<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1999
REGISTRATION NO. 333-50995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2 ON FORM S-4
TO
REGISTRATION STATEMENT ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
--------------------------
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<S> <C> <C> <C>
PHOENIX COLOR CORP. DE 2732 22-2269911
PCC EXPRESS, INC. DE 4713 32-2038306
PHOENIX (Md.) REALTY, LLC MD 6519 None
TECHNIGRAPHIX, INC. MD 2732 55-1504959
(Exact Name of Each (State or Other (Primary Standard (I.R.S. Employer
Registrant as Jurisdiction of Industrial Identification Number)
Specified in Its Charter) Incorporation or Classification Code
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)
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<S> <C>
WITH A COPY TO:
LOUIS LASORSA, PRESIDENT ANDREW J. GOODMAN, ESQ.
540 WESTERN MARYLAND PARKWAY BRESLER, GOODMAN & UNTERMAN, LLP
HAGERSTOWN, MD 21740 521 FIFTH AVENUE
(301) 733-0018 NEW YORK, NY 10175
(212) 661-2150
</TABLE>
(Name, Address Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practical after
the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED NOTE PRICE FEE
<S> <C> <C> <C> <C>
10 3/8% Senior Subordinated Notes due 2009.. $105,000,000 100% $105,000,000 $
Subsidiary Guarantees of the 10 3/8% Senior
Subordinated Notes due 2009............... (1) (1) (1) (1)
Total....................................... $105,000,000 100% $105,000,000 $16,402(2)
</TABLE>
(1) Each Registrant other than Phoenix Color Corp. is a subsidiary of Phoenix
Color Corp. and is unconditionally guaranteeing payment of the 10 3/8%
Senior Subordinated Notes due 2009. Pursuant to Rule 457 (n) under the
Securities Act of 1933, no registration fee is required with respect to
these guarantees.
(2) The Company paid a filing fee of $13,570 with the filing of the Registration
Statement on April 24, 1998.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the SEC
is effective. This prospectus is not an offer to sell these securities and we
are not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 5, 1999
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
ITS 10 3/8% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR UP TO $105,000,000 AGGREGATE PRINCIPAL AMOUNT
OF ITS OUTSTANDING 10 3/8% SENIOR SUBORDINATED NOTES DUE 2009
THE EXCHANGE NOTES:
- The terms of the 10 3/8% Senior Subordinated Notes due 2009 which we will
issue and which have been registered under the Securities Act (we call
these the "exchange notes") will be substantially identical to the
outstanding 10 3/8% Senior Subordinated Notes which we issued on February
2, 1999 (we call these the "old notes"), except for the elimination of
certain transfer restrictions, registration rights and liquidated damages
provisions relating to the old notes.
- We will pay interest on the exchange notes twice a year, on February 1 and
August 1, beginning August 1, 1999.
- We cannot redeem the exchange notes before February 1, 2004. After that
date, we may redeem them at certain specified prices. However, until
February 1, 2002, we can redeem up to 25% of the exchange notes at
110.375% of their face amount, plus interest, with money we raise in one
or more public equity offerings.
- If we experience certain changes of control, we must offer to purchase the
exchange notes at 101% of their face amount, plus interest.
GUARANTEES:
Each of our subsidiaries is jointly, severally and unconditionally
guaranteeing payment in full of the exchange notes on an unsecured, senior
subordinated basis.
THE EXCHANGE OFFER:
- We are offering to exchange the exchange notes for the old notes in the
exchange offer described in this prospectus.
- Our exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless extended.
- Our completion of the exchange offer is subject to customary conditions,
which we may waive.
- Upon our completion of the exchange offer, all old notes that are validly
tendered and not withdrawn will be exchanged for an equal principal amount
of exchange notes.
- Tenders of outstanding old notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of notes will not be a taxable exchange for federal income
tax purposes.
- We do not intend to list the exchange notes on any national securities
exchange or NASDAQ.
- We will not receive any cash proceeds from the exchange offer.
NOTICE TO INVESTORS:
- You should consider carefully the risk factors described in the "Risk
Factors" section of this prospectus before tendering your old notes in the
exchange offer.
- NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THE EXCHANGE NOTES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY , 1999.
<PAGE>
Each broker-dealer that receives exchange notes for its own account must
confirm that it will deliver a prospectus in connection with any resale of the
exchange notes. The accompanying letter of transmittal states that, by so
confirming and by delivering a prospectus, such broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act. A
broker-dealer receiving exchange notes for old notes it acquired as a result of
market-making or other trading activities may use this prospectus for an offer
to resell, a resale or other re-transfer of the exchange notes. We have agreed
that, for a period of one year after the expiration date of the exchange offer,
we will make this prospectus and any amendment or supplement to this prospectus
available to any such broker-dealer for use in connection with any such
transactions.
We have not authorized any person to make a statement that differs from the
statements in this prospectus. If any person makes a statement that differs from
what is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, the exchange notes in any
state where such offer or sale is not permitted. The information in this
prospectus is complete and accurate as of its date, but the information may
change after that date.
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which this exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................................... 4
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Risk Factors.......................................................................... 14
Use of Proceeds....................................................................... 20
Capitalization........................................................................ 21
Selected Historical Consolidated Financial Data....................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 24
Business.............................................................................. 29
Management............................................................................ 37
Principal Stockholders................................................................ 41
Certain Transactions.................................................................. 42
Description of Senior Credit Facility................................................. 42
Description of Exchange Notes......................................................... 44
Certain U.S. Federal Income Tax Considerations........................................ 64
The Exchange Offer.................................................................... 68
Plan of Distribution.................................................................. 75
Legal Matters......................................................................... 76
Experts............................................................................... 76
Available Information................................................................. 76
Index to Financial Statements......................................................... F-1
</TABLE>
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we have
filed with the SEC. This prospectus does not contain all of the information set
forth in the registration statement. For further information about us and the
exchange notes, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer. Since these summaries may not contain all of the information that you may
find important, you should review the full text of these documents. We have
filed certain of these documents as exhibits to the registration statement.
In addition, we have agreed that, even though the SEC may not require us to
do so, for so long as any notes remain outstanding, we will furnish to
noteholders and the trustee for the noteholders, and will file with the SEC all
such information, documents and reports as are specified in Section 13 or 15(d)
of the Securities Exchange Act.
You should direct any request for information to our Chief Financial Officer
at least 10 business days before you tender your exchange notes in the exchange
offer. Our mailing address and telephone number are:
Phoenix Color Corp.
540 Western Maryland Parkway
Hagerstown, MD 21740
(301) 733-0018
CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate", "anticipate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or other
"forward-looking" information. Although we believe that our assumptions, plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. When considering such forward-looking statements,
you should keep in mind the risk factors and other cautionary statements
included in this prospectus. The risk factors noted in the "Risk Factors"
section and other factors referred to throughout this prospectus, including
certain risks and uncertainties, could cause our actual results to differ
materially from those contained in any forward-looking statement.
CERTAIN MARKET AND INDUSTRY DATA
The market data and industry forecasts that we refer to in this prospectus
were obtained from publicly available information, industry publications and, as
noted, management estimates. While we believe this data, information and
estimates to be materially correct, we have not verified and cannot guarantee
them.
USE OF CERTAIN TERMS
Unless the context otherwise requires, as used in this prospectus, the terms
"we," "our," "Phoenix Color," "Company" or "Issuer" refer to Phoenix Color Corp.
and its subsidiaries. The term "old notes" refers to the 10 3/8% Senior
Subordinated Notes due 2009 that we issued on February 2, 1999, the term
"exchange notes" refers to the 10 3/8% Senior Subordinated Notes due 2009 that
have been registered under the Securities Act of 1933 and that we are offering
in exchange for the old notes as described in this prospectus, and the term
"notes" refers collectively to the old notes and the exchange notes.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THE PROSPECTUS AND DOES
NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. BEFORE MAKING YOUR
INVESTMENT DECISION, AND IN ORDER TO FULLY UNDERSTAND THE EXCHANGE OFFER, YOU
SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS (INCLUDING THE "RISK FACTORS"
SECTION) AND THE OTHER DOCUMENTS TO WHICH IT REFERS.
PHOENIX COLOR CORP.
We believe we are the largest North American independent printer of book
components, which we supply to publishers and book manufacturers. Our book
components primarily include book jackets, paperback covers and pre-printed case
covers which are glued to hardboard and used for hardcover books. We also
produce book components such as illustrations, endpapers and inserts. We
recently expanded our capabilities and now manufacture complete books in
juvenile and educational book markets not being serviced by our principal book
manufacturing customers. We serve over 200 customers, including some of the
largest firms in publishing and book printing, such as Simon & Schuster,
HarperCollins, Penguin Putnam, Random House, McGraw-Hill, Time Warner,
Microsoft, Walt Disney and R.R. Donnelley.
Producing complete books requires both the printing of text and the
manufacture of book components. Publishers often demand high-quality, intricate
book covers. Specialized equipment, materials and finishes are needed to produce
these covers, and many leading publishers rely on specialty printers such as
Phoenix Color to supply book components, and use other commercial printers to
print text and assemble books.
We intend to increase our net sales and EBITDA by expanding our current book
components business and by using our newest production facility to offer
complete book manufacturing for children's books and educational workbooks. We
believe our long-standing reputation with our publishing customers for producing
quality book components will enable us to attract orders for the manufacture of
complete books. Based on comments and new orders from a number of our customers,
we believe our book manufacturing plans are being well-received.
We were founded in 1979 by 15 industry veterans. From 1994 through 1998, and
including our 1996 acquisition of New England Book Holding Corporation ("NEBC"),
our net sales increased at a compound annual rate of 20.5%. For 1994, 1995,
1996, 1997 and 1998, our net income was, respectively, $3.2 million, $3.7
million, $1.4 million, $4.5 million and $1.0 million. On a pro forma basis
reflecting two acquisitions completed in 1999, our net sales were $127.9 million
and our EBITDA was $21.1 million for the year ended December 31, 1998.
Our growth and profitability are a result of (1) consistently providing
superior customer service and product quality, (2) expanding our product line
and (3) continually adding state-of-the-art manufacturing capacity. In
developing our business, we emphasize:
- Technologically advanced prepress and manufacturing equipment and
efficient production techniques;
- A computerized management information system which links all of our
facilities and customers and furnishes immediately available operating
data;
- Fast turnaround times made possible by our state-of-the-art manufacturing
equipment, strategic location of our seven plants near major delivery
points and the use of our own delivery trucks;
- Long-term relationships with suppliers of important raw materials such as
paper, laminating film and ink; and
- A highly motivated sales force which emphasizes customer training and
educational programs.
4
<PAGE>
COMPETITIVE STRENGTHS
We attribute our strong historical results and positive growth outlook to
the following factors:
LEADING MARKET POSITION IN SPECIALIZED MARKET NICHE. We believe Phoenix
Color is the largest independent book component manufacturer in North America.
We supply book components to multiple segments of the book market, such as
general interest (including best sellers), juvenile, education, religious and
business books. These books are distributed through retail bookstores, mass
market retailers and increasingly via the internet. We estimate that, of the
approximately $400 million in annual book component sales, Phoenix Color with
1998 pro forma net sales of $127.9 million (including two 1999 acquisitions) has
a leading 30% market share, and the next closest competitor has approximately a
15% share. Based on our industry experience, we believe that the next three
largest book component manufacturers collectively possess approximately a 15%
share of the overall market.
WELL-ESTABLISHED CUSTOMER BASE. We serve over 200 customers, including some
of the largest firms in publishing and book printing, such as Simon & Schuster,
HarperCollins, Penguin Putnam, Random House, McGraw-Hill, Time Warner,
Microsoft, Walt Disney and R.R. Donnelley. We have serviced many of these
customers since our inception, due, we believe, to our ability to supply, on a
timely and consistent basis, the high quality products needed by our customers.
STATE-OF-THE-ART PRODUCTION FACILITIES. Phoenix Color is a technological
leader in book component production due to its continual investment in
technologically advanced prepress, printing and finishing equipment. Our modern
facilities enable us to provide quality products with a high level of automation
and a low number of manufacturing employees. Our proprietary Phoenix
Colornet-Registered Trademark- system allows the electronic transfer of digital
files through equipment installed by us at customer locations, resulting in
reliable, consistently color-accurate, remote digital proofing. As a result of
our investment in modern manufacturing facilities, we believe we consistently
offer our customers the most modern and complete line of printing and finishing
facilities and the shortest work-order turnaround time in the industry.
POSITIVE OPERATING RESULTS. We have grown steadily since our 1979 founding
and, over the five-year period ended December 31, 1998, generated a compound
annual growth rate in net sales of 20.5%, through internal growth and the NEBC
acquisition.
DIVERSIFIED PRODUCT MIX. We believe we service the broadest range of book
market segments of any book component manufacturer in North America, including
general interest, juvenile, educational, business, book club and religious
categories. Since each segment of the book market generally experiences yearly
fluctuations, our supplying of book components for a broad range of market
segments enables us to offset decreases in one segment with increases in other
segments.
PROFESSIONAL SALES AND MARKETING. Our direct sales force is highly trained
and is located in seven offices throughout the United States. New sales
representatives participate in a three-month manufacturing and sales orientation
program, including spending at least two weeks in a working pressroom. All sales
personnel are required to participate annually in a two-week continuing
education program. We market our services by providing regular training and
educational programs in printing processes and technology to publishing house
personnel and by participating in publishers' trade shows.
MANAGEMENT CONTINUITY AND OWNERSHIP. Current senior management has operated
the Company since its early years and through multiple economic cycles and
stages of growth. Active management owns, directly and indirectly through
participation in an Employee Stock Bonus and Ownership Plan, 52.8% of the
Company's total common stock and 73.0% of its voting common stock.
5
<PAGE>
BUSINESS STRATEGY
The key elements of our business strategy are to:
MAINTAIN PRODUCTION EFFICIENCY AND QUALITY. Our goal is to remain the
leading North American supplier of book components by maximizing production
efficiency and offering superior quality and rapid turnaround times. We continue
to invest our financial, management and personnel resources in highly automated
production equipment, digital file transfer and network communications,
real-time operating information systems and management controls.
EXPAND INTO COMPLEMENTARY AREAS OF BOOK MANUFACTURING. We are expanding our
business to include complete book manufacturing of children's books and
educational workbooks in order to provide one-stop shopping for our publishing
customers. These are market segments in which we believe we can obtain orders
from existing customers and attract new customers who may be under-serviced. Our
publishing customers have indicated they want us to supply these complete books
which are not being produced by our principal book manufacturing customers.
ENHANCE SALES AND MARKETING PROGRAMS. We have a direct sales force of 30
representatives and we intend to expand its size to 40 or 45 representatives
over the next 18 months. We plan to use our increased sales force to capture a
greater share of business from existing publishing customers and to solicit new
customers, such as smaller regional publishers. We also intend to continue our
customer training and educational programs in printing processes and
technologies in efforts to reach a larger segment of the book publishing market.
PURSUE STRATEGIC ACQUISITIONS. The book printing industry is facing
consolidation because of the need for, and the high cost of, modern production
plants. We believe there are attractive acquisition opportunities among book
component and book printing companies, and we will continue to seek potential
acquisition targets whose geographic location, customer base and type of
business will complement ours. We expect that our management expertise, modern
production technology, single-source purchasing relationships and financial
resources will help us to achieve revenue growth and further economies of scale
through the acquisition of other companies.
MID-CITY ACQUISITION
On January 4, 1999, we acquired Mid-City Lithographers, Inc. (which we call
"Mid-City"), a specialty component printer located in Lake Forest, Illinois, for
a total purchase price of $12.5 million. Mid-City supplies components primarily
to the elementary and high school textbook segment of the book publishing
market. Mid-City was merged into the Company at the closing, and we believe the
Mid-City acquisition will be complementary to our core business by adding a
significant customer base in the elementary and high school textbook market.
This market tends to be more active during the first half of the year while
other market segments serviced by Phoenix Color are more active in the second
half. For the year ended December 31, 1998, Mid-City's net sales were $14.2
million and its EBITDA was $1.0 million, on an unaudited basis.
TECHNIGRAPHIX ACQUISITION
On February 12, 1999, we acquired TechniGraphix, Inc. (which we call
"TechniGraphix") for a purchase price of $7.3 million. TechniGraphix is a
producer of print-on-demand books located in Dulles, Virginia. Instead of using
offset or other press equipment requiring inked plates and set-up time to
manufacture books, TechniGraphix uses high-speed digital printing equipment to
reproduce book text directly from digitally stored files. On-demand printing
technology is suitable and cost-effective for smaller book production runs. With
on-demand printing, a publisher's titles need never be considered
"out-of-print." For the year ended December 31, 1998, TechniGraphix's net sales
were $6.3 million and its EBITDA was $1.1 million, on an unaudited basis.
6
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
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The Exchange Offer...... We are offering to exchange $1,000 principal amount of our
exchange notes for each $1,000 principal amount of old notes. As
of the date of this prospectus, $105,000,000 in aggregate
principal amount of old notes are outstanding.
Both the exchange notes and the old notes are issued under an
indenture dated February 2, 1999 with Chase Manhattan Trust
Company, National Association, as trustee.
We have registered the exchange notes under the Securities Act
and they are substantially identical to the old notes, except for
the elimination of certain transfer restrictions, registration
rights and liquidated damages provisions relating to the old
notes.
Resale of the Exchange
Notes................. Based on interpretations by the SEC set forth in certain
no-action letters issued to third parties, we believe that the
exchange notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided
that
- you are acquiring the exchange notes in the ordinary course of
business;
- you are not participating, do not intend to participate, and
have no arrangement or understanding with any person to
participate, in the distribution of the exchange notes issued
to you in the exchange offer; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any exchange notes
without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your
exchange notes from such requirements, you may incur liability
under the Securities Act. We do not assume, or indemnify you
against, such liability.
Each broker-dealer that is issued exchange notes for its own
account in exchange for old notes which were acquired by such
broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act, in connection
with any resale of the exchange notes. The accompanying letter of
transmittal states that, by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
A broker-dealer may use this prospectus for an offer to resell, a
resale or other retransfer of the exchange notes. We have agreed
that, for a period of one year after the expiration of the
exchange offer, we will make this prospectus and any amendment or
supplement to this prospectus available to any such broker-dealer
for use in connection with any such transactions. We believe that
no registered holder of the old
</TABLE>
7
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<TABLE>
<S> <C>
notes is an affiliate (as such term is defined in Rule 405 of the
Securities Act) of ours.
The exchange offer is not being made to, nor will we accept
surrenders for exchange from, holders of old notes in any
jurisdiction in which this exchange offer or the acceptance
thereof would not be in compliance with the securities or blue
sky laws of such jurisdiction.
Accrued Interest on the
Exchange Notes and the
Old Notes............. Interest on the exchange notes will accrue from the last interest
payment date on which interest was yet paid on the old notes, or,
if no interest was paid on the old notes, from the date of
issuance of the old notes (February 2, 1999). Holders whose old
notes are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the old notes.
No Minimum Condition.... We are not conditioning the exchange offer on the tender of any
minimum aggregate principal amount of old notes.
Expiration Date......... The exchange offer will expire at 5:00 p.m., New York City time,
on , 1999, unless we decide to extend the exchange
offer.
Withdrawal Rights....... You may withdraw your tender at any time prior to 5:00 p.m., New
York City time, on the expiration date.
Conditions to the
Exchange Offer........ The exchange offer is subject to customary conditions, which we
may waive. We currently anticipate that each of the conditions
will be satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or amend the
exchange offer at any time before the expiration date if any such
condition occurs. See "The Exchange Offer-- Conditions."
Procedures for Tendering
Old Notes............. If you are a holder of old notes who wishes to accept the
exchange offer, you must:
- complete, sign and date the accompanying letter of transmittal,
or a facsimile thereof, and mail or otherwise deliver such
documentation, together with your old notes to the exchange
agent at the address set forth under "The Exchange
Offer--Exchange Agent;" or
- arrange for the Depository Trust Company to transmit certain
required information, including an agent's message forming part
of a book-entry transfer in which you agree to be bound by the
terms of the letter of transmittal, to the exchange agent in
connection with a book-entry transfer.
By tendering your old notes, in either manner, you will be
representing, among other things, that:
- you are acquiring the exchange notes in the ordinary course of
business;
- you are not participating, do not intend to participate, and
have no arrangement or understanding with any person to
participate, in the
</TABLE>
8
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<TABLE>
<S> <C>
distribution of the exchange notes issued to you in the
exchange offer; and
- you are not an "affiliate" of ours.
Special Procedures for
Beneficial Owners..... If you beneficially own old notes registered in the name of a
broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your old notes in the exchange offer, you
should contact such registered holder promptly and instruct it to
tender on your behalf. If you wish to tender on your own behalf,
you must, prior to completing and executing the letter of
transmittal and delivering your old notes, either arrange to have
your old notes registered in your name or obtain a properly
completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery
Procedures............ If you wish to tender your old notes and time will not permit
your required documents to reach the exchange agent by the
expiration date, or the procedures for book-entry transfer cannot
be completed on time, you may tender your old notes according to
the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Use of Proceeds......... We will not receive any proceeds for the issuance of the exchange
notes in the exchange offer. We will pay all our expenses
incurred in connection with the exchange offer.
Federal Income Tax
Consequences.......... We anticipate that the exchange of notes in the exchange offer
will not be a taxable event for federal income tax purposes. See
"Certain U.S. Federal Income Tax Considerations."
Effect on Holders of Old
Notes................. As a result of this exchange offer, we will have fulfilled an
obligation under the registration rights agreement dated as of
February 2, 1999 between our Company and First Union Capital
Markets Corp., and, accordingly, there will be no increase in the
interest rate on the old notes. If you do not tender your old
notes in the exchange offer:
- you will continue to hold the old notes and will be entitled to
all the rights and limitations applicable to the old notes under
the indenture governing the notes, except for any rights under
the registration rights agreement that terminate as a result of
the completion of the exchange offer; and
- you will not have any further registration or exchange rights
and your old notes will be subject to certain restrictions on
transfer.
Accordingly, the trading market for untendered old notes could be
adversely affected.
Shelf Registration
Statement............. Under certain limited circumstances, certain holders of old notes
may require us to file a shelf registration statement under the
Securities Act, which would cover resales of old notes by such
holders.
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9
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<TABLE>
<S> <C>
Exchange Agent.......... Chase Manhattan Trust Company, National Association is serving as
exchange agent in connection with the exchange offer, and is also
trustee under the indenture. See "The Exchange Offer--Exchange
Agent."
TERMS OF THE EXCHANGE NOTES
Exchange Notes
Offered............... $105 million aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2009.
Issuer: ................ Phoenix Color Corp.
Maturity Date: ......... February 1, 2009
Interest Payment
Dates: ............... February 1 and August 1 of each year, beginning on August 1,
1999.
