agreement and
each such Closing Date, in form and substance reasonably satisfactory to
the Representatives, confirming that they are independent accountants
within the meaning of the Securities Act and the Rules, that the response
to Item 10 of the Registration Statement is correct insofar as it relates
to them and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement
and the Prospectus and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Consolidated Financial Information" and "Selected Consolidated
Financial Data," carrying out certain procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter, a reading of the
minutes of the meetings of the stockholders and directors of the
Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company as
to transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the Registration
Statement and the Prospectus, nothing came to their attention which
caused them to believe that:
(A) the amounts in "Summary Consolidated Financial
Information" and "Selected Consolidated Financial Data" included
in the Registration Statement and the Prospectus do not agree
with the
-9-
<PAGE>
corresponding amounts in the audited financial statements from
which such amounts were derived; or
(B) with respect to the Company, there were, at a specified
date not more than five business days prior to the date of the
letter, any increases in the current liabilities and long-term
liabilities of the Company or any decreases in net income or in
working capital or the stockholders' equity in the Company, as
compared with the amounts shown on the Company's audited balance
sheet for the fiscal year ended December 31, 1997 included in the
Registration Statement; and
(iii) they have performed certain other procedures as a result
of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general
accounting records of the Company) set forth in the Registration
Statement and the Prospectus and reasonably specified by the
Representatives agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the
date of the letter.
(f) The Representatives shall have received on each Closing Date from
Rosner Bresler Goodman & Unterman, LLP, counsel for the Company, an
opinion, addressed to the Representatives and dated such Closing Date, and
stating in effect that:
(i) The Company and its subsidiary have been duly organized
and are validly existing as corporations in good standing under the
laws of the State of Delaware. To the best of such counsel's
knowledge, the Company does not control, directly or indirectly, any
corporation, partnership, joint venture, association or other business
organization other than PCC Express, Inc. The Company and its
subsidiary are duly qualified and in good standing as foreign
corporations in each jurisdiction in which the character or location
of their respective assets or properties (owned, leased or licensed)
or the nature of their respective businesses makes such qualification
necessary, except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company or its subsidiary.
(ii) The Company has all requisite corporate power and
authority to own, lease and license its assets and properties and
conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus; and the Company has all
requisite corporate power and authority and all necessary
authorizations, approvals, consents, orders, licenses, certificates
and permits to enter into, deliver and perform this Agreement and to
issue and sell the Shares.
-10-
<PAGE>
(iii) The Company has authorized and issued capital stock as
set forth in the Registration Statement and the Prospectus; the
certificates evidencing the Shares are in due and proper legal form
and have been duly authorized for issuance by the Company; all of the
outstanding shares of Common Stock of the Company have been duly and
validly authorized and have been duly and validly issued and are fully
paid and nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Shares when issued and sold
pursuant to this Agreement, will be duly and validly issued,
outstanding, fully paid and nonassessable and none of them will have
been issued in violation of any preemptive or other similar right. To
the best of such counsel's knowledge, except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any share of stock of the
Company or any security convertible into, exercisable for, or
exchangeable for stock of the Company. The Common Stock and the
Shares conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(iv) The agreement of the Company, its officers and directors
and its other stockholders stating that for a period of 180 days from
the date of this Agreement they will not, without the prior written
consent of CIBC Oppenheimer Corp., sell, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any securities convertible into, exercisable for, or
exchangeable for shares of Common Stock, has been duly and validly
delivered by such persons and constitutes the legal, valid and binding
obligation of each such person enforceable against each such person in
accordance with its terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(v) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms except (A) as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles and
(B) to the extent that rights to indemnity or contribution under this
Agreement may be limited by federal or state securities laws or the
public policy underlying such laws.
(vi) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated
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hereby (including, without limitation, the issuance and sale by the
Company of the Shares) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or constitute a
default (or any event which with notice or lapse of time, or both,
would constitute a default) under, or require consent or waiver under,
or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company pursuant to
the terms of any indenture, mortgage, deed trust, note or other
agreement or instrument of which such counsel is aware and to which
the Company is a party or by which it or any of its properties or
businesses is bound, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation of which such counsel is
aware or violate any provision of the charter or by-laws of the
Company.
(vii) To the best of such counsel's knowledge, no default
exists, and no event has occurred which with notice or lapse of time,
or both, would constitute a default, in the due performance and
observance of any term, covenant or condition by the Company of any
indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company is a party or by which it or any of
its assets or properties or businesses may be bound or affected, where
the consequences of such default would have a material and adverse
effect on the assets, properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company.
(viii) To the best of such counsel's knowledge, the Company is
not in violation of any term or provision of its charter or by-laws or
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation, where the consequences of such violation would have a
material and adverse effect on the assets or properties, businesses,
results of operations, prospects or condition (financial or otherwise)
of the Company.
(ix) No consent, approval, authorization or order of any court
or governmental agency or body is required for the performance of this
Agreement by the Company or the consummation of the transactions
contemplated hereby, except such as have been obtained under the
Securities Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the several Underwriters.
(x) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company or its subsidiary which would have a material adverse
effect upon the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company.
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<PAGE>
(xi) The statements in the Prospectus under the captions
"Description of Capital Stock," "Liquidity and Capital Resources,"
"Business," "Shares Eligible for Future Sale," "Management-Employment
Agreements," "Certain Transactions" and "Description of Capital Stock"
insofar as such statements constitute a summary of documents referred
to therein or matters of law, are fair summaries in all material
respects and accurately present the information called for with
respect to such documents and matters. All contracts and other
documents required to be filed as exhibits to, or described in, the
Registration Statement have been so filed with the Commission or are
fairly described in the Registration Statement, as the case may be.
(xii) The Registration Statement, all preliminary prospectuses
and the Prospectus, and each amendment or supplement thereto (except
for the financial statements and schedules and other financial and
statistical data included therein, as to which such counsel expresses
no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules.
(xiii) The Registration Statement has become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are threatened, pending or
contemplated.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware and
the federal laws of the United States; provided that such counsel shall state
that in their opinion the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
specified in the foregoing opinion), on the basis of the foregoing, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective (except with
respect to the financial statements and notes and schedules thereto and other
financial data, as to which such counsel need express no belief) contained any
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 as amended or supplemented (except with respect to the
financial statements and notes schedules thereto and other financial data, as to
which such
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<PAGE>
counsel need make no statement) on the date thereof contained any 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.
(g) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel
and the Underwriters shall have received from Rosner Bresler Goodman &
Unterman, LLP a favorable opinion, addressed to the Representatives and
dated such Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have
furnished to Rosner Bresler Goodman & Unterman, LLP such documents as they
may reasonably request for the purpose of enabling them to pass upon such
matters.
(h) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives, and dated such Closing Date,
of an executive officer of the Company to the effect that the signer of
such certificate has reviewed and understands the provisions of Section
517.075 of the Florida Statutes, and represents that the Company has
complied, and at all times will comply, with all provisions of Section
517.075 and further, that as of such Closing Date, neither the Company nor
any of its affiliates does business with the government of Cuba or with any
person or affiliate located in Cuba.
6. COVENANTS OF THE COMPANY.
(A) The Company covenants and agrees as follows:
(a) The Company shall prepare the Prospectus in a form approved by
the Representatives and file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement,
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act, and shall promptly advise the Representatives (i)
when any amendment to the Registration Statement shall have become
effective, (ii) of any request by the Commission for any amendment of the
Registration Statement or the Prospectus or for any additional information,
(iii) of the prevention or suspension of the use of any preliminary
prospectus or the Prospectus or of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose and (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The
Company shall not file any amendment of the Registration Statement or
supplement to the Prospectus unless the Company has furnished to the
Representatives a copy for its review prior to filing and shall not file
any such proposed amendment or supplement to which the Representatives
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reasonably object. The Company shall use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented
would include any 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, or if it shall be
necessary to amend or supplement the Prospectus to comply with the
Securities Act or the Rules, the Company promptly shall prepare and file
with the Commission, subject to the second sentence of paragraph (a) of
this Section 6(A), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such compliance.
(c) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not later
than 45 days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the Effective Date occurs
(or 90 days if such 12-month period coincides with the Company's fiscal
year), an earning statement (which need not be audited) of the Company,
covering such 12-month period, which shall satisfy the provisions of
Section 11(a) of the Securities Act or Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and to
each other Underwriter a copy of the Registration Statement (without
exhibits thereto) and all amendments thereof and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Securities
Act or the Rules, as many copies of any preliminary prospectus and the
Prospectus and any amendments thereof and supplements thereto as the
Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under the
laws of such jurisdictions as the Representatives may designate and shall
maintain such qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the Company shall not
be required in connection therewith, as a condition thereof, to qualify as
a foreign corporation or to execute a general consent to service of process
in any jurisdiction or subject itself to taxation as doing business in any
jurisdiction.
(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Representatives, and to each other Underwriter
who may so request in writing, copies of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock and
to furnish to the Representatives a copy of each annual or other report it
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<PAGE>
shall be required to file with the Commission (including the Report on Form
SR required by Rule 463 of the Rules).
(g) Without the prior written consent of CIBC Oppenheimer Corp., for
a period of 180 days after the date of this Agreement, the Company shall
not issue, sell or register with the Commission (other than on Form S-8 or
on any successor form), or otherwise dispose of, directly or indirectly,
any equity securities of the Company (or any securities convertible into or
exercisable or exchangeable for equity securities of the Company, except
for the issuance of the Shares pursuant to the Registration Statement. In
the event that during this period, any registration is effected on Form S-8
or on any successor form, the Company shall obtain the written agreement of
such grantee or purchaser or holder of such registered securities that, for
a period of 180 days after the date of this Agreement, such person will
not, without the prior written consent of CIBC Oppenheimer Corp., offer for
sale, sell, distribute, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or exercise any registration rights
with respect to, any shares of Common Stock (or any securities convertible
into, exercisable for, or exchangeable for any shares of Common Stock)
owned by such person.
(h) On or before completion of this offering, the Company shall make
all filings required under applicable securities laws and by the NASDAQ
National Market System (including any required registration under the
Exchange Act).
(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and the
printing, filing and distribution of this Agreement; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(A)(e), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments or supplements
to the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom Shares
may be sold; (v) the filing fees of the National Association of Securities
Dealers, Inc. in connection with its review of the terms of the public offering;
(vi) the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of all reports and information
required by Section 6(A)(f); (vii) inclusion of the Shares for quotation on the
NASDAQ National Market System; and (viii) all transfer taxes, if any, with
respect to the sale and delivery of the Shares by the Company to the
Underwriters. Subject to the provisions of
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<PAGE>
Section 9, the Underwriters agree to pay, whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, all costs
and expenses incident to the performance of the obligations of the Underwriters
under this Agreement not payable by the Company pursuant to the preceding
sentence, including, without limitation, the fees and disbursements of counsel
for the Underwriters.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all losses, claims, damages and liabilities,
joint or several (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they, or
any of them, may become subject under the Securities Act, the Exchange Act
or other federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto, or arise out
of or are based upon 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; provided, however, that such indemnity
shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in such preliminary prospectus, the
Registration Statement or the Prospectus, or such amendment or supplement,
in reliance upon and in conformity with information furnished in writing to
the Company by the Representatives on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement
thereto, contained in the last paragraph of the cover page, in the
paragraph relating to stabilization on the inside front cover page of the
Prospectus and the statements contained under the caption "Underwriting" in
the Prospectus; provided, however, that the obligation of each Underwriter
to indemnify the Company (including any controlling person, director or
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officer thereof) shall be limited to the net proceeds received by the
Company from such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available to
any party who shall fail to give notice as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to
give such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise
than under this Section. In case any such action, suit or proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval by
the indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of
counsel by such indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such
action (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume
the defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action,
suit, proceeding or claim effected without its written consent.
8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) is due in accordance with its terms but for any reason is held to
be unavailable from the Company, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the
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Underwriters, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who may also be liable for contribution) to which
the Company and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering of
the Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting discounts but before deducting
expenses) received by the Company, as set forth in the table on the cover page
of the Prospectus, bear to (y) the underwriting discounts received by the
Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company or the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact related to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Underwriters 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 above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Underwriter (except as may be provided in
the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, and (ii) the Company shall be liable and responsible for
any amount in excess of such underwriting discount; provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) in the immediately preceding sentence of this Section 8.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
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without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. TERMINATION. This Agreement may be terminated with respect to
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time
(a) in the absolute discretion of the Representatives at or before
any Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with the
offering; (iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make
it, in the judgment of the Representatives, inadvisable or impracticable to
market the Shares; (iv) if trading in the Shares has been suspended by the
Commission or trading generally on the New York Stock Exchange, Inc. or on
the American Stock Exchange, Inc. has been suspended or limited, or minimum
or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc., or any other governmental or regulatory
authority; or (v) if a banking moratorium has been declared by any state or
federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required
by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more
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substitute underwriters to purchase such Shares or make such other arrangements
as the Representatives may deem advisable or one or more of the remaining
Underwriters may agree to purchase such Shares in such proportions as may be
approved by the Representatives, in each case upon the terms set forth in this
Agreement. If no such arrangements have been made by the close of business on
the business day following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(B),
7, 8 and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
-21-
<PAGE>
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, 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 any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o Oppenheimer & Co., Inc., Oppenheimer
Tower, World Financial Center, New York, New York 10281 Attention: Michael
Kessler, and (b) if to the Company, to its agent for service as such agent's
address appears on the cover page of the Registration Statement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
-22-
<PAGE>
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
PHOENIX COLOR CORP.
By
--------------------------------
Title:
Confirmed:
OPPENHEIMER & CO., INC.
- -------------------------------
PAINEWEBBER INCORPORATED
- -------------------------------
Each acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By OPPENHEIMER & CO., INC.
By
----------------------------
Title:
By PAINEWEBBER INCORPORATED
By
----------------------------
Title:
-23-
<PAGE>
SCHEDULE I
Number of
Firm Shares to
Name Be Purchased
-----------------
Oppenheimer & Co., Inc.
PaineWebber Incorporated
--------------
Total 4,000,000
<PAGE>
State of Delaware
Page 1
Office of the Secretary of State
--------------------------------
I, EDWARD J FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "PHOENIX MERGER CORP.", FILED IN THIS OFFICE ON THE
SEVENTEENTH DAY OF JANUARY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
(SEAL) -----------------------------------
Edward J. Freel, Secretary of State
2582868 8100 AUTHENTICATION: 7793512
960014982 DATE: 01-17-96
<PAGE>
Exhibit 3.01
CERTIFICATE OF INCORPORATION
OF
PHOENIX MERGER CORP.
The undersigned, a natural person of legal age, for the purpose of
organizing a corporation pursuant to the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the corporation is
PHOENIX MERGER CORP.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is c/o United
Corporate Services, Inc., 15 East North Street, in the City of Dover, County of
Kent, State of Delaware 19901, and the name of the registered agent at said
address is United Corporate Services, Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the corporation, which shall be in addition to the authority of the
corporation to conduct any lawful business, to promote any lawful purpose, and
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, are as follows:
To print, bind, publish, circulate, distribute, buy, sell and deal in,
books, pamphlets, circulars, posters, newspapers, magazines, literature, music,
pictures, tickets, cards, advertisements, letters and bill heads, envelopes,
legal, commercial and financial forms and blanks of every kind; to acquire, by
purchase or otherwise, turn to account, license the use of, assign and deal
with, copyrights and intellectual properties of every kind; and to carry on a
general printing, engraving, lithographing, electrotyping and publishing
business in all the branches thereof.
To conduct a publishing business in all its phases, including, without
limiting the generality of the foregoing, printing, bookbinding, engraving,
photo-engraving, lithographing, duplicating, offsetting, facsimile and image,
color, line, word, shadow and other reproduction and dealing in paper and
stationery, and editing, preparing, creating, publishing, printing, binding,
buying, selling, copyrighting licensing the use of, importing, exporting,
franchising, marketing, syndicating, distributing, making, manufacturing and
generally dealing in or with respect to, any and all kinds of written or oral
matter (whether or not printed or reproduced), including, without limitation,
books, magazines, pamphlets, publications, stories, articles, features, columns
and other items of interest to men, women and children, and in any and all
equipment, machinery, plants, facilities and properties (whether real, personal
or mixed, improved or unimproved), and materials
<PAGE>
and supplies in connection with the foregoing; and to do anything necessary or
convenient in furtherance thereof.
To acquire, maintain and operate all buildings and other real property,
transportation and other facilities and conveniences, suitable for use in and
about the prosecution of its business.
The foregoing provisions of this Article THIRD shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to limit
or restrict in any manner the purposes and powers of the corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of this
certificate of incorporation; provided, that the corporation shall not conduct
business, promote any purpose, or exercise any power or privilege within or
without the State of Delaware which, under the laws thereof, the corporation may
not lawfully conduct, promote, or exercise.
FOURTH: (1) The Corporation is authorized to issue an aggregate of Two
Hundred Twenty Thousand (220,000) shares, of which Twenty Thousand (20,000)
shares shall be designated Class A Common Stock with a par value of $.01 per
share, and Two Hundred Thousand (200,000) shares shall be designated Class B
Common Stock with a par value of $.01 per share.
(2) The holders of Class A Common Stock shall be entitled to one vote
per share on all matters, including the election of directors. The holders of
Class B Common Stock shall not be entitled to vote, except as the provisions of
paragraph (2) of subsection (b) of ss. 242 of the General Corporation Law of the
State of Delaware shall otherwise require; provided, that no share of Class B
Common Stock shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of Class B Common Stock, the
authorization of any such increase or decrease to be determined by the vote of
the holders of Class A Common Stock. This provision shall prevail in all
elections and in all proceedings over the provisions of any statute which
authorizes any action by a vote or written consent of the holders of all of the
shares or a specific proportion of the shares of the corporation entitled to
vote thereon, and all rights to vote shall be vested solely in the Class A
Common Stock.
(3) Except as to voting rights, the shares of Class A Common Stock and
Class B Common Stock shall be equal in their rights, privileges and preferences,
including, without limitation, the right of the holders of Class A Common Stock
and Class B Common Stock to receive pro rata, in proportion to the number of
shares of either such class held by them, share for share alike, (i) such
dividends and other distributions on stock which the Board of Directors may
declare out of any funds or other assets of the corporation lawfully available
for distribution, and (ii) such assets as may be available for distribution to
stockholders upon any voluntary or involuntary liquidation, dissolution or
winding up of the business and affairs of the corporation.
<PAGE>
FIFTH: The name and address of the incorporator are as follows:
Name Address
---- -------
Ray A. Barr 10 Bank Street
White Plains, New York 10606
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
indebtedness held by such creditors or class of creditors, and/or three-fourths
of the shares held by the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on the corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws.
(2) The Board of Directors shall have the power without the assent or
vote of the stockholders to determine from time to time whether, and at what
times and places, and under what conditions the accounts and books of the
corporation (other than the stock ledger) or any of them, shall be open to the
inspection of the stockholders.
<PAGE>
(3) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, of this certificate, and to any
By-Laws from time to time made by the stockholders; provided, however, that no
By-Laws so made shall invalidate any prior act of the directors which would have
been valid if such ByLaws had not been made.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of ss. 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss. 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have the power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted as prescribed by said laws, and all rights at any time
conferred upon the stockholders of the corporation by this certificate of
incorporation are granted subject to the provisions of this Article ELEVENTH.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this 17th day of January, 1996.
/s/ Ray A. Barr
----------------------------------
RAY A. BARR -- Incorporator
<PAGE>
Exhibit 3.03
PLAN AND AGREEMENT OF MERGER
OF
PHOENIX COLOR CORP.
(A NEW YORK CORPORATION)
INTO
PHOENIX MERGER CORP.
(A DELAWARE CORPORATION)
This Plan and Agreement of Merger provides for the merger of Phoenix Color
Corp., a New York corporation, into Phoenix Merger Corp., a Delaware
corporation, and the change of the name of Phoenix Merger Corp. to Phoenix Color
Corp. This Plan and Agreement of Merger is entered into pursuant to the General
Corporation Law of the State of Delaware and the Business Corporation Law of the
State of New York.
1. IDENTITY OF CONSTITUENTS
(a) The name of the corporation to be merged is Phoenix Color Corp.,
a New York corporation (hereinafter the "Merged Corporation"), incorporated on
October 11, 1979.
(b) The name of the surviving corporation is Phoenix Merger Corp., a
Delaware corporation (hereinafter the "Surviving Corporation"), incorporated on
January 17, 1996.
2. OUTSTANDING SHARES
(a) As of the date hereof, the capital stock of the Merged
Corporation consists of (i) Class A Common Stock, $.01 par value, of which
11,100 shares are issued and outstanding and
<PAGE>
3,460 shares are held in treasury, and (ii) Class B Common Stock, $.01 par
value, of which 7,794 shares are issued and outstanding and 2,000 shares are
held in treasury.
(b) As of the date hereof, the capital stock of the Surviving
Corporation consists of (i) Class A Common Stock, $.01 par value, of which one
(1) share is issued and outstanding and no shares are held in treasury, and (ii)
Class B Common Stock, $.01 par value, of which no shares are issued and
outstanding and no shares are held in treasury.
3. TERMS AND CONDITIONS OF MERGER
(a) On the effective date of the merger, the Merged Corporation shall
merge with and into the Surviving Corporation. From and after the effective
date of merger, the Surviving Corporation shall continue to exist as a
corporation under the laws of the State of Delaware, except that its name shall
be changed to Phoenix Color Corp. as further set forth herein, and the Merged
Corporation shall no longer exist.
(b) After the effective date of the merger, and upon surrender of any
certificates therefor, (i) each issued and outstanding share of Class A Common
Stock of the Merged Corporation held by shareholders of the Merged Corporation
shall be exchanged for one (1) share of Class A Common Stock of the Surviving
Corporation, and (ii) each issued and outstanding share of Class B Common Stock
of the Merged Corporation held by shareholders of the Merged Corporation shall
be exchanged for one (1) share of Class B Common Stock of the Surviving
Corporation. Any shares of Class A or Class B Common Stock of the Merged
Corporation which are held in the treasury of the Merged Corporation as of the
effective date of the merger will be exchanged for and replaced
-2-
<PAGE>
by a like number of shares of Class A and Class B Common Stock of the Surviving
Corporation, on a share-for-share basis.
(c) Any share of Class A Common Stock of the Surviving Corporation
owned by the Merged Corporation on the effective date of the merger, and all
rights in respect thereof, shall cease to exist, the certificate therefor shall
be cancelled and eliminated, and no shares of the Surviving Corporation shall be
issued in exchange therefor.
(d) This merger shall be consummated in accordance with the laws of
the states of Delaware and New York.
(e) Upon the effective date of the merger, the separate existence of
the Merged Corporation shall cease and shall be merged, in accordance with the
provisions of this Plan and Agreement of Merger, into the Surviving Corporation.
The Surviving Corporation shall survive such merger and shall continue in
existence and shall, without other actions or instruments of transfer (except as
may be required by applicable law), succeed to and possess all privileges,
immunities, powers and purposes of the Merged Corporation, and all rights and
property of the Merged Corporation of any kind whatsoever, whether real or
personal, tangible or intangible, defined or inchoate, including, without
limitation, all contractual rights, claims, causes of action, and every other
conditional or unconditional right or privilege of the Merged Corporation, and
every such privilege, immunity, power, purpose, right, property or other asset
of the Merged Corporation shall vest in the Surviving Corporation without
further act or deed. The Surviving Corporation shall assume, succeed to and be
liable for all liabilities, obligations and penalties of the Merged Corporation
of any and all kinds, including, without limitation, its contractual
obligations. No liability or obligation due or to become due, or claim or
demand for any cause existing against either
-3-
<PAGE>
of the Surviving Corporation or the Merged Corporation, or against any
shareholder, officer or director thereof, shall be released or impaired by such
merger. No action or proceeding, civil or criminal, then pending by or against
either of such Corporations, or against any shareholder, officer or director
thereof, shall abate or be discontinued by such merger, but may be enforced,
prosecuted, settled or compromised as if such merger had not occurred, or,
alternatively, the Surviving Corporation may be substituted in any such action
in the place and stead of the Merged Corporation.
(f) At the effective date of the merger, the Certificate of
Incorporation of the Surviving Corporation shall continue to exist, except that
such Certificate of Incorporation shall be amended to change the name of the
Surviving Corporation to Phoenix Color Corp., which change shall be reflected
in a Certificate of Ownership and Merger to filed pursuant to this Plan and
Agreement of Merger.
(g) The By-Laws of the Surviving Corporation, as they exist on the
effective date of the merger, shall be and remain the By-Laws of the Surviving
Corporation until they shall be altered, amended or repealed as provided
therein.
(h) The directors of the Merged Corporation immediately prior to the
effective date of the merger shall be the directors of the Surviving Corporation
until their respective successors are duly elected and qualified as set forth in
the By-Laws of the Surviving Corporation, or as otherwise provided by law.
(i) The officers of the Merged Corporation immediately prior to the
effective date of the merger shall be the officers of the Surviving Corporation
until their successors are duly elected and qualified in the manner provided in
the By-Laws of the Surviving Corporation, or as otherwise provided by law.
-4-
<PAGE>
(j) The first annual meeting of the shareholders of the Surviving
Corporation held after the date when the merger becomes effective shall be the
annual meeting provided or to be provided by the By-Laws thereof.
(k) The first meeting of the Board of Directors of the Surviving
Corporation to be held after the date when the merger shall become effective may
be called or may convene in the manner provided in the By-Laws of the Surviving
Corporation and may be held at the time and place specified in the notice of the
meeting.
(l) The Chairman or President, the Chief Financial Officer and the
Secretary or Assistant Secretary of the Merged Corporation and the Surviving
Corporation, respectively, are authorized and directed to execute Certificates
of Ownership and Merger to effect the merger.
(m) The officers of the Merged Corporation and the Surviving
Corporation are authorized and directed to take any and all actions and to make,
execute, deliver, file and record any and all instruments and documents
necessary to effect any of the provisions of the merger pursuant to this Plan
and Agreement of Merger.
(n) If, at any time prior to the effective date of the merger, any
events or circumstances occur which, in the opinion of a majority of the Board
of Directors of either the Merged Corporation or the Surviving Corporation,
renders it inadvisable to consummate the merger, this Plan and Agreement of
Merger shall not become effective even though previously approved by the
stockholders of either of the Merged Corporation or the Surviving Corporation.
However, the filing of a Certificate of Ownership and Merger shall conclusively
establish that no action to terminate this Plan of Merger has been taken by the
Board of Directors of either of such Corporations.
-5-
<PAGE>
(o) The Surviving Corporation shall pay all the expenses of carrying
this Plan and Agreement of Merger into effect and of accomplishing the merger.
(p) For the convenience of the parties and to facilitate approval of
this Plan and Agreement of Merger, any number of counterparts thereof may be
executed, and each such executed counterpart shall be deemed to be an original
instrument.
4. EFFECTIVE DATE
The effective date of the merger shall be the date of filing of a
certificate of merger in the state of incorporation of the Surviving
Corporation.
5. POST-EFFECTIVE ACTIONS AND FURTHER ASSURANCES.
If at any time after the effective date of the merger the Surviving
Corporation shall consider that any further assurances, agreements, assignments,
deeds or other acts are necessary or desirable to confirm or vest in the
Surviving Corporation the ownership of any property or rights acquired or
intended to be acquired by reason of or as a result of the merger, or to
otherwise effectuate the purposes of this Plan and Agreement of Merger, the
Surviving Corporation and its officers and directors are hereby authorized and
directed to execute and deliver all such assurances, agreements, assignments and
deeds and to take all actions necessary or desirable to carry out the purposes
of this Plan and Agreement of Merger in the name and on behalf of the Merged
Corporation and the Surviving Corporation, as the case may be.
The foregoing Plan and Agreement of Merger, having been approved and
adopted by resolution of the respective Boards of Directors of the Surviving
Corporation and the Merged
-6-
<PAGE>
Corporation, and having been approved and adopted by the stockholders of each of
such Corporations, is hereby executed in accordance with the laws of the State
of Delaware and the State of New York this 26th day of January, 1996.
PHOENIX COLOR CORP.
(a New York Corporation)
By: /s/ Louis LaSorsa
------------------------------------
Louis LaSorsa,
Chief Executive Officer
By: /s/ Edward Lieberman
------------------------------------
Edward Lieberman,
Secretary
PHOENIX MERGER CORP.
(a Delaware Corporation)
By: /s/ Louis LaSorsa
------------------------------------
Louis LaSorsa,
Chairman and Chief Executive
Officer
By: /s/ Edward Lieberman
------------------------------------
Edward Lieberman,
Secretary
-7-
<PAGE>
Exhibit 3.04
BY-LAWS
of
PHOENIX MERGER CORP.
ARTICLE I - OFFICES
The principal office of the corporation shall be located in Hagerstown,
Maryland. The corporation may also have such other offices, within or without
the State of Delaware, as the board may from time to time determine or the
business of the corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such place as the board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held on the second
Saturday in February at 9:30 A.M. in each year if not a legal holiday, and, if a
legal holiday, then on the next Saturday following at the same hour, or at such
other date and time as the board shall determine, when the shareholders shall
elect a board and transact such other business as may properly come before the
meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the board or by
the president or secretary and shall be called by the president or the secretary
at the request in writing of a majority of the board or at the request in
writing by shareholders owning at least 30% of the corporations issued and
outstanding voting shares. Such request shall state the purpose or purposes of
the proposed meeting. Business transacted at a special meeting shall be confined
to the purposes stated in the notice.
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any
<PAGE>
dividend or the allotment of any rights, or for the purpose of any other action,
the board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of such meeting, and no more than fifty days prior
to any other action. If no record date is fixed, such date shall be determined
in accordance with the provisions of law.
5. NOTICE OF MEETING OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose
or purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten nor more than twenty days before the
date of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice is given when
deposited in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
6. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the holders
of two- thirds of the shares entitled to vote thereat shall constitute a quorum
at a meeting of shareholders for the transaction of any business, provided that
when a specified item of business is required to be voted on by a class or
classes, the holders of two thirds of the shares of such class or classes shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders, unless withdrawal shall cause
less than a majority to be present.
The shareholders present may adjourn the meeting despite the absence of
a quorum.
8. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
2
<PAGE>
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
9. VOTING RIGHTS.
Every person holding a class of shares of the corporation entitled to
vote shall be entitled at every meeting of shareholders to one vote for every
voting share standing in his name on the shareholder record of the corporation,
unless otherwise provided in the certificate of incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation:
(a) directors shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election;
(b) all other corporate action shall be authorized by a majority of the
votes cast.
11. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation the
business of the corporation shall be managed by its board of directors, each of
whom shall be at least 18 years of age.
2. NUMBER OF DIRECTORS.
The number of directors shall be at least five, but not more than
seven. When all of the voting shares are owned by less than five holders, the
number of directors may be less than five but not less than the number of
holders of voting shares.
3
<PAGE>
3. ELECTION AND TERM OF DIRECTORS.
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall hold
office until the expiration of the term for which he is elected and until his
successor has been elected and qualified, or until his prior resignation or
removal.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason may be filled by a
vote of a majority of the directors then in office, although less than a quorum
exists, unless otherwise provided in the certificate of incorporation. A
director elected to fill a vacancy caused by resignation, death or removal shall
be elected to hold office for the unexpired term of his predecessor.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed by vote of the shareholders.
Specific reasons for removal must be given to director being so removed.
6. RESIGNATION.
A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, two
thirds of the entire board shall constitute a quorum for the transaction of
business or of any specified item of business.
8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the
directors present at the time of the vote, if a quorum is present at such time,
shall be the act of the board. Each director present shall have one vote
regardless of the number of shares, if any, which he may hold.
9. PLACE AND TIME OF BOARD MEETINGS.
The board may hold its meetings at the office of the corporation or at
such other places, either within or without the State of Delaware, as it may
from time to time determine.
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10. REGULAR ANNUAL MEETING.
A regular annual meeting of the board shall be held immediately
following the annual meeting of shareholders at the place of such annual meeting
of shareholders.
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the board may be held without notice at such
time and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to the directors and may be called by the
president or secretary upon five days notice to each director either personally
or by mail or by wire; special meetings shall be called by the president or by
the secretary in a like manner on written request of two directors. Notice of a
meeting need not be given to any director who submits a waiver of notice whether
before or after the meeting or who attends the meeting without protesting prior
thereto or at its commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
12. CHAIRMAN.
At all meetings of the board the president or, in his absence, a
chairman chosen by the board shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
(a) A committee of the board, consisting initially of the president and
the chief financial officer of the corporation (provided such officers are
members of the board) shall serve as an executive committee to take necessary
action pending meetings of the entire board, and the board, by resolution, may
add to or change the membership of the executive committee.
(b) The board may also establish by resolution such other committees as
it may from time to time determine, and any such committee shall serve at the
pleasure of the board.
14. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for actual
attendance, at each regular or special meeting of the board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Shareholders shall be given notice, in writing, of all compensation
paid to directors, as directors and not in any other capacity, within ten days
of board vote.
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15. TELEPHONIC BOARD MEETINGS
Participation of any one or more members of the board in a meeting by
means of a conference telephone or conference call or similar communications
equipment or arrangement, allowing all persons participating in a meeting to
hear each other at the same time, shall constitute presence in person at any
such meeting.
16. CONTRACTS.
(a) No contract or other transaction between the corporation and any
other business shall be affected or invalidated, nor shall any director be
liable in any way, solely by reason of the fact that a director of this
corporation is an officer or director of, or is financially interested in, such
other business, provided the material facts of such relationship or interest are
disclosed to the board and such contract or transaction is authorized by the
board in accordance with applicable law, provided that the vote of any director
with an interest in such other business shall not be counted in determining such
board authorization (but may be counted in determining a quorum).
(b) Any director may be a party to or may be interested in any contract
or transaction of this corporation individually, and no director shall be liable
in any way by reason of such interest, provided that the material facts of such
participation or interest shall be disclosed to the board and provided that the
board shall authorize or ratify such contract or transaction, in accordance with
applicable law, by the vote (not counting the vote of any such director) of a
majority of a quorum, at a meeting at which such action is taken. Such director
may be counted in determining the presence of a quorum at such meeting. This
Section 16 shall not be construed to invalidate or in any way affect any
contract or other transaction which would otherwise be valid under the law
applicable thereto.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the certificate of incorporation,
the board may elect or appoint a president, a chief financial officer, a
treasurer, one or more vice-presidents, a secretary, and such other officers as
it may determine, who shall have such duties, powers and functions as determined
by the board and as hereinafter provided.
(b) All officers shall be elected or appointed to hold office until the
meeting of the board following the annual meeting of shareholders.
(c) Each officer shall hold office for the term for which he is elected
or appointed and until his successor has been elected or appointed and
qualified.
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2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the board may be removed by the
board.
(b) In the event of the death, resignation or removal of an officer,
the board in its discretion may elect or appoint a successor to fill the
unexpired term.
(c) An officer may hold more than one office at any one time, except
that the same person shall not hold the offices of president and secretary at
the same time.
(d) The salaries of all officers shall be fixed by the board.
3. PRESIDENT.
The president shall be the chief executive officer of the corporation;
he shall preside at all meetings of the shareholders and of the board; he shall
have the management of the business of the corporation and shall see that all
orders and resolutions of the board are carried into effect.
4. VICE-PRESIDENTS.
During the absence or disability of the president, the vice-president,
or if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
5. SECRETARY.
The secretary shall:
(a) attend all meetings of the board and of the shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of shareholders
and of special meetings of the board;
(d) keep in safe custody the seal of the corporation and affix it to
any instrument when authorized by the board;
(e) when required, prepare or cause to be prepared and available at
each meeting of shareholders a certified list in alphabetical order of the names
of shareholders entitled to vote thereat, indicating the number of shares of
each respective class held by each;
(f) keep all the documents and records of the corporation as required
by law or otherwise in a proper and safe manner.
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(g) perform such other duties as may be prescribed by the board.
6. ASSISTANT SECRETARIES.
During the absence or disability of the secretary, the assistant
secretary designated by the board shall have all the powers and functions of the
secretary.
7. CHIEF FINANCIAL OFFICER OR TREASURER.
The chief financial officer and/or treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements in
the corporate books;
(c) deposit all money and other valuables in the name and to the credit
of the corporation in such depositories as may be designated by the board;
(d) disburse the funds of the corporation as may be ordered or
authorized by the board and preserve proper vouchers for such disbursements;
(e) render to the president and board at the regular meetings of the
board, or whenever they require it, an account of all his transactions as
treasurer and of the financial condition of the corporation;
(f) render a full financial report at the annual meeting of the
shareholders and cause the mailing of quarterly annual statements to all
shareholders.
(g) be furnished by all corporate officers and agents at his request,
with such reports and statements as he may require as to all financial
transactions of the corporation;
(h) perform such other duties as are given to him by these by-laws or
as from time to time are assigned to him by the board or the president.
8. ASSISTANT TREASURER.
During the absence or disability of the chief financial officer, the
assistant treasurer, or another officer designated by the board, shall have all
the powers and functions of the treasurer.
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ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates.
They shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the president or a vice-president and the treasurer or the
secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board may, in
its discretion and as a condition precedent to the issuance thereof , require
the owner of such lost or destroyed certificate or certificates, or his legal
representative, to give the corporation an undertaking of indemnity or a bond in
such sum and with such surety or sureties as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
3. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholder's meeting, or (2) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (3) any date fixed for the payment of a dividend or any other form
of distribution, and only those shareholders of record at the time the transfer
books are closed,
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shall be recognized as such for the purpose of (1) receiving notice of or voting
at such meeting, or (2) allowing them to take appropriate action, or (3)
entitling them to receive any dividend or other form of distribution.
ARTICLE VI - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding shares of the corporation may be
declared in such amounts and at such time or times as the board may determine.
Before payment of any dividend, there may be set aside out of the net prof its
of the corporation available for dividends such sum or sums as the board from
time to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the board shall think
conducive to the interests of the corporation, and the board may modify or
abolish any such reserve.
ARTICLE VII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware ." The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on the certificates for shares or on any corporate obligation for the
payment of money may be facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers or
other person or persons as the board may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year shall begin the first day of January in each year or on
such other day as the board shall determine by resolution.
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ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in these by-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - BY-LAW CHANGES
A majority of the board may amend or repeal provisions of these
by-laws, or may adopt new by-laws, if notice thereof is duly given in connection
with a meeting at which such action is to be taken. However, the ultimate power
to adopt, amend or repeal by-laws shall reside in the holders of the voting
shares of the corporation, and these by-laws may be altered or repealed and new
by-laws may be made at any annual or special meeting of the stockholders, if
notice of the proposed alteration or repeal of any by-law or of any new by-laws
to be made is contained in the notice of such meeting, by the affirmative vote
of a majority of the shares entitled to vote thereat.
ARTICLE XII - INDEMNIFICATION
1. RIGHT OF INDEMNITY.
The corporation shall indemnify any person who was or is a party 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 the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent permitted by the Delaware
General Corporation Law.
2. DERIVATIVE ACTIONS.
The corporation shall indemnify any person who was or is a party 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 to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with
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the defense or settlement of such action or suit to the fullest extent permitted
by the Delaware General Corporation Law.
3. STANDARDS FOR INDEMNIFICATION.
Any indemnification shall be made by the corporation as authorized in a
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standards of conduct set forth in the Delaware General Corporation Law,
including acting in good faith and in a manner reasonably believed to be in the
interest of the corporation. Such determination shall be made in the manner
permitted by law.
4. OPINION OF COUNSEL.
In taking any action or making any determination pursuant to this
Article XII, the board of directors and each director or officer, whether or not
interested in any such action or determination, may rely upon an opinion of
independent counsel.
5. ADVANCE PAYMENT OF EXPENSES.
Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding shall be paid by the corporation in advance of a final
disposition, upon reasonable request of such director or officer and receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation.
6. INSURANCE.
The corporation may purchase and maintain liability insurance on behalf
of any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this Article.
7. OTHER INDEMNIFICATION; LIMITATION.
The corporation's obligations under this Article XII shall not be
exclusive or in limitation of, but shall be in addition to, any other rights to
which any person may be entitled under any other provision of these by-laws, or
by contract, or as a matter of law, or otherwise. All of the provisions of this
Article XII of the by-laws shall be valid only to the extent permitted by the
certificate of incorporation and the laws of the State of Delaware, but if the
corporation's power of indemnification under such laws is more extensive than
that granted in these by-laws, these by-laws shall be deemed amended to
incorporate such extended power of indemnification.
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8. INDEMNIFICATION RIGHTS FOR HEIRS, ETC.
The right to indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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Exhibit 10.01
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 27, 1995 between Phoenix
Color Corp., a New York corporation ( the "Purchaser"), and Edmund J. Corvelli
Jr., James F. Middleton, Edward A. Moneghan (referred to collectively as the
"Individual Stockholders"), Chemical Venture Capital Associates, a California
Limited Partnership ("CVCA"), and Edmund J. Corvelli, Jr., James F. Middleton
and Edward A. Moneghan, as Voting Trustees (the "Voting Trustees") of the New
England Book Corporation Voting Trust.
RECITALS
A. The Individual Stockholders, CVCA, certain persons listed on
Schedule A annexed hereto (the "Employee Stockholders"), and the Voting Trustees
(all of the foregoing being referred to collectively as the "Sellers")
beneficially own or hold of record, in the aggregate, 1,000,000 shares of Common
Stock of New England Book Holding Corporation, a Delaware corporation ("NEBH");
B. The Individual Stockholders are active in the management of NEBH,
which conducts a book cover and component printing business through its
wholly-owned subsidiary, New England Book Components, Inc. ("NEBC"), a
Massachusetts corporation ( NEBH and NEBC being sometimes collectively referred
to herein as the "Corporations");
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C. The Sellers desire to sell and the Purchaser desires to buy
1,000,000 shares of NEBH Common Stock, constituting all of the issued and
outstanding Common Stock of NEBH, subject to the terms and conditions of this
Agreement; and
D. The parties desire to set forth in this Agreement the terms and
conditions of such sale and purchase, and to enter into the other agreements and
arrangements provided for herein;
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises, covenants, representations and warranties made herein, and the sum of
$10.00 and other good and valuable consideration paid and given by each party to
the others, receipt of which is hereby acknowledged, THE PARTIES AGREE AS
FOLLOWS:
I. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of the Shares. Subject to all of the terms and
conditions of this Agreement, the Purchaser agrees to buy and the Sellers agree
to sell an aggregate of 1,000,000 shares of NEBH Common Stock, $.01 par value
(the NEBH Shares), constituting all, and not less than all, of the outstanding
shares of NEBH, for a purchase price of $21.00 per share, representing an
aggregate purchase price (the "Purchase Price") of Twenty-One Million Dollars
($21,000,000) . The number of Shares being purchased from and sold by each of
the Sellers, and the portion of the Purchase Price to be paid to each of the
Sellers, is as set forth in Schedule A annexed to and included in this
Agreement.
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1.2 Payment of Purchase Price; Disbursing Agent; Escrow Payment. The
Purchase Price will be paid in immediately available funds by wire transfer,
payable to Choate, Hall & Stewart, as special counsel for the Sellers, who will
act as a disbursing agent (the "Disbursing Agent") and will be authorized by the
Sellers to receive and disburse such Purchase Price payment in the amounts to
which each of the Sellers is entitled as set forth in Schedule A, provided,
however, that the Purchase Price payment and the amounts so disbursed shall be
adjusted to reflect the setting aside and delivery in escrow of a portion of the
Purchase Price as set forth in Article VIII hereof.
1.3 Closing. The closing for the sale and purchase of the NEBH Shares
(the "Closing") shall take place at the offices of Rosner, Bresler, Goodman &
Bucholz, 521 Fifth Avenue, New York, New York 10175 at 10:00 a.m. on January 2,
1996 or such other time and date as the parties may agree to in writing (the
"Closing Date"). At the Closing:
(a) each of the Sellers will deliver (or, in the case of the
Employee Stockholders, will cause the Individual Stockholders, and the Voting
Trustees acting on behalf of the Employee Stockholders, to deliver) to the
Purchaser, free and clear of all liens, claims, charges and encumbrances,
certificates representing, in the aggregate, all of the NEBH Shares, which shall
be validly issued, duly endorsed for transfer to the Purchaser or accompanied by
valid stock powers or other instruments of transfer duly executed, and
accompanied by all requisite stock transfer tax stamps;
(b) subject to the provisions of Article VIII hereof, the
Purchaser will deliver to the Disbursing Agent the payment required under
Section 1.2 above;
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(c) the Purchaser, the Individual Stockholders, CVCA and the
Escrow Agent (as hereinafter defined) will execute and deliver an escrow
agreement, and the Purchaser will arrange to deposit in escrow the $2,100,000
portion of the Purchase Price to be paid in installments subsequent to the
Closing Date, in accordance with the provisions of Article VIII hereof;
(d) the Purchaser and the Individual Stockholders and CVCA will
execute and deliver to each other (and, where required, the Individual
Stockholders will cause the Employee Stockholders to execute and deliver) those
agreements, consents, powers of attorney, documents and other items required to
be delivered pursuant to Article VI hereof; and
(e) the parties will deliver all other documents and take all
other actions required to be delivered or taken at the Closing in accordance
with this Agreement.
II. EMPLOYMENT AND OTHER ARRANGEMENTS
2.1 Employment Agreements. At the Closing, the Purchaser will enter
into separate two-year employment agreements with Edmund J. Corvelli, Jr., and
Edward A. Moneghan, on the terms and in the form set forth as Exhibit 1 annexed
to this Agreement, and Messrs. Corvelli and Moneghan, by their signatures to
this Agreement, each confirms that he will execute and deliver his respective
employment agreement.
2.2 Non-Competition Agreement. At the Closing, the Purchaser will
enter into an agreement with James F. Middleton, in the form set forth as
Exhibit 2 annexed to this Agreement, pursuant to which Purchaser will agree to
pay James F. Middleton the compensation provided in such
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agrement in return for an undertaking by James F. Middleton not to engage,
directly or indirectly, in any activity competitive with the business of the
Purchaser, NEBH or NEBC, as defined in Exhibit 2, for a period of four (4) years
from the Closing.
2.3 Option to Acquire Shares of Purchaser. At the Closing, the
Purchaser will enter into a stock option agreement with Edmund J. Corvelli, Jr.,
and Edward A. Moneghan granting them the collective right to purchase an
aggregate of up to 1,400 shares of the Purchaser's Class A common stock for a
price of $3,214.28 per share, with such right of purchase to be allocated
between Messrs. Corvelli and Moneghan as they shall determine; provided,
however, that neither person shall have the right to purchase more than 1,000
such shares. The stock option agreement will be in the form set forth as Exhibit
3 annexed to this Agreement, and will provide for (i) an option exercise period
which will commence at the Closing and will terminate at the earlier of 15 days
after delivery of Purchaser's financial statements for the six-month period
ending June 30, 1996, or 45 days after notice of the filing by Purchaser of a
registration statement for a public offering of Purchaser's shares, and (ii)
registration rights with respect to any shares of Purchaser acquired under the
stock option agreement, comparable to those available to other shareholders of
the Purchaser.
2.4 Certain Leased Facilities. At the Closing:
(a) The Individual Stockholders will deliver, at their own cost
and expense, an executed instrument, satisfactory in form and substance to the
Purchaser and its attorneys, by which the landlord of the manufacturing facility
located at 125 Industrial Park Road, Hingham, Massachusetts, presently occupied
by NEBH and NEBC, will cause the lease for such facilities to terminate on the
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second anniversary of the Closing, without any further liability to NEBH, NEBC
or the Purchaser;
and
(b) Beginning six months after the Closing, and subject to the terms
and conditions of the applicable lease, the Individual Stockholders and CVCA
will have the right to obtain a suitable subtenant or assignee for the
additional facilities occupied by NEBH and NEBC at 110 Industrial Park Road,
Hingham, Massachusetts, and, in the event such subtenant or assignee shall duly
occupy such facilities with the consent of the Purchaser (which consent shall
not be unreasonably withheld) and the landlord of such facilities, the Purchaser
shall cause any net rental received by it from such occupancy prior to the
termination of the applicable lease immediately to be remitted to the Disbursing
Agent, who will pay such net rental to the Individual Stockholders and CVCA in
the following percentages: Corvelli - 21.85714%; Middleton - 21.85714%; Moneghan
- - 7.28572%; and CVCA - 49%. For purposes of this provision, "net rental" shall
mean the gross rental or other sums actually received by Purchaser from such
subtenant or assignee, less the cost to Purchaser of (i) any fix-up or repair
activities for, and capital improvements in, such facilities required by such
subtenant or assignee, and (ii) any expenditures of Purchaser in attempting to
obtain such subtenant or assignee; provided, however that any such deductions
shall not include monthly rental charges payable to the landlord of such
facilities, the amounts of which have been taken into consideration in the
calculation of the Purchase Price. If such subtenant or assignee should default
in the payment of rental due after occupying such facilities, Purchaser shall be
entitled, after such default, to withhold payment of any amounts otherwise due
the Individual Stockholders and CVCA under this subsection. In addition to
paying any net rental to the Individual Stockholders and CVCA as contemplated by
this subsection, the Purchaser shall be required to pay to the Individual
Stockholders and CVCA, in the percentages
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described above in this subsection, the amount representing the actual gross
rents forgiven by the landlord of such facilities in connection with any sale or
other transfer of such facilities as a result of which the Purchaser (or any
subtenant or assignee) ceases to occupy such facilities.
III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Individual Stockholders and CVCA jointly and severally represent
and warrant to the Purchaser, acknowledging that the Purchaser is relying
materially thereon, as follows:
3.1 Organization and Standing. NEBH is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
NEBC is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts, and is a wholly-owned
subsidiary of NEBH. The Corporations have all requisite corporate power to carry
on their respective businesses as they are now being conducted, and each is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary under applicable law,
except where the failure to qualify (individually or in the aggregate) does not
have any material adverse effect on their respective businesses. The copies of
the Certificate of Incorporation and by-laws of NEBH, as amended to date,
delivered to the Purchaser, are true and complete copies of these documents as
now in effect. The copies of the Articles of Organization and the by-laws of
NEBC, as amended to date, delivered to the Purchaser, are true and complete
copies of such documents now in effect. The minute books of each of the
Corporations, as presented for inspection by Purchaser, are accurate and
complete in all material respects.
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3.2 Capitalization. The authorized capital stock of NEBH consists of
1,500,000 shares of Common Stock, $.01 par value, of which 1,000,000 shares are
issued and outstanding as of the date hereof. The authorized capital stock of
NEBC consists of 1,000 shares of Common Stock, no par value, of which 1,000
shares are validly issued and outstanding as of the date hereof. Except as set
forth in this paragraph, there is no other authorized class, series or unit of
securities, of any kind, evidencing a proprietary interest in NEBH. None of the
shares of NEBH or NEBC has been issued in a manner giving rise to claims for
violation of the securities laws of any jurisdiction.
3.3 Ownership, Transfer and Validity.
(a) All of the NEBH Shares are fully paid, duly and validly
issued and beneficially owned by the persons listed, in the respective amounts
indicated, in Schedule A and, where indicated in Schedule A, such NEBH Shares
are held of record by the Voting Trustees under a Voting Trust Agreement dated
September 1, 1987 ( the "Voting Trust Agreement"), which (i) is in full force
and effect as of the date hereof and (ii) authorizes the Voting Trustees to act
in accordance with the terms thereof on behalf of all of the beneficiaries named
therein. All of the issued and outstanding shares of NEBC are owned beneficially
and of record by NEBH. Except for the Voting Trust Agreement and as set forth in
Section 3.3 of the Sellers Disclosure Schedule annexed to this Agreement (the
"Sellers Disclosure Schedule"), there is no option, warrant, call, convertible
security, preemptive right or commitment of any kind relating to unissued shares
of the capital stock of either NEBH or NEBC. Other than NEBH's ownership of the
shares of NEBC, neither of the Corporations owns any shares of capital stock or
other interest in any corporation, partnership, association or other entity.
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(b) The NEBH Shares to be delivered at the Closing will be free and
clear of any liens, charges, encumbrances or claims. The sale and delivery of
the NEBH Shares to Purchaser, when consummated pursuant to this Agreement, will
transfer to and vest in Purchaser the ownership of all, and not less than all,
the issued and outstanding shares of NEBH.
(c) This Agreement constitutes the valid and binding obligation of
the Individual Stockholders, CVCA and the Voting Trustees enforceable against
the Individual Stockholders, CVCA and the Voting Trustees in accordance with its
terms, except as may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws or by legal or equitable principles
relating to or limiting creditors' rights generally.
3.4 Financial Statements. The consolidated financial statements of
NEBH and NEBC for the years ended December 31, 1990, 1991, 1992, 1993 and 1994,
audited by Arthur Andersen LLP, independent certified public accountants, the
unaudited consolidated balance sheet of NEBH and NEBC (the "Balance Sheet") as
of September 30, 1995 (the "Balance Sheet Date") and the unaudited statements of
operations and retained earnings and cash flows for the nine-month period then
ended (such audited and unaudited financial statements being referred to
collectively as the "Financial Statements"), copies of which have been delivered
to the Purchaser, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods, are
accurate and complete, and present fairly the financial condition of the
Corporations as of the respective dates indicated and the results of their
operations and cash flows for the respective periods indicated, subject, in the
case of unaudited Financial Statements, to audit and other customary adjustments
and the absence of footnotes.
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3.5 No Undisclosed Liabilities. Section 3.5 of the Sellers Disclosure
Schedule lists each and every liability of NEBH and NEBC (whether accrued,
absolute, contingent or otherwise) as of the Balance Sheet Date, and such
liabilities are fully reflected in the Balance Sheet. Except as set forth in
Section 3.5 of the Sellers Disclosure Schedule, to the best knowledge of the
Individual Stockholders and CVCA, the Corporations are not subject to any
material liability (defined, for purposes of this Section 3.5, as any single
item in excess of $5,000), whether absolute, contingent, accrued or otherwise,
other than (i) liabilities of the same nature as those set forth in Section 3.5
of the Disclosure Schedule which were incurred by the Corporations in the
ordinary course of business after the Balance Sheet Date, (ii) liabilities
arising under existing agreements to which NEBC and /or NEBH is a party
(excluding liabilities arising on account of breaches by NEBC or NEBH of such
existing agreements which breaches are not disclosed in the Sellers Disclosure
Schedule), and (iii) other liabilities disclosed in the Sellers Disclosure
Schedule. Except as disclosed herein, neither of the Corporations have any
material unrealized or anticipated losses, in excess of $5,000 for a single
item, from unfavorable commitments.
3.6 Books and Records. The books and records of the Corporations are
true, accurate and complete in all material respects and have been maintained in
accordance with generally accepted accounting principles applied on a consistent
basis.
3.7 Accounts Receivable. The accounts receivable of NEBH and NEBC
reflected in the Balance Sheet (except those accounts receivable collected since
the Balance Sheet Date) and as listed in Section 3.7 of the Sellers Disclosure
Schedule (which sets forth the accounts receivable on the books of the
Corporations, together with an aging schedule) have been generated in the
ordinary
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course of business and reflect bona fide obligations for the payment of goods or
services provided by the Corporations. The amounts reflected in such accounts
receivable are expected (but not guaranteed) to be fully collected in the
ordinary course of business, on a schedule consistent with past collection
practices of the Corporations, except to the extent reserved against in the
Balance Sheet.
3.8 Inventories. The inventories of NEBH and NEBC reflected in the
Balance Sheet and listed in Section 3.8 of the Sellers Disclosure Schedule are
in good, merchantable and usable condition, have been reflected in the Balance
Sheet at cost, and include no obsolete or discontinued items, or items which
have failed any quality testing, in each case except to the extent reserved
against in the Balance Sheet. Except as set forth in Section 3.8 of the Sellers
Disclosure Schedule, such inventories are located and maintained at the
Corporations' facilities in Hingham, Massachu setts, and are owned free and
clear of any liens, encumbrances, charges or claims of others, except for the
encumbrance (the "Permitted Encumbrance") consisting of claims, liens,
mortgages, charges, security interests and encumbrances or other restrictions or
limitations in favor of Fleet Bank of Massachusetts, N.A. ("Fleet") pursuant to
the Credit Agreement dated as of December 23, 1995 (the "Credit Agreement")
between NEBC and Fleet and the related credit documents referenced therein.
3.9 Backlog. Section 3.9 of Sellers Disclosure Schedule accurately
sets forth as of the Balance Sheet Date the name, aggregate contract price,
revenues received to date and balance remaining on all projects of the Company
then in progress or under contract to be performed.