Optional Redemption..... We may redeem all or part of the exchange notes beginning on
February 1, 2004, at the redemption prices stated in "Description
of the Exchange Notes--Optional Redemption," plus accrued and
unpaid interest on the exchange notes to be redeemed. Until
February 1, 2002, we may also redeem up to 25% of the exchange
notes at a price of 110.375% of their face amount with the net
cash proceeds from one or more public equity offerings. See
"Description of the Exchange Notes--Optional Redemption."
Ranking: ............... The exchange notes will be general unsecured obligations of the
Company. The exchange notes will be effectively subordinated in
right of payment to our secured debt (including purchase money
indebtedness owed to suppliers of our capital equipment and
borrowings under our senior credit facility) with respect to the
assets securing such secured debt. The exchange notes will also
be subordinated in right of payment to all of our existing and
future senior debt. In the future, we may issue debt that ranks
senior, equal or subordinate to the exchange notes. See
"Description of the Exchange Notes--Ranking of the Notes."
Guarantees.............. All of our current and future "restricted subsidiaries" will
jointly, severally and unconditionally fully guarantee the
exchange notes on an unsecured senior subordinated basis. Each
subsidiary guarantor may issue debt that ranks senior, equal or
subordinate to its subsidiary guarantee. Each subsidiary's
guarantee will be effectively subordinated to each subsidiary
guarantor's secured debt with respect to the assets securing such
secured debt. Each subsidiary's guarantee will be subordinated in
right of payment to all of its existing and future senior debt.
See "Description of the Exchange Notes--Guarantees" and see
"Description of the Exchange Notes--Ranking of Guarantees."
Change of Control....... If a third party acquires control of our Company, you will have
the right to require us to repurchase your exchange notes at a
price equal to 101% of the principal amount of your exchange
notes plus accrued and unpaid interest to the date of purchase.
See "Description of the Exchange Notes--Change of Control."
Asset Sale Proceeds..... In certain instances, we would have to use the net cash proceeds
of certain asset sales to offer to purchase the exchange notes at
a price equal to 100% of the principal amount of the exchange
notes plus accrued and unpaid interest to the date of purchase.
See "Description of
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<TABLE>
<S> <C>
the Exchange Notes--Limitation on Sales of Assets and Subsidiary
Stock."
Certain Covenants....... We will issue the exchange notes under an indenture that will
contain covenants for your benefit that, among other things,
restrict our ability to:
- incur additional debt
- pay dividends
- incur liens
- transfer or sell assets
- enter into transactions with affiliates
- issue or sell stock of restricted subsidiaries
- merge or consolidate Phoenix Color or certain subsidiaries
- change our line of business
See "Description of the Notes--Certain Covenants"
</TABLE>
RISK FACTORS
You should read the "Risk Factors" section, as well as the other cautionary
statements throughout the entire prospectus, to ensure you understand the risks
associated with tendering your old notes in the exchange offer.
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
We present below summary historical and pro forma financial data of the
Company. We derived the historical financial data as of December 31, 1998 and
for the years ended December 31, 1996, 1997 and 1998 from the Company's audited
Consolidated Financial Statements and related Notes, which are included
elsewhere in this prospectus. We derived the historical financial data for the
year ended December 31, 1995 from the Company's audited Consolidated Financial
Statements and related Notes, which are not included herein. We derived the data
for the year ended December 31, 1994 from unaudited financial statements that we
prepared on the same basis as the audited Consolidated Financial Statements. In
our opinion, the unaudited financial data includes all adjustments (consisting
of normal recurring adjustments) that we consider necessary for a fair
presentation of the data.
The unaudited pro forma consolidated data presented below is based upon
audited financial statements for our Company for the year ended December 31,
1998 after giving effect to the acquisitions of Mid-City and TechniGraphix. The
unaudited pro forma consolidated operating data presented is based on certain
assumptions that we believe fairly represent the effect of both the acquisitions
and the issuance and sale of the old notes as if they had occurred on January 1,
1998, while the pro forma balance sheet data presented below assumes that the
acquisitions and such issuance and sale took place on December 31, 1998. By
including unaudited pro forma financial data, we do not suggest that the data
indicates what our results of operations would actually have been had the
acquisitions and this offering been completed on the assumed dates. You should
read this
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information in conjunction with the Consolidated Financial Statements and
related Notes and the other financial information contained elsewhere in this
offering memorandum.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996(1) 1997 1998
--------- --------- --------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 50,971 $ 60,907 $ 95,262 $ 104,794 $ 107,491
Gross profit.......................................... 13,503 15,778 24,146 31,072 26,864
Selling and marketing expenses........................ 1,827 3,036 6,089 5,881 6,278
General and administrative expenses................... 4,803 4,505 8,920 12,265 12,934
Income from operations................................ 6,873 8,237 7,869 12,926 7,652
Net income............................................ 3,200 3,710 1,366 4,482 1,028
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 14,834 $ 665
Total assets............................................................................ 132,440 143,199
Total debt (including capital lease obligations)........................................ 95,447 105,000
Total stockholders' equity.............................................................. 17,283 16,642
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996(1) 1997 1998
--------- --------- --------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and amortization expense................. $ 3,265 $ 3,119 $ 8,389 $ 9,142 $ 10,834
Capital expenditures (2).............................. 6,083 17,841 11,052 15,131 48,168
Ratio of earnings to fixed charges (3)................ 4.7x 4.2x 1.6x 2.7x 1.5x
EBITDA (4)............................................ $ 10,208 $ 11,346 $ 16,499 $ 22,005 $ 18,946
EBITDA margin (5)..................................... 20.0% 18.6% 17.3% 21.0% 17.6%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
UNAUDITED PRO FORMA CONSOLIDATED DATA:
Net sales................................................................................. $ 127,924
Net loss (6).............................................................................. (412)
Cash interest expense..................................................................... 10,894
EBITDA (4)................................................................................ 21,050
Ratio of total debt to EBITDA............................................................. 4.9x
Ratio of EBITDA to cash interest expense.................................................. 1.9x
</TABLE>
- ------------
(1) On February 1, 1996, the Company acquired NEBC. See "Management Discussion
and Analysis of Financial Condition and Results of Operations" and Note 7 to
Notes to Consolidated Financial Statements.
(2) Includes property and equipment financed through notes, deposits and capital
leases. See Consolidated Statements of Cash Flows in the Consolidated
Financial Statements.
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(3) In calculating the ratio of earnings to fixed charges, earnings consist of
earnings before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or capitalized,
and that portion of rental expense estimated to be attributable to interest.
(4) EBITDA represents net income of the Company plus interest, income taxes and
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 used 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 offering
memorandum because it is a basis on which the Company assesses its financial
performance and certain covenants in the Company's borrowing arrangements
are tied to similar measurements. See Note 2 and Consolidated Statements of
Cash Flows in Consolidated Financial Statements.
(5) EBITDA margin represents EBITDA divided by net sales.
(6) Includes expenses associated with the Mid-City and TechniGraphix
acquisitions and the issuance of the old notes, such as (i) incremental
interest expense and amortization of financing costs resulting from the
issuance of the old notes and (ii) amortization of goodwill attributable to
the acquisitions.
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RISK FACTORS
Before you tender your old notes, you should be aware that there are various
risks, including those described below. You should consider carefully these risk
factors together with all of the other information included in this offering
memorandum before you decide to accept the exchange offer.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES, AND THERE MAY BE PROSPECTUS REQUIREMENTS FOR CERTAIN BROKER-DEALERS
SELLING THE EXCHANGE NOTES
The old notes were offered to a small number of institutional buyers and are
eligible for trading in the PORTAL Market. The exchange notes will be a new
issue of securities for which there is no existing trading market. We cannot
assure you as to the liquidity of markets that may develop for the exchange
notes, your ability to sell the exchange notes or the price at which you would
be able to sell the exchange notes. If such markets were to exist, the exchange
notes could trade at prices that may be lower than their principal amount or
purchase price depending on many factors, including prevailing interest rates
and the markets for similar securities. First Union Capital Markets Corp. has
advised us that it currently intends to make a market with respect to the
exchange notes. However, it is not obligated to do so, and any market making
with respect to the exchange notes may be discontinued at any time without
notice. In addition, such market making activity may be limited during the
pendency of the exchange offer. We do not intend to apply for listing of the
exchange notes on any national securities exchange or on NASDAQ. The liquidity
of, and trading market for, the exchange notes also may be adversely affected by
changes in the market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the exchange notes.
Based on interpretations by the SEC, we believe that you may offer for
resale, resell or otherwise transfer the exchange notes issued pursuant to the
exchange offer (unless you are an "affiliate" of ours within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, so long as you acquired
the exchange notes in the ordinary course of your business and you will not, and
have no arrangement with any person to, participate in the distribution of the
exchange notes. However, each broker-dealer that receives exchange notes for its
own account in exchange for old notes, where such old notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
OUR LEVERAGE MAY RESULT IN SIGNIFICANT DEBT SERVICE OBLIGATIONS AND LIMITATIONS
As a result of the issuance and sale of the old notes, we will have a
significant level of indebtedness. As of December 31, 1998, on a pro forma basis
after giving effect to such issuance and sale, we would have had approximately
$105.0 million of indebtedness. We would have also had approximately $15.8
million of additional borrowing availability under our senior credit facility
("Senior Credit Facility") on that date. See "Capitalization" and "Description
of Senior Credit Facility." In addition, the indenture governing the notes
allows us to incur additional indebtedness under certain circumstances. Our
ability to pay principal and interest on the notes and to satisfy our other
obligations will depend on our future operating performance. Our operating
performance will be affected by prevailing economic conditions and financial,
business and other factors, which may be beyond our control.
Our high degree of leverage could have important consequences to you, such
as:
- we must use a substantial portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the funds available
to us for other purposes such as capital expenditures and acquisitions;
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- in the future, we may not be able to obtain additional financing on
satisfactory terms for working capital, capital expenditures, acquisitions
or other general corporate purposes;
- our borrowings under our Senior Credit Facility bear interest at variable
rates, which would create higher debt service requirements if market
interest rates increase;
- we may not be able to compete as effectively with competitors that are
less leveraged; and
- our degree of leverage may hinder our ability to adjust rapidly to
changing market conditions and could make us more vulnerable to downturns
in general economic conditions or in our business.
If we cannot generate sufficient cash flow from operations to meet our
obligations, we may be forced to reduce or delay capital expenditures, sell
assets, restructure or refinance our debt, or seek additional equity capital.
However, we cannot assure you that any of these remedies would be available or
satisfactory. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
YOUR EXCHANGE NOTES WILL BE SUBORDINATED TO OUR SENIOR INDEBTEDNESS
Before paying principal and interest on the exchange notes, we must first
make payments on our existing and future senior indebtedness, including all
amounts owed under our Senior Credit Facility. As of December 31, 1998, on a pro
forma basis, we would have had no borrowings under our Senior Credit Facility
but we would have had the ability to borrow approximately $15.8 million under
such Senior Credit Facility. See "Capitalization" and "Description of Senior
Credit Facility.".
Our obligations under the Senior Credit Facility are secured by
substantially all of the Company's assets, including the real and personal
property used in our business operations, and by a majority of the ownership
interest in the Company held by our stockholders. If we default on any payments
required under any secured indebtedness (including our Senior Credit Facility),
the secured lenders could declare all amounts outstanding, together with accrued
and unpaid interest, to be immediately due and payable. If we were unable to
repay amounts due, the lenders could proceed against their collateral. If these
lenders proceed against the collateral, we may not have sufficient assets
remaining to pay you and other noteholders. Moreover, if we become bankrupt or
similarly reorganize, we would not be able to use our assets to pay you and
other noteholders until after we pay all of our senior indebtedness in full. In
addition, if certain defaults exist with respect to senior indebtedness, we may
be prohibited from paying amounts due on the exchange notes, or from purchasing,
redeeming or otherwise acquiring the exchange notes. See "Description of the
Exchange Notes--Ranking of the Exchange Notes."
OUR INDEBTEDNESS PREVENTS US FROM ENGAGING IN CERTAIN ACTIVITIES
Our Senior Credit Facility and the indenture governing the exchange notes
each contain a number of significant covenants. These covenants limit or
restrict our ability to:
- incur additional debt;
- pay dividends;
- incur liens;
- transfer or sell assets;
- enter into transactions with affiliates;
- issue or sell stock of restricted subsidiaries;
- merge or consolidate Phoenix Color or certain subsidiaries; or
- change our line of business.
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These limitations and restrictions may adversely affect our ability to
finance our future operations or capital needs or engage in other business
activities that may be in our best interest. In addition, our Senior Credit
Facility also requires us to comply with certain financial ratios. Our ability
to comply with these ratios may be affected by events beyond our control. If we
breach any of the covenants in the Senior Credit Facility or the indenture, or
if we are unable to comply with the required financial ratios, we may be in
default under the Senior Credit Facility. If we default, the lenders under the
Senior Credit Facility could declare all borrowings outstanding under the Senior
Credit Facility, including accrued interest and other fees, to be due and
payable. If we must use all of our available cash to repay borrowings under the
Senior Credit Facility, we may not be able to make payments on the exchange
notes. If we were unable to repay the borrowings under the Senior Credit
Facility when due, the lenders could also proceed against the collateral granted
to them. If our lenders accelerate the repayment of indebtedness under the
Senior Credit Facility, our assets may not be sufficient to repay all of the
indebtedness in full. See "Description of Senior Credit Facility" and
"Description of the Exchange Notes."
OUR EXPANSION INTO BOOK MANUFACTURING MAY CREATE NEW PROBLEMS AND MAY NOT BE
SUCCESSFUL
We are expanding our business by investing in two new facilities for
manufacturing certain types of complete books. One plant, which recently
commenced operations, is now producing complete, high-quality, multi-color,
thin, flat back, hardcover books suitable for juvenile publishing and other
markets. The second plant, expected to begin operations in the second quarter of
1999, 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 may present different operating and
marketing problems from those we faced previously, as well as unforeseen
expenses, difficulties, complications or delays. In addition, the production of
complete books may result in loss of business from certain book manufacturers
who have ordered book components from us in the past. We cannot guarantee that
we will receive significant orders for complete books, and, even if we do, that
those orders will be sufficient to offset the cost of complete book manufacture
or that our expansion into complete book manufacturing will be successful. See
"We Could Lose Business to Our Competitors" and "Business--New Book
Manufacturing Facilities."
OUR INABILITY TO MANAGE GROWTH COULD HARM OUR FUTURE BUSINESS
We plan to develop additional manufacturing facilities, to integrate the
recent Mid-City and TechniGraphix acquisitions and, should appropriate
opportunities arise, to acquire other book component and book manufacturing
companies in the future. If we pursue these goals at the same time, our
managerial, operational and financial resources may be strained. Our future
performance and profitability will depend on the maintenance of existing
customer relationships, the effective marketing of expanded services, the
ability to maintain a consistently high level of service, the ability to
recruit, train, motivate and retain qualified personnel, and the ability to
integrate acquired companies into our existing business. We cannot assure you
that we will be able to maintain or accelerate our growth or to anticipate
changing demands that expanding operations will impose on our resources. If we
fail to manage our growth carefully, our business could suffer adverse
consequences.
WE MIGHT NOT SUCCEED IN COMPLETING OR INTEGRATING OUR ACQUISITIONS INTO OUR
BUSINESS
We completed a substantial acquisition (NEBC) in 1996, and we recently
closed the acquisitions of Mid-City and TechniGraphix. We also intend to
evaluate other book component and book manufacturing companies for possible
future acquisitions. Acquisitions generally involve numerous risks, including
the diversion of management's attention from other business concerns and the
potential loss
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of key employees. The contribution of any acquisition to our future revenues and
profitability, and the realization of economies of scale from such acquisition,
will depend to a large extent on our ability to integrate effectively the
customer base, operations and personnel of the acquired company into our
existing business. If we fail to achieve such integration, our Company could be
adversely affected. See "Mid-City Acquisition" and "TechniGraphix Acquisition."
WE COULD LOSE ONE OR MORE MAJOR CUSTOMERS
Our ten largest customers accounted for approximately 71.0% of net sales in
1998. Simon & Schuster and Harper Collins, our two largest customers, accounted,
respectively, for 14.7% and 14.9% of 1998 net sales and 17.1% and 13.7% of 1997
net sales. We have no long-term commitments for continuing orders from our
customers, and we cannot predict that we will be able to maintain or increase
the current level of sales derived from our existing customers or attract
additional customers. The loss of any of our major customers could have a
material adverse affect on our business. See "Business--Sales and Marketing."
WE COULD LOSE BUSINESS TO OUR COMPETITORS
Our industry is extremely competitive. We face competition from other
independent book component printers, as well as from such commercial printing
firms as R.R. Donnelley, Quebecor Printing, Banta and World Color Press, all of
whom offer component printing services as part of their complete book
manufacturing businesses, and all of whom are substantially larger than the
Company. In addition, now that we have begun to manufacture certain types of
complete books, we will be competing with various U.S. and foreign book printing
companies. 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 is a risk that major commercial printing firms such as
R.R. Donnelley, Quebecor Printing, Banta and World Color Press will seek to
expand their book component business significantly, which could have a material
adverse effect on our business. See "Business--Competition."
WE DEPEND ON THE BOOK MARKET AND THE GENERAL INTEREST SEGMENT OF THAT MARKET
We derive all of our revenues from customers in the book publishing and book
printing industries, which ultimately depend on the sale of books. For this
reason, our business could be adversely affected by factors such as changes in
the book-buying habits of the general public or in the funding of large
institutional users of books such as libraries and elementary and high schools.
In addition, we are dependent on the sale of book components used in the general
interest segment of the consumer book market. The general interest book segment
experienced modest declines in total sales in 1995 and 1996. Therefore, future
weakness in this segment, particularly if not offset by improvement in other
book market segments, could have a material adverse affect on the Company's
business. See "Business-- Sales and Marketing."
OUR COMPANY DEPENDS ON KEY MANAGERS
Our success is substantially dependent on the efforts, abilities and
continued services of our senior management, including Louis LaSorsa, Chairman,
President and Chief Executive Officer. Our business could suffer if we lost the
services of any one or more of such senior management. Our future success also
depends on our ability to recruit, train, motivate and retain other highly
skilled managerial, technical, marketing and customer service personnel.
Competition for such personnel is intense, and we cannot be certain we will meet
our future personnel needs. If we fail to meet such personnel needs, our
business could be adversely affected. See "Management."
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WE MIGHT NOT BE ABLE TO MAKE FUTURE INVESTMENTS IN NEW TECHNOLOGY
We have invested substantial resources in modern printing technology and
must continue to do so in the future in order to remain competitive in our
industry. However, there is a risk that the Company will not be able to finance
such capital expenditures in the future. There is also a risk that subsequent
technological change will result in our newly acquired equipment being less
efficient than subsequent versions of such equipment. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
OUR RAW MATERIAL COSTS COULD INCREASE
The prices of raw materials we use, including paper, foil and ink, are
subject to market fluctuations. For example, paper prices increased in 1994 and
1995. Although the prices we paid for paper and other finishing materials
remained stable during that period due to our policy of single-source
purchasing, if prices for paper or other materials increase in the future and if
we are not able to pass such increases on to our customers, or if our customers
reduce the size of their orders as a result of such increases, our sales and
profitability could suffer. See "Business--Raw Materials, Purchasing and
Inventory."
WE COULD BE AFFECTED BY "YEAR 2000" COMPUTER PROBLEMS
Many existing computer programs use only two digits to identify a year in
the computer's processing operations. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. "Year 2000" issues affect virtually all companies and
organizations, including our Company.
The Company's digital communications and information network has been
continually upgraded with the newest equipment available, all of which, the
Company has been informed by the manufacturers, is Year 2000 compliant. The
Company's information systems consist of local and wide area networks, and the
Company's file servers use the most recent versions of Novell and Microsoft NT
software, which are represented to be Year 2000 compliant. In 1998, the Company
rewrote all of its information system programs, including its manufacturing and
financial software, in conjunction with a company-wide systems upgrade and, as a
result, believes that its Year 2000 issues have been addressed.
As part of its Year 2000 compliance program, and in order to minimize
potential disruptions caused by the Year 2000, the Company investigated Year
2000 compliance by its suppliers, including the manufacturers of such equipment.
Based on the responses received, the Company does not believe it will experience
a disruption in its manufacturing processes from equipment currently owned. The
Company also requested information from its major suppliers of consumable
products used in manufacturing, including paper, ink, and finishing materials,
as to their ability to deliver product without interruption. These suppliers
have indicated they do not anticipate any Year 2000 disruption in the delivery
of product.
Based on the actions taken with respect to internal systems, and responses
received from vendors, management does not anticipate that the Company will be
subject to a material disruption in its information systems, or in its ability
to manufacture products or receive necessary raw materials from vendors due to
computer calendaring and date change problems associated with the Year 2000.
Although the Company has taken what it believes is prudent action to eliminate
disruption which may be caused by the Year 2000, there is no guarantee that the
Company will not be affected by dislocations caused by the Year 2000 beyond its
control, such as disruptions which could affect public utilities or financial
institutions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Compliance.
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WE MAY NOT HAVE SUFFICIENT FUNDS TO REPAY THE EXCHANGE NOTES UPON A CHANGE OF
CONTROL
In the event a third party acquires control of our Company, you will have
the right to require us to purchase the exchange notes at a purchase price equal
to 101% of the principal amount of your exchange notes plus accrued and unpaid
interest to the date of purchase. In such circumstances, we may be required to
(1) repay all or a portion of any senior debt outstanding or (2) obtain our
lenders' consent to our purchase of the exchange notes. If we cannot repay all
of our debt or cannot obtain the needed consents, we may be unable to purchase
the exchange notes. This would be an event of default under the indenture. Upon
a change of control, we cannot guarantee that we will have sufficient funds to
make any debt repayment (including purchases of the exchange notes) as described
above. Also, we cannot guarantee that we could refinance our outstanding debt in
order to purchase the exchange notes or, if we could refinance, that such
financing would be on terms favorable to us. See "Description of the Exchange
Notes--Change of Control."
The events that qualify as a change of control under the indenture may also
be events of default under the Senior Credit Facility or other indebtedness. An
event of default under the Senior Credit Facility would permit the lenders to
accelerate the indebtedness. If we were unable to repay such borrowings when
due, the lenders could proceed against their collateral.
ISSUANCE OF THE EXCHANGE NOTES MAY BE SUBJECT TO FRAUDULENT CONVEYANCE LAWS
Any debt that we issue may be subject to review under relevant state and
federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced
by or on behalf of our unpaid creditors. A court may find that, after giving
effect to the sale of the exchange notes, either:
- we issued the exchange notes with the intent of hindering, delaying or
defrauding creditors or contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others; or
- we received less than reasonably equivalent value or fair consideration
for the exchange notes, and any one of the following occur:
- we were insolvent or rendered insolvent by reason of the issuance of
the exchange notes; or
- we were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
- we intended to incur, or believed that we would incur, debts beyond our
ability to pay as they matured.