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3.10 Real Property Leases. NEBH and NEBC are tenants in the facilities
described and under the lease agreements listed in Section 3.10 of Sellers
Disclosure Schedule, and each of such lease agreements is in full force and
effect, and is valid and binding and enforceable in accordance with its terms.
Neither NEBH nor NEBC is in default in the performance of any provision of such
leases. Except as set forth in Section 3.10 of the Sellers Disclosure Schedule,
neither NEBH nor NEBC has collaterally assigned or encumbered its interest under
such leases. The current use by NEBH or NEBC of any of the real property leased
by either of them does not violate any environmental or local zoning or similar
land use laws.
3.11 Machinery and Equipment. Section 3.11 of Sellers Disclosure
Schedule lists each item of NEBH or NEBC machinery and equipment with an
original cost on the books of the Corporations in excess of $500 per item (the
"Equipment"). All of such Equipment is owned by NEBH or NEBC, free and clear of
any liens, charges, encumbrances or security interests, except as set forth in
Section 3.11 and Section 3.12 of the Sellers Disclosure Schedule, and except for
the Permitted Encumbrance. With respect to any Equipment held under an equipment
lease, any such lease is in full force and effect and neither NEBH nor NEBC is
in default thereunder. The Equipment is in good operating condition and repair
and is suitable for use in the ordinary course of business of NEBH and NEBC, and
includes all machinery and equipment necessary to manufacture the products sold
by NEBH and NEBC and to operate the business of the Corporations as currently
conducted.
3.12 Title to Assets Generally. Except as stated in Section 3.12 of
Sellers Disclosure Schedule, NEBH and NEBC hold good and marketable title to
their respective assets reflected on
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the Balance Sheet and to all assets and properties whose ownership has been
acquired by NEBH or NEBC after the Balance Sheet Date (except assets sold or
consumed in the ordinary course of business subsequent to the Balance Sheet
Date), free and clear of all adverse claims, liens, mortgages, charges, security
interests, encumbrances or restrictions other than the Permitted Encumbrance.
3.13 Contracts Listed; No Default. Section 3.13 of the Sellers
Disclosure Schedule contains a complete and correct list as of the date hereof
of all agreements, contracts and commitments of the following types, written or
oral, to which NEBH or NEBC is a party or by which NEBH or NEBC or any of its
properties is bound as of the date hereof: (i) mortgages, indentures, security
agreements, letters of credit, loan agreements and other agreements, guarantees
and instruments relating to the borrowing of money or extension of credit; (ii)
employment, consulting, severance and agency agreements; (iii) collective
bargaining agreements; (iv) bonus, profit-sharing, compensation, stock option,
stock purchase, pension, severance, retirement, deferred compensation or other
plans, trusts or funds for the benefit of employees, officers, agents or,
directors (whether or not legally binding); (v) sales agency, manufacturer's
representative or distributorship agreements; (vi) agreements, orders or
commitments for the purchase of raw materials, supplies or finished products
exceeding $10,000 in amount; (vii) agreements, orders or commitments for the
sale of products exceeding $10,000 in amount; (viii) licenses of intellectual
property, transfer of technology or know how and other intellectual property
rights; (ix) confidentiality agreements, including agreements binding any of
NEBH or NEBC's employees; (x) agreements or commitments for capital expenditures
in excess of $5,000 for any single project (it being warranted that all
undisclosed
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agreements or commitments for capital projects do not exceed $25,000
in the aggregate for all projects); (xi) brokerage or finder's agreements; (xii)
stockholders' agreements and any agreements restricting the transfer of any of
the shares of NEBH or NEBC; (xiii) joint venture and partnership agreements;
(xiv) leases for real and personal property; and (xv) other agreements,
contracts and commitments which in any case involve payments or receipts of more
than $10,000. The Sellers have made available to the Purchaser complete and
correct copies of all such written agreements, contracts and commitments,
together with all amendments thereto, and provided accurate descriptions of all
oral agreements listed in Section 3.13 of the Sellers Disclosure Schedule. All
agreements, contracts and commitments referred to in this Section 3.13 are in
full force and effect in accordance with their respective terms and there does
not exist thereunder as of the date hereof any default by NEBH or NEBC or, to
the knowledge of the Individual Stockholders or CVCA, any other party thereto,
or event or condition which, after notice or lapse of time or both, would
constitute a default thereunder on the part of NEBH or NEBC or, to the knowledge
of the Individual Stockholders or CVCA, any other party thereto. Neither NEBH
nor NEBC has granted any powers of attorney, except routine powers of attorney
relating to representation before governmental agencies or given in connection
with qualification to conduct business in another jurisdiction, except as set
forth in Section 3.28.
3.14 Related Party Transactions. Except as set forth in Section 3.14
of the Sellers Disclosure Schedule, neither NEBH nor NEBC has made any loans to
any officer, director, shareholder or employee, outstanding on the date of this
Agreement, nor entered into any agreement or arrangement with any such person,
or with a parent, child, spouse or sibling of such person, in which such person
or any of such relatives has a material direct or indirect economic interest in
such
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arrangement or agreement, other than compensation arrangements in keeping with
the usual and customary practices of the Corporations.
3.15 Customers and Customer Deposits. Set forth in Section 3.15 of the
Sellers Disclosure Schedule is a true and complete list of customers and
customer deposits shown on the Balance Sheet, indicating for each customer the
date on which the deposit was received, the amount of each deposit, the
product(s) ordered, the total purchase price for each such product, the current
stage of production and the estimated delivery date for the product(s) ordered.
Except as therein set forth, each of the customer deposits represents a bona
fide customer order for a product or products that NEBH and NEBC reasonably
believe can be delivered in accordance with the specifications and upon the
terms agreed to with the customer. Neither NEBH nor NEBC is engaged in any
material dispute with any customer, and the entering into and performance of
this Agreement is not expected to have any material adverse effect on the
business relationship between NEBH and NEBC and such customers.
3.16 Employee Benefit Plans. With respect to each employee benefit
plan of NEBH or NEBC:
(a) Section 3.16(a) of the Sellers Disclosure Schedule sets
forth all pension, savings, retirement, health, insurance, severance and other
employee benefit or fringe benefit plans, within the meaning of Section 3(3) of
ERISA, maintained currently with respect to the business of NEBH and NEBC
(referred to herein as the "Plan" or "Plans"). With respect to the Plans, the
Sellers have delivered to the Purchaser copies of: (i) the Plan documents, and,
where applicable, related trust
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agreements, and any related agreements which are in writing; (ii) summary plan
descriptions; (iii) the most recent Internal Revenue Service ("IRS")
determination letter relating to each Plan for which a letter of determination
was obtained; (iv) to the extent required to be filed, the most recent Annual
Report (Form 5500 Series and accompanying schedules of each Plan and applicable
financial statements) as filed with the IRS; (v) audited financial statements,
if any.
(b) Except as set forth in Section 3.16(b) of the Sellers
Disclosure Schedule, (i) to the best knowledge, after reasonable inquiry, of the
Individual Stockholders and CVCA, in all material respects, each Plan conforms
to, and its administration is in compliance with, all applicable requirements of
law, including, without limitation ERISA and the Internal Revenue Code of 1986
(the "Code") and all rules and regulations promulgated pursuant thereto, and
(ii) all of the Plans are in full force and effect as written, and all premiums,
contributions and other payments required to be made by the NEBH or NEBC under
the terms of any pension plan as defined in Section 3(2) of ERISA (a "Pension
Plan") or welfare plan as defined in Section 3(1) of ERISA (a "Welfare Plan")
have been made. There are no Plan defects which would make any of the Plans
eligible for any IRS voluntary compliance programs, including the IRS Voluntary
Compliance Resolution Program (VCR), Standardized VCR Program, Closing Agreement
Program (CAP), and/or Walk-In CAP.
(c) Except as set forth in Section 3.16(c) of the Sellers
Disclosure Schedule, each Plan maintained by the Corporations with respect to
their business that is a Pension Plan is qualified under Section 401(a) of the
Code, and a favorable determination letter has been issued by the IRS with
respect to each such qualified Pension Plan. No Plan maintained by the
Corporations that is a Welfare Plan is funded through a voluntary employee
beneficiary association as defined in Section 501(c)(9) of the Code.
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(d) Except as set forth in Section 3.16(d) of the Sellers
Disclosure Schedule, all required installments as defined in Section 412(m) of
the Code required to be made by the Corporations or any trade or business
(whether or not incorporated) under common control with the Corporations within
the meaning of Sections 414(b), (c), (m) or (o) of the Code (the "Controlled
Group") before the Closing Date with respect to each Pension Plan will have been
paid prior to the Closing Date. No Pension Plan maintained by the Corporations
or the Controlled Group has incurred any "accumulated funding deficiency"
(whether or not waived) as that term is defined in Section 412 of the Code or
Section 302 of ERISA.
(e) Except as set forth in Section 3.16(e) of the Sellers
Disclosure Schedule, there are no multiemployer plans (as defined in Subsection
3(37) of ERISA) in which the Corporations or any other trade or business under
common control (within the meaning of Section 414(b) or (c) of the Code) has
ever participated or to which a contribution or other payment is required.
(f) Except as set forth in Section 3.16(f) of the Sellers
Disclosure Schedule or as required by COBRA, no Pension Plan has been terminated
since September 1, 1974, in a termination which will result in any liability to
be incurred by the Corporations under Title IV of ERISA. Except as indicated in
Section 3.16(f) of the Sellers Disclosure Schedule, none of the Pension Plans
that are subject to Title IV of ERISA have been partially terminated or have
been the subject of a "reportable event" as defined in Section 4043 of ERISA. No
proceedings by the Pension Benefit Guaranty Corporation ("PBGC") to terminate
any of the Pension Plans pursuant to Subtitle C of Title IV of ERISA have been
instituted or threatened. All required premiums have been paid to the PBGC with
respect to all Pension Plans.
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(g) Except as set forth in Section 3.16(g) of the Sellers
Disclosure Schedule or as required by COBRA, the Corporations do not maintain
any plan providing post-retirement benefits other than pension benefits provided
under a Pension Plan qualified under Section 401(a) of the Code
("Post-Retirement Benefits"). The Corporations are not liable for
Post-Retirement Benefits under any plan not maintained by them. To the best
knowledge of the Individual Stockholders and CVCA after reasonable inquiry, the
Corporations have complied in all material respects with the requirements of
Section 4980B of the Code and Sections 601 to 608 of ERISA relating to
continuation coverage for group health plans.
(h) Except as disclosed in Section 3.16(h) of the Sellers
Disclosure Schedule, with respect to each Pension Plan that is a "defined
benefit plan" within the meaning of Section 414(j) of the Code, the present
value of all accrued benefits under the Plan does not exceed the present value
of the assets of the Plan, with both such amounts calculated as of the same date
based on the actuarial assumptions established by NEBH or NEBC for funding. The
Sellers have delivered to the Purchaser a true and complete copy of the most
recent actuarial report for each such Pension Plan.
(i) Except as disclosed in Section 3.16(i) of the Sellers
Disclosure Schedule, each Plan has filed all required reports, documents and
notices with the IRS, the United States Department of Labor and the PBGC.
(j) There are no investigations, proceedings, or lawsuits
pending or, to the best knowledge of the Individual Stockholders or CVCA,
threatened against any Plan by any administrative agency, whether local, state
or federal.
(k) Other than routine employee claims for benefits, there are
no lawsuits or other claims pending or, to the best knowledge of the Individual
Stockholders or CVCA, threatened
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against any Plan, the Corporations or any fiduciary (within the meaning of
Section 3(21)(A) of ERISA) of a Plan brought on behalf of any participant,
beneficiary or any such fiduciary thereunder, nor is there any reasonable basis
for any such claim.
(l) All amendments required to have been made prior to the date
hereof to comply with applicable law (whether required by reason of the
enactment of legislation or otherwise) have been adopted with respect to each
Plan.
(m) With respect to each Plan, (A) no nonexempt "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA has occurred, and (B) no income has been received that constitutes
"unrelated business taxable income" within the meaning of Section 512 of the
Code or "unrelated debt-financed income" within the meaning of Section 514 of
the Code.
(n) All applicable local, state and federal income tax
withholding obligations have been satisfied with respect to all benefits paid
under each Plan.
(o) As set forth in Section 3.16(o) of the Sellers Disclosure
Schedule:
(i) on or before December 31, 1995 the Corporations shall
cause to be terminated The 401 (k) Profit Sharing
Plan for the Employees of New England Book
Components, Inc. ("NEBC 401(k) Plan");
(ii) prior to the Closing Date, the Corporations shall
make any and all filings and submissions then
required under the Code or ERISA to the appropriate
governmental agencies necessary in connection with
such termination; and
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(iii) notwithstanding clause (2) above, prior to the
Closing Date, the Corporations shall direct the
Trustees of the NEBC 401(k) Plan (the "Trustees") to
distribute the fully vested account balances to the
NEBC 401(k) Plan participants, as provided under the
NEBC 401(k) Plan, as soon as administratively
practicable.
3.17 Authorization and Non-Contravention; Consents. Each of the
Individual Stockholders, CVCA and the Voting Trustees, has full right, power and
authority to enter into and to perform this Agreement. Except as set forth in
Section 3.17 of the Sellers Disclosure Schedule, each consent, authorization,
order or approval of or filing or registration with, any governmental authority
required in connection with the execution, delivery and performance of this
Agreement by the Individual Stockholders, CVCA and the Voting Trustees has been
or by the Closing Date will be obtained, and the execution and delivery of this
Agreement and the performance thereof by the Individual Stockholders, CVCA and
the Voting Trustees do not and will not:
(a) violate any provision of the charter or bylaws of NEBH and
NEBC or any law, order, arbitration award, judgment or decree to which either of
them is a party or by which they or any of their properties are bound;
(b) violate or breach, or result with the passage of time in the
violation or breach of, or result in the acceleration or termination of or
entitle any party to accelerate or terminate (whether after the giving of notice
or lapse of time or both) any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
upon any of the properties of the Corporations pursuant to, any provision of any
mortgage, lien, lease,
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agreement, permit, indenture, license or instrument to which the Individual
Stockholders, CVCA, the Voting Trustees, NEBH or NEBC is a party or by which any
of them or any of the Corporations' properties are bound and which is material
to the business of the Corporations as now or as proposed to be conducted; or,
(c) violate or conflict with any other material restriction of
any kind or character to which NEBH or NEBC is subject or by which any of its
properties may be bound.
3.18 Labor Relations. Except as described in Section 3.18 of the
Sellers Disclosure Schedule, there are no agreements with, or pending petitions
for recognition of, a labor union or association as the exclusive bargaining
agent for any or all of NEBH or NEBC's employees; no such petitions have been
pending at any time within five years of the date of this Agreement, and, to the
best knowledge of the Individual Stockholders and CVCA, there has not been any
organizing effort by any union or any other group seeking to represent any
employees of NEBH or NEBC as their exclusive bargaining agent at any time within
five years of the date of this Agreement; and there are no labor strikes, work
stoppages or other labor troubles now pending or, to the best knowledge of the
Individual Stockholders and CVCA, threatened against NEBH or NEBC, nor have
there been any such labor strikes, work stoppages or other labor troubles at any
time within five years of the date of this Agreement.
3.19 Insurance. Set forth in Section 3.19 of the Sellers Disclosure
Schedule is a true, correct and complete listing of all insurance policies or
binders of insurance which relate to the Corporations' business. Except as set
forth in the Schedule:
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(a) the coverage under each such policy and binder is in full
force and effect, and no notice of cancellation or nonrenewal with respect to,
or disallowance of any claim under, any such policy or binder has been received
by NEBH or NEBC;
(b) there are no programs of self-insurance relating to the
Corporations' business;
(c) there are no pending or unpaid claims under any such
insurance policy; and
(d) to the best knowledge of the Individual Stockholders and
CVCA after reasonable inquiry, no event has occurred which reasonably might form
the basis of any claim against NEBH or NEBC relating to their business or
operations or any of their assets or properties covered by any of the policies
or binders set forth in the Schedule or which would reasonably be expected to
increase materially the insurance premiums payable under any such policy or
binder.
3.20 Intellectual Property. Section 3.20 of the Sellers Disclosure
Schedule sets forth a true and complete list, including, where applicable, the
date of application, date of registration, date of issuance, date of
termination, serial or registration number of each patent, trademark or
copyright and the book value thereof, as of the Balance Sheet Date, of all
intellectual property which is related to the business of NEBH or NEBC, and
describes the extent of the interest of the Corporations and any third party
therein. Except as stated in such Schedule, the right, title or interest of the
Corporations in any intellectual property is free and clear of adverse claims,
liens, mortgages, charges, security interests and encumbrances or other
restrictions or limitations of any kind other than the Permitted Encumbrance.
NEBH and NEBC own or have the legal right to use all intellectual property
necessary for the non-infringing design, manufacture, use or sale, as the case
may be, of all of the products, components of products and services which they,
in their business as currently
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conducted, manufacture, use or sell. Except as set forth in such Schedule, to
the best knowledge of the Individual Stockholders and CVCA after reasonable
inquiry, NEBH and NEBC have not, within the time period as to which liability is
not barred by statute, infringed or misappropriated any intellectual property of
another, received from another any notice or claim in respect thereto, committed
any acts of unfair competition, or received from another any notice or claim in
respect thereto.
3.21 Compliance with Applicable Law. To the best knowledge of the
Individual Stockholders and CVCA after reasonable inquiry, NEBH and NEBC are, in
the conduct of their business and with respect to the properties owned or used
by them, currently in compliance with all foreign, federal, state or local laws,
statutes, ordinances, regulations and permits, the failure to comply with which
could materially adversely affect their business, operations, earnings or
financial condition.
3.22 Environmental Laws. Except as set forth in Section 3.22 of the
Sellers Disclosure Schedule:
(a) the facilities located at 125 and 110 Industrial Park Road,
Hingham, Massachusetts, used by NEBH and NEBC (collectively, the "Facilities")
comply and have at all times complied with, and NEBH and NEBC are not in
violation of and have not violated, in connection with the ownership, use,
maintenance or operation of the Facilities and the conduct of the business
related thereto, any environmental laws;
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(b) NEBH and NEBC (i) have operated the Facilities and have at
all times received, handled, used, stored, treated, shipped and disposed of all
hazardous material in compliance with all environmental laws and all other
applicable health or safety statutes, ordinances, orders, rules, regulations or
requirements, and (ii) have removed (or will remove prior to the Closing) from
the Facilities all hazardous material, other than those permitted to be retained
by NEBH or NEBC at the Facilities pursuant to applicable law or valid permits or
other approvals issued by relevant governmental authorities;
(c) no work, repairs, construction or capital expenditures with
respect to the Facilities are necessary in order to bring them into compliance
with or avoid violation of any environmental laws;
(d) to the best knowledge of the Individual Stockholders and
CVCA after reasonable inquiry, no hazardous material has been released into the
environment or deposited, discharged, placed or disposed of at, on or near the
Facilities, nor have the Facilities been used at any time by any person as a
landfill or a waste disposal site;
(e) no notices of any violation of any of the matters referred
to in subsections (a) through (d) above relating to the Facilities or their use
have been received by NEBH or NEBC, and there are no outstanding writs,
injunctions, decrees, orders or judgments or pending or (to the best knowledge
of the Individual Stockholders and CVCA) threatened lawsuits, claims,
proceedings or investigations relating to the ownership, use, maintenance or
operation of the Facilities, nor is there any basis for the institution or
filing of such lawsuits, claims, proceedings or investigations;
(f) there are no monitoring wells at the Facilities for
monitoring hazardous leachate or other hazardous substances or releases;
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(g) there are no subsurface tanks situated at the Facilities;
(h) there is no evidence of PCB contamination from any power
transformer, capacitor or any other source at the Facilities;
(i) there is no asbestos-containing material at the Facilities;
and
(j) NEBH and NEBC know of no fact or circumstance that would
reasonably be expected to give rise to any future civil, criminal or
administrative proceedings against them under any environmental laws.
3.23 Litigation. Except as set forth in Section 3.23 of the Sellers
Disclosure Schedule, there is no action, suit, proceeding or investigation
pending or, to the best knowledge of the Individual Stockholders or CVCA,
threatened against NEBH or NEBC, and there are no facts known to the Individual
Stockholders or CVCA which would reasonably be expected to serve as the basis
for any such action, suit, proceeding or investigation; and NEBH and NEBC are
not in default in respect of any judgment, order, writ, injunction or decree of
any court or any federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality.
3.24 Unlawful Payments. NEBH and NEBC have not, directly or
indirectly, made any of the following payments: (i) illegal political
contributions, (ii) payments from corporate funds not recorded or falsely
recorded on their books and records, (iii) payments from corporate funds to
governmental officials in their individual capacities for the purpose of
obtaining favorable treatment in securing business or licenses or to obtain
special concessions, or (iv) illegal payments from corporate funds to obtain
or retain business.
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3.25 Permits. Except as set forth in Section 3.25 of the Sellers
Disclosure Schedule:
(a) NEBH and NEBC hold all permits, licenses, orders and
approvals of all foreign, federal, state or local governmental or regulatory
bodies required to conduct their business as currently conducted; all such
permits, licenses, orders and approvals are in full force and effect, and, to
the best knowledge of the Individual Stockholders and CVCA after reasonable
inquiry, no suspension or cancellation of any of them is threatened; and none of
such permits, licenses, orders or approvals will be adversely affected by the
consummation of the transactions contemplated in this Agreement;
(b) NEBH and NEBC are currently in compliance with the rules and
regulations of all governmental agencies having authority over them, including,
without limitation, agencies concerned with export and import licenses,
occupational safety, environmental protection and employment practices, the
failure to comply with which could adversely affect their business, operations,
earnings or financial condition;
(c) NEBH and NEBC have not received notice of violation of any
such rules or regulations within the last five years, which could result in any
liability to the Corporations for penalties or damages or any injunction or
governmental order or decree.
3.26 Restrictive Covenants. Except as set forth on in Section 3.26 of
the Sellers Disclosure Schedule, NEBH and NEBC are not a party to any agreement,
contract or covenant
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limiting their freedom in competing in any line of business or with any person
or other entity in any geographic area.
3.27 Tax Matters.
(a) Except as set forth in Section 3.27 of the Sellers
Disclosure Schedule:
(i) All federal, state and local income, payroll, sales,
franchise and other tax returns, and all reports of
estimated federal, state and local taxes, required to
be filed to date by or on behalf of the Corporations
have been duly filed on a timely basis (unless
otherwise indicated in Section 3.27 of the Sellers
Disclosure Schedule), and such returns and reports of
estimated taxes are true, complete and correct to the
best knowledge of the Individual Stockholders and
CVCA after reasonable inquiry. All estimated taxes
shown on such reports and all taxes shown to be
payable on such returns or on subsequent assessments
with respect thereto have been paid in full on a
timely basis (unless otherwise indicated in such
Schedule), and, to the best knowledge of the
Individual Stockholders and CVCA after reasonable
inquiry, no other taxes are payable by the
Corporations with respect to items or periods covered
by such returns (whether or not shown on or
reportable on such returns). Each of the Corporations
has withheld and paid over all taxes required to have
been withheld and paid over, and complied with all
information reporting and backup withholding
requirements, including maintenance of required
records with respect thereto, in connection with
amounts paid or owing to any employee, creditor,
independent contractor or other third party. There
are no liens on any of the assets of NEBH and NEBC
with respect to taxes, other than liens for taxes not
yet due and payable or for
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a tax liability that NEBH or NEBC is contesting in
good faith through appropriate proceedings and for
which appropriate reserves have been established, as
set forth in Section 3.27 of the Sellers Disclosure
Schedule. Neither NEBH or NEBC currently is the
beneficiary of any extension of time to file any
return. No claim has ever been made by an authority
in a jurisdiction where NEBH and NEBC do not file
returns that either of them is or may be subject to
tax by that jurisdiction.
(ii) Purchaser has been furnished by Sellers or the
Corporations with true and complete copies of (A) all
tax audit reports, statements of deficiencies, and
closing or other agreements received by NEBH or NEBC
relating to taxes, and (B) all federal, state and
local income or franchise tax returns for the
Corporations, in each case for all periods ending on
and after December 31, 1989. Neither of the
Corporations has been a member of an affiliated group
filing consolidated returns other than a group of
which NEBH and NEBC were the only members. Neither
NEBH nor NEBC has done or is doing business or has
derived or is deriving income from activities
conducted (except to the extent protected by P.L.
86-272), in any state, local, territorial or foreign
taxing jurisdiction other than those for which all
tax returns have been furnished to Purchaser.
(iii) The returns of NEBH and NEBC have never been audited
by a government or taxing authority, nor is any such
audit in process, pending or, to the best knowledge
of the Individual Stockholders and CVCA, threatened
(either in writing or orally, formally or
informally). To the best knowledge of the Individual
Stockholders and CVCA after reasonable inquiry, no
deficiencies exist, and no deficiencies have been
asserted (either in writing or orally, formally or
informally) or are expected to
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be asserted with respect to taxes of the
Corporations, and neither of the Corporations has
received notice (either in writing or orally,
formally or informally) or expects to receive notice
that it has not filed a return or paid taxes required
to be filed or paid by it. Neither of the
Corporations is a party to any action or proceeding
for assessment or collection of taxes, and no such
action or proceeding has been asserted or, to the
best knowledge of the Individual Stockholders or
CVCA, threatened (either in writing or orally,
formally or informally) against the Corpora tions or
any of their assets. No waiver or extension of any
statute of limitations is in effect with respect to
taxes or returns of the Corporations. Each of the
Corporations has disclosed on federal income tax
returns all positions taken therein that could give
rise to a substantial understatement penalty, and
such disclosures are reflected in the copies of tax
returns delivered to Purchaser.
(iv) Neither of the Corporations is, nor has it been, a
party to any tax-sharing agreement or arrangement.
(v) Neither of the Corporations has made an election
under Section 338 of the Code or has taken any action
that would result in any income tax liability as a
result of a deemed election within the meaning of
Section 338 of the Code. Neither of the Corporations
is or has been a United States real property holding
corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code and Purchaser is
not required to withhold tax on the purchase of the
stock of NEBH by reason of Section 1445 of the Code.
Neither of the Corporations is a "consenting
corporation" under Section 341(f) of the
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Code. Neither of the Corporations has entered into
any compensatory agreements with respect to the
performance of services which payment thereunder
would result in a nondeductible expense pursuant to
Section 28OG of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of
the Code. Neither of the Corporations has made or
will make (A) a deemed dividend election under
Treasury Regulations Section 1.1502-32(f)(2) or (B) a
consent dividend filing under Section 565 of the
Code. Neither of the Corporations has agreed to, nor
is it required to make, any adjustment under Code
Section 481(a) by reason of a change in accounting
method or otherwise.
(b) The Sellers Disclosure Schedule and the Financial Statements
contain an accurate and complete description of the adjusted tax basis of NEBH
and NEBC in their assets as of December 31, 1994, their current and accumulated
earnings and profits, their tax carryovers, excess loss accounts, tax elections
affecting either of the Corporations, and deferred intercompany transactions.
Except as disclosed in the Sellers Disclosure Schedule, the Corporations have no
net operating losses or other tax attributes presently subject to limitation
under Code Sections 382, 383, or 384, or the federal consolidated return
regulations.
3.28 Bank Accounts and Powers of Attorney. Section 3.28 of the Sellers
Disclosure Schedule lists the name of each bank, savings and loan, or other
financial institution, in which NEBH or NEBC has an account, including cash
contribution accounts or safe deposit boxes, the names of all persons authorized
to draw thereon or to have access thereto, and the names of any persons
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holding powers of attorney with respect to the business of the Corporations and
a summary of the terms thereof.
3.29 Corporate and Fictitious Names. Except as disclosed in Section
3.29 of the Sellers Disclosure Schedule, neither of the Corporations have been
known by or used any other corporate or fictitious name.
3.30 Absence of Certain Recent Changes. Except as disclosed in Section
3.30 of the Sellers Disclosure Schedule, since September 30, 1995, NEBH and NEBC
have conducted their operations and business only in the ordinary course and
have not:
(a) suffered either any material adverse change in their
financial condition, results of operations or business or any other event or
condition of any character that might reasonably be expected to have a material
adverse effect on their business or prospects, including any liabil- ity, loss,
damage or expense outside the ordinary course of business, except for any such
material adverse change or other event or condition disclosed in an updated
Sellers Disclosure Schedule to be provided to Purchaser in accordance with the
provisions of Section 5.11 of this Agreement;
(b) suffered any loss or prospective loss of one or more
dealers, suppliers or customers, or altered any contractual arrangement with any
one or more of its dealers, suppliers or customers, the loss or alteration of
which, either individually or in the aggregate, would have a materially adverse
effect on the business or prospects of NEBH or NEBC, except for any such loss or
alteration disclosed in an updated Sellers Disclosure Schedule to be provided to
Purchaser in accordance with the provisions of Section 5.11 of this Agreement;
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(c) made any capital expenditure or commitments for the
acquisition or construction of any single item of property, plant or equipment
in excess of $5,000;
(d) amended or terminated any lease, contract or material
commitment to which NEBH or NEBC is a party;
(e) entered into any transaction not in the ordinary course of
business or otherwise inconsistent in any respect with the past practices or
conduct of the business of NEBH or NEBC;
(f) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of NEBH or NEBC;
(g) sold any accounts receivable, disposed of any inventories
other than in the ordinary course of business or accrued any liabilities not in
the ordinary course of business;
(h) changed any material accounting principle, material
procedure or material practice followed by NEBH or NEBC or the method of
applying such principle, procedure or practice;
(i) incurred any indebtedness for borrowed money, other than
pursuant to the Credit Agreement and in the ordinary course of business;
(j) to the best knowledge of the Individual Stockholders and
CVCA after reasonable inquiry, created, assumed or permitted to exist any lien,
pledge, security interest, encumbrance or mortgage of any kind on any of its
properties or assets other than pursuant to the Credit Agreement;
(k) to the best knowledge of the Individual Stockholders and
CVCA after reasonable inquiry, permitted the occurrence or continuance of any
default under any agreement, except for a default existing under Section 6.5.1
of the Credit Agreement, which default has been waived for the period ended
September 30, 1995 as set forth in Section 3.30 of the Sellers Disclosure
Schedule;
(l) acquired the securities or substantially all of the assets
of any other entity;
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(m) merged or consolidated with any entity;
(n) established or agreed to establish any pension, retirement,
profit-sharing, deferred compensation or other employee benefit or welfare plan
for the employees of NEBH or NEBC;
(o) increased the rate of compensation payable or to become
payable to the Corporations' officers or employees or increased the amounts paid
or payable to such officers or employees under any Plan, or made or increased
any arrangements made for or with any of such officers or employees for the
payment of any bonus or profit-sharing amounts; provided, however, that the
amounts payable by NEBH to Messrs. Corvelli, Middleton and Moneghan pursuant to
Section 9 (vi) of the Stock and Note Purchase Agreement dated August 26, 1987
among NEBH, CVCA and others, up to an aggregate limit of $350,000, shall not be
deemed to constitute a prohibited bonus or profit-sharing contribution
contemplated by this provision, and provided further, however, that any such
bonus permitted to be paid and actually paid pursuant hereto shall be payable in
12 equal monthly installments commencing on the date of Closing;
(p) entered into any employment or similar contract with any
officer or employee;
(q) amended in any material respect or terminated any Plan or
agreement concerning employee benefits or compensation or made awards or
distributions under any such Plan or agreement not consistent with past practice
or custom except as contemplated herein;
(r) entered into any material contract (including but not
limited to assignments, licenses, transfers of exclusive rights, "work for hire"
agreements, special commissions, employment contracts, purchase orders, sales
orders, mortgages and security agreements) which (A) contain a grant or other
transfer, whether present, retroactive, prospective, or contingent, by it of any
rights in any Intellectual
33
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Property, or (B) contain a promise made by or to it to pay any lump sum or
royalty or other payment or consideration with respect to the acquisition,
practice or use of any intellectual property.
3.31 OSHA. Except as otherwise provided in Section 3.31 of Sellers
Disclosure Schedule, during the five years immediately prior to the date of this
Agreement, neither of the Corporations has been cited for any violations of the
Occupational Safety and Health Act of 1970, as amended, nor are there any
citations pending as a result of inspections of NEBH or NEBC or for
noncompliance with such Act. Except as otherwise provided in such Schedule, each
of the conditions which resulted in the issuance of a citation has been abated
or otherwise corrected to the satisfaction of the Occupational Safety and Health
Administration as of the date of this Agreement.
3.32 Immigration Matters. Except as set forth in Section 3.32 of the
Sellers Disclosure Schedule, each of the Corporations has properly completed and
maintained Forms I-9 on all persons who became employed by the Corporations for
the past three years, and any alien employee of the Corporations is employed
pursuant to a valid temporary work authorization. The Schedule lists the names
of any alien employees who are required to have temporary work authorizations,
the date of their employment and their job titles and responsibilities, and
attached to such Schedule is the Form I-9 for each such person.
3.33 Brokers. No finder, broker, or agent (i) has acted for or on
behalf of Sellers or NEBH or NEBC in connection with negotiation or consummation
of this Agreement or the
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transactions contemplated hereby or (ii) is entitled to any commission or
finders fee in connection therewith.
3.34 Accuracy of Information Furnished. No statement by the Individual
Stockholders or CVCA contained in this Agreement or in any Schedule hereto or in
the Financial Statements, and no statement contained in any certificate or other
instrument or document furnished or to be furnished by or on behalf of the
Individual Stockholders or CVCA to Purchaser pursuant hereto, or in connection
with the transactions contemplated by this Agreement, contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein not misleading.
IV. REPRESENTATIONS OF PURCHASER
Purchaser represents and warrants to the Individual Stockholders and
CVCA, acknowledging that they are materially relying thereon, as follows:
4.1 Authorization. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated by this
Agreement, have been duly approved by the Purchaser's Board of Directors. The
Purchaser has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate such
transactions in accordance with the terms and conditions of this Agreement. This
Agreement constitutes the valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its
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<PAGE>
terms, except as may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws or by legal or equitable principles
relating to or limiting creditors' rights generally.
4.2 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
4.3 Non-Contravention. The execution, delivery and performance of
this Agreement by Purchaser do not and will not (i) conflict with the charter or
the by-laws of Purchaser, (ii) violate any order, writ, injunction, or decree
applicable to Purchaser or (iii) result in any breach or termination of, or
constitute a default under, or constitute an event which, with notice or lapse
of time, or both, would become a default under, or create any rights of
termination, cancellation, or acceleration in any person under, any contract,
agreement, arrangement, commitment, license, lease, easement, permit, right of
way or understanding or violate any provisions of any laws, ordinances, rules or
regulations to which Purchaser is a party or by which Purchaser or any of its
assets, business or operations is bound; provided, however, that Purchaser will
be required to obtain the consent of CoreStates Bank and the Maryland Industrial
Development Finance Authority to its execution of this Agreement.
4.4 No Broker. No finder, broker, or agent (i) has acted for or on
behalf of Purchaser in connection with negotiation or consummation of this
Agreement or the transactions contemplated hereby or (ii) is entitled to any
commission or finders fee in connection therewith.
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V. CONDUCT PENDING CLOSING; COVENANTS
5.1 Access and Information. From the date of this Agreement until the
Closing:
(a) The Individual Stockholders shall cause NEBH and NEBC to
permit Purchaser and Purchaser's counsel, accountants, investment bank,
commercial bank and other representatives full access during normal business
hours and upon reasonable notice to all of the properties, assets, books,
records, agreements, commitments and other documents of NEBH and NEBC;
(b) The Individual Stockholders and NEBH and NEBC shall furnish
to Purchaser and its representatives all information with respect to the
Corporations as Purchaser may reasonably request; and
(c) The Individual Stockholders and NEBH and NEBC shall permit
and facilitate communications between Purchaser and all providers, suppliers and
other persons having dealings with the Corporations.
5.2 Cooperation and Publicity. From the date of this Agreement until
the Closing, the Individual Stockholders and CVCA will cause NEBH and NEBC and
their officers and employees to cooperate with Purchaser and its representatives
in planning for the post-Closing operations of NEBC and Purchaser on a combined
basis, including the possible merger or consolidation of NEBH and NEBC with the
Purchaser. In addition, the Individual Stockholders, CVCA and Purchaser will
consult with each other before making any public announcements with respect to
the transactions contemplated hereby, and any public announcements shall be made
only at such time and in such manner as the Individual Stockholders, CVCA and
Purchaser shall mutually agree.
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5.3 Other Proposals to Sellers. From the date of this Agreement until
the Closing (provided that this Agreement has not been terminated pursuant to
Article X hereof), the Individual Stockholders and CVCA will not, directly or
indirectly, whether through representatives or otherwise, solicit or encourage
any written inquiries or proposals for the acquisition of the NEBH Shares or all
or substantially all of the assets or the business of NEBH or NEBC, and the
Individual Stockholders and CVCA will promptly inform Purchaser of any
unsolicited offers from third parties for the purchase of the shares of NEBH or
NEBC or the purchase of their assets.
5.4 Notification by Sellers. Each of the Individual Stockholders and
CVCA shall give prompt notice to Purchaser of:
(a) any notice or other communication received by him or it or
NEBH or NEBC, or any occurrence or state of facts of which he or it shall become
aware, subsequent to the date of this Agreement and prior to the Closing Date,
which would cause any representation or warranty of the Individual Stockholders
or CVCA to be or become untrue or misleading under this Agreement, or which
relate to a default (or event which with notice or lapse of time or both would
become a default) under any contract, agreement or instrument to which NEBH or
NEBC Company is a party or by or to which either NEBH or NEBC or any of their
respective property is bound or subject; and
(b) Any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with this Agreement and the performance thereof.
5.5 Conduct of Business. From the date of this Agreement until the
Closing Date, the Individual Stockholders and CVCA will cause the business
conducted by NEBH and NEBC to be
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operated in the ordinary and usual course of business, in a manner consistent
with current practices, and in compliance with the terms of this Agreement.
Without limiting the generality of the foregoing, the Individual Stockholders
and CVCA shall cause NEBH and NEBC to:
(a) use their best efforts to preserve intact their business,
organization and relationships with employees, agents, customers and others
having business dealings with them;
(b) use their best efforts to complete or maintain in full
force and effect all existing contracts other than the agreement referenced in
Section 5.10 hereof;
(c) use their best efforts to preserve their goodwill;
(d) pay all of their respective accounts payable and other
obligations as they become due; and
(e) maintain in force their respective existing insurance
policies.
5.6 Prohibited Activities. From the date of this Agreement until the
Closing Date, the Individual Stockholders and CVCA shall take all measures
necessary to ensure that NEBH and NEBC will not, without Purchaser's express
written consent:
(a) issue, sell or contract to sell any stock, notes, bonds, or
other securities, or any option to purchase the same, or enter into any
agreement with respect thereto:
(b) amend their charters or bylaws;
(c) redeem, repurchase, or otherwise acquire any capital stock
or securities convertible into or exchangeable for capital stock or enter into
any agreement to do so;
(d) initiate any legal proceedings, including suits and
administrative proceedings in either the United States or foreign countries;
provided, however, that if any such proceeding is commenced
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without such consent, the Individual Stockholders and CVCA will be responsible
for the costs and expenses (including attorneys fees) of such proceeding and any
adverse judgment or award rendered as a result thereof, but shall also be
entitled to retain for their own benefit any recovery obtained in such
proceeding ;
(e) suffer either any material adverse change in the financial
condition, results of operations or business of the Corporations or any other
event or condition of any character that might reasonably be expected to have a
material adverse effect on NEBH or NEBC, including any liability, loss, damage
or expense outside the ordinary course of business (provided, however, that this
undertaking by the Individual Stockholders and CVCA shall be deemed to be one to
use their best efforts only);
(f) suffer any loss or prospective loss of one or more dealers,
suppliers or customers, or alter any contractual arrangement with any one or
more of their dealers, suppliers or customers, the loss or alteration of which,
either individually or in the aggregate, would have an adverse effect on the
business of NEBH or NEBC (provided, however, that this undertaking by the
Individual Stockholders and CVCA shall be deemed to be one to use their best
efforts only);
(g) make any capital expenditures or commitments for the
acquisition or construction of any single item of property, plant or equipment
in excess of $5,000;
(h) amend or terminate any lease, contract or material
commitment to which either of the Corporations is a party;
(i) declare, set aside or pay any dividend or other
distribution in respect of the capital stock of either of the Corporations;
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(j) sell any accounts receivable, dispose of any inventories
other than in the ordinary course of business or accrue any liabilities not in
the ordinary course of business;
(k) change any material accounting principle, material
procedure or material practice followed by NEBH or NEBC or the method of
applying such principle, procedure or practice;
(l) incur any indebtedness for borrowed money other than
pursuant to the Credit Agreement and in the ordinary course of business;
(m) create, assume or permit to exist any lien, pledge,
security interest, encumbrance or mortgage of any kind on any of the
properties or assets of the Corporations, other than pursuant to the Credit
Agreement and in the ordinary course of business;
(n) permit the occurrence or continuance of any default under
any agreement for funded debt, except for a default existing under Section 6.5.1
of the Credit Agreement, which default has been waived as set forth in Section
3.30 of the Sellers Disclosure Schedule;
(o) acquire the securities or substantially all of the assets
of any other entity;
(p) merge or consolidate with any entity other than Purchaser;
(q) increase the rate of compensation payable or to become
payable to the Company's officers or employees or increase the amounts paid or
payable to such officers or employees under any Plan, or make or increase any
arrangements for the payment of any bonus or profit-sharing amounts; provided,
however, that the amounts payable by NEBH to Messrs. Corvelli, Middleton and
Moneghan pursuant to Section 9 (vi) of the Stock and Note Purchase Agreement
dated August 26, 1987 among NEBH, CVCA and others, up to an aggregate limit of
$350,000, shall not be deemed to constitute a prohibited bonus or profit-sharing
contribution contemplated by this provision, and
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provided further, however, that any such bonus permitted to be paid and actually
paid pursuant hereto shall be payable in 12 equal monthly installments
commencing on the date of Closing;
(r) enter into any employment or similar contract with any
officer or employee;
(s) adopt, amend in any material respect or terminate any Plans,
severance plan or agreement or collective bargaining agreement or make awards or
distributions under any such plan or agreement, except as otherwise contemplated
by Section 5.9 hereof;
(t) enter into any material contract (including but not limited
to assignments, licenses, transfers of exclusive rights, "work for hire"
agreements, special commissions, employment contracts, purchase orders, sales
orders, mortgages and security agreements) concerning any rights in any
Intellectual Property;
(u) agree, whether in writing or otherwise, to take any action
described in this Section 5.6.
5.7 Certain Affirmative Covenants. Prior to the Closing Date, the
Individual Stockholders and CVCA will cause NEBH and NEBC, with the cooperation
of Purchaser where appropriate, to:
(a) comply promptly with all filing requirements, if any, which
foreign, federal or state law may impose on the execution, delivery and
performance of this Agreement; and
(b) use their best efforts to obtain any consent, authorization
or approval of, or exemption by, any governmental authority or other third
party, including without limitation, CVCA, the Corporations' lenders and
landlords and those persons or entities who are parties to the agreements or
instruments described in the Sellers Disclosure Schedule, whose consent is or
may be required to be obtained it in connection with the consummation of the
transactions contemplated in this
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Agreement, including without limitation, any consent, authorization or approval
necessary to waive any default under any of such agreements or instruments.
5.8 Tax Liabilities and Information.
(a) The Individual Stockholders shall cause NEBH and NEBC to
prepare and timely file all tax returns and amendments thereto and reports of
estimated taxes required to be filed by them on or before the Closing Date. The
time for filing such returns and reports will not be extended without
Purchaser's consent, and, if such late filing occurs or such an extension is
obtained (as to which Purchaser shall be informed in each case) without
Purchaser's consent, the Individual Stockholders shall be responsible for any
interest, penalties or assessments or other costs resulting from such late
filing or extension. Purchaser shall have a reasonable opportunity to review
such returns, reports and amendments thereto. From the date of this Agreement
until the Closing Date, the Individual Stockholders will cause NEBH and NEBC to
pay and discharge all taxes, assessments and governmental charges upon or
against them or any of their properties or assets, including liabilities for
estimated tax payments and all other tax liabilities, before the same shall
become delinquent and before penalties accrue thereon, except to the extent and
as long as:
(i) the same are being contested in good faith and by
appropriate proceedings pursued diligently and in
such a manner as not to cause any adverse effect upon
the condition (financial or otherwise) or operations
of the Corporations; and
(ii) the Corporations shall have set aside on their books
reserves (segregated to the extent required by sound
accounting practice) in the amount of the demanded
principal imposition, together with interest and
penalties relating thereto, if any.
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Between the date of this Agreement and the Closing Date, the Individual
Stockholders shall give Purchaser and its authorized representatives full access
to all tax returns and estimated tax reports of NEBH and NEBC, whether in their
possession or in the possession of third parties. The Individual Stockholders
and NEBH and NEBC shall, as of the Closing Date, terminate all tax allocation
agreements or tax sharing agreements with respect to the Corporations and shall
ensure that such agreements are of no further force or effect.
(b) With respect to NEBH and NEBC tax returns and reports
required to be prepared and filed after the Closing Date for any prior period
through the Closing Date ("Post-Closing Returns"): (i) the Individual
Stockholders will prepare, sign and timely file all Post-Closing Returns, and,
for this purpose, shall have access after the Closing Date to the appropriate
tax and financial records of the Corporations as set forth in subsection (f) of
this Section 5.8; (ii) the Purchaser shall have a reasonable opportunity to
review such returns prior to the filing thereof; and (iii) any taxes shown by
the Post-Closing Returns to be payable in the ordinary course shall be the
responsibility of the Corporations, subject to the provisions of the following
subsection. (c) Notwithstanding any other provision of this Agreement to the
contrary, if, as the result of any tax audit, examination, or proceeding by any
tax authority, any deficiency, assessment, interest or penalty is asserted
(whether before or after the Closing) against NEBH or NEBC with respect to any
period prior to and through the Closing Date, any liability in respect thereof
shall (subject to the provisions of Section 8.2 of this Agreement) be the
responsibility of the Individual Stockholders and CVCA (and not the obligation
of NEBH, NEBC or the Purchaser) to the extent, and only to the extent, that any
such deficiency, assessment, interest or penalty exceeds the tax benefit
received by Purchaser or the Corporations with respect to the item which is the
subject of such tax audit, examination or
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proceeding; provided, however, that if the subject deficiency, assessment,
interest or penalty results in a tax benefit to be received by refund claims,
then such deficiency, assessment, interest or penalty shall be paid in full from
the Escrow Fund described in Section 8.2, and Purchaser will cause to be filed
any and all applicable refund claims and will reimburse the Escrow Fund if, as
and when any such refund (and any interest thereon) is received.
(d) The Purchaser shall be responsible for preparing and filing
any NEBH or NEBC tax returns required for any period after the Closing Date, and
for any tax liabilities in connection therewith.
(e) The Purchaser and the Individual Stockholders agree to
furnish or cause to be furnished to each other, as promptly as practicable, such
information and assistance relating to the Corporations as is reasonably
necessary for the preparation and filing of any return, claim for refund or
other required or optional filings relating to tax matters, for the preparation
for and proof of facts during any tax audit, for the preparation for any tax
protest, for the prosecution or defense of any suit or other proceeding relating
to tax matters and for the answer to any governmental or regulatory inquiry
relating to tax matters.
(f) The Purchaser agrees to retain possession of all accounting,
business, financial and tax records and information (i) relating to the
Corporations in existence on the Closing Date and transferred to the Purchaser
hereunder and (ii) coming into existence after the Closing Date which relate to
the Corporations before the Closing Date, for the period not to exceed six years
from the Closing Date. In addition, from and after the Closing Date, the
Purchaser agrees that it will not unreasonably withhold access by the Individual
Stockholders and CVCA and their attorneys, accountants and other representatives
(after reasonable notice and during normal business hours and
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with reasonable charge), to such books, records, documents and any or all other
information relating to the Corporations as the Individual Stockholders and CVCA
may reasonably deem necessary to properly prepare for, file, prove, answer,
prosecute and/or defend any such return, filing, audit, protest, claim, suit,
inquiry or other proceeding. Such access shall include, without limitation,
access to any computerized information retrieval systems relating to the
Corporations.
5.9 Termination of Employee Benefit Plans. On or before the Closing
Date, the Individual Stockholders and CVCA will cause NEBH and NEBC to take all
actions necessary to terminate, effective on or prior to the Closing Date, the
Plans to be terminated on or prior to the Closing Date, listed in Section 3.16
of Sellers Disclosure Schedule, and such termination shall be accomplished
without requiring any contributions or payments after the Closing Date by NEBH,
NEBC or Purchaser. Such actions shall include, but shall not be necessarily
limited to the actions described in Section 3.16(o) of the Sellers Disclosure
Schedule. Purchaser agrees to credit any employee of NEBC and NEBH who will be
employed by Purchaser immediately after the Closing Date for such employee's
prior service as an employee of NEBH or NEBC, for purposes of eligibility and
vesting under the Purchaser's Employees' Savings and Investment Plan, or any
successor plan.
5.10 Termination of Dynamic Graphic Agreement. On or before the
Closing Date, the Individual Stockholders and CVCA will cause NEBH and NEBC to
take all actions necessary to terminate the agreement of NEBC with Dynamic
Graphic Finishing, Inc., and such termination shall be without any obligation or
liability to NEBH, NEBC or Purchaser, except for the cost of relocating
equipment of Dynamic Graphic Finishing, Inc. previously used by NEBC in
connection with foil stamping.
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5.11 Updated Financial Statements and Disclosure Schedules. From the
date of this Agreement until the Closing Date, the Individual Stockholders and
CVCA will cause NEBH and NEBC to prepare and deliver to Purchaser (i) monthly
unaudited financial statements for each calendar month subsequent to the Balance
Sheet Date, and (ii) an amended Sellers Disclosure Schedule updated to reflect
current information as of the end of each such calendar month, in each case no
later than 20 days after the end of such calendar month.
5.12 Books and Records to be Kept Current. From the date of this
Agreement until the Closing Date, the Individual Stockholders and CVCA shall
cause NEBH and NEBC to keep their books and records current and to safeguard and
maintain such books and records and other corporate documents, so that such
books, records and documents will be available to the Purchaser from and after
the Closing.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to consummate the transactions contemplated
in this Agreement is subject to the fulfillment of each of the following
conditions:
6.1 Authorization of Board. The form and substance of this Agreement
and all appended Exhibits and Schedules, and the consummation of the
transactions contemplated thereby shall have been duly approved by the Board of
Directors of the Purchaser.
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6.2 Financing Commitment. The Purchaser shall have obtained a binding
commitment from a commercial lending institution pursuant to which such
institution will make available to Purchaser, on or before the Closing Date and
on terms acceptable to Purchaser in its sole discretion, financing in an
aggregate amount sufficient to pay the Purchase Price and the costs of the
acquisition of the NEBH Shares and to provide for the working capital needs of
the combined business of Purchaser and NEBH and NEBC after the Closing.
6.3 Termination of Dynamic Graphic Agreement. The Individual
Stockholders and CVCA, as of or prior to the Closing Date, shall have obtained
and delivered to Purchaser an instrument, satisfactory in form and substance to
Purchaser's attorneys, terminating the agreement between Dynamic Graphic
Finishing, Inc. and NEBC, in accordance with the provisions of Section 5.10
above.
6.4 Leased Facilities Agreements. With respect to facilities leased
and occupied by NEBH and NEBC, the Individual Stockholders and CVCA shall have
delivered agreements or other instruments, satisfactory in form and substance to
Purchaser's attorneys:
(i) by which the landlord of the manufacturing facility
located at 125 Industrial Park Road, Hingham,
Massachusetts, will cause the lease for such facility
to terminate on the second anniversary of the
Closing, without any further liability to NEBH, NEBC
or the Purchaser, as set forth in Section 2.4 above;
and
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(ii) by which each landlord under any Facilities lease
containing a restriction or limitation on the
acquisition of shares of NEBH or NEBC, or on the
merger or consolidation of NEBH or NEBC, waives such
restriction or limitation.
6.5 Termination of Employee Benefit Plans. The Individual
Stockholders and CVCA shall have delivered agreements, instruments, certificates
and other documents, and a legal opinion of counsel to NEBH and NEBC, all of
which shall be satisfactory in form and substance to Purchaser and its
attorneys, confirming the termination of each of the Plans to be terminated on
or prior to the Closing Date, listed in Section 3.16 of the Sellers Disclosure
Schedule, as set forth in Section 5.9 above.
6.6 Termination of Voting Trust. An agreement or other instrument
duly terminating the Voting Trust Agreement shall have been delivered to
Purchaser, together with all necessary consents and/or powers of attorney on
behalf of the Employee Stockholders, without any expense or liability to
Purchaser.
6.7 NEBH Shares. The Individual Stockholders, CVCA and the Voting
Trustees shall have delivered certificates for the NEBH Shares, free and clear
of all liens, encumbrances, charges and claims, which Shares, as of the Closing
Date, shall be duly and validly issued and fully paid and non-assessable, and
which shall constitute all, and not less than all, of the issued and outstanding
shares of NEBH.
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6.8 Officers' Certificates. The Sellers shall have delivered the
following certificates, dated as of the Closing Date:
(a) certificates duly executed, respectively, by the Secretary
of NEBH and the Clerk of NEBC, certifying as to the incumbency and signatures of
the officers of NEBH and NEBC, as to copies of the charter and by-laws of NEBH
and NEBC, and as to any director or shareholder resolutions required in
connection with the consummation of the transactions contemplated by this
Agreement;
(b) a certificate executed by the Individual Stockholders and
CVCA to the effect that the representations and warranties of the Individual
Stockholders and CVCA made under this Agreement are true and correct in all
material respects at and as of the Closing Date, and that the Individual
Stockholders and CVCA have complied with or performed all conditions, and have
caused NEBH and NEBC to comply with and perform all conditions, required to be
performed by each of them on or prior to the Closing Date in accordance with
this Agreement.
6.9 Opinion of Counsel. The Purchaser shall have received a favorable
opinion, dated as of the Closing Date, from Choate, Hall & Stewart, special
counsel to the Sellers and counsel to NEBH and NEBC, in form and substance
reasonably satisfactory to the Purchaser and its counsel, in the form annexed
hereto as Exhibit 4.
6.10 No Material Adverse Change. No material adverse change in the
business, operations, earnings, assets or financial condition of either or both
of NEBH and NEBC, (a "Material Adverse Change") shall have occurred. For
purposes hereof, a Material Adverse Change shall be
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deemed to have occurred only if the aggregate consolidated sales of NEBH and
NEBC for the six-month period ended December 31, 1995 evidence a decline of 20%
or more from the aggregate consolidated sales of the Corporations for the
six-month period ended December 31, 1994, as reflected in the Financial
Statements.
6.11 Compliance with Covenants. The Individual Stockholders, CVCA, the
Voting Trustees, NEBH and NEBC shall have duly performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by them prior to or at the Closing.
6.12 Truth of Representations. The representations and warranties of
the Individual Stockholders and CVCA contained in this Agreement shall have been
true and correct in all material respects when made, and shall also be true and
correct in all material respects at and as of the Closing Date, with the same
force and effect as if made at and as of the Closing.
6.13 Consents and Waivers. At the Closing, all consents,
authorizations, orders or approvals provided for in this Agreement hereof shall
have been obtained.
6.14 Litigation. At the Closing, (i) there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or governmental agency of competent jurisdiction restraining
or prohibiting the consummation of the transactions provided for herein or
limiting in any manner Purchaser's right to control NEBH or NEBC or any aspect
of their
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business or requiring the sale or other disposition of any of their operations
or making such consummation unduly burdensome to the Purchaser, and (ii) no
proceeding or lawsuit shall have been commenced and be pending or be threatened
by any governmental or regulatory agency or any other person with respect to
such consummation which Purchaser, in good faith and with the advice of counsel,
believes is likely to result in any of the foregoing or which seeks the payment
of substantial damages by NEBH or the or Purchaser.
6.15 Employment and Non-Competition Agreements. The Employment
Agreements and Non-Competition Agreements described in Section 2.1 and 2.2 shall
have been executed and delivered.
6.16 Escrow Agreement and Disbursing Agent. The parties shall have
executed and delivered the Escrow Agreement provided for in Article VIII.
6.17 Miscellaneous Documents. The Individual Stockholders and CVCA
shall have caused NEBH and NEBC to deliver certificates of good standing for the
jurisdictions in which NEBH and NEBC are incorporated and in which they are
qualified to do business, as well as such resolutions, consents and other
confirmatory documents and instruments reasonably requested by Purchaser's
counsel.
6.18 Legal Matters. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of the Sellers,
or with respect to NEBH or NEBC, under
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the provisions of this Agreement, and all other actions and proceedings required
to be taken by or on behalf of the Sellers in furtherance of the transactions
contemplated hereby, shall be reasonably satisfactory in form and substance to
counsel for the Purchaser.
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
The obligation of the Sellers to consummate the transactions
contemplated in this Agreement is subject to the fulfillment of each of the
following conditions:
7.1 Truth of Representations. The representations and warranties made
by Purchaser shall be true and correct in all material respects and shall be
deemed to have been made again on and as of the Closing Date.
7.2 Compliance by Purchaser. All the terms, covenants, agreements and
conditions of this Agreement to be complied with and performed by the Purchaser
on or before the Closing Date shall have been complied with and performed in all
respects.
7.3 Litigation. No action or proceeding shall have been instituted or
shall have been threatened to restrain or prohibit any of the transactions
contemplated hereby.
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7.4 Payment. The Purchaser shall have obtained the financing
commitment set forth in Section 6.3 above and tendered payment of the Purchase
Price in accordance with the terms of this Agreement.
7.5 Employment, Non-Competition and Option Agreements, etc. The
Purchaser shall have executed and delivered the agreements described in Article
II above.
VIII. INDEMNIFICATION AND CLAIMS
8.1 Indemnification by Sellers. Subject to the provisions of Section
11.1 of this Agreement as to the survival of representations, warranties,
covenants and agreements, the Individual Stockholders and CVCA hereby jointly
and severally agree to indemnify Purchaser and its directors, officers,
employees, agents and affiliates (any of the foregoing being referred to as a
"Purchaser Indemnitee" or collectively, "Purchaser Indemnitees") from and
against any loss, liability, damage, obligation or expense whether absolute or
accrued, including interest, penalties and reasonable attorneys fees and
expenses incurred in the investigation or defense of, or in asserting the rights
of, the Purchaser Indemnitees hereunder (collectively, "Losses"), incurred and
arising directly or indirectly by reason of or in connection with:
(i) the inaccuracy or breach of any representation or
warranty by the Individual Stockholders or CVCA
contained in this Agreement or in any certificate or
other document furnished by Sellers or NEBH or NEBC
pursuant to this Agreement;
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(ii) the nonperformance or breach of any covenant,
agreement or obligation of Sellers, NEBH or NEBC
which is contained in this Agreement, including,
without limitation, the nonperformance of the
obligations of the Individual Stockholders set forth
in Section 5.8 above, provided, however, that CVCA
shall not be liable for any post-Closing conduct by
the Individual Stockholders;
(iii) any claim of liability under the provisions of the
agreement between Dynamic Graphic Finishing, Inc. and
NEBC, except for a pre-Closing trade account payable
in the or-
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dinary course of business as disclosed in the Sellers
Disclosure Schedule and as otherwise provided in
Section 5.10;
(iv) any tax liability (of any kind whatsoever) of
Purchaser, NEBH or NEBC (including any interest and
penalty) resulting from or in connection with any
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breach of the representations contained in Section
3.27 or nonperformance of the obligations of
Individual Stockholders set forth in Section 5.8;
(v) any past, present or future obligation or liability,
whether or not disclosed pursuant to this Agreement,
arising from a condition prior to Closing at any of
the Facilities, which, as a result of enforcement of
any federal, state or local environmental or land use
laws or regulations, results in Losses; and
(vi) any obligation or liability arising or resulting from
the termination of any or all of the Plans listed in
Section 3.16 of the Sellers Disclosure Schedule, and
any liability or obligation resulting from any
failure by NEBH or NEBC to have made any
contributions, pay any premiums or take any steps
required by applicable laws or regulations in
connection with such Plans prior to the Closing.
8.2 Certain Limitations as to Indemnification Liability.
Notwithstanding the foregoing:
(a) the liability of the Individual Stockholders and CVCA for
Losses shall extend only to Losses in amounts exceeding any tax benefit or
insurance proceeds actually received by Purchaser, NEBH or NEBC in connection
with such Losses, provided, however, that (i) payments from the Escrow Fund
regarding any tax liabilities shall be subject to the provisions of Section
5.8(c) above; and (ii) any losses subject to or covered by insurance shall be
paid in full from the Escrow Fund and, if, as and when the proceeds of any
insurance recovery are received, such proceeds shall be used to reimburse the
Escrow Fund;
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(b) the maximum liability of CVCA for Losses under Section 8.1
and any other provision of this Agreement shall not exceed an amount equal to
the portion of the Purchase Price payable to CVCA as set forth in Schedule A;
(c) the liability of CVCA under the provisions of this
Article VIII shall constitute the sole recourse and remedy of the Purchaser
against CVCA for any claims arising under this Agreement;
(d) the maximum liability of the Individual Stockholders for
Losses under Section 8.1 shall not exceed the portion of the Purchase Price
payable to them as set forth in Schedule A unless any Losses for which they are
liable under the provisions of Section 8.1 arise from a knowing breach of any
warranty or representation or covenant or other provision contained in this
Agreement; and
(e) except for claims by participants in the NEBC 401(k) Plan,
no claim for indemnification under Section 8.1 shall be payable unless such
claim amounts to at least $2,500 per occurrence.
8.3 Indemnity Fund; Escrow. In order to secure the indemnification
obligations set forth in Section 8.1 and any other provision of this Agreement,
the parties agree that a sum equal to ten percent (10%) of the Purchase Price
(the "Escrow Fund") will be set aside and placed in escrow at the Closing, to be
held, administered, applied, disbursed and distributed as set forth in a
separate escrow agreement ("Escrow Agreement") among the parties (and counsel to
Purchaser and counsel to Sellers as joint escrow agents), in the form annexed to
this Agreement as Exhibit 5, to be executed and delivered at the Closing.
Subject to the provisions of the Escrow Agreement, the Escrow Fund
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will be available to pay any Losses required to be paid and not otherwise
resolved or settled, will be maintained for a period of four years after the
Closing in an interest-bearing form at a reputable financial institution
selected by Purchaser's counsel, and will be released and returned to the
Individual Stockholders and CVCA in equal annual increments over such period,
provided that such increments shall be adjusted for Losses paid from time to
time as set forth in the Escrow Agreement and for pending claims which may
result in Losses under Section 8.1. The amount or availability of the Escrow
Fund to pay Losses at any given time shall not be deemed to limit or fix the
liability of the Individual Stockholders and CVCA under Section 8.1, the
limitations on such liability being expressly provided for in Section 8.2,
provided, however, that the Purchaser shall be obligated to seek recovery of
Losses from the Escrow Fund prior to exercising any other rights to recover such
Losses under this Agreement.
8.4 Purchaser's Right of Offset. In the event that the aggregate
Losses shall, at any time, exceed the amount available in the Escrow Fund to pay
such Losses (such excess Losses being referred to as the Non-Secured Losses),
Purchaser shall have the right to offset and deduct the Non- Secured Losses
from: (i) amounts due to the Individual Stockholders by way of any bonus
payments referred to in Section 5.6 above; (ii) amounts due to James F.
Middleton as compensation under the terms of the Non-Competition agreement
annexed as Exhibit 2; and (iii) amounts due to the Individual Stockholders and
CVCA in connection with any facilities sublease or otherwise as set forth in
Section 2.4(b) above. In the event the Purchaser shall exercise its right to
offset Non- Secured Losses, it shall so notify the Individual Stockholders and
CVCA immediately prior to effecting such offset.
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8.5 Indemnification Procedures and Notice.
(a) If any event which may give rise to any Losses occurs or is
alleged, and any Purchaser Indemnitee asserts that the Individual Stockholders
and CVCA have become obligated to such Purchaser Indemnitee pursuant to Section
8.1, or if any suit, action, investigation, claim or proceeding is begun, made
or instituted as a result of which the Individual Stockholders and CVCA may
become obligated to any Purchaser Indemnitee under any provision, term or
condition of this Agreement, such Purchaser Indemnitee shall give written notice
thereof to the Individual Stockholders and CVCA. The Individual Stockholders and
CVCA shall thereafter defend, contest or otherwise protect the Purchaser
Indemnitee against any such suit, action, investigation, claim or proceeding at
their sole cost and expense (subject to the limitations set forth in Section
8.2). The Purchaser Indemnitee shall have the right, but not the obligation, to
participate at its own expense in the defense thereof by counsel of the
Purchaser Indemnitee's choice and shall in any event cooperate with and assist
the Individual Stockholders and CVCA to the extent reasonably possible. If the
Individual Stockholders and CVCA fail timely to defend, contest or otherwise
protect against such suit, action, investigation, claim or proceeding, the
Purchaser Indemnitee shall have the right to do so, including, without
limitation, the right to make any compromise or settlement thereof, and the
Purchaser Indemnitee shall be entitled to recover the entire cost thereof from
the Individual Stockholders and CVCA including, without limitation, reasonable
attorneys' fees, disbursements and amounts paid as the result of such suit,
action, investigation, claim or proceeding, but subject to the limitations
provided in Section 8.2.
(b) If, at any time after the notice and other procedures
provided for in the preceding subparagraph are undertaken, a Purchaser
Indemnitee will be required to pay any Losses, and if the
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Individual Stockholders and CVCA have been unable or have failed to pay, settle
or eliminate such Losses, the affected Purchaser Indemnitee shall be entitled to
payment of the full amount of such Losses from the Escrow Fund (subject to the
limitations provided in Section 8.2). In such case, the Purchaser Indemnitee
shall send notice to the escrow agents of the Escrow Fund, stating the amount
and nature of the Losses, and indicating the inability, failure or refusal of
the Individual Stockholders and CVCA to indemnify such Purchaser Indemnitee.
Within 15 days after such notice, the escrow agents of the Escrow Fund shall
issue a check drawn on the Escrow Fund and payable to the Purchaser Indemnitee
in the full amount of such Losses or shall take such other action as shall be
provided for in the Escrow Agreement, and shall so notify the Individual
Stockholders and CVCA.
8.6 Distribution and Termination of Escrow Fund. Amounts held in the
Escrow Fund, less amounts paid or reserved for Losses or for claims in
connection therewith, shall be subject to distribution to the Individual
Stockholders and CVCA from time to time, and the Escrow Fund shall be
terminated, as set forth in the Escrow Agreement.
8.7 Indemnification Successors and Assigns. All of the rights and
obligations of the Sellers and the Purchaser pursuant to this Article VIII shall
survive any sale, assignment or other transfer by the Purchaser of title to or
interest in the NEBH Shares and shall apply to and bind each and every successor
and assign of the Purchaser.
IX. MISCELLANEOUS MATTERS
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9.1 Parties to Bear Their Own Expenses. The parties will be
responsible for their own legal fees, advisory fees and other expenses incurred
by them, respectively, in connection with the preparation of this Agreement and
the consummation of the transactions contemplated therein, as well as all
personal federal, state and local tax liabilities incurred in connection with
such transactions.
9.2 Purchaser May Assign; Possible Merger. Purchaser has informed
Sellers that it is considering (i) merging NEBC into NEBH and/or (ii) merging
NEBH and NEBC into Purchaser and/or (iii) merging Purchaser with a new Delaware
corporation as a means of reincorporating in Delaware. In connection therewith,
Purchaser may assign its interest in this Agreement to a wholly-owned subsidiary
corporation, without obtaining the consent of the Sellers; provided, however,
that the Purchaser shall remain primarily liable under this Agreement.
Subsequent to the completion of the Closing, the Individual Stockholders and
CVCA will cooperate with and assist NEBH and NEBC to the extent possible (and
without cost to the Individual Stockholders or CVCA) to effectuate such merger.
9.3 Parties to Cause NEBH to Act. Whenever a provision of this
Agreement requires any action to be taken by NEBH or NEBC, the Individual
Stockholders, by their execution of this Agreement, undertake to cause such
action to be taken by NEBH and NEBC, and CVCA, by its execution of this
Agreement, undertakes to use its best efforts to assist the Individual
Stockholders in carrying out their obligations under this Section 9.3 and to
refrain from taking any action inconsistent with the provisions of this
Agreement or the consummation of the transactions contemplated thereby.
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X. TERMINATION PRIOR TO CLOSING
10.1 Mutual Termination. This Agreement may be terminated at any time
prior to Closing by the mutual written consent of the Individual Stockholders,
CVCA and the Purchaser.
10.2 Termination by Purchaser. This Agreement may be terminated at any
time prior to Closing by Purchaser, if any of the Sellers or NEBH or NEBC shall
(i) fail to perform the obligations required in this Agreement to be performed
by such party on or prior to the Closing Date, or (ii) breach any of the
representations, warranties or covenants of the Individual Stockholders or CVCA
contained in this Agreement, which failure or breach is not cured within ten
(10) days after the Purchaser has notified the breaching party of Purchaser's
intent to terminate this Agreement pursuant to this Section 10.2. This Agreement
may also be terminated by Purchaser if it shall not be able to obtain a binding
financing commitment as set forth in Section 6.2 on or before December 20, 1995.
10.3 Termination by Sellers. This Agreement may be terminated by the
Individual Stockholders and CVCA if (i) Purchaser has not obtained a binding
financing commitment as set forth in Section 6.2 on or before December 20, 1995,
(ii) Purchaser shall fail to perform in any material respect the obligations
contained herein required to be performed by such party on or prior to the
Closing Date, or (iii) Purchaser shall breach any of its representations,
warranties or covenants contained herein, which failure or breach is not cured
within ten (10) days after the Individual
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Stockholders and CVCA have notified the breaching party of the intent of the
Individual Stockholders and CVCA to terminate this Agreement pursuant to this
Section 10.3.
10.4 Termination by Purchaser or Sellers. Either Purchaser or the
Individual Stockholders and CVCA may terminate this Agreement if there shall be
any order, writ, injunction or decree of any court or governmental or regulatory
agency binding on any party which prohibits or restrains such party from
consummating the transactions contemplated hereby, or in the event that the
transactions contemplated hereby have not been consummated (other than on
account of any default by any party hereto) on or prior to January 31, 1996.
XI. GENERAL PROVISIONS
11.1 Survival of Representations, Warranties, etc. Each of the
representations and warranties, covenants and agreements contained in this
Agreement shall survive for a period of four (4) years from the Closing Date
(except that the representations and warranties contained in Section 3.27 shall
survive until the applicable tax statutes of limitations relating thereto shall
have run) and any liability relating thereto shall be extinguished with regard
to any indemnification or other claim not made against the Individual
Stockholders or CVCA hereunder prior to the fourth anniversary of the Closing
Date, except for claims against the Individual Stockholders based on fraudulent
conduct.
11.2 Entire Agreement. This Agreement and the Schedules, Exhibits,
lists and other documents referred to herein constitute the entire agreement
among the parties hereto with respect to
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the transactions contemplated hereby and supersede all prior agreements,
discussions and proposals with respect thereto, whether written or oral. This
Agreement may be modified only by a written instrument executed by the parties.
11.3 No Assignment. Except as provided in Sections 8.7 and 9.2,
neither Sellers nor Purchaser shall have the authority to assign any of their
respective interests in this Agreement without the prior written consent of the
other party; provided, however, that Purchaser may assign all or any portion of
its rights hereunder as security, without the prior written consent of Sellers,
to any bank or other financial institution providing financing to Purchaser as
set forth in Section 6.2 above. The Individual Stockholders and CVCA shall
execute, and shall cause NEBH and NEBC to execute, any documents reasonably
required in order to effect such assignments.
11.4 Benefits of Agreement. This Agreement shall be binding upon and,
to the extent permitted in this Agreement, shall inure to the benefit of the
Sellers and the Purchaser and their respective successors and assigns. However,
it is the intent of the parties hereto that no third-party beneficiary rights be
created or deemed to exist, and none shall so exist, in favor of any person not
a party to this Agreement, unless otherwise expressly agreed in writing by the
parties.
11.5 Remedies Cumulative. Subject only to the express limitations set
forth in this Agreement, including Section 8.2 thereof, the rights and remedies
provided herein shall be cumulative and shall not preclude Sellers or Purchaser
from asserting any other rights or seeking any other remedies against the other
to which it may otherwise be entitled by law.
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11.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to conflict
of law provisions. The parties agree that any actions or claims arising under
this Agreement shall be brought in a court of general jurisdiction located in
New York County.
11.7 Notices. Any notice, request, instruction or other document
required or permitted to be given hereunder by a party shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, or by prepaid overnight delivery service, addressed as
follows:
If to Sellers:
Stephen K. Fogg, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
If to Purchaser:
Phoenix Color Corp.
101 Tandy Drive
Hagerstown, MD 21740
Attn: Louis LaSorsa, President
Edward Lieberman, Executive Vice President
with a copy to:
Andrew J. Goodman, Esq.
Rosner, Bresler, Goodman & Bucholz
521 Fifth Avenue
New York, NY 10175
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or to such other persons or addresses as may be designated in writing by the
party desiring to receive such notice. If mailed as aforesaid, the day of
mailing shall be deemed to be the date of delivery.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
11.9 Severability. In case any one or more of the covenants,
agreements, provisions or terms contained in this Agreement shall be invalid,
illegal or unenforceable in any respect, the validity of the remaining
covenants, agreements, provisions or terms contained herein shall be in no way
affected, prejudiced or disturbed thereby.
11.10 Headings. The headings of the various Articles and Sections of
this Agreement, were employed, are for convenience of reference only and shall
not be deemed in any way to modify, interpret or construe the text of this
Agreement or the intent of the parties.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
PHOENIX COLOR CORP.
By: /s/ Louis LaSorsa
------------------------------
President
/s/ Edmund J. Corvelli, Jr.
------------------------------
EDMUND J. CORVELLI, JR.,
Individually, and as Voting Trustee
/s/ James F. Middleton
------------------------------
JAMES F. MIDDLETON,
Individually, and as Voting Trustee
/s/ Edward A. Moneghan
------------------------------
EDWARD A. MONEGHAN,
Individually, and as Voting Trustee
CHEMICAL VENTURE
CAPITAL ASSOCIATES,
a California Limited Partnership
By: CHEMICAL VENTURE PARTNERS,
its General Partner
By:
------------------------------
a General Partner
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Exhibit 10.02
ESCROW AGREEMENT
AGREEMENT dated February 1, 1996 by and among PHOENIX COLOR CORP., a
New York corporation (the "Purchaser"), the persons and entities listed on
Schedule A annexed hereto (such persons and entities being referred to
collectively as the "Sellers" and singly as a "Seller"), and ANDREW J. GOODMAN,
as escrow agent (the "RBGB Escrow Agent"), and STEPHEN K. FOGG, as escrow agent
(the "CHS Escrow Agent").
RECITALS
A. The Purchaser, the Sellers and certain other parties previously entered
into a Stock Purchase Agreement dated December 27, 1995 (the "Stock Purchase
Agreement"), pursuant to which the Purchaser agreed to purchase from the Sellers
and certain other parties all of the capital stock of New England Book Holding
Corporation ("NEBH"), and the closing for such purchase of capital stock is
being held on this date;
B. The parties to the Stock Purchase Agreement have agreed that, in order to
secure certain indemnification obligations of the Sellers to the Purchaser under
the Stock Purchase Agreement, the Sellers are agreeing to cause to be deposited
in escrow a fund in the original principal amount of $2,100,000, representing
10% of the purchase price payable to the Sellers under the Stock Purchase
Agreement;
<PAGE>
C. The parties desire to appoint the RBGB Escrow Agent and the CHS Escrow
Agent (collectively, the "Escrow Agents"), who will be jointly responsible for
administering and disbursing the escrowed funds;
D. The parties desire to set forth the terms and conditions under which the
escrowed funds will be maintained and administered, and setting forth also the
rights and responsibilities of the Escrow Agents and the other parties to this
Agreement;
NOW, THEREFORE, for the sum of $10.00 (Ten Dollars) and other good and
valuable consideration, paid and given by each party to the other, receipt of
which is hereby acknowledged, THE PARTIES AGREE AS FOLLOWS:
I. DEPOSIT AND ESCROW FUND
1.1 Delivery of Funds in Escrow. Concurrently with the execution of this
Agreement, the sum of $2,100,000, representing 10% of the purchase price payable
to the Sellers under the Stock Purchase Agreement, shall be deposited and held
in escrow pursuant to the terms of this Agreement. Such amount and all accrued
interest, as they shall increase or decrease from time to time and in whatever
form the same maybe invested or maintained in accordance with the provisions of
this Agreement, are referred to herein as the "Escrow Fund."
2
<PAGE>
1.2 Escrow Period. The Escrow Fund shall be maintained and shall continue for
a period of four years through December 31, 1999 (the "Escrow Period"), unless
such Escrow Period is changed in accordance with the provisions of Sections 5.1
or 7.1.
1.3 Deposit and Investment of Escrow Fund. The Escrow Fund shall be deposited
at an established federally or state chartered commercial banking institution to
be selected by the RBGB Escrow Agent. Such deposit shall initially be made into
one or more interest-bearing checking or savings accounts maintained at such
institution, from which amounts shall be withdrawn from time to time for
investment in the interest-bearing instruments described below, and to which
funds will be returned when such instruments mature or are liquidated. The
Escrow Fund, except such amounts as are required to pay bank charges and similar
administrative expenses, shall be invested in short-term direct obligations of,
or obligations the timely payment of principal and interest on which are
unconditionally guaranteed by, the United States of America. Investment
decisions shall be made by the RBGB Escrow Agent, but the CHS Escrow Agent shall
have the right to reasonably approve the general character and maturity dates of
investments, which approval shall not be unreasonably withheld.
1.4 Signatures for Transfer/Withdrawal. Subject to the terms and conditions of
this Agreement, amounts comprising the Escrow Fund may be transferred between
accounts and among various investment instruments or forms, on the sole
signature of the RBGB Escrow Agent, subject to the reasonable approval of the
CSH Escrow Agent. However, no amounts may be withdrawn from
3
<PAGE>
the Escrow Fund or paid to the Purchaser, to any Seller or to any other person
without the joint signatures of the Escrow Agents.
1.5 Notification of Fund Status. The RBGB Escrow Agent shall notify the CHS
Escrow Agent of the status of the Escrow Fund by sending to the CHS Escrow Agent
duplicates or copies of all Escrow Fund bank statements and statements showing
investment of Escrow Fund assets. At least once each calendar quarter, the
Escrow Agents shall send notices to the Purchaser and the Sellers showing the
current status of the Escrow Fund, including information as to any claims then
pending against or which are being paid from the Escrow Fund.
1.6 Appointment of Disbursing Agent. The Sellers hereby appoint Choate, Hall &
Stewart to act as a disbursing agent (the "Disbursing Agent"), authorized to
receive distributions of amounts payable to the Sellers from the Escrow Fund and
to forward such distributions, and any notices intended for the Sellers from the
Escrow Agents, to the Sellers. The Escrow Agents are hereby authorized to
communicate with the Sellers through the Disbursing Agent, and need not
recognize any communications or directions from any Seller unless the same is
transmitted through the Disbursing Agent.
II. CLAIMS AGAINST AND PAYMENT FROM ESCROW FUND
2.1 Confirmation of Purchaser's Right to Indemnification. The parties
acknowledge and confirm that the Purchaser (including, for purposes hereof
certain Purchaser Indemnitees) is entitled
4
<PAGE>
to indemnification against certain "Losses" as set forth in Article VIII of the
Stock Purchase Agreement, including, without limitation, Section 8.1 thereof.
2.2 Payment of Losses. In the event that any indemnifiable Losses (as defined
in the Stock Purchase Agreement) are incurred by Purchaser (including, in the
definition of Purchaser for this purpose, any "Purchaser Indemnitee" as defined
in Section 8.1 of the Stock Purchase Agreement), and all or any portion of such
Losses are not promptly reimbursed by Sellers, the Purchaser shall be entitled
to immediate reimbursement of such Losses from the Escrow Fund. (For purposes
hereof, the cost of any bond necessary to stay any action against Purchaser,
pending an appeal of any suit or action in respect of any Losses, shall be
deemed included in Losses and paid from the Escrow Fund.) Upon notice from the
Purchaser given to the Escrow Agents, stating the amount and nature of the
Losses and indicating the inability, failure or refusal of the Sellers to
reimburse the Purchaser, the Escrow Agents shall, within fifteen days after such
notice, issue a check drawn on the Escrow Fund for the full amount claimed;
provided, however, that in the event a dispute arises regarding the payment of
any Losses or regarding the payment of any Annual Distribution (as defined in
Section 3.1 below), either or both of the Escrow Agents may refuse to take any
action otherwise provided for herein and may in lieu thereof submit such dispute
for resolution as provided in Section 6.1 hereof.
2.3 Notice to Sellers of Payment of Claims. Whenever any claims are paid from
the Escrow Fund as aforesaid, the Escrow Agents shall so notify the Sellers,
indicating the amount and nature of the claim, the amount paid, and the
remaining balance in Escrow Fund after such payment.
III. ESCROW FUND DISTRIBUTIONS TO SELLERS
5
<PAGE>
3.1 Annual Distributions. Subject to adjustment as set forth in Section 3.2
below, the Sellers shall be entitled, at the end of each calendar year during
the Escrow Fund, to the distribution and return of (i) the sum of $525,000, (ii)
all interest accrued on the Escrow Fund during such year and available for
distribution at year-end, and (iii) any amounts in the Escrow Fund which were
distributable to the Sellers in any preceding year under the terms of this
Agreement but which were not so disbursed (all of the foregoing amounts being
referred to collectively as the "Annual Distribution"). On or before December 15
in each year during the Escrow Period, the Escrow Agents shall confer and shall
determine the amount of accrued and available interest for the year and the
appropriate Annual Distribution. On or prior to December 31 in each year during
the Escrow Period, the Escrow Agents shall cause a check payable to the
Disbursing Agent in the amount of the Annual Distribution to be issued, along
with an accompanying notification to the Sellers.
3.2 Adjustment of Annual Distribution. The amount of the Annual Distribution
for any calendar year shall be reduced by (i) the aggregate amount of any Losses
paid from the Escrow Fund during such calendar year and (ii) any pending claims
under Section 8.1 of the Stock Purchase Agreement. If the amount of such Losses
and claims exceeds the Annual Distribution in any calendar year, such excess
("Excess Losses") will reduce each Annual Distribution to be paid in any
succeeding year of the Escrow Period. By way of illustration, if, in the first
year of the Escrow Period, the Escrow Fund pays Losses of $100,000 and there are
other claims aggregating $100,000 under Section 8.1 of the Stock Purchase
Agreement, there will be an Annual Distribution of $325,000 ($525,000 - $200,000
= $325,000) plus accrued interest. If, in the second year of the Escrow Period
there are Losses paid of $500,000 and claims of $300,000 (including the
preceding year's $100,000
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<PAGE>
in claims) with accrued and available Escrow Fund interest of $80,000, there
will be no Annual Distribution in such year, and there will be Excess Losses of
$95,000 ($800,000 [Losses and old and new claims] - $625,000 [$525,000 +
$100,000 not distributed in the first year because of pending claims] + $80,000
in interest = $95,000), which Excess Losses will be carried over and applied to
reduce the Annual Distribution in the succeeding year.
3.3 Final Distribution. The Sellers shall be entitled to receive, at the end
of the Escrow Period, a final Annual Distribution which will consists of the
remaining balance of the Escrow Fund, including any previously undistributed
accrued interest thereon, less any bank charges or similar fees required to be
paid. At the time of such final distribution, the Escrow Agents will close all
bank accounts and liquidate all Escrow Fund investments. The final annual
distribution will be accompanied by a statement showing the distribution of the
balance of the Escrow Fund.
IV. ESCROW AGENT FEES, OBLIGATIONS AND INDEMNIFICATION
4.1 Fees and Expenses. The fees, disbursements and expenses incurred by the
RBGB Escrow Agent in performing its duties under this Agreement shall be charged
to and paid by the Purchaser. The fees, disbursements and expenses incurred by
the CHS Escrow Agent in performing its duties under this Agreement shall be
charged to and paid by the Sellers, or may be paid out of the Escrow
7
<PAGE>
Fund by direction of the Sellers, after appropriate provision for the payment of
Losses and for reserves for pending claims.
4.2 Responsibility of Escrow Agents. Neither of the Escrow Agents shall be
obligated to undertake any responsibilities, actions or tasks not expressly
provided for in this Agreement, unless such responsibility, action or task is
specifically authorized by the consent of all of the parties to this Agreement.
4.3 Presumption of Authenticity. Neither of the Escrow Agents shall have any
responsibility to inquire into or determine the genuiness, authenticity or
sufficiency of any instruments, checks, agreements or other documents submitted
to it in connection with its duties hereunder, and may rely on such items which
it believes in good faith to be genuine, authentic and sufficient.
4.4 Indemnification of Escrow Agents.
(a) The Purchaser and the Sellers shall jointly and severally indemnify
the RBGB Escrow Agent and hold the RBGB Escrow Agent harmless against all loss,
liabilities, damage or expense, including any reasonable attorneys' fees
incurred in connection herewith, which may at any time be imposed upon or
incurred by or asserted against the RBGB Escrow Agent in any way relating to or
rising out of this Escrow Agreement or the duties undertaken by the RBGB Escrow
Agent
8
<PAGE>
thereunder, other than any loss, liability, damage or expense resulting solely
from the gross negligence or willful misconduct of the RBGB Escrow Agent.
(b) The Purchaser and the Sellers shall jointly and severally indemnify
the CHS Escrow Agent and hold the CHS Escrow Agent harmless against all loss,
liability, damage or expense, including any interest, penalties and reasonable
attorneys' fees incurred in connection therewith, which may at any time be
imposed upon or incurred by or asserted against the CHS Escrow Agent in any way
relating to or rising out of this Escrow Agreement or the duties undertaken by
the CHS Escrow Agent thereunder, other than any loss liability, damage or
expense resulting solely from the gross negligence or willful misconduct of the
CHS Escrow Agent.
V. TERMINATION OF ESCROW
5.1 Termination of Escrow. This Agreement and the Escrow Fund shall terminate
at the end of the Escrow Period, unless all of the parties to this Agreement
shall otherwise agree in writing. Upon such termination, and subject to the
distribution of any remaining balance of the Escrow Fund, each of the Escrow
Agents shall be fully discharged from any further obligations to any party under
this Agreement.
VI. DISPUTES
6.1 Disputes. Any disputes arising under or in connection with this Agreement
which cannot be resolved among the parties shall be subject to resolution solely
by a court of general jurisdiction
9
<PAGE>
located in the County and State of New York, and the parties hereby expressly
consent and waive any objection to the jurisdiction of such court.
6.2 No Conflict in Representation.
(a) The parties acknowledge and agree that Andrew J. Goodman and a law
firm of which he is a member may continue to act as counsel to the Purchaser,
and neither the functions nor obligations as the RBGB Escrow Agent, nor any
actions taken by such person or firm under this Agreement, shall be deemed to
create any conflict of interest or require termination or limitation of the
representation of the Purchaser.
(b) The parties acknowledge and agree that Stephen K. Fogg and a law
firm of which he is a member may continue to act as counsel to the Sellers, or
any of them, and neither the functions nor obligations as the CHS Escrow Agent,
nor any actions taken by such person or firm under this Agreement, shall be
deemed to create any conflict of interest or require termination or limitation
of the representation of the Sellers.
VII. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the Escrow Fund and supersedes all
prior agreements, discussions and proposals with respect thereto, whether
written or oral. This Agreement may be modified only by a written instrument
executed by the parties.
10
<PAGE>
7.2 No Assignment. Except as provided in Section 8.7 of the Stock Purchase
Agreement, neither Sellers nor Purchaser shall have the authority to assign any
of their respective interests in this Agreement without the prior written
consent of the other party; provided, however, that Purchaser may assign any of
its rights to be reimbursed hereunder for Losses which may be incurred from time
to time , without the prior written consent of Sellers, to a bank or other
financial institution providing financing to Purchaser as set forth in Section
6.2 of the Stock Purchase Agreement. Sellers shall execute, and shall cause NEBH
and NEBC to execute, any documents required in order to effect such assignment
of such right of Purchaser.
7.3 Benefits of Agreement. This Agreement shall be binding upon and, to the
extent permitted in this Agreement, shall inure to the benefit of Sellers and
Purchaser and their respective successors and assigns. However, it is the intent
of the parties hereto that no third-party beneficiary rights be created or
deemed to exist, and none shall so exist, in favor of any person not a party to
this Agreement, unless otherwise expressly agreed in writing by the parties.
7.4 Remedies Cumulative. Subject only to the express limitations set forth in
this Agreement, the rights and remedies provided herein shall be cumulative and
shall not preclude Sellers or Purchaser from asserting any other rights or
seeking any other remedies against the other to which it may otherwise be
entitled by law.
7.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflict of
law provisions.
11
<PAGE>
7.6 Notices. Any notice, request, instruction or other document required or
permitted to be given hereunder by a party shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid overnight delivery service, addressed as
follows:
If to Sellers: Stephen K. Fogg, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
with a copy to the CHS Escrow Agent
If to Purchaser: Phoenix Color Corp.
101 Tandy Drive
Hagerstown, MD 21740
Attn: Louis LaSorsa, President and Edward Lieberman, Executive Vice
President
with a copy to the RBGB Escrow Agent
If to the CHS Escrow Agent: Stephen K. Fogg, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
If to the RBGB Escrow Agent: Andrew J. Goodman, Esq.
Rosner, Bresler, Goodman & Bucholz
12
<PAGE>
521 Fifth Avenue
New York, NY 10175
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If mailed as aforesaid, the day of mailing shall
be deemed the date of delivery.
7.7 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.8 Severability. In case any one or more of the covenants, agreements,
provisions or terms contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants,
agreements, provisions or terms contained herein shall be in no way affected,
prejudiced or disturbed thereby.
7.9 Headings. The headings of the various Articles and Sections of this
Agreement, were employed, are for convenience of reference only and shall not be
deemed in any way to modify, interpret or construe the text of this Agreement or
the intent of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PHOENIX COLOR CORP.
By: /s/ Ed Lieberman
--------------------------
Chief Financial Officer
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<PAGE>
/s/ Edmund J. Corvelli, Jr.
--------------------------
Edmund J. Corvelli, Jr.
/s/ James F. Middleton
--------------------------
James F. Middleton
/s/ Edward A. Moneghan
--------------------------
Edward A. Moneghan
CHEMICAL VENTURE CAPITAL ASSOCIATES
a California Limited Partnership
By: CHEMICAL VENTURE PARTNERS,
its General Partner
By:
--------------------------
a General Partner
/s/ Andrew J. Goodman
---------------------------
Andrew J. Goodman, as Escrow Agent
/s/ Stephen K. Fogg
---------------------------
Stephen K. Fogg, as Escrow Agent
14
<PAGE>
Exhibit 10.03
D R A F T
- ---------
(980408)
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of the __ day of ______, 1998, by and between
Louis LaSorsa (the "Executive"), an individual residing at 455 East Baltimore
St., Greencastle, PA 17225, and Phoenix Color Corp. (the "Company") with a place
of business at 540 Western Maryland Parkway, Hagerstown, MD 21740.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by the Company as its
President and Chief Executive Officer, and the Company desires that the
Executive shall continue to be employed by it and render services to it, and the
Executive is willing to continue to be so employed and to render services, all
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive, and the Executive hereby
accepts employment, for the term ("Term) set forth in Section 2 hereof, to
render services to Company as Chairman of the Board of Directors, President and
Chief Executive Officer. The Executive represents and warrants to the Company
that he has full power and authority to enter into this Agreement and that he is
not under any obligation of a contractual or other nature to any person,
<PAGE>
firm or corporation which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair in any way the performance by Executive of
his obligations hereunder.
1.2 The Executive will serve as President and Chief Executive Officer
of the Company and as Chairman and a member of its Board of Directors when
elected as such, will have general supervision over the operations of the
Company and its subsidiaries or affiliates (referred to collectively as
"Affiliates") and will have such other duties and responsibilities, consistent
with his position as President and Chief Executive Officer, as may reasonably be
assigned to him by the Board of Directors of the Company. In addition, the
Executive will serve as a senior officer and a director (when elected as such)
of each of the Company's Affiliates. The Executive will report to the Board of
Directors of the Company.
1.3 The Executive shall devote his full business time to the business
and affairs of the Company, and shall use his best efforts, skills, and
abilities to promote the interests of the Company, except for reasonable
vacations and during periods of illness or incapacity, but nothing contained in
this Agreement shall prevent the Executive from engaging in charitable or
community activities provided they do not interfere with the regular performance
of the Executive's duties and responsibilities under this Agreement.
1.4 Unless the Executive and the Company shall otherwise agree, the
Executive's principal place of employment shall be in and around Hagerstown,
Maryland, but the duties of the Executive shall include such visits to the
Company's facilities and the facilities of its Affiliates, at the expense of the
Company, as may be reasonably required in the performance of the Executive's
responsibilities.
2
<PAGE>
2. Term. The Term of this Agreement will commence on ______, 1998 and will
terminate at the close of business on the fifth anniversary thereof, unless
sooner terminated in accordance with the provisions of this Agreement.
Thereafter, the employment of the Executive shall continue for successive
one-year periods (each such one-year period being hereinafter referred to as a
"Renewal Term") following the Term (the first such Renewal Term to commence on
_______________, 2003) unless the Corporation or Executive shall give notice to
the other at least sixty (60) days prior to the end of the Term or any Renewal
Term of the election of the Corporation or the Executive to terminate the
employment of the Executive at the end of the Term or the then current Renewal
Term, as the case may be.
3. Base Salary.
For all services performed by the Executive under this Agreement, the
Executive shall be paid a base salary ("Base Salary") at least the following
annual rates:
<TABLE>
<CAPTION>
Calendar Year Base Salary
--------------- -----------
<S> <C>
1998 $ 495,700
1999 520,485
2000 546,509
2001 573,835
2002 602,527
2003 632,652
</TABLE>
Notwithstanding the foregoing specified amounts of Base Salary, (i) if the
percentage increase in the Consumer Price Index maintained by the United States
Bureau of Labor Statistics (or any successor to such index maintained by an
agency of the federal government) (the "CPI") applicable to the Standard
Metropolitan Statistical Area in which the Company's executive offices are
located shall be greater over any calendar year during the Term than the
year-to-year
3
<PAGE>
percentage increase represented by the foregoing changes in Base Salary, the
Base Salary shall be increased to reflect such percentage change in the Consumer
Price Index, and (ii) the Board of Directors may award increases in Base Salary
greater than those provided above after a review taking into account corporate
and individual performance, the Company's prospects and general business
conditions.
During any Renewal Term, the Executive's Base Salary shall be the greatest
of (i) one hundred five (105%) per cent of the Base Salary during the twelve
month period immediately preceding the Renewal Term in question; (ii) the
product of the multiplication of the Base Salary during the twelve month period
immediately preceding the Renewal Term in question by the sum of one hundred
plus the amount expressed as a percent by which the most recent reported CPI
applicable to the Standard Metropolitan Statistical Area in which the Company's
executive offices are located is greater than the CPI for that same SMSA twelve
months prior to the Renewal Term in question; and (iii) the sum offered by the
Board of Directors after a review taking into account corporate and individual
performance, the Company's prospects and general business conditions.
3.2 Base Salary shall be paid in equal monthly or semi-monthly
installments in keeping with the Company's standard payroll policies applicable
to its senior executives.
4. Bonus.
The Executive shall be entitled to participate in any bonus pool
established by the Company to provide incentive compensation for its officers
and other supervisory personnel (the "Incentive Bonus").
4
<PAGE>
5. Reimbursement for Expenses.
Company shall reimburse Executive for all reasonable out-of-pocket expenses
paid or incurred by him in the course of his employment, upon presentation by
Executive of valid receipts or invoices therefor, utilizing procedures and forms
for that purpose as established by Company from time to time.
6. Vacations.
Executive shall be entitled to reasonable vacations (which shall aggregate
no less than five (5) weeks vacation with pay) during each consecutive 12 month
period commencing on the date hereof. Executive may not accumulate any vacation
days which remain unused at the end of any year during the term hereof without
the prior consent of the Board of Directors.
7. Employee Benefit Programs, etc.
7.1 The Company shall provide the Executive with an automobile (or at
Employee's option, a cash allowance in the amount of $4,500 per month) for use
in the performance of Executive's duties, along with fuel, fluids and
maintenance, upon such terms and conditions as are approved by Company. The
Company shall arrange and pay for secure communications and computer links
between the Executive's primary residence and the Company's executive offices to
permit the Executive to carry out his responsibilities from such residence, and
shall and pay or reimburse the Executive for the costs of a cellular telephone.
7.2 Subject to the approval of the Boards of Directors of the
Company, the Executive shall be provided with disability insurance providing for
disability payments to the Executive following a termination of Executive's
employment hereunder as a result of Disability
5
<PAGE>
(as defined in Section 8.2 below). In the event such policy is not obtained,
Executive shall be entitled to participate in such disability plan(s) as are
available to Company executives generally.
7.3 Subject to the Executive's meeting the eligibility requirements
of each respective plan, Executive shall be offered the opportunity participate
in and be covered by each pension, life insurance, accident insurance, health
insurance, hospitalization and any other employee benefit plan adopted by the
Company, as the case may be, made available generally from and after the date
hereof to its respective executives, on the same basis as shall be available to
such other executives without restriction or limitation by reason of this
Agreement; provided, however, that Executive shall not participate in two or
more plans providing duplicative benefits or coverage. The Company shall use its
reasonable efforts to waive any qualifying period for participation in any such
plan by the Executive.
7.4 Nothing herein contained shall prevent the Company from at any
time increasing the compensation herein provided to be paid to Executive, either
permanently or for a limited period, or from paying bonuses and other additional
compensation to Executive, whether or not based upon the earnings of the
business of Company, or from increasing or expanding any employee benefit
program applicable to the Executive, in the event the Company, in its sole
discretion, shall deem it advisable so to do in order to recognize and
compensate Executive fairly for the value of his services.
8. Death or Disability.
8.1 If Executive shall die during the term hereof, this Agreement
shall immediately terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive (i) the Base Salary due to
Executive hereunder to the last day of the
6
<PAGE>
third month following the month in which his death occurs, payable in accordance
with the Company's regular payroll practices, (ii) a portion of the Incentive
Bonus payable under Section 4 (determined as provided under Section 8.4), based
on the Company's Adjusted Net Income through the month of the bonus year
preceding the month in which death occurs; and (iii) all other payments and
entitlements available upon death under any employee benefit program covering
the Executive as of the date of death. Except for the payments required pursuant
to this Section 8.1, no payments shall be made for any period after Executive's
death.
8.2 In the event of the Disability (as hereinafter defined) of the
Executive, the Executive shall be entitled to continue to receive from the
Company and its several benefit plans an amount equal to his Base Salary
(prorated as may be necessary) in accordance with the terms of Section 3 hereof
through the last day of the third month following the month in which Executive's
employment hereunder is terminated as a result of such Disability. At any time
after the date of the Notice (as hereinafter defined) and during the continuance
of the Executive's Disability, the Company may at any time thereafter terminate
Executive's employment hereunder by written notice to the Executive. The term
"Disability" shall mean physical or mental illness or injury which prevents the
Executive from performing his customary duties for the Company for a period of
forty five (45) consecutive business days or an aggregate period of one hundred
twenty (120) days out of any consecutive twelve (12) months. The date of
commencement of Disability shall be the date set forth in the notice (the
"Notice") given by Company to the Executive at any time following a
determination of Disability, which date shall not be earlier than the date the
Notice is given by Company. A determination of Disability by Company shall be
solely for the
7
<PAGE>
purposes of this Section 8.2 and shall in no way affect the Executive's status
under any benefit plan applicable to the Executive.
8.3 Upon the occurrence of a Disability, and unless the Executive's
employment shall have been terminated as provided in Section 8.2, the Executive
shall continue to perform such services for Company, consistent with his duties
under Section 1 hereof, as he is reasonably capable of performing in light of
the condition giving rise to a Disability. All payments due under Section 8.2
shall be payable in accordance with Company's regular payroll practices. Those
payments, together with the aggregate amount of all periodic payments which the
Executive is entitled to receive under all workers compensation plans,
disability plans and accident, health or other insurance plans or programs
maintained for the Executive by Company (or by any company controlling,
controlled by or under common control with the Company), shall be not less than
Executive's Base Salary for the month or period in question.
8.4 If the Executive's employment is terminated due to Disability,
the Executive shall be entitled, in addition to the payments described in
Section 8.2, to a pro-rated portion of the Incentive Bonus otherwise payable for
the fiscal year in which such Disability occurs, determined by multiplying the
Incentive Bonus that would otherwise be payable by a fraction, the numerator of
which is the number of days the Executive was employed during such fiscal year
and the denominator of which is 365.
8
<PAGE>
9. Termination for Cause.
9.1 The employment of the Executive may be terminated by the Company
for Cause. For this purpose, "Cause" shall mean:
(i) conviction of the commission of a felony;
(ii) dishonest acts against the Company;
(iii) illegal drug use;
(iv) willful gross misconduct which in the good faith opinion
of a majority of the Board of Directors of the Company is
likely to cause either financial loss to the Company or
damage to its business reputation; or
(v) willful and repeated misconduct constituting bad faith in
performing the Executive's obligations.
The Executive's employment shall not be terminated for Cause under clauses (ii),
(iv), or (v) unless (a) the Executive has received at least 15 days notice of a
meeting of the Board of Directors to consider the existence of Cause with an
opportunity to be heard before the Board, and the Board has determined, based
upon credible evidence, that grounds for Cause exist, and (b) the misconduct or
breaches on which an assertion of Cause is based are not cured within 30 days
thereafter if such misconduct or breaches are capable of being cured.
9.2 In the event of a termination for Cause, the Executive shall
(a) be entitled to any (i) unpaid Base Salary pro rated up to the date of
termination, and (ii) installments of the Incentive Bonus last awarded prior to
termination which remain unpaid as of the date of termination; and (b) have no
further rights under this Agreement. Notwithstanding such
9
<PAGE>
termination, the Executive shall be and remain subject to all provisions of
Section 12 below for the period indicated therein, but shall not receive any of
the compensation set forth therein.
10. Termination Upon Change of Control or by Company Without Cause. 10.1 A
"Change in Control" shall occur: (A) if any Person, or combination of Persons,
(as hereinafter defined), or any affiliate of any Person, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) directly or indirectly, of securities of the Company
representing twenty- five percent (25%) or more of the total number of
outstanding shares of common stock of the Company; or (B) if individuals who, at
the date of this Agreement, constitute the Board (the "Incumbent Directors")
cease, for any reason, to constitute at least a majority thereof, provided that
any new director whose election was approved by the favorable vote of at least
75% of the Incumbent Directors shall be treated as an Incumbent Director. For
purposes hereof, "Person" shall mean any individual, partnership, joint venture,
association, trust (other than a trust established by or in connection with any
pension or other retirement plan adopted for employees of the Company), or other
entity, including a "group" as referred to in section 13(d)(3) of the Securities
Exchange Act of 1934.
10.2 If a Change in Control occurs during the Term or any Renewal
Term, and if there subsequently occurs a material adverse change, without the
Executive's written consent, in the Executive's working conditions or status,
including but not limited to a significant change in the nature or scope of the
Executive's authority, powers, duties or responsibilities, or a reduction in the
level of support services or staff, then, whether or not such change would
otherwise constitute a breach of this Agreement by the Company, this Agreement
may be terminated by
10
<PAGE>
notice given by the Executive, specifying the Change of Control and significant
adverse change or changes.
10.3 Upon the termination of this Agreement in accordance with
Section 10.2 above, the Executive will be entitled, without any duty to mitigate
damages, to:
(a) All unpaid Base Salary pro-rated up to the date of
termination; and
(b) All unpaid installments of Incentive Bonus in respect of
the year prior to the date of termination; and
(c) A severance payment equal to 2.99 times the sum of (i) the
Base Salary in effect for the prior fiscal year, and (ii) the
Incentive Bonus awarded in respect of such year; and
(d) All benefits available under the Company's employee benefit
programs, to the extent applicable to senior executives voluntarily
and amicably retiring from employment with the Company.
10.4 If, after a Change of Control, the Company shall actually or
constructively terminate this Agreement without Cause, or shall fail to renew
this Agreement without Cause, the Executive shall be entitled to the same
payments, compensation and rights as provided in the case of a termination by
the Executive under Section 10.3.
10.5 The payments, and other compensation and benefits to which the
Executive is entitled under this Section 10 shall be made available to the
Executive no later than ten (10) days after the date of any termination referred
to in Section 10.2, 10.3 or 10.4.
10.6 In the event that Executive receives the payments, and other
compensation and benefits referred to in this Section 10, he will be bound by
the restrictive provisions of Section
11
<PAGE>
12 for the period therein provided, subject to the right to receive the
compensation therein set forth.
11. Termination by Executive.
11.1 If the Executive shall terminate his employment under this
Agreement during the Term without either (i) a Change of Control or (ii) the
express written consent of the Company, then, for purposes of establishing the
rights of the Executive upon such termination, such termination shall be deemed
the equivalent of a termination for Cause under Section 9.1, and the Executive
shall have only those rights with regard to compensation as are set forth in
Section 9.2, and the restrictive provisions of Section 12 below shall fully
apply (but that the Executive shall not have any right to the compensation set
forth therein).
11.2 If the Executive shall terminate his employment under this
Agreement during any Renewal Term without either (i) a Change of Control or (ii)
the express written consent of the Company, then, for purposes of establishing
the rights of the Executive upon such termination, the Executive shall be
entitled to receive all unpaid Base Salary pro-rated up to the date of
termination.
11.3 In the case of a termination pursuant to Section 11.2, the
restrictions set forth in Section 12 shall apply to Executive for the period
therein stated, and the Executive shall receive the compensation set forth
therein.
12. Restrictive Covenants; Compensation.
12.1 During such time as this Agreement shall be in effect and,
except as otherwise explicitly stated herein, for a period of two (2) years
following the termination of Executive's employment, and without the Company's
prior written consent (which may be
12
<PAGE>
withheld for any reason or for no reason in Company's sole discretion),
Executive shall not do anything in any way inconsistent with his duties to or
adverse to the interests of Company, and shall not, directly or indirectly,
himself or by or through a family member or otherwise, alone or as a member of a
partnership or joint venture, or as a principal, officer, director, consultant,
employee or stockholder of any other entity, compete with Company or be engaged
in or connected with any other business competitive with that of Company or any
of its affiliates, except that Executive may own as a passive investment not
more than five percent (5%) of the securities of any publicly held corporation
that may engage in a business competitive with that of Company or any of its
Affiliates.
12.2 In view of the fact that Executive will be brought into close
contact with many confidential affairs of Company and its Affiliates not readily
available to the public, Executive agrees during the Term of this Agreement and
thereafter:
(a) to keep secret and retain in the strictest confidence all
information about (i) business, products, financial condition and other
financial affairs (such as costs, pricing, profits and plans for future
development, methods of operation and marketing concepts) of Company and
its Affiliates; (ii) its employment policies and plans; and (iii) any other
proprietary information relating to the Company and its Affiliates, their
operations, businesses, financial condition and financial affairs
(collectively, the "Confidential Information") and, for such time as
Company or any of its Affiliates is operating, not to disclose the
Confidential Information to anyone not then an officer, director or
authorized employee of Company or its Affiliates, either during or after
the term of this agreement, except in the course of performing his duties
hereunder or with Company's express written
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<PAGE>
consent or except to the extent that such confidential information can be
shown to have been in the public domain through no fault of Executive; and
(b) to deliver to Company within ten days after termination of his
services, or at any time Company may so request, all memoranda, notes,
records, reports and other documents relating to Company or its Affiliates,
businesses, financial affairs or operations and all property associated
therewith, which he may then possess or have under his control.
12.3 Executive shall not at any time during the two-year period
following the termination of his employment for any reason whatsoever, including
termination resulting from the natural expiration of the term of this Agreement,
(i) employ any individual who was employed by Company or any of its Affiliates
at any time during the such period or during the twelve calendar months
immediately preceding such termination, or (ii) in any way cause, influence or
participate in the employment of any such individual by anyone else in any
business that is competitive with any of the businesses engaged in by Company or
any of its Affiliates.
12.4 Executive shall not at any time during the two-year period
following the termination of his employment, for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, directly or indirectly (i) persuade or attempt to persuade any
customer or client of Company or any of its Affiliates to cease doing business
with Company or any Affiliate or to reduce the amount of business it does with
Company or any of its Affiliates or (ii) solicit for himself or any person other
than Company or any of its Affiliates, the business of any individual or
business which was a customer or client of Company or any of its Affiliates at
any time during the eighteen month period immediately preceding such
termination.
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<PAGE>
12.5 Executive acknowledges that the execution and delivery by him of
the covenants set forth in this Section 12 is an essential inducement to Company
to retain Executive and to enter into this agreement, and that Company would not
have retained Executive and entered into this Agreement but for such covenants.
Executive further acknowledges that his services are unique and that any breach
or threatened breach by Executive of any of the foregoing provisions of this
Section 12 cannot be remedied solely by damages. In the event of a breach or a
threatened breach by Executive of any of the provisions of this Section 12,
Company shall be entitled to injunctive relief restraining Executive and any
business, firm, partnership, individual, corporation or other entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of Executive
hereunder.
12.6 If any of the provisions of, or covenants contained in, this
Section 12 are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction. If any of the provisions of or covenants contained in this
Section 12 are held to be unenforceable in any jurisdiction because of the
duration or scope thereof, the parties hereto agree that the court making such
determination shall have the power to reduce the duration and/or scope of such
provision or covenant and, in its reduced form, said provision or covenant shall
be enforceable; provided, however, that the determination of such court shall
not affect the enforceability, duration or scope of this Section 12 in any other
jurisdiction.
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<PAGE>
12.7 As separate and additional compensation to be paid to the
Executive in consideration of the observance and performance of the covenants
contained in this Section 12, the Company agrees that, during the period of
restrictions set forth in this Section 12, the Executive will be entitled to be
paid an amount equal to the Base Salary computed at the annual rate prevailing
immediately prior to the termination of his employment (such amount to be paid
in the same manner as the Company's regular executive payroll practices), except
that in the case of termination of the Executive's employment for Cause, or in
case the Executive shall terminate this Agreement under Section 11.1 during the
Term, the Executive will receive no such compensation.
13. Relationship of Parties.
Nothing herein contained shall be deemed to constitute a partnership
between or a joint venture by the parties, nor shall anything herein contained
be deemed to constitute either the Executive, the Company or any Affiliates the
agent of the other except as is expressly provided herein. Neither Executive nor
Company shall be or become liable or bound by any representation, act or
omission whatsoever of the other party made contrary to the provisions of this
Agreement.
14. Key Man and Other Insurance.
The Company, in its discretion, may apply for and procure in its own name
and benefit, life insurance on a the life of the Executive and disability
insurance in any amount or amounts considered advisable by the Company.
The Company shall apply for and procure in the name of an irrevocable life
insurance trust for the benefit of the Executive's widow or, if she should
predecease him, his estate, one or more policies of term life insurance on the
life of the Executive in an amount equal to two hundred fifty (250%) percent of
his Base Salary from time to time.
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The Executive shall submit to any medical or other examination and execute
and deliver any application or other instrument in writing, reasonably necessary
to effectuate such insurance.
15. Notices.
All notices and communications hereunder shall be in writing and delivered
by hand or sent by registered or certified mail, postage and registration or
certification fees prepaid, return receipt requested, or by overnight delivery
such as Federal Express, and shall be deemed given when hand delivered or upon
three (3) business days after the date when mailed, or upon one (1) business day
after delivery to an agent for overnight delivery, if sent in such manner, as
follows:
If to Company: Phoenix Color Corp.
540 Western Maryland Parkway,
Hagerstown, MD 21740
Attn: Edward Lieberman, Executive Vice President
With a copy to: Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, NY 10175
Attn: Andrew J. Goodman
If to Executive: Louis La Sorsa
455 East Baltimore St.,
Greencastle, PA 17225
The foregoing addresses may be changed by notice given in the manner set forth
in this Section 15.
17
<PAGE>
16. Disputes.
Any dispute or controversy arising under or in connection with this
Agreement shall be resolved only in either the Supreme Court of the State of New
York, New York County, or the United States District Court for the Southern
District of New York, and the parties expressly and irrevocably agree to submit
to the jurisdiction of such courts. The parties hereto further consent and agree
that process shall be validly served upon them if made by certified mail, return
receipt requested, or by any other means permitted by law. Notwithstanding the
foregoing, Company shall have the right to apply to any court having
jurisdiction over Executive to seek injunctive or other emergency relief in the
event Executive breaches, or threatens to breach, any of his covenants set forth
in Section 10.