A court could then subordinate the exchange notes to our presently existing
and future indebtedness, void the issuance of such indebtedness and direct the
repayment of any amounts paid thereunder to our creditors or take other action
detrimental to the holders of such indebtedness.
Similarly, the guarantees of our "restricted subsidiaries" may be subject to
federal or state court review in the event of a bankruptcy or other creditor
court proceeding. If a court were to find that the guarantees were issued under
circumstances such as those described in the preceding paragraph relating to the
exchange notes, the court could void the guarantees and direct the repayment of
amounts previously paid under the guarantees.
Also, if federal bankruptcy or state insolvency proceedings were commenced
within 90 days after a payment by us with respect to the exchange notes, or if
we anticipated becoming insolvent at the time of the payment, all or a portion
of the payment could be voided as a preferential transfer and the recipient of
such payment could be required to return the payment.
There is no generally applicable standard which a court might apply in the
future to decide if we would be considered insolvent at a particular point in
time. Generally, a business is considered
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"insolvent" if the fair value of all of its assets is less than the sum of its
debts, or if the business is unable to pay its debts as they mature and become
due. Based on our financial statements, recent operating history and other
factors, and after taking into account the issuance of the exchange notes, we
believe we would not be considered insolvent by a court, would not be viewed as
having unreasonably small capital for our business and would not be seen as
incurring debts beyond our ability to pay them as they become due. However, it
is not certain that a court passing on such matters in the future would agree
with us.
OLD NOTES OUTSTANDING AFTER THE EXCHANGE OFFER WILL NOT HAVE REGISTRATION
RIGHTS, AND MAY HAVE A MORE LIMITED MARKET
If you do not exchange your old notes for exchange notes pursuant to the
exchange offer, your old notes will continue to be subject to the restrictions
on transfer of old notes. In general, you may not offer or sell old notes unless
they are registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. We do not intend to
register the old notes under the Securities Act. To the extent that old notes
are tendered and accepted in the exchange offer, the trading market for
remaining untendered and tendered but unaccepted old notes will be adversely
affected.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the exchange of the old
notes ("Old Notes") pursuant to the exchange offer. The net proceeds to the
Company from the issuance of the Old Notes on February 2, 1999 were
approximately $101.0 million, after deducting the initial purchaser's discount
and expenses. The Company used the net proceeds from the offering of the Old
Notes to repay all $11.3 million of outstanding indebtedness under the Senior
Credit Facility, which bore interest at a weighted average rate of 8.1% as of
December 31, 1998, $40 million of indebtedness under certain senior secured
notes (the "Bridge Notes") issued September 15 and November 30, 1998, and
outstanding notes payable and obligations under capital leases. See
"Capitalization" and Note 5 to the Consolidated Financial Statements. The
proceeds of the Bridge Notes, which bore interest at a rate of 9.75% as of
December 31, 1998, were used to repay the balance of two earlier term loans, to
fund the acquisition of Mid-City, and for working capital. Affiliates of First
Union Capital Markets Corp. acted as lender and the agent under both the Senior
Credit Facility and the agreement under which the Bridge Notes were issued. For
a description of the Senior Credit Facility, see "Description of Senior Credit
Facility."
20
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of December
31, 1998 (i) on a historical basis, and (ii) on a pro forma basis to give effect
to the issuance and sale of the Old Notes and the acquisitions of Mid-City and
TechniGraphix. The information in this table should be read in conjunction with
"Summary Historical and Unaudited Pro Forma Consolidated Financial Data," "Use
of Proceeds," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto included in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
<S> <C> <C>
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents....................................................... $ 14,834 $ 665
---------- -----------
---------- -----------
Long-term debt (including current portion):
Senior Credit Facility (1).................................................... $ 11,325 $ --
Notes payable and obligations under capital leases............................ 44,122 --
Bridge Notes.................................................................. 40,000 --
Exchange Notes offered hereby................................................. -- 105,000
---------- -----------
Total long-term debt........................................................ 95,447 105,000
Stockholders' equity.......................................................... 17,283 16,642
---------- -----------
Total capitalization...................................................... $ 112,730 $ 121,642
---------- -----------
---------- -----------
</TABLE>
- ------------
(1) The Senior Credit Facility provides for borrowings up to $20.0 million under
a revolving credit facility. On a pro forma basis, as of December 31, 1998,
the Company would have had $15.8 million of borrowing availability under the
Senior Credit Facility.
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below is certain selected consolidated historical financial
information of the Company and its subsidiaries as of December 31, 1994, 1995,
1996, 1997 and 1998 and for the years then ended. The following financial data
as of December 31, 1995, 1996, 1997, and 1998 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 PricewaterhouseCoopers
LLP, independent accountants. Such firm's report on the Company's Consolidated
Financial Statements as of December 31, 1997 and 1998 and for each of the three
years in the period ended December 31, 1998 is included elsewhere in this
prospectus. The financial data presented below as of December 31, 1994 is
unaudited and was prepared by management of the Company on the same basis as the
audited Consolidated Financial Statements included elsewhere in this
registration statement and, in the opinion of management, includes all
adjustments necessary to present fairly the information set forth therein. The
selected historical financial information set forth below should be read in
conjunction with the Consolidated Financial Statements, the Notes thereto and
the other financial information contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996(1) 1997 1998
--------- --------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 50,971 $ 60,907 $ 95,262 $ 104,794 $ 107,491
Cost of sales........................................... 37,468 45,129 71,116 73,722 80,627
--------- --------- --------- ---------- ----------
Gross profit............................................ 13,503 15,778 24,146 31,072 26,864
--------- --------- --------- ---------- ----------
Operating expenses:
Selling and marketing expenses.......................... 1,827 3,036 6,089 5,881 6,278
General and administrative.............................. 4,803 4,505 8,920 12,265 12,934
Impairment loss (2)..................................... -- -- 1,268 -- --
--------- --------- --------- ---------- ----------
Total operating expenses................................ 6,630 7,541 16,277 18,146 19,212
--------- --------- --------- ---------- ----------
Income from operations.................................. 6,873 8,237 7,869 12,926 7,652
Interest expense........................................ 1,341 1,827 4,937 4,484 5,076
Other (income) expense.................................. (70) 10 (241) 62 (460)
--------- --------- --------- ---------- ----------
Income before income taxes:............................. 5,602 6,400 3,173 8,380 3,036
Income tax provision.................................... 2,402 2,690 1,807 3,898 2,008
--------- --------- --------- ---------- ----------
Net income.............................................. $ 3,200 $ 3,710 $ 1,366 $ 4,482 $ 1,028
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
BALANCE SHEET DATA (AT YEAR END):
Cash and cash equivalents............................... $ 299 $ 370 $ 158 $ 1,045 $ 14,834
Total assets............................................ 30,609 50,038 76,113 84,993 132,440
Total debt (including capital lease obligations)........ 14,488 26,411 49,939 46,726 95,447
Total stockholders' equity.............................. 7,689 10,154 11,610 16,154 17,283
OTHER FINANCIAL DATA:
Depreciation and amortization expense................... $ 3,265 $ 3,119 $ 8,389 $ 9,142 $ 10,834
Capital expenditures (3)................................ 6,083 17,841 11,052 15,131 48,168
Ratio of earnings to fixed charges (4).................. 4.7x 4.2x 1.6x 2.7x 1.5x
EBITDA (5).............................................. 10,208 11,346 16,499 22,005 18,946
EBITDA margin (6)....................................... 20.0% 18.6% 17.3% 21.0% 17.6%
</TABLE>
22
<PAGE>
- ------------
(1) On February 1, 1996, the Company acquired NEBC. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 7 of
Notes to Consolidated Financial Statements.
(2) Reflects the write-down of real estate assets held for sale to their
estimated net realizable value.
(3) Includes property and equipment financed through notes, deposits and capital
leases. See Consolidated Statements of Cash Flows in the Consolidated
Financial Statements.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
earnings before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or capitalized,
and that portion of rental expense estimated to be attributable to interest.
(5) EBITDA represents net income of the Company plus interest, income taxes,
depreciation and amortization. EBITDA is not a measure of financial
performance under 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 offering memorandum because it is a basis on which the Company
assesses its financial performance, and certain covenants in the Company's
borrowing agreements are tied to similar measurements. See Consolidated
Statements of Cash Flows and Note 2 in Consolidated Financial Statements.
(6) EBITDA margin represents EBITDA divided by net sales.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial Data" and the audited Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this prospectus.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
information derived from the Company's Consolidated Statements of Operations
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
% % %
$ --------- $ --------- $ ---------
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................................................ 95,262 100.0 104,794 100.0 107,491 100.0
Cost of sales.................................................... 71,116 74.7 73,722 70.3 80,627 75.0
--------- --------- --------- --------- --------- ---------
Gross profit..................................................... 24,146 25.3 31,072 29.7 26,864 25.0
--------- --------- --------- --------- --------- ---------
Operating Expenses:
Selling and marketing expenses................................. 6,089 6.4 5,881 5.6 6,278 5.9
General and administrative expenses............................ 8,920 9.4 12,265 11.7 12,934 12.0
Impairment loss................................................ 1,268 1.2 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total operating expenses......................................... 16,277 17.0 18,146 17.3 19,212 17.9
--------- --------- --------- --------- --------- ---------
Income from operations........................................... 7,869 8.3 12,926 12.4 7,652 7.1
Interest expense................................................. 4,937 5.2 4,484 4.3 5,076 4.7
Other (income) expense........................................... (241) (0.3) 62 0.1 (460) (0.4)
--------- --------- --------- --------- --------- ---------
Income before income taxes....................................... 3,173 3.4 8,380 8.0 3,036 2.8
Income tax provision............................................. 1,807 1.9 3,898 3.7 2,008 1.8
--------- --------- --------- --------- --------- ---------
Net income....................................................... 1,366 1.5 4,482 4.3 1,028 1.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales increased $2.7 million or 2.6% to $107.5 million for the year
ended December 31, 1998 from $104.8 million for the same period in 1997. These
increases were a result of higher unit volume in the general interest, juvenile
and religious segments of the publishing market, as indicated in the table under
"Business--Sales and Marketing.".
Gross profit declined $4.2 million or 13.5% to $26.9 million for the year
ended December 31, 1998, from $31.1 million for the same period in 1997,
decreasing the gross profit margin to 25.0% for the year ended December 31, 1998
from 29.7% for the same period in 1997. This decline resulted primarily from the
opening in September 1998 of the Company's new thin flat back book manufacturing
facility in New Jersey, for which the Company incurred approximately $2.4
million of costs, with offsetting sales of approximately $388,000. The effect of
this opening was almost entirely borne by the fourth quarter. Additionally, the
Company incurred costs of $780,000 for the relocation of its Hingham,
Massachusetts facility to Taunton, Massachusetts, and other costs and expenses
during the first quarter of 1998 in connection with the distribution of a former
facility's activities to various other facilities, including establishing a
prepress department in New York.
Operating expenses increased $1.1 million or 6.1% to $19.2 million for the
year ended December 31, 1998, from $18.1 million for the same period in 1997.
This increase was attributable to expenses incurred to provide for expanded
operations in both book components and book
24
<PAGE>
manufacturing, including increases in promotional costs of $275,000, sales staff
support costs of $285,000, and telecommunications costs of $300,000. Operating
expenses increased 0.6% as a percentage of sales to 17.9% for the year ended
December 31, 1998 from 17.3% for the same period in 1997.
Interest expense increased $592,000 or 13.2% to $5.1 million for the year
ended December 31, 1998 from $4.5 million for the same period in 1997. The
increase was due to additions of certain term debt for equipment, the write-off
of the balance of $210,000 of deferred financing costs for the acquisition of
NEBC and interest incurred in connection with the Bridge Notes during the fourth
quarter. In the first quarter of 1999, as a result of the sale and issuance on
February 2, 1999 of $105 million aggregate principal amount of Old Notes, the
Company wrote off a balance of $1,140,000 of deferred financing costs applicable
to the Bridge Notes, which is expected to reduce 1999 net income by
approximately $695,000, after reflecting the related deferred income tax
benefit.
During the year ended December 31, 1998, the Company had non-operating
income of $460,000 compared with a loss of $62,000 for the same period in 1997.
The income or loss was primarily a result of gain and losses from the sale of
certain assets.
The Company's effective tax rate was 66.1% and 46.5% for the years ended
December 31, 1998 and 1997 respectively. The effective rate is primarily
attributable to the proportion of non-deductible amortization expense for
goodwill resulting from the NEBC acquisition to pretax income.
Net income declined $3.5 million to $1.0 million for the year ended December
31, 1998 from $4.5 million for the same period in 1997, a decrease of 77.8%. The
decrease was due to the factors described above.
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 sales of NEBC following its acquisition on
February 1, 1996. If, for comparison purposes, the Company's 1996 net sales had
included the January operations of NEBC, net sales for 1997 would have shown an
increase of $6.5 million or 6.8% over such adjusted 1996 net sales. These sales
increases occurred due to increases in the Company's unit volume in the
education, computer book and book club segments of the publishing market and
despite difficult conditions in the general interest book segment of the
publishing industry in 1997. Industry sales of hardcover general interest books
declined 7.2% in 1997, due primarily to increased returns from book retailers.
Gross profit increased $7.0 million, or 29.0%, 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. In addition to the effect of increased sales, the 4.4% increase in gross
margin was attributable to the following decreases in costs and expenses
expressed as a percentage of sales: material costs, 1.2%; production labor,
1.6%; and overhead, 1.6%. Savings in materials 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 $1.8 million or 11.0% to $18.1 million in 1997
from $16.3 million in 1996. Operating expenses increased as a percentage of net
sales from 17.0% in 1996 to 17.3% in 1997. This increase was attributable to the
payment of $2.1 million of discretionary management incentive compensation to
certain Company officers and other supervisory personnel, a contribution of
$750,000 to the Stock Bonus Plan, the addition of sales and marketing personnel
and higher depreciation expense. 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.
25
<PAGE>
Interest expense decreased $453,000, or 9.2%, to $4.5 million in 1997 from
$4.9 million in 1996. This 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.
The Company's effective tax rate was 46.5% for 1997 compared to 56.9% for
1996. The decrease was primarily attributable to an increase in taxable income
and a decrease in the proportion of non-deductible amortization expense for
goodwill to pretax income.
Net income grew by $3.1 million to $4.5 million for 1997 from $1.4 million
for the prior year, an increase of 221.4%. The increase was due to the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations, including funding for
the NEBC acquisition, with internally generated funds, external short and
long-term borrowings and capital and operating leases. Cash flows from operating
activities amounted to $13.9 million for 1996, $18.2 million for 1997 and $14.2
million for 1998.
In September 1998, the Company entered into the Senior Credit Facility,
which provides for a three-year $20.0 million revolving credit facility with
First Union National Bank, and a $40 million facility with First Union
Investors, Inc. under which the Company issued the Bridge Notes. The Senior
Credit Facility refinanced the Company's prior senior indebtedness. The proceeds
of the Bridge Notes were used to repay certain existing indebtedness, provide
interim funding for the Company's expansion and fund the acquisition of
Mid-City. On February 2, 1999, the Company issued the old notes and used the
proceeds to repay the Bridge Notes and its borrowings under the Senior Credit
Facility. See "Use of Proceeds".
Borrowings under the Senior Credit Facility are collateralized by
substantially all of the Company's assets. As of December 31, 1998, the interest
rate on such borrowings was 9.75%. See "Description of Senior Credit Facility".
In addition to the Senior Credit Facility, the Company has credit
arrangements with various financial institutions to finance the purchase of
equipment. The Company has operating lease arrangements for two printing
presses. Rental expense related to such leases was approximately $593,000 for
1996, $480,000 for 1997 and $540,000 for 1998.
Capital expenditures, inclusive of equipment acquired under capital leases
and notes payable, totaled $11.1 million for 1996, $15.1 million for 1997 and
$48.2 million for 1998. The Company has traditionally invested in facilities and
equipment to increase capacity, improve efficiency, maintain high levels of
productivity and meet customer needs. Capital expenditures primarily have been
for prepress, pressroom and finishing equipment and plant construction.
The Company's capital expenditures for 1999 are currently estimated to total
approximately $22.9 million. Of that total, expansion-related capital
expenditures are estimated to total $19.5 million (net of equipment deposits).
This consists of $6.8 million for equipment and $12.5 million related to
facilities development for the paperback book manufacturing facility in
Maryland, and $230,000 for additional equipment for the book manufacturing
facility in New Jersey. The remaining $3.4 million will be used for maintenance
and equipment replacement at the Company's existing facilities. See
"Business--Business Strategy".
The Company believes that funds generated from operations, together with
existing cash, the net proceeds of the sale of the old notes, available credit
under the Senior Credit Facility ($15.8 million as of December 31, 1998), and
equipment leases, will be sufficient to finance its current operations, planned
capital expenditure requirements and internal growth. The cost of the Mid-City
acquisition was funded through the issuance of Bridge Notes in November 1998 and
the acquisition of TechniGraphix
26
<PAGE>
was funded from the proceeds of the sale of the old notes. However, if the
Company were to make any significant additional acquisitions for cash, it may be
necessary to obtain additional debt or equity financing. There can be no
assurance that such financing will be available on satisfactory terms or at all.
The Company has no current commitments or agreements with respect to any
acquisitions.
YEAR 2000 COMPLIANCE
The Company's digital communications and information network has been
continually upgraded with the newest equipment available, all of which, the
Company has been informed by the manufacturers, is Year 2000 compliant. The
Company's information systems consist of local and wide area networks, and the
Company's file servers use the most recent versions of Novell and Microsoft NT
software, which are represented to be Year 2000 compliant. In 1998, the Company
rewrote all of its information system programs, including its manufacturing and
financial software, in conjunction with a company-wide systems upgrade and, as a
result, believes that all of its Year 2000 issues have been addressed.
Incidental to such upgrade were measures taken to insure the new software would
be Year 2000 compliant, but no separate costs were assigned to such Year 2000
compliance aspects and, if such costs could be measured, they would not be
material.
The Company uses modern, highly sophisticated computer imaging and image
management equipment in its prepress department, state-of-the-art printing
presses, finishing equipment, foil stamping and other postpress equipment. As
part of its Year 2000 compliance program, and in order to minimize potential
disruptions caused by the Year 2000, the Company investigated Year 2000
compliance by its suppliers, including the manufacturers of such equipment. The
Company has inquired of these suppliers, through publicly available information
and direct correspondence, as to the status of their Year 2000 compliance,
including any potential for disruption caused by embedded chips used in such
equipment. Based on the responses received, the Company does not believe it will
experience a disruption in its manufacturing processes from equipment currently
owned. It is the Company's intention to independently verify the Company's
system compliance with respect to Year 2000 issues.
The Company also requested information from its major suppliers of
consumable products used in manufacturing, including paper, ink, and finishing
materials, as to their ability to deliver product without interruption. These
suppliers have indicated they do not anticipate any Year 2000 disruption in the
delivery of product. For example, paper is manufactured for the Company by its
vendors, who maintain a 30-day inventory which is held in a warehouse located
near the Company for delivery upon request by the Company. In the event of an
emergency, the paper could be delivered to the Company using the Company's own
trucks.
Based on the actions taken with respect to internal systems, and responses
received from vendors, management does not anticipate that the Company will be
subject to a material disruption in its information systems, or in its ability
to manufacture products or receive necessary raw materials from vendors due to
computer calendaring and date change problems associated with the Year 2000. The
Company is continuing to monitor all aspects of its communication and
information systems, and does not foresee that any material costs will be
incurred to continue its evaluation or to take any additional remedial action,
should any such additional action be indicated.
If, despite measures taken by the Company, a Year 2000 malfunction should
result in an interruption of operations at one or more Company facilities, the
Company would be able to shift production operations on an interim basis to its
other facilities. Also, the Company's principal suppliers generally maintain, at
public warehouses, a 30-day inventory of raw materials usually purchased from
them by the Company, and, in the event Year 2000 problems were to interrupt
supply operations, the Company could, in the first instance, access such
inventories through the use of the suppliers' trucks or the Company's own
trucks. Additionally, if a principal supplier were unable to function because of
a
27
<PAGE>
Year 2000 interruption, the Company could purchase raw materials from a number
of alternate suppliers.
Although the Company has taken what it believes is prudent action to
eliminate disruption which may be caused by the Year 2000, there can be no
assurance that the Company will not be affected by dislocations caused by the
Year 2000 beyond its control, such as disruptions which could affect public
utilities or financial institutions. See "Risk Factors--We Could Be Affected By
"Year 2000" Computer Problems".
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. This statement is effective for fiscal years beginning after
June 15, 1999. The Company does not believe this new standard will have any
impact on the Company upon adoption.
28
<PAGE>
BUSINESS
THE COMPANY
We believe we are the largest North American independent printer of book
components, which we supply to publishers and book manufacturers. Our book
components primarily include book jackets, paperback covers and pre-printed case
covers which are glued to hardboard and used for hardcover books. We also
produce book components such as illustrations, endpapers and inserts. We
recently expanded our capabilities and now manufacture complete books in
juvenile and educational book markets not being serviced by our principal book
manufacturing customers. We serve over 200 customers, including some of the
largest firms in publishing and book printing, such as Simon & Schuster,
HarperCollins, Penguin Putnam, Random House, McGraw-Hill, Time Warner,
Microsoft, Walt Disney and R.R. Donnelley.
Producing complete books requires both the printing of text and the
manufacture of book components. Publishers often demand high-quality, intricate
book covers. Specialized equipment, materials and finishes are needed to produce
these covers, and many leading publishers rely on specialty printers such as
Phoenix Color to supply book components, and use other commercial printers to
print text and assemble books.
We intend to increase our net sales and EBITDA by expanding our current book
components business and by using our newest production facility to offer
complete book manufacturing for children's books and educational workbooks. We
believe our long-standing reputation with our publishing customers for producing
quality book components will enable us to attract orders for the manufacture of
complete books. Based on comments and new orders from a number of our customers,
we believe our book manufacturing plans are being well-received.
We were founded in 1979 by 15 industry veterans. For the period from 1994
through 1998, and including our 1996 acquisition of New England Book Holding
Corporation ("NEBC"), our annual net sales were $51.0 million, $60.9 million,
$95.3 million, $104.8 million and $107.5 million, respectively. On a pro forma
basis reflecting two acquisitions completed in 1999, our net sales were $127.9
million and our EBITDA was $21.1 million for the year ended December 31, 1998.
Our growth and profitability are a result of (1) consistently providing
superior customer service and product quality, (2) expanding our product line
and (3) continually adding state-of-the-art manufacturing capacity. In
developing our business, we emphasize:
- Technologically advanced prepress and manufacturing equipment and
efficient production techniques;
- A computerized management information system which links all of our
facilities and customers and furnishes immediately available operating
data;
- Fast turnaround times made possible by our state-of-the-art manufacturing
equipment, strategic location of our seven plants near major delivery
points and the use of our own delivery trucks;
- Long-term relationships with suppliers of important raw materials such as
paper, laminating film and ink; and
- A highly motivated sales force which emphasizes customer training and
educational programs.