17. Miscellaneous.
17.1 This Agreement contains the entire understanding of the parties
hereto with respect to the employment of Executive by Company during the term
hereof, and the provisions hereof may not be altered, amended, waived,
terminated or discharged in any way whatsoever except by subsequent written
agreement executed by the party charged therewith. This Agreement supersedes all
prior employment agreements, understandings and arrangements between Executive
and Company pertaining to the terms of the employment of Executive. A waiver by
either of the parties of any of the terms or conditions of this Agreement, or of
any breach hereof, shall not be deemed a waiver of such terms or conditions for
the future or of any other term or condition hereof, or of any subsequent breach
hereof.
17.2 The provisions of this Agreement are severable, and if any
provision of this Agreement is invalid, void, inoperative or unenforceable, the
balance of the Agreement shall
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<PAGE>
remain in effect, and if any provision is inapplicable to any circumstance, it
shall nevertheless remain applicable to all other circumstances.
17.3 Company shall have the right to deduct and withhold from
Executive's compensation the amounts required to be deducted and withheld
pursuant to any present or future law concerning the withholding of income
taxes. In the event that Company makes any payments or incurs any charges for
Executive's account or Executive incurs any personal charges with Company,
Company shall have the right and Executive hereby authorizes Company to recoup
such payments or charges by deducting and withholding the aggregate amount
thereof from any compensation otherwise payable to Executive hereunder.
17.4 Executive represents that he is under no disability, restriction
or prohibition from entering this Agreement or performing the services required
hereunder; and also that he has been represented and advised by independent
legal counsel in connection with the negotiation, preparation and execution of
this Agreement.
17.5 This Agreement shall be construed and interpreted under the laws
of the State of New York applicable to contracts executed and to be performed
entirely therein.
17.6 The captions and section headings in this Agreement are not part
of the provisions hereof, are merely for the purpose of reference and shall have
no force or effect for any purpose whatsoever, including the construction of the
provisions of this Agreement.
17.7 To the extent any provision of this Agreement contemplates action
after termination hereof or creates a cause of action or claim on which action
may be brought by either party, such provision, cause of action or claim shall
survive termination of Executive's employment or termination of this Agreement.
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<PAGE>
17.8 Executive may neither assign his rights nor delegate his duties
under this Agreement; provided, however, that notwithstanding the foregoing this
Agreement shall inure to the benefit of Executive's legal representatives,
executors administrators or successors and to the successors or assigns of
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PHOENIX COLOR CORP.
By:
-------------------------------
Edward Lieberman, Executive Vice President
-------------------------------
Louis La Sorsa
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<PAGE>
Exhibit 10.04
D R A F T
- ---------
(980408)
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of the __ day of _____, 1998, by and between
Edward Lieberman (the "Executive"), an individual residing at 4310 Mountville
Road Jefferson, MD 21755, and Phoenix Color Corp. (the "Company") with a place
of business at 540 Western Maryland Parkway, Hagerstown, MD 21740.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by the Company as its
Executive Vice President and Chief Financial Officer, and the Company desires
that the Executive shall continue to be employed by it and render services to
it, and the Executive is willing to continue to be so employed and to render
services, all upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive, and the Executive hereby
accepts employment, for the term ("Term) set forth in Section 2 hereof, to
render services to Company as its Executive Vice President and Chief Financial
Officer. The Executive represents and warrants to the Company that he has full
power and authority to enter into this Agreement and that he is not under any
obligation of a contractual or other nature to any person, firm or corporation
which
<PAGE>
is inconsistent or in conflict with this Agreement, or which would prevent,
limit or impair in any way the performance by Executive of his obligations
hereunder.
1.2 The Executive will serve as Executive Vice President and Chief
Financial Officer of the Company and as a member of its Board of Directors when
elected as such, will have general supervision over the financial operations of
the Company and its subsidiaries or affiliates (referred to collectively as
"Affiliates") and will have such other duties and responsibilities, consistent
with his position as Executive Vice President and Chief Financial Officer, as
may reasonably be assigned to him by the President or the Board of Directors of
the Company. In addition, the Executive will serve as a senior officer and a
director (when elected as such) of each of the Company's Affiliates. The
Executive will report to the President of the Company.
1.3 The Executive shall devote his full business time to the business
and affairs of the Company, and shall use his best efforts, skills, and
abilities to promote the interests of the Company, except for reasonable
vacations and during periods of illness or incapacity, but nothing contained in
this Agreement shall prevent the Executive from engaging in charitable or
community activities provided they do not interfere with the regular performance
of the Executive's duties and responsibilities under this Agreement.
1.4 Unless the Executive and the Company shall otherwise agree, the
Executive's principal place of employment shall be in and around Hagerstown,
Maryland, but the duties of the Executive shall include such visits to the
Company's facilities and the facilities of its Affiliates, at the expense of the
Company, as may be reasonably required in the performance of the Executive's
responsibilities.
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<PAGE>
2. Term. The Term of this Agreement will commence on ______, 1998 and will
terminate at the close of business on the fifth anniversary thereof, unless
sooner terminated in accordance with the provisions of this Agreement.
Thereafter, the employment of the Executive shall continue for successive
one-year periods (each such one-year period being hereinafter referred to as a
"Renewal Term") following the Term (the first such Renewal Term to commence on
______________, 2003) unless the Corporation or Executive shall give notice to
the other at least sixty (60) days prior to the end of the Term or any Renewal
Term of the election of the Corporation or the Executive to terminate the
employment of the Executive at the end of the Term or the then current Renewal
Term, as the case may be.
3. Base Salary.
3.1 For all services performed by the Executive under this Agreement,
the Executive shall be paid a base salary ("Base Salary") at least the following
annual rates:
<TABLE>
<CAPTION>
Calendar Year Base Salary
-------------- ------------
<S> <C>
1998 $ 345,500
1999 362,775
2000 380,914
2001 399,959
2002 419,957
2003 440,955
</TABLE>
Notwithstanding the foregoing specified amounts of Base Salary, (i) if the
percentage increase in the Consumer Price Index maintained by the United States
Bureau of Labor Statistics (or any successor to such index maintained by an
agency of the federal government) (the "CPI") applicable to the Standard
Metropolitan Statistical Area in which the Company's executive offices are
located shall be greater over any calendar year during the Term than the
year-to-year
3
<PAGE>
percentage increase represented by the foregoing changes in Base Salary, the
Base Salary shall be increased to reflect such percentage change in the Consumer
Price Index, and (ii) the Board of Directors may award increases in Base Salary
greater than those provided above after a review taking into account corporate
and individual performance, the Company's prospects and general business
conditions.
During any Renewal Term, the Executive's Base Salary shall be the greatest
of (i) one hundred five (105%) per cent of the Base Salary during the twelve
month period immediately preceding the Renewal Term in question; (ii) the
product of the multiplication of the Base Salary during the twelve month period
immediately preceding the Renewal Term in question by the sum of one hundred
plus the amount expressed as a percent by which the most recent reported CPI
applicable to the Standard Metropolitan Statistical Area in which the Company's
executive offices are located is greater than the CPI for that same SMSA twelve
months prior to the Renewal Term in question; and (iii) the sum offered by the
Board of Directors after a review taking into account corporate and individual
performance, the Company's prospects and general business conditions.
3.2 Base Salary shall be paid in equal monthly or semi-monthly
installments in keeping with the Company's standard payroll policies applicable
to its senior executives.
4. Incentive Bonus.
The Executive shall be entitled to participate in any bonus pool
established by the Company to provide incentive compensation for its officers
and other supervisory personnel (the "Incentive Bonus").
4
<PAGE>
5. Reimbursement for Expenses.
Company shall reimburse Executive for all reasonable out-of-pocket expenses
paid or incurred by him in the course of his employment, upon presentation by
Executive of valid receipts or invoices therefor, utilizing procedures and forms
for that purpose as established by Company from time to time.
6. Vacations.
Executive shall be entitled to reasonable vacations (which shall aggregate
no less than five (5) weeks vacation with pay) during each consecutive 12 month
period commencing on the date hereof. Executive may not accumulate any vacation
days which remain unused at the end of any year during the term hereof without
the prior consent of the Board of Directors.
7. Employee Benefit Programs, etc.
7.1 The Company shall provide the Executive with an automobile (or at
Employee's option, a cash allowance in the amount of $2,000 per month) for use
in the performance of Executive's duties, along with fuel, fluids and
maintenance, upon such terms and conditions as are approved by Company. The
Company shall arrange and pay for secure communications and computer links
between the Executive's primary residence and the Company's executive offices to
permit the Executive to carry out his responsibilities from such residence, and
shall and pay or reimburse the Executive for the costs of a cellular telephone.
7.2 Subject to the approval of the Boards of Directors of the
Company, the Executive shall be provided with disability insurance providing for
disability payments to the Executive following a termination of Executive's
employment hereunder as a result of Disability
5
<PAGE>
(as defined in Section 8.2 below). In the event such policy is not obtained,
Executive shall be entitled to participate in such disability plan(s) as are
available to Company executives generally.
7.3 Subject to the Executive's meeting the eligibility requirements
of each respective plan, Executive shall be offered the opportunity participate
in and be covered by each pension, life insurance, accident insurance, health
insurance, hospitalization and any other employee benefit plan adopted by the
Company, as the case may be, made available generally from and after the date
hereof to its respective executives, on the same basis as shall be available to
such other executives without restriction or limitation by reason of this
Agreement; provided, however, that Executive shall not participate in two or
more plans providing duplicative benefits or coverage. The Company shall use its
reasonable efforts to waive any qualifying period for participation in any such
plan by the Executive.
7.4 Nothing herein contained shall prevent the Company from at any
time increasing the compensation herein provided to be paid to Executive, either
permanently or for a limited period, or from paying bonuses and other additional
compensation to Executive, whether or not based upon the earnings of the
business of Company, or from increasing or expanding any employee benefit
program applicable to the Executive, in the event the Company, in its sole
discretion, shall deem it advisable so to do in order to recognize and
compensate Executive fairly for the value of his services.
8. Death or Disability.
8.1 If Executive shall die during the term hereof, this Agreement
shall immediately terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive (i) the Base Salary due to
Executive hereunder to the last day of the
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<PAGE>
third month following the month in which his death occurs, payable in accordance
with the Company's regular payroll practices, (ii) a portion of the Incentive
Bonus payable under Section 4 (determined as provided under Section 8.4), based
on the Company's Adjusted Net Income through the month of the bonus year
preceding the month in which death occurs; and (iii) all other payments and
entitlements available upon death under any employee benefit program covering
the Executive as of the date of death. Except for the payments required pursuant
to this Section 8.1, no payments shall be made for any period after Executive's
death.
8.2 In the event of the Disability (as hereinafter defined) of the
Executive, the Executive shall be entitled to continue to receive from the
Company and its several benefit plans an amount equal to his Base Salary
(prorated as may be necessary) in accordance with the terms of Section 3 hereof
through the last day of the third month following the month in which Executive's
employment hereunder is terminated as a result of such Disability. At any time
after the date of the Notice (as hereinafter defined) and during the continuance
of the Executive's Disability, the Company may at any time thereafter terminate
Executive's employment hereunder by written notice to the Executive. The term
"Disability" shall mean physical or mental illness or injury which prevents the
Executive from performing his customary duties for the Company for a period of
forty five (45) consecutive business days or an aggregate period of one hundred
twenty (120) days out of any consecutive twelve (12) months. The date of
commencement of Disability shall be the date set forth in the notice (the
"Notice") given by Company to the Executive at any time following a
determination of Disability, which date shall not be earlier than the date the
Notice is given by Company. A determination of Disability by Company shall be
solely for the
7
<PAGE>
purposes of this Section 8.2 and shall in no way affect the Executive's status
under any benefit plan applicable to the Executive.
8.3 Upon the occurrence of a Disability, and unless the Executive's
employment shall have been terminated as provided in Section 8.2, the Executive
shall continue to perform such services for Company, consistent with his duties
under Section 1 hereof, as he is reasonably capable of performing in light of
the condition giving rise to a Disability. All payments due under Section 8.2
shall be payable in accordance with Company's regular payroll practices. Those
payments, together with the aggregate amount of all periodic payments which the
Executive is entitled to receive under all workers compensation plans,
disability plans and accident, health or other insurance plans or programs
maintained for the Executive by Company (or by any company controlling,
controlled by or under common control with the Company), shall be not less than
Executive's Base Salary for the month or period in question.
8.4 If the Executive's employment is terminated due to Disability,
the Executive shall be entitled, in addition to the payments described in
Section 8.2, to a pro-rated portion of the Incentive Bonus otherwise payable for
the fiscal year in which such Disability occurs, determined by multiplying the
Incentive Bonus that would otherwise be payable by a fraction, the numerator of
which is the number of days the Executive was employed during such fiscal year
and the denominator of which is 365.
9. Termination for Cause.
9.1 The employment of the Executive may be terminated by the Company
for Cause. For this purpose, "Cause" shall mean:
(i) conviction of the commission of a felony;
8
<PAGE>
(ii) dishonest acts against the Company;
(iii) illegal drug use;
(iv) willful gross misconduct which in the good faith opinion of
a majority of the Board of Directors of the Company is
likely to cause either financial loss to the Company or
damage to its business reputation; or
(v) willful and repeated misconduct constituting bad faith in
performing the Executive's obligations.
The Executive's employment shall not be terminated for Cause under clauses (ii),
(iv) or (v) unless (a) the Executive has received at least 15 days notice of a
meeting of the Board of Directors to consider the existence of Cause with an
opportunity to be heard before the Board, and the Board has determined, based
upon credible evidence, that grounds for Cause exist, and (b) the misconduct or
breaches on which an assertion of Cause is based are not cured within 30 days
thereafter if such misconduct or breaches are capable of being cured.
9.2 In the event of a termination for Cause, the Executive shall
(a) be entitled to any (i) unpaid Base Salary pro rated up to the date of
termination, and (ii) installments of the Incentive Bonus last awarded prior to
termination remain unpaid as of the date of termination; and (b) have no further
rights under this Agreement. Notwithstanding such termination, the Executive
shall be and remain subject to all provisions of Section 12 below for the period
indicated therein, but shall not receive any of the compensation set forth
therein.
10. Termination Upon Change of Control or by Company Without Cause.
9
<PAGE>
10.1 A "Change in Control" shall occur: (A) if any Person, or
combination of Persons, (as hereinafter defined), or any affiliate of any
Person, is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934) directly or indirectly,
of securities of the Company representing twenty- five percent (25%) or more of
the total number of outstanding shares of common stock of the Company; or (B) if
individuals who, at the date of this Agreement, constitute the Board (the
"Incumbent Directors") cease, for any reason, to constitute at least a majority
thereof, provided that any new director whose election was approved by the
favorable vote of at least 75% of the Incumbent Directors shall be treated as an
Incumbent Director. For purposes hereof, "Person" shall mean any individual,
partnership, joint venture, association, trust (other than a trust established
by or in connection with any pension or other retirement plan adopted for
employees of the Company), or other entity, including a "group" as referred to
in section 13(d)(3) of the Securities Exchange Act of 1934.
10.2 If a Change in Control occurs during the Term and any Renewal
Term, and if there subsequently occurs a material adverse change, without the
Executive's written consent, in the Executive's working conditions or status,
including but not limited to a significant change in the nature or scope of the
Executive's authority, powers, duties or responsibilities, or a reduction in the
level of support services or staff, then, whether or not such change would
otherwise constitute a breach of this Agreement by the Company, this Agreement
may be terminated by notice given by the Executive, specifying the Change of
Control and significant adverse change or changes.
10
<PAGE>
10.3 Upon the termination of this Agreement in accordance with Section
10.2 above, the Executive will be entitled, without any duty to mitigate
damages, to:
(a) All unpaid Base Salary pro-rated up to the date of
termination; and
(b) All unpaid installments of Incentive Bonus in respect of
the year prior to the date of termination; and
(c) A severance payment equal to 2.99 times the sum of (i) the
Base Salary in effect for the prior fiscal year, and (ii) the
Incentive Bonus awarded in respect of such year; and
(d) All benefits available under the Company's employee benefit
programs, to the extent applicable to senior executives voluntarily
and amicably retiring from employment with the Company.
10.4 If, after a Change of Control, the Company shall actually or
constructively terminate this Agreement without Cause, or shall fail to renew
this Agreement without Cause, the Executive shall be entitled to the same
payments, compensation and rights as provided in the case of a termination by
the Executive under Section 10.3.
10.5 The payments, and other compensation and benefits to which the
Executive is entitled under this Section 10 shall be made available to the
Executive no later than ten (10) days after the date of any termination referred
to in Section 10.2, 10.3 or 10.4.
10.6 In the event that Executive receives the payments, and other
compensation and benefits referred to in this Section 10, he will be bound by
the restrictive provisions of Section 12 for the period therein provided,
subject to the right to receive the compensation therein set forth.
11
<PAGE>
11. Termination by Executive.
11.1 If the Executive shall terminate his employment under this
Agreement during the Term without either (i) a Change of Control or (ii) the
express written consent of the Company, then, for purposes of establishing the
rights of the Executive upon such termination, such termination shall be deemed
the equivalent of a termination for Cause under Section 9.1, and the Executive
shall have only those rights with regard to compensation as are set forth in
Section 9.2, and the restrictive provisions of Section 12 below shall fully
apply (but that the Executive shall not have any right to the compensation set
forth therein).
11.2 If the Executive shall terminate his employment under this
Agreement during any Renewal Term without either (i) a Change of Control or (ii)
the express written consent of the Company, then, for purposes of establishing
the rights of the Executive upon such termination, the Executive shall be
entitled to receive all unpaid Base Salary pro-rated up to the date of
termination.
11.3 In the case of a termination pursuant to Section 11.2, the
restrictions set forth in Section 12 shall apply to Executive for the period
therein stated, and the Executive shall receive the compensation set forth
therein.
12. Restrictive Covenants; Compensation.
12.1 During such time as this Agreement shall be in effect and,
except as otherwise explicitly stated herein, for a period of two (2) years
following the termination of Executive's employment, and without the Company's
prior written consent (which may be withheld for any reason or for no reason in
Company's sole discretion), Executive shall not do anything in any way
inconsistent with his duties to or adverse to the interests of Company, and
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<PAGE>
shall not, directly or indirectly, himself or by or through a family member or
otherwise, alone or as a member of a partnership or joint venture, or as a
principal, officer, director, consultant, employee or stockholder of any other
entity, compete with Company or be engaged in or connected with any other
business competitive with that of Company or any of its affiliates, except that
Executive may own as a passive investment not more than five percent (5%) of the
securities of any publicly held corporation that may engage in a business
competitive with that of Company or any of its Affiliates.
12.2 In view of the fact that Executive will be brought into close
contact with many confidential affairs of Company and its Affiliates not readily
available to the public, Executive agrees during the Term of this Agreement and
thereafter:
(a) to keep secret and retain in the strictest confidence all
information about (i) business, products, financial condition and other
financial affairs (such as costs, pricing, profits and plans for future
development, methods of operation and marketing concepts) of Company and
its Affiliates; (ii) its employment policies and plans; and (iii) any other
proprietary information relating to the Company and its Affiliates, their
operations, businesses, financial condition and financial affairs
(collectively, the "Confidential Information") and, for such time as
Company or any of its Affiliates is operating, not to disclose the
Confidential Information to anyone not then an officer, director or
authorized employee of Company or its Affiliates, either during or after
the term of this agreement, except in the course of performing his duties
hereunder or with Company's express written consent or except to the extent
that such confidential information can be shown to have been in the public
domain through no fault of Executive; and
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<PAGE>
(b) to deliver to Company within ten days after termination of his
services, or at any time Company may so request, all memoranda, notes,
records, reports and other documents relating to Company or its Affiliates,
businesses, financial affairs or operations and all property associated
therewith, which he may then possess or have under his control.
12.3 Executive shall not at any time during the two-year period
following the termination of his employment for any reason whatsoever, including
termination resulting from the natural expiration of the term of this Agreement,
(i) employ any individual who was employed by Company or any of its Affiliates
at any time during the such period or during the twelve calendar months
immediately preceding such termination, or (ii) in any way cause, influence or
participate in the employment of any such individual by anyone else in any
business that is competitive with any of the businesses engaged in by Company or
any of its Affiliates.
12.4 Executive shall not at any time during the two-year period
following the termination of his employment, for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, directly or indirectly (i) persuade or attempt to persuade any
customer or client of Company or any of its Affiliates to cease doing business
with Company or any Affiliate or to reduce the amount of business it does with
Company or any of its Affiliates or (ii) solicit for himself or any person other
than Company or any of its Affiliates, the business of any individual or
business which was a customer or client of Company or any of its Affiliates at
any time during the eighteen month period immediately preceding such
termination.
12.5 Executive acknowledges that the execution and delivery by him of
the covenants set forth in this Section 12 is an essential inducement to Company
to retain Executive
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and to enter into this agreement, and that Company would not have retained
Executive and entered into this Agreement but for such covenants. Executive
further acknowledges that his services are unique and that any breach or
threatened breach by Executive of any of the foregoing provisions of this
Section 12 cannot be remedied solely by damages. In the event of a breach or a
threatened breach by Executive of any of the provisions of this Section 12,
Company shall be entitled to injunctive relief restraining Executive and any
business, firm, partnership, individual, corporation or other entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of Executive
hereunder.
12.6 If any of the provisions of, or covenants contained in, this
Section 12 are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction. If any of the provisions of or covenants contained in this
Section 12 are held to be unenforceable in any jurisdiction because of the
duration or scope thereof, the parties hereto agree that the court making such
determination shall have the power to reduce the duration and/or scope of such
provision or covenant and, in its reduced form, said provision or covenant shall
be enforceable; provided, however, that the determination of such court shall
not affect the enforceability, duration or scope of this Section 12 in any other
jurisdiction.
12.7 As separate and additional compensation to be paid to the
Executive in consideration of the observance and performance of the covenants
contained in this Section 12,
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<PAGE>
the Company agrees that, during the period of restrictions set forth in this
Section 12, the Executive will be entitled to be paid an amount equal to the
Base Salary computed at the annual rate prevailing immediately prior to the
termination of his employment (such amount to be paid in the same manner as the
Company's regular executive payroll practices), except that in the case of
termination of the Executive's employment for Cause, or in case the Executive
shall terminate this Agreement under Section 11.1 during the Term, the Executive
will receive no such compensation.
13. Relationship of Parties.
Nothing herein contained shall be deemed to constitute a partnership
between or a joint venture by the parties, nor shall anything herein contained
be deemed to constitute either the Executive, the Company or any Affiliates the
agent of the other except as is expressly provided herein. Neither Executive nor
Company shall be or become liable or bound by any representation, act or
omission whatsoever of the other party made contrary to the provisions of this
Agreement.
14. Key Man and Other Insurance.
The Company, in its discretion, may apply for and procure in its own name
and benefit, life insurance on a the life of the Executive and disability
insurance in any amount or amounts considered advisable by the Company.
The Company shall apply for and procure in the name of an irrevocable life
insurance trust for the benefit of the Executive's widow or, if she should
predecease him, his estate, one or more policies of term life insurance on the
life of the Executive in an amount equal to one hundred twenty five(125%)
percent of his Base Salary. from time to time.
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<PAGE>
The Executive shall submit to any medical or other examination and execute
and deliver any application or other instrument in writing, reasonably necessary
to effectuate such insurance.
15. Notices.
All notices and communications hereunder shall be in writing and
delivered by hand or sent by registered or certified mail, postage and
registration or certification fees prepaid, return receipt requested, or by
overnight delivery such as Federal Express, and shall be deemed given when hand
delivered or upon three (3) business days after the date when mailed, or upon
one (1) business day after delivery to an agent for overnight delivery, if sent
in such manner, as follows:
If to Company: Phoenix Color Corp.
540 Western Maryland Parkway,
Hagerstown, MD 21740
Attn: President
With a copy to: Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, NY 10175
Attn: Andrew J. Goodman
If to Executive: Edward Lieberman
4310 Mountville Road
Jefferson, MD 21755
The foregoing addresses may be changed by notice given in the manner set forth
in this Section 15.
17
<PAGE>
16. Disputes.
Any dispute or controversy arising under or in connection with this
Agreement shall be resolved only in either the Supreme Court of the State of New
York, New York County, or the United States District Court for the Southern
District of New York, and the parties expressly and irrevocably agree to submit
to the jurisdiction of such courts. The parties hereto further consent and agree
that process shall be validly served upon them if made by certified mail, return
receipt requested, or by any other means permitted by law. Notwithstanding the
foregoing, Company shall have the right to apply to any court having
jurisdiction over Executive to seek injunctive or other emergency relief in the
event Executive breaches, or threatens to breach, any of his covenants set forth
in Section 10.
17. Miscellaneous.
17.1 This Agreement contains the entire understanding of the parties
hereto with respect to the employment of Executive by Company during the term
hereof, and the provisions hereof may not be altered, amended, waived,
terminated or discharged in any way whatsoever except by subsequent written
agreement executed by the party charged therewith. This Agreement supersedes all
prior employment agreements, understandings and arrangements between Executive
and Company pertaining to the terms of the employment of Executive. A waiver by
either of the parties of any of the terms or conditions of this Agreement, or of
any breach hereof, shall not be deemed a waiver of such terms or conditions for
the future or of any other term or condition hereof, or of any subsequent breach
hereof.
17.2 The provisions of this Agreement are severable, and if any
provision of this Agreement is invalid, void, inoperative or unenforceable, the
balance of the Agreement shall
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<PAGE>
remain in effect, and if any provision is inapplicable to any circumstance, it
shall nevertheless remain applicable to all other circumstances.
17.3 Company shall have the right to deduct and withhold from
Executive's compensation the amounts required to be deducted and withheld
pursuant to any present or future law concerning the withholding of income
taxes. In the event that Company makes any payments or incurs any charges for
Executive's account or Executive incurs any personal charges with Company,
Company shall have the right and Executive hereby authorizes Company to recoup
such payments or charges by deducting and withholding the aggregate amount
thereof from any compensation otherwise payable to Executive hereunder.
17.4 Executive represents that he is under no disability, restriction
or prohibition from entering this Agreement or performing the services required
hereunder; and also that he has been represented and advised by independent
legal counsel in connection with the negotiation, preparation and execution of
this Agreement.
17.5 This Agreement shall be construed and interpreted under the laws
of the State of New York applicable to contracts executed and to be performed
entirely therein.
17.6 The captions and section headings in this Agreement are not part
of the provisions hereof, are merely for the purpose of reference and shall have
no force or effect for any purpose whatsoever, including the construction of the
provisions of this Agreement.
17.7 To the extent any provision of this Agreement contemplates action
after termination hereof or creates a cause of action or claim on which action
may be brought by either party, such provision, cause of action or claim shall
survive termination of Executive's employment or termination of this Agreement.
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<PAGE>
17.8 Executive may neither assign his rights nor delegate his duties
under this Agreement; provided, however, that notwithstanding the foregoing this
Agreement shall inure to the benefit of Executive's legal representatives,
executors administrators or successors and to the successors or assigns of
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PHOENIX COLOR CORP.
By:
---------------------------------
Louis La Sorsa, President
---------------------------------
Edward Lieberman
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Exhibit 10.05
D R A F T
- ---------
(980408)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of the __ day of ______, 1998, by and between
Dion von der Lieth (the "Executive"), an individual residing at 55 Myandemere
Drive, Woodcliff Lakes, New Jersey 07625 and Phoenix Color Corp. (the "Company")
with a place of business at 40 Western Maryland Parkway, Hagerstown, MD 21740.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by the Company as a Vice
President responsible for sales and marketing, and the Company desires that the
Executive shall continue to be employed by it and render services to it, and the
Executive is willing to continue to be so employed and to render services, all
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive, and the Executive hereby
accepts employment, for the term ("Term) set forth in Section 2 hereof, to
render services to Company as a Vice President with primary responsibility for
sales and marketing. The Executive represents and warrants to the Company that
he has full power and authority to enter into this Agreement and that he is not
under any obligation of a contractual or other nature to any person, firm or
<PAGE>
corporation which is inconsistent or in conflict with this Agreement, or which
would prevent, limit or impair in any way the performance by Executive of his
obligations hereunder.
1.2 The Executive will serve as a Vice President of the Company and
as a member of its Board of Directors when elected as such, will have general
supervision over the ______________________ operations of the Company and its
subsidiaries or affiliates (referred to collectively as "Affiliates") and will
have such other duties and responsibilities, consistent with his position as
Vice President, as may reasonably be assigned to him by the President or the
Board of Directors of the Company. In addition, the Executive will serve as a
senior officer and a director (when elected as such) of each of the Company's
Affiliates. The Executive will report to the President of the Company.
1.3 The Executive shall devote his full business time to the
business and affairs of the Company, and shall use his best efforts, skills, and
abilities to promote the interests of the Company, except for reasonable
vacations and during periods of illness or incapacity, but nothing contained in
this Agreement shall prevent the Executive from engaging in charitable or
community activities provided they do not interfere with the regular performance
of the Executive's duties and responsibilities under this Agreement.
1.4 Unless the Executive and the Company shall otherwise agree, the
Executive's principal place of employment shall be in and around Long Island
City, New York, but the duties of the Executive shall include such visits to the
Company's facilities and the facilities of its Affiliates, at the expense of the
Company, as may be reasonably required in the performance of the Executive's
responsibilities.
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2. Term. The Term of this Agreement will commence on ______, 1998 and will
terminate at the close of business on the fifth anniversary thereof, unless
sooner terminated in accordance with the provisions of this Agreement.
Thereafter, the employment of the Executive shall continue for successive
one-year periods (each such one-year period being hereinafter referred to as a
"Renewal Term") following the Term (the first such Renewal Term to commence on
____________, 2003) unless the Corporation or Executive shall give notice to the
other at least sixty (60) days prior to the end of the Term or any Renewal Term
of the election of the Corporation or the Executive to terminate the employment
of the Executive at the end of the Term or the then current Renewal Term, as the
case may be.
3. Base Salary.
3.1 For all services performed by the Executive under this Agreement,
the Executive shall be paid a base salary ("Base Salary") at least the following
annual rates:
<TABLE>
<CAPTION>
Calendar Year Base Salary
-------------- -----------
<S> <C>
1998 $ 249,500
1999 261,975
2000 275,074
2001 288,827
2002 303,269
2003 319,070
</TABLE>
Notwithstanding the foregoing specified amounts of Base Salary, (i) if the
percentage increase in the Consumer Price Index maintained by the United States
Bureau of Labor Statistics (or any successor to such index maintained by an
agency of the federal government) (the "CPI") applicable to the Standard
Metropolitan Statistical Area in which the Company's executive offices are
located shall be greater over any calendar year during the Term than the
year-to-year
3
<PAGE>
percentage increase represented by the foregoing changes in Base Salary, the
Base Salary shall be increased to reflect such percentage change in the Consumer
Price Index, and (ii) the Board of Directors may award increases in Base Salary
greater than those provided above after a review taking into account corporate
and individual performance, the Company's prospects and general business
conditions.
During any Renewal Term, the Executive's Base Salary shall be the greatest
of (i) one hundred five (105%) per cent of the Base Salary during the twelve
month period immediately preceding the Renewal Term in question; (ii) the
product of the multiplication of the Base Salary during the twelve month period
immediately preceding the Renewal Term in question by the sum of one hundred
plus the amount expressed as a percent by which the most recent reported CPI
applicable to the Standard Metropolitan Statistical Area in which the Company's
executive offices are located is greater than the CPI for that same SMSA twelve
months prior to the Renewal Term in question; and (iii) the sum offered by the
Board of Directors after a review taking into account corporate and individual
performance, the Company's prospects and general business conditions.
3.2 Base Salary shall be paid in equal monthly or semi-monthly
installments in keeping with the Company's standard payroll policies applicable
to its senior executives.
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4. Incentive Bonus.
The Executive shall be entitled to participate in any bonus pool
established by the Company to provide incentive compensation for its officers
and other supervisory personnel (the "Incentive Bonus").
5. Reimbursement for Expenses.
Company shall reimburse Executive for all reasonable out-of-pocket expenses
paid or incurred by him in the course of his employment, upon presentation by
Executive of valid receipts or invoices therefor, utilizing procedures and forms
for that purpose as established by Company from time to time.
6. Vacations.
Executive shall be entitled to reasonable vacations (which shall aggregate
no less than four (4) weeks vacation with pay) during each consecutive 12 month
period commencing on the date hereof. Executive may not accumulate any vacation
days which remain unused at the end of any year during the term hereof without
the prior consent of the President.
7. Employee Benefit Programs, etc.
7.1 The Company shall provide the Executive with an automobile (or at
Employee's option, a cash allowance in the amount of $1,500 per month) for use
in the performance of Executive's duties, along with fuel, fluids and
maintenance, upon such terms and conditions as are approved by Company. The
Company shall arrange and pay for secure communications and computer links
between the Executive's primary residence and the Company's executive offices to
permit the Executive to carry out his responsibilities from such residence, and
shall and pay or reimburse the Executive for the costs of a cellular telephone.
5
<PAGE>
7.2 Subject to the approval of the Boards of Directors of the
Company, the Executive shall be provided with disability insurance providing for
disability payments to the Executive following a termination of Executive's
employment hereunder as a result of Disability (as defined in Section 8.2
below). In the event such policy is not obtained, Executive shall be entitled to
participate in such disability plan(s) as are available to Company executives
generally.
7.3 Subject to the Executive's meeting the eligibility requirements
of each respective plan, Executive shall be offered the opportunity participate
in and be covered by each pension, life insurance, accident insurance, health
insurance, hospitalization and any other employee benefit plan adopted by the
Company, as the case may be, made available generally from and after the date
hereof to its respective executives, on the same basis as shall be available to
such other executives without restriction or limitation by reason of this
Agreement; provided, however, that Executive shall not participate in two or
more plans providing duplicative benefits or coverage. The Company shall use its
reasonable efforts to waive any qualifying period for participation in any such
plan by the Executive.
7.4 Nothing herein contained shall prevent the Company from at any
time increasing the compensation herein provided to be paid to Executive, either
permanently or for a limited period, or from paying bonuses and other additional
compensation to Executive, whether or not based upon the earnings of the
business of Company, or from increasing or expanding any employee benefit
program applicable to the Executive, in the event the Company, in its sole
discretion, shall deem it advisable so to do in order to recognize and
compensate Executive fairly for the value of his services.
8. Death or Disability.
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8.1 If Executive shall die during the term hereof, this Agreement
shall immediately terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive (i) the Base Salary due to
Executive hereunder to the last day of the third month following the month in
which his death occurs, payable in accordance with the Company's regular payroll
practices, (ii) a portion of the Incentive Bonus payable under Section 4
(determined as provided under Section 8.4), based on the Company's Adjusted Net
Income through the month of the bonus year preceding the month in which death
occurs; and (iii) all other payments and entitlements available upon death under
any employee benefit program covering the Executive as of the date of death.
Except for the payments required pursuant to this Section 8.1, no payments shall
be made for any period after Executive's death.
8.2 In the event of the Disability (as hereinafter defined) of the
Executive, the Executive shall be entitled to continue to receive from the
Company and its several benefit plans an amount equal to his Base Salary
(prorated as may be necessary) in accordance with the terms of Section 3 hereof
through the last day of the third month following the month in which Executive's
employment hereunder is terminated as a result of such Disability. At any time
after the date of the Notice (as hereinafter defined) and during the continuance
of the Executive's Disability, the Company may at any time thereafter terminate
Executive's employment hereunder by written notice to the Executive. The term
"Disability" shall mean physical or mental illness or injury which prevents the
Executive from performing his customary duties for the Company for a period of
twenty (20) consecutive business days or an aggregate period of sixty (60) days
out of any consecutive twelve (12) months. The date of commencement of
Disability shall be the date set forth in the notice (the "Notice") given by
Company to the Executive at any time following a
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<PAGE>
determination of Disability, which date shall not be earlier than the date the
Notice is given by Company. A determination of Disability by Company shall be
solely for the purposes of this Section 8.2 and shall in no way affect the
Executive's status under any benefit plan applicable to the Executive.
8.3 Upon the occurrence of a Disability, and unless the Executive's
employment shall have been terminated as provided in Section 8.2, the Executive
shall continue to perform such services for Company, consistent with his duties
under Section 1 hereof, as he is reasonably capable of performing in light of
the condition giving rise to a Disability. All payments due under Section 8.2
shall be payable in accordance with Company's regular payroll practices. Those
payments, together with the aggregate amount of all periodic payments which the
Executive is entitled to receive under all workers compensation plans,
disability plans and accident, health or other insurance plans or programs
maintained for the Executive by Company (or by any company controlling,
controlled by or under common control with the Company), shall be not less than
Executive's Base Salary for the month or period in question.
8.4 If the Executive's employment is terminated due to Disability,
the Executive shall be entitled, in addition to the payments described in
Section 8.2, to a pro-rated portion of the Incentive Bonus otherwise payable for
the fiscal year in which such Disability occurs, determined by multiplying the
Incentive Bonus that would otherwise be payable by a fraction, the numerator of
which is the number of days the Executive was employed during such fiscal year
and the denominator of which is 365.
8
<PAGE>
9. Termination for Cause.
9.1 The employment of the Executive may be terminated by the Company
for Cause. For this purpose, "Cause" shall mean:
(a) incompetence, negligence or any misconduct by Executive in
performing his duties;
(b) insubordination or the deliberate failure or refusal to
comply with the terms of this Agreement or to follow the directions or
policies of the Company , its executive officers or Board of
Directors, which directions or policies are consistent with normal
business practices and relate to the performance by Executive of his
duties as an executive of Company in accordance with the provisions of
this Agreement, and which failure or refusal shall remain uncured for
three (3) days after written notice thereof shall have been given to
Executive; provided, however, that the foregoing right to cure shall
not apply to any failure or refusal of a type substantially similar to
a failure or refusal which was the subject of a previous notice under
this clause (b);
(c) illegal use of drugs;
(d) the commission by Executive of an act of theft, dishonesty,
embezzlement, vandalism, fraud or misappropriation against Company any
subsidiary or affiliate of Company;
(e) the conviction of Executive in any jurisdiction for a
criminal offense constituting a felony; or
9
<PAGE>
(f) any deliberate or intentional act or omission, the purpose
of which is to materially damage the business or reputation of
Company.
9.2 In the event of a termination for Cause, the Executive shall
(a) be entitled to any unpaid Base Salary pro rated up to the date of
termination, and (b) have no further rights under this Agreement.
Notwithstanding such termination, the Executive shall be and remain subject to
all provisions of Section 12 below for the period indicated therein, but shall
not receive any of the compensation set forth therein.
10. Termination Upon Change of Control or by Company Without Cause.
10.1 A "Change in Control" shall occur: (A) if any Person, or
combination of Persons, (as hereinafter defined), or any affiliate of any
Person, is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934) directly or indirectly,
of securities of the Company representing twenty- five percent (25%) or more of
the total number of outstanding shares of common stock of the Company; or (B) if
individuals who, at the date of this Agreement, constitute the Board (the
"Incumbent Directors") cease, for any reason, to constitute at least a majority
thereof, provided that any new director whose election was approved by the
favorable vote of at least 75% of the Incumbent Directors shall be treated as an
Incumbent Director. For purposes hereof, "Person" shall mean any individual,
partnership, joint venture, association, trust (other than a trust established
by or in connection with any pension or other retirement plan adopted for
employees of the Company), or other entity, including a "group" as referred to
in section 13(d)(3) of the Securities Exchange Act of 1934.
10
<PAGE>
10.2 If a Change in Control occurs during the Term and any Renewal
Term, and if there subsequently occurs a material adverse change, without the
Executive's written consent, in the Executive's working conditions or status,
including but not limited to a significant change in the nature or scope of the
Executive's authority, powers, duties or responsibilities, or a reduction in the
level of support services or staff, then, whether or not such change would
otherwise constitute a breach of this Agreement by the Company, this Agreement
may be terminated by notice given by the Executive, specifying the Change of
Control and significant adverse change or changes.
10.3 Upon the termination of this Agreement in accordance with
Section 10.2 above, the Executive will be entitled, without any duty to mitigate
damages, to:
(a) All unpaid Base Salary pro-rated up to the date of
termination; and
(b) All unpaid installments of Incentive Bonus in respect of
the year prior to the date of termination; and
(c) A severance payment equal to 2.99 times the sum of (i) the
Base Salary in effect for the prior fiscal year, and (ii) the
Incentive Bonus awarded in respect of such year; and
(d) All benefits available under the Company's employee benefit
programs, to the extent applicable to senior executives voluntarily
and amicably retiring from employment with the Company.
10.4 If, after a Change of Control, the Company shall actually or
constructively terminate this Agreement without Cause,
11
<PAGE>
or shall fail to renew this Agreement without Cause, the Executive shall be
entitled to the same payments, compensation and rights as provided in the case
of a termination by the Executive under Section 10.3.
10.5 The payments, and other compensation and benefits to which the
Executive is entitled under this Section 10 shall be made available to the
Executive no later than ten (10) days after the date of any termination referred
to in Section 10.2, 10.3 or 10.4.
10.6 In the event that Executive receives the payments, and other
compensation and benefits referred to in this Section 10, he will be bound by
the restrictive provisions of Section 12 for the period therein provided,
subject to the right to receive the compensation therein set forth.
11. Termination by Executive.
If the Executive shall terminate his employment under this Agreement prior
to the end of the Term or any Renewal Term without the express written consent
of the Company, then, for purposes of establishing the rights of the Executive
upon such termination, such termination shall be deemed the equivalent of a
termination for Cause under Section 9.1, and the Executive shall have only those
rights with regard to compensation as are set forth in Section 9.2, and the
restrictive provisions of Section 12 below shall fully apply.
12. Restrictive Covenants; Compensation.
12.1 During such time as this Agreement shall be in effect and, except
as otherwise explicitly stated herein, without the Company's prior written
consent (which may be withheld for any reason or for no reason in Company's sole
discretion), Executive shall not do anything in any way inconsistent with his
duties to or adverse to the interests of Company, and shall not, directly or
indirectly, himself or by or through a family member or otherwise, alone or as a
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<PAGE>
member of a partnership or joint venture, or as a principal, officer, director,
consultant, employee or stockholder of any other entity, compete with Company or
be engaged in or connected with any other business competitive with that of
Company or any of its Affiliates, except that Executive may own as a passive
investment not more than five percent (5%) of the securities of any publicly
held corporation that may engage in a business competitive with that of Company
or any of its Affiliates.
12.2 In view of the fact that Executive will be brought into close
contact with many confidential affairs of Company and its Affiliates not readily
available to the public, Executive agrees during the Term of this Agreement and
thereafter:
(a) to keep secret and retain in the strictest confidence all
information about (i) business, products, financial condition and other
financial affairs (such as costs, pricing, profits and plans for future
development, methods of operation and marketing concepts) of Company and
its Affiliates; (ii) its employment policies and plans; and (iii) any other
proprietary information relating to the Company and its Affiliates, their
operations, businesses, financial condition and financial affairs
(collectively, the "Confidential Information") and, for such time as
Company or any of its Affiliates is operating, not to disclose the
Confidential Information to anyone not then an officer, director or
authorized employee of Company or its Affiliates, either during or after
the term of this Agreement, except in the course of performing his duties
hereunder or with Company's express written consent or except to the extent
that such confidential information can be shown to have been in the public
domain through no fault of Executive; and
13
<PAGE>
(b) to deliver to Company within ten days after termination of his
services, or at any time Company may so request, all memoranda, notes,
records, reports and other documents relating to Company or its Affiliates,
businesses, financial affairs or operations and all property associated
therewith, which he may then possess or have under his control.
12.3 Executive shall not at any time during the two-year period
following the termination of his employment for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, (i) employ any individual who was employed by Company or any of its
Affiliates at any time during the such period or during the twelve calendar
months immediately preceding such termination, or (ii) in any way cause,
influence or participate in the employment of any such individual by anyone else
in any business that is competitive with any of the businesses engaged in by
Company or any of its Affiliates.
12.4 Executive shall not at any time during the two-year period
following the termination of his employment, for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, directly or indirectly (i) persuade or attempt to persuade any
customer or client of Company or any of its Affiliates to cease doing business
with Company or any Affiliate or to reduce the amount of business it does with
Company or any of its Affiliates or (ii) solicit for himself or any person other
than Company or any of its Affiliates, the business of any individual or
business which was a customer or client of Company or any of its Affiliates at
any time during the eighteen month period immediately preceding such
termination.
12.5 Executive acknowledges that the execution and delivery by him of
the covenants set forth in this Section 12 is an essential inducement to Company
to retain Executive
14
<PAGE>
and to enter into this agreement, and that Company would not have retained
Executive and entered into this Agreement but for such covenants. Executive
further acknowledges that his services are unique and that any breach or
threatened breach by Executive of any of the foregoing provisions of this
Section 12 cannot be remedied solely by damages. In the event of a breach or a
threatened breach by Executive of any of the provisions of this Section 12,
Company shall be entitled to injunctive relief restraining Executive and any
business, firm, partnership, individual, corporation or other entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of Executive
hereunder.
12.6 If any of the provisions of, or covenants contained in, this
Section 12 are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction. If any of the provisions of or covenants contained in this
Section 12 are held to be unenforceable in any jurisdiction because of the
duration or scope thereof, the parties hereto agree that the court making such
determination shall have the power to reduce the duration and/or scope of such
provision or covenant and, in its reduced form, said provision or covenant shall
be enforceable; provided, however, that the determination of such court shall
not affect the enforceability, duration or scope of this Section 12 in any other
jurisdiction.
15
<PAGE>
13. Relationship of Parties.
Nothing herein contained shall be deemed to constitute a partnership
between or a joint venture by the parties, nor shall anything herein contained
be deemed to constitute either the Executive, the Company or any Affiliates the
agent of the other except as is expressly provided herein. Neither Executive nor
Company shall be or become liable or bound by any representation, act or
omission whatsoever of the other party made contrary to the provisions of this
Agreement.
14. Key Man Insurance.
The Company, in its discretion, may apply for and procure in its own name
and benefit, life insurance on a the life of the Executive and disability
insurance in any amount or amounts considered advisable by the Company, and the
Executive shall submit to any medical or other examination and execute and
deliver any application or other instrument in writing, reasonably necessary to
effectuate such insurance.
15. Notices.
All notices and communications hereunder shall be in writing and delivered
by hand or sent by registered or certified mail, postage and registration or
certification fees prepaid, return receipt requested, or by overnight delivery
such as Federal Express, and shall be deemed given when hand delivered or upon
three (3) business days after the date when mailed, or upon one (1) business day
after delivery to an agent for overnight delivery, if sent in such manner, as
follows:
If to Company: Phoenix Color Corp.
540 Western Maryland Parkway,
Hagerstown, MD 21740
Attn: President
16
<PAGE>
With a copy to: Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, NY 10175
Attn: Andrew J. Goodman
If to Executive: Dion von der Lieth
-------------------------
-------------------------------
The foregoing addresses may be changed by notice given in the manner set forth
in this Section 15.
16. Disputes.
Any dispute or controversy arising under or in connection with this
Agreement shall be resolved only in either the Supreme Court of the State of New
York, New York County, or the United States District Court for the Southern
District of New York, and the parties expressly and irrevocably agree to submit
to the jurisdiction of such courts. The parties hereto further consent and agree
that process shall be validly served upon them if made by certified mail, return
receipt requested, or by any other means permitted by law. Notwithstanding the
foregoing, Company shall have the right to apply to any court having
jurisdiction over Executive to seek injunctive or other emergency relief in the
event Executive breaches, or threatens to breach, any of his covenants set forth
in Section 12.
17. Miscellaneous.
17.1 This Agreement contains the entire understanding of the parties
hereto with respect to the employment of Executive by Company during the term
hereof, and the provisions hereof may not be altered, amended, waived,
terminated or discharged in any way whatsoever except by subsequent written
agreement executed by the party charged therewith. This
17
<PAGE>
Agreement supersedes all prior employment agreements, understandings and
arrangements between Executive and Company pertaining to the terms of the
employment of Executive. A waiver by either of the parties of any of the terms
or conditions of this Agreement, or of any breach hereof, shall not be deemed a
waiver of such terms or conditions for the future or of any other term or
condition hereof, or of any subsequent breach hereof.
17.2 The provisions of this Agreement are severable, and if any
provision of this Agreement is invalid, void, inoperative or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any circumstance, it shall nevertheless remain applicable to all
other circumstances.
17.3 Company shall have the right to deduct and withhold from
Executive's compensation the amounts required to be deducted and withheld
pursuant to any present or future law concerning the withholding of income
taxes. In the event that Company makes any payments or incurs any charges for
Executive's account or Executive incurs any personal charges with Company,
Company shall have the right and Executive hereby authorizes Company to recoup
such payments or charges by deducting and withholding the aggregate amount
thereof from any compensation otherwise payable to Executive hereunder.
17.4 Executive represents that he is under no disability, restriction
or prohibition from entering this Agreement or performing the services required
hereunder; and also that he has been represented and advised by independent
legal counsel in connection with the negotiation, preparation and execution of
this Agreement.
17.5 This Agreement shall be construed and interpreted under the laws
of the State of New York applicable to contracts executed and to be performed
entirely therein.
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<PAGE>
17.6 The captions and section headings in this Agreement are not part
of the provisions hereof, are merely for the purpose of reference and shall have
no force or effect for any purpose whatsoever, including the construction of the
provisions of this Agreement.
17.7 To the extent any provision of this Agreement contemplates
action after termination hereof or creates a cause of action or claim on which
action may be brought by either party, such provision, cause of action or claim
shall survive termination of Executive's employment or termination of this
Agreement.
17.8 Executive may neither assign his rights nor delegate his duties
under this Agreement; provided, however, that notwithstanding the foregoing this
Agreement shall inure to the benefit of Executive's legal representatives,
executors administrators or successors and to the successors or assigns of
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PHOENIX COLOR CORP.
By:
---------------------------
Louis LaSorsa, President
---------------------------
Dion von der Lieth
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<PAGE>
Exhibit 10.06
D R A F T
- ---------
(980408)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of the __ day of _____, 1998, by and between
John Carbone (the "Executive"), an individual residing at 11416 Eastwood Ct.,
Hagerstown, MD., 21742 and Phoenix Color Corp. (the "Company") with a place of
business at 540 Western Maryland Parkway, Hagerstown, MD 21740.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by the Company as a Vice
President responsible for manufacturing book components, and the Company desires
that the Executive shall continue to be employed by it and render services to
it, and the Executive is willing to continue to be so employed and to render
services, all upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive, and the Executive hereby
accepts employment, for the term ("Term) set forth in Section 2 hereof, to
render services to Company as a Vice President with primary responsibility for
manufacturing book components. The Executive represents and warrants to the
Company that he has full power and authority to enter into this Agreement and
that he is not under any obligation of a contractual or other nature to any
person,
<PAGE>
firm or corporation which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair in any way the performance by Executive of
his obligations hereunder.
1.2 The Executive will serve as a Vice President of the Company and
as a member of its Board of Directors when elected as such, will have general
supervision over the ______________________ operations of the Company and its
subsidiaries or affiliates (referred to collectively as "Affiliates") and will
have such other duties and responsibilities, consistent with his position as
Vice President, as may reasonably be assigned to him by the President or the
Board of Directors of the Company. In addition, the Executive will serve as a
senior officer and a director (when elected as such) of each of the Company's
Affiliates. The Executive will report to the President of the Company.
1.3 The Executive shall devote his full business time to the business
and affairs of the Company, and shall use his best efforts, skills, and
abilities to promote the interests of the Company, except for reasonable
vacations and during periods of illness or incapacity, but nothing contained in
this Agreement shall prevent the Executive from engaging in charitable or
community activities provided they do not interfere with the regular performance
of the Executive's duties and responsibilities under this Agreement.
1.4 Unless the Executive and the Company shall otherwise agree, the
Executive's principal place of employment shall be in and around Hagerstown,
Maryland, but the duties of the Executive shall include such visits to the
Company's facilities and the facilities of its Affiliates, at the expense of the
Company, as may be reasonably required in the performance of the Executive's
responsibilities.
2
<PAGE>
2. Term. The Term of this Agreement will commence on ______, 1998 and will
terminate at the close of business on the fifth anniversary thereof, unless
sooner terminated in accordance with the provisions of this Agreement.
Thereafter, the employment of the Executive shall continue for successive
one-year periods (each such one-year period being hereinafter referred to as a
"Renewal Term") following the Term (the first such Renewal Term to commence on
_______________ , 2003) unless the Corporation or Executive shall give notice to
the other at least sixty (60) days prior to the end of the Term or any Renewal
Term of the election of the Corporation or the Executive to terminate the
employment of the Executive at the end of the Term or the then current Renewal
Term, as the case may be.
3. Base Salary.
3.1 For all services performed by the Executive under this Agreement,
the Executive shall be paid a base salary ("Base Salary") at least at the
following annual rates:
<TABLE>
<CAPTION>
Calendar Year Base Salary
-------------- -----------
<S> <C>
1998 $ 250,000
1999 262,500
2000 275,625
2001 289,406
2002 303,876
2003 319,070
</TABLE>
Notwithstanding the foregoing specified amounts of Base Salary, (i) if the
percentage increase in the Consumer Price Index maintained by the United States
Bureau of Labor Statistics (or any successor to such index maintained by an
agency of the federal government) (the "CPI") applicable to the Standard
Metropolitan Statistical Area in which the Company's executive offices are
located shall be greater over any calendar year during the Term than the
year-to-year
3
<PAGE>
percentage increase represented by the foregoing changes in Base Salary, the
Base Salary shall be increased to reflect such percentage change in the Consumer
Price Index, and (ii) the Board of Directors may award increases in Base Salary
greater than those provided above after a review taking into account corporate
and individual performance, the Company's prospects and general business
conditions.
During any Renewal Term, the Executive's Base Salary shall be the greatest
of (i) one hundred five (105%) per cent of the Base Salary during the twelve
month period immediately preceding the Renewal Term in question; (ii) the
product of the multiplication of the Base Salary during the twelve month period
immediately preceding the Renewal Term in question by the sum of one hundred
plus the amount expressed as a percent by which the most recent reported CPI
applicable to the Standard Metropolitan Statistical Area in which the Company's
executive offices are located is greater than the CPI for that same SMSA twelve
months prior to the Renewal Term in question; and (iii) the sum offered by the
Board of Directors after a review taking into account corporate and individual
performance, the Company's prospects and general business conditions.
3.2 Base Salary shall be paid in equal monthly or semi-monthly
installments in keeping with the Company's standard payroll policies applicable
to its senior executives.
4. Incentive Bonus.
The Executive shall be entitled to participate in any bonus pool
established by the Company to provide incentive compensation for its officers
and other supervisory personnel (the "Incentive Bonus").
4
<PAGE>
5. Reimbursement for Expenses.
Company shall reimburse Executive for all reasonable out-of-pocket expenses
paid or incurred by him in the course of his employment, upon presentation by
Executive of valid receipts or invoices therefor, utilizing procedures and forms
for that purpose as established by Company from time to time.
6. Vacations.
Executive shall be entitled to reasonable vacations (which shall aggregate
no less than four (4) weeks vacation with pay) during each consecutive 12 month
period commencing on the date hereof. Executive may not accumulate any vacation
days which remain unused at the end of any year during the term hereof without
the prior consent of the President.
7. Employee Benefit Programs, etc.
7.1 The Company shall provide the Executive with an automobile (or at
Employee's option, a cash allowance in the amount of $1,500 per month) for use
in the performance of Executive's duties, along with fuel, fluids and
maintenance, upon such terms and conditions as are approved by Company. The
Company shall arrange and pay for secure communications and computer links
between the Executive's primary residence and the Company's executive offices to
permit the Executive to carry out his responsibilities from such residence, and
shall and pay or reimburse the Executive for the costs of a cellular telephone.
7.2 Subject to the approval of the Boards of Directors of the
Company, the Executive shall be provided with disability insurance providing for
disability payments to the Executive following a termination of Executive's
employment hereunder as a result of Disability
5
<PAGE>
(as defined in Section 8.2 below). In the event such policy is not obtained,
Executive shall be entitled to participate in such disability plan(s) as are
available to Company executives generally.
7.3 Subject to the Executive's meeting the eligibility requirements
of each respective plan, Executive shall be offered the opportunity participate
in and be covered by each pension, life insurance, accident insurance, health
insurance, hospitalization and any other employee benefit plan adopted by the
Company, as the case may be, made available generally from and after the date
hereof to its respective executives, on the same basis as shall be available to
such other executives without restriction or limitation by reason of this
Agreement; provided, however, that Executive shall not participate in two or
more plans providing duplicative benefits or coverage. The Company shall use its
reasonable efforts to waive any qualifying period for participation in any such
plan by the Executive.
7.4 Nothing herein contained shall prevent the Company from at any
time increasing the compensation herein provided to be paid to Executive, either
permanently or for a limited period, or from paying bonuses and other additional
compensation to Executive, whether or not based upon the earnings of the
business of Company, or from increasing or expanding any employee benefit
program applicable to the Executive, in the event the Company, in its sole
discretion, shall deem it advisable so to do in order to recognize and
compensate Executive fairly for the value of his services.
6
<PAGE>
8. Death or Disability.
8.1 If Executive shall die during the term hereof, this Agreement
shall immediately terminate, except that Executive's legal representatives or
designated beneficiaries shall be entitled to receive (i) the Base Salary due to
Executive hereunder to the last day of the third month following the month in
which his death occurs, payable in accordance with the Company's regular payroll
practices, (ii) a portion of the Incentive Bonus payable under Section 4
(determined as provided under Section 8.4), based on the Company's Adjusted Net
Income through the month of the bonus year preceding the month in which death
occurs; and (iii) all other payments and entitlements available upon death under
any employee benefit program covering the Executive as of the date of death.
Except for the payments required pursuant to this Section 8.1, no payments shall
be made for any period after Executive's death.
8.2 In the event of the Disability (as hereinafter defined) of the
Executive, the Executive shall be entitled to continue to receive from the
Company and its several benefit plans an amount equal to his Base Salary
(prorated as may be necessary) in accordance with the terms of Section 3 hereof
through the last day of the third month following the month in which Executive's
employment hereunder is terminated as a result of such Disability. At any time
after the date of the Notice (as hereinafter defined) and during the continuance
of the Executive's Disability, the Company may at any time thereafter terminate
Executive's employment hereunder by written notice to the Executive. The term
"Disability" shall mean physical or mental illness or injury which prevents the
Executive from performing his customary duties for the Company for a period of
twenty (20) consecutive business days or an aggregate period of sixty (60) days
out of any consecutive twelve (12) months. The date of commencement of
Disability shall be the date
7
<PAGE>
set forth in the notice (the "Notice") given by Company to the Executive at any
time following a determination of Disability, which date shall not be earlier
than the date the Notice is given by Company. A determination of Disability by
Company shall be solely for the purposes of this Section 8.2 and shall in no way
affect the Executive's status under any benefit plan applicable to the
Executive.
8.3 Upon the occurrence of a Disability, and unless the Executive's
employment shall have been terminated as provided in Section 8.2, the Executive
shall continue to perform such services for Company, consistent with his duties
under Section 1 hereof, as he is reasonably capable of performing in light of
the condition giving rise to a Disability. All payments due under Section 8.2
shall be payable in accordance with Company's regular payroll practices. Those
payments, together with the aggregate amount of all periodic payments which the
Executive is entitled to receive under all workers compensation plans,
disability plans and accident, health or other insurance plans or programs
maintained for the Executive by Company (or by any company controlling,
controlled by or under common control with the Company), shall be not less than
Executive's Base Salary for the month or period in question.
8.4 If the Executive's employment is terminated due to Disability,
the Executive shall be entitled, in addition to the payments described in
Section 8.2, to a pro-rated portion of the Incentive Bonus otherwise payable for
the fiscal year in which such Disability occurs, determined by multiplying the
Incentive Bonus that would otherwise be payable by a fraction, the numerator of
which is the number of days the Executive was employed during such fiscal year
and the denominator of which is 365.
8
<PAGE>
9. Termination for Cause.
9.1 The employment of the Executive may be terminated by the Company
for Cause. For this purpose, "Cause" shall mean:
(a) incompetence, negligence or any misconduct by Executive in
performing his duties;
(b) insubordination or the deliberate failure or refusal to
comply with the terms of this Agreement or to follow the directions or
policies of the Company , its executive officers or Board of
Directors, which directions or policies are consistent with normal
business practices and relate to the performance by Executive of his
duties as an executive of Company in accordance with the provisions of
this Agreement, and which failure or refusal shall remain uncured for
three (3) days after written notice thereof shall have been given to
Executive; provided, however, that the foregoing right to cure shall
not apply to any failure or refusal of a type substantially similar to
a failure or refusal which was the subject of a previous notice under
this clause (b);
(c) illegal use of drugs;
(d) the commission by Executive of an act of theft, dishonesty,
embezzlement, vandalism, fraud or misappropriation against Company any
subsidiary or affiliate of Company;
(e) the conviction of Executive in any jurisdiction for a
criminal offense constituting a felony; or
9
<PAGE>
(f) any deliberate or intentional act or omission, the purpose
of which is to materially damage the business or reputation of
Company.
9.2 In the event of a termination for Cause, the Executive shall
(a) be entitled to any unpaid Base Salary pro rated up to the date of
termination, and (b) have no further rights under this Agreement.
Notwithstanding such termination, the Executive shall be and remain subject to
all provisions of Section 12 below for the period indicated therein, but shall
not receive any of the compensation set forth therein.
10. Termination Upon Change of Control or by Company Without Cause.
10.1 A "Change in Control" shall occur: (A) if any Person, or
combination of Persons, (as hereinafter defined), or any affiliate of any
Person, is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934) directly or
indirectly, of securities of the Company representing twenty- five percent
(25%) or more of the total number of outstanding shares of common stock of
the Company; or (B) if individuals who, at the date of this Agreement,
constitute the Board (the "Incumbent Directors") cease, for any reason, to
constitute at least a majority thereof, provided that any new director whose
election was approved by the favorable vote of at least 75% of the Incumbent
Directors shall be treated as an Incumbent Director. For purposes hereof,
"Person" shall mean any individual, partnership, joint venture, association,
trust (other than a trust established by or in connection with any pension or
other retirement plan adopted for employees of the Company), or other entity,
including a "group" as referred to in section 13(d)(3) of the Securities
Exchange Act of 1934.
10
<PAGE>
10.2 If a Change in Control occurs during the Term and any Renewal
Term, and if there subsequently occurs a material adverse change, without the
Executive's written consent, in the Executive's working conditions or status,
including but not limited to a significant change in the nature or scope of the
Executive's authority, powers, duties or responsibilities, or a reduction in the
level of support services or staff, then, whether or not such change would
otherwise constitute a breach of this Agreement by the Company, this Agreement
may be terminated by notice given by the Executive, specifying the Change of
Control and significant adverse change or changes.
10.3 Upon the termination of this Agreement in accordance with
Section 10.2 above, the Executive will be entitled, without any duty to mitigate
damages, to:
(a) All unpaid Base Salary pro-rated up to the date of
termination; and
(b) All unpaid installments of Incentive Bonus in respect of
the year prior to the date of termination; and
(c) A severance payment equal to 2.99 times the sum of (i) the
Base Salary in effect for the prior fiscal year, and (ii) the
Incentive Bonus awarded in respect of such year; and
(d) All benefits available under the Company's employee benefit
programs, to the extent applicable to senior executives voluntarily
and amicably retiring from employment with the Company.
10.4 If, after a Change of Control, the Company shall actually or
constructively terminate this Agreement without Cause, or shall fail to renew
this Agreement without Cause,
11
<PAGE>
the Executive shall be entitled to the same payments, compensation and rights as
provided in the case of a termination by the Executive under Section 10.3.
10.5 The payments, and other compensation and benefits to which the
Executive is entitled under this Section 10 shall be made available to the
Executive no later than ten (10) days after the date of any termination referred
to in Section 10.2, 10.3 or 10.4.
10.6 In the event that Executive receives the payments, and other
compensation and benefits referred to in this Section 10, he will be bound by
the restrictive provisions of Section 12 for the period therein provided,
subject to the right to receive the compensation therein set forth.
11. Termination by Executive.
If the Executive shall terminate his employment under this Agreement prior
to the end of the Term or any Renewal Term without the express written consent
of the Company, then, for purposes of establishing the rights of the Executive
upon such termination, such termination shall be deemed the equivalent of a
termination for Cause under Section 9.1, and the Executive shall have only those
rights with regard to compensation as are set forth in Section 9.2, and the
restrictive provisions of Section 12 below shall fully apply.
12. Restrictive Covenants; Compensation.
12.1 During such time as this Agreement shall be in effect and, except
as otherwise explicitly stated herein, without the Company's prior written
consent (which may be withheld for any reason or for no reason in Company's sole
discretion), Executive shall not do anything in any way inconsistent with his
duties to or adverse to the interests of Company, and shall not, directly or
indirectly, himself or by or through a family member or otherwise, alone or as
12
<PAGE>
a member of a partnership or joint venture, or as a principal, officer,
director, consultant, employee or stockholder of any other entity, compete with
Company or be engaged in or connected with any other business competitive with
that of Company or any of its Affiliates, except that Executive may own as a
passive investment not more than five percent (5%) of the securities of any
publicly held corporation that may engage in a business competitive with that of
Company or any of its Affiliates.
12.2 In view of the fact that Executive will be brought into close
contact with many confidential affairs of Company and its Affiliates not readily
available to the public, Executive agrees during the Term of this Agreement and
thereafter:
(a) to keep secret and retain in the strictest confidence all
information about (i) business, products, financial condition and
other financial affairs (such as costs, pricing, profits and plans for
future development, methods of operation and marketing concepts) of
Company and its Affiliates; (ii) its employment policies and plans;
and (iii) any other proprietary information relating to the Company
and its Affiliates, their operations, businesses, financial condition
and financial affairs (collectively, the "Confidential Information")
and, for such time as Company or any of its Affiliates is operating,
not to disclose the Confidential Information to anyone not then an
officer, director or authorized employee of Company or its Affiliates,
either during or after the term of this Agreement, except in the
course of performing his duties hereunder or with Company's express
written consent or except to the extent that such confidential
information can be shown to have been in the public domain through no
fault of Executive; and
13
<PAGE>
(b) to deliver to Company within ten days after termination of
his services, or at any time Company may so request, all memoranda,
notes, records, reports and other documents relating to Company or its
Affiliates, businesses, financial affairs or operations and all
property associated therewith, which he may then possess or have under
his control.
12.3 Executive shall not at any time during the two-year period
following the termination of his employment for any reason whatsoever, including
termination resulting from the natural expiration of the term of this Agreement,
(i) employ any individual who was employed by Company or any of its Affiliates
at any time during the such period or during the twelve calendar months
immediately preceding such termination, or (ii) in any way cause, influence or
participate in the employment of any such individual by anyone else in any
business that is competitive with any of the businesses engaged in by Company or
any of its Affiliates.
12.4 Executive shall not at any time during the two-year period
following the termination of his employment, for any reason whatsoever,
including termination resulting from the natural expiration of the term of this
Agreement, directly or indirectly (i) persuade or attempt to persuade any
customer or client of Company or any of its Affiliates to cease doing business
with Company or any Affiliate or to reduce the amount of business it does with
Company or any of its Affiliates or (ii) solicit for himself or any person other
than Company or any of its Affiliates, the business of any individual or
business which was a customer or client of Company or any of its Affiliates at
any time during the eighteen month period immediately preceding such
termination.
12.5 Executive acknowledges that the execution and delivery by him of
the covenants set forth in this Section 12 is an essential inducement to Company
to retain Executive
14
<PAGE>
and to enter into this agreement, and that Company would not have retained
Executive and entered into this Agreement but for such covenants. Executive
further acknowledges that his services are unique and that any breach or
threatened breach by Executive of any of the foregoing provisions of this
Section 12 cannot be remedied solely by damages. In the event of a breach or a
threatened breach by Executive of any of the provisions of this Section 12,
Company shall be entitled to injunctive relief restraining Executive and any
business, firm, partnership, individual, corporation or other entity
participating in such breach or attempted breach. Nothing herein, however, shall
be construed as prohibiting Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of Executive
hereunder.
12.6 If any of the provisions of, or covenants contained in, this
Section 12 are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction. If any of the provisions of or covenants contained in this
Section 12 are held to be unenforceable in any jurisdiction because of the
duration or scope thereof, the parties hereto agree that the court making such
determination shall have the power to reduce the duration and/or scope of such
provision or covenant and, in its reduced form, said provision or covenant shall
be enforceable; provided, however, that the determination of such court shall
not affect the enforceability, duration or scope of this Section 12 in any other
jurisdiction.
15
<PAGE>
13. Relationship of Parties.
Nothing herein contained shall be deemed to constitute a partnership
between or a joint venture by the parties, nor shall anything herein contained
be deemed to constitute either the Executive, the Company or any Affiliates the
agent of the other except as is expressly provided herein. Neither Executive nor
Company shall be or become liable or bound by any representation, act or
omission whatsoever of the other party made contrary to the provisions of this
Agreement.
14. Key Man Insurance.
The Company, in its discretion, may apply for and procure in its own name
and benefit, life insurance on a the life of the Executive and disability
insurance in any amount or amounts considered advisable by the Company, and the
Executive shall submit to any medical or other examination and execute and
deliver any application or other instrument in writing, reasonably necessary to
effectuate such insurance.
15. Notices.
All notices and communications hereunder shall be in writing and delivered
by hand or sent by registered or certified mail, postage and registration or
certification fees prepaid, return receipt requested, or by overnight delivery
such as Federal Express, and shall be deemed given when hand delivered or upon
three (3) business days after the date when mailed, or upon one (1) business day
after delivery to an agent for overnight delivery, if sent in such manner, as
follows:
If to Company: Phoenix Color Corp.
540 Western Maryland Parkway,
Hagerstown, MD 21740
Attn: President
16
<PAGE>
With a copy to: Rosner Bresler Goodman & Unterman, LLP
521 Fifth Avenue
28th Floor
New York, NY 10175
Attn: Andrew J. Goodman
If to Executive: Dion von der Lieth
-------------------------
-------------------------------
The foregoing addresses may be changed by notice given in the manner set forth
in this Section 15.
16. Disputes.
Any dispute or controversy arising under or in connection with this
Agreement shall be resolved only in either the Supreme Court of the State of New
York, New York County, or the United States District Court for the Southern
District of New York, and the parties expressly and irrevocably agree to submit
to the jurisdiction of such courts. The parties hereto further consent and agree
that process shall be validly served upon them if made by certified mail, return
receipt requested, or by any other means permitted by law. Notwithstanding the
foregoing, Company shall have the right to apply to any court having
jurisdiction over Executive to seek injunctive or other emergency relief in the
event Executive breaches, or threatens to breach, any of his covenants set forth
in Section 12.
17. Miscellaneous.
17.1 This Agreement contains the entire understanding of the parties
hereto with respect to the employment of Executive by Company during the term
hereof, and the provisions hereof may not be altered, amended, waived,
terminated or discharged in any way whatsoever except by subsequent written
agreement executed by the party charged therewith. This
17
<PAGE>
Agreement supersedes all prior employment agreements, understandings and
arrangements between Executive and Company pertaining to the terms of the
employment of Executive. A waiver by either of the parties of any of the terms
or conditions of this Agreement, or of any breach hereof, shall not be deemed a
waiver of such terms or conditions for the future or of any other term or
condition hereof, or of any subsequent breach hereof.
17.2 The provisions of this Agreement are severable, and if any
provision of this Agreement is invalid, void, inoperative or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any circumstance, it shall nevertheless remain applicable to all
other circumstances.
17.3 Company shall have the right to deduct and withhold from
Executive's compensation the amounts required to be deducted and withheld
pursuant to any present or future law concerning the withholding of income
taxes. In the event that Company makes any payments or incurs any charges for
Executive's account or Executive incurs any personal charges with Company,
Company shall have the right and Executive hereby authorizes Company to recoup
such payments or charges by deducting and withholding the aggregate amount
thereof from any compensation otherwise payable to Executive hereunder.
17.4 Executive represents that he is under no disability, restriction
or prohibition from entering this Agreement or performing the services required
hereunder; and also that he has been represented and advised by independent
legal counsel in connection with the negotiation, preparation and execution of
this Agreement.
17.5 This Agreement shall be construed and interpreted under the laws
of the State of New York applicable to contracts executed and to be performed
entirely therein.
18
<PAGE>
17.6 The captions and section headings in this Agreement are not part
of the provisions hereof, are merely for the purpose of reference and shall have
no force or effect for any purpose whatsoever, including the construction of the
provisions of this Agreement.
17.7 To the extent any provision of this Agreement contemplates action
after termination hereof or creates a cause of action or claim on which action
may be brought by either party, such provision, cause of action or claim shall
survive termination of Executive's employment or termination of this Agreement.
17.8 Executive may neither assign his rights nor delegate his duties
under this Agreement; provided, however, that notwithstanding the foregoing this
Agreement shall inure to the benefit of Executive's legal representatives,
executors administrators or successors and to the successors or assigns of
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PHOENIX COLOR CORP.
By:
---------------------------
Louis La Sorsa, President
-------------------------------
John Carbone
19
<PAGE>
Exhibit 10.7
LOAN AND SECURITY AGREEMENT
Phoenix Color Corp. and Alpha Systems, Inc.
with
CoreStates Bank, N.A., as Agent
and
Fleet Bank of Massachusetts, N.A., as Co-Agent
and
Those financial institutions now
or hereafter parties hereto
Dated as of February 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . 1
1.1 TERMS DEFINED. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ACCOUNTING PRINCIPLES. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2. THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 REVOLVING CREDIT - DESCRIPTION . . . . . . . . . . . . . . . . . 16
2.2 LETTERS OF CREDIT: . . . . . . . . . . . . . . . . . . . . . . . 18
2.3 TERM LOAN A - DESCRIPTION. . . . . . . . . . . . . . . . . . . . 24
2.4 TERM LOAN B - DESCRIPTION. . . . . . . . . . . . . . . . . . . . 24
2.5 ADVANCES, CONVERSIONS, RENEWALS AND PAYMENTS . . . . . . . . . . 25
2.6 REVOLVING CREDIT INTEREST. . . . . . . . . . . . . . . . . . . . 28
2.7 TERM LOAN INTEREST . . . . . . . . . . . . . . . . . . . . . . . 31
2.8 ADDITIONAL INTEREST PROVISIONS.. . . . . . . . . . . . . . . . . 35
2.9 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.10 PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.11 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . 38
2.12 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.13 CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . . . . . . 39
2.14 INTEREST RATE PROTECTION . . . . . . . . . . . . . . . . . . . . 39
SECTION 3. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 DESCRIPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2 LIEN DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3 OTHER ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 SEARCHES, CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 42
3.5 LANDLORD'S WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 42
3.6 FILING SECURITY AGREEMENT. . . . . . . . . . . . . . . . . . . . 42
3.7 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES . . . . . . . . . . 43
4.1 RESOLUTIONS, OPINIONS, AND OTHER DOCUMENTS . . . . . . . . . . . 43
4.2 ABSENCE OF CERTAIN EVENTS. . . . . . . . . . . . . . . . . . . . 44
4.3 WARRANTIES AND REPRESENTATIONS AT CLOSING. . . . . . . . . . . . 45
4.4 COMPLIANCE WITH THIS AGREEMENT . . . . . . . . . . . . . . . . . 45
4.5 OFFICERS' CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . 45
4.6 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.7 WAIVER OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 45
4.8 CONDITIONS FOR FUTURE ADVANCES . . . . . . . . . . . . . . . . . 45
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 46
5.1 CORPORATE ORGANIZATION AND VALIDITY. . . . . . . . . . . . . . . 46
5.2 PLACES OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 47
5.3 PENDING LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 47
5.4 TITLE TO PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . 47
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<PAGE>
5.5 GOVERNMENTAL CONSENT . . . . . . . . . . . . . . . . . . . . . . 47
5.6 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 48
5.8 FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . 48
5.9 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.10 GUARANTEES, CONTRACTS, ETC.. . . . . . . . . . . . . . . . . . . 49
5.11 GOVERNMENT REGULATIONS, ETC. . . . . . . . . . . . . . . . . . . 49
5.12 BUSINESS INTERRUPTIONS . . . . . . . . . . . . . . . . . . . . . 50
5.13 NAMES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.14 OTHER ASSOCIATIONS . . . . . . . . . . . . . . . . . . . . . . . 51
5.15 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 51
5.16 REGULATION O . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.17 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.18 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.19 INTERRELATEDNESS OF BORROWERS. . . . . . . . . . . . . . . . . . 53
5.20 STOCK PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . 53
5.21 MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . 54
6.1 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . . . . . 54
6.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. . . . . . . . 54
6.3 BUSINESS CONDUCTED . . . . . . . . . . . . . . . . . . . . . . . 56
6.4 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.5 ISSUE TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.6 BANK ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.7 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . 56
6.8 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 57
6.9 FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . 59
6.10 OFFICERS' CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 60
6.11 AUDITS AND INSPECTION. . . . . . . . . . . . . . . . . . . . . . 61
6.12 TAX RETURNS AND REPORTS. . . . . . . . . . . . . . . . . . . . . 61
6.13 INFORMATION TO PARTICIPANT . . . . . . . . . . . . . . . . . . . 61
6.14 MATERIAL ADVERSE DEVELOPMENTS. . . . . . . . . . . . . . . . . . 62
6.15 ENGAGEMENT OF BIG "6" ACCOUNTING FIRM: . . . . . . . . . . . . . 62
6.16 PLACES OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 62
6.17 FISCAL YEAR: . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.18 QUARTERLY IMPLEMENTATION:. . . . . . . . . . . . . . . . . . . . 62
6.19 ACCOUNT VERIFICATION . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7. BORROWERS' NEGATIVE COVENANTS: . . . . . . . . . . . . . . . . . 63
7.1 MERGER, CONSOLIDATION, DISSOLUTION OR LIQUIDATION. . . . . . . . 63
7.2 ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.3 LIENS AND ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . 63
7.4 TRANSACTIONS WITH AFFILIATES OR SUBSIDIARIES . . . . . . . . . . 64
7.5 GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.6 DISTRIBUTIONS, BONUSES AND OTHER INDEBTEDNESS. . . . . . . . . . 65
7.7 LOANS AND INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . 65
7.8 USE OF LENDERS' NAME . . . . . . . . . . . . . . . . . . . . . . 65
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<PAGE>
7.9 MISCELLANEOUS COVENANTS. . . . . . . . . . . . . . . . . . . . . 65
SECTION 8. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 66
8.2 CURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.3 RIGHTS AND REMEDIES ON DEFAULT . . . . . . . . . . . . . . . . . 68
8.4 NATURE OF REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 70
8.5 SET-OFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9. AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.1 APPOINTMENT AND AUTHORIZATION. . . . . . . . . . . . . . . . . . 70
9.2 GENERAL IMMUNITY . . . . . . . . . . . . . . . . . . . . . . . . 71
9.3 CONSULTATION WITH COUNSEL. . . . . . . . . . . . . . . . . . . . 71
9.4 DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.5 RIGHTS AS A LENDER . . . . . . . . . . . . . . . . . . . . . . . 71
9.6 RESPONSIBILITY OF AGENT. . . . . . . . . . . . . . . . . . . . . 72
9.7 COLLECTIONS AND DISBURSEMENTS. . . . . . . . . . . . . . . . . . 72
9.8 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 73
9.9 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.10 NO RELIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.11 REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.12 REMOVAL OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . 74
9.13 ACTION ON INSTRUCTIONS OF LENDERS. . . . . . . . . . . . . . . . 75
9.14 SEVERAL OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 75
9.15 CONSENT OF LENDERS . . . . . . . . . . . . . . . . . . . . . . . 75
9.16 PARTICIPATION AND ASSIGNMENTS. . . . . . . . . . . . . . . . . . 76
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.1 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.2 INTEGRATED AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 78
10.3 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.5 TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.6 EXPENSES OF AGENT, CO-AGENT AND LENDERS. . . . . . . . . . . . . 79
10.7 BROKERAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.8 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.9 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.10 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.11 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 82
10.12 DUPLICATE ORIGINALS. . . . . . . . . . . . . . . . . . . . . . . 82
10.13 MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.14 SIGNATORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.15 THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.16 DISCHARGE OF TAXES, BORROWERS' OBLIGATIONS, ETC. . . . . . . . . 82
10.17 WITHHOLDING AND OTHER TAX LIABILITIES. . . . . . . . . . . . . . 82
10.18 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . 83
10.19 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 83
10.20 CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 83
-iii-
<PAGE>
EXHIBIT LIST
------------
Exhibit A -- Intentionally Omitted
Exhibit B -- Form of Intercreditor Agreement
Exhibit C -- Projections
Exhibit D -- Form of Stock Pledge Agreement
Exhibit E -- Form of Surety Agreement
Exhibit F -- Intentionally Omitted
Exhibit G -- Form of Revolving Credit Note
Exhibit H -- Form of Term Loan A Note
Exhibit I -- Form of Term Loan B Note
Exhibit J -- Form of Borrowing Advance Request
Exhibit K -- Phoenix's Stock Purchase Agreement
Exhibit L -- Merger Agreement
Exhibit M -- Form of Quarterly Compliance Certificate
Exhibit N -- Form of Assignment and Acceptance
SCHEDULES
---------
Schedule A -- Schedules of Lenders
Schedule B -- Sureties
Schedule 5.1 -- Borrowers' States of Qualifications
Schedule 5.2 -- Places of Business
Schedule 5.3 -- Judgments, Proceedings, Litigation and Orders
Schedule 5.4 -- Existing Liens and Claims
Schedule 5.7 -- Borrowers' Federal Tax Identification Numbers
Schedule 5.9 -- Subsidiaries and Affiliates
Schedule 5.10(a) -- Existing Guaranties, Investments and Borrowings, Leases
and Employment Agreements
Schedule 5.11 -- Employee Benefit Plans
Schedule 5.13(a) -- Schedule of Names
Schedule 5.13(b) -- Trademarks, Patents and Copyrights
Schedule 5.14 -- Other Associations
Schedule 5.15 -- Environmental Matters
Schedule 5.17 -- Capital Stock
Schedule 7.6 -- Existing Indebtedness
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<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement ("Agreement") is dated this 1st day
of February 1996, by and among PHOENIX COLOR CORP., formerly known as Phoenix
Merger Corp., a Delaware corporation (successor by merger to Phoenix Color
Corp., a New York corporation) and ALPHA SYSTEMS, INC., a Connecticut
corporation (collectively, "Borrowers" and singly, a "Borrower"), the lending
institutions listed from time to time on Schedule A attached hereto and
incorporated herein that are parties to this Agreement (collectively, "Lenders"
and singly, a "Lender"), CORESTATES BANK, N.A., a national banking association,
as issuer of letters of credit hereunder (in such capacity, "Issuer"),
CORESTATES BANK, N.A., as administrative agent for the Issuer and Lenders
hereunder, (in such capacity, "Agent") and FLEET BANK OF MASSACHUSETTS, N.A. as
Co-Agent.
BACKGROUND
----------
A. Borrowers desire to establish financing arrangements with
Lenders and Lenders are willing to make loans and extensions of credit to
Borrowers under the terms and provisions hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship in writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED: As used in this Agreement, the following terms
have the following respective meanings:
ACCOUNT - All of the "accounts" (as that term is defined in
Section 9106 of the UCC) of the Borrowers, whether now existing or hereafter
arising.
ACCOUNT DEBTOR - Any Person obligated on any Account owing to
Borrowers.
-1-
<PAGE>
ADJUSTED LIBOR RATE - For any LIBOR Interest Period, as applied
to a LIBOR Based Rate Loan, the rate per annum (rounded upwards, if necessary to
the next 1/16 of 1%) determined pursuant to the following formula:
Adjusted Libor Rate = Libor Rate
------------------------
(1 - Reserve Percentage)
For purposes hereof, "Libor Rate" shall mean the arithmetic average of the rates
of interest per annum (rounded upwards, if necessary to the next 1/16 of 1%) at
which Agent is offered deposits of United States Dollars in the London interbank
market on or about eleven o'clock (11:00) a.m. London time two (2) Business Days
prior to the commencement of such LIBOR Interest Period on amounts substantially
equal to such LIBOR Based Rate Loan as to which the Borrowers may elect the
Adjusted Libor Rate to be applicable with a maturity of comparable duration to
the LIBOR Interest Period selected by the Borrowers for such LIBOR Based Rate
Loan.
ADJUSTED REVOLVING CREDIT APPLICABLE MARGIN - Section 2.6(b).
ADJUSTED TERM LOAN APPLICABLE MARGIN - Section 2.7(b).
ADMINISTRATION FEE - Section 2.9(b).
ADVANCE(S) - Any monies advanced or credit extended to
Borrowers by any Lender under the Revolving Credit, including without limitation
cash advances and the issuance of Letters of Credit.
AFFILIATE - Section 7.4.
ALPHA FACILITY - Alpha's real estate and improvements located
at Wallingford, New Haven County, Connecticut, as more fully described in the
Mortgage covering the Alpha Facility.
ASSET SALE - The sale, transfer, lease, license or other
disposition, outside of the ordinary course of business, by any Borrower or by
any Subsidiary of a Borrower to any Person other than a Borrower of any Property
now owned or hereafter acquired, of any nature whatsoever in any transaction or
series of related transactions.
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AUTHORIZED OFFICER - Any officer of any Borrower authorized by
specific resolution of such Borrower to request Advances as set forth in the
incumbency certificate referred to in Section 4.1(d) of this Agreement.
BANK AFFILIATE - Any bank that is controlled by a Lender. A
bank shall be deemed controlled by a Lender if (i) the Lender, directly or
indirectly, or acting through one or more other Persons owns, controls or has
power to vote twenty five percent (25%) or more of any class of voting
securities of the bank; or (ii) the Lender controls in any manner the election
of a majority of the directors or trustees of the bank.
BASE RATE - Agent's Prime Rate
BASE RATE LOANS - Loans under the Revolving Credit and the Term
Loans subject to interest calculated under the terms hereof based on the Base
Rate, and not subject to or based upon the Adjusted LIBOR Rate.
BORROWING BASE - The sum of sixty percent (60%) of Eligible
Inventory PLUS eighty-five percent (85%) of Eligible Accounts.
BUSINESS DAY - A day other than Saturday or Sunday when Agent
is open for business in Philadelphia, Pennsylvania.
CAPITALIZED LEASE OBLIGATIONS - Any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, consistently applied.
CAPITAL STOCK - Any and all shares, interests, participation or
other equivalents (however designated) of capital stock of a corporation, any
and all other ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
CASH COLLATERAL ACCOUNT - Section 2.5(b).
CASH PROCEEDS - With respect to any Asset Sale or Offering, the
aggregate cash payments received by a Borrower and/or any of its Subsidiaries
from such Asset Sale or Offering.
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CHANGE OF CONTROL - With respect to any Borrower, the result
caused by any Person and/or its Affiliate acquiring or otherwise obtaining the
right to vote more than forty percent (40%) of any class of the issued and
outstanding Capital Stock of such Borrower entitled to vote.
CLOSING - Section 4.6.
CLOSING DATE - Section 4.6.
COLLATERAL - All of the Property and interests in Property
described in Section 3.1 of this Agreement and all other Property and interests
in Property that now or hereafter secure payment of the Obligations and
satisfaction by Borrowers of all covenants and undertakings contained in this
Agreement and the other Loan Documents.
CONSOLIDATED AMORTIZATION EXPENSE - For any period, the
aggregate consolidated amount of amortization expenses of Borrowers, as
determined in accordance with GAAP.
CONSOLIDATED CAPITAL EXPENDITURES - For any period, the
aggregate of all expenditures (including that portion of Capitalized Lease
Obligations incurred during that period) made by Borrowers and their
Subsidiaries during such period in respect of the purchase, construction or
other acquisition of fixed or capital assets determined in accordance with GAAP.
CONSOLIDATED CAPITALIZATION - For any period, the sum of
Borrowers' (i) Funded Debt plus (ii) Consolidated Tangible Net Worth.
CONSOLIDATED CURRENT ASSETS - At any date, the aggregate
consolidated amount of Borrowers' current assets as would be shown on a
consolidated balance sheet prepared in accordance with GAAP; provided that for
the purposes hereof, Current Consolidated Assets shall not include cash and cash
equivalents.
CONSOLIDATED CURRENT LIABILITIES - At any date, the aggregate
consolidated amount of Borrowers' current liabilities as would be shown on a
consolidated balance sheet prepared in accordance with GAAP; provided that for
the purposes hereof, Consolidated Current Liabilities shall not include the
current maturities of long term Indebtedness, the current portion of Capitalized
Lease Obligations, the outstanding principal balance
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of the Revolving Credit and the mandatory prepayment due pursuant to Section
2.10(c)(iv) relating to Net Free Cash Flow.
CONSOLIDATED DEPRECIATION EXPENSE - For any period, the
aggregate, consolidated amount of depreciation expenses of Borrowers, as
determined in accordance with GAAP.
CONSOLIDATED EBIT - For any period, Borrowers' Consolidated Net
Income (or deficit) PLUS (a) Consolidated Interest Expense PLUS (b) Consolidated
Tax Expense PLUS (c) extraordinary losses and MINUS (d) extraordinary gains, all
as determined in accordance with GAAP..
CONSOLIDATED EBITDA - For any period, Borrowers' Consolidated
Net Income (or deficit) PLUS (a) Consolidated Interest Expense, (b) Consolidated
Tax Expense, (c) Consolidated Depreciation Expense, (d) Consolidated
Amortization Expense MINUS (e) extraordinary gains and PLUS (f) extraordinary
losses, all as determined in accordance with GAAP.
CONSOLIDATED INTEREST EXPENSE - For any period, the aggregate,
consolidated amount of interest expense required to be paid or accrued during
such period on all Indebtedness of Borrowers outstanding during all or any part
of such period, as determined in accordance with GAAP.
CONSOLIDATED NET INCOME - The consolidated net income after
taxes of Borrowers as such would appear on Borrowers' consolidated statement of
income, prepared in accordance with GAAP.
CONSOLIDATED RENTAL PAYMENTS - For any period, the aggregate,
consolidated amount of all rents paid or to be incurred under all operating
leases of Borrowers as lessees.
CONSOLIDATED TANGIBLE NET WORTH - For any period, the amount by
which the consolidated assets of Borrowers (excluding trademarks, goodwill,
covenants not to compete, deferred closing costs and all other assets which
would be determined to be intangible assets under GAAP) exceed all of Borrowers'
Liabilities as would be determined in accordance with GAAP.
CONSOLIDATED TAX EXPENSE - For any period, the aggregate,
consolidated amount of income tax expense of Borrowers, as determined in
accordance with GAAP.
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CURRENT REVOLVING CREDIT MATURITY DATE - The Initial Revolving
Credit Maturity Date or, if the Initial Term is renewed or extended, the last
day of the Current Term.
CURRENT TERM - The period during the Initial Term, and any
renewal or extended term, if in effect, during the term thereof.
DEFAULT - Any event, act, condition or occurrence which with
notice, or lapse of time or both, would constitute an Event of Default
hereunder.
DISTRIBUTION -
(1) Dividends or other distributions on any now or hereafter
outstanding Capital Stock of any Borrower;
(2) The redemption, repurchase, defeasance or acquisition of such
Capital Stock or of warrants, rights or other options to purchase such Capital
Stock; and
(3) Any loans or advances (other than salaries, and to the extent
permitted hereunder, bonuses), to any shareholder(s) of any Borrower.
ELIGIBLE ACCOUNTS - All Accounts of any Borrower meeting all of
the following specifications: (i) the Account is lawfully and exclusively owned
by such Borrower and subject to no Lien (other than Permitted Liens, if
applicable, and Liens granted under this Agreement) and such Borrower has the
right of assignment thereof and the power to grant a security interest therein;
(ii) the Account is valid and enforceable representing the undisputed
indebtedness of an Account Debtor for the purchase of Inventory not more than
ninety (90) days past the invoice date and does not represent a rebilling; (iii)
not more than 50% of the aggregate balance of all Accounts owing from an Account
Debtor obligated on the Account are outstanding more than 90 days past their
invoice date; (iv) the Account is not subject to any defense, set-off, or
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance
or adjustment of any kind; (v) the Account is net of any portion thereof
attributable to the sale of goods that have been returned, rejected, lost or
damaged; (vi) if the Account arises from the sale of goods by a Borrower, such
sale was an absolute sale and not on consignment or on approval or on a
sale-or-return basis nor subject to any other repurchase or return agreement,
and such goods have been shipped to the Account Debtor
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or its designee; (vii) if the Account arises from the performance of services,
such services have actually been performed; (viii) the Account arose in the
ordinary course of such Borrower's business; (ix) no notice of the bankruptcy,
receivership, reorganization, liquidation, dissolution, or insolvency of the
Account Debtor has been received by Agent or any Borrower; (x) the Account
Debtor is not a Subsidiary or Affiliate of any Borrower; (xi) the Account is not
an Account of an Account Debtor having its principal place of business or
executive office outside the United States, unless the payment of such Account
is guaranteed by an irrevocable letter of credit satisfactory to Agent; (xii)
the Account does not represent a sale to the government of the United States or
any subdivision or agency thereof unless Borrowers have complied, for the
benefit of Agent, with the Federal Assignment of Claims Act; (xiii) the Account
is not an Account on which the Account Debtor is obligated to any Borrower under
any instrument; (xiv) the transaction which gave rise to the Account complies in
all respects with all applicable laws, rules and regulations of any Governmental
Authority; and (xv) the Account meets such other reasonable specifications and
requirements which may from time to time be established by Agent. Eligible
Accounts shall not include that portion of an Account representing interest
charges for past due balances or debit memos.
ELIGIBLE INVENTORY - Any and all raw material Inventory
(including raw paper, raw laminating film and unused printing plates) of any
Borrower located at such Borrower's places of business listed on Schedule "5.2"
attached hereto and made a part hereof, which (i) is not subject to any Lien
(other than Liens granted under this Agreement and Permitted Liens, if
applicable); (ii) is not slow moving, obsolete or unmerchantable; (iii) meets
all standards, if any, imposed by any Governmental Authority; and (iv) meets
such other reasonable specifications and requirements which may from time to
time be established by Agent. Eligible Inventory does not include
work-in-process, used printing plates, finished goods, packaging materials,
supplies and other similar items or any unused printing plates in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00).
ENVIRONMENTAL LAWS - Any and all Federal, foreign, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees and any and all common law requirements, rules and bases of liability
regulating, relating to or imposing liability or standards of conduct concerning
pollution, protection of the environment, or the impact of pollutants,
contaminants or toxic or hazardous substances on
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human health or the environment, as now or may at any time hereafter be in
effect.
ERISA - The Employee Retirement Income Security Act of 1974, as
the same may be amended, from time to time.
EVENT OF DEFAULT - Section 8.1.
EXISTING MORTGAGE INDEBTEDNESS - Borrowers' existing term loan
Indebtedness to Agent that is secured by mortgages on the Hagerstown Facility.
EXPENSES - Section 10.6.
FACILITY FEE - The fee which Agent and Co-Agent are entitled to
receive at Closing, less amounts previously paid thereon, for services in
structuring, arranging and underwriting the Revolving Credit and Term Loans, as
more fully set forth in the commitment letters dated December 13, 1995 among Old
Phoenix, Alpha and Agent and Old Phoenix, Alpha and Co-Agent, respectively.
FACILITY LIMIT - The sum of Forty Million Dollars
($40,000,000).
FED FUNDS RATE - The daily rate of interest announced from time
to time by the Board of Governors of the Federal Reserve System in publication
H.15, or any successor publication, as the "Federal Funds Rate".
FIXED CHARGE COVERAGE RATIO - For any period, the ratio of (i)
the sum of (A) Consolidated EBITDA LESS (B) Unfinanced Capital Expenditures LESS
(C) income taxes paid by Borrowers in cash to (ii) the sum of (X) required
principal payments on long-term Indebtedness of Borrowers for the next
consecutive twelve (12) month period PLUS (Y) Consolidated Interest Expense.
FUNDED DEBT - For any Person, on any date, without duplication,
the aggregate principal amount of Indebtedness (except for the item described in
clause (vi) of the definition of Indebtedness) of such Person and its
consolidated Subsidiaries as determined on a consolidated basis.
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FUNDED DEBT TO OPERATING CASH FLOW RATIO - For any period, the
ratio of (i) Borrowers' Funded Debt to (ii) Consolidated EBITDA.
FUNDED DEBT TO CONSOLIDATED CAPITALIZATION RATIO - For any
period, the ratio of (i) Borrowers' Funded Debt to (ii) Consolidated
Capitalization.
GAAP - Generally accepted accounting principles as in effect on
the Closing Date applied in a manner consistent with the most recent audited
financial statements of Borrowers furnished to Agent under Section 6.9 herein.
GOVERNMENT ACTS - Section 2.2(g).
GOVERNMENT AUTHORITY - Any government or political subdivision,
or any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury, or arbitration
(to the extent having jurisdiction over on the Borrowers or any of their
Subsidiaries, in each case whether foreign or domestic).
HAGERSTOWN FACILITY - Phoenix's real estate and improvement
located at Hagerstown, Washington County, Maryland as more fully described in
the Mortgage covering the Hagerstown Facility.
HAZARDOUS SUBSTANCE - Section 5.15.
INDEBTEDNESS - Of any Person at any date, without duplication,
(i) all indebtedness of such Person for borrowed money (including, with respect
to Borrowers, the Obligations) or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (ii) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar instrument, (iii) all Capitalized Lease Obligations of such Person, (iv)
the face amount of all letters of credit issued for the account of such Person
and all drafts drawn thereunder, (v) all obligations of other Persons which such
Person has guaranteed, and (vi) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
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INITIAL REVOLVING CREDIT APPLICABLE MARGIN - Section 2.6(a).
INITIAL REVOLVING CREDIT MATURITY DATE - The three (3) year
anniversary date of the date of this Agreement.
INITIAL TERM - Section 2.1(c).
INITIAL TERM LOAN APPLICABLE MARGIN - Section 2.7(a).
INTERCREDITOR AGREEMENT- That certain intercreditor agreement
among Agent (on behalf of Lenders), Phoenixcor, Inc. and Borrowers dated on or
prior to the Closing Date and substantially in the form of Exhibit "B" attached
hereto and made a part hereof.
INTEREST COVERAGE RATIO - The ratio of (i) Consolidated EBIT to
(ii) Consolidated Interest Expense.
INVENTORY - All of the "inventory" (as that term is defined in
Section 9109 of the UCC) whether now existing or hereafter acquired or created.
IRS - Section 6.7.
LENDER - Any of the Lenders listed on Schedule A attached
hereto and made a part hereof, as such Schedule A may be changed from time to
time.
LETTERS OF CREDIT - (a) Standby letters of credit, and (b)
commercial letter or letters of credit, in each case issued to or to be issued
by the Issuer for the account of Borrowers pursuant to Section 2.2 herein.
L/C COMMITMENT - The sum of Five Hundred Thousand Dollars
($500,000.00).
L/C FEES - Section 2.9(c).
LIABILITIES - All liabilities of every kind of each Borrower as
would be shown on a consolidated financial statement of Borrowers prepared in
accordance with GAAP.
LIBOR BASED RATE LOAN - That portion of any Loan on which
interest accrues at the LIBOR Based Rate.
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LIBOR INTEREST PERIOD - A period of one (1), two (2), three (3)
or six (6) months duration during which the Term Loan LIBOR Based Rate or
Revolving Credit LIBOR Based Rate, as the case may be, is applicable.
LIEN - Any interest of any kind or nature in property securing
an obligation owed to, or a claim of any kind or nature in property by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute, regulation or contract, and including, but not limited to,
a security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt, a lease, consignment or bailment for security
purposes, a trust, or an assignment. The term "Lien" shall include without
limitation, reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property other than those which would not materially
interfere with any Borrower's use of the Property and would not materially
detract from the value of the Property. For the purposes of this Agreement,
each Borrower shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement or other arrangement
pursuant to which title to the Property has been retained by or vested in some
other Person for security purposes.
LOANS - The unpaid balance of Advances under the Revolving
Credit and the unpaid principal balance of the Term Loans.
LOAN DOCUMENTS - This Agreement, the Revolving Credit Notes,
the Term Loan Notes, the Mortgages, and all agreements, instruments and
documents executed and/or delivered in connection therewith, all as may be
supplemented, restated, superseded, amended or replaced from time to time.
LOCKBOX - Section 2.5(b).
LONDON BUSINESS DAY - Any Business Day on which banks in
London, England are open for business.
MAJORITY LENDERS - At any time, Lenders holding Pro Rata
Percentages aggregating at least seventy-five (75%) percent at such time.
MAXIMUM REVOLVING CREDIT AMOUNT - The sum of Eighteen Million
Dollars ($18,000,000.00) as such amount may be
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permanently reduced from time to time pursuant to Section 2.1(d) herein.
MATERIAL ADVERSE EFFECT - (a) With respect to either Borrower,
any material adverse effect (both before and after giving effect to the
transactions contemplated by this Agreement and the other Loan Documents) with
respect to the business, assets, properties, financial condition, stockholders'
equity, contingent liabilities, prospects, material agreements or results of
operations of such Borrower, or (b) any fact or circumstance that, singly or in
the aggregate with any other fact or circumstance, has a reasonable likelihood
of resulting in or leading to (i) a material adverse effect described in clause
(a), (ii) the inability of such Borrower to perform in any material respect its
obligations hereunder or under any other Loan Document or the inability of
Lenders, or Agent on their behalf, to enforce in any material respect the rights
purported to be granted hereunder or under any other Loan Document, or (iii) a
material adverse effect on the ability of such Borrower to effect (including
hindering or unduly delaying) the transactions contemplated by this Agreement
and the other Loan Documents on the terms contemplated hereby and thereby.
MERGED ENTITIES - Old Phoenix, NEBH and NEBC.
MERGER - Collectively, the merger of Old Phoenix, NEBH and NEBC
into Phoenix pursuant to, and in accordance with the terms of, the Merger
Agreement.
MERGER AGREEMENT - Collectively, the Plan of Merger, dated as
of the Closing Date, between Old Phoenix and Phoenix, the short form merger
dated as of the Closing Date between NEBC and NEBH and the short form merger
dated as of the Closing Date between NEBH and Phoenix.
MOODY'S - Section 7.7.
MORTGAGES - Those certain Mortgage and Security Agreements
dated this date and executed by Phoenix or Alpha, as the case may be, in favor
of Agent, on behalf of Lenders.
NEBC - New England Book Components, Inc., a Massachusetts
corporation.
NEBH - New England Book Holding Corporation, a Delaware
corporation.
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NET FREE CASH FLOW - For any period, the sum of (a)
Consolidated Net Income PLUS Consolidated Depreciation Expenses PLUS
Consolidated Amortization Expenses MINUS (b) the sum of (i) current maturities
of long-term Indebtedness for such period PLUS (ii) the current portion of
Capitalized Lease Obligations for such period PLUS (iii) Unfinanced Capital
Expenditures and (c) either (i) MINUS the amount of any increase in Working
Capital during such period from the immediately preceding corresponding period
or (ii) PLUS the amount of any decrease in Working Capital during such period
from the immediately preceding corresponding period.
NET PROCEEDS - In the case of (i) any Asset Sale, Cash
Proceeds, net of direct expenses of sale and also net of the payment of
Indebtedness secured by valid and enforceable Liens on the assets sold, provided
however that any direct expenses constituting taxes imposed on such Asset Sale
(excluding income taxes) shall only be included to the extent that such taxes
are payable in cash within eighteen (18) months of the closing date of the Asset
Sale and (ii) any Offering, the Cash Proceeds net of BONA FIDE reasonable and
customary direct costs of sale (including legal and other professional fees and
underwriting fees).
NOTES - Collectively, the Revolving Credit Notes and the Term
Loan Notes.
OBLIGATIONS - All existing and future debts, liabilities and
obligations of every kind or nature at any time owing by Borrowers, or any of
them, to Lenders or to Agent, whether joint or several, related or unrelated,
primary or secondary, matured or contingent, due or to become due, and whether
principal, interest, fees or Expenses, including, without limitation, debts,
liabilities and obligations in respect of the Revolving Credit, whether related
to cash Advances or Letters of Credit (whether drawn or undrawn), and Term Loans
and any extensions, modifications, substitutions, increases and renewals
thereof; the payment of all amounts advanced by Agent or Lenders to preserve,
protect and enforce rights hereunder and in the Collateral; and all Expenses
incurred by Agent or Lenders.
OFFERING - The sale or issuance by any Borrower of any of its
Capital Stock or any debt instrument in any public or private transaction, or
the receipt of capital contributions in the form of cash to any Borrower.
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OLD PHOENIX - Phoenix Color Corp., a New York corporation.
OVERADVANCE - Section 2.1(a)(i).
PARTICIPANTS - Section 9.16.
PARTICIPATION - Section 9.16.
PBGC - Section 6.7.
PERMITTED BONUS - For any fiscal year, twenty -seven percent
(27%) of the sum of (a) Consolidated Net Income PLUS (b) Consolidated Tax
Expense.
PERMITTED LIENS - Section 7.3.
PERSON - An individual, partnership, corporation, trust,
limited liability company, unincorporated association or organization, joint
venture or any other entity.
PHOENIX - Phoenix Color Corp., formerly known as Phoenix Merger
Corp., a Delaware corporation (survivor of the Merger among Old Phoenix, NEBH
and NEBC).
PRIME RATE - That rate publicly designated by Agent at its
principal office from time to time as its prime rate of interest, which is not
necessarily the lowest or best rate of interest charged by Agent.
PRO FORMA BALANCE SHEET - Consolidated pro forma balance sheet
of Borrowers dated as of the Closing Date.
PRO RATA PERCENTAGE - The percentage set forth opposite each
Lender's name on Schedule A.
PROJECTIONS - Borrowers' consolidated financial projection of
earnings statements for the remainder of the current fiscal year and for the
following five (5) years, a copy of which is attached hereto as Exhibit "C" and
made a part hereof.
PROPERTY - Any interest of any Borrower in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible including,
without limitation, Real Property.
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QUARTERLY COMPLIANCE CERTIFICATE - Section 6.10.
REAL PROPERTY - All right, title and interest of any Borrower
or any of its Subsidiaries (including any leasehold estate) in and to any parcel
of real property owned or operated by any Borrower or any of its Subsidiaries,
(including, without limitation, the Hagerstown Facility), together with, in each
case, all improvements, and appurtenant fixtures, equipment, easements and other
property and rights incidental to the ownership, lease or operation thereof.
REGULATION D - Regulation D of the Board of Governors of the
Federal Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, and any successor thereto.
REIMBURSEMENT OBLIGATIONS - Section 2.2(d).
RESERVE - For any day, that reserve (expressed as a decimal)
which is in effect (whether or not actually incurred) with respect to a Lender
(or any Bank Affiliate of such Lender) on such day, as prescribed by the Board
of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Lender (or any Bank Affiliate of such Lender) is
subject including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender (or any bank affiliate
of such Lender) is subject), for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or emergency
reserves) for Eurocurrency liabilities as defined in Regulation D.
RESERVE PERCENTAGE - For a Lender (or any Bank Affiliate of
such Lender) on any day, that percentage (expressed as a decimal) which is in
effect on such day, prescribed by the Board of Governors of the Federal Reserve
System (or any successor or any other banking authority to which a Lender (or
any Bank Affiliate of such Lender) is subject, including any board or
governmental or administrative agency of the United States or any other
jurisdiction to which a Lender (or any Bank Affiliate of such Lender is
subject), for determining the maximum reserve requirement (including without
limitation any basic, supplemental, marginal or emergency reserves) for (i)
deposits of United States Dollars or (ii) Eurocurrency liabilities as defined in
Regulation D, in each case used to fund a LIBOR Based Rate Loan subject to an
Adjusted LIBOR Rate. The Adjusted LIBOR Rate shall be adjusted
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automatically on and as of the effective day of any change in the Reserve
Percentage.
REVOLVING CREDIT - Section 2.1(a).
REVOLVING CREDIT BASE RATE - The Base Rate PLUS, as applicable,
the Initial Revolving Credit Applicable Margin or Adjusted Revolving Credit
Applicable Margin.
REVOLVING CREDIT LIBOR APPLICABLE MARGIN - Section 2.6(d)(ii).
REVOLVING CREDIT LIBOR BASED RATE - Section 2.6(d)(ii).
REVOLVING CREDIT NOTES - Section 2.1(b).
REVOLVING CREDIT PRO RATA SHARE - Section 2.1(a)(ii).
STOCK PLEDGE AGREEMENT - Collectively, those certain stock
pledge agreements executed by each of the holders of Capital Stock of each
Borrower, each substantially in the form of Exhibit "D" attached hereto and made
a part hereof.
STOCK PURCHASE AGREEMENT - The Stock Purchase Agreement, dated
as of December 27, 1995, among Old Phoenix and Edmund J. Corvelli, Jr., James F.
Middleton, Edward A. Moneghan, Chemical Venture Capital Associates and Edward J.
Corvelli, Jr., James F. Middleton, and Edward A. Moneghan, as voting trustees of
the New England Book Corporation Voting Trust.
SUBSIDIARY - With respect to any Person at any time, (i) any
corporation more than fifty percent (50%) of whose voting stock is legally and
beneficially owned by such Person or owned by a corporation more than fifty
percent (50%) of whose voting stock is legally and beneficially owned by such
Person; (ii) any trust of which a majority of the beneficial interest is at such
time owned directly or indirectly, beneficially or of record, by such Person or
one or more Subsidiaries of such Person; and (iii) any partnership, joint
venture or other entity of which ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions are at such time owned directly or indirectly, beneficially or
of record, by, or which is otherwise controlled directly, indirectly or through
one or more intermediaries by, such Person or one or more Subsidiaries of such
Person.
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SURETIES - Collectively, those persons listed on Schedule B
attached hereto and made a part hereof.
SURETY AGREEMENTS - Collectively, those certain surety
agreements executed by each Surety in favor of Agent, each substantially in the
form of Exhibit "E" attached hereto and made a part hereof.
TERM LOAN A - Section 2.3.
TERM LOAN A MATURITY DATE - The four (4) year anniversary date
of the date of this Agreement.
TERM LOAN A NOTES - Section 2.3(b).
TERM LOAN A PRO RATA SHARE - Section 2.3(a)(ii).
TERM LOAN B - Section 2.4.
TERM LOAN B MATURITY DATE - The five (5) year anniversary date
of the date of this Agreement.
TERM LOAN B NOTES - Section 2.4(b).
TERM LOAN B PRO RATA SHARE - Section 2.4(a)(ii).
TERM LOAN BASE RATE - The Base Rate PLUS, as applicable, the
Initial Term Loan Applicable Margin or Adjusted Term Loan Applicable Margin.
TERM LOAN LIBOR APPLICABLE MARGIN - Section 2.7(d)(ii).
TERM LOAN LIBOR BASED RATE - Section 2.7(d)(ii).
TERM LOAN NOTES - Collectively, the Term Loan A Notes and Term
Loan B Notes.
TERM LOANS - Collectively, Term Loan A and Term Loan B.
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UCC - The Uniform Commercial Code as adopted in the
Commonwealth of Pennsylvania at 13 Pa.C.S.A. Section 1101 ET SEQ.
UNFINANCED CAPITAL EXPENDITURES - Consolidated Capital
Expenditures that are not financed through interest bearing debt from a Person,
within sixty (60) days of the acquisition of the asset.
UNUSED FEE - Section 2.9(a).
WORKING CAPITAL - At any date, Consolidated Current Assets
MINUS Consolidated Current Liabilities.
1.2 ACCOUNTING PRINCIPLES: Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP,
consistently applied, to the extent applicable, except as otherwise expressly
provided in this Agreement.
SECTION 2. THE LOANS
2.1 REVOLVING CREDIT - DESCRIPTION:
(a) (i) Subject to the terms and conditions of this Agreement, each
Lender hereby establishes for the benefit of Borrowers a revolving credit
facility (collectively, the "Revolving Credit") which shall include cash
Advances extended by Lenders to or for the benefit of Borrowers as well as
Letters of Credit issued for the account of Borrowers from time to time
hereunder. The aggregate principal amount of unpaid cash Advances, unreimbursed
draws on Letters of Credit plus outstanding and undrawn Letter(s) of Credit
shall not at any time exceed the lesser of (A) the Maximum Revolving Credit
Amount or (B) the Borrowing Base minus such reserves as Agent may from time to
time reasonably establish, in such amounts and with respect to such matters as
Agent may deem appropriate in its discretion. Subject to such limitation, the
outstanding balance of Advances under the Revolving Credit may fluctuate from
time to time, to be reduced by repayments made by Borrowers, to be increased by
future Advances which may be made by Lenders, to or for the benefit of
Borrowers, and, subject to the provisions of Section 8 below, shall be due and
payable on the Current Revolving Credit Maturity Date. If the aggregate
principal amount of unpaid cash Advances, unreimbursed draws on Letters of
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Credit plus outstanding and undrawn Letter(s) of Credit at any time exceed the
lesser of the Maximum Revolving Credit Amount or the Borrowing Base minus such
reserves established by Agent (such excess referred to as "Overadvance"),
Borrowers shall immediately repay the Overadvance in full.