COMPETITIVE STRENGTHS
We attribute our strong historical results and positive growth outlook to
the following factors:
LEADING MARKET POSITION IN SPECIALIZED MARKET NICHE. Phoenix Color is the
largest independent book component manufacturer in North America. We supply book
components to multiple segments of
29
<PAGE>
the book market, such as general interest (including best sellers), juvenile,
education, religious and business books. These books are distributed through
retail bookstores, mass market retailers and increasingly via the internet. We
estimate that, of the approximately $400 million in annual book component sales,
Phoenix Color with 1998 pro forma net sales of $127.9 million (including two
1999 acquisitions) has a leading 30% market share and the next closest
competitor has approximately a 15% share. Based on our industry experience, we
believe that the next three largest book component manufacturers collectively
possess approximately a 15% share of the overall market.
WELL-ESTABLISHED CUSTOMER BASE. We serve over 200 customers, including some
of the largest firms in publishing and book printing, such as Simon & Schuster,
HarperCollins, Penguin Putnam, Random House, McGraw-Hill, Time Warner,
Microsoft, Walt Disney and R.R. Donnelley. We have serviced many of these
customers since our inception, due, we believe, to our ability to supply, on a
timely and consistent basis, the high quality products needed by our customers.
STATE-OF-THE-ART PRODUCTION FACILITIES. Phoenix Color is a technological
leader in book component production due to its continual investment in
technologically advanced prepress, printing and finishing equipment. Our modern
facilities enable us to provide quality products with a high level of automation
and a low number of manufacturing employees. Our proprietary Phoenix
Colornet-Registered Trademark- system allows the electronic transfer of digital
files through equipment installed by us at customer locations, resulting in
reliable, consistently color-accurate, remote digital proofing. As a result of
our investment in modern manufacturing facilities, we believe we consistently
offer our customers the most modern and complete line of printing and finishing
facilities and the shortest work-order turnaround time in the industry.
POSITIVE OPERATING RESULTS. We have grown steadily since our 1979 founding
and, over the five-year period ended December 31, 1998, generated a compound
annual growth rate in net sales of 20.5%, through internal growth and the
NEBC acquisition.
DIVERSIFIED PRODUCT MIX. We believe we service the broadest range of book
market segments of any book component manufacturer in North America, including
general interest, juvenile, educational, business, book club and religious
categories. Since each segment of the book market generally experiences yearly
fluctuations, our supplying of book components for a broad range of market
segments enables us to offset decreases in one segment with increases in other
segments.
PROFESSIONAL SALES AND MARKETING. Our direct sales force is highly trained
and is located in seven offices throughout the United States. New sales
representatives participate in a three-month manufacturing and sales orientation
program, including spending at least two weeks in a working pressroom. All sales
personnel are required to participate annually in a two-week continuing
education program. We market our services by providing regular training and
educational programs in printing processes and technology to publishing house
personnel and by participating in publishers' trade shows.
MANAGEMENT CONTINUITY AND OWNERSHIP. Current senior management has operated
the Company since its early years and through multiple economic cycles and
stages of growth. Active management owns, directly and indirectly through
participation in an Employee Stock Bonus and Ownership Plan, 52.8% of the
Company's total common stock and 73.0% of its voting common stock.
BUSINESS STRATEGY
The key elements of our business strategy are to:
MAINTAIN PRODUCTION EFFICIENCY AND QUALITY. Our goal is to remain the
leading North American supplier of book components by maximizing production
efficiency and offering superior quality and rapid turnaround times. We continue
to invest our financial, management and personnel resources in highly automated
production equipment, digital file transfer and network communications,
real-time operating information systems and management controls.
30
<PAGE>
EXPAND INTO COMPLEMENTARY AREAS OF BOOK MANUFACTURING. We are expanding our
business to include complete book manufacturing of children's books and
educational workbooks in order to provide one-stop shopping for our publishing
customers. These are market segments in which we believe we can obtain orders
from existing customers and attract new customers who may be under-serviced. Our
publishing customers have indicated they want us to supply these complete books
which are not being produced by our principal book manufacturing customers.
ENHANCE SALES AND MARKETING PROGRAMS. We have a direct sales force of 30
representatives and we intend to expand its size substantially over the next 18
months. We plan to use our increased sales force to capture a greater share of
business from existing publishing customers and to solicit new customers, such
as smaller regional publishers. We also intend to continue our customer training
and educational programs in printing processes and technologies in efforts to
reach a larger segment of the book publishing market.
PURSUE STRATEGIC ACQUISITIONS. The book printing industry is facing
consolidation because of the need for, and the high cost of, modern production
plants. We believe there are attractive acquisition opportunities among book
component and book printing companies, and we will continue to seek potential
acquisition targets whose geographic location, customer base and type of
business will complement ours. We expect that our management expertise, modern
production technology, single-source purchasing relationships and financial
resources will help us to achieve revenue growth and further economies of scale
through the acquisition of other companies.
HISTORY OF COMPANY
Phoenix Color was founded in 1979 by a group of fifteen printing industry
veterans, including Louis LaSorsa, its Chairman, President and Chief Executive
Officer. Initially supplying book components for the higher education and
professional reference markets, the Company increased its services over time to
include components for the general interest, religious and other segments of the
book publishing industry. Conducting its early operations in a single production
facility in Long Island City, New York, the Company moved the major portion of
its business to Hagerstown, Maryland in 1993. The 1996 acquisition of NEBC and
the 1999 acquisition of Mid-City, both of which were merged into the Company,
added significant sales and broadened the Company's geographic base. Phoenix
Color currently operates a total of seven plants in Illinois, Maryland,
Massachusetts, New York, New Jersey and Virginia with a eighth under
construction in Maryland.
The Company was incorporated in New York in 1979 and reincorporated by
merger in Delaware in 1996. The Company's headquarters are at 540 Western
Maryland Parkway, Hagerstown, Maryland 21740 and its telephone number is (301)
733-0018.
INDUSTRY OVERVIEW
The Company operates in the book manufacturing segment of the commercial
printing industry servicing both larger, well-known publishing houses and
smaller, regional, independent and specialty publishers. According to the Book
Industry Study Group's BOOK INDUSTRY TRENDS 1998: COVERING THE YEARS 1992-2002,
domestic consumer spending on books in the United States was $26.4 billion in
1997 and is projected to reach $28.9 billion in 1999 and $32.8 billion by 2002.
Demographic factors such as an aging population, increasing enrollments in
elementary and high school, and growth in public education spending are all
expected to have a positive impact on book sales over the next decade.
According to U.S. INDUSTRY AND TRADE OUTLOOK 1998: PRINTING, PUBLISHING AND
ELECTRONIC MEDIA, the U.S. book manufacturing industry is comprised of
approximately 600 U.S. enterprises. These range in size from small independent
printers to large book printing divisions of multi-national printing companies
such as R.R. Donnelley and Quebecor. The book printing industry is extremely
competitive and capital intensive. In response to competitive pressures, book
publishers have instituted practices
31
<PAGE>
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 and book component
manufacturers will be increasingly subject to consolidation pressures, since
generally only larger, well-capitalized enterprises will 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.
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 operate on a 24-hour basis, seven days a week. The Company
has upgraded its digital communications and information network which
electronically links all Company locations. The upgrade permits the network to
transfer large amounts of digital information more quickly and is expected to
lead to further efficiencies.
The Company has also developed, and during 1998 made available to customers,
its Phoenix Colornet-Registered Trademark- system. Our proprietary Phoenix
Colornet-Registered Trademark-system allows the electronic transfer of digital
files through equipment installed by us at customer locations, resulting in
reliable, consistently color-accurate, remote digital proofing.
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, 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 31 modern high-speed,
sheetfed printing presses capable of printing up to eight colors in a single
pass for the manufacture of book components. In addition, its New Jersey book
manufacturing plant has two presses capable of printing up to ten colors on a
single side or five colors on each side during a single pass. Certain Company
presses 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
32
<PAGE>
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 two printing processes--offset lithography with
conventional inks and offset lithography with ultraviolet inks. The Company has
been able, through its in-house printing technology staff, to improve the
quality of the Company's ultraviolet printing process to the point where 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.
Finishing services offered in the New Jersey book manufacturing plant
include sewing and binding books in the thin, flatback hardcover format and the
ability to bind soft cover books. Management believes the binding equipment
installed in the plant is the most technologically advanced available.
DISTRIBUTION AND LOGISTICS. The Company operates its own tractor-trailers
to deliver a majority of its products. This 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 various 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 single source for its raw
materials and believes it could replace any individual supplier with purchases
from a number of available alternates without disruption to its business. The
Company uses centralized purchasing and storage at its Hagerstown plants to help
control raw material costs.
Among the Company's sole suppliers are International Paper and Simpson Lee
which provide paper for book components, Superior Printing Ink which supplies
standard lithographic inks, General Binding Corp. which supplies laminating
film, and Fuji, Inc. which supplies negative film and printing plates.
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.
The Company purchases paper in large rolls and converts the paper, using its
own computerized sheeter, into sheets in the sizes required by its sheetfed
presses. By converting in excess of 30 million pounds of paper in-house
annually, the Company is able to reduce paper costs, avoid delays in
33
<PAGE>
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. The Company recently began
operating a 90,000 square-foot facility, located in New Jersey, which produces
complete multi-color, thin, flat back, hardcover books suitable for juvenile
publishing and other markets. A second facility located in Maryland, consisting
of approximately 150,000 square feet, is expected to become operational in the
second quarter of 1999, and will produce workbook-size paperbacks for the higher
education market and digest-size paperbacks for juvenile publishing and other
markets. State-of-the-art prepress, press and binding equipment is being
installed 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 texts from the same source should provide publishers with
"one-stop shopping" and enable them 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 supply, and which are not being produced by the Company's principal book
manufacturing customers.
SALES AND MARKETING
The Company has a base of over 200 customers, including many of the leading
publishing companies in the world. Among its largest customers are Simon &
Schuster, HarperCollins, Penguin Putnam, Random House, Von Holtzbrink,
McGraw-Hill, Time Warner, International Thompson, John Wiley & Sons, Microsoft,
Houghton Mifflin, Oxford University Press, Walt Disney, Harcourt Brace and W.W.
Norton, many of whom have been customers of the Company since its inception in
1979. Many of these customers have decentralized operations in which purchasing
decisions are made by various divisions. HarperCollins Publishers and Simon &
Schuster accounted for 13.3% and 17.1%, respectively, of the Company's 1997 net
sales, and 14.9% and 14.7%, respectively, of the Company's 1998 net sales. Our
ten largest customers accounted for approximately 71.0% of net sales in 1998.
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 1997 and 1998 by book market segments is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES
--------------------
<S> <C> <C>
1997 1998
--------- ---------
General Interest.......................................................... 44.9% 47.8%
Juvenile.................................................................. 6.1 7.7
Education................................................................. 14.9 14.2
Business.................................................................. 14.3 10.2
Book Club................................................................. 4.2 4.5
Religion.................................................................. 5.1 6.2
Other..................................................................... 10.5 9.4
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
34
<PAGE>
As is indicated in the above table, the Company has been dependent on the
sale of book components used in the general interest segment of the book market.
The general interest segment of the U.S. book market experienced modest declines
in total sales in 1995 and 1996 although, according to PUBLISHERS WEEKLY, the
general interest segment remained stable in 1997 and experienced an increase of
approximately 4% in 1998. In addition, various segments of the book market may
respond to differing economic and other factors, and declines in one or more
segments in a given year may be offset by improvements in other sectors.
Accordingly, management views the Company's supplying of book components to a
broad range of book market segments as a competitive strength.
The Company has a direct sales force consisting of 30 sales representatives
located in seven offices throughout the U.S. The Company intends to expand the
size of its sales force to 40 or 45 representatives, over the next 18 months to
capture a greater share of the business from its existing publishing customers,
to identify and solicit new customers, including smaller regional publishers,
and to promote its new book manufacturing services. The Company promotes its
services generally by providing training and educational programs in printing
processes and technology to publishing house personnel and by participating in
publishing industry trade shows.
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.
COMPETITION
The printing industry in general, and the printing and manufacture of books
in particular, are extremely competitive. The Company faces competition from
other independent book component printers, as well as from such large commercial
printing firms as R.R. Donnelley, Quebecor, Banta and World Color Press, 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, as the Company commences the manufacture
of certain types of complete books, the Company will be competing with various
book printing concerns, both foreign and domestic. 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.
35
<PAGE>
FACILITIES AND EQUIPMENT
The Company's corporate and administrative offices are located in one of its
two adjacent manufacturing facilities in Hagerstown, MD. The Company also leases
various regional sales offices. A summary of the location, size and nature of
the principal facilities appears below:
<TABLE>
<CAPTION>
LEASED/OWNED; SQUARE
LOCATION USE EXPIRATION DATE FOOTAGE
- --------------------------------- ---------------------------------------------- ------------------- ---------
<S> <C> <C> <C>
Hagerstown, MD (No. 1)........... Corporate offices; printing, prepress and Owned 114,000
finishing for book components
Hagerstown, MD (No. 2)........... Printing, prepress and finishing for book Owned 86,000
components
Long Island City, NY............. Prepress Leased; 12/31/06 54,000
Taunton, MA...................... Printing, prepress and finishing for book Leased; 12/31/12 53,000
components
Rockaway, NJ..................... Printing, prepress and finishing for complete Leased; 3/31/08 90,000
books
Lake Forest, IL (Mid-City)....... Printing, prepress and finishing for book Leased; 12/31/99 60,000
components
Dulles, VA (TechniGraphix)....... Digital book printing, prepress and finishing Leased; 4/30/07 27,000
</TABLE>
The Company's facilities contain various state-of-the-art equipment in all
departments. The pre-press capabilities at all locations include high-speed
digital scanning, composition, proofing, file transfer and platemaking
equipment. The press rooms contain high speed sheet-fed lithographic presses
capable of printing two to ten colors, many of which can print both sides of the
sheet in a single pass through the press. The finishing departments contain silk
screen presses, laminating, embossing, foil stamping and bindery machinery.
The Company believes that the facilities plus its new soft-cover book
manufacturing plant under construction in Maryland provide adequate capacity for
the production of book components and complete books for the foreseeable future.
EMPLOYEES
As of December 31, 1998, the Company had 595 employees, of whom 13 were
engaged in management, 40 in finance, administration and billing,69 in sales,
sales support and customer service, 12 in information systems and technological
development, 13 in transportation and 448 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 has filed a complaint against Krause Biagosch GmbH and Krause
America ("Krause"), which is pending in the United States District Court for the
District of Maryland, based on breach of contract and statutory warranties on
certain prepress equipment which the Company had agreed to purchase from Krause.
The Company attempted to operate the equipment, and contends that the equipment
has failed to perform as warranted. During 1998, the Company removed the portion
of the equipment actually received, and is seeking recovery of the $1.6 million
paid to date on this equipment, which includes an amount for deposits on the
balance of the equipment not yet received. As of December 31, 1998, the Company
has included in other non-current assets a receivable from Krause of
approximately $1.6 million. Krause has recently counterclaimed for $1.5 million
for the balance of the purchase price for all the equipment (whether or not
delivered), plus incidental charges.
36
<PAGE>
The Company intends to vigorously prosecute its claims against Krause and
contest Krause's counterclaims. If Krause were nevertheless to prevail, the
Company may be required to pay Krause's actual lost profit on the equipment.
While such lost profit is not presently determinable, the amount the Company
might be required to pay if Krause prevailed would in no event exceed the unpaid
balance of the purchase price, claimed by Krause to be $1.5 million and by the
Company to be $1.2 million. Also, in that event, if the Company were to attempt
to resell the equipment in its possession, assuming a market existed, and the
price received from such resale were less than the price it had paid Krause, the
Company would incur a loss.
The Company is not a party to any other 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, results of operations and cash flows.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is composed of seven members. 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
current directors and executive officers:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITIONS
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Louis LaSorsa....................... 53 Chairman, Chief Executive Officer and Director
Edward Lieberman.................... 56 Executive Vice President, Chief Financial Officer, Secretary and
Director
Dion von der Lieth.................. 55 Senior Vice President, Sales and Marketing, and Director
John Carbone........................ 40 Vice President, Manufacturing, Book Components, and Director
David Rubin......................... 42 Director
Thomas Newell....................... 55 Chief Information Officer
Mitchell Weiss...................... 36 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, and prior
thereto, was Vice President of Manufacturing and Inventory Control for McGraw
Hill.
37
<PAGE>
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. 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.
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.
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.
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.
There are presently two vacancies on the Board, created by the resignations
in February 1999 of former directors Andrew J. Goodman and Govi C. Reddy. Mr.
Goodman is a member of the law firm which has served as legal counsel to the
Company, and resigned as previously arranged and in contemplation of the
Company's pending registration of securities, in keeping with the policy of his
law firm concerning directorships. Mr. Reddy, who is the chief executive officer
of one of the Company's major suppliers, was unable to continue as a director
due to the demands of his business. The Company intends to fill both vacancies
with two outside directors, and has extended an invitation to one candidate and
is considering a list of names for the second vacancy.
DIRECTORS COMPENSATION
Commencing as of January 1, 1999, directors who are not employees of the
Company receive an annual retainer fee of $10,000.
COMMITTEES OF THE BOARD OF DIRECTORS
After the consummation of the offering, the Board of Directors will create
an Audit Committee and a Compensation Committee.
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. The members of the Audit Committee will consist of
outside directors.
The principal responsibilities of the Compensation Committee will include
the establishment of compensation policies for the executive officers of the
Company and the administration of any stock-based compensation plans. The
members of the Compensation Committee will consist of Louis LaSorsa and two
outside directors.
38
<PAGE>
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. The other two members of the
Compensation Committee, will be outside directors. The Company will not approve
any interlocking relationships between the Compensation Committee or the Board
of Directors and any other company's board of directors or compensation
committee. See "Certain Transactions."
EMPLOYMENT AGREEMENTS
None of the Company's officers have employment agreements.
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. 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, and
the Stock Bonus Plan held 6,794 Class B (non-voting) shares of the Company as of
December 31, 1998. See "Certain Transactions" and "Principal Stockholders."
EXECUTIVE COMPENSATION
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, 1998 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"):
39
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(3) COMPENSATION(2)
- ---------------------------------------------- --------- ---------- ---------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Louis LaSorsa................................. 1998 $ 549,979 $ 452,652 $ -- $ --
Chief Executive Officer 1997 599,420 847,096 -- 6,294
1996 556,309 -- -- --
Edward Lieberman.............................. 1998 361,350 226,326 -- --
Chief Financial Officer 1997 392,729 478,840 -- 6,294
1996 375,955 -- -- --
Anthony DiMartino(1).......................... 1998 61,635 -- -- --
Vice President 1997 399,751 249,043 -- 6,294
1996 375,839 -- -- --
Dion von der Lieth............................ 1998 278,372 150,884 -- --
Vice President 1997 289,402 211,774 -- 6,294
1996 274,818 -- -- --
John Carbone.................................. 1998 267,315 94,303 -- --
Vice President 1997 201,468 90,366 -- 6,294
1996 195,850 -- -- --
</TABLE>
- ------------
(1) As of March 23, 1998, Mr. DiMartino was no longer employed by the Company.
(2) Information shown does not include amounts attributed to automobile use or
other perquisites, which total less than the level required to be reported.
(3) Reflects amounts contributed by the Company pursuant to the Stock Bonus
Plan.
No information is presented for options, restricted stock awards, long-term
incentive or other compensation because no such compensation has been awarded.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Class A voting and Class B non-voting
Common Stock as of the date of this prospectus by (i) each person known by the
Company to own beneficially more than 5.0% of the outstanding voting and
non-voting 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>
VOTING NON- VOTING
SHARES(1) % SHARES(2) % SHARES
----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A CLASS B TOTAL
---------------------- ---------------------- ---------
Louis LaSorsa......................................................... 1,000 9.0 514 6.6 1,514
Edward Lieberman...................................................... 1,000 9.0 359 4.6 1,359
John Biancolli........................................................ 1,000 9.0 192 2.5 1,192
John Carbone.......................................................... 1,000 9.0 186 2.4 1,186
Thomas Newell......................................................... 1,000 9.0 126 1.6 1,126
Mitchell Weiss........................................................ 1,000 9.0 99 1.3 1,099
Dion von der Lieth.................................................... 1,000 9.0 24 0.3 1,024
Henry Burk............................................................ 1,000 9.0 438 5.6 1,438
Ronald Burk........................................................... 1,000 9.0 421 5.4 1,421
Anthony DiMartino..................................................... 1,000 9.0 390 5.0 1,390
Bruno Jung............................................................ 1,000 9.0 276 3.5 1,276
Judith Lieberman...................................................... -- -- 1,000 12.8 1,000
David Rubin........................................................... -- -- -- -- --
Louis LaSorsa and Edward Lieberman, as Trustees under the Stock Bonus
Plan(3)............................................................. -- -- 6,794 87.2 6,794
All directors and executive officers as a group (7 persons)........... 6,000 54.1 1,308 16.8 7,308
<CAPTION>
%
---------
<S> <C>
Louis LaSorsa......................................................... 8.0
Edward Lieberman...................................................... 7.2
John Biancolli........................................................ 6.3
John Carbone.......................................................... 6.3
Thomas Newell......................................................... 6.0
Mitchell Weiss........................................................ 5.8
Dion von der Lieth.................................................... 5.4
Henry Burk............................................................ 7.6
Ronald Burk........................................................... 7.5
Anthony DiMartino..................................................... 7.4
Bruno Jung............................................................ 6.8
Judith Lieberman...................................................... 5.3
David Rubin........................................................... --
Louis LaSorsa and Edward Lieberman, as Trustees under the Stock Bonus
Plan(3)............................................................. 36.0
All directors and executive officers as a group (7 persons)........... 38.7
</TABLE>
- ------------
(1) All Class A voting shares are held directly by the named individuals.
(2) Indicates each named individual's vested interest in Class B non-voting
shares held in the Stock Bonus Plan, except for Judith Lieberman whose Class
B shares are held directly.
(3) See "Management--Employee Stock Bonus and Ownership Plan."
The address of all stockholders listed in the above table is c/o Phoenix
Color Corp., 540 Western Maryland Parkway, Hagerstown, MD 21740.
41
<PAGE>
CERTAIN TRANSACTIONS
On February 1, 1996, in connection with a 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. Each of the Company's principal
stockholders other than Judith Lieberman also executed a Stock Pledge Agreement,
under which all of their respective shares of the Company's stock (except for
shares held through the Stock Bonus Plan) were pledged as security for the
Company's obligations under the loan agreement. See "Principal Stockholders."