(ii) Each Lender agrees severally to make cash Advances to
Borrowers, as a part of the Revolving Credit, subject to the terms of this
Agreement, up to the lesser of such Lender's Pro Rata Percentage of the
Revolving Credit or the amount ("Revolving Credit Pro Rata Shares") opposite its
name on Schedule A.
(b) At Closing, Borrowers shall execute and deliver a promissory
note to each Lender for the total principal amount of such Lender's Revolving
Credit Pro Rata Share. As additional Lenders become parties to this Agreement in
accordance with the provisions of Section 9.16 herein, Borrowers shall execute
and deliver to each such additional Lender a promissory note in the original
principal amount of such Lender's Revolving Credit Pro Rata Share, and shall
issue to the applicable selling Lender a replacement promissory note (in the
form of the promissory note replaced, which replaced notes shall be returned to
Borrowers) to reflect the reduced Revolving Credit Pro Rata Share of such Lender
(collectively the "Revolving Credit Notes"). The Revolving Credit Notes shall
evidence each Borrower's unconditional joint and several obligation to repay
such Lender for all Advances made under the Revolving Credit, with interest as
herein and therein provided. Each Advance under the Revolving Credit shall be
deemed evidenced by the Revolving Credit Notes, which are deemed incorporated
herein by reference and made part hereof. The obligations of Borrowers under
the Revolving Credit and this Agreement shall at all times be joint and several.
All Revolving Credit Notes shall be substantially in the form set forth in
Exhibit "G" attached hereto and made a part hereof.
(c) The term ("Initial Term") of the Revolving Credit shall expire
on the Initial Revolving Credit Maturity Date. On such date, unless having been
sooner accelerated by Agent pursuant to the terms hereof, all sums owing under
the Revolving Credit shall be due and payable in full, and as of and after such
date no further Advances shall be available from Lenders. The term of the
Revolving Credit may nonetheless be extended for one (1) year if Agent receives
a written request from Borrowers to extend the Initial Term at any time after
submission of the annual audited
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financial statements required under Section 6.9(a)(ii) for fiscal year end 1996
but not less than 90 days prior to the Initial Revolving Credit Maturity Date
and, within forty-five (45) days after receipt of such request, all Lenders
agree, in writing, to such extension. The term of the Revolving Credit may be
further extended for one (1) additional one (1) year period if Agent receives a
written request from Borrowers at any time after submission of the annual
audited financial statements required under Section 6.9(a)(ii) for fiscal year
end 1997 but not less than 90 days prior to the Current Revolving Credit
Maturity Date, and within forty-five (45) days after receipt of such request,
all Lenders agree, in writing, to such extension. If all Lenders do not timely
agree to extend the Initial Term or then Current Term of the Revolving Credit
(which potential extension each Lender may consider and evaluate in its
respective sole judgment and is under no obligation to approve), the Revolving
Credit shall terminate on the last day of the Initial Term or then Current Term,
as the case may be, and all sums owing under the Revolving Credit shall
thereupon become immediately due and payable and no further Advances shall be
available from Lenders. No extensions provided above shall be operative if a
Default or Event of Default is outstanding as of the date any such request for
an extension or any such extension is granted unless such Default or Event of
Default is expressly waived in writing by all Lenders. Nothing contained in
this paragraph creates any duty or obligation of any kind upon any Lender to
consider or grant any extension of the Initial Term or then Current Term.
(d) Borrowers shall have the right at any time and from time to
time, upon ten (10) Business Days prior written notice to Agent to permanently
reduce, without premium or penalty (but subject to Section 2.12 of this
Agreement), the Maximum Revolving Credit Amount in the minimum amount of Three
Million Dollars ($3,000,000.00) and integral multiples of One Million Dollars
($1,000,000.00) in excess thereof. Upon the effectiveness of such notice, each
Lender's Revolving Credit Pro Rata Share shall be reduced in accordance with
each Lender's Pro Rata Percentage of the amount specified in the notice. Agent
shall promptly notify Lenders of its receipt of such notice. Any notice to
reduce the Maximum Revolving Credit Amount pursuant to this Section 2.1(d) shall
be permanent and may not be revoked. In the event of any such reduction,
outstanding Advances in an amount in excess of the Maximum Revolving Credit
Amount, as so reduced, shall be paid on the effective date accrued on the
amount so paid (subject to Section 2.12 of this Agreement) to the date of
reduction.
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2.2 LETTERS OF CREDIT:
(a) As a part of the Revolving Credit and subject to its terms and
conditions (including, without limitation, the Borrowing Base) Issuer shall, on
behalf of and for the benefit of all Lenders, make available to Borrowers
Letters of Credit which shall not exceed, in the aggregate at any one time
outstanding the L/C Commitment. Notwithstanding the foregoing, all Letters of
Credit shall be in form and substance reasonably satisfactory to Issuer. No
Letter of Credit shall be issued with an expiry date later than (i) three
hundred sixty five (365) days from the date of issuance or (ii) the last day of
the then Current Term. Borrowers shall execute and deliver to Issuer all letter
of credit agreements and other documents required by Issuer for such purposes,
all such documents to be in form and substance reasonably satisfactory to
Issuer.
(b) Immediately upon the issuance of any Letter of Credit, Issuer
is deemed to have granted to each other Lender, and each other Lender is hereby
deemed to have acquired, an undivided participating interest (without recourse
or warranty), in accordance with each such other Lender's respective Pro Rata
Percentage, in all of Issuer's rights and liabilities with respect to such
Letter of Credit. Each Lender shall be directly and unconditionally obligated
to Issuer, according to its Pro Rata Percentage, to reimburse Issuer for any
draws not reimbursed by Borrowers in accordance with the terms hereof, made at
any time without regard to the occurrence of a Default or Event of Default
(including, without limitation, any draw made following the commencement of any
bankruptcy, reorganization, receivership, liquidation or dissolution proceeding
with respect to any Borrower) under any Letter of Credit outstanding under the
Revolving Credit.
(c) Each Letter of Credit issued from time to time under the
Revolving Credit which remains undrawn (and the amounts of draws on Letters of
Credit prior to payment as hereinafter set f borrowed by Borrowers under the
Revolving Credit.
(d) In the event of any request for drawing under any Letter of
Credit by the beneficiary thereof, Issuer shall promptly notify Borrowers and
Borrowers shall immediately reimburse Issuer on the day when such drawing is
honored, by either a cash payment by Borrowers, or, so long as no Event of
Default has occurred and is continuing, in the absence of such payment by
Borrowers, and at Agent's option, by Lenders automatically making, or having
been deemed to have made, (without further request or
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approval of Borrowers) a cash Advance under the Revolving Credit on such date to
reimburse Issuer. All cash Advances which constitute a reimbursement for a draw
under a Letter of Credit shall be shared by Lenders in accordance with their Pro
Rata Percentages and shall be subject to the provisions of this Agreement
including, without limitation, Section 2.5(c). If, for any reason, proceeds of
cash Advances are not received by Issuer from any Lender on the date a drawing
under a Letter of Credit is honored in an amount equal to the amount of such
drawing, Borrowers shall reimburse Issuer, in same day funds, on the Business
Day immediately following the date of such drawing, in an amount equal to the
excess of the amount of such drawing over the amount of such proceeds, if any,
that are so received, plus accrued interest on such amount at the then
applicable interest rate for Base Rate Loans under the Revolving Credit.
Borrowers' reimbursement obligation for draws under Letters of Credit along with
the obligation to pay L/C Fees shall herein be referred to collectively as
Borrowers' "Reimbursement Obligations". All of Borrowers' Reimbursement
Obligations hereunder with respect to Letters of Credit shall apply
unconditionally and absolutely to, and shall be joint and several with respect
to, Letters of Credit issued hereunder on behalf of Borrowers.
(e) (i) In the event that Borrowers shall fail to reimburse Issuer
as provided in Section 2.2(d) in an amount equal to the amount of the drawing
honored by Issuer under a Letter of Credit, Issuer shall promptly notify each
Lender of the unreimbursed amount of such drawing and of such Lender's
participation therein based on such Lender's Pro Rata Percentage. Each Lender
shall make available to Issuer an amount equal to its respective participation
in same day funds, at the office of Issuer specified in such notice, not later
than 1:00 p.m. (Philadelphia time) on the Business Day after the date notified
by Issuer. In the event that any Lender fails to make available to such Issuer
the amount of such Lender's participation based on such Lender's Pro Rata
Percentage in such Letter of Credit, as provided in this Section 2.2(e), Issuer
shall be entitled to recover such amount on demand from such Lender together
with interest at the Fed Funds Rate for three (3) Business Days and thereafter
at the then applicable interest rate for Base Rate Loans under the Revolving
Credit. Issuer shall distribute to each other Lender which has paid all amounts
payable by it under this Section 2.2(e) with respect to any Letter of Credit,
such other Lender's share, based on such Lender's Pro Rata Percentage, of all
payments received by Issuer from Borrowers in reimbursement of drawings honored
by Issuer under such Letter of Credit, when such payments are
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received. Nothing in this Section 2.2(e) shall be deemed to relieve any Lender
from its obligation to pay all amounts payable by it under this Section 2.2(e)
with respect to any Letter of Credit issued by Issuer or to prejudice any rights
that Issuer may have against a Lender as a result of any default by such Lender
hereunder and no Lender shall be responsible for the failure of any other Lender
to pay its respective participation, based on its Pro Rata Percentage, payable
under this Section 2.2(e).
(ii) In connection with the failure of any Lender to make
available to Issuer the amount of such Lender's participation in any Letter of
Credit, such Lender hereby agrees to protect, indemnify, pay and save Issuer
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including, without limitation, reasonable
attorneys' fees, allocated costs of internal counsel and the costs (including
judgments) in connection with any related litigation) which Issuer may incur or
be subject to as a consequence, direct or indirect, of the failure of such
Lender to make available its participation in such Letter of Credit.
Notwithstanding anything to the contrary contained in this Section 2.2(e), no
Lender failing to provide its participation in any Letter of Credit shall have
any obligation to indemnify Issuer in respect of any liability incurred by
Issuer arising solely out of the gross negligence or willful misconduct of
Issuer.
(f) The obligation of Borrowers to reimburse Issuer
for drawings made (or Lenders for cash Advances made to cover drawings made)
under the Letters of Credit and the obligations of Lenders to Issuer under
Section 2.2(e) shall be unconditional and irrevocable and shall be paid strictly
in accordance with the terms of this Agreement under all circumstances
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, setoff, defense or other
right that Borrowers or any other Person may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any persons or
entities for whom any such beneficiary or transferee may be acting), Issuer,
Agent, any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
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(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by Issuer under any Letter of Credit against presentation
of a demand, draft or certificate or other document that does not comply with
the terms of such Letter of Credit unless Issuer shall have acted with willful
misconduct or gross negligence in issuing such payment;
(v) any other circumstance or happening whatsoever that is
similar to any of the foregoing; or
(vi) the fact that a Default or Event of Default shall have
occurred and be continuing.
(g) If by reason of (i) any change after the Closing
Date in applicable law, regulation, rule, decree or regulatory requirement or
any change in the interpretation or application by any judicial or regulatory
authority of any law, regulation, rule, decree or regulatory requirement or
(ii) compliance by the Issuer or any Lender with any direction, reasonable
request or requirement (whether or not having the force of law) of any
governmental or monetary authority including, without limitation, Regulation D:
(A) Issuer or any Lender shall be subject to any tax or
other levy or charge of any nature or to any variation thereof (except for
changes in the rate of any tax on the net income of Issuer or any Lender or its
applicable lending office) or to any penalty with respect to the maintenance or
fulfillment of its obligations under this Section 2.2, whether directly or by
such being imposed on or suffered by Issuer or any Lender;
(B) any reserve, deposit or similar requirement is or shall
be applicable, imposed or modified in respect of any Letter of Credit issued by
the Issuer or participation therein purchased by any Lender; or
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(C) there shall be imposed on Issuer or any Lender any other
condition regarding this Section 2.2, any Letter of Credit or any participation
therein;
and the result of the foregoing is to directly or indirectly increase the cost
to Issuer or any Lender of issuing, creating, making or maintaining any Letter
of Credit or of purchasing or maintaining any participation therein, or to
reduce the amount receivable in respect thereof by Issuer or any Lender, then
and in any such case Issuer or such Lender shall, after the additional cost is
incurred or the amount received is reduced, notify Borrowers and Borrowers shall
pay on demand such amounts as may be necessary to compensate Issuer or such
Lender for such additional cost or reduced receipt, together with interest on
such amount from the date demanded until payment in full thereof at a rate per
annum equal at all times to the applicable interest rate for Base Rate Loans
under the Revolving Credit. A certificate signed by an officer of Issuer or
such Lender as to the amount of such increased cost or reduced receipt showing
in reasonable detail the basis for the calculation thereof, submitted to
Borrowers and the Agent by Issuer or any Lender, as the case may be, shall,
except for manifest error, and absent written notice from Borrowers to Agent
within ten (10) days from submission, be final, conclusive and binding for all
purposes.
(h) (i) In addition to amounts payable as elsewhere provided
in this Section 2.2, without duplication, Borrowers hereby agree to protect,
indemnify, pay and save Issuer, Agent and Lenders harmless from and against any
and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees) which Issuer may incur or be
subject to as a consequence, direct or indirect, of (A) the issuance of the
Letters of Credit or (B) the failure of Issuer to honor a drawing under any
Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future DE JURE or DE FACTO government or
Governmental Authority (all such acts or omissions herein called "Government
Acts").
(ii) As between Borrowers and Issuer, Agent and Lenders,
Borrowers assume all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by Issuer by, the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing,
Issuer shall not be responsible: (A) for the form, validity, sufficiency,
accuracy, genuineness or legal effects of any document submitted by any party in
connection
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with the application for and issuance of such Letters of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, that may prove to be invalid or ineffective for any reason;
(C) for failure of the beneficiary of any such Letter of Credit to comply fully
with conditions required in order to draw upon such Letter of Credit; (D) for
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they are
in cipher, unless any of the foregoing are caused by Issuer's gross negligence
or willful misconduct; (E) for errors in interpretation of technical terms;
(F) for any loss or delay in the transmission of any document required in order
to make a drawing under any such Letter of Credit or of the proceeds thereof,
unless caused by Issuer's gross negligence or willful misconduct; (G) for the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; and (H) for any consequences arising
from causes beyond the control of Issuer, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the vesting
of any of Issuer's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or omitted by
Issuer in connection with the Letters of Credit issued by it or the related
certificates, if taken or omitted in good faith, shall not create any liability
on the part of Issuer to Borrowers.
(iv) The term "Lender" shall, unless the context otherwise
indicates, include the Issuer in its individual capacity as a Lender.
2.3 TERM LOAN A - DESCRIPTION:
(a) (i) Lenders hereby advance to Borrowers, subject to
the terms and conditions of this Agreement, the sum of Sixteen Million Dollars
($16,000,000.00) ("Term Loan A").
(ii) Each Lender severally agrees to make an advance to
Borrowers as part of Term Loan A, subject to the terms of this Agreement, in the
amount ("Term Loan A Pro Rata Share") set forth opposite its name on Schedule A.
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(b) At Closing, Borrowers shall execute and deliver a
promissory note to each Lender in the principal amount of such Lender's Term
Loan A Pro Rata Share. As additional Lenders become parties to this Agreement
in accordance with the provisions of Section 9.16 herein, Borrowers shall
execute and deliver to each such additional Lender a promissory note in the
principal amount of such Lender's Term Loan A Pro Rata Share and shall issue to
the applicable selling Lender a replacement promissory note (in the form of the
promissory note replaced, which replaced notes shall be returned to Borrowers)
to reflect the reduced Term Loan A Pro Rata Share of such Lender (collectively
the "Term Loan A Notes"). The Term Loan A Notes shall evidence each Borrower's
unconditional joint and several obligation to repay such Lender such Lender's
Term Loan A Pro Rata Share of Term Loan A with interest as herein and therein
provided. The obligations of Borrowers under Term Loan A and this Agreement
shall at all times be joint and several. All Term Loan A Notes shall be
substantially in the form set forth in Exhibit "H" attached hereto.
(c) The principal balance of Term Loan A shall be paid in
fifteen (15) consecutive quarterly installments commencing April 30, 1996 and
continuing on the last day of each calendar quarter thereafter. The first such
installment shall be in the amount of Four Hundred Thousand Dollars
($400,000.00). Equal installments of One Million Two Hundred Thousand Dollars
($1,200,000.00) each shall be payable on July 31, 1996, October 31, 1996 and
January 31, 1997. Commencing on April 30, 1997, the balance of Term Loan A
shall be payable in eleven (11) consecutive quarterly installments of One
Million Dollars ($1,000,000.00) each along with a final installment (which final
installment shall be the sixteenth ((16th)) installment paid) of all unpaid
principal and any accrued and unpaid interest under Term Loan A shall be payable
on the Term Loan A Maturity Date.
2.4 TERM LOAN B - DESCRIPTION:
(a) (i) Lenders hereby advance to Borrowers, subject to
the terms and conditions of this Agreement, the sum of Six Million Dollars
($6,000,000.00) ("Term Loan B").
(ii) Each Lender severally agrees to make an advance to
Borrowers as part of Term Loan B, subject to the terms of this Agreement, in the
amount ("Term Loan B Pro Rata Share") set forth opposite its name on Schedule A.
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(b) At Closing, Borrowers shall execute and deliver a
promissory note to each Lender in the principal amount of such Lender's Term
Loan B Pro Rata Share. As additional Lenders become parties to this Agreement,
in accordance with the provisions of Section 9.16 herein, Borrowers shall
execute and deliver to each such additional Lender a promissory note in the
principal amount of such Lender's Term Loan B Pro Rata Share and shall issue to
the applicable selling Lender a replacement promissory note (in the form of the
promissory note replaced, which replaced notes shall be returned to Borrowers)
to reflect the reduced Term Loan B Pro Rata Share of such Lender (collectively
the "Term Loan B Notes"). The Term Loan B Notes shall evidence each Borrower's
unconditional joint and several obligation to repay such Lender such Lender's
Term Loan B Pro Rata Share of Term Loan B with interest as herein and therein
provided. The obligations of Borrowers under Term Loan B and this Agreement
shall at all times be joint and several. All Term Loan B Notes shall be
substantially in the form set forth in Exhibit "I" attached hereto.
(c) The principal balance of Term Loan B shall be paid in
fifty nine (59) consecutive monthly installments of Fifty Thousand Dollars
($50,000.00) each commencing on February 29, 1996 and continuing on the last day
of each calendar month thereafter along with a final installment (which final
installment shall be the sixtieth ((60th)) installment paid) of all unpaid
principal and any accrued and unpaid interest under Term Loan B shall be payable
on the Term Loan B Maturity Date.
2.5 ADVANCES, CONVERSIONS, RENEWALS AND PAYMENTS:
(a) Except to the extent otherwise set forth in this
Agreement, all payments of principal and of interest on the Revolving Credit,
Term Loan A, Term Loan B, the Expenses, the Administration Fee, the Unused Fee,
the L/C Fees, and all other charges and any other Obligations of Borrowers
hereunder, shall be made to Agent at its main Philadelphia banking office, Broad
and Chestnut Streets, Philadelphia, Pennsylvania, in United States dollars, in
immediately available funds. Agent and each Lender, on behalf of all Lenders,
shall have the unconditional right and discretion to charge any Borrower's
operating account with any such respective institution for all of Borrowers'
Obligations as they become due from time to time under this Agreement including
without limitation, interest, principal, fees and reimbursement of Expenses.
Alternatively, Agent may in its discretion (and Borrowers hereby authorize Agent
to) direct the Lenders to make a cash Advance under the Revolving Credit
(subject to the terms and
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provisions of this Agreement) in a sum sufficient to pay all interest accrued
and payable on the Obligations during the immediately preceding month and to pay
all costs, fees and Expenses owing hereunder.
(b) Borrowers shall maintain a lockbox account(s)
("Lockbox") with Agent (on terms and conditions satisfactory to Agent) and a
depository account(s) ("Cash Collateral Account") with Agent subject to the
provisions of this subparagraph. Borrowers have agreed with Agent that all
collections of Accounts will be paid directly from Account Debtors into the
Lockbox. Borrowers shall then cause (and Agent is also hereby irrevocably
authorized to cause) the transfer of such collections from the Lockbox to the
Cash Collateral Account. Deposits into the Cash Collateral Account shall be
applied by Agent daily, subject to Agent's standard clearing procedures and
clearing periods for deposited funds, to reduce the outstanding indebtedness
under the Revolving Crems of this Agreement. All collections of Accounts and
proceeds of other Collateral to the extent received by any Borrower shall be
held in trust for the benefit of Lenders and remitted, IN SPECIE, to Agent for
deposit in the Cash Collateral Account immediately upon receipt by any Borrower.
Funds constituting mandatory prepayments as set forth in Section 2.10(c) shall
be applied in the manner set forth in Section 2.10(d). Borrowers shall have no
right of access to or withdrawal from the Lockbox or the Cash Collateral
Account; provided that if there are no outstanding Advances and no Event of
Default has occurred and is continuing, then all collections of Accounts shall
be, subject to Agent's standard clearing procedures and clearing periods for
deposited funds, transferred to Phoenix's operating accounts with Agent.
(c) (i) Advances which may be made by Lenders from time to
time under the Revolving Credit shall be made available by crediting such
proceeds to Phoenix's operating account with Agent.
(ii) All Advances, other than Letters of Credit,
requested by Borrowers under the Revolving Credit must be in the minimum amount
of (A) One Hundred Thousand Dollars ($100,000.00) and integral multiples of
Fifty Thousand Dollars ($50,000.00) in excess thereof for Base Rate Loans and
(B) Five Hundred Thousand Dollars ($500,000.00) and integral multiples of One
Hundred Thousand Dollars ($100,000.00) in excess thereof for LIBOR Based Rate
Loans and must be requested:
(1) by 11:00 A.M., Philadelphia time, on the date
such Advance is to be made if a Base Rate Loan, and
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(2) by 11:00 A.M. Philadelphia time at least two
(2) Business Days in advance if a LIBOR Based Rate Loan.
(iii) All requests for an Advance are to be in writing
via a borrowing base certificate in the form of Exhibit "J" attached hereto and
made a part hereof which form is to be executed by an Authorized Officer of
Phoenix. Such request may be sent by telecopy or facsimile transmission
provided that Agent shall have the right to require that receipt of such request
not be effective unless confirmed via telephone with Agent.
(iv) A. Upon receiving a request for an Advance in
accordance with subparagraph (ii) above, by twelve o'clock (12:00) noon,
Philadelphia time or as soon as is reasonably practicable thereafter, Agent
shall notify all Lenders of the request. Each Lender shall advance its
applicable Pro Rata Percentage of the requested Advance to Agent by remitting
federal funds, immediately available, to Agent pursuant to Agent's instructions
prior to two o'clock (2:00) p.m. Philadelphia time or as soon as is reasonably
practicable thereafter on the date of the Advance. Subject to the satisfaction
of the terms and conditions hereof, and receipt by the Agent of all required
funds from the other Lenders, Agent shall make the requested Advance available
to the Borrowers by crediting such amount to Phoenix's operating account with
Agent as soon as is reasonably practicable thereafter on the day the requested
Advance is to be made. In lieu of the foregoing, Agent may, in its discretion
(and without any obligation to do so or continue to do so), fund the Revolving
Credit Pro Rata Share of an Advance (including any cash Advance to reimburse
Issuer for unreimbursed draws under a Letter of Credit) on behalf of any one or
more Lenders (unconditionally and absolutelsettlement of the Revolving Credit
Pro Rata Shares of Lenders on the following Business Day or under such other
settlement procedures as Agent and Co-Agent may mutually agree upon from time to
time.
B. Neither Agent nor any other Lender shall be
obligated, for any reason whatsoever, to advance the share of any other Lender.
If such corresponding amount is not made available to Agent by such Lender on
the date the Advance is made and Agent elects (at its discretion, without any
obligation to do so) to make such Lender's share of the Advance (including any
cash Advance to reimburse Issuer for unreimbursed draws under a Letter of
Credit), Agent shall be entitled to recover such amount on demand from such
Lender, or from the Borrowers, together with interest at a per annum rate equal
to the Fed Funds Rate in respect of each day during the period commencing on the
date such amount was made
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available to the Borrowers (or on that date Agent required such funds to be
advanced pursuant to the settlement procedures established by Agent and
Co-Agent) and ending on (but excluding) the date Agent recovers such amount. To
the extent not reimbursed by such Lender, Borrowers shall immediately repay on
demand such amount. Agent shall also be entitled to recover any and all losses
and damages (including without limitation, attorneys' fees) from any Lender
failing to so advance upon demand of Agent. Agent may set off the obligations
of a Lender under this paragraph against any distributions or payments of the
Obligations which Agent would otherwise make available to such Lender. To the
extent any Lender fails to provide or delays providing its respective Pro Rata
Percentage of any requested Advance, such Lender's Pro Rata Percentage of all
payments of the Obligations (but not its Revolving Credit Pro Rata Share of
Advances required to be funded by such Lender) shall decrease to reflect the
actual percentage which its actual outstanding Advances bears to the total
outstanding Advances of all Lenders.
2.6 REVOLVING CREDIT INTEREST:
(a) Subject to Sections 2.6(b) and (d) below, the unpaid
principal balance of cash Advances under the Revolving Credit shall bear
interest, subject to the terms hereof, at the per annum rate equal to the Base
Rate plus one-half of one percent (0.5%) ("Initial Revolving Credit Applicable
Margin").
(b) So long as Borrowers on a consolidated basis satisfy
the financial test set forth below, tested quarterly on a rolling four (4)
quarter basis beginning with the fiscal quarter ending March 31, 1997, the
interest rate applicable to the unpaid principal balance of cash Advances under
the Revolving Credit may be adjusted quarterly and interest shall accrue
(subject to Borrowers' right to elect a LIBOR Based Rate Loan pursuant to
Section 2.6(d)) at the per annum rate equal to the Base Rate plus the Adjusted
Revolving Credit Applicable Margin. In no event, however, may a downward
adjustment occur if a Default or Event of Default has occurred and is
continuing. Any such adjustment shall be effective on the later of (i) five (5)
days after, or (ii) the first day of the calendar month after, Agent's receipt
of the Quarterly Compliance Certificate demonstrating the financial test is
satisfied. The Adjusted Revolving Credit Applicable Margin shall be determined
in accordance with the chart set forth below:
Funded Debt to Operating Adjusted Revolving Credit
Cash Flow Ratio Applicable Margin
------------------------ -------------------------
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1. Greater than 3.00 to 1.0 0.5%
2. Greater than 2.50 to 1.0 but less 0.25%
than or equal to 3.00 to 1.0
3. Less than or equal to 0%
2.50 to 1.0
(c) Changes in the interest rate applicable to Base Rate Loans
under the Revolving Credit shall become effective on the same day as Agent
announces a change in its Prime Rate. Interest on the Revolving Credit shall be
payable monthly, in arrears, on the first day of each calendar month, beginning
on the first day of the first full calendar month after the Closing Date.
(d) LIBOR RATE OPTION:
(i) So long as Borrowers on a consolidated basis
satisfy the financial test set forth below (provided however, no downward
adjustment may occur if a Default or Event of Default has occurred and is
continuing), tested quarterly on a rolling four (4) quarter basis beginning with
the fiscal quarter ending March 31, 1997 and subject to the provisions of
Section 2.5(c) and this Section 2.6(d), Borrowers may choose to have all or a
portion of the Revolving Credit accrue interest (commencing, or in the case of
subsequent quarters, changing, on the later of (i) five (5) days, or (ii) the
first day of the calendar month after, Agent's receipt of the Quarterly
Compliance Certificate demonstrating the financial test is satisfied) at the
Revolving Credit LIBOR Based Rate.
(ii) Interest on the outstanding LIBOR Based Rate
Loans applicable to the Revolving Credit shall accrue at the per annum rate
("Revolving Credit LIBOR Based Rate") equal to the Adjusted LIBOR Rate as
determined by Agent at the time of such request plus the Revolving Credit LIBOR
Applicable Margin. The Revolving Credit LIBOR Applicable Margin shall be
determined in accordance with the chart set forth below:
Funded Debt to Operating Revolving Credit LIBOR
Cash Flow Ratio Applicable Margin
------------------------ ----------------------
1. Greater than 3.0 to 1.0 3.00%
2. Greater than 2.5 to 1.0 but less 2.75%
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than or equal to 3.0 to 1.0
3. Greater than 2.0 to 1.0 but less 2.25%
than or equal to 2.5 to 1.0
4. Less than or equal to 2.0 to 1.0 1.75%
(iii) Borrowers shall select a LIBOR Interest Period
during which the Revolving Credit LIBOR Based Rate is applicable; provided,
however, that if the LIBOR Interest Period would otherwise end on a day which
shall not be a London Business Day, such LIBOR Interest Period shall be extended
to the next preceding or succeeding London Business Day as is the Agent's custom
in the market in which such LIBOR Based Rate Loan relates. Interest shall
accrue from and including the first day of each LIBOR Interest Period to, but
excluding the day on which any LIBOR Interest Period expires. For any LIBOR
Interest Period which begins on the last London Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such LIBOR Interest Period), the LIBOR Interest Period shall
end on the last London Business Day of a calendar month. All accrued and unpaid
interest on a LIBOR Based Rate Loan must be repaid in full on the last day of
the applicable LIBOR Interest Period. Interest shall also be due and payable
for a LIBOR Interest Period in excess of three (3) months, on the day of such
LIBOR Interest Period that would have been the last day of such LIBOR Interest
Period if such LIBOR Interest Period were a three (3) month period. No LIBOR
Interest Period with respect to the Revolving Credit may end after the Current
Revolving Credit Maturity Date. Subject to all of the terms and conditions
applicable to a request to convert all or a portion of the Revolving Credit to a
LIBOR Based Rate Loan, Borrowers may convert such LIBOR Based Rate Loan as of
the last day of the LIBOR Interest Period to a new LIBOR Based Rate Loan
provided all interest accrued under the expiring LIBOR Interest Period has been
paid. If the Borrowers fail to notify the Agent of the LIBOR Interest Period
for such a subsequent LIBOR Based Rate Loan at least two (2) Business Days prior
to the last day of the then current LIBOR Interest Period of such an outstanding
LIBOR Based Rate Loan, then such outstanding LIBOR Based Rate Loan shall become
a Base Rate Loan at the end of the current LIBOR Interest Period and shall
accrue interest at the applicable Revolving Credit Base Rate in accordance with
Sections 2.6(a) and (b) above.
(iv) The Adjusted LIBOR Rate may be automatically
adjusted by Agent on a prospective basis to take into account the
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additional or increased cost of maintaining any necessary reserves for
Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable LIBOR Interest Period, including but not
limited to changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any successor),
excluding the Reserve Percentage and any Reserve which has resulted in a payment
pursuant to Section 2.13 below, that increase the cost to Lenders of funding the
LIBOR Based Rate Loan. Agent shall promptly give the Borrowers and each Lender
notice of such a determination and adjustment, which determination shall be
prima facie evidence of the correctness of the fact and the amount of such
adjustment.
(v) If Borrowers shall have requested the rate based
on the Adjusted LIBOR Rate in accordance with Section 2.6(d) and Agent shall
have reasonably determined that Eurodollar deposits equal to the amount of the
principal of the requested LIBOR Based Rate Loan and for the LIBOR Interest
Period specified are unavailable, or that the rate based on the Adjusted LIBOR
Rate will not adequately and fairly reflect the cost of the Adjusted LIBOR Rate
applicable to the specified LIBOR Interest Period, of making or maintaining the
principal amount of the requested LIBOR Based Rate Loan specified by the
Borrowers during the LIBOR Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable means do not
exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable to
the specified LIBOR Interest Period, Agent shall promptly give notice of such
determinatAdjusted LIBOR Rate is not available. A determination by Agent
hereunder shall be prima facie evidence of the correctness of the fact and
amount of such additional costs or unavailability. Upon such a determination,
(i) the obligation to convert to, or maintain a LIBOR Based Rate Loan at the
rate based on the Adjusted LIBOR Rate shall be suspended until Agent shall have
notified the Borrowers that such conditions shall have ceased to exist, and (ii)
the applicable Revolving Credit portion subject to the requested conversion
shall continue to accrue interest at the applicable Revolving Credit Base Rate
in accordance with Sections 2.6(a) and 2.6(b) above.
(vi) If, as a result of any changes in applicable law
or regulation or the interpretation thereof, it becomes unlawful for a Lender
(or such Lender's Bank Affiliate) to maintain Eurodollar liabilities sufficient
to fund any LIBOR Based Rate Loan
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subject to the rate based on the Adjusted LIBOR Rate, then such Lender shall
immediately notify the Agent who shall immediately notify the Borrowers thereof
and such Lender's obligations hereunder to convert to, or maintain a LIBOR Based
Rate Loan at the rate based on the Adjusted LIBOR Rate shall be suspended until
such time as such Lender (or such Lender's Bank Affiliate) may again cause the
rate based on the Adjusted LIBOR Rate to be applicable to its share of any LIBOR
Based Rate Loan and such Lender's share of the Revolving Credit subject to the
LIBOR Based Rate Loan shall continue to accrue interest at the applicable
Revolving Credit Base Rate in accordance with Sections 2.6(a) and 2.6(b) above.
Promptly after becoming aware that it is no longer unlawful for such Lender (or
such Lender's Bank Affiliate) to maintain such Eurodollar liabilities, such
Lender shall notify the Agent who will notify the Borrowers thereof and such
suspension shall cease to exist.
2.7 TERM LOAN INTEREST:
(a) Subject to Sections 2.7(b) and (d) below, the unpaid
principal balance of each of the Term Loans shall bear interest, subject to the
terms hereof, at the per annum rate equal to the Base Rate plus one and one half
percent (1.5%) ("Initial Term Loan Applicable Margin").
(b) So long as Borrowers on a consolidated basis satisfy
the financial test set forth below, tested quarterly on a rolling four (4)
quarter basis beginning with the fiscal quarter ending March 31, 1997, the
interest rate applicable to the unpaid principal balance of each of the Term
Loans may be adjusted quarterly and interest shall accrue (subject to Borrowers'
right to elect a LIBOR Based Rate Loan pursuant to Section 2.7(d)) at the per
annum rate equal to the Base Rate plus the Adjusted Term Loan Applicable Margin.
In no event, however may a downward adjustment occur if a Default or Event of
Default has occurred and is continuing. Any such adjustment shall be effective
on the later of (i) five (5) days after, or (ii) the first day of the calendar
month after, Agent's receipt of the Quarterly Compliance Certificate
demonstrating the financial test is satisfied. The Adjusted Term Loan
Applicable Margin shall be determined in accordance with the chart set forth
below:
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Funded Debt to Operating Adjusted Term Loan
Cash Flow Ratio Applicable Margin
------------------------ ------------------
1. Greater than 3.0 to 1.0 1.50%
2. Greater than 2.5 to 1.0 but less 1.00%
than or equal to 3.0 to 1.0
3. Greater than 2.0 to 1.0 but less .5%
than or equal to 2.5 to 1.0
4. Less than or equal to 2.0 to 1.0 0%
(c) Changes in the interest rate applicable to Base Rate
Loans on either of the Term Loans shall become effective on the same day as
Agent announces a change in its Prime Rate. Interest on each of the Term Loans
shall be payable monthly, in arrears, on the first day of each calendar month,
beginning on the first day of the first full calendar month after the Closing
Date hereof.
(d) LIBOR RATE OPTION:
(i) So long as Borrowers on a consolidated basis
satisfy the financial test set forth below (provided however, no downward
adjustment may occur if a Default or Event of Default has occurred and is
continuing), tested quarterly on a rolling four (4) quarter basis beginning with
the fiscal quarter ending March 31, 1997 and subject to the provisions of
Section 2.5(c) and this Section 2.7(d), Borrowers, may choose to have all or a
portion of either the Term Loans accrue interest (commencing, or in the case of
subsequent quarters, changing, on the later of (i) five (5) days after, or (ii)
the first day of the calendar month after, Agent's receipt of the Quarterly
Compliance Certificate demonstrating the financial test is satisfied) at the
Term Loan LIBOR Based Rate provided that in no event may the portion of the Term
Loan subject to the Term Loan LIBOR Based Rate include any principal
installments on the applicable Term Loan required to be made during the chosen
LIBOR Interest Period.
(ii) Interest on the outstanding LIBOR Based Rate
Loans applicable to either of the Term Loans shall accrue at the per annum rate
("Term Loan LIBOR Based Rate") equal to the Adjusted LIBOR Rate as determined by
Agent at the time of such request plus the Term Loan LIBOR Applicable Margin.
The LIBOR Applicable Margin shall be determined in accordance with the chart set
forth below:
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Funded Debt to Operating Term Loan LIBOR
Cash Flow Ratio Applicable Margin
------------------------ -----------------
1. Greater than 3.0 to 1.0 4.00%
2. Greater than 2.5 to 1.0 but less 3.00%
than or equal to 3.0 to 1.0
3. Greater than 2.0 to 1.0 but less 2.75%
than or equal to 2.5 to 1.0
4. Less than or equal to 2.0 to 1.0 2.25%
(iii) Borrowers shall select a LIBOR Interest Period
during which the Term Loan LIBOR Based Rate is applicable; provided, however,
that if the LIBOR Interest Period would otherwise end on a day which shall not
be a London Business Day, such LIBOR Interest Period shall be extended to the
next preceding or succeeding London Business Day as is the Agent's custom in the
market in which such LIBOR Based Rate Loan relates. Interest shall accrue from
and including the first day of each LIBOR Interest Period to, but excluding the
day on which any LIBOR Interest Period expires. For any LIBOR Interest Period
which begins on the last London Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the
end of such LIBOR Interest Period), the LIBOR Interest Period shall end on the
last London Business Day of a calendar month. All accrued and unpaid interest
on a LIBOR Based Rate Loan must be repaid in full on the last day of the
applicable LIBOR Interest Period. Interest shall also be due and payable for a
LIBOR Interest Period in excess of three (3) months, on the day of such LIBOR
Interest Period that would have been the last day of such period if such LIBOR
Interest Period were a three (3) month period. No LIBOR Interest Period with
respect to either of the Term Loans may end after the Term Loan A Maturity Date
or Term Loan B Maturity Date, as applicable. Subject to all of the terms and
conditions applicable to a request to convert all or a portion of either Term
Loan to a LIBOR Based Rate Loan, Borrowers may convert such LIBOR Based Rate
Loan as of the last day of the LIBOR Interest Period to a new LIBOR Based Rate
Loan provided all interest accrued under the expiring LIBOR Interest Period has
been paid. If the Borrowers fail to notify the Agent of the LIBOR Interest
Period for such a subsequent LIBOR Based Rate Loan at least two (2) Business
Days prior to the last day of the then current LIBOR Interest Period of such an
outstanding LIBOR Based Rate Loan, then such outstanding LIBOR Based Rate Loan
shall become a Base Rate Loan at the end of the current LIBOR Interest Period
and shall accrue interest at the
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applicable Term Loan Base Rate in accordance with Sections 2.7(a) and (b) above.
(iv) The Adjusted LIBOR Rate may be automatically
adjusted by Agent on a prospective basis to take into account the additional or
increased cost of maintaining any necessary reserves for Eurodollar deposits or
increased costs due to changes in applicable law or regulation or the
interpretation thereof occurring subsequent to the commencement of the then
applicable LIBOR Interest Period, including but not limited to changes in tax
laws (except changes of general applicability in corporate income tax laws) and
changes in the reserve requirements imposed by the Board of Governors of the
Federal Reserve System (or any successor), excluding the Reserve Percentage and
any Reserve which has resulted in a payment pursuant to Section 2.13 below, that
increase the cost to Lenders of funding the LIBOR Based Rate Loan. Agent shall
promptly give the Borrowers and each Lender notice of such a determination and
adjustment, which determination shall be prima facie evidence of the correctness
of the fact and the amount of such adjustment.
(v) If Borrowers shall have requested the rate based
on the Adjusted LIBOR Rate in accordance with Section 2.7(d) and Agent shall
have reasonably determined that Eurodollar deposits equal to the amount of the
principal of the requested LIBOR Based Rate Loan and for the LIBOR Interest
Period specified are unavailable, or that the rate based on the Adjusted LIBOR
Rate will not adequately and fairly reflect the cost of the Adjusted LIBOR Rate
applicable to the specified LIBOR Interest Period, of making or maintaining the
principal amount of the requested LIBOR Based Rate Loan specified by the
Borrowers during the LIBOR Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable means do not
exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable to
the specified LIBOR Interest Period, Agent shall promptly give notice of such
determinatAdjusted LIBOR Rate is not available. A determination by Agent
hereunder shall be prima facie evidence of the correctness of the fact and
amount of such additional costs or unavailability. Upon such a determination,
(i) the obligation to convert to, or maintain a LIBOR Based Rate Loan at the
rate based on the Adjusted LIBOR Rate shall be suspended until Agent shall have
notified the Borrowers that such conditions shall have ceased to exist, and (ii)
the applicable Term Loan portion subject to the requested conversion shall
continue to accrue interest at the applicable Term Loan Base Rate in accordance
with Sections 2.7(a) and 2.7(b) above.
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(vi) If, as a result of any changes in applicable law
or regulation or the interpretation thereof, it becomes unlawful for a Lender
(or such Lender's Bank Affiliate) to maintain Eurodollar liabilities sufficient
to fund any LIBOR Based Rate Loan subject to the rate based on the Adjusted
LIBOR Rate, then such Lender shall immediately notify the Agent who shall
immediately notify the Borrowers thereof and such Lender's obligations hereunder
to convert to, or maintain a LIBOR Based Rate Loan at the rate based on the
Adjusted LIBOR Rate shall be suspended until such time as such Lender (or such
Lender's Bank Affiliate) may again cause the rate based on the Adjusted LIBOR
Rate to be applicable to its share of any LIBOR Based Rate Loan and such
Lender's share of the Revolving Credit subject to the LIBOR Based Rate Loan
shall continue to accrue interest at the applicable Term Loan Base Rate in
accordance with Sections 2.6(a) and 2.6(b) above. Promptly after becoming aware
that it is no longer unlawful for such Lender (or such Lender's Bank Affiliate)
to maintain such Eurodollar liabilities, such Lender shall notify the Agent who
will notify the Borrowers thereof and such suspension shall cease to exist.
2.8 ADDITIONAL INTEREST PROVISIONS.
(a) Interest on the Loans, regardless of the rate option,
shall be calculated on the basis of a year of three hundred sixty (360) days but
charged for the actual number of days elapsed.
(b) All Loans not specifically designated by Borrowers,
pursuant to the terms hereof or not requested in conformity with the terms
hereof, shall be Base Rate Loans. No LIBOR Based Rate Loans shall be requested
by Borrowers or made available by Agent if a Default or an Event of Default has
occurred and is continuing hereunder.
(c) After the occurrence and during the continuance of an
Event of Default hereunder, the per annum effective rate of interest on all
outstanding principal under the Loans, regardless of the rate option, and all
fees for Letters of Credit shall, upon written direction to Agent from Majority
Lenders, be increased to, as applicable, the Revolving Credit Base Rate or Term
Loan Base Rate PLUS three (3) percentage points and may be applied retroactively
to the date of the occurrence of the Event of Default. The Agent will give
Borrowers subsequent written notice of such increase.
(d) All LIBOR Based Rate Loans shall automatically convert
to Base Rate Loans, upon the occurrence of an Event of
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Default and written notice from Agent of such conversion, subject to Lenders'
rights under Section 2.8(c).
(e) All contractual rates of interest chargeable on
outstanding principal under the Loans, regardless of the rate option, shall
continue to accrue and be paid even after Default, an Event of Default,
maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind
or the happening of any event or occurrence similar or dissimilar.
(f) In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder and charged or collected
pursuant to the terms of this Agreement exceed the highest rate permers have
charged or received interest hereunder in excess of the highest applicable rate,
Lenders shall apply, in their sole discretion, and set off such excess interest
received by Lenders against other Obligations due or to become due and such rate
shall automatically be reduced to the maximum rate permitted by such law.
2.9 FEES:
(a) So long as the Revolving Credit is outstanding and has
not been terminated, Borrowers shall unconditionally pay to Agent, for the
ratable benefit of Lenders, a non-refundable fee ("Unused Fee") equal to
one-half of one percent (.50%) per annum of the daily unused portion of the
Revolving Credit (which shall be calculated as the Maximum Revolving Credit
Amount minus the average daily outstanding principal balance of Advances). The
Unused Fee shall be computed and paid on a quarterly basis, in arrears, on the
first day of each calendar quarter beginning on the first day of the first
calendar quarter after the Closing Date and on the last day of the Current Term.
The Unused Fee shall be calculated on the basis of a year of three hundred sixty
(360) days but charged for the actual number of days elapsed.
(b) Borrowers shall unconditionally pay to Agent, for its
own account, until the Obligations are satisfied in full, a non-refundable fee
("Administration Fee") of Forty Thousand Dollars ($40,000.00), payable annually
in advance, beginning on the Closing Date and on the same day of each year
thereafter.
(c) Borrowers shall pay to Agent, upon issuance, for the
ratable benefit of Lenders, a fee in the amount of two and one quarter percent
(2.25%) per annum (less one quarter of one percent (.25%) which shall be paid to
Issuer for its own account) (as a
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condition of the issuance of each such Letter of Credit) plus all of Issuers'
standard charges for the account of Issuer for the issuance, amendment,
extension and cancellation of each such Letter of Credit (collectively, the "L/C
Fees").
2.10 PREPAYMENTS:
(a) No portion of the LIBOR Based Rate Loans may be prepaid at
any time unless Borrowers first satisfy in full all obligations under Section
2.12 below arising from such prepayment.
(b) Term Loan Based Rate Loans may be prepaid at any time and
from time to time, upon one (1) Business Days' notice to Agent, in whole or in
part without premium or penalty.
(c) (i) Borrowers shall, on the date of the receipt of Cash
Proceeds from any Offering, prepay Term Loan A in an amount equal to the Net
Proceeds thereof.
(ii) Borrowers shall, on the date of the receipt of
any Net Proceeds in excess of One Million Dollars ($1,000,000.00) in the
aggregate in any fiscal year from any Asset Sale, or series of Asset Sales
(except for an Asset Sale with respect to the Hagerstown Facility), prepay Term
Loan A in an amount equal to such excess. Any such Net Proceeds received after
Term Loan A has been paid in full shall then be used to prepay Term Loan B.
(iii) Borrowers shall, on the date of the receipt of
Cash Proceeds from an Asset Sale of the Hagerstown Facility (or any portion
thereof), prepay Term Loan B in an amount equal to the Net Proceeds thereof.
(iv) (A) Borrowers shall prepay Term Loan A, on an
annual basis, in an amount equal to seventy five (75%) percent of Borrowers' Net
Free Cash Flow for the immediately preceding fiscal year calculated as of the
last day of such preceding fiscal year; provided that, effective with the fiscal
year beginning on the earlier of (1) January 1, 1999 or (2) the year in which
the principal balance of Term Loan A has been reduced to Four Million Dollars
($4,000,000.00), such annual prepayment shall be reduced to fifty percent (50%)
of Borrower's Net Free Cash Flow.
(B) Prepayments under this Section 2.10(c)(iv) shall
be due in the fiscal year immediately succeeding the year for which the
calculation of Net Free Cash Flow is based as follows:
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(1) If the amount of the prepayment is less than
or equal to One Million Five Hundred Thousand Dollars ($1,500,000.00) then the
prepayment shall be paid on April 1.
(2) If the amount of the prepayment is greater
than One Million Five Hundred Thousand Dollars ($1,500,000.00) but less than or
equal to Three Million Dollars ($3,000,000.00), then One Million Five Hundred
Thousand Dollars ($1,500,000.00) of the prepayment shall be paid on April 1 and
the balance on August 1.
(3) If the amount of the prepayment is greater
than Three Million dollars ($3,000,000.00), then fifty percent (50%) of the
prepayment shall be paid on April 1 and the balance on August 1.
(d) All prepayments of every kind on account of either of
the Term Loans shall be applied to the principal balance thereof in the inverse
order of maturity.
(e) Subject to Sections 2.10(c) and (d), all prepayments on
account of either of the Term Loans shall be applied as directed by Borrowers
but, if no direction is given, first to the principal balance of Base Rate Loans
and then to the principal balance of LIBOR Based Rate Loans in inverse order of
maturity.
2.11 USE OF PROCEEDS:
(a) The extensions of credit under and proceeds of the
Revolving Credit and Term Loan A shall be used (i) to finance the purchase by
Phoenix of all of the outstanding Capital Stock of NEBH and NEBC in conjunction
with the consummation of the Merger, (ii) for working capital, (iii) to
refinance Borrowers' and NEBC's existing Indebtedness and (iv) for the issuance
of Letters of Credit.
(b) The proceeds of Term Loan B shall be used to refinance
Borrowers' Existing Mortgage Indebtedness.
2.12 INDEMNITY: Borrowers shall indemnify, defend and hold harmless
Agent and Lenders against any and all loss, liability, cost or expense which
Agent and Lenders may sustain or incur (including, without limitation, loss of
the LIBOR Applicable Margin) as a consequence of (a) any failure of Borrowers to
convert or extend any LIBOR Based Rate Loan after notice thereof has been given
to Agent or (b) any payment, prepayment or conversion of a
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LIBOR Based Rate Loan by Borrowers made for any reason on a date other than the
last day of the applicable LIBOR Interest Period. Borrowers shall pay the full
amount thereof to Agent on demand by Agent at the request of any Lender.
2.13 CAPITAL ADEQUACY: If any present or future law, governmental
rule, regulation, policy, guideline, directive or similar requirement (whether
or not having the force of law) imposes, modifies, or deems applicable any
capital adequacy, capital maintenance or similar requirement which affects the
manner in which any Lender allocates capital resources to its commitments
(including any commitments hereunder), and as a result thereof, in the opinion
of such Lender, the rate of return on such Lender's capital with regard to the
Loans is reduced to a level below that which such Lender could have achieved but
for such circumstances, then in such case and upon notice from such Lender to
Borrowers, from time to time, Borrowers shall pay such Lender such additional
amount or amounts as shall compensate such Lender for such reduction in Lender's
rate of return. Such notice shall contain the statement of such Lender with
regard to any such amount or amounts which shall, in the absence of manifest
error, be binding upon Borrowers. In determining such amount, such Lender may
use any reasonable method of averaging and attribution that it deems applicable.
2.14 INTEREST RATE PROTECTION: Borrowers shall purchase and obtain
(at their sole expense) within ninety (90) days following the Closing Date,
interest rate protection covering no less than fifty (50%) percent of Term Loan
A, for a period of at least two (2) years, under terms and conditions and with
strike rates and counterparties acceptable to Agent and Co-Agent.
SECTION 3. COLLATERAL
3.1 DESCRIPTION: As security for the payment of the Obligations,
and satisfaction by Borrowers of all covenants and undertakings contained in
this Agreement and the other Loan Documents:
(a) each Borrower hereby assigns and grants to Agent, for
the ratable benefit of Lenders, a continuing lien on and security interest in,
upon and to the following Property:
(i) ACCOUNTS, ETC. - All of such Borrower's now owned
and hereafter acquired, created, or arising Accounts,
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accounts receivable, notes receivable, contract rights, chattel paper, documents
(including documents of title), instruments and letters of credit;
(ii) INVENTORY - All of such Borrower's now owned
or hereafter acquired or created Inventory of every nature and kind, wherever
located;
(iii) GENERAL INTANGIBLES - All of such Borrower's
now owned and hereafter acquired, created or arising general intangibles of
every kind and description, including, but not limited, to all existing and
future customer lists, choses in action, claims, books, records, patents and
patent applications, copyrights, trademarks, tradenames, tradestyles, trademark
applications, blueprints, drawings, designs and plans, trade secrets, contracts,
contract rights (including, without limitation, all rights and claims under the
Stock Purchase Agreement), licenses, license agreements, formulae, tax and any
other types of refunds, returned and unearned insurance premiums, rights and
claims under insurance policies including without limitation, credit insurance
and key man life insurance policies, and computer information, software, records
and data;
(iv) EQUIPMENT - All of such Borrower's now owned
and hereafter acquired equipment, including, without limitation, machinery,
vehicles, furniture and fixtures, wherever located, and all replacements, parts,
accessories, substitutions and additions thereto;
(v) DEPOSIT ACCOUNTS - All of such Borrower's now
existing and hereafter acquired or arising deposit accounts of every nature,
wherever located, and all documents and records associated therewith;
(vi) PROPERTY IN LENDER'S POSSESSION - All
Property of such Borrower, now or hereafter in Agent's or any Lender's
possession;
(vii) SECURITIES - All of such Borrower's now
owned or hereafter acquired securities whether registered or unregistered; and
(viii) PROCEEDS - The proceeds (including, without
limitation, insurance proceeds), whether cash or non-cash, of all of the
foregoing property described in clauses (i) through (vii) other than proceeds of
any tax refund or insurance claim
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attributable ed to NEBH or NEBC that are required to be paid to the Escrow Fund
(as that term is defined in the Stock Purchase Agreement) in accordance with and
pursuant to the terms of Section 8.2 of the Stock Purchase Agreement.
(b) Agent (for the ratable benefit of Lenders) shall
receive a mortgage (or, if applicable, deed of trust), on all Real Property
owned by each Borrower including, without limitation, the Hagerstown Facility
and Alpha Facility.
(c) Agent (for the ratable benefit of Lenders) shall
receive pledges, in the form of, and subject to the terms of, the Stock Pledge
Agreements, of all of the Capital Stock owned legally or beneficially in each
Borrower.
3.2 LIEN DOCUMENTS: At Closing and thereafter as Agent deems
necessary, each Borrower shall execute and deliver to Agent, or have executed
and delivered (all in form and substance reasonably satisfactory to Agent and
its counsel):
(a) Financing statements pursuant to the UCC, which Agent,
may file in any jurisdiction where any Collateral is or may be located and in
any other jurisdiction that Agent deems appropriate;
(b) Mortgages (or, if applicable, deeds of trust), pursuant
to applicable state law in the proper form for recording in any jurisdiction
where any Real Property of any Borrower is or may be located together with title
insurance policies insuring the first priority Lien of Agent against such Real
Property from a title insurance company acceptable to Agent, in an amount
satisfactory to Agent and subject only to such exceptions as Agent may approve;
and
(c) Any other agreements, documents, instruments and
writings, including, without limitation, trademark security agreements,
reasonably required by Agent to evidence, perfect or protect the liens and
security interests in the Collateral or as Agent may reasonably request from
time to time.
3.3 OTHER ACTIONS: In addition to the foregoing, Borrowers shall
do anything further that may be reasonably required by Agent to secure Lenders
and effectuate the intentions and objects of this Agreement, including, but not
limited to, the execution and delivery of lockbox agreements, continuation
statements, amendments to financing statements, security agreements, contracts
and any
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other documents required hereunder. At Agent's request, Borrowers shall also
immediately deliver (with execution by Borrowers of all necessary documents or
forms to reflect, implement or enforce the Liens described herein) to Agent all
items for which Lender must receive possession to obtain a perfected security
interest, including without limitation, all notes, stock powers, letters of
credit, certificates and documents of title, chattel paper, warehouse receipts,
instruments, and any other similar instruments constituting Collateral.
3.4 SEARCHES, CERTIFICATES: (a) Agent shall, prior to or at
Closing, and thereafter as Agent may determine from time to time, at Borrowers'
expense, obtain the following searches (the results of which are to be
consistent with the warranties made by Borrowers in this Agreement):
(i) UCC searches with the Secretary of State and local
filing office of each state where each Borrower maintains its executive office,
a place of business, or assets;
(ii) Judgment, federal tax lien and corporate tax lien
searches, in all applicable filing offices of each state searched under
subparagraph (i) above; and
(iii) Searches of the type described in clauses (i) and
(ii) against Old Phoenix, NEBC and NEBH in such jurisdictions as may be
reasonably acceptable to Agent.