The Stock Pledge Agreement required such pledge of shares to remain in effect
until the outstanding principal balance of certain term loans under the loan
agreement were repaid or reduced to an agreed level. Such term loans were repaid
in full on September 15, 1998, from the proceeds of the sale of Bridge Notes to
First Union Investors, Inc. Under the terms of the Senior Credit Facility the
personal guarantees of Messrs. LaSorsa, Lieberman, DiMartino, Newell and Henry
and Ronald Burk were released, and the earlier pledge of their shares of the
Company's stock was continued as security for indebtedness outstanding under the
Senior Credit Facility.
Louis LaSorsa and Edward Lieberman act as Trustees for the Stock Bonus Plan.
The Stock Bonus Plan owns 6,794 shares of Class B Common Non-Voting shares and,
under its terms, when permitted pursuant to the laws of Delaware, Messrs.
LaSorsa and Lieberman have full power and discretion to vote the shares of the
Company stock held by the Stock Bonus Plan, subject to their responsibilities as
fiduciaries for the participating beneficiaries of the Plan. The Stock Bonus
Plan's record ownership represents 36% of the total Company Common Stock
outstanding. See "Principal Stockholders."
Louis LaSorsa, Edward Lieberman, Ronald Burk, Henry Burk and Anthony
DiMartino made loans to the Company in 1988, the proceeds of which were used as
working capital. Such loans are represented by demand notes bearing interest at
12% per annum. The outstanding balances of such loans, which amounted to
$50,000, $104,400, $98,240, $82,565 and $57,560, respectively, were repaid as of
March 31, 1999. The interest paid to the lenders on account of such loans
amounted to $6,000, $12,528, $11,788, $9,908 and $6,907, respectively, for each
of the years ended December 31, 1997 and 1998.
A law firm of which Andrew J. Goodman, a former director of the Company, is
a partner, has acted as counsel to the Company. During the years ended December
31, 1997 and 1998, the Company paid Mr. Goodman's law firm total fees of
$127,168 and $513,605, respectively, for legal services and disbursements. Mr.
Goodman continues to act as Assistant Secretary of the Company and his law firm
acts as counsel to the Company.
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 the years ended December 31, 1997 and 1998, the Company paid Don Aux
Associates a total of $180,000 and $36,766, respectively, in management
consulting fees.
Govi C. Reddy, a former director of the Company, is President of General
Binding Corp., which supplies certain raw materials to the Company. For the
years ended December 31, 1997 and 1998, the Company purchased a total of
$9,492,065 and $9,162,523, respectively, of such raw materials from General
Binding Corp. Such purchases were on terms and conditions no less favorable than
would be obtainable from an unaffiliated third-party vendor.
DESCRIPTION OF SENIOR CREDIT FACILITY
On September 15, 1998 the Company and its subsidiaries (collectively, the
"Borrowers") entered into the Senior Credit Facility with First Union National
Bank, as Agent and lender. Under the Senior
42
<PAGE>
Credit Facility, the lenders have agreed to provide the Borrowers a three-year
revolving credit facility under which the Borrowers may borrow up to an amount
equal to the lesser of $20.0 million or a borrowing base consisting of a
percentage of eligible inventory and accounts receivable.
SECURITY
The Senior Credit Facility is secured by a first priority lien on
substantially all of the Company's real and personal property. As additional
security, (1) the Company has pledged 100% of the capital stock or membership
interests of each subsidiary of the Company and (2) certain shareholders of the
Company have pledged substantially all of the capital stock of the Company.
INTEREST AND FEES
The annual interest rate applicable to the Senior Credit Facility is a
fluctuating rate of interest measured, at the Company's option, by reference to
either (1) LIBOR or (2) the greater of First Union National Bank's prime rate or
the overnight federal funds rate plus 0.5% ("Base Rate"), plus, in either case,
an additional amount which fluctuates based upon the leverage ratio of the
Borrowers. This additional amount ranges from 1.50% to 3.00% for LIBOR based
borrowings and from .25% to 1.75% for Base Rate based borrowings. The Senior
Credit Facility provides for an unused commitment fee payable to the lenders and
certain other fees payable by the Borrowers.
COVENANTS AND EVENTS OF DEFAULT
The Senior Credit Facility contains affirmative and negative covenants
customary for agreements of this type, including, among others, covenants
restricting the Borrowers with respect: to the incurrence of debt (including
guarantees); the creation of liens; substantially changing the nature of the
Company's or its subsidiaries' business; the consummation of certain
transactions such as dispositions of substantial assets, mergers, acquisitions,
reorganizations and recapitalizations; the making of certain investments and
loans, non-ordinary course asset sales and capital expenditures; the paying of
dividends and other distributions; transactions with affiliates; and the
Borrowers' ability to prepay certain debt. The Senior Credit Facility also
requires the Borrowers to comply with certain financial tests and maintain
certain financial ratios. Under these financial tests and ratios the Borrowers
(i) may not exceed a maximum leverage ratio; (ii) must maintain a minimum
interest coverage ratio; (iii) must maintain a minimum EBITDA; and (iv) may not
exceed annual capital expenditure limitations.
The Senior Credit Facility also contains provisions relating to customary
events of default. An event of default under the Senior Credit Facility will
allow the lenders to accelerate or, in certain cases, will automatically cause
the acceleration of, the maturity of the debt under the Senior Credit Facility
and will restrict the ability of the Borrowers to meet their obligations to the
holders of the notes.
43
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The exchange notes offered hereby (the "Exchange Notes") are to be issued
under the indenture (the "Indenture") among the Company, the Guarantors named
therein, and Chase Manhattan Trust Company, National Association, as Trustee
(the "Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders ("Holders") of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof.
The following is a summary of the material provisions of the Indenture and
the Exchange Notes. The following summary does not purport to be complete and is
expressly subject and qualified in its entirety by reference to all of the
provisions of the Indenture, including those terms made a part thereof by the
Trust Indenture Act. Investors may obtain a copy of the Indenture in the manner
described under "Available Information." Certain capitalized terms used herein
are defined in "--Certain Definitions."
The Exchange Notes will be unsecured senior subordinated obligations of the
Company. The Exchange Notes will be fully and unconditionally guaranteed,
jointly and severally, on an unsecured senior subordinated basis, by all current
and future Restricted Subsidiaries of the Company. Each such guarantee is
referred to as a "Guarantee" and each such Restricted Subsidiary is referred to
as a "Guarantor." The Company will cause each future Restricted Subsidiary to
enter into a supplemental indenture providing for a Guarantee.
Principal, premium and interest on the Exchange Notes will be payable, and
the Exchange Notes may be exchanged or transferred, at the office or agency of
the Company (which initially will be the corporate trust office of the Trustee,
at 1201 Main Street, 18th Floor, Dallas, TX 75202), except that, at the option
of the Company, payment of interest may be made by check mailed to the address
of the Holders as such address appears in the Exchange Note register which is
initially to be maintained by the Trustee. The Exchange Notes will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
any integral multiple of $1,000.
TERMS OF THE EXCHANGE NOTES
The aggregate amount of Exchange Notes (and Old Notes) issuable under the
Indenture will be limited to $200.0 million in principal amount and will mature
on February 1, 2009. The Exchange Notes will bear interest at 10 3/8% per annum,
payable semiannually to Holders of record at the close of business on the
January 15 or July 15 immediately preceding the interest payment date on
February 1 and August 1 of each year, commencing August 1, 1999. The Company
will pay interest on overdue principal at 2.0% per annum in excess of such rate,
and it will pay interest on overdue installments of interest at such higher rate
to the extent permitted by law. Interest on the Exchange Notes will be computed
on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Notes will not
be redeemable at the option of the Company prior to February 1, 2004. Beginning
February 1, 2004, the Exchange Notes will be redeemable in cash, at the
Company's option, in whole or in part, upon 20 to 60 days' prior notice mailed
to each Holder's registered address, at the following redemption prices
(expressed in
44
<PAGE>
percentages of principal amount), plus accrued and unpaid interest thereon to
the redemption date, if redeemed during the 12-month period commencing on
February 1 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2004........................................................................ 105.188%
2005........................................................................ 103.458%
2006........................................................................ 101.729%
2007 and thereafter......................................................... 100.000%
</TABLE>
In addition, prior to February 1, 2002, the Company, at its option, may
redeem up to 25.0% of the original principal amount of the Exchange Notes with
the Net Cash Proceeds of one or more Public Equity Offerings following which
there is a Public Market, at a redemption price (expressed as a percentage of
principal amount) of 110.375% of the aggregate principal amount so redeemed,
plus accrued and unpaid interest thereon to the redemption date; PROVIDED,
HOWEVER, that at least 75.0% of the original principal amount of the Exchange
Notes must remain outstanding after each such redemption; and PROVIDED, FURTHER,
that each such redemption will occur within 60 days of the date of closing of
the related Public Equity Offering.
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee on a pro rata basis, although no Exchange
Note of $1,000 in principal amount or less will be redeemed in part. If any
Exchange Note is to be redeemed in part only, the notice of redemption relating
to such Exchange Note will state the portion of the principal amount thereof to
be redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note.
RANKING OF THE EXCHANGE NOTES
The Indebtedness evidenced by the Exchange Notes will be senior
subordinated, unsecured obligations of the Company. The payment of principal,
premium and interest on the Exchange Notes is subordinated in right of payment
to the prior payment of all existing and future Senior Indebtedness. In
addition, the Exchange Notes will be subordinated to all Senior Indebtedness of
the Guarantors and to all obligations of any other subsidiaries of the Company
that are not Restricted Subsidiaries.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Exchange Notes. The Exchange Notes will rank PARI PASSU with or be
senior to all other Indebtedness of the Company. Although the Indenture limits
the aggregate amount of additional Indebtedness that the Company may incur, the
Indenture does not limit the amount of such Indebtedness that may be Senior
Indebtedness.
In the event of any distribution of the assets of the Company upon a
liquidation, dissolution or reorganization of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment. Until
the Senior Indebtedness is paid, any payment to which Noteholders would be
entitled but for the subordination provisions of the Indenture will be made to
holders of such Senior Indebtedness. If a distribution is made to Noteholders
that, due to the subordination provisions, should not have been made to them,
such Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them.
Notwithstanding anything herein to the contrary, the Company may not pay
principal, premium or interest on the Exchange Notes or make any deposit
pursuant to the provisions described under "--Defeasance" below if (i) any
Designated Senior Indebtedness is not paid when due or (ii) any other default on
Designated Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated unless, in either case, the default has been cured
or waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full.
45
<PAGE>
However, the Company may pay the Exchange Notes without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the representative of the Designated Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the first
sentence of this paragraph) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately, the
Company may not pay the Exchange Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the Company)
of written notice (a "Blockage Notice") of such default from the representative
of the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier
under certain circumstances described in the Indenture). Notwithstanding the
provisions described in the immediately preceding sentence (but subject to the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Exchange Notes after the end of such Payment Blockage Period. The Exchange Notes
will not be subject to more than one Payment Blockage Period in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period.
If payment of the Exchange Notes is accelerated because of an Event of
Default, the Company or the Trustee will promptly notify the holders of
Designated Senior Indebtedness or the representative of such holders of the
acceleration.
By reason of these subordination provisions, in the event of an insolvency,
bankruptcy, reorganization, or liquidation of the Company, or upon the
occurrence of a Change of Control or an Asset Sale requiring repurchase by the
Company of any Exchange Notes, there may not be sufficient assets remaining to
satisfy the claims of the Holders after satisfying the claims of creditors of
the Company who are holders of Senior Indebtedness and claims of creditors of
the Company's Subsidiaries. See "Risk Factors--Your Exchange Notes Will Be
Subordinated to Our Senior Indebtedness". As of December 31, 1998, after giving
effect to the issuance and sale of the Old Notes, the Company would have had no
Senior Indebtedness outstanding, but would have had the ability to borrow $15.8
million under the Senior Credit Facility. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and its
Restricted Subsidiaries may incur, under certain circumstances the amount of
such Indebtedness could be substantial and, in any case, such Indebtedness may
be Senior Indebtedness. See Certain Covenants--Limitation on Indebtedness."
The terms of the subordination provisions described above will not apply to
payment from money or the proceeds of U.S. government obligations held in trust
by the Trustee for the payment of principal of and interest on the Exchange
Notes pursuant to the provisions described under "--Defeasance."
GUARANTEES
Each of the Company's subsidiaries, presently consisting of PCC Express,
Inc., Phoenix (Md.) Realty, LLC, and TechniGraphix, Inc., is a joint and several
guarantor ("Guarantor") of the Exchange Notes. Each such Guarantor will fully
and unconditionally guarantee on an unsecured senior subordinated basis the
performance and payment of all obligations of the Company under the Indenture
and the Exchange Notes (all such obligations guaranteed by a Guarantor being
herein called the "Guaranteed Obligations"). Each Guarantor will additionally
agree to pay any and all expenses incurred by the Trustee or the Holders in
enforcing any rights under a Guarantee with respect to a Guarantor.
46
<PAGE>
The obligations of a Guarantor under its Guarantee are senior subordinated
obligations. As such, the rights of Holders to receive payment by a Guarantor
pursuant to its Guarantee will be subordinate in right of payment to the rights
of holders of all Senior Indebtedness of the respective Guarantors, including
guarantees of the Senior Credit Facility. As of December 31, 1998, after giving
effect to the issuance of the Old Notes on February 2, 1999, the Guarantors
collectively had no Senior Indebtedness outstanding, but would have had the
ability to borrow $15.8 million under the Senior Credit Facility. Each Guarantee
will be limited to an amount not to exceed the maximum amount that can be
guaranteed by the relevant Guarantor without rendering such Guarantee voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. See "Risk
Factors--Issuance of Exchange Notes May Be Subject To Fraudulent Conveyance
Laws."
In the event of a sale of all of the assets of any Guarantor, or a sale of
all of the capital stock of any Guarantor, such Guarantor (in the event of a
sale of all of the capital stock of such Guarantor) will be released and
relieved of its obligations under its Guarantee or the Person acquiring the
property (in the event of a sale of all of the assets of such Guarantor) will
not be required to enter into a Guarantee; PROVIDED, in each case, that such
transaction is carried out pursuant to and in accordance with "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and, if
applicable, "--Merger and Consolidation."
RANKING OF GUARANTEES
The Guarantees are subordinated in right of payment to the prior payment of
Senior Indebtedness of the Company and of the relevant Guarantor (which includes
guarantees of the Senior Credit Facility).
Upon any distribution of the assets of a Guarantor upon a liquidation,
dissolution or reorganization of such Guarantor, the holders of Senior
Indebtedness of such Guarantor will be entitled to receive payment in full of
such Senior Indebtedness before the Noteholders are entitled to receive any
payment with respect to the relevant Guarantee. Until the Senior Indebtedness of
such Guarantor is paid, any payment to which Noteholders would be entitled but
for the subordination provisions of the Indenture will be made to holders of
such Senior Indebtedness. If a distribution is made to Noteholders that, due to
the subordination provisions, should not have been made to them, such
Noteholders are required to hold it in trust for the holders of Senior
Indebtedness of such Guarantor and pay it over to them.
Notwithstanding anything herein to the contrary, a Guarantor may not pay
principal, premium or interest on the Exchange Notes or make any deposit
pursuant to the provisions described under "--Defeasance" below if (i) any
Designated Senior Indebtedness of the relevant Guarantor is not paid when due or
(ii) any other default on Designated Senior Indebtedness of such Guarantor
occurs and the maturity of such Designated Senior Indebtedness is accelerated
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, such Guarantor may pay the Exchange Notes without regard
to the foregoing if such Guarantor and the Trustee receive written notice
approving such payment from the representative of the Designated Senior
Indebtedness of such Guarantor with respect to which either of the events set
forth in clause (i) or (ii) of the immediately preceding sentence has occurred
and is continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the first sentence of this paragraph) with
respect to any Designated Senior Indebtedness of such Guarantor pursuant to
which the maturity thereof may be accelerated immediately, such Guarantor may
not pay the Exchange Notes for the Payment Blockage Period commencing upon the
receipt by the Trustee (with a copy to the Company) of a Blockage Notice from
the representative of the holders of such Designated Senior Indebtedness and
ending 179 days thereafter (or earlier under certain circumstances described in
the Indenture). Notwithstanding the
47
<PAGE>
provisions described in the immediately preceding sentence (but subject to the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness of such Guarantor or the representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, such Guarantor
may resume payments on the Exchange Notes after the end of such Payment Blockage
Period. Each Guarantee will not be subject to more than one Payment Blockage
Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to Designated Senior Indebtedness of a Guarantor during such
period.
By reason of these subordination provisions, if the Guarantors are required
to make payments under the Guarantees, there may not be sufficient assets
remaining to satisfy the claims of the Holders with respect to the Guarantees
after satisfying the claims of creditors of the Guarantors who are holders of
Senior Indebtedness of the Guarantors. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Guarantors may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitation on Indebtedness."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require that the Company
repurchase such Holder's Exchange Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the
purchase date:
(i) any person, other than the Permitted Holders, becomes the beneficial
owner of more than 33 1/3% of the total voting power of the voting stock of the
Company;
(ii) the Company merges with or into another Person or sells or disposes of
all or substantially all of its assets to any Person, or any Person merges with
the Company, in any such event pursuant to a transaction in which the
outstanding voting stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where (x) the
outstanding voting stock of the Company is converted into or exchanged for (1)
voting stock (other than Disqualified Stock) of the surviving or transferee
corporation and/or (2) cash, securities or other property in an amount which
could be paid by the Company as a Restricted Payment under the Indenture and (y)
immediately after such transaction no person or group (other than the Permitted
Holders) is the beneficial owner of (1) 33 1/3% or more of the voting power of
the voting stock of the surviving or transferee corporation on a fully diluted
basis and (2) a greater percentage of the voting stock of the surviving or
transferee corporation than the percentage beneficially owned by the Permitted
Holders;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors (together with any
new directors whose election by such board of directors or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors of the Company at the time of such approval who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the board of directors then in office; or
(iv) the liquidation or dissolution of the Company.
Within 30 days following any Change of Control, the Company will mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Exchange Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest to the
date of purchase; (2) the circumstances and relevant facts regarding such Change
of Control; (3) the repurchase date (which will be between 30 and 60 days from
the date such notice is mailed); and (4) the instructions that a Holder must
follow in order to have its Exchange Notes purchased.
48
<PAGE>
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Exchange Notes upon a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the Company's obligation to repurchase the Exchange Notes upon a Change of
Control, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
covenant by virtue thereof.
Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings. Restrictions on the ability of the Company to incur additional
Indebtedness are contained in the covenant described under "--Certain
Covenants--Limitation on Indebtedness." Such restrictions can be waived only
with the consent of the Holders of a majority in principal amount of the
Exchange Notes then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford Holders protection in the event of a highly leveraged
transaction.
So long as the Senior Credit Facility remains in place, the Company is
prohibited from purchasing any Exchange Notes, or making any deposit with the
Trustee pursuant to the provisions described under "--Defeasance". As of
December 31, 1998, and giving effect to the issuance of the Old Notes on
February 2, 1999, there were no borrowings outstanding under the Senior Credit
Facility. The Senior Credit Facility also provides that the occurrence of
certain change of control events with respect to the Company will constitute a
default thereunder. In the event a Change of Control occurs at a time when the
Company is prohibited from purchasing Exchange Notes, the Company could seek the
consent of the lenders under the Senior Credit Facility to the purchase of
Exchange Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Exchange Notes.
In such case, the Company's failure to purchase tendered Exchange Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Senior Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders.
Future Senior Indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Exchange Notes could cause a default under such Senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to Holders of Exchange Notes following the occurrence of a
Change of Control may be limited by the Company's financial resources. There can
be no assurance that sufficient funds will be available when necessary to make
any required repurchases. The Company does not currently have any indebtedness
outstanding that is PARI PASSU with the Exchange Notes that contains repurchase
provisions in the event of a Change of Control. The provisions under the
Indenture relative to the Company's obligation to make an offer to repurchase
the Exchange Notes as a result of a Change of Control may be waived or modified
with the written consent of the Holders of a majority in principal amount of the
Exchange Notes then outstanding.
CERTAIN COVENANTS
The Indenture contains covenants including the following:
LIMITATION ON INDEBTEDNESS: The Company will not, and will not permit any
Restricted Subsidiary to, incur any Indebtedness (including any Acquired
Indebtedness) other than Permitted Indebtedness. Notwithstanding the foregoing,
in addition to Permitted Indebtedness, the Company or any Restricted
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Subsidiary may incur Indebtedness (including Acquired Indebtedness) if (i) no
Default or Event of Default exists on the date of the proposed incurrence of
Indebtedness or would result as a consequence of such proposed incurrence and
(ii) immediately after giving effect to such incurrence of Indebtedness, the
Consolidated Coverage Ratio of the Company is at least 2.0 to 1.0 for
incurrences on or before February 1, 2001 and 2.25 to 1.0 for all incurrences
thereafter.
LIMITATION ON RESTRICTED PAYMENTS: (a) The Company will not, and will not
permit any Restricted Subsidiary to, make a Restricted Payment if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a
Default or Event of Default exists (or would result therefrom); (2) the Company
or such Restricted Subsidiary is not able to incur, after giving effect to such
Restricted Payment, an additional $1.00 of Indebtedness pursuant to the second
sentence under "--Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income accrued on a
cumulative basis during the period beginning on the first day of the fiscal
quarter beginning immediately following the Issue Date to the end of the most
recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income will be a deficit,
minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the
Company from certain issuances or sales of its capital stock (other than
Disqualified Stock) subsequent to the Issue Date; (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange subsequent to the Issue Date of any Indebtedness of the
Company convertible or exchangeable for capital stock (other than Disqualified
Stock) of the Company; and (D) an amount equal to the sum of (i) the net
reduction in Investments in any Person resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from such Person, and (ii) the portion (proportionate
to the Company's equity interest in such subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing sum will not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (1) if
no Default or Event of Default exists, any purchase or redemption of capital
stock or Subordinated Obligations of the Company made out of the proceeds of the
concurrent sale of capital stock of the Company (other than Disqualified Stock
and other than capital stock issued or sold to a subsidiary of the Company);
PROVIDED, HOWEVER, that (A) such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale or capital contribution will be excluded from the calculation of
amounts under clause (3) (B) of paragraph (a) above; (2) if no Default or Event
of Default exists, any purchase or redemption of Subordinated Obligations made
out of the proceeds of the concurrent sale of Indebtedness of the Company which
is permitted to be incurred under the "Limitation on Indebtedness" covenant;
PROVIDED, HOWEVER, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments; (3) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the
time of payment of such dividend, no other Default will exist (or result
therefrom); PROVIDED FURTHER, that such dividend will be included in the
calculation of the amount of Restricted Payments; and (4) if no Default or Event
of Default will exist or would result therefrom, any purchase of any fractional
share of capital stock of the Company resulting from: (A) any dividend or other
distribution on outstanding shares of capital stock that is payable in shares of
such capital stock, (B) any combination of all of the outstanding shares of
capital stock of the Company, (C) any reorganization or consolidation of the
Company in any merger of the Company with or into any other Person or (D) the
conversion of any securities of the Company into shares of capital stock of the
Company; PROVIDED, HOWEVER, that such purchases will be included in the
calculation of the amount of Restricted Payments.
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LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES: The Company will not, and will not permit any Restricted
Subsidiary to, create or permit to exist any restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its capital stock or pay any Indebtedness owed to the Company, (b) to make any
loans to the Company or to any Restricted Subsidiary or (c) to transfer any of
its property or assets to the Company or to any Restricted Subsidiary, except
any restriction existing under (i) the Senior Credit Facility as in effect on
the Issue Date; (ii) the Exchange Notes, the Indenture or the Guarantees; (iii)
any instrument governing Acquired Indebtedness, (iv) Refinancing Indebtedness
incurred pursuant to an agreement referred to in clause (i), (ii) or (iii);
PROVIDED, HOWEVER, that the restrictions contained in any such refinancing
agreement are no less favorable to the Noteholders than restrictions contained
in such agreements governing the Indebtedness being refinanced; (v) customary
nonassignment provisions in leases to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (vi) security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; and (vii) applicable law.
LIMITATION ON LIENS: Other than Permitted Liens, the Company will not, and
will not permit any Restricted Subsidiary to, create any lien on any property or
asset of the Company or of any Restricted Subsidiary or assign or convey any
right to receive any income or profits therefrom, or file or permit the filing
of any financing statement or other similar notice of any lien with respect to
any such property or asset under the Uniform Commercial Code of any State or
under any similar statute, unless (i) in the case of liens securing Indebtedness
that is expressly junior in right of payment to the Exchange Notes, the Exchange
Notes are secured by a lien on such property or assets that is senior to such
liens and (ii) in all other cases, the Exchange Notes are equally and ratably
secured.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK: (a) The Company will
not, and will not permit any Restricted Subsidiary to consummate any Asset Sale
unless (i) the Company or such Restricted Subsidiary receives consideration at
least equal to the fair market value of the shares and assets subject to such
Asset Sale (which fair market value will be determined in good faith by the
board of directors for any transaction involving in excess of $1.0 million) and
at least 75% of the consideration received by the Company or such Restricted
Subsidiary is in the form of cash and is received at the time of such sale and
(ii) 100% of the Net Available Cash from such Asset Sale is applied by the
Company or such Restricted Subsidiary (A) first, to the extent the Company
elects (or is required by the terms of the Senior Credit Facility) to repay
borrowings under the Senior Credit Facility; PROVIDED, that there is a permanent
reduction in the availability under the Senior Credit Facility in an amount
equal to such repayment and such repayment is made within 180 days from the date
of such Asset Sale and (B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the extent
the Company elects, and within 180 days from the date of such Asset Sale, to (1)
make an investment in assets that replace the assets that were the subject of
such Asset Sale or in assets that will be used in a related business or (2)
acquire the capital stock of a Person that is engaged in a related business and
that becomes a Restricted Subsidiary as a result of the acquisition of such
capital stock.
(b) Any Net Available Cash not applied within 180 days after the
consummation of an Asset Sale as provided in paragraph (a) above will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company will be obligated to make offers to purchase
the Exchange Notes in an amount equal to the amount of Excess Proceeds (and not
just the amount thereof that exceeds $5.0 million) at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the purchase date in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Exchange Notes tendered pursuant to
an offer to purchase made pursuant to this paragraph is less than the amount of
Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal amount of Exchange Notes surrendered by
Holders is greater than the amount of Excess Proceeds, the Trustee will select
the Exchange Notes to be purchased on a pro rata basis.
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(c) In the event of the transfer of substantially all (but not all) of the
assets of the Company and its Subsidiaries to a Person in a transaction
permitted under the caption "Certain Covenants--Merger and Consolidation" below,
the successor corporation will be deemed to have sold the assets of the Company
and its Subsidiaries not so transferred for purposes of this covenant, and will
comply with the provisions of this covenant with respect to such deemed sale as
if it were an Asset Sale. In addition, the fair market value of such assets of
the Company or its Subsidiaries deemed to be sold will be deemed to be Net
Available Cash for purposes of this covenant.
(d) If any non-cash consideration received by the Company or any subsidiary
in connection with any Asset Sale is disposed of for cash, then such disposition
will be deemed to constitute an Asset Sale hereunder and the Net Available Cash
thereof will be applied in accordance with this covenant.
(e) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS: (a) Except for transactions entered into
prior to the Issue Date, the Company will not, and will not permit any
Restricted Subsidiary to, enter into any transaction with any affiliate of the
Company unless the terms thereof (1) are no less favorable to the Company or
such Restricted Subsidiary than those that could be obtained from a
non-affiliate, (2) if such affiliate transaction is in excess of $1.0 million,
(i) is set forth in writing and (ii) has been approved by a majority of the
disinterested members of the board of directors, and (3) if such affiliate
transaction is in excess of $5.0 million, has been determined by a nationally
recognized investment banking or accounting firm to be fair to the Company and
its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments;" (ii) any issuance of securities or
payments of cash pursuant to employee benefit plans or arrangements approved by
the board of directors; (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the board
of directors; (iv) loans or advances to employees in the ordinary course of
business; (v) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries; and (vi) any affiliate Transaction (x) between the Company and a
Restricted Subsidiary or (y) between Restricted Subsidiaries; PROVIDED that, no
affiliate of the Company other than a Restricted Subsidiary owns any capital
stock in or otherwise has a material financial interest in any such Restricted
Subsidiary.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES: The Company will not sell any shares of capital stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary to issue or
sell any shares of its capital stock except to the Company or a Restricted
Subsidiary; PROVIDED, HOWEVER, that this covenant will not prohibit the sale of
100% of the shares of the capital stock of any Restricted Subsidiary effected in
accordance with the covenants described under "Limitation on Sales of Assets and
Subsidiary Stock" and "--Merger and Consolidation."
MERGER AND CONSOLIDATION: The Company will not, and will not permit any
Restricted Subsidiary to, consolidate or merge with any Person, or sell or
dispose of (or permit any subsidiary to sell or dispose of) all or substantially
all its assets to, any Person, unless: (i) the Company, in the case of a
transaction involving the Company, or such Restricted Subsidiary in the case of
a transaction involving a Restricted Subsidiary, will be the surviving or
transferee Person or the surviving or transferee Person (in either case, the
"Successor Company") will be a U.S. Person and the Successor Company (if not the
Company
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or such Restricted Subsidiary) will expressly assume, by an indenture
supplemental thereto, all the obligations of the Company under the Exchange
Notes and the Indenture, or the obligation of such Restricted Subsidiary under
its Guarantee, as the case may be; (ii) immediately after giving effect to such
transaction, no Default will exist; (iii) immediately after giving effect to
such transaction, the Company, if the transaction involves a Restricted
Subsidiary, or the Successor Company would be able to incur an additional $1.00
of Indebtedness pursuant to the second sentence under "--Limitation on
Indebtedness;" (iv) in the case of a transaction involving the Company,
immediately after giving effect to such transaction, the Successor Company will
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company prior to such transaction; (v) if, as a result of any
such transaction, property or assets of the Company or a Restricted Subsidiary
would become subject to a lien securing Indebtedness not excepted from the
provisions of the Indenture described above under the caption "--Limitation on
Liens," the Company, any such Restricted Subsidiary or the Successor Company, as
the case may be, will have secured the Exchange Notes and the relevant
Guarantees, as required by such provisions; and (vi) the Company will have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Successor Company will be the successor to the Company or such
Restricted Subsidiary, as the case may be, and will succeed to, and may exercise
every right and power of the Company or such Restricted Subsidiary under, the
Indenture, but the predecessor Company or Restricted Subsidiary in the case of a
conveyance, transfer or lease will not be released from the obligation to pay
the principal of and interest on the Exchange Notes.
LIMITATION ON LAYERED INDEBTEDNESS: The Company will not, and will not permit
any Restricted Subsidiary to, incur any Indebtedness that is subordinate in
right of payment to any other Indebtedness, unless such Indebtedness is
subordinate in right of payment to, or ranks PARI PASSU with, the Exchange Notes
or, in the case of Restricted Subsidiaries that are Guarantors, such
Indebtedness is subordinate in right of payment to, or ranks PARI PASSU with,
the Guarantees of such Guarantors.
The Guarantors will not guarantee any Indebtedness of the Company that is
subordinate in right of payment to any other Indebtedness of the Company unless
such guarantee is subordinate in right of payment to, or ranks PARI PASSU with,
the Guarantees of such Guarantors.
ADDITIONAL SUBSIDIARY GUARANTEES: The Indenture provides that in the event that
any Person will become a Restricted Subsidiary, the Company will cause such
Restricted Subsidiary to concurrently guarantee the Company's obligations under
the Indenture and the Exchange Notes fully and unconditionally and to the same
extent that the Guarantors have guaranteed the Company's obligations under the
Indenture and the Exchange Notes; PROVIDED, HOWEVER, that each additional
Guarantor will be automatically and unconditionally released and discharged from
its obligations under such additional Guarantee only in accordance with the last
paragraph set forth under "--Guarantees."
CONDUCT OF BUSINESS: The Company and its Restricted Subsidiaries will not
engage in any business other than the business of the Company and its Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary thereto.
SEC REPORTS: Notwithstanding that the Company may not be subject to the
reporting requirements of the Exchange Act, so long as any Exchange Notes remain
outstanding, the Company will (i) provide the Trustee, the Initial Purchaser and
the Noteholders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections within the time
periods specified under such Sections and (ii) beginning on the earlier of (a)
the effective date of the Exchange Offer Registration Statement and (b) 130 days
following the Issue Date, file with the SEC, to the extent permitted, the
information, documents and reports referred to in clause (i) within the time
periods specified under
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such Sections. In addition, the Company will make available to any holder and
any prospective purchaser of Exchange Notes the information required pursuant to
Rule 144A(d)(4) under the Securities Act during any period in which the Company
is not subject to Section 13 or 15(d) of the Exchange Act.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Exchange Notes when due, continued for 30 days, (ii)
a default in the payment of principal of any Note when due at its stated
maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Company to comply with its obligations
under "--Change of Control," and under "--Certain Covenants" under "--Merger and
Consolidation," "--Limitation on Sales of Assets and Subsidiary Stock,"
"--Limitation on Indebtedness," or "--Limitation on Restricted Payments" above,
(iv) the failure by the Company to comply for 30 days after notice with its
other agreements contained in the Indenture, (v) Indebtedness of the Company or
any subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million
(the "cross acceleration provision"), (vi) certain events of bankruptcy,
insolvency or reorganization of the Company or a subsidiary (the "bankruptcy
provisions"), (vii) any judgment or decree for the payment of money in excess of
$5.0 million is rendered against the Company or a subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days (the "judgment default provision")
or (viii) the Guarantee of any Guarantor ceases to be in full force and effect
or any Guarantor denies or disaffirms its obligations under its Guarantee.
However, a default under clause (iv) will not constitute an Event of Default
until the Trustee or the Holders of 25% in principal amount of the outstanding
Exchange Notes notify the Company of the default and the Company does not cure
such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing (other than an Event of
Default described in clause (vi) of the preceding paragraph with respect to the
Company), the Trustee or the Holders of at least 25% in principal amount of the
outstanding Exchange Notes may declare the principal of and accrued but unpaid
interest on all the Exchange Notes to be due. Upon such a declaration, such
principal and interest will be due immediately. If an Event of Default described
in clause (vi) of the preceding paragraph occurs and is continuing with respect
to the Company, the principal of and interest on all the Exchange Notes will
become immediately due without any declaration or other act on the part of the
Trustee or any Holders of the Exchange Notes. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Exchange Notes may
rescind any such acceleration with respect to the Exchange Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Exchange
Notes unless such Holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium or interest when due, no Holder of a Note
may pursue any remedy with respect to the Indenture or the Exchange Notes unless
(i) such Holder has previously given the Trustee notice that an Event of Default
is continuing, (ii) Holders of at least 25% in principal amount of the
outstanding Exchange Notes have requested the Trustee to pursue the remedy,
(iii) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity and (v) the Holders of a majority in principal amount of the
outstanding Exchange Notes have not given the Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain
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restrictions, the Holders of a majority in principal amount of the outstanding
Exchange Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default exists and is known to the Trustee,
the Trustee must mail to each Holder of the Exchange Notes notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice so long
as a committee of its trust officers determines that withholding notice is not
opposed to the interest of the Holders of the Exchange Notes. In addition, the
Company is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. The Company also is required
to deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any event which would constitute certain Defaults, their status and
what action the Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Exchange Notes then
outstanding and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Exchange Notes then outstanding. However, without the consent of each Holder of
an outstanding Exchange Note affected thereby, no amendment may (i) reduce the
amount of Exchange Notes whose Holders must consent to an amendment, (ii) reduce
the rate of or extend the time for payment of interest on any Exchange Note,
(iii) reduce the principal of or extend the stated maturity of any Exchange
Note, (iv) reduce the premium payable upon the redemption of any Exchange Note
or change the time at which any Exchange Note may be redeemed as described under
"--Optional Redemption," (v) make any Exchange Note payable in money other than
that stated in the Exchange Note, (vi) impair the right of any Holder of the
Exchange Notes to receive payment of principal and interest on such Holder's
Exchange Notes after the due dates therefor or to institute suit for the
enforcement of any payment on such Holder's Exchange Notes, (vii) make any
change in the amendment provisions which require each Holder's consent or in the
waiver provisions, (viii) make any change to the subordination provisions of the
Indenture that would adversely affect the Noteholders or (ix) make any change in
the Guarantees that would adversely affect the Noteholders.
Without the consent of any Holder of the Exchange Notes, the Company and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to add Guarantees with respect
to the Exchange Notes, to secure the Exchange Notes, to add to the covenants of
the Company for the benefit of the Holders of the Exchange Notes or to surrender
any right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder of the Exchange Notes or to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness of the Company or a Guarantor then
outstanding unless the holders of such Senior Indebtedness (or their
representative) consent to such change.
The consent of the Holders of the Exchange Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Exchange Notes a notice briefly describing
such amendment. However, the failure to give such notice to all Holders of the
Exchange Notes, or any defect therein, will not impair or affect the validity of
the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Exchange
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Exchange Notes, to replace mutilated, destroyed,
lost or stolen Exchange Notes and to maintain a registrar and paying agent in
respect of the Exchange Notes. The Company at any time may terminate its
obligations under "Change of Control" and under the covenants described under
"--Certain Covenants" (other than the covenant described under "--Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained in
clauses (iii) and (iv) under "--Certain Covenants--Merger and Consolidation"
(and clause (iii) of the first paragraph under "--Defaults" as it relates to
clauses (iii) and (iv) under "--Certain Covenants--Merger and Consolidation")
above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Exchange Notes may not be
accelerated because of an Event of Default specified in clause (iii), (iv) or
(viii) under "--Defaults" above or because of the failure of the Company to
comply with clause (iii) or (iv) under "--Certain Covenants--Merger and
Consolidation" above. If the Company exercises its legal defeasance option or
its covenant defeasance option, each Guarantor will be released from all its
obligations with respect to its Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
government obligations for the payment of principal and interest on the Exchange
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that Holders of the Exchange Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Chase Manhattan Trust Company, National Association, is the Trustee under
the Indenture and has been appointed by the Company as Registrar and Paying
Agent with regard to the Exchange Notes.
The Holders of a majority in principal amount of the outstanding Exchange
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Exchange Notes, unless such
Holder will have offered to the Trustee security and indemnity satisfactory
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to it against any loss, liability or expense and then only to the extent
required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Exchange Notes will be governed by
the laws of the State of New York.
CERTAIN DEFINITIONS
In addition to the other defined terms used herein, the following terms have
the meanings set forth below when used in this Offering Memorandum.
"ACQUIRED INDEBTEDNESS" means, with respect to any Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time such
Person is merged with or becomes a Restricted Subsidiary of such specified
Person, and (ii) Indebtedness secured by a lien encumbering any asset acquired
by such specified Person.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person will be merged with
the Company or any Restricted Subsidiary, or (b) the acquisition by the Company
or any Restricted Subsidiary of the assets of any person which constitute all or
substantially all of the assets of such Person or comprises any division or line
of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"ASSET SALE" means any sale or other disposition by the Company or by any of
its Restricted Subsidiaries to any Person of (i) any of the stock of any of the
Company's Subsidiaries, (ii) substantially all of the assets of any division or
line of business of the Company or of any of its Subsidiaries, or (iii) any
other material amount of assets of the Company or of any of its Subsidiaries.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of Consolidated EBITDA of the Company during the four full fiscal quarters
ending on or prior to the date of the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio to Consolidated Fixed Charges of the
Company for the four quarter period. For purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" will be calculated after
giving effect on a pro forma basis for the period of such calculation to (a) the
incurrence or repayment of any Indebtedness of the Company or any of its
Restricted Subsidiaries giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness, other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working capital
purposes, occurring during the four quarter period or at any time subsequent to
the last day of the four quarter period and on or prior to the transaction date,
as if such incurrence or repayment occurred on the first day of the four quarter
period and (b) any Asset Sales or Asset Acquisitions (including any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Restricted Subsidiaries incurring or otherwise becoming
liable for Acquired Indebtedness and also including any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the four quarter period) occurring during the four quarter
period or at any time subsequent to the last day of the four quarter period and
on or prior to the transaction date, as if such Asset Sale or Asset Acquisition
occurred on the first day of the four quarter period. If the Company or any of
its Restricted Subsidiaries guarantees Indebtedness of a third Person, the
preceding sentence will give effect to the incurrence of such guaranteed
Indebtedness as if the Company or such Restricted Subsidiary, as the case may
be, had directly incurred such guaranteed Indebtedness.
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"CONSOLIDATED EBITDA" means, for any period, the sum of (i) Consolidated Net
Income and (ii) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of the Company and its Restricted Subsidiaries paid or
accrued for such period, (B) Consolidated Interest Expense and (C) Consolidated
Non-Cash Charges LESS any non-cash items increasing Consolidated Net Income for
such period.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of (a)
Consolidated Interest Expense, plus (b) the product of (i) the amount of all
dividend payments on any series of preferred stock of the Company paid or
scheduled to be paid during such period times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then-current
effective consolidated federal, state and local income tax rate of the Company,
expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of: (i) all
interest expense of the Company and its Restricted Subsidiaries for such period;
and (ii) the interest component of capitalized lease obligations paid or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate net income
(or loss) of the Company and its Restricted Subsidiaries for such period on a
consolidated basis; PROVIDED, that there shall be excluded therefrom (a)
after-tax gains and losses from Asset Sales or abandonment or reserves relating
thereto, (b) items classified as extraordinary, nonrecurring or unusual gains,
losses or charges, and the related tax effects, each determined in accordance
with GAAP, (c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
Company or is merged or consolidated with the Company or any Restricted
Subsidiary of the Company, (d) the net income (but not loss) of any Restricted
Subsidiary of the Company to the extent that the declaration of dividends or
similar restrictions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the Company, except to the extent of cash
dividends or distributions paid to the Company or a Restricted Subsidiary of he
Company by such Person, (f) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time after September 30, 1998, (g) income
or loss attributable to discontinued operations (including operations disposed
of during such period whether or not such operations were classified as
discontinued),and (h) in the case of a successor to the Company by consolidation
or merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, as of the end
of the most recent fiscal quarter of the Company ending at least 45 days prior
to the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding capital stock of the
Company plus (ii) paid-in capital or capital surplus relating to such capital
stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"CONSOLIDATED NON-CASH CHARGES" means with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and its Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means the Senior Credit Facility and any
other Senior Indebtedness of the Company which, at the date of determination,
has an aggregate principal amount outstanding of, or under which the holders
thereof are committed to lend up to, at least $5.0 million
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and is specifically designated by the Company in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" and, in
respect of any Guarantor, any guarantee by such Guarantor of Designated Senior
Indebtedness of the Company.
"DISQUALIFIED STOCK" means, with respect to any Person, any capital stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable (i) matures or is mandatorily redeemable for any
reason, (ii) is convertible or exchangeable for Indebtedness or Disqualified
Stock or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the stated maturity
of the Exchange Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the Issue Date.
"HOLDER" or "NOTEHOLDER" means the Person in whose name an Exchange Note is
registered on the Registrar's books.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (i) all indebtedness of such Person for borrowed money, (ii) all
indebtedness of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all indebtedness of such Person for capitalized lease
obligations, (iv) all indebtedness of such Person upon notes payable and drafts
accepted representing extensions of credit of such Person, (v) all indebtedness
of such Person for all or any part of the deferred purchase price of property or
services which purchase price is (a) due more than six months (or a longer
period of up to one year, if such terms are available from suppliers in the
ordinary course of business) from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written instrument, (vi)
all indebtedness secured by any lien on any property or asset owned or held by
that Person except that "Indebtedness" will not include trade payables and
accrued liabilities incurred in the ordinary course of business for the purchase
of goods or services which are not secured by a lien other than a lien permitted
pursuant to clause (ii) of the definition of Permitted Liens and obligations
under interest rate protection agreements, (vii) all guarantees of such Person
in respect of Indebtedness of other Persons and (viii) all Disqualified Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any.
"INVESTMENT" in any Person means any advance, loan or other extension of
credit or capital contribution to, or any purchase or acquisition of capital
stock, indebtedness or other similar instruments issued by, such Person.
"ISSUE DATE" means the date on which the Old Notes or the Exchange Notes, as
the case may be, are originally issued.
"NET AVAILABLE CASH" means, with respect to any Asset Sale, payments in cash
or cash equivalents received therefrom net of bona fide direct costs of sale,
including (i) income taxes reasonably estimated to be actually payable as a
result of such Asset Sale within two years of the date of such Asset Sale, (ii)
payment of any Indebtedness that is secured by a lien on the stock or assets in
question and that is required to be repaid as a result of such Asset Sale, (iii)
out-of-pocket expenses and fees relating to such Asset Sale and (iv) any portion
of cash proceeds which the Company determines in good faith should be reserved
for post-closing adjustments or liabilities relating to the Asset Sale retained
by the Company or any of its Restricted Subsidiaries.
"NET CASH PROCEEDS" means, with respect to any sale of capital stock, the
proceeds of such sale in the form of cash or cash equivalents net of fees,
discounts or commissions actually incurred in connection with such sale.
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"PERMITTED HOLDERS" means Louis LaSorsa, Edward Lieberman and the Company's
Employee Stock Bonus and Ownership Plan (so long as Louis LaSorsa and Edward
Lieberman are the sole trustees thereof).
"PERMITTED INDEBTEDNESS" means each of the following:
(i) Indebtedness under the Exchange Notes, the Indenture and the Guarantees;
(ii) Indebtedness under the Senior Credit Facility; PROVIDED that the
aggregate principal amount of Indebtedness outstanding under the Senior Credit
Facility at any one time will not exceed the greater of (a) $20.0 million and
(b) availability under the borrowing base thereunder.