(b) Borrowers shall, prior to or at Closing and at their
expense, obtain and deliver to Agent good standing certificates showing each
Borrower (and Old Phoenix, NEBH and NEBC) to be in good standing in its
respective state of incorporation and in each other state or foreign country in
which it is doing and presently intends to do business for which qualification
is required.
3.5 LANDLORD'S WAIVERS: Borrowers will cause each owner of any
premises occupied by each Borrower or to be occupied by any Borrower where
Collateral is held, to execute and deliver to Agent an instrument, in form and
substance satisfactory to Agent, under which such owner(s) subordinates
its/his/their interests in and waives its/his/their right to distrain on or
foreclose against the Collateral and agrees to allow Agent to remain on such
premises to dispose of or deal with any Collateral located thereon.
3.6 FILING SECURITY AGREEMENT: A carbon, photographic or other
reproduction or other copy of this Agreement or of a
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financing statement is sufficient as and may be filed in lieu of a financing
statement.
3.7 POWER OF ATTORNEY: Each of the officers of Agent is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
each Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (a) endorse the name of such Borrower upon
any and all checks, drafts, money orders and other instruments for the payment
of monies that are payable to such Borrower and constitute collections on that
Borrower's Accounts or proceeds of other Collateral; (b) execute in the name of
any Borrower any financing statements, schedules, assignments, instruments,
documents and statements that such Borrower is obligated to give Agent hereunder
or is necessary to perfect (or continue or evidence the perfection of such
security interest or lien) Agent's security interest or lien in the Collateral;
and (c) do such other and further acts and deeds in the name of any Borrower
that Agent may reasonably deem necessary or desirable to enforce any Account or
other Collateral.
3.8 PARTICULAR RELEASES OF SECURITY INTERESTS: If in connection with
any public Offering of any Borrower's Capital Stock, or pursuant to a written
notice from a Person with an interest therein, it is determined that the
security interest granted in Borrowers' equipment under Section 3.1(a)(iv)
constitutes a violation of any lease, conditional sale contract or purchase
money security agreement with respect to any particular item of such equipment,
then upon Borrowers' written request to Agent, which request shall be
accompanied by such documentation as Agent may reasonably require to verify such
violation and to specifically identify such equipment, Agent shall execute a
UCC-3 partial release statement for such specified equipment.
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES
Closing under this Agreement is subject to the following conditions
precedent (all instruments, documents and agreements to be in form and substance
reasonably satisfactory to Agent and Agent's counsel):
4.1 RESOLUTIONS, OPINIONS, AND OTHER DOCUMENTS: Borrowers shall
have delivered, or caused to be delivered to Agent the following:
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(a) this Agreement, the Revolving Credit Notes and the Term
Loan Notes all properly executed;
(b) mortgages, financing statements and each of the other Loan
Documents to be executed by any Borrower or any other Person pursuant to the
terms hereof;
(c) certified copies of (i) resolutions of each Borrower's
board of directors authorizing the execution of this Agreement, the Revolving
Credit Notes and the Term Loan Notes to be issued hereunder and each document
required to be delivered by any Section hereof and (ii) each Borrower's Articles
or Certificate of Incorporation and By-laws;
(d) an incumbency certificate for each Borrower identifying
all Authorized Officers, with specimen signatures;
(e) a written opinion of Borrowers' independent counsel
addressed to Agent for the benefit of all Lenders and Issuer and opinions of
such other counsel as Agent deems reasonably necessary;
(f) such financial statements, reports, certifications and
other operational information as Agent may reasonably require including without
limitation consolidated audited financial statements for Old Phoenix for the
fiscal year ending September 30, 1995, the Projections and the Pro Forma Balance
Sheet;
(g) certification by the chief financial officer of each
Borrower that there has not occurred any material adverse change in the
operations and condition (financial or otherwise) of Old Phoenix, NEBH or NEBC
or any of the Borrowers since September 30, 1995;
(h) payment by Borrowers of all fees including, without
limitation, the Facility Fee, due Agent and Co-Agent on the Closing Date and
Expenses associated with the Loans;
(i) an environmental survey on each Borrower's Real Property
(other than the Alpha Facility), performed by a qualified engineering firm
acceptable to Agent;
(j) the Intercreditor Agreement properly executed by each of
the parties thereto;
(k) the Surety Agreements properly executed by each of the
Sureties;
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(l) the Stock Pledge Agreements properly executed by each of
the parties thereto, together with stock powers endorsed in blank and
accompanied by delivery to Agent of original share certificates;
(m) Uniform Commercial Code, judgment, federal and state tax
lien searches against each Borrower, Old Phoenix, NEBH and NEBC, at Borrowers'
expense, showing that the Property of each such Person is not subject to any
Liens except for Permitted Liens, together with Good Standing and Corporate Tax
Lien Search Certificates showing no Liens on each such Person's Property and
showing each Borrower to be in good standing in each jurisdiction in which it is
qualified to do business;
(n) appraisals on Borrowers' Real Property acceptable to Agent
and Co-Agent;
(o) an initial borrowing base certificate dated the Closing
Date as required under Section 2.5(c)(iii), indicating borrowing availability
sufficient to consummate the transactions contemplated under the Stock Purchase
Agreement;
(p) consummation of the (i) acquisition of the Capital Stock
of NEBH and NEBC in accordance with the terms of the Stock Purchase Agreement
and (ii) the Merger in accordance with the terms of the Merger Agreement;
(q) a peer review letter of Borrowers' current independent
certified public accountants; and
(r) title insurance policies required under Section 3.2(b)
hereunder.
4.2 ABSENCE OF CERTAIN EVENTS: At the Closing Date, no Default or
Event of Default hereunder shall have occurred and be continuing, and no event
shall have occurred and be continuing.
4.3 WARRANTIES AND REPRESENTATIONS AT CLOSING: The warranties and
representations contained in Section 5 as well as any other Section of this
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though made on and as of that date. Borrowers shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section hereof.
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4.4 COMPLIANCE WITH THIS AGREEMENT: Borrowers shall have performed
and complied with all agreements, covenants and conditions contained herein
including, without limitation, the provisions of Sections 6 and 7 hereof, which
are required to be performed or complied with by Borrowers before or at the
Closing Date.
4.5 OFFICERS' CERTIFICATE: Agent shall have received a certificate
dated the Closing Date and signed by the chief financial officer of each
Borrower certifying that all of the conditions specified in this Section have
been fulfilled.
4.6 CLOSING: Subject to the conditions of this Section, the
Revolving Credit and each Term Loan shall be made available on such date (the
"Closing Date") and at such time as may be mutually agreeable to the parties
contemporaneously with the execution hereof ("Closing") at New York, New York.
4.7 WAIVER OF RIGHTS: By completing the Closing hereunder, or by
making advances hereunder, Agent and Lenders do not thereby waive a breach of
any warranty or representation made by Borrowers hereunder or any agreement,
document, or instrument delivered to Agent or otherwise referred to herein, and
any claims and rights of Agent and Lenders resulting from any breach or
misrepresentation by Borrowers are specifically reserved by Agent and Lenders.
4.8 CONDITIONS FOR FUTURE ADVANCES: The making of Advances under
the Revolving Credit in any form following the Closing Date is subject to the
following conditions precedent (all instruments, documents and agreements to be
in form and substance reasonably satisfactory to Agent and its counsel)
following the Closing Date:
(a) This Agreement and each of the other Loan Documents
shall be effective;
(b) No event or condition shall have occurred or become
known to any Borrower, or would result from the making of any requested Advance,
which could have a Material Adverse Effect;
(c) No Default or Event of Default then exists;
(d) Each Advance is within and complies with the terms and
conditions of this Agreement including, without limitation, the notice
provisions, including a Borrowing Base Certificate, contained in Section 2.5
hereof;
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(e) No Lien (other than a Permitted Lien), including,
without limitation, any federal tax Lien, has been imposed on any Borrower
unless such Lien (i) arises from the business or operations of NEBC or NEBH
conducted prior to the Closing Date; (ii) is and remains fully covered by the
escrow fund established under the Stock Purchase Agreement, and (iii) is
satisfied within sixty (60) days of the imposition thereof; and
(f) Each representation and warranty set forth in Section 5
and any other Loan Document in effect at such time (as amended or modified from
time to time) is then true and correct in all material respects.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lenders to complete the Closing and make the initial
Advances under the Revolving Credit and the Term Loans to Borrowers, each
Borrower warrants and represents to Agent, Issuer and Lenders that:
5.1 CORPORATE ORGANIZATION AND VALIDITY:
(a) Each Borrower is a corporation duly organized and
validly existing under the laws of its state of incorporation, is duly
qualified, is validly existing and in good standing and has lawful power and
authority to engage in the business it conducts in each state where the nature
and extent of its business requires qualification, except where the failure to
so qualify does not and could not have a Material Adverse Effect. A list of all
states and other jurisdictions where each Borrower is qualified to do business
is attached hereto as Schedule "5.1" and made a part hereof.
(b) The making and performance of this Agreement and the
other Loan Documents will not violate any law, government rule or regulation,
court or administrative order or other such order, or the charter, minutes or
bylaw provisions of any Borrower or violate or result in a default (immediately
or with the passage of time) under any contract, agreement or instrument to
which each Borrower is a party, or by which each is bound. No Borrower is in
violation of any term of any agreement or instrument to which it is a party or
by which it may be bound or of its charter, minutes or its bylaws which
violation has or could have a Material Adverse Effect.
(c) Each Borrower has all requisite corporate power and
authority to enter into and perform this Agreement and to incur the obligations
herein provided for, and has taken all proper and
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necessary corporate action to authorize the execution, delivery and performance
of this Agreement, and the other Loan Documents as applicable.
(d) This Agreement, the Revolving Credit Notes and Term
Loan Notes to be issued hereunder, and all of the other Loan Documents, when
delivered, will be valid and binding upon each Borrower and enforceable in
accordance with their respective terms.
5.2 PLACES OF BUSINESS: The only places of business of each
Borrower, and the places where each keeps and intends to keep its Property, are
at the addresses listed in Schedule "5.2" attached hereto and made part hereof.
5.3 PENDING LITIGATION: There are no judgments or judicial or
administrative orders or proceedings pending, or to the knowledge of Borrowers,
threatened, against any Borrower or any of the Merged Entities in any court or
before any Governmental Authority except as shown in Schedule "5.3" attached
hereto and made part hereof. To the knowledge of Borrowers, there are no
investigations (civil or criminal) pending or threatened against any Borrower or
any of the Merged Entities in any court or before any Governmental Authority.
No Borrower is (and the Merged Entities were, immediately prior to the Merger,
not) in default with respect to any order of any Governmental Authority, which
causes or could cause a Material Adverse Effect. To the best of the knowledge
of each Borrower, no shareholder or executive officer of any Borrower or the
Merged Entities has been indicted in connection with or convicted of engaging in
any criminal conduct, or is currently subject to any lawsuit or proceeding or
under investigation in connection with any anti-racketeering or other conduct or
activity which may result in the forfeiture of any property to any Governmental
Authority.
5.4 TITLE TO PROPERTIES: Each Borrower has good and marketable
title in fee simple (or its equivalent under applicable law) to all the Property
it respectively purports to own, free from Liens and free from the claims of any
other Person, except for those Liens set forth on Schedule "5.4" attached hereto
and made part hereof.
5.5 GOVERNMENTAL CONSENT: Neither the nature of any Borrower or of
its business or Property, nor any relationship between any Borrower and any
other Person, nor any circumstance affecting any Borrower in connection with the
issuance or delivery of this Agreement, the Revolving Credit Notes or Term Loan
Notes, or any
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other Loan Documents is such as to require a consent, approval or authorization
of, or filing, registration or qualification with, any Governmental Authority on
the part of any Borrower in connection with the execution, issuance or delivery
of this Agreement or the issuance or delivery of the Revolving Credit Notes or
Term Loan Notes, or the other Loan Documents.
5.6 TAXES: All tax returns required to be filed by each Borrower
and Old Phoenix and, to the best of Borrowers' knowledge, each of the Merged
Entities (with respect to any state, other than Massachusetts, or local taxing
authority), in any jurisdiction have been filed, and all taxes, assessments,
fees and other governmental charges upon each Borrower and Old Phoenix, or, to
the best of Borrowers' knowledge, each of the Merged Entities (with respect to
any state, other than Massachusetts, or local taxing authority), or upon any of
their respective Property, income or franchises, which are shown to be due and
payable on such returns have been paid, except for those taxes being contested
in good faith with due diligence by appropriate proceedings for which
appropriate reserves have been maintained under GAAP and as to which no Lien has
been entered. No Borrower is aware of any proposed additional tax assessment or
tax to be assessed against or applicable to such Borrower.
5.7 FINANCIAL STATEMENTS: The annual consolidated audited balance
sheet of Old Phoenix as of September 30, 1995 and of NEBH as of December 31,
1994, and the related statements of profit and loss, stockholder's equity and
cash flow as of each such date, all accompanied by reports thereon from Old
Phoenix's or NEBH'S independent certified public accountants, (complete copies
of which have been delivered to Agent), have been prepared in accordance with
GAAP and present fairly the financial position of Old Phoenix and NEBH,
respectively as of such dates and the results of its operations for such
periods. The fiscal year for all Borrowers currently ends on December 31. Each
Borrower's federal tax identification number is as listed on Schedule "5.7"
attached hereto and made part hereof.
5.8 FULL DISCLOSURE: Neither the financial statements referred to
in Section 5.7, nor this Agreement or related agreements and documents or any
written statement furnished by Borrowers or any of the Merged Entities or any of
them to Agent and/or any Lender in connection with the negotiation of the
Revolving Credit or Term Loans and contained in any financial statements or
documents relating to any Borrower or any one of the Merged Entities contain any
untrue statement of a material fact or
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omit a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact known to any Borrower which has not
been disclosed in writing to Agent which has or could have a Material Adverse
Effect.
5.9 SUBSIDIARIES: No Borrower has any Subsidiaries or Affiliates,
except as listed on Schedule "5.9" attached hereto and made a part hereof.
5.10 GUARANTEES, CONTRACTS, ETC.:
(a) No Borrower owns or holds equity or long term debt
investments in, has any outstanding advances to, or serves as guarantor, surety
or accommodation maker for the obligations of, or has any outstanding borrowings
from, any Person, or has entered into any leases for real or personal Property
(whether as landlord or tenant), except as described in Schedule "5.10",
attached hereto and made part hereof.
(b) No Borrower is a party to any contract or agreement, or
subject to any charter or other corporate restriction, which has or could have a
Material Adverse Effect.
(c) Except as otherwise specifically provided in this
Agreement, no Borrower has agreed or consented to cause or permit any of its
Property whether now owned or hereafter acquired to be subject in the future
(upon the happening of a contingency or otherwise), to a Lien not permitted by
this Agreement.
5.11 GOVERNMENT REGULATIONS, ETC.:
(a) The use of the proceeds of and Borrowers' issuance of the
Revolving Credit Notes and Term Loan Notes, will not directly or indirectly
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations U, T, G and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. No Borrower owns or intends to carry or
purchase any "margin stock" within the meaning of said Regulation U.
(b) Each Borrower has obtained all licenses, permits,
franchises or other governmental authorizations necessary for the ownership of
its Property (including, in the case of Old Phoenix, the acquisition and
ownership of the Capital Stock of NEBH and
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NEBC) and for the conduct of its business, except for those which, if not
obtained, cause or could cause a Material Adverse Effect.
(c) As of the date hereof, no employee benefit plan ("Pension
Plan"), as defined in Section 3(2) of ERISA, (other than a multi employer plan
described in Section 3(37) of ERISA) maintained by any Borrower or under which
any Borrower could have any liability under ERISA (i) has failed to meet the
minimum funding standards established in Section 302 of ERISA, (ii) has failed
to comply in a material respect with all applicable requirements of ERISA and of
the Internal Revenue Code, including all applicable rulings and regulations
thereunder, (iii) has engaged in or been involved in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Internal Revenue Code which
would subject Borrowers to any material liability, or (iv) has been terminated
if such termination would subject such Borrowers to any material liability. No
Borrower has assumed, or received notice of a claim asserted against such
Borrower for, withdrawal liability (as defined in Section 4207 of ERISA) with
respect to any multi employer pension plan and is not a member of any Controlled
Group (as defined in ERISA). Each Borrower has timely made all contributions
when due with respect to any multi employer pension plan in which it
participates and no event has occurred triggering a claim against such Borrower
for withdrawal liability with respect to any multi employer pension plan in
which such Borrower participates. All Employee Benefit Plans and multi employer
pension plans to which any Borrower participates is listed on Schedule "5.11(c)"
attached hereto and made part hereof.
(d) No Borrower is (and immediately prior to the Merger,
none of the Merged Entities was) in violation of or has received written notice
that it is in violation of any applicable statute, regulation or ordinance of
the United States of America, or of any state, city, town, municipality, county
or of any other jurisdiction, or of any agency, or department thereof,
(including without limitation, Environmental Laws), a violation of which causes
or could cause a Material Adverse Effect.
(e) Each Borrower is, (and each of the Merged Entities,
immediately prior to the Merger was) current with all reports and documents
required to be filed with any state or federal securities commission or similar
agency and is in full compliance in all material respects with all applicable
rules and regulations of such commissions.
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5.12 BUSINESS INTERRUPTIONS: Within five (5) years prior to the
date hereof, none of the business, Property or operations of any Borrower or any
Merged Entity has been materially and adversely affected in any way by any
casualty, strike, lockout, combination of workers, order of the United States of
America, or any state or local government, or any political subdivision or
agency thereof, directed against such Borrower or Merged Entity. There are no
pending or, to Borrowers' knowledge, threatened labor disputes, strikes,
lockouts or similar occurrences or grievances affecting the business being
operated by any Borrower.
5.13 NAMES:
(a) Within five (5) years prior to the Closing Date,
neither any Borrower nor any Merged Entity has conducted business under or used
any other name (whether corporate or assumed) except for the names shown on
Schedule "5.13(a)" attached hereto and made part hereof. Each Borrower is the
sole owner of all names listed on such Schedule "5.13(a)" and, to the best of
Borrowers' knowledge, any and all business done and all invoices issued in such
trade names are such Borrower's (or, as applicable, one of the Merged Entities')
sales, business and invoices. Each trade name of each Borrower (or Merged
Entity) represents a division or trading style of such Borrower (or Merged
Entity) and not a separate corporate subsidiary or affiliate or independent
entity.
(b) All trademarks, patents or copyrights which any
Borrower uses, plans to use or has a right to use are listed on Schedule
"5.13(b)" attached hereto and made part hereof. The Borrower identified on such
Schedule "5.13(b)" is the sole owner of such Property except to the extent any
other Person has claims or rights in such Property, as such claims and rights
are described on such Schedule "5.13(b)." To the best of each Borrower's
knowledge, no Borrower is in violation of any rights of any other Person with
respect to such Property.
5.14 OTHER ASSOCIATIONS: No Borrower is engaged or has an interest
in any joint venture or partnership with any other Person except as described on
Schedule "5.14" hereto and made part hereof.
5.15 ENVIRONMENTAL MATTERS: Except as disclosed on Schedule "5.15"
attached hereto and made part hereof:
(a) No Property presently owned, leased or operated by any
Borrower contains, or has previously contained, and, no
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property formerly owned, leased or operated by any Borrower or by any Merged
Entity during the period of such ownership, lease of operation, contained, any
Hazardous Substances in amounts or concentrations which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law.
(b) Each Borrower is in compliance, and, together with each of
the Merged Entities, for the duration of all applicable statutes of limitations
periods, have been in compliance with all applicable Environmental Laws, and
there is no contamination at, under or about any properties presently owned,
leased, or operated by any Borrower or violation of any Environmental Law with
respect to such properties which could reasonably be expected to interfere with
any of their continued operations or reasonably be expected to impair the fair
saleable value thereof.
(c) No Borrower has received any notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws and no Borrower has
knowledge that any such notice will be received or is being threatened.
(d) Hazardous Substances have not been transported or
disposed of in a manner or to a location which are reasonably likely to give
rise to liability of any Borrower under any Environmental Law.
(e) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of any Borrower,
threatened, under any Environmental Law to which any Borrower is or, to any
Borrower's knowledge, will be named as a party, nor are there any consent
decrees or other decrees, consent orders, administrative orders or other orders,
or other administrative or judicial requirements outstanding, the implementation
of which is reasonably likely to have a material adverse effect on any
Borrower's business, financial condition, Property or prospect under any
Environmental Law.
As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar term, under any Environmental Law.
5.16 REGULATION O: No director, executive officer or principal
shareholder of any Borrower is a director, executive officer or principal
shareholder of any Lender. For the purposes
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hereof the terms "director" "executive officer" and "principal shareholder"
(when used with reference to a Lender), have the respective meanings assigned
thereto in Regulation O issued by the Board of Governors of the Federal Reserve
System.
5.17 CAPITAL STOCK: The authorized and outstanding Capital Stock of
each Borrower is as set forth on Schedule "5.17" attached hereto and made part
hereof. All of the Capital Stock of each Borrower has been duly and validly
authorized and issued and is fully paid and non-assessable and has been sold and
delivered to the holders thereof in compliance with, or under valid exemption
from, all Federal and state laws and the rules and regulations of all
Governmental Authorities governing the sale and delivery of securities. Except
for the rights and obligations set forth in Schedule "5.17", there are no
subscriptions, warrants, options, calls, commitments, rights or agreements by
which any Borrower or any of the shareholders of such Borrower is bound relating
to the issuance, transfer, voting or redemption of shares of its capital stock
or any pre-emptive rights held by any Person with respect to the shares of
Capital Stock of any Borrower. Except as set forth in Schedule "5.17", no
Borrower has issued any securities convertible into or exchangeable for shares
of its Capital Stock or any options, warrants or other rights to acquire such
shares or securities convertible into or exchangeable for such shares.
5.18 SOLVENCY: After giving effect to the transactions contemplated
under the Stock Purchase Agreement, the Merger Agreement and this Agreement,
each Borrower is solvent, is able to pay its respective debts as they become
due, and has capital sufficient to carry on its respective business and all
businesses in which each is about to engage, and now owns Property having a
value both at fair valuation and at present fair salable value greater than the
amount required to pay such entity's debts. No Borrower will be rendered
insolvent by the execution and delivery of this Agreement or any of the other
Loan Documents executed in connection with this Agreement or by the transactions
contemplated hereunder or thereunder.
5.19 INTERRELATEDNESS OF BORROWERS: The business operations of each
Borrower are interrelated and complement one another, and such companies have a
common business purpose, with inter-company bookkeeping and accounting
adjustments used to separate their respective Properties, Liabilities, and
transactions. To permit their uninterrupted and continuous operations, such
companies now require and will from time to time hereafter require funds for
general business purposes. The proceeds of Advances under the
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Revolving Credit and the making of the Term Loans will directly or indirectly
benefit each Borrower hereunder severally and jointly, regardless of which
Borrower requests or receives part or all of the proceeds of such advances.
5.20 STOCK PURCHASE AGREEMENT: The purchase of the stock of NEBH
and NEBC by Old Phoenix has been completed strictly in accordance with all
applicable law, and the Stock Purchase Agreement constitutes a valid and binding
agreement, enforceable against Old Phoenix in accordance with its terms. The
Stock Purchase Agreement, a true and correct copy of which is attached as
Exhibit "K" and made a part hereof, has not been amended or modified in any way.
5.21 MERGER AGREEMENT: The merger of Old Phoenix, NEBH and NEBC
into Phoenix has been completed strictly in accordance with all applicable law,
and the Merger Agreement constitutes a valid and binding agreement, enforceable
in accordance with its terms. The Merger Agreement, a true and correct copy of
which is attached collectively as Exhibit "L", made a part hereof has not been
amended or modified in any way.
SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS
Each Borrower covenants that until all of Borrowers' Obligations to
Lenders, Issuer or Agent are paid and satisfied in full and the Revolving Credit
has been terminated:
6.1 PAYMENT OF TAXES AND CLAIMS: Each Borrower shall pay, before
they become delinquent,
(a) all taxes, assessments and governmental charges or
levies imposed upon it or upon such Borrower's Property, and
(b) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons entitled to the benefit of
statutory or common law Liens, which, if unpaid, would result in the imposition
of a Lien upon its Property;
provided, however, that such Borrower shall not be required to pay any such tax,
assessment, charge, levy, claim or demand if the amount, applicability or
validity thereof shall at the time be contested in good faith and by appropriate
proceedings by such Borrower, and if such Borrower shall have set aside on its
books adequate reserves in respect thereof, if so required in accordance with
GAAP; which deferment of payment is permissible so long as no
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Lien other than a Permitted Lien has been entered and such Borrower's title to,
and its right to use, its Property are not materially adversely affected
thereby.
6.2 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE:
(a) PROPERTY - Each Borrower shall maintain its Property in
good condition (normal wear and tear excepted) and make all necessary renewals,
replacements, additions, betterments and improvements thereto and will pay and
discharge when due the cost of repairs and maintenance to its Property, and will
pay all rentals when due for all real estate leased by any Borrower.
(b) PROPERTY INSURANCE, PUBLIC AND PRODUCTS LIABILITY
INSURANCE - Each Borrower shall maintain insurance (i) on all insurable tangible
Property against fire, flood, casualty and such other hazards (including,
without limitation, extended coverage, workmen's compensation, boiler and
machinery, with inflation coverage by endorsement) and (ii) against public
liability, product liability and business interruption, in each case in such
amounts, with such deductibles and with such insurers as are customarily used by
companies operating in the same industry as Borrowers. At or prior to Closing,
Borrowers shall furnish Agent with duplicate original policies of insurance or
such other evidence of insurance as Agent may require. In the event any
Borrower fails to procure or cause to be procured any such insurance or to
timely pay or cause to be paid the premium(s) on any such insurance, Agent (on
behalf of Lenders) may do so for such Borrower, but such Borrower shall continue
to be liable for the same. The policies of all such casualty insurance shall
contain standard Mortgagee and Lender's Loss Payable Clauses (and, with respect
to liability and interruption insurance, additional insured clauses) issued in
favor of Agent under which all losses thereunder shall be paid to Agent (for the
ratable benefit of Lenders) as Agent's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered or canceled
without thirty (30) days prior written notice to Agent and shall insure Agent
notwithstanding the act or neglect of any Borrower. Each Borrower hereby
appoints Agent as such Borrower's attorney-in-fact, exercisable at Agent's
option to endorse any check (but only a check in excess of $100,000 if no Event
of Default has occurred) which may be payable to any Borrower in order to
collect the proceeds of such insurance and any amount or amounts collected by
Agent pursuant to the provisions of this paragraph may be applied by Agent, in
its sole discretion, to any Obligations or to repair, reconstruct or replace the
loss of or damage to Collateral as Agent
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in its reasonable judgment may from time to time determine. Borrowers further
covenant that all insurance premiums owing under its current policies have been
paid. Borrowers shall notify Agent, immediately, upon any Borrower's receipt of
a notice of termination, cancellation, or non-renewal from its insurance company
of any such policy.
(c) FINANCIAL RECORDS - Each Borrower shall keep current
and accurate books of records and accounts in which full and correct entries
will be made of all of its business transactions, and will reflect in its
financial statements adequate accruals and appropriations to reserves, all in
accordance with GAAP. No Borrower shall change its respective fiscal year end
date without the prior written consent of Agent.
(d) CORPORATE EXISTENCE AND RIGHTS - Each Borrower shall do
(or cause to be done) all things necessary to preserve and keep in full force
and effect its existence, good standing, rights and franchises.
(e) COMPLIANCE WITH LAWS - Each Borrower shall be in
compliance with any and all laws, ordinances, governmental rules and
regulations, and court or administrative orders or decrees to which it is
subject, whether federal, state or local, (including without limitation
Environmental Laws) and shall obtain any and all licenses, permits, franchises
or other governmental authorizations necessary to the ownership of its Property
or to the conduct of its businesses, which violation or failure to obtain causes
or could cause a Material Adverse Effect. Borrowers shall timely satisfy all
assessments, fines, costs and penalties imposed (after exhaustion of all
appeals, provided a stay has been put in effect during such appeal) by any
Governmental Authority against any Borrower or any Property of any Borrower.
6.3 BUSINESS CONDUCTED: Each Borrower shall continue in the
business presently operated by it using its best efforts to maintain its
customers and goodwill. No Borrower shall engage, directly or indirectly, in
any material respect in any line of business substantially different from the
businesses conducted by the Borrowers (or any of the Merged Entities)
immediately prior to the Closing Date.
6.4 LITIGATION: Borrowers shall give prompt notice to Agent of any
litigation claiming in excess of $250,000 from any Borrower, or which may
otherwise have a Material Adverse Effect.
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6.5 ISSUE TAXES: Each Borrower shall pay all taxes (other than
taxes based upon or measured by any Lender's income or revenues or any personal
property tax), if any, in connection with the issuance of the Revolving Credit
Notes or Term Loan Notes, and the recording of any lien documents. The
obligations of each Borrower hereunder shall survive the payment of Borrowers'
Obligations hereunder and the termination of this Agreement.
6.6 BANK ACCOUNTS: Each Borrower shall maintain its major
depository and disbursement account(s) with Agent.
6.7 EMPLOYEE BENEFIT PLANS: Each Borrower will (a) fund all its
Pension Plan(s) in a manner that will satisfy the minimum funding standards of
Section 302 of ERISA, or will promptly satisfy any accumulated funding
deficiency that arises under Section 302 of ERISA, (b) furnish Agent, promptly
after filing of the same, with copies of all reports or other statements filed
with the United States Department of Labor, the Pension Benefit Guaranty
Corporation ("PBGC") or the Internal Revenue Service ("IRS") with respect to all
Pension Plan(s), or which any Borrower, or any member of a Controlled Group, may
receive from the United States Department of Labor, the IRS or the PBGC, with
respect to all such Pension Plan(s), and (c) promptly advise Agent of the
occurrence of any reportable event (as defined in Section 4043 of ERISA, other
than a reportable event for which the thirty (30) day notice requirement has
been waived by the PBGC) or prohibited transaction (under Section 406 of ERISA
or Section 4975 of the Internal Revenue Code) with respect to any such Pension
Plan(s) and the action which such Borrower proposes to take with respect
thereto. Each Borrower will make all contributions when due with respect to any
multi employer pension plan in which it participates and will promptly advise
Agent upon (i) its receipt of notice of the assertion against such Borrower of a
claim for withdrawal liability, (ii) the occurrence of any event which, to the
best of each Borrower's knowledge, would trigger the assertion of a claim for
withdrawal liability against any Borrower, and (iii) upon the occurrence of any
event which, to the best of each Borrower's knowledge, would place any Borrower
in a Controlled Group as a result of which any member (including such Borrower)
thereof may be subject to a claim for withdrawal liability, whether liquidated
or contingent.
6.8 FINANCIAL COVENANTS: Borrowers shall maintain and comply with
the following financial covenants:
(a) FIXED CHARGE COVERAGE RATIO: Borrowers shall have and
maintain at all times a Fixed Charge Coverage Ratio of not less
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than the following during the following periods (measured quarterly on a rolling
four quarter basis):
PERIOD MINIMUM RATIO
------ -------------
December 31, 1996 through September 29, 1997 1.05 to 1.00
September 30, 1997 through September 29, 1998 1.25 to 1.00
September 30, 1998 and thereafter 1.50 to 1.00
(b) INTEREST COVERAGE RATIO: Borrowers shall have and
maintain at all times an Interest Coverage Ratio of not less than the following
during the following periods (measured quarterly on a cumulative basis so that
the calculation at (i) March 31, 1996 is based on three (3) months; (ii) June
30, 1006 is based on six (6) months, and (iii) September 30, 1996 is based on
nine (9) months):
PERIOD MINIMUM RATIO
------ -------------
March 31, 1996 through September 29, 1996 2.50 to 1.00
September 30, 1996 through December 30, 1996 3.00 to 1.00
(c) FUNDED DEBT TO OPERATING CASH FLOW RATIO: Borrowers
shall have and maintain at all times a Funded Debt to Operating Cash Flow Ratio
of not more than the following during the following periods (measured quarterly
on a rolling four-quarter basis or, with respect to the measuring periods ending
on March 31, 1996, June 30, 1996 and September 30, 1996, calculating the
Operating Cash Flow on an annualized basis):
PERIOD MINIMUM RATIO
------ -------------
Three months ending March 31, 1996 2.75 to 1.00
Six months ending June 30, 1996 2.65 to 1.00
Nine months ending September 30, 1996 2.30 to 1.00
Twelve months ending December 31, 1996
and through March 30, 1997 2.30 to 1.00
March 31, 1997 through September 29, 1997 2.00 to 1.00
September 30, 1997 through March 30, 1998 1.75 to 1.00
March 31, 1998 and thereafter 1.50 to 1.00
(d) FUNDED DEBT TO CONSOLIDATED CAPITALIZATION: Borrowers
shall have and maintain at all times a Funded Debt to
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Consolidated Capitalization Ratio of not more than the following during the
following periods:
PERIOD MAXIMUM RATIO
------ -------------
Closing Date through December 30, 1996 1.20 to 1.00
December 31, 1996 through December 30, 1997 1.05 to 1.00
December 31, 1997 through December 30, 1998 0.85 to 1.00
December 31, 1998 through December 30, 1999 0.65 to 1.00
December 31, 1999 and thereafter 0.50 to 1.00
(e) CONSOLIDATED TANGIBLE NET WORTH: Borrowers shall have
and maintain at all times a Consolidated Tangible Net Worth of not less than the
following during the following periods:
PERIOD MINIMUM AMOUNT
------ --------------
Closing Date through December 30, 1996 ($7,500,000)
December 31, 1996 through December 30, 1997 ($ 600,000)
December 31, 1997 through December 30, 1998 $8,500,000.00
December 31, 1998 through December 30, 1999 $19,000,000.00
December 31, 1999 through December 30, 2000 $30,000,000.00
December 31, 2000 and thereafter $40,000,000.00
(f) CAPITAL EXPENDITURES: Borrowers shall not expend for
Capital Expenditures more than the following amounts during the following
periods:
PERIOD MAXIMUM AMOUNT
------ --------------
Fiscal Year Ending December 31, 1996 $5,300,000.00
Fiscal Year Ending December 31, 1997 $3,000,000.00
Fiscal Year Ending December 31, 1998 $3,000,000.00
Fiscal Year Ending December 31, 1999 $3,000,000.00
Fiscal Year Ending December 31, 2000 $4,000,000.00
6.9 FINANCIAL AND BUSINESS INFORMATION: Borrowers shall deliver to
Agent the following:
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(a) FINANCIAL STATEMENTS AND COLLATERAL REPORTS: such
data, reports, statements and information, financial or otherwise, as Agent may
reasonably request, including, without limitation:
(i) within thirty (30) days after the end of each
calendar month in each fiscal year of Borrowers, the earnings and retained
earnings statement of Borrowers for such month and for the expired portion of
the fiscal year ending with the end of such month, setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
fiscal year, and, for each fiscal year other than fiscal year 1996, a comparison
of Borrowers' actual earnings statement for such month compared to the monthly
earnings forecast required under Section 6.9(a)(v), and the consolidated and
consolidating balance sheet of Borrowers as at the end of such month, setting
forth in comparative form the corresponding figures as at the end of the
corresponding period of the previous fiscal year, all in reasonable detail and
certified by the chief financial officer of each Borrower to have been prepared
from the books and records of such Borrower, it being understood that for the
first thirteen (13) calendar months from the Closing Date comparative
information will not be available and cannot be furnished;
(ii) within ninety (90) days after the end of each
fiscal year of Borrowers, the earnings and retained earnings statement of
Borrowers for such year, the balance sheet of Borrowers as at the end of such
fiscal year and a statement of cash flows for such fiscal year, all on a
consolidated and consolidating basis, setting forth in each case in comparative
form the corresponding figures as at the end of and for the previous fiscal
year, all in reasonable detail, including all supporting schedules, and audited
and unqualifiedly certified by, beginning in fiscal year 1996, a Big "6"
independent public accounting firm, to have been prepared in accordance with
GAAP, and such independent public accountants shall also unqualifiedly certify
that in making the examinations necessary to their certification mentioned above
they have reviewed the terms of this Agreement and the accounts and conditions
of the Borrowers during the accounting period covered by the certificate and
that such review did not disclose the existence of any condition or event which
constitutes a Default or an Event of Default (or if such conditions or events
existed, describing them) together with copies of any management letters
provided by such accountants to management of any Borrower;
(iii) within fifteen (15) days of the end of each
calendar month, Borrowers' accounts receivable aging report,
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accounts payable aging report, inventory certificates, account status reports,
and such other reports as Agent reasonably deems necessary, certified by
Phoenix's chief financial officer as ory to Agent;
(iv) within sixty (60) days after each fiscal year
end, consolidated projections of Borrowers' earnings statements for the then
current and succeeding four (4) fiscal years; and a comparison of actual results
to the Projections for the just completed fiscal year; and
(v) within thirty (30) days prior to each fiscal year
end, a monthly forecast of Borrowers' consolidated earnings statement for each
month of the next succeeding fiscal year.
(b) NOTICE OF EVENT OF DEFAULT - promptly upon becoming
aware of the existence of any condition or event which constitutes a Default or
an Event of Default under this Agreement, a written notice specifying the nature
and period of existence thereof and what action Borrowers are taking (and
propose to take) with respect thereto;
(c) NOTICE OF CLAIMED DEFAULT - promptly upon receipt by
any Borrower, notice of default, oral or written, given to such Borrower by any
creditor for borrowed money, or holding long term Indebtedness of such Borrower
in excess of Two Hundred Fifty Thousand Dollars ($250,000.00);
(d) SECURITIES AND OTHER REPORTS - if any Borrower shall be
required to file reports with the Securities and Exchange Commission pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
promptly upon its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by such Borrower to stockholders
generally, and, a copy of each regular or periodic report, and any registration
statement, or prospectus in respect thereof, filed by such Borrower with any
securities exchange or with federal or state securities and exchange commissions
or any successor agency.
6.10 OFFICERS' CERTIFICATES: Along with the set of financial
statements delivered to Agent at the end of each calendar month that is also the
end of a fiscal quarter pursuant to Section 6.9(a) hereof, Phoenix shall deliver
to Agent a certificate ("Quarterly Compliance Certificate") (in the form of
Exhibit "M" attached hereto and made a part hereof) from the chief financial
officer of Phoenix (and as to certificates accompanying the annual financial
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statements of Borrowers, also certified by Phoenix's independent certified
public accountant) setting forth:
(a) COVENANT COMPLIANCE - the information (including
detailed calculations) required in order to establish whether Borrowers are in
compliance with the requirements of Sections 6.8 as of the end of the period
covered by the financial statements then being furnished (and any exhibits
appended thereto) under Section 6.9; and
(b) EVENT OF DEFAULT - that the signer has reviewed the
relevant terms of this Agreement, and has made (or caused to be made under his
supervision) a review of the transactions and conditions of Borrowers from the
beginning of the accounting period covered by the income statements being
delivered therewith to the date of the certificate, and that such review has not
disclosed the existence during such period of any condition or event which
constitutes a Default or an Event of Default, specifying the nature and period
of existence thereof and what action Borrowers have taken or propose to take
with respect thereto.
6.11 AUDITS AND INSPECTION: Each Borrower shall permit any of
Agent's and Co-Agent's officers or other representatives to visit and inspect
upon reasonable notice during business hours any of the locations of any
Borrower, to examine and audit all of such Borrower's books of account, records,
reports and other papers, to make copies and extracts therefrom and to discuss
its affairs, finances and accounts with its officers, employees and independent
certified public accountants all at Borrowers' expense at the standard rates
charged by the Agent and Co-Agent for such activities (plus the Agent's and
Co-Agent's out-of-pocket expenses). Representatives of each Lender may
accompany Agent or Co-Agent during each such inspection and visit. Agent and
Co-Agent shall conduct at least two (2) audits per year.
6.12 TAX RETURNS AND REPORTS: At Agent's request from time to time,
Borrowers shall promptly furnish Agent with copies of the annual federal and
state income tax returns of each Borrower. Each Borrower further agrees that, if
requested by Agent, it shall promptly furnish Agent with copies of all reports
filed with any federal, state or local governmental authority or agency, board
or commission.
6.13 INFORMATION TO PARTICIPANT: Agent and each Lender may divulge
to any participant, assignee or co-lender or prospective participant, assignee
or co-lender it may obtain in the Revolving
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Credit or Term Loans, or any portion thereof, all information, and furnish to
such Person copies of any reports, financial statements, certificates, and
documents obtained under any provision of this Agreement, or related agreements
and documents; provided, however, such Participant, assignee, co-lender or
prospective participant, assignee or co-lender is aware of Agent's and such
Lender's covenant pursuant to Section 10.20 hereof and has agreed to comply with
such covenant.
6.14 MATERIAL ADVERSE DEVELOPMENTS: Each Borrower agrees that
immediately upon becoming aware of any development or other information outside
the ordinary course of business and excluding matters of a general economic,
financial or political nature which would reasonably be expected to materially
and adversely affect its businesses, financial condition, Property, prospects or
its ability to perform under this Agreement, it shall give to Agent telephonic
or telegraphic notice specifying the nature of such development or information
and such anticipated effect. In addition, such verbal communication shall be
confirmed by written notice thereof to Agent on the same day such verbal
communication is made on the next business day thereafter.
6.15 ENGAGEMENT OF BIG "6" ACCOUNTING FIRM: Borrowers shall engage,
no later than March 31, 1996, a Big "6" independent certified pubic accounting
firm, which firm shall prepare (beginning with the audited financial statements
for fiscal year ending December 31, 1996) the annual audited financial
statements of Borrowers required under Section 6.9(a) hereof and provide, in
conjunction therewith, management letters.
6.16 PLACES OF BUSINESS: Borrowers shall give thirty (30) days
prior written notice to Agent of any changes in the location of any of its
respective places of business, of the places where records concerning its
Accounts are kept, or the establishment of any new, or the discontinuance of any
existing place of business; provided that no Borrower may establish any place of
business outside of the United States.
6.17 FISCAL YEAR: Borrowers shall take all steps necessary to
change their consolidated fiscal year from its current September 30 end date to
a December 31 end date.
6.18 QUARTERLY IMPLEMENTATION: Borrowers shall provide Agent with a
written review prepared by Borrowers' chief financial officer, on a quarterly
basis for each fiscal quarter for the fiscal year that ends December 31, 1996,
within forty five (45)
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days of the end of each fiscal quarter, of Borrowers' actual financial results
as compared to the Projections.
6.19 ACCOUNT VERIFICATION: Whether or not a Default or Event of
Default has occurred, any of Agent's officers, employees or agents shall have
the right at any time, upon reasonable notice during business hours, in the name
of Agent or a Borrower, to verify the validity, amount or any other matter
relating to Accounts by mail, telephone or otherwise. Borrowers shall cooperate
fully with Agent, its officers, employees or agents in such process.
6.20 KEY MAN LIFE INSURANCE POLICIES: Within sixty (60) days after
the Closing Date, Borrowers shall obtain Key Man life insurance on Louis
LaSorsa, Edward Lieberman and Edward A. Moneghan (unless Borrowers furnish Agent
with proof of uninsurability of any of them for general health reasons from
three (3) insurers acceptable to Agent), in the amount of $2,500,000 each (the
proceeds of which shall be assigned to Agent for the ratable benefit of Lenders
by assignment documents in form and substance reasonably satisfactory to Agent),
to be in effect so long as the Obligations are outstanding. Any proceeds paid
to Agent pursuant to such assignments shall be held by Agent as collateral
security for the Obligations and may be applied against the Obligations upon the
occurrence of an Event of Default in such order as Agent may determine.
6.21 DISSOLUTION OF CLASSIC FOIL, INC.: Borrowers shall take all
steps necessary to dissolve, in accordance with applicable state law, Classic
Foil, Inc., a New York corporation and wholly owned subsidiary of Phoenix.
Borrowers shall furnish Agent with proof of such dissolution within ninety (90)
days from the date hereof.
6.22 REMOVAL OF PROPERTY FROM HINGHAM FACILITY. Borrowers shall,
within ninety (90) days from the Closing Date, either obtain a written
landlord's waiver satisfactory to Agent, or remove all of Borrowers' Property
from the facility located at 110 Industrial Road, Hingham, Massachusetts 02043
and, after such removal, Borrowers shall not store or place any Proper
SECTION 7. BORROWERS' NEGATIVE COVENANTS:
Borrowers covenant that until all of the Obligations are paid and
satisfied in full and the Revolving Credit has been terminated, that:
7.1 MERGER, CONSOLIDATION, DISSOLUTION OR LIQUIDATION:
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(a) No Borrower shall engage in any Asset Sale other than
(i) Inventory sold in the ordinary course of such Borrower's business, and (ii)
equipment that is replaced by other equipment of comparable or superior quality
and value within ninety (90) days of such sale, lease, license, transfer or
other disposition.
(b) No Borrower shall merge or consolidate with any other
Person except with another Borrower or commence a dissolution or liquidation.
7.2 ACQUISITIONS: Except as permitted by Section 7.4(a), no
Borrower shall acquire all or a material portion of the Capital Stock or assets
of any Person in any transaction or in any series of related transactions or
enter into any sale and leaseback transaction.
7.3 LIENS AND ENCUMBRANCES: No Borrower shall: (i) execute a
negative pledge agreement with any Person covering any of its Property, or (ii)
cause or permit or agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise), its Property (including, without
limitation, the Collateral), whether now owned or hereafter acquired, to be
subject to a Lien or be subject to any claim except for Permitted Liens. As
used herein, "Permitted Liens" means:
(a) Liens securing taxes, assessments or governmental
charges or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, and other like persons, provided the payment thereof is
not at the time required by Section 6.1;
(b) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security and other like laws;
(c) Existing Liens described on Schedule "5.4"; and
(d) Liens constituting purchase money security interests
hereafter created by a Borrower to Persons providing financing for Capital
Expenditures permitted under this Agreement so long as each obligation secured
by a Lien permitted by this subparagraph (d) does not exceed 100% of the lower
of the cost or fair market value of the Property acquired with such financing.
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7.4 TRANSACTIONS WITH AFFILIATES OR SUBSIDIARIES:
(a) No Borrower shall enter into any transaction with any
Subsidiary or other Affiliate including, without limitation, the purchase, sale,
or exchange of Property, or the loaning or giving of funds to any Affiliate or
any Subsidiary unless (i) such Subsidiary or Affiliate is engaged in a business
substantially related to the business conducted by Borrowers, is a Borrower
hereunder and the transaction is in the ordinary course of and pursuant to the
reasonable requirements of such Borrower's business and upon terms substantially
the same and no less favorable to such Borrower as it would obtain in a
comparable arm's-length transactions with any Person not an Affiliate or a
Subsidiary, and so long as such transaction is not prohibited hereunder; or (ii)
such transaction is intended for incidental administrative purposes. (An
"Affiliate" means any entity which directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with any
such Borrower. Control may be by ownership, contract, or otherwise.)
(b) No Borrower shall create or acquire any Subsidiary
unless such Subsidiary engages in a business substantially related to the
business of Borrowers as conducted immediately prior to the Closing Date and
joins into this Agreement (under agreements acceptable to Agent) as a Borrower
hereunder and into each of the other Loan Documents, in each case, as if an
original signatory thereto.
7.5 GUARANTEES: Excepting the endorsement in the ordinary course
of business of negotiable instruments for deposit or collection, no Borrower
shall become or be liable, directly or indirectly, primary or secondary, matured
or contingent, in any manner, whether as guarantor, surety, accommodation maker,
or otherwise, for the existing or future indebtedness of any kind of any Person.
7.6 DISTRIBUTIONS, BONUSES AND OTHER INDEBTEDNESS: No Borrower
shall: (a) declare or pay or make any forms of Distribution to its
shareholders, their successors or assigns other than dividends to Phoenix by a
Subsidiary of Phoenix and loans or advances to any shareholder that is also an
employee which loans or advances do not exceed in the aggregate as to all
shareholders at any one time Two Hundred Thousand Dollars ($200,000); (b)
declare or pay any bonus compensation to its shareholders, officers or directors
other than, so long as no Default or Event of Default has occurred and is
continuing (or would occur after giving effect to the payment of the Permitted
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Bonus) the Permitted Bonus; provided however that the Permitted Bonus in any
fiscal year cannot exceed the lesser of (i) One Million Five Hundred Thousand
Dollars ($1,500,000) or (ii) the amount of mandatory prepayments made pursuant
to Section 2.10(c)(iv) (relating to Net Free Cash Flow); and provided further
that (A) if the entire mandatory prepayment under Section 2.10(c)(iv) is due
April 1 of such year, the Permitted Bonus can only be paid after such payment is
made and (B) if the mandatory prepayment under Section 2.10(c)(iv) is payable on
April 1 and August 1 of such year, then up to fifty percent (50%) of the
Permitted Bonus can only be paid after the April 1 payment is made and the
balance of the Permitted Bonus can only be paid after the August 1 payment is
made; (c) hereafter incur or become liable for any Indebtedness other than from
Lenders hereunder except (i) Indebtedness giving rise to a Permitted Lien under
Section 7.3(d) and (ii) Indebtedness existing as of the date of this Agreement
and listed on Schedule "7.6" attached hereto and made a part hereof; (d) make
any prepayments of any nature whatsoever on any Indebtedness (other than
pursuant to Asset Sales or to Lenders, in each case as permitted hereunder); or
(e) make any payments (whether principal or interest) in connection with any of
the loans to shareholders, officers or directors listed on Schedule "7.6" until
Term Loan A has been paid in full.
7.7 LOANS AND INVESTMENTS: Except as expressly permitted in
Section 7.6, no Borrower shall make or have outstanding loans, advances,
extensions of credit or capital contributions to, investments in, any Person.
7.8 USE OF LENDERS' NAME: No Borrower shall use any Lender's name
(or the name of any of either Lender's Affiliates) or Agent's name in connection
with any of its business operations. Nothing herein contained is intended to
permit or authorize any Borrower to make any contract on behalf of any Lender or
Agent.
7.9 MISCELLANEOUS COVENANTS:
(a) No Borrower shall become or be a party to any contract
or agreement which at the time of becoming a party to such contract or agreement
materially impairs such Borrower's ability to perform under this Agreement, or
under any other instrument, agreement or document to which such Borrower is a
party or by which it is or may be bound.
(b) No Borrower shall carry or purchase any "margin stock"
within the meaning of Regulations U, G, T or X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II.
SECTION 8. DEFAULT
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8.1 EVENTS OF DEFAULT: Each of the following events shall
constitute an event of default ("Event of Default"):
(a) PAYMENTS - if any Borrower fails to make any payment of
principal or interest, including any Overadvance, under the Revolving Credit or
any Term Loan on the due date of such payment; or
(b) OTHER CHARGES - if any Borrower fails to pay any other
charges, fees, Expenses or other monetary obligations owing to any Lender or
Agent arising out of or incurred in connection with this Agreement within five
(5) Business Days after the date such payment is due and payable; or
(c) PARTICULAR COVENANT DEFAULTS - if any Borrower fails to
perform, comply with or observe any covenant or undertaking contained in this
Agreement and (other than with respect to the covenants contained in Section 6.8
and Section 7 for which no cure period shall exist) such failure continues for
thirty (30) days after Agent has given Borrowers notice thereof; or
(d) FINANCIAL INFORMATION - if any statement, report,
financial statement, or certificate made or delivered by any Borrower or any of
its officers, employees or agents, to Agent or any Lender is not true and
correct, in all material respects, when made; or
(e) UNINSURED LOSS - if there shall occur any uninsured
damage to or loss, theft, or destruction in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00) in the aggregate with respect to any portion of any
Property of any Borrower; or
(f) WARRANTIES OR REPRESENTATIONS - if any warranty,
representation or other statement by or on behalf of any Borrower contained in
or pursuant to this Agreement, the other Loan Documents or in any document,
agreement or instrument furnished in compliance with, relating to, or in
reference to this Agreement, is false, erroneous, or misleading in any material
respect when made; or
(g) AGREEMENTS WITH OTHERS - if any Borrower shall default
beyond any grace period under any agreement with any third party creditor for
the payment of principal or interest of any Indebtedness from such Borrower, if
the effect of such default is to cause such Borrower's obligations which are the
subject thereof to become due prior to its maturity date or prior to its
regularly scheduled date of payment;
(h) OTHER AGREEMENTS WITH LENDERS - if any Borrower breaches
or violates the terms of, or if a default or an Event of Default, occurs under,
any other existing or future agreement (related or unrelated)
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(including, without limitation, the other Loan Documents) between any Borrower
or among Borrowers and Agent or any Lender or all Lenders; or
(i) JUDGMENTS - if any final judgment for the payment of
money in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in the
aggregate (i) which is not fully and unconditionally covered by insurance or
(ii) for which such Borrowers have not established a cash or cash equivalent
reserve in the full amount of such judgment shall be rendered by a court of
record against any Borrower and such judgment shall continue unsatisfied and in
effect for a period of thirty (30) consecutive days without being vacated,
discharged, satisfied or bonded pending appeal;
(j) ASSIGNMENT FOR BENEFIT OF CREDITORS, ETC. - if any
Borrower makes or proposes, in writing an assignment for the benefit of
creditors generally, offers a composition or extension to creditors, or makes or
sends notice of an intended bulk sale of any business or assets now or hereafter
owned or conducted by any Borrower; or
(k) BANKRUPTCY, DISSOLUTION, ETC. - upon the commencement
of any action for the dissolution or liquidation of any Borrower, or the
commencement of any proceeding to avoid any transaction entered into by any
Borrower, or the commencement of any case or proceeding for reorganization or
liquidation of any Borrower's debts under the Bankruptcy Code or any other state
or federal law, now or hereafter enacted for the relief of debtors, whether
instituted by or against such Borrower; PROVIDED, HOWEVER, that such Borrower
shall have ninety (90) days to obtain the dismissal or discharge of involuntary
proceedings filed against it, it being understood that during such ninety (90)
day period, no Lender shall be obligated to make Advances hereunder and Agent
may seek adequate protection in any bankruptcy proceeding; or
(l) RECEIVER - upon the appointment of a receiver,
liquidator, custodian, trustee or similar official or fiduciary for any Borrower
or for any Borrower's Property; or
(m) EXECUTION PROCESS, ETC. - the issuance of any execution
or distraint process against any Collateral or, with respect to any judgments
seeking in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in the
aggregate, any other Property of any Borrower; or
(n) TERMINATION OF BUSINESS - if any Borrower ceases any
material portion of its business operations as presently conducted; or
(o) PENSION BENEFITS, ETC. - if any Borrower fails to comply
with ERISA so that proceedings are commenced to appoint a trustee under ERISA to
administer such Borrower's employee plans or the Pension Benefit Guaranty
Corporation institutes proceedings to appoint a trustee to administer such
plan(s), or a Lien is entered to secure any defi-
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ciency or claim or a "reportable event" as defined under ERISA occurs; or
(p) INVESTIGATIONS - any indication or evidence received by
Agent or any Lender that reasonably leads it to believe any Borrower may have
directly or indirectly been engaged in any type of activity which, would be
reasonably likely to result in the forfeiture of any material property of any
Borrower to any governmental entity, federal, state or local; or
(q) CHANGE OF CONTROL - if there shall occur a Change of
Control.
8.2 CURE - Intentionally Omitted.
8.3 RIGHTS AND REMEDIES ON DEFAULT:
(a) In addition to all other rights, options and remedies
granted or available to Agent or Lenders under this Agreement or the Loan
Documents (each of which is also then exercisable by Agent), or otherwise
available at law or in equity, upon or at any time after the occurrence and
during the continuance of a Default or an Event of Default, Agent may, in its
discretion, and the Majority Lenders shall have the right to cause Agent to, (by
written notice to Agent) to withhold or cease making Advances under the
Revolving Credit.
(b) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), Agent may, in its discretion, and
the Majority Lenders shall have the right to cause Agent (by written notice to
Agent), upon or at any time after the occurrence and during the continuance of
an Event of Default to terminate the Revolving Credit and to declare the
Obligations immediately due and payable, all without demand, notice, presentment
or protest or further action of any kind (it also being understood that the
occurrence of any of the events or conditions set forth in Sections 8.1(j),(k)
or (l) shall automatically cause an acceleration of the Obligations).
(c) In addition to all other rights, options and remedies
granted or available to Agent, under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), upon or at any time after the
occurrence and during the continuance of an Event of Default, Borrowers shall be
obligated to deliver and pledge to Agent, on behalf of all Lenders, cash
collateral in the amount of all outstanding Letters of Credit.