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or permanent
reductions thereon;
(iv) Interest Rate Protection Agreements of the Company and its Restricted
Subsidiaries covering their Indebtedness;
(v) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary so long as such Indebtedness is held by the Company or a
Restricted Subsidiary, in each case subject to no lien held by a Person other
than the Company or a Restricted Subsidiary;
(vi) Indebtedness of the Company to a Restricted Subsidiary so long as such
Indebtedness is held by a Restricted Subsidiary, subject to no lien; PROVIDED
that any Indebtedness of the Company to any Restricted Subsidiary is unsecured
and subordinated to the Company's obligations under the Exchange Notes;
(vii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business;
(viii) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance or
similar requirements in the ordinary course of business;
(ix) Refinancing Indebtedness incurred in respect of Indebtedness originally
incurred pursuant to the second sentence under "Limitation on Indebtedness" or
pursuant to this clause (ix) or clause (i) or (ii) of this definition;
(x) Additional Indebtedness of the Company and its Restricted Subsidiaries
not to exceed $5.0 million at any one time outstanding for capitalized lease
obligations or for purposes of financing the purchase price or construction cost
of equipment, fixtures or similar property; and
(xi) Additional Indebtedness of the Company and its Restricted Subsidiaries
not to exceed $5.0 million at any one time outstanding.
"PERMITTED INVESTMENT" means any of the following:
(i) Investments by the Company or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted Subsidiary
or that will merge or consolidate into the Company or a Restricted Subsidiary;
(ii) Investments in the Company by any Restricted Subsidiary; PROVIDED that
any Indebtedness evidencing such Investment is unsecured and subordinated to the
Company's obligations under the Exchange Notes and the Indenture;
(iii) Investments in cash and cash equivalents;
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(iv) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business;
(v) interest rate protection agreements entered into in the ordinary course
of the Company's or its Restricted Subsidiaries' businesses;
(vi) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(vii) consideration other than cash or cash equivalents received by the
Company or its Restricted Subsidiaries in connection with an Asset Sale made in
compliance with the "Limitation on Sales of Assets and subsidiary Stock"
covenant; and
(viii) Investments not to exceed $1.0 million at any one time outstanding.
"PERMITTED LIENS" means any of the following:
(i) liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate proceedings and
as to which the Company or the Subsidiaries will have set aside on its books
such reserves as may be required pursuant to GAAP;
(ii) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith;
(iii) liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security;
(iv) judgment liens not giving rise to an Event of Default so long as such
lien is adequately bonded and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment will not have been finally
terminated or the period within which such proceedings may be initiated will not
have expired;
(v) easements, rights-of-way zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of the Company or any of the
Subsidiaries;
(vi) any interest or title of a lessor under any capitalized lease
obligation;
(vii) purchase money liens to finance property or assets of the Company or a
Restricted Subsidiary acquired in the ordinary course of business;
(viii) liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers' acceptances
issued for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods;
(ix) liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(x) liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or a
Restricted Subsidiary;
(xi) liens securing interest rate protection agreements relating to
Indebtedness incurred under the Indenture;
(xii) liens securing Indebtedness under the Senior Credit Facility and
Indebtedness permitted under Section (xi) of the definition of Permitted
Indebtedness;
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(xiii) liens existing on the Issue Date and liens to secure any Refinancing
Indebtedness which is incurred to refinance any Indebtedness which has been
secured by a lien permitted under the "Limitation on liens" covenant and which
Indebtedness has been incurred in accordance with the "Limitation on
Indebtedness" covenant; and
(xiv) liens securing Acquired Indebtedness incurred in accordance with the
second sentence of the "Limitation on Indebtedness" covenant; PROVIDED that (A)
such liens secured such Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and were not
granted in connection with the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary and (B) such liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary and are no more favorable to the lienholders than the liens securing
the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
any class of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"PUBLIC MARKET" means any time after (i) an underwritten Public Equity
Offering of the Company has been consummated and (ii) at least 10% of the total
issued and outstanding common stock of the Company has been distributed by means
of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to refinance other Indebtedness of the Company or any of its Restricted
Subsidiaries; PROVIDED that: (i) the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
refinanced; (ii) such Refinancing Indebtedness has a weighted average life to
maturity equal to or greater than the weighted average life to maturity of the
Indebtedness being refinanced; (iii) if the Indebtedness being refinanced is
subordinated in right of payment to the Exchange Notes, such Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Exchange Notes on terms at least
as favorable to the Holders of Exchange Notes as those relating to the
Indebtedness being refinanced; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary of the Company that is the obligor
on the Indebtedness being refinanced.
"RESTRICTED PAYMENT" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions in respect of its capital
stock or similar payment to the holders of its capital stock (other than
dividends or distributions payable solely in its capital stock (other than
Disqualified Stock) and dividends or distributions payable solely to the Company
or a Restricted Subsidiary, and other than pro rata dividends or other
distributions made by a Restricted Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a subsidiary that is an entity
other than a corporation)), (ii) the redemption of any capital stock of the
Company or any Restricted Subsidiary held by any Person, (iii) the redemption or
other acquisition prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment of any Subordinated Obligations or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"RESTRICTED SUBSIDIARY" means any subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR CREDIT FACILITY" means the Credit Agreement dated as of September
15, 1998 among the Company, the subsidiaries listed therein as borrowers, the
lenders who are or may become a party thereto and First Union National Bank
("FUNB"), as administrative agent, pursuant to which the Company may borrow up
to the lesser of $20.0 million or a borrowing base consisting of a percentage of
eligible inventory and accounts receivable, together with the documents related
thereto, as such agreements may be amended or modified from time to time,
including any agreement extending the maturity of, refinancing or otherwise
restructuring all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"SENIOR INDEBTEDNESS" means with respect to any Person, (i) Indebtedness of
such Person, whether outstanding on the Issue Date or thereafter incurred and
(ii) accrued and unpaid interest (including interest accruing after commencement
of an insolvency or liquidation proceeding) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes or other
similar instruments for the payment of which such Person is responsible or
liable unless, in the instrument evidencing any of the obligations referred to
in clauses (i) or (ii) or pursuant to which any such obligations are
outstanding, it is provided that such obligations are subordinate in right of
payment to the Exchange Notes.
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company or a
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
incurred) which is subordinate in right of payment to the Exchange Notes or the
Guarantees.
"UNRESTRICTED SUBSIDIARY" means (i) any subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
board of directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The board of directors may designate any subsidiary of
the Company to be an Unrestricted Subsidiary unless such subsidiary or any of
its Subsidiaries owns any capital stock or Indebtedness of, or holds any lien on
any property of, the Company or any other subsidiary of the Company that is not
a subsidiary of the subsidiary to be so designated; PROVIDED, HOWEVER that (A)
either (1) the subsidiary to be so designated has total assets of $1,000 or less
or (2) if such subsidiary has assets greater than $1,000, such designation would
be permitted under the covenant described under "--Limitation on Restricted
Payments" and (B) such subsidiary to be so designated and each of its
Subsidiaries has not at the time of such designation, and does not thereafter,
incur any Indebtedness pursuant to which the lender has recourse to any of the
assets or properties of the Company or any of its Restricted Subsidiaries. The
board of directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such
designation (x) the Company could incur $1.00 of additional Indebtedness
pursuant to the second sentence under "--Certain Covenants Limitation on
Indebtedness" and (y) no Default will exist.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income tax
consequences of the acquisition, ownership and disposition of Exchange Notes by
corporate and individual investors that acquire Exchange Notes at original
issuance in exchange of Old Notes. This discussion does not address the tax
consequences to subsequent purchasers of Exchange Notes and is limited to
investors who hold Exchange Notes as capital assets. Furthermore, this
discussion does not address all aspects of U.S. federal income taxation that may
be applicable to investors in light of their particular circumstances or to
investors subject to special treatment under U.S. federal income tax law
(including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons that acquire
Exchange Notes as part of a straddle, hedge, conversion transaction or other
integrated investment or persons whose functional currency is not the U.S.
dollar), nor does it address the U.S. federal income tax consequences to any
investors that are trusts, estates or partnerships (or other pass through
entities) or any beneficiaries, partners or members thereof. This discussion is
based on provisions of the Code, United States Treasury Department ("Treasury")
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This discussion does
not describe any tax consequences arising under U.S. federal gift and estate
taxes (except to the limited extent set forth below under "U.S. Taxation of
Non-U.S. Holders") or under the tax laws of any state, local or foreign
jurisdiction.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL
ESTATE OR GIFT TAX LAWS, ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the exchange offer
will not be considered a taxable exchange for U.S. federal income tax purposes
because the Exchange Notes will not differ materially in kind or extent from the
Old Notes and because the exchange will occur by operation of the terms of the
Notes. Accordingly, such exchange will have no U.S. federal income tax
consequences to Holders of Old Notes. A Holder's adjusted tax basis and holding
period in an Exchange Note will be the same as such Holder's adjusted tax basis
and holding period, respectively, in the Old Note exchanged therefor. All
references to Notes under the heading "Certain U.S. Federal Income Tax
Considerations" in this Prospectus apply equally to Exchange Notes as to Old
Notes.
Holders considering the exchange of Old Notes for Exchange Notes should
consult their own tax advisors concerning the U.S. federal income tax
consequences in light of their particular situations, as well as any
consequences arising under state, local or foreign income tax or other tax law.
U.S. TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. Holder" means a holder of a Note that is, for
United States federal income tax purposes, (i) a citizen or resident (as defined
in Section 7701 (b) (1) of the Code) of the United States, or (ii) a corporation
created or organized in or under the laws of the United States or of any
political subdivision thereof, and the term "Non-U.S. Holder" means a corporate
or individual holder of a Note that is not a U.S. Holder.
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PAYMENTS OF INTEREST
Stated interest payable on the Exchange Notes generally will be included in
the gross income of a U.S. Holder as ordinary interest income at the time
accrued or received, in accordance with such U.S. Holder's method of accounting
for U.S. federal income tax purposes.
DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of an Exchange Note (any of the foregoing being a "Disposition"), a
U.S. Holder generally will recognize capital gain or loss equal to the
difference between the amount realized by such U.S. Holder (except to the extent
such amount is attributable to accrued interest, which will be treated as
ordinary interest income) and such U.S. Holder's adjusted tax basis in such
Note. Such capital gain or loss generally will be long- term capital gain or
loss if the holding period for such Note exceeds one year at the time of the
Disposition. Individual taxpayers may be taxed at reduced rates of federal
income tax in respect of long-term capital gains realized on a Disposition of
Exchange Notes (E.G., generally, long-term capital gain recognized by an
individual U.S. Holder would be subject to a maximum tax rate of 20.0%).
Prospective investors should consult their own tax advisors regarding the tax
consequences of realizing long-term capital gains.
The exchange of various forms of certificated and global notes permitted
under the Indenture, the exchange of an Old Note for an Exchange Note in the
exchange offer, and the exchange of an Exchange Note for the unredeemed portion
of an Exchange Note partially redeemed with the proceeds of one or more Public
Equity Offerings pursuant to the terms of the Indenture, will not constitute a
"significant modification" of the Note for U.S. federal income tax purposes and,
accordingly, such Notes received (as the case may be) would be treated as a
continuation of the original Note in the hands of such U.S. Holder. As a result,
there would be no material U.S. federal income tax consequences to a U.S. Holder
who makes such exchanges.
U.S. TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST
In general, payments of interest received by a Non-U.S. Holder will not be
subject to U.S. federal income tax (including the withholding tax imposed on
certain foreign investors, the "U.S. Withholding Tax"), provided that (i) the
Non-U.S. Holder (a) does not actually or constructively own 10.0% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership and (c) provides, under
penalties of perjury (either directly or through a financial institution that
holds the Note on behalf of the Non-U.S. Holder and that holds customers'
securities in the ordinary course of its trade or business), the Company or its
agent with the Non-U.S. Holder's (or, if different, the beneficial owner's) name
and address and certifies, under penalties of perjury, that it is not a United
States person (as defined by Section 7701 (a) (30) of the Code), or (ii) the
Non-U.S. Holder is entitled to the benefits of an income tax treaty under which
the interest is exempt from such tax and the Non-U.S. Holder complies with
certain certification and reporting requirements. In addition, payments of
interest received by a Non-U.S. Holder will not be subject to U.S. Withholding
Tax if the interest received on the Exchange Note is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business within the United
States and the Non-U.S. Holder complies with certain certification and reporting
requirements. Payments of interest received by a Non-U.S. Holder that are not
exempt from U.S. Withholding Tax as described above will be subject to such
withholding tax at the rate of 30.0% of the gross amount of such payment
(subject to reduction under an applicable income tax treaty if applicable
certification and reporting requirements are met).
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In October 1997, the Treasury issued final regulations (the "New
Regulations") that provide alternative methods of satisfying the beneficial
ownership certification requirements described above. The New Regulations are
effective January 1, 2000, although valid withholding certificates held on
December 31, 1999 will remain valid until the earlier of December 31, 2000 or
the expiration date of the certificate under the current rules. Non-U.S. Holders
should consult their own tax advisors concerning the application of the New
Regulations to an investment in the Exchange Notes.
DISPOSITION OF THE EXCHANGE NOTES
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and generally no tax will be withheld) with respect to gain realized on the
Disposition of an Exchange Note, unless (i) the gain is effectively connected
with a U.S. trade or business conducted by the Non-U.S. Holder or (ii) the Non-
U.S. Holder is an individual who is present in the United States for 183 or more
days during the taxable year of the Disposition and certain other requirements
are satisfied. In addition, an exchange of a certificated note for an interest
in a global note, an exchange of an Old Note for an Exchange Note in the
Exchange Offer, or an exchange of the unredeemed portion of an Exchange Note as
part of a partial redemption of Exchange Notes with the proceeds of one or more
Public Equity Offerings will not constitute a taxable exchange of such Notes for
Non-U.S. Holders. See "U.S. Taxation of U.S. Holders--Disposition of the
Exchange Notes."
EFFECTIVELY CONNECTED INCOME
If interest and other payments received by a Non-U.S. Holder with respect to
the Exchange Notes (including proceeds from the Disposition of the Exchange
Notes) are effectively connected with the conduct by the Non- U.S. Holder of a
trade or business within the United States (or the Non-U.S. Holder is otherwise
subject to U.S. federal income taxation on a net basis with respect to such
Holder's ownership of the Exchange Notes), such Non-U.S. Holder will generally
be subject to the rules described above under "U.S. Taxation of U.S. Holders"
(subject to possible modification provided under an applicable income tax
treaty). Such Non-U.S. Holder also may be subject to the U.S. "branch profits
tax" if such Holder is a corporation.
U.S. FEDERAL ESTATE TAXES
An Exchange Note beneficially owned by an individual who is a Non-U.S.
Holder at the time of his or her death generally will not be subject to U.S.
federal estate tax as a result of such death if (i) the Non-U.S. Holder does not
actually or constructively own 10.0% or more of the total combined voting power
of all classes of stock of the Company entitled to vote and (ii) interest
payments with respect to such Note would not have been, if received at the time
of such individual's death, effectively connected with the conduct of a U.S.
trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain individual U.S. Holders may be subject to backup withholding at a
rate of 31.0% on payments of principal, premium and interest on, and the
proceeds of the Disposition of, the Exchange Notes. In general, backup
withholding only will be imposed on an individual U.S. Holder if he or she (i)
fails to furnish a taxpayer identification number ("TIN"), which would be his or
her Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified
by the IRS that he or she has failed to report payments of interest or dividends
or (iv) under certain circumstances, fails to certify, under penalty of perjury,
that he or she (a) has furnished a correct TIN and (b) has not been notified by
the IRS that he or she is subject to backup withholding tax for failure to
report interest or dividend payments. In addition, such payments of principal
and interest to U.S. Holders will generally be subject to information reporting.
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Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of an Exchange Note who provides the certification described under "U.S.
Taxation of Non-U.S. Holders-- Payments of Interest" or otherwise establishes an
exemption from backup withholding. Payments by a U.S. office of a broker or the
proceeds of a Disposition of the Exchange Notes generally will be subject to
backup withholding at a rate of 31.0% unless the Non-U.S. Holder certifies that
it is a Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption.
The amount of any backup withholding imposed on a payment to a Holder will
be allowed as a credit against such Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided the required information is
furnished to the IRS. The New Regulations change certain of the rules relating
to backup withholding and information reporting. Holders should consult their
own tax advisors regarding the application to them of backup withholding and
information reporting.
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EXCHANGE OFFER
EXCHANGE OFFER REGISTRATION STATEMENT
The Company, the Guarantors and First Union Capital Markets, as the initial
purchaser of the Old Notes, previously entered into a Registration Rights
Agreement pursuant to which the Company and the Guarantors agreed to:
- file within 45 days from the Issue Date a registration statement (the
"Exchange Offer Registration Statement") with the Commission with
respect to a registered offer to exchange the Old Notes for the
Exchange Notes to be issued under the Indenture in the same principal
amount and with terms substantially identical to those of the Old
Notes;
- use their best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 130
days from the Issue Date; and
- use their best efforts to consummate the exchange offer within 30
business days from the date the Exchange Offer Registration Statement
becomes effective.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal ("Letter of Transmittal"), the
Company will accept any and all Old Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date. The Company will
issue $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the exchange offer.
Holders may tender some or all of their Old Notes pursuant to the exchange
offer. However, tenders of Old Notes must be in a minimum principal amount of
$1,000 or an integral multiple of $1,000 in excess thereof.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that:
- the Exchange Notes will bear a different CUSIP number from the Old
Notes;
- the issuance of the Exchange Notes will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof; and
- the holders of the Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement, including the
provisions thereof which provide for liquidated damages payable to the
holders of the Old Notes in certain circumstances relating to the
timing of the exchange offer, which rights will terminate when the
exchange offer is consummated.
The Exchange Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture. See "Description of Exchange Notes."
As of the date of this prospectus, $105,000,000 aggregate principal amount
of Old Notes were outstanding. This prospectus and the Letter of Transmittal are
being mailed to persons who were holders of Old Notes on the close of business
on the date of this prospectus. Holders of Old Notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law or the
indenture in connection with the exchange offer. The Company intends to conduct
the exchange offer in accordance with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given written notice thereof to Chase Manhattan
Trust Company, National Association, as exchange agent (the "Exchange Agent").
The Exchange Agent will act as agent for the tendering Holders for the purpose
of receiving the Exchange Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such
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unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the expiration date.
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes for
Exchange Notes pursuant to the exchange offer. The Company will pay all charges
and expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999, unless the Company in its sole discretion, extends the
exchange offer, in which case the term "expiration date" means the latest date
and time to which the exchange offer is extended.
In order to extend the exchange offer, the Company will notify the Exchange
Agent thereof by written notice and will make a public announcement of such
extension, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion:
- to delay accepting any Old Notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "--Conditions" shall not have been satisfied, by giving written
notice of such delay, extension or termination to the Exchange Agent;
or
- to amend the terms of the exchange offer in any manner, whether before
or after any tender of the Old Notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
INTEREST ON EXCHANGE NOTES
Interest on each Exchange Note will accrue from the original Issue Date of
the old note which it replaces, i.e., February 2, 1999, and be payable
semiannually in arrears on February 1 and August 1 of each year, commencing
August 1, 1999, at the rate of 10 3/8% per annum. Holders whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Old Notes.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of Old Notes may tender such Old Notes in the exchange offer.
Each such holder wishing to accept the exchange offer must complete, sign and
date the accompanying Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, have the
signatures thereon guaranteed if required by the Letter of Transmittal or
transmit an agent's message in connection with a book-entry transfer, and mail
or otherwise deliver such Letter of Transmittal or such facsimile or agent's
message, together with the Old Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the expiration date.
To be tendered effectively, the Old Notes, the Letter of Transmittal or agent's
message and all other required documents must be properly completed and received
by the Exchange Agent at the address set forth below under "Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the
Old Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
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book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company that such holder
will participate in the exchange offer in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and sole
risk of the Holder. As an alternative to delivery by mail, Holders may wish to
consider overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the Exchange Agent before the expiration
date. Holders may request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for such Holders.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a savings institution, commercial bank or trust company having an office
or correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act, and
which is, in each case, a member of a recognized signature guarantee program
(i.e., Securities Transfer Agents Medallion Program, Stock Exchange Medallion
Program or New York Stock Exchange Medallion Signature Program) (an "Eligible
Institution"), unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered Holder who has not completed the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Old Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this prospectus to establish an account through the facilities
of The Depository Trust Company ("DTC") for receipt of the tender of Old Notes
through book-entry delivery thereof. For the purpose of facilitating the
exchange offer, any financial institution that is a DTC participant may
participate in the exchange offer through book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account for the
Old Notes. Although delivery of the Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, unless an agent's message is
received by the Exchange Agent in compliance with ATOP, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address and in the manner
set forth below under "--Exchange Agent" on or prior to the expiration date, or,
if the guaranteed delivery procedures described below are complied with, within
the
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time period provided under such procedures. Delivery of documents to DTC does
not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the exchange offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as promptly as practicable following the
expiration date.
No Letter of Transmittal, Old Notes, notice of guaranteed delivery or other
documents should be sent to the Company or DTC. Delivery thereof to the Company
or DTC will not constitute valid delivery.
GUARANTEED DELIVERY PROCEDURES
Holders of Old Notes who wish to tender their Old Notes but who cannot,
prior to 5:00 p.m., New York City time, on the expiration date (i) deliver their
Old Notes, the Letter of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent or (ii) deliver a confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
DTC and otherwise complete the procedures for book-entry transfer, may effect a
tender of Old Notes if:
- the tender is made through an Eligible Institution;
- prior to 5:00 p.m., New York City time, on the expiration date, the
Exchange Agent receives from such Eligible Institution a properly
completed and duly executed notice of guaranteed delivery (a form of
which accompanies this prospectus) (by facsimile transmission,
registered or certified mail or hand delivery) setting forth the name
and address of the Holder, the certificate number(s) of such Old Notes
and the principal amount of Old Notes tendered, stating that the tender
is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the expiration date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC), and any other
documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
- such properly completed and duly executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account
at DTC), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the expiration date.
Upon request to the Exchange Agent, additional copies of the notice of
guaranteed delivery will be sent to holders.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
the Company will accept, promptly after the expiration date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. For a description of certain conditions to the exchange offer,
see "--Conditions" below. For purposes of the exchange offer, the Company will
be deemed to have accepted properly tendered Old Notes for exchange when, as and
if the Company has given written notice thereof to the Exchange Agent. For each
Old Note accepted for exchange, the Holder of such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes (or a timely
confirmation that such Old Notes have been transferred into the Exchange Agent's
account at DTC), a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted for
any reason set forth in the terms and conditions of the exchange offer or if Old
Notes are submitted for a greater principal amount than the Holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
To withdraw a tender of Old Notes in the exchange offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor");
- identify the Old Notes to be withdrawn (including the certificate
number(s) and principal amount of such Old Notes, or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the applicable book-entry procedures, the
name and number of the account at DTC to be credited);
- be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee register the
transfer of such Old Notes into the name of the person withdrawing the
tender; and
- specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned, without
expense, to the Holder thereof as promptly as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering Old Notes" at any time prior to the expiration date.