(d) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), Agent may, or at the
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direction of Majority Lenders, shall, upon or at any time after the acceleration
of the Obligations following occurrence of an Event of Default (other than the
rights with respect to clause (iv) below which Agent may exercise at any time
after an Event of Default and regardless of whether there is an acceleration),
exercise all rights under the UCC and any other applicable law or in equity, and
under all Loan Documents permitted to be exercised after the occurrence of an
Event of Default, including the following rights and remedies (which list is
given by way of example and is not intended to be an exhaustive list of all such
rights and remedies):
(i) The right to take possession of, send notices
regarding and collect directly the Collateral, with or without judicial process
(including without limitation the right to notify the United States postal
authorities to redirect th judicial assistance, enter any Borrower's premises
and take possession of the Collateral, or render it unusable, or dispose of the
Collateral on such premises in compliance with subsection (e) below, without any
liability for rent, storage, utilities or other sums, and such Borrower shall
not resist or interfere with such action; or
(iii) Require any Borrower at such Borrower's expense to
assemble all or any part of the Collateral (other than real estate or fixtures)
and make it available to Agent at any place designated by Agent; or
(iv) The right to reduce or modify the Maximum
Revolving Credit Amount, Borrowing Base or any portion thereof or the advance
rates or to modify the terms and conditions upon which Lenders may be willing to
consider making Advances under the Revolving Credit or to take additional
reserves in the Borrowing Base for any reason; or
(e) Borrowers each hereby agree that a notice received by
it at least seven (7) days before the time of any intended public sale or of the
time after which any private sale or other disposition of the Collateral is to
be made, shall be deemed to be reasonable notice of such sale or other
disposition. If permitted by applicable law, any perishable inventory or
Collateral which threatens to speedily decline in value or which is sold on a
recognized market may be sold immediately by Agent without prior notice to any
Borrower. Each Borrower covenants and agrees not to interfere with or impose
any obstacle to Agent's exercise of its rights and remedies with respect to the
Collateral, after the occurrence of an Event of Default hereunder.
8.4 NATURE OF REMEDIES: All rights and remedies granted Agent
hereunder and under the Loan Documents, or otherwise available at law or in
equity, shall be deemed concurrent and cumulative, and not alternative remedies,
and Agent may proceed with any number of remedies at the same time until all
Obligations are satisfied in full. The
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exercise of any one right or remedy shall not be deemed a waiver or release of
any other right or remedy, and Agent, upon or at any time after the occurrence
of an Event of Default, may proceed against any Borrower, at any time, under any
agreement, with any available remedy and in any order.
8.5 SET-OFF: If any bank account of any Borrower with Agent, any
Lender or any participant is attached or otherwise liened or levied upon by any
third party, such Lender (and such participant) as agent for the ratable benefit
of all Lenders shall have and be deemed to have, without notice to Borrowers or
any of them, the immediate right of set-off and may apply the funds or amount
thus set-off against any of Borrowers' Obligations hereunder.
SECTION 9. AGENT
As between Agent, on one hand, and Lenders, on the other hand, Agent
and each Lender, who are now or shall become parties to this Agreement, agree as
follows (with the consent and approval of Borrowers):
9.1 APPOINTMENT AND AUTHORIZATION. Each Lender, and each
subsequent holder of any of the Revolving Credit Notes or Term Loan Notes by its
acceptance thereof, hereby irrevocably appoints and authorizes Agent to take
such action on its behalf and to exercise such powers under this Agreement as
are delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. Subject to the provisions of this Agreement,
Agent will handle all transactions relating to the Loans and all other
Obligations, including, without limitation, all transactions with respect to
Letters of Credit, this Agreement, the Loan Documents and all related documents
in accordance with its usual banking practices. Except as otherwise expressly
provided herein, Borrowers are hereby authorized by Lenders to deal solely with
Agent in all transactions which affect Lenders under this Agreement and the Loan
Documents. The rights, privileges and remedies accorded to Agent hereunder
shall be exercised by Agent on behalf of all of Lenders.
9.2 GENERAL IMMUNITY. In performing its duties as Agent hereunder,
Agent will take the same care as it takes in connection with loans in which it
alone is interested. Subject to Section 9.6 of this Agreement, neither Agent
nor any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except as such action or omission are caused solely from its or their
own gross negligence or willful misconduct unless such action was taken or
omitted to be taken by Agent at the direction of Majority Lenders.
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9.3 CONSULTATION WITH COUNSEL. Agent may consult with legal
counsel and any other professional advisors or consultants deemed necessary or
appropriate and selected by Agent and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
9.4 DOCUMENTS. Agent shall not be under a duty to examine into or
pass upon the effectiveness, genuineness or validity of this Agreement or any of
the Revolving Credit Notes or Term Loan Notes or any other instrument or
document furnished pursuant hereto or in connection herewith, and Agent shall be
entitled to assume that the same are valid, effective and genuine and what they
purport to be. In addition Agent shall not be liable for failing to make any
inquiry concerning the accuracy, performance or observance of any of the terms,
provisions or conditions of such instrument or document. Subject to Section
10.20, Agent shall furnish to Lenders copies of all notices and financial
statements received from Borrowers hereunder.
9.5 RIGHTS AS A LENDER. With respect to its applicable Revolving
Credit Pro Rata Share and Term Loan Pro Rata Share, Agent shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include Agent in its individual capacity. Subject
to the provisions of this Agreement, Agent may accept deposits from, lend money
to and generally engage in any kind of banking or trust business with Borrowers
and their Affiliates and Subsidiaries as if it were not Agent.
9.6 RESPONSIBILITY OF AGENT. It is expressly understood and agreed
that the obligations of Agent hereunder are only those expressly set forth in
this Agreement and that Agent shall be entitled to assume that no Default or
Event of Default, has occurred and is continuing, unless Agent has actual
knowledge of such fact. Except to the extent Agent is required by Lenders
pursuant to the express terms hereof to take a specific action, Agent shall be
entitled to use its discretion with respect to exercising or refraining from
exercising any rights which may be vested in it by, or with respect to taking or
refraining from taking any action or actions that it may be able to take under
or in respect of, this Agreement and the Loan Documents. Agent shall incur no
liability under or in respect of this Agreement and the Loan Documents by acting
upon any notice, consent, certificate, warranty or other paper or instrument
believed by it to be genuine or authentic or to be signed by the proper party or
parties, or with respect to anything that it may do or refrain from doing in the
reasonable exercise of its judgment, or that may seem to it to be necessary or
desirable under the circumstances. It is agreed among Agent and Lenders that
Agent shall have no responsibility to carry out audits or otherwise examine the
books and records or properties of Borrowers, except as Agent in its sole
discretion deems appropriate or as otherwise expressly required
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hereunder. The relationship between Agent and each Lender is and shall be that
of agent and principal only and nothing herein shall be construed to constitute
Agent a joint venturer with any Lender, a trustee or fiduciary for any of
Lenders or for the holder of a participation therein nor impose on Agent duties
and obligations other than those set forth herein.
9.7 COLLECTIONS AND DISBURSEMENTS.
(a) Agent will have the right to collect and receive all
payments of the Obligations, and to collect and receive all reimbursements for
draws made under the Letters of Credit, together with all fees, charges or other
amounts due under this Agreement and the Loan Documents, and Agent will remit to
each Lender, according to its applicable Pro Rata Percentage, all such payments
actually received by Agent (subject to any required clearance procedures) in
accordance with the settlement procedures established by Agent and Co-Agent from
time to time.
(b) If any such payment received by Agent is rescinded or
otherwise required to be returned for any reason at any time, whether before or
after termination of this Agreement and the Loan Documents, each Lender will,
upon written notice from Agent, promptly pay over to Agent its Pro Rata
Percentage of the amount so rescinded or returned, together with interest and
other fees thereon if also required to be rescinded or returned.
(c) All payments by Agent and Lenders to each other
hereunder shall be in immediately available funds. Agent will at all times
maintain proper books of account and records reflecting the interest of each
Lender in the Revolving Credit and the Letters of Credit and the Term Loans, in
a manner customary to Agent's keeping of such records, which books and records
shall be available for inspection by each Lender at reasonable times during
normal business hours, at such Lender's sole expense. Agent may treat the
payees of any Revolving Credit Note or Term Loan Note as the holder thereof
until written notice of the transfer thereof shall have been received by Agent.
In the event that any Lender shall receive any payments in reduction of the
Revolving Credit or Term Loans in an amount greater than its applicable Pro Rata
Percentage in respect of indebtedness to Lenders evidenced hereby (including,
without limitation amounts obtained by reason of setoffs), such Lender shall
hold such excess IN TRUST for Agent (on behalf of all other Lenders) and shall
promptly remit to Agent such excess amount so that the amounts received by each
Lender hereunder shall at all times be in accordance with its applicable Pro
Rata Percentage. To the extent necessary for each Lender's actual percentage of
all outstanding Loans to equal its applicable Pro Rata Percentage, Lender having
a greater share of any payment(s) than its applicable Pro Rata Percentage shall
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acquire a participation in the applicable Revolving Credit Pro Rata Share or
applicable Term Loan Pro Rata Shares of the Other Lender as determined by
Agent.
9.8 INDEMNIFICATION. Lenders hereby each indemnify Agent (and
Issuer with respect to Letters of Credit) ratably according to each Lender's Pro
Rata Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by or asserted
against Agent (or Issuer, as the case may be) in any way relating to or arising
out of this Agreement or any other Loan Document or any action taken or omitted
by Agent (or Issuer, as the case may be) under or related to this Agreement or
the Loans, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from Agent's (or Issuer's, as
the case may be) gross negligence or willful misconduct unless such action was
taken or omitted by Agent (or Issuer, as the case may be) at the direction of
the Majority Lenders. Agent shall have the right to deduct, from any amounts to
be paid by Agent to any Lender hereunder, any amounts owing to Agent by such
Lender by virtue of this paragraph.
9.9 EXPENSES.
(a) All out-of-pocket costs and out-of-pocket expenses
incurred by Agent and not reimbursed on demand by Borrowers, in connection with
the analysis, negotiation, preparation, consummation, creation, amendment,
administration, termination, work-out, forbearance and enforcement of the Loans
(including, without limitation, audit expenses, counsel fees and expenditures to
protect, preserve and defend Agent's and each Lender's rights and interest under
the Loan Documents) shall be shared and paid on demand by Lenders pro rata based
on their applicable Pro Rata Percentage.
(b) Agent may deduct from payments or distributions to be
made to Lenders such funds as may be necessary to pay or reimburse Agent for
such costs or expenses.
9.10 NO RELIANCE. By execution of or joining in this Agreement,
each Lender acknowledges that it has entered into this Agreement and the Loan
Documents solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrowers. Agent
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Borrower, any obligor or any account debtor of
any Borrower; the accuracy, sufficiency or currency of any information
concerning the financial condition, prospects or results of operations of any
Borrower; or for sufficiency, authenticity, legal effect, validity or
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enforceability of the Loan Documents. Agent assumes no responsibility or
liability with respect to the collectibility of the Obligations or the
performance by Borrowers of any obligation under the Loan Documents.
9.11 REPORTING. During the term of this Agreement, and subject to
Section 10.20, Agent will promptly furnish each Lender with copies of all
financial statements of Borrowers to be delivered or obtained hereunder and such
other financial statements and reports as any Lender may reasonably request.
Agent will immediately notify Lenders when it receives actual knowledge of any
Event of Default under the Loan Documents.
9.12 REMOVAL OF AGENT. Agent may resign at any time upon giving
thirty (30) days prior written notice thereof to Lenders and Borrowers. Agent
may be removed as Agent hereunder upon the written consent of all Lenders
exclusive of Agent upon the following: (i) wilful misconduct in the performance
of Agent's duties or responsibilities under this Agreement; or (ii) if a
receiver, trustee or conservator is appointed for Agent or any state or federal
regulatory authority assumes management or control of Agent or if, under
applicable law, the administrative or discretionary duties and responsibilities
of Agent hereunder become controlled by or subject to the approval of any state
or federal regulatory authority. Upon any resignation or permitted removal of
Agent, Co-Agent shall become the Agent. If Co-Agent declines to become the
Agent, the Lenders (exclusive of Agent) shall have the right to appoint a
successor Agent by majority vote of the other Lenders (based upon the Pro Rata
Percentages of the other Lenders). Upon the acceptance of the appointment as a
successor Agent hereunder by such successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers, obligations and
duties of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations hereunder.
9.13 ACTION ON INSTRUCTIONS OF LENDERS. With respect to any
provision of this Agreement, or any issue arising thereunder, concerning which
Agent is authorized to act or withhold action by direction of Lenders, Agent
shall in all cases be fully protected in so acting, or in so refraining from
acting, hereunder in accordance with written instructions signed by Lenders.
Such instructions and any action taken or failure to act pursuant thereto shall
be binding on all Lenders and on all holders of the Revolving Credit Notes and
Term Notes.
9.14 SEVERAL OBLIGATIONS. The obligation of each Lender is several,
and neither Agent nor any other Lender shall be responsible for the obligation
and commitment of any other Lender.
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9.15 CONSENT OF LENDERS.
(a) Except as expressly provided herein, Agent shall have
the sole and exclusive right to service, administer and monitor the Loans and
the Loan Documents, including without limitation, the right to exercise all
rights, remedies, privileges and options under the Loan Documents, including
without limitation the credit judgment with respect to the making of Advances
and the determination as to the basis on which and extent to which Advances may
be made and the determination as to whether draws should be honored for Letters
of Credit.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
all Lenders: (i) extend any payment date under the Revolving Credit Notes or
Term Loan Notes, the Current Revolving Credit Maturity Date, the Term Loan A
Maturity Date or Term Loan B Maturity Date, (ii) except as contemplated under
this Agreement, reduce any interest rate applicable to the Revolving Credit or
either Term Loan, any fee payable hereunder or any fee for any Letter of Credit,
(iii) increase the Facility Limit, (iv) compromise or settle all or a portion of
the Obligations, (v) release any obligor from the Obligations except in
connection with termination of the Revolving Credit and full payment and
satisfaction of all Obligations, (vi) amend the definition of Majority Lenders,
(vii) amend this Section 9.15(b), or (viii) except for releases of Collateral
under Section 3.8 hereunder, release Collateral in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00) in the aggregate in any fiscal year.
(c) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
Majority Lenders: (i) enter into any written amendment to any of the Loan
Documents; (ii) waive any Borrower's compliance with the terms and conditions of
the Loan Documents or any Event of Default hereunder or thereunder; or (iii)
consent to any Borrower's taking any action which, if taken, would constitute an
Event of Default under this Agreement or under any of the Loan Documents.
(d) After an acceleration of the Obligations, Agent shall
have the sole and exclusive right, after consultation (to the extent reasonably
practicable under the circumstances) with all Lenders, and, unless otherwise
directed by the Majority Lenders, to exercise or refrain from exercising any and
all right, remedies, privileges and options under the Loan Documents and ations,
including, without limitation, instituting and pursuing all legal actions
brought against any Borrower or to collect the Obligations, or defending any and
all actions brought by any Borrower or other Person; or incurring Expenses or
otherwise making expenditures to protect the Loans, the Collateral or Lenders'
rights or remedies.
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(e) To the extent Agent is required to obtain or otherwise
elects to seek the consent of Lenders to an action Agent desires to take, if any
Lender fails to notify Agent, in writing, of its consent or dissent to any
request of Agent hereunder within five (5) days of such Lender's receipt of such
request, such Lender shall be deemed to have given its consent thereto.
9.16 PARTICIPATION AND ASSIGNMENTS: Borrowers hereby acknowledge
and agree that a Lender may at any time: (a) grant any participation(s) in up
to forty-nine percent (49%) of its Revolving Credit Pro Rata Share and Term Loan
Pro Rata Share and of its right, title and interest therein and in or to this
Agreement (collectively, "Participation") to any other lending office of such
Lender or to any other bank, lending institution or other entity which the
granting Lender reasonably determines has the requisite sophistication to
evaluate the merits and risks of investments in Participation ("Participants");
provided, however, that: (i) all amounts payable by Borrowers to each Lender
hereunder shall be determined as if such Lender had not granted such
Participation; and (ii) any agreement pursuant to which any Lender may grant a
Participation: (A) shall provide that such Lender shall retain the sole right
and responsibility to enforce the obligations of Borrowers hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provisions of this Agreement; (B) such participation agreement may
provide that such Lender will not agree to any modification, amendment or waiver
of this Agreement without the consent of the Participant if such amendment,
modification or waiver would reduce the principal of or, except as contemplated
in this Agreement, the rate of interest on the Loans, increase the amount of the
Facility Limit, postpone the date fixed for any scheduled payment of principal
of or interest on the Loans, subject to Section 9.15 hereof; and (C) shall not
relieve such Lender from any of its obligations under this Agreement, which
shall remain absolute (including without limitation its obligation to make
Advances hereunder); and (b) assign, pursuant to an Assignment and Acceptance
substantially in the form of Exhibit "N", attached hereto and made a part hereof
(the "Assignment") (i) all or any percent of its Revolving Credit Pro Rata Share
and Term Loan Pro Rata Share or any right, title and interest therein or in and
to this Agreement to Agent or Co-Agent (in their capacity as a "Lender") or any
Affiliate of Agent or Co-Agent; or (ii) up to forty nine percent (49%) of its
Revolving Credit Pro Rata Share or Term Loan Pro Rata Share (but in no event
less than Five Million Dollars ($5,000,000.00) in the aggregate of such
Revolving Credit Pro Rata Share and Term Loan Pro Rata Share) and any right,
title and interest therein and in and to this Agreement to another financial
institution, with the prior written consent of the Agent and Borrowers which
consent shall not be unreasonably withheld, which assignment shall in the case
of (i) or (ii) above shall be accompanied by payment to the Agent of a $2,500
transfer fee. Notwithstanding the immediately preceding sentence, Borrowers'
consent shall not be required for Agent's
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<PAGE>
and Co-Agent's assignment of up to twenty five percent (25%) of each such
Lender's Revolving Credit Pro Rata Share, Term Loan A Pro Rata Share and Term
Loan B Pro Rata Share to any domestic financial institution having capital and
surplus of at least One Hundred Million Dollars ($100,000,000.00). Upon the
execution by the assignor or assignee of the Assignment, and delivery to Agent
of such Assignment for acceptance, the assigning Lender shall, to the extent
provided in such Assignment, be released from its obligations under this
Agreement and the assignee thereunder shall be a party hereto and, to the extent
provided in such Agreement, have the rights and obligations of a Lender
hereunder. All participations and assignments hereunder shall be of the
Revolving Credit and Term Loans in the same proportion as is the Revolving
Credit Pro Rata Shares and Term Loan Pro Rata Shares of the Lender making the
assignment or granting the Participation.
SECTION 10. MISCELLANEOUS
10.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT AND
ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED
SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT
AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND
EFFECT.
10.2 INTEGRATED AGREEMENT: The Revolving Credit Notes, the Term
Loan Notes the other Loan Documents, all related agreements, and this Agreement
shall be construed as integrated and complementary of each other, and as
augmenting and not restricting Lender's rights and remedies. If, after applying
the foregoing, an inconsistency still exists, the provisions of this Agreement
shall constitute an amendment thereto and shall control.
10.3 WAIVER: No omission or delay by Agent in exercising any right
or power under this Agreement or any related agreements and documents will
impair such right or power or be construed to be a waiver of any default, or
Event of Default or an acquiescence therein, and any single or partial exercise
of any such right or power will not preclude other or further exercise thereof
or the exercise of any other right, and as to Borrowers no waiver will be valid
unless in writing and signed by Agent and then only to the extent specified.
10.4 INDEMNITY:
(a) Each Borrower releases and shall indemnify, defend and
hold harmless Agent and Lenders, and their respective officers, employees and
agents, of and from any claims, demands, liabilities, obligations, judgments,
injuries, losses, damages and costs and expenses
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<PAGE>
(including, without limitation, reasonable legal fees) resulting from (i) acts
or conduct of any Borrower or all Borrowers under, pursuant or related to this
Agreement and the other Loan Documents, (ii) Borrowers' breach or violation of
any representation, warranty, covenant or undertaking contained in this
Agreement or the other Loan Documents, and (iii) Borrowers' failure to comply
with any or all laws, statutes, ordinances, governmental rules, regulations or
standards, whether federal, state or local, or court or administrative orders or
decrees, (including without limitation Environmental Laws, etc.) and all costs,
expenses, fines, penalties or other damages resulting therefrom, unless
resulting solely from acts or conduct of Agent or Lenders constituting wilful
misconduct or gross negligence.
(b) Promptly after receipt by an indemnified party under
subsection (a) above of notice of the commencement of any action by a third
party, such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof. The omission so to notify the
indemnifying party shall relieve the indemnifying party from any liability which
it may have to any indemnified party under such subsection only if the
indemnifying party is unable to defend such actions as a result of such failure
to so notify. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnified party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation.
10.5 TIME: Whenever any Borrower shall be required to make any
payment, or perform any act, on a day which is not a Business Day, such payment
may be made, or such act may be performed, on the next succeeding Business Day.
Time is of the essence in Borrowers' performance under all provisions of this
Agreement and all related agreements and documents.
10.6 EXPENSES OF AGENT, CO-AGENT AND LENDERS: At Closing and from
time to time thereafter, Borrowers will pay promptly upon demand of Agent all
reasonable costs, fees and expenses (a) of Agent and Co-Agent in connection with
(i) the analysis, negotiation, preparation, execution, administration and
delivery of this Agreement and other Loan Documents and the documents and
instruments referred to herein and
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<PAGE>
therein and any amendment, amendment and restatement, supplement, waiver or
consent relating hereto or thereto, whether or not any such amendment, amendment
and restatement, supplement, waiver or consent is executed or becomes effective
(including, without limitation, audit fees for two(2) audits per year provided
no Default or Event of Default has occurred in which case there shall be no
limitation on the number of audits for which Agent and Co-Agent shall be
reimbursed, search costs, the reasonable fees, expenses and disbursements of
counsel for Agent and Co-Agent and reasonable charges of any expert consultant
to Agent and Co-Agent) and (ii) the syndication of the commitments (not to
exceed in any event the aggregate of Ten Thousand Dollars ($10,000.00) and (b)
of Agent and Co-Agent and the Lenders in connection with the enforcement of any
Obligations of, or the collection of any payments owing from, Borrowers under
this Agreement and/or the other Loan Documents or protection or defense of the
rights of Lenders and/or Agent and Co-Agent under the Loan Documents, following
the occurrence of any Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement and other
Loan Documents in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings, or otherwise (including the reasonable fees and disbursements of
counsel for Agent and Co-Agent and Lenders and reasonable allocated costs of
internal counsel) (collectively, the "Expenses");
10.7 BROKERAGE: This transaction was brought about and entered into
by Agent, Lenders and Borrowers acting as principals and without any brokers,
agents or finders being the effective procuring cause hereof. Each Borrower
represents that it has not committed Agent or any Lender to the payment of any
brokerage fee, commission or charge in connection with this transaction. If any
such claim is made on Agent or any Lender by any broker, finder or agent or
other person, Borrowers hereby indemnify, defend and save such party harmless
against such claim and further will defend, with counsel satisfactory to Agent,
any action or actions to recover on such claim, at Borrowers' own cost and
expense, including such party's reasonable counsel fees. Borrowers further
agree that until any such claim or demand is adjudicated in such party's favor,
the amount demanded shall be deemed a liability of Borrowers under this
Agreement.
10.8 NOTICES:
(a) Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given if delivered in person
or if sent by telecopy or by nationally recognized overnight courier, as
follows, unless such address is changed by written notice hereunder:
If to Agent to: CoreStates Bank, N.A.
1339 Chestnut Street
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<PAGE>
F.C. 1-8-4-20
Philadelphia, PA 19102
Attn: Ms. Byrne,
Vice President
With copies to: Blank, Rome, Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19102
Attn: Harvey I. Forman, Esquire
If to Borrowers to: Phoenix Color Corp.
101 Tandy Drive
Hagerstown, MD 21740
Attn: Chief Financial Officer
Telecopy No.: (301) 733-1733
With copies to: Rosner Bresler Goodman & Bucholz
521 Fifth Avenue
New York, NY 10175
Attn: Andrew J. Goodman,Esquire
If to Lenders: To the addresses set forth on Schedule A
(b) Any notice sent by Agent, any Lender or Borrowers by
any of the above methods shall be deemed to be given when so received.
(c) Agent shall be fully entitled to rely upon any telecopy
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.
10.9 HEADINGS: The headings of any paragraph or Section of this
Agreement are for convenience only and shall not be used to interpret any
provision of this Agreement.
10.10 SURVIVAL: All warranties, representations, and covenants made
by Borrowers herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Agent and
Lenders, and shall survive the delivery to Lenders of the Revolving Credit Notes
and Term Loan Notes, regardless of any investigation made by Lenders or on their
behalf. All statements in any such certificate or other instrument prepared
and/or delivered for the benefit of Agent and any and all Lenders shall
constitute warranties and representations by Borrowers hereunder. Except as
otherwise expressly
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<PAGE>
provided herein, all covenants made by Borrowers hereunder or under any other
agreement or instrument shall be deemed continuing until all Obligations are
satisfied in full.
10.11 SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties. No Borrower may transfer, assign or delegate any of its duties or
obligations hereunder.
10.12 DUPLICATE ORIGINALS: Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterpart, all of which counterparts taken
together shall constitute one completed fully executed document.
10.13 MODIFICATION: No modification hereof or any agreement referred
to herein shall be binding or enforceable unless in writing and signed by
Borrowers, Agent and the Lenders or, if applicable, Majority Lenders.
10.14 SIGNATORIES: Each individual signatory hereto represents and
warrants that he is duly authorized to execute this Agreement on behalf of his
principal and that he executes the Agreement in such capacity and not as a
party.
10.15 THIRD PARTIES: No rights are intended to be created hereunder,
or under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary of any Borrower. Nothing contained in
this Agreement shall be construed as a delegation to Agent or any Lender of
Borrowers' duty of performance, including, without limitation, Borrowers' duties
under any account or contract with any other Person.
10.16 DISCHARGE OF TAXES, BORROWERS' OBLIGATIONS, ETC.: Agent, in
its sole discretion, shall have the right at any time, and from time to time,
with prior notice to Borrowers if Borrowers fail to do so five (5) Business Days
after requested in writing to do so by Agent, to: (a) pay for the performance of
any of Borrowers' obligations hereunder, and (b) discharge taxes or Liens, at
any time levied or placed on any of any Borrower's Property in violation of this
Agreement unless such Borrower is in good faith with due diligence by
appropriate proceedings contesting such taxes or Liens and maintaining proper
reserves therefor in accordance with GAAP. Expenses and advances shall be added
to the Revolving Credit, bear interest at the same rate applied to the Revolving
Credit, until reimbursed to Agent. Such payments and advances made by Agent
shall not be construed as a waiver by Agent or Lenders of an Event of Default
under this Agreement.
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<PAGE>
10.17 WITHHOLDING AND OTHER TAX LIABILITIES: Each Lender shall have
the right to refuse to make any Advances from time to time unless Borrowers
shall, at Agent's request, have given to Agent evidence, reasonably satisfactory
to Agent, that Borrowers have properly deposited or paid, as required by law,
all withholding taxes and all federal, state, city, county or other taxes due up
to and including the date of the requested Advance. Copies of deposit slips
showing payment shall likewise constitute satisfactory evidence for such
purpose. In the event that any lien, assessment or tax liability against any
Borrower shall arise in favor of any taxing authority, whether or not notice
thereof shall be filed or recorded as may be required by law, Agent shall have
the right (but shall not be obligated, nor shall Agent or any Lender hereby
assume the duty) to pay any such lien, assessment or tax liability by virtue of
which such charge shall have arisen; provided, however, that Agent shall not pay
any such tax, assessment or lien if the amount, applicability or validity
thereof is being contested in good faith and by appropriate proceedings by
Borrowers. In order to pay any such lien, assessment or tax liability, Agent
shall not be obliged to wait until said lien, assessment or tax liability is
filed before taking such action as hereinabove set forth. Any sum or sums which
Agent (shared ratably by Lenders) shall have paid for the discharge of any such
lien shall be added to the Revolving Credit and shall be paid by Borrowers to
Agent with interest thereon, upon demand, and Agent shall be subrogated to all
rights of such taxing authority against Borrowers.
10.18 CONSENT TO JURISDICTION: Each Borrower and each Lender hereby
irrevocably consents to the jurisdiction of the Courts of Common Pleas, the
Commonwealth of Pennsylvania or the United States District Court for the Eastern
District of Pennsylvania in any and all actions and proceedings whether arising
hereunder or under any other agreement or undertaking and irrevocably agree to
service of process by certified mail, return receipt requested to the address of
the appropriate party set forth herein.
10.19 WAIVER OF JURY TRIAL: EACH BORROWER, AGENT, ISSUER AND EACH
LENDER HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN
CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT
TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS.
10.20 CONFIDENTIAL INFORMATION: The Agent and each Lender (and any
prospective Lender or Participant) agree to hold in confidence all confidential
material or proprietary information obtained by them with respect to Borrowers'
business operations that is plainly marked by the provider of such material or
information as confidential or proprietary except (a) to the extent that the
production of such information is required pursuant to any statute, ordinance,
regulation, rule or order or any subpoena or any Governmental Authority or by
reason of any bank regulation in connection with any bank examination, (b) to
the extent
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already publicly disclosed and (c) that any Lender shall not be prohibited from
disclosing any such information to any of their agents, attorneys, accountants,
consultants, participants, assignees, prospective participants, who are aware of
such Lender's covenant in this Section 10.19 and who have agreed with such
Lender, for the benefit of the Borrowers, to comply with such covenant. Nothing
contained in this Section shall in any way restrict, limit or impair the rights
of Agent or Lenders to sell any Collateral or otherwise enforce their Liens in
any Collateral following the occurrence of any Event of Default.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement the day and year first above written.
PHOENIX COLOR CORP. ALPHA SYSTEMS, INC.
By: /s/ Edward Lieberman By: /s/ Edward Lieberman
--------------------------- ---------------------------
Title: Chief Financial Officer Title: Chief Financial Officer
Attest: /s/ Louis LaSorsa Attest: /s/ Louis LaSorsa
----------------------- -----------------------
(Corporate Seal) (Corporate Seal)
CORESTATES BANK, N.A., as Agent,
as Issuer and as Lender
By: /s/ Jeffrey Doherty
---------------------------
Title: Vice President
FLEET BANK OF MASSACHUSETTS, N.A.
as Co-Agent and as Lender
By: /s/ Thomas McNamara
---------------------------
Title: Vice President
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<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Revolving Credit Term Loan A Term Loan B
Lenders Pro Rata Percentage Pro Rata Share Pro Rata Share Pro Rata Share
- ------- ------------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
1. CoreStates Bank, N.A. 50% $9,000,000 $8,000,000 $3,000,000
1339 Chestnut Street
F.C. 1-8-4-20
Philadelphia, PA, 19102
Attn: Ms. Byrne
Telecopy No. (215) 973-6680
2. Fleet Bank of Massachusetts 50% $9,000,000 $8,000,000 $3,000,000
75 Federal Street
Boston, MA 02109
Attn: Mr. Thomas McNamara
Telecopy No. (517) 346-1837
</TABLE>
<PAGE>
Exhibit 10.8
STOCK PLEDGE AGREEMENT
----------------------
This Stock Pledge Agreement ("Pledge Agreement") is made by
________________________________________________________________________________
("Pledgor") and delivered to CoreStates Bank, N.A. as agent (in such capacity,
"Agent") for the lenders (collectively, "Lenders") parties to that certain Loan
and Security Agreement (as it may from time to time be supplemented, restated,
superseded, amended or replaced, the "Loan Agreement") of even date herewith
among Phoenix Color Corp. and Alpha Systems, Inc. (collectively, "Borrowers"),
Agent, Fleet Bank of Massachusetts, N.A., as Co-Agent and the Lenders. This
Pledge Agreement is given and is intended to provide additional security for all
of Borrowers' Obligations (as defined in the Loan Agreement) to Lenders. All
capitalized terms not otherwise defined herein shall have the respective
meanings ascribed thereto in the Loan Agreement.
Pledgor, intending to be legally bound hereby, and for other good and
sufficient consideration, the receipt of which is hereby acknowledged, does
hereby assign, pledge, hypothecate, deliver and set over to Agent for the
ratable benefit of Lenders, its successors and assigns, the property described
in the Schedule of Collateral attached hereto and made part hereof, including
all additions, exchanges, replacements and substitutions therefor, dividends and
distributions with respect thereto, and the proceeds thereof, (collectively, the
"Collateral") and Pledgor hereby grants to Agent, for the ratable benefit of
Lenders, a continuing lien and security interest in the Collateral as collateral
security for the payment and performance of the Obligations.
(1) Pledgor hereby represents and warrants that:
(a) Except as pledged herein, Pledgor has not sold, assigned,
transferred, pledged or granted any option or security interest in or otherwise
hypothecated the Collateral in any manner whatsoever and the Collateral is
pledged herewith free and clear of any and all liens, security interests,
encumbrances, claims, pledges, restrictions, legends, and options;
(b) Pledgor has the full power and authority to execute, deliver,
and perform under this Pledge Agreement and to pledge the Collateral hereunder;
(c) This Pledge Agreement constitutes the valid and binding
obligation of Pledgor, enforceable in accordance with its terms, and the pledge
of the Collateral referred to herein is not in violation of and shall not create
any default under any agreement, undertaking or obligation of Pledgor;
<PAGE>
(d) The Collateral has been duly and validly authorized and
issued by the issuer thereof and such Collateral is fully paid for and
non-assessable;
(e) Pledgor is pledging hereunder one hundred percent (100%) of
Pledgor's interest and ownership in all entities listed on the attached Schedule
of Collateral; and
(f) Pledgor is contemporaneously with the execution hereof,
delivering to Agent all certificates representing or evidencing the Collateral,
accompanied by duly executed instruments of transfer or assignments in blank, to
be held by Agent in accordance with the terms hereof.
(2) The pledge described herein shall continue in effect to secure all
Obligations from time to time incurred or arising unless and until the
outstanding principal balance of Term Loan A has been permanently and
indefeasibly reduced to the sum of Four Million Dollars ($4,000,000) and no
Default or Event of Default is, at that time, outstanding.
(3) If an Event of Default occurs under the Loan Agreement, then Agent
may, at its sole option, exercise from time to time with respect to the
Collateral any and/or all rights and remedies available to it hereunder, under
the Uniform Commercial Code, or otherwise available to it, at law or in equity,
including without limitation the right to dispose of the Collateral at public or
private sale(s) or other proceedings, and Pledgor agrees that, if permitted by
law, Agent or its nominee may become the purchaser at any such sale(s).
(4)(a) In addition to all other rights granted to Agent herein or
otherwise available at law or in equity, Agent shall have the following rights,
each of which may be exercised at Agent's sole discretion (but without any
obligation to do so), at any time following the occurrence of an Event of
Default under the Loan Agreement, without further consent of Pledgor: (i) to
transfer the whole or any part of the Collateral into the name of itself or its
nominee or to conduct a sale of the Collateral pursuant to the Uniform
Commercial Code as enacted in Pennsylvania or pursuant to any other applicable
law; (ii) to vote the Collateral; (iii) to notify the persons obligated on any
of the Collateral to make payment to Agent of any amounts due or to become due
thereon; and (iv) to release, surrender or exchange any of the Collateral at any
time, or to compromise any dispute with respect to the same. Agent may proceed
against the Collateral, or any other collateral securing the Obligations, in any
order, and against Pledgor and any other obligors (including, without
limitation, Borrowers), jointly and/or severally, in any order to satisfy the
Obligations. Pledgor waives and releases any right to require Agent to first
collect any of the Obligations secured hereby from any other collateral of
Pledgor
<PAGE>
or any other party (including, without limitation, Borrowers) securing the
Obligations under any theory of marshalling of assets, or otherwise. All rights
and remedies of Agent are cumulative, not alternative.
(b) Pledgor hereby appoints Agent its attorney-in-fact, subject
to the terms hereof, to arrange, at Agent's option, (i) to, upon the occurrence
of an Event of Default, effectuate the transfer of the Collateral on the books
of the issuer thereof to the name of Agent or to the name of Agent's nominee,
designee or assignee, (ii) to endorse and collect checks payable to Pledgor
representing distributions or other payments on the Collateral, and (iii) to
carry out the terms and provisions hereof.
(5) The proceeds of any Collateral received by Agent at any time,
whether from the sale of Collateral or otherwise, may be applied to or on
account of the Obligations and in such order as Agent may elect. In addition,
Agent may, in its discretion, apply any such proceeds to or on account of the
payment of all Expenses which may be incurred by Agent (or any Lender).
(6) Pledgor recognizes that Agent may be unable to effect, or may
effect only after such delay which would adversely affect the value that might
be realized from the Collateral, a public sale of all or part of the Collateral
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for their own account, for investment and not with a
view to the distribution or resale thereof. Pledgor agrees that any such
private sale may be at prices and on terms less favorable to Agent or the seller
than if sold at public sales, and therefore recognizes and confirms that such
private sales shall not be deemed to have been made in a commercially
unreasonable manner solely because they were made privately. Pledgor agrees
that Agent has no obligation to delay the sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act of 1933, as amended.
(7) In the event that any stock dividend, reclassification,
readjustment or other change is made or declared in the capital structure of, or
Pledgor acquires or in any other manner receives additional shares of stock in,
any corporation described in the attached Schedule of Collateral, if any, or any
option included within the Collateral is exercised, or both, all new,
substituted and additional shares, or other securities, issued by reason of any
such change or exercise shall be delivered to and held by Agent under the terms
hereof in the same manner as the Collateral originally pledged hereunder. No
cash dividends may be paid to
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<PAGE>
or retained by Pledgor unless expressly permitted in writing by Agent.
(8) So long as no Event of Default has occurred and is continuing under
the Loan Agreement, and, until Agent notifies Pledgor in writing of the exercise
of its rights hereunder, Pledgor shall retain the sole right to vote the
Collateral and exercise all rights of ownership with respect to all corporate
questions for all purposes not inconsistent with the terms hereof.
(9) Agent shall have no obligation to take any steps to preserve,
protect or defend the rights of Pledgor or Agent in the Collateral against other
parties. Agent shall have no obligation to sell or otherwise deal with the
Collateral at any time for any reason, whether or not upon request of Pledgor,
and whether or not the value of the Collateral, in the opinion of Agent or
Pledgor, is more or less than the aggregate amount of the Obligations secured
hereby, and any such refusal or inaction by Agent shall not be deemed a breach
of any duty which Agent may have under law to preserve the Collateral. Unless
expressly set forth herein, no duty, obligation or responsibility of any kind is
intended to be delegated to or assumed by Agent at any time with respect to the
Collateral.
(10) To the extent Agent is required by law to give Pledgor prior notice
of any public or private sale, or other disposition of the Collateral, Pledgor
agrees that seven (7) days' prior written notice to Pledgor shall be a
commercially reasonable and sufficient notice of such sale or other intended
disposition. Pledgor further recognizes and agrees that if the Collateral, or a
portion thereof, threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Pledgor shall not be entitled to any
prior notice of sale or other intended disposition.
(11) Pledgor shall indemnify, defend and hold harmless Agent from and
against any and all claims, losses and liabilities resulting from any breach by
Pledgor of Pledgor's representations and covenants under this Pledge Agreement.
(12) Pledgor hereby waives notice of (a) acceptance of this Pledge
Agreement, (b) the existence and incurrence from time to time of any Obligations
under the Loan Agreement, (c) the existence of any Event of Default, the making
of demand, or the taking of any action by Agent under the Loan Agreement, and
(d) demand and default hereunder.
(13) Pledgor hereby consents and agrees that Agent may at any time or
from time to time in its sole discretion (a) extend or change the time of
payment and/or the manner, place or terms of payment of any and all Obligations,
(b) supplement, amend,
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<PAGE>
restate, supersede, or replace the Loan Agreement or any other Loan Documents,
(c) renew, extend, modify, increase or decrease loans and extensions of credit
under the Loan Agreement, (d) modify the terms and conditions under which loans
and extensions of credit may be made under the Loan Agreement, (e) settle,
compromise or grant releases for any Obligations and/or any person or persons
liable for payment of any Obligations, (f) exchange, release, surrender, sell,
subordinate or compromise any collateral of any party now or hereafter securing
any of the Obligations and (g) apply any and all payments received from any
source by Agent at any time against the Obligations in any order as Agent may
determine; all of the foregoing in such manner and upon such terms as Agent may
determine and without notice to or further consent from Pledgor and without
impairing or modifying the terms and conditions of this Pledge Agreement which
shall remain in full force and effect.
(14) This Pledge Agreement shall remain in full force and effect and
shall not be limited, impaired or otherwise affected in any way by reason of (a)
any delay in making demand on Borrowers or Pledgor for or delay in enforcing or
failure to enforce, performance or payment of Borrowers' or Pledgor's
obligations, or (b) any failure, neglect or omission on Agent's part to perfect
any lien upon, protect, exercise rights against, or realize on, any property of
Borrowers, Pledgor or any other party securing the Obligations.
(15) Pledgor covenants and agrees that Pledgor shall not, without the
prior written consent of Agent, sell, encumber or grant any lien, security
interest or option on or with respect to any of the Collateral.
(16) Pledgor hereby authorizes and instructs each issuer of the
Collateral to comply with any instruction received by it from Agent in writing
that (a) states that an Event of Default has occurred and (b) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from Pledgor, and Pledgor agrees that each such issuer shall be
fully protected in so complying.
(17) Pledgor acknowledges that the rights and responsi-bilities of Agent
under this Pledge Agreement with respect to any action taken by Agent or the
exercise or non-exercise by Agent of any option, voting right, request, judgment
or other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall be governed, as between Agent and Lenders, by the Loan
Agreement and by such other agreements with respect thereto as may exist from
time to time among them; but, as between Agent and Pledgor, Agent shall be
conclusively presumed to be acting as agent for Lenders with full and valid
authority so to act or refrain from acting, and neither Pledgor nor any issuer
of Collateral shall be under any obligation, or
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<PAGE>
entitlement, to make any inquiry respecting such authority. All references
herein to any rights or remedies of Agent, or to any obligations owing to Agent
hereunder, shall be deemed to refer to such rights and remedies as Agent may
exercise on behalf of itself and the Lenders for the ratable benefit of the
Lenders.
(18) Any failure of or delay by Agent to exercise any right or remedy
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right or remedy at any other time.
(19) This Pledge Agreement constitutes the entire agreement between the
parties hereto regarding the subject matter hereof and may be modified only by a
written instrument signed by the party or parties against whom any change is
sought to be enforced.
(20) This Pledge Agreement is made in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania, and
the provisions hereof shall be deemed severable in the event of the invalidity
of any provision.
(21) All communications which Agent may provide to Pledgor herein shall
be sent to Pledgor at the respective addresses set forth below in the manner
provided in paragraph 10.8 of the Loan Agreement.
(22) This Pledge Agreement shall be binding upon and inure to the
benefit of the parties hereto (including Agent and Lenders), and their
respective successors and assigns.
(23) PLEDGOR AND AGENT EACH HEREBY WAIVES ANY AND ALL RIGHTS IT MIGHT
HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION ARISING WITH RESPECT TO
RIGHTS AND OBLIGATIONS OF THE PARTIES TO THIS PLEDGE AGREEMENT.
This Stock Pledge Agreement is executed this day of ,
1996.
Witness____________________
_________________________________ [SEAL]
Address:__________________________________
__________________________________
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<PAGE>
SCHEDULE OF COLLATERAL
----------------------
The following Collateral is hereby pledged by Pledgor to Agent pursuant to
the Stock Pledge Agreement to which this Schedule is attached:
CLASS AMOUNT
ISSUER OWNER CERTIFICATE NO. OF STOCK OF SHARES
- ------ ----- --------------- -------- ---------
Phoenix
Color
Corp.
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<PAGE>
STATE OF :
: Ss
:
COUNTY OF :
I HEREBY CERTIFY that, on this _______ day of _____________, 1996, before
me, the undersigned, a Notary Public in and or the State aforesaid, appeared
________________________, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal on the day and
year first above mentioned.
___________________________________
Notary Public
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<PAGE>
Schedule to the Stock Pledge Agreement
--------------------------------------
The foregoing Stock Pledge Agreement was executed by the following
stockholders:
Louis La Sorsa
Edward Lieberman
John Biancolli
Ronald Burk
Henry Burk
Anthony DiMartino
Thomas Newell
John Blum
John Carbone
Mitchell Weiss
Dion Von der Lieth
Bruno Jung
<PAGE>
Exhibit 10.9
SURETY AGREEMENT
----------------
To: CoreStates Bank, N.A., Date:__________________
in its capacity as agent ("Agent")
for the Lenders (as defined below)
1339 Chestnut Street
Philadelphia, PA 19102
To induce Lenders (as defined below) to establish and/or continue financing
arrangements with and consider making or continuing certain loans and extending
or continuing to extend credit from time to time to Phoenix Color Corp. and
Alpha Systems, Inc. (collectively, "Borrowers") the Undersigned, intending to be
legally bound, hereby guarantees and becomes surety for the unconditional and
prompt payment and performance of all the Obligations of Borrowers to Lenders.
The Undersigned shall also pay or reimburse Agent, or Lenders, on demand for all
reasonable costs and expenses, including without limitation reasonable
attorneys' fees, incurred by Agent, or Lenders at any time to enforce, protect,
preserve, or defend Agent's rights hereunder and with respect to any property
securing now or hereafter this Surety Agreement. All payments hereunder shall
be made in lawful money of the United States, in immediately available funds.
Unless otherwise defined herein, all capitalized terms shall have the respective
meanings given to such terms in that certain Loan and Security Agreement dated
the date hereof among Borrowers, Agent, Fleet Bank of Massachusetts, N.A., as
Co-Agent and the financial institutions parties thereto from time to time
(collectively, "Lenders") (as it may hereafter be supplemented, restated,
superseded, amended, or replaced from time to time, the "Loan Agreement").
The Undersigned further undertakes and agrees as follows:
1. The Undersigned represents and warrants that:
(a) The Undersigned's execution and performance of this Surety
Agreement shall not (i) violate or result in a default or breach (immediately or
with the passage of time) under any contract, agreement or instrument to which
the Undersigned is a party, or by which the Undersigned is bound, (ii) violate
or result in a default or breach under any order, decree, award, injunction,
judgment, law, regulation or rule or (iii) cause or result in the imposition or
creation of any lien upon any property of the Undersigned.
(b) The Undersigned has the full power and capacity to enter into
and perform under this Surety Agreement.
<PAGE>
(c) No consent, license or approval of, or filing or registration
with, any Governmental Authority is necessary for
the execution and performance hereof by the Undersigned.
(d) This Surety Agreement constitutes the valid and binding
obligation of the Undersigned enforceable in accordance
with its terms.
(e) This Surety Agreement promotes and furthers the business and
interests of the Undersigned, and the incurrence of the Obligations by Borrowers
and creation of the obligations hereunder will result in direct financial
benefit to the Undersigned.
2. The Undersigned hereby waives notice of (a) acceptance of this Surety
Agreement, (b) the existence or incurring from
time to time of any Obligations guaranteed hereunder, (c) the
existence of any Event of Default, the making of demand, or the taking of any
action by Agent, under the Loan Agreement, and (d) demand and default hereunder.
3. The Undersigned hereby consents and agrees that Agent may at any time
or from time to time in its discretion (a) extend or change the time of payment,
and/or the manner, place or terms of payment of any or all Obligations, (b)
amend, supplement or replace the Loan Agreement or any other Loan Document, (c)
renew, extend, modify, increase (without limit of any kind and whether related
or unrelated) or decrease Loans and extensions of credit to Borrowers, (d)
modify the terms and conditions under which Loans and extensions of credit may
be made to Borrowers, (e) settle, compromise or grant releases for liabilities
of Borrowers, and/or any other person or persons liable with Undersigned for,
any Obligations, (f) exchange, release, surrender, sell, subordinate, or
compromise any Collateral of any party now or hereafter securing any of the
Obligations, and (g) apply any and all payments received by Agent at any time
against the Obligations in any order as Agent may determine; all of the
foregoing in such manner and upon such terms as Agent may see fit, and without
notice to or further consent from the Undersigned, who hereby agrees to be and
shall remain bound upon this Surety Agreement notwithstanding any such action on
Agent's part.
4. The liability of the Undersigned hereunder is absolute and
unconditional and shall not be reduced, impaired or affected in any way by
reason of (a) any failure to obtain, retain or preserve, or the lack of prior
enforcement of, any rights against any person or persons (including Borrowers
and Undersigned) or in any property, (b) the invalidity or unenforceability of
any Obligations or rights in any Collateral, (c) any delay in making demand upon
Borrowers or any delay in enforcing, or any failure to enforce, any rights
against Borrowers or in any Collateral even if such rights
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<PAGE>
are thereby lost, (d) any failure, neglect or omission on Agent's part to obtain
or perfect any lien upon, protect, exercise rights against, or realize on, any
property of Borrowers (including, without limitation, the Collateral), the
Undersigned or any other party securing the Obligations, (e) the existence or
nonexistence of any defenses which may be available to Borrowers with respect to
the Obligations, (f) any failure to proceed against Borrowers or any Collateral
in a commercially reasonable manner, or (g) the commencement of any bankruptcy,
reorganization, liquidation, dissolution or receivership proceeding or case
filed by or against Borrowers.
5. If any or all payments made from time to time to Agent (or any
Lender) with respect to any obligation hereby guaranteed are recovered from, or
repaid by, Agent (or any Lender) in whole or in part in any bankruptcy,
reorganization, insolvency or similar proceeding instituted by or against any
Borrower, this Surety Agreement shall continue to be fully applicable to such
obligation to the same extent as if the recovered or repaid payment(s) had never
been originally made on such obligation.
6. All rights and remedies hereunder and under the Loan Agreement and
other Loan Documents are cumulative and not alternative, and Agent may proceed
in any order from time to time against Borrowers, the Undersigned and/or any
other obligor of Borrowers' Obligations and their respective assets. Agent
shall not have any obligation to proceed against, or exhaust any or all of
Agent's rights against, any Borrower prior to proceeding against the Undersigned
hereunder. Agent may proceed against the Collateral in any order as Agent
determines in its sole discretion and the Undersigned hereby waives any right to
compel or cause Agent (or any Lender) to marshal any assets in favor of the
Undersigned, or against, or in payment or performance of, any or all of the
Obligations.
7. Any and all rights of any nature of the Undersigned to subrogation,
reimbursement or indemnity and any right of the Undersigned to recourse to any
assets or property of Borrowers for any reason shall be unconditionally
subordinated to all of Agent's rights under the Loan Agreement and the
Undersigned shall not
at any time exercise any of such rights unless and until all of the Obligations
have been unconditionally paid in full.
8. Agent's books and records of any and all of Borrowers' Obligations,
absent manifest error, shall be prima facie evidence against the Undersigned of
the indebtedness due to Lenders or to become due to Agent hereunder.
9. This Surety Agreement shall constitute a continuing surety obligation
with respect to all Obligations from time to time incurred or arising and the
liability of the Undersigned under this
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<PAGE>
Surety Agreement may not be revoked or terminated.
10. The Undersigned agrees that Agent (and any Lender) shall have a right
of setoff against any and all property of the Undersigned now or at any time in
Agent's (or any Lender's) possession, including without limitation deposit
accounts, and the proceeds thereof, as security for the obligations of the
Undersigned hereunder.
11. If an Event of Default occurs and is continuing under the Loan
Agreement, then all of the Undersigned's obligations of every kind or nature to
Agent hereunder shall, at Agent's option, become immediately due and payable and
Agent may at any time and from time to time take any and/or all actions and
enforce all rights and remedies available hereunder or under applicable law to
collect the Undersigned's liabilities hereunder.
12. Failure or delay in exercising any right or remedy against the
Undersigned hereunder shall not be deemed a waiver thereof or preclude the
exercise of any other right or remedy hereunder. No waiver of any breach of or
provision of this Surety Agreement shall be construed as a waiver of any
subsequent breach or of any other provision. The invalidity or unenforceability
of any provision hereof shall not affect the remaining provisions which shall
remain in full force and effect.
13. This Surety Agreement shall (a) be legally binding upon the
Undersigned, and the Undersigned's heirs, executors, administrators, successors
and assigns, provided that the Undersigned's obligations hereunder may not be
delegated or assigned without Agent's prior written consent and (b) benefit any
and all of Agent's (and Lenders') successors and assigns.
14. This Surety Agreement embodies the whole agreement and understanding
of the parties hereto relative to the subject matter hereof. No modification or
waiver of any provision hereof shall be enforceable unless approved by Agent in
writing.
15. This Surety Agreement shall in all respects be interpreted,
construed and governed by the substantive laws of the Commonwealth of
Pennsylvania. The Undersigned irrevocably submits to the jurisdiction of the
Courts of the Commonwealth of Pennsylvania and the United States District Court
for the Eastern District of Pennsylvania for the purposes of any litigation or
proceeding hereunder or concerning the terms hereof.
16. SURETY (AND AGENT) BY ITS EXECUTION HEREOF WAIVES ANY AND ALL RIGHTS
EITHER MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION ARISING WITH
RESPECT TO THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO.
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<PAGE>
17. (a) In any action or proceeding brought by Agent to enforce the
terms hereof, the Undersigned waives personal service of the summons, complaint,
and any motion or other process, and agrees that notice thereof may be served by
registered or certified mail, return receipt requested or by nationally
recognized overnight courier at the address of the Undersigned set forth on the
signature page hereof. Such service shall be deemed made on the date of
delivery at such address.
(b) Any and all notices which may be given to the
Undersigned by Agent hereunder shall be sent to the Undersigned
at the address of the Undersigned set forth on the signature page hereof and
shall be deemed given to and received (on the date delivered) by the Undersigned
if personally delivered or if sent by facsimile transmission or if sent in the
manner provided for service of process in paragraph 17(a) above.
18. The Undersigned acknowledges that the rights and responsibilities of
Agent under this Surety Agreement with respect to any action taken by Agent or
the exercise or non-exercise by Agent of any action, judgment or other right or
remedy provided for herein or resulting or arising out of this Surety Agreement
shall be governed, as between Agent and Lenders, by the Loan Agreement and by
such other agreements with respect thereto as may exist from time to time among
them; but, as between Agent and the Undersigned, Agent shall be conclusively
presumed to be acting as agent for Lenders with full and valid authority so to
act or refrain from acting, and Surety shall not be under any obligation, or
entitlement, to make any inquiry respecting such authority. All references
hereunder to any rights or remedies of Agent, or to any obligations owing to
Agent hereunder, shall be deemed to refer to such rights and remedies as Agent
may exercise on behalf of itself and the Lenders for the ratable benefit of the
Lenders.
DATED the date and year first above written.
Witness:______________________ ________________________[SEAL]
Address: _____________________
_____________________
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<PAGE>
STATE OF :
: Ss
:
COUNTY OF :
I HEREBY CERTIFY that, on this _______ day of _____________, 1996, before
me, the undersigned, a Notary Public in and or the State aforesaid, appeared
____________________, known to me (or satisfactorily proven) to be the person
whose name is subscribed to the within instrument, and acknowledged that he
executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal on the day and
year first above mentioned.
_____________________________
Notary Public
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<PAGE>
Schedule to the Surety Agreement
--------------------------------
The foregoing Surety Agreement was executed by the following
stockholders:
Louis La Sorsa
Edward Lieberman
Henry Burk
Ronald Burk
Anthony DiMartino
Thomas Newell
<PAGE>
Exhibit 21
Exhibit 21. 01 SUBSIDIARIES OF REGISTRANT
PCC Express, Inc.
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated March 13, 1998, except for the information presented in Note 1
to the financial statements for which the date is April 23, 1998, on our
audits of the consolidated financial statements and financial statement
schedule of Phoenix Color Corp. as of December 31, 1996 and 1997, and for
each of the three years in the period ended December 31, 1997. We also
consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data".
/s/ Coopers & Lybrand L.L.P.
McLean, Virginia
April 24, 1998
<PAGE>
Exhibit 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on the Form S-1 of
our report dated January 22, 1996, (except with respect to the matter discussed
in Note 9, as to which the date is February 1, 1996), on our audits of the
consolidated financial statements of New England Book Holding Corporation as of
December 31, 1995, and for the year then ended. We also consent to the reference
to our firm under the caption "Experts".
/s/ Arthur Andersen L.L.P.
Boston, Massachusetts
April , 1998