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CONDITIONS
Notwithstanding any other term of the exchange offer, the Company shall not
be required to accept for exchange, or issue Exchange Notes for, any Old Notes,
and may terminate or amend the exchange offer as provided herein before the
acceptance of such Old Notes, if:
- any action or proceeding is instituted or threatened in any court or by
any governmental or quasi-governmental agency which might materially
impair the ability of the Company to proceed with the exchange offer or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company;
- the exchange offer violates applicable law or any applicable SEC
interpretation; or
- any governmental or quasi-governmental approval has not been obtained,
which approval the Company shall deem necessary for the consummation of
the exchange offer as contemplated hereby.
If the Company determines in its sole discretion that any of the foregoing
conditions are not satisfied, the Company may:
- refuse to accept any Old Notes and return all tendered Old Notes to the
tendering holders;
- extend the exchange offer and retain all Old Notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of Holders to withdraw such Old Notes (see "--Withdrawal of Tenders");
or
- waive such unsatisfied conditions and accept all properly tendered Old
Notes which have not been withdrawn.
In addition, the Company has reserved the right, notwithstanding the
satisfaction or failure of any or all of the foregoing conditions, to terminate
or amend the exchange offer in any manner it shall determine in its sole
discretion, which determination shall be binding.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
EXCHANGE AGENT
Chase Manhattan Trust Company, National Association, which also acts as
trustee under the Indenture, has been appointed as Exchange Agent for the
exchange offer. Each Holder wishing to accept the exchange offer must deliver
(i) a Letter of Transmittal, such Holder's tendered Old Notes and all other
required documents or (ii) a notice of guaranteed delivery and all other
documents described under "--Guaranteed Delivery Procedures," to the Exchange
Agent as follows:
By Mail or Hand Delivery; Chase Manhattan Trust Company, National
Association
Attn: Joseph Progar
1650 Market Street
One Liberty Place, Suite 5210
Philadelphia, PA 19103
Facsimile Transmission; (215) 972-8372
Confirm by Telephone; (215) 988-1317
Delivery to an address other than as set forth above will not constitute
valid delivery.
Questions and requests for assistance, and requests for additional copies of
this prospectus, the Letter of Transmittal or the notice of guaranteed delivery,
should be directed to the Exchange Agent at the address and telephone number set
forth in the Letter of Transmittal.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers,
employees or agents of the Company and its affiliates. The Company has not
retained any dealer-manager in connection with the exchange offer and will not
make any payments to brokers, dealers or others to solicit acceptances of the
exchange offer. The Company, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection with the exchange offer. All other expenses
to be incurred in connection with the exchange offer will be paid by the
Company. Such expenses include fees and expenses of the Trustee, accounting and
legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company in connection with the exchange offer. The expenses
of the exchange offer will be amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such Old Notes
may not be reoffered, resold, pledged or otherwise transferred except in
accordance with applicable state securities laws and:
- to a person whom the transferor reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
- in an offshore transaction meeting the requirements of Rule 903 or Rule
904 of Regulation S;
- to an institution that is an "accredited investor" within the meaning
of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act in a transaction exempt from the registration requirements of the
Securities Act (if available);
- pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available); or
- pursuant to an effective registration statement under the Securities
Act.
Following consummation of the exchange offer, holders of the Old Notes who
were eligible to participate in the exchange offer but who did not tender their
Old Notes will generally not have any further registration rights under the
registration rights agreement, and such Old Notes will continue to be subject to
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected. See "Risk Factors."
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PLAN OF DISTRIBUTION
Except as provided herein, this prospectus may not be used for an offer to
resell, a resale or other transfer of Exchange Notes. Based on existing
interpretations of the Securities Act by the SEC set forth in several no-action
letters to third parties and unrelated to the Company and the exchange offer,
the Company believes that the Exchange Notes issued pursuant to the exchange
offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by the holders thereof (other than any such holder which is an
"affiliate" of the company within the meaning of Rule 405 under the Securities
Act) without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of such Exchange Notes.
Any holder who is an affiliate of the Company or who intends to participate
in the exchange offer for the purpose of distributing the Exchange Notes:
- will not be able to rely on the SEC interpretations set forth in the
above-mentioned no-action letters;
- will not be able to tender its Old Notes in the exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer transaction
unless such sale or transfer is made pursuant to an exemption from such
requirements.
A broker-dealer holding Old Notes may participate in the exchange offer
provided that it acquired the Old Notes for its own account as a result of
market-making or other trading activities. In connection with any resales of
Exchange Notes, any participating broker-dealer who receives Exchange Notes for
Old Notes pursuant to the exchange offer may be an "underwriter" (within the
meaning of the Securities Act) and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the Exchange
Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
expiration date and ending on the close of business one year after the
expiration date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1999, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes.
Exchange Notes received by broker-dealers for their own account pursuant to the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Act and any profit from any such resale
of Exchange Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Act. Each
participating broker-dealer wishing to accept the exchange offer must represent
to the
75
<PAGE>
Company that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
For a period of one year after the expiration date, the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the Old Notes) other than dealers' and brokers' discounts,
commissions and other counsel fees, and will indemnify the holders of the Old
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Act.
LEGAL MATTERS
Certain legal matters in connection with this offering and the sale of the
Notes will be passed upon for the Company by Bresler Goodman & Unterman, LLP,
New York, New York.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report (which contains an
explanatory paragraph concerning the revision of financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has agreed that, notwithstanding that it may not be required to
do so by the rules and regulations of the SEC, for so long as any Exchange Notes
or Old Notes remain outstanding, it will furnish to the holders of such Notes
and the Trustee and file with the SEC all such information, documents and
reports specified in Section 13 or 15(d) of the Exchange Act. In addition, the
Company will make available, upon request, to any Holder and any prospective
purchaser of such Notes the information required pursuant to Rule 144A(d)(4)
under the Securities Act during any period in which the Company is not subject
to Section 13 or 15(d) of the Exchange Act. Any such request should be directed
to the Chief Financial Officer of the Company.
76
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Phoenix Color Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Phoenix Color Corp. and its subsidiaries as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 13, the Company revised its financial statements for
the effects of the accounting related to the sale of certain assets obtained in
an acquisition.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 12, 1999, except Note 13,
as to which the date is April 13, 1999
F-2
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 1,044,966 $ 14,834,035
Accounts receivable, net of allowance for doubtful accounts and rebates of
$674,463 in 1997 and $1,113,784 in 1998....................................... 19,695,780 14,760,695
Inventory....................................................................... 4,388,276 3,875,398
Income tax receivable........................................................... 1,376,977 1,233,554
Prepaid expenses and other current assets....................................... 95,607 2,222,196
Deferred income taxes........................................................... 423,606 337,571
------------- --------------
Total current assets.......................................................... 27,025,212 37,263,449
Property, plant and equipment, net................................................ 36,472,549 70,288,665
Goodwill, net..................................................................... 13,363,281 11,239,752
Deferred financing costs, net..................................................... 210,000 1,892,726
Other assets...................................................................... 7,921,463 11,754,763
------------- --------------
Total assets.................................................................. $ 84,992,505 $ 132,439,355
------------- --------------
------------- --------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit........................................................ $ 14,325,745 $ --
Notes payable................................................................... 7,250,834 --
Obligations under capital leases................................................ 3,770,178 --
Accounts payable................................................................ 16,844,510 13,619,972
Accrued expenses................................................................ 4,026,006 3,483,445
------------- --------------
Total current liabilities..................................................... 46,217,273 17,103,417
Revolving line of credit.......................................................... -- 11,325,225
Notes payable..................................................................... 15,498,930 78,150,335
Obligations under capital leases.................................................. 5,880,781 5,971,609
Deferred income taxes............................................................. 1,242,047 2,606,257
------------- --------------
Total liabilities............................................................. 68,839,031 115,156,843
------------- --------------
Commitments and contingencies
Stockholders' equity:
Common Stock, Class A, voting, par value $0.01 per share, authorized 20,000
shares, 14,560 issued shares, 11,100 outstanding shares....................... 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...................... 98 98
Additional paid in capital...................................................... 2,126,804 2,126,804
Retained earnings............................................................... 16,066,200 17,094,486
Stock subscriptions receivable.................................................. (270,544) (169,792)
Treasury stock, at cost: Class A, 3,460 shares and Class B, 2,000 shares........ (1,769,230) (1,769,230)
------------- --------------
Total stockholders' equity.................................................... 16,153,474 17,282,512
------------- --------------
Total liabilities & stockholders' equity...................................... $ 84,992,505 $ 132,439,355
------------- --------------
------------- --------------
</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>
1996 1997 1998
------------- -------------- --------------
Net sales........................................................ $ 95,262,245 $ 104,793,705 $ 107,491,045
Cost of sales.................................................... 71,115,953 73,721,630 80,627,039
------------- -------------- --------------
Gross profit............................................... 24,146,292 31,072,075 26,864,006
------------- -------------- --------------
Operating expenses:
Selling and marketing expenses................................. 6,088,693 5,880,844 6,278,379
General and administrative expenses............................ 8,920,429 12,265,442 12,933,474
Impairment loss................................................ 1,268,271 -- --
------------- -------------- --------------
Total operating expenses................................... 16,277,393 18,146,286 19,211,853
------------- -------------- --------------
Income from operations........................................... 7,868,899 12,925,789 7,652,153
Other expenses:
Interest expense............................................... 4,937,315 4,483,820 5,076,057
Other (income) expense......................................... -- -- (327,095)
Loss (gain) on disposal of assets.............................. (240,945) 62,436 (132,862)
------------- -------------- --------------
Income before income taxes....................................... 3,172,529 8,379,533 3,036,053
Income tax provision............................................. 1,806,840 3,897,989 2,007,767
------------- -------------- --------------
Net income....................................................... $ 1,365,689 $ 4,481,544 $ 1,028,286
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------
CLASS A CLASS B ADDITIONAL
---------------------- ------------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
--------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.................... 14,560 $ 146 9,794 $ 98 $ 2,126,804 $ 10,218,967
Payment of stock subscription................... -- -- -- -- -- --
Net income...................................... -- -- -- -- -- 1,365,689
--------- ----- ----- --- ------------ -------------
Balance at December 31, 1996.................... 14,560 146 9,794 98 2,126,804 11,584,656
Payment of stock subscription................... -- -- -- -- -- --
Net income...................................... -- -- -- -- -- 4,481,544
--------- ----- ----- --- ------------ -------------
Balance as of December 31, 1997................. 14,560 146 9,794 98 2,126,804 16,066,200
Payment of stock subscription................... -- -- -- -- -- --
Net income...................................... -- -- -- -- -- 1,028,286
--------- ----- ----- --- ------------ -------------
Balance at December 31, 1998.................... 14,560 $ 146 9,794 $ 98 $ 2,126,804 $ 17,094,486
--------- ----- ----- --- ------------ -------------
--------- ----- ----- --- ------------ -------------
<CAPTION>
STOCK TREASURY STOCK TOTAL
SUBSCRIPTIONS ------------------------ STOCKHOLDERS'
RECEIVABLE SHARES AMOUNT EQUITY
------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
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...................................... -- -- -- 1,365,689
------------ --------- ------------- -------------
Balance at December 31, 1996.................... (332,244) 5,460 (1,769,230) 11,610,230
Payment of stock subscription................... 61,700 -- -- 61,700
Net income...................................... -- -- -- 4,481,544
------------ --------- ------------- -------------
Balance as of December 31, 1997................. (270,544) 5,460 (1,769,230) 16,153,474
Payment of stock subscription................... 100,752 -- -- 100,752
Net income...................................... -- -- -- 1,028,286
------------ --------- ------------- -------------
Balance at December 31, 1998.................... $ (169,792) 5,460 $ (1,769,230) $ 17,282,512
------------ --------- ------------- -------------
------------ --------- ------------- -------------
</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,
---------------------------------------------
1996 1997 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income...................................................... $ 1,365,689 $ 4,481,544 $ 1,028,286
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property, plant and
equipment................................................... 6,628,111 7,017,749 8,710,352
Amortization of goodwill...................................... 1,761,493 2,123,544 2,123,529
Amortization of deferred financing costs...................... 150,000 180,000 210,000
Provision for uncollectible accounts.......................... -- -- 150,000
Deferred income taxes......................................... 42,092 328,105 1,450,245
Impairment loss on real estate................................ 1,268,271 -- --
Loss (gain) on disposal of assets............................. (240,945) 62,436 (132,862)
Increase (decrease) in cash resulting from changes in assets and
liabilities:
Accounts receivable........................................... 4,014,558 (2,504,779) 4,785,085
Inventory..................................................... 98,584 340,921 512,878
Prepaid expenses and other assets............................. 425,110 (37,680) (1,061,399)
Accounts payable.............................................. 534,820 4,988,585 (3,224,538)
Accrued expenses.............................................. (2,193,241) 2,246,669 (542,561)
Income tax refund receivable.................................. 61,332 (1,075,455) 143,423
-------------- ------------- --------------
Net cash provided by operating activities..................... 13,915,874 18,151,639 14,152,438
-------------- ------------- --------------
Investing activities:
Proceeds from sale of equipment................................. 411,300 1,017,963 876,247
Capital expenditures............................................ (1,735,063) (3,294,066) (9,415,529)
Increase in equipment deposits.................................. -- (6,056,372) (5,262,490)
Purchase of NEBC, net of cash acquired.......................... (21,307,354) -- --
-------------- ------------- --------------
Net cash used in investing activities....................... (22,631,117) (8,332,475) (13,801,772)
-------------- ------------- --------------
Financing activities:
Net borrowings from revolving line of credit.................... 2,534,913 2,764,393 (3,000,520)
Proceeds from long term borrowings.............................. 22,000,000 473,760 40,000,000
Principal payments on long term borrowings...................... (11,065,841) (8,472,215) (18,089,753)
Principal payments on capital lease obligations................. (4,516,156) (3,760,090) (3,679,350)
Debt financing costs............................................ (540,000) -- (1,892,726)
Payment of stock subscription................................... 90,100 61,700 100,752
-------------- ------------- --------------
Net cash provided by (used in) financing activities......... 8,503,016 (8,932,452) 13,438,403
-------------- ------------- --------------
Net increase (decrease) in cash............................. (212,227) 886,712 13,789,069
Cash and cash equivalents at beginning of year.................... 370,481 158,254 1,044,966
-------------- ------------- --------------
Cash and cash equivalents at end of year.......................... $ 158,254 $ 1,044,966 $ 14,834,035
-------------- ------------- --------------
-------------- ------------- --------------
Supplemental cash flow disclosures:
Cash paid for interest.......................................... $ 4,476,115 $ 4,104,020 $ 4,722,336
Cash paid for income taxes, net of refunds received............. $ 1,764,524 $ 4,645,339 $ 414,099
Non-cash investing and financing activities:
Equipment acquired under capital leases......................... $ 5,278,959 -- $ 555,476
Equipment acquired under notes payable.......................... $ 4,037,634 $ 5,781,290 $ 32,934,848
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. BUSINESS
Phoenix Color Corp. (the "Company") manufactures book components, which
include 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, Taunton, MA and Rockaway, NJ. Customers consist of major
publishing companies as well as smaller publishing companies throughout the
United States. The Company operates and is managed under one business segment.
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, PLANT AND EQUIPMENT
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: 5-40 years for buildings and
improvements, 3-10 years for machinery and equipment, and 3-5 years for
transportation equipment. 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.
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.
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
F-7
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1998, the Company had approximately $125,359 and $657,373 in
two banks, which exceed FDIC insured limits by $25,359 and $557,373,
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
1998............................................................. 15% 15% --
1997............................................................. 17% 14% --
1996............................................................. 17% 18% --
Accounts receivable
1998............................................................. 11% 7% 14%
1997............................................................. -- 23% --
</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 NEBC (see Note 7) over the fair
value of identifiable net tangible assets acquired and is being amortized using
the straight line method over an eight year life.
Deferred financing costs incurred in connection with the Company's bank
credit agreements with its financial institutions in 1996 (see Note 5) were
written off to interest expense in 1998 upon consummation of the financing
agreements discussed in Note 5. Costs incurred in connection with the 1998
financing discussed in Note 5 have been deferred and are being amortized using
the straight-line method, which approximates the interest method, over the life
of the related loan. These costs, in the amount of $1,140,000 at December 31,
1998, will be written off in their entirety in 1999 as a result of the issuance
of 10 3/8% Senior Subordinated Notes in February 1999 (see Note 5).
LONG-LIVED ASSETS
The Company annually 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
F-8
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
In 1998, the Company sold certain of its real estate holdings in Connecticut
for approximately $87,000. In 1996, the Company had classified these assets as
assets held for sale at their estimated net realizable value of $364,000 based
on the recent sale of a portion of the real estate holdings, which amount had
been included in other non-current assets on the balance sheet, and recognized
an impairment loss of $1,268,271 in the statement of operations for the year
ended December 31, 1996. In 1998, the Company recognized an additional loss on
the disposal of equipment of approximately $277,000.
REVENUE RECOGNITION
The Company recognizes revenue on product sales upon shipment on behalf of
or to 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.
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 STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. This statement is effective for fiscal years beginning after
June 15, 1999. The Company does not believe this new standard will have any
impact on the Company upon adoption.
F-9
<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>
1997 1998
------------ ------------
Raw materials......................................................................... $ 3,591,421 $ 3,031,744
Work in process....................................................................... 796,855 843,654
------------ ------------
$ 4,388,276 $ 3,875,398
------------ ------------
------------ ------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1997 1998
------------- --------------
Land.............................................................................. $ 803,416 $ 2,842,205
Buildings and improvements........................................................ 11,851,659 18,254,125
Machinery and equipment........................................................... 52,280,002 80,348,167
Transportation equipment.......................................................... 2,651,691 4,348,608
------------- --------------
67,586,768 105,793,105
Less: Accumulated depreciation and amortization................................... 31,114,219 35,504,440
------------- --------------
$ 36,472,549 $ 70,288,665
------------- --------------
------------- --------------
</TABLE>
Included in other long-term assets are equipment deposits (see Note 8) in
the amount of $7,310,199 and $9,786,394 as of December 31, 1997 and 1998,
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>
1997 1998
------------- -------------
Machinery and equipment............................................................ $ 17,741,894 $ 13,158,305
Less: Accumulated depreciation and amortization.................................... 7,092,705 5,988,916
------------- -------------
$ 10,649,189 $ 7,169,389
------------- -------------
------------- -------------
</TABLE>
5. NOTES PAYABLE
SENIOR SUBORDINATED NOTES
On February 2, 1999, the Company issued $105.0 million of 10 3/8% Senior
Subordinated Notes due 2009 ("Senior Subordinated Notes") in a private offering.
The Senior Subordinated Notes were issued under an indenture and are
uncollateralized senior subordinated obligations of the Company with interest
payable semiannually on February 1 and August 1 of each year, beginning on
August 1, 1999. Net proceeds of approximately $101.0 million from the Senior
Subordinated Notes were used to repay substantially all short and long term debt
facilities (discussed below) and capital leases existing at December 31, 1998
and
F-10
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
to fund the acquisition of TechniGraphix (see Note 7) and working capital
requirements. Although not due until 2009, the Senior Subordinated Notes are
redeemable, at the option of the Company, on or after February 1, 2004, at
declining premiums through January 2007 and at their principal amount
thereafter. Until February 1, 2002, the Company may also redeem up to 25% of the
Senior Subordinated Notes at a price of 110.375% of their face amount with the
net cash proceeds from one or more public equity offerings. If a third party
acquires control of the Company, the Senior Subordinated Note holders have the
right to require the Company to repurchase the Senior Subordinated Notes at a
price equal to 101% of the principal amount of the notes plus accrued and unpaid
interest to the date of purchase. All of the current and future "restricted
subsidiaries," as defined in the Senior Subordinated Notes indenture, are full
and unconditional guarantors, jointly and severally, of the Senior Subordinated
Notes on an uncollateralized senior subordinated basis (see Note 12). The
Company intends to file a registration statement to register similar senior
subordinated notes with the Securities and Exchange Commission by March 19, 1999
or it will be required to pay liquidated damages on these Senior Subordinated
Notes. The registered notes will be offered for exchange with the holders of the
Senior Subordinated Notes.
The Senior Subordinated Notes contain limitations on the payment of
dividends, the distribution or redemption of stock, sales of assets and
subsidiary stock, as well as limitations on additional Company and subsidiary
debt and require the Company to maintain certain financial and non-financial
covenants, the most restrictive of which requires the Company to maintain
certain defined coverage ratios.
At December 31, 1997 and 1998, notes payable, which were substantially
repaid by the Senior Subordinated Notes, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C> <C>
MATURITY
NOTES DATE 1997 1998
- ---------------------------------------------------------------------- ----------- ------------- -------------
Bridge Notes.......................................................... 2008 $ -- $ 40,000,000
Equipment Notes....................................................... 1999-2004 8,473,999 37,503,130
Term Loan A........................................................... 2000 8,505,000 --
Term Loan B........................................................... 2001 4,850,000 --
Former shareholder notes (see Note 9)................................. 2000 468,000 252,000
Shareholder notes (see Note 9)........................................ Demand 452,765 395,205
------------- -------------
Total............................................................... 22,749,764 78,150,335
Less current portion................................................ 7,250,834 --
------------- -------------
Long-term portion................................................... $ 15,498,930 $ 78,150,335
------------- -------------
------------- -------------
</TABLE>
All December 31, 1998 amounts attributable to notes payable, revolving line
of credit, term loans, equipment notes and obligations under capital leases have
been classified as noncurrent liabilities on the December 31, 1998 balance sheet
as a result of the repayment of these facilities by the net proceeds of the
Senior Subordinated Notes.
REVOLVING LINE OF CREDIT AND TERM LOANS
In February 1996, the Company entered into a joint $40.0 million Loan and
Security Agreement (the "1996 Loan Agreement") with two commercial banks. The
1996 Loan Agreement consisted of an $18.0 million revolving line of credit
("1996 Revolver"), a four-year term loan ("A") for $16.0 million, and a
F-11
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
five-year term loan ("B") for $6.0 million. In September 1998, the Company
entered into an Amended and Restated Loan Agreement ("Senior Credit Facility")
with a commercial bank for a three year $20,000,000 revolving credit facility,
the proceeds of which were used to repay the balance of the 1996 Revolver.
Borrowings under the term loans bore interest at a base rate, as defined in
the 1996 Loan Agreement, or the LIBOR rate plus a margin based upon the
Company's achievement of certain financial ratios. The interest rate was 9.8% on
the term loans as of December 31, 1998. Borrowings under the Senior Credit
Facility bear interest, at the Company's option, either (i) LIBOR or (ii) the
greater of First Union National Bank's prime rate at the overnight federal funds
rate plus 0.5%, plus a margin, payable quarterly in arrears (8.1% weighted
average rate at December 31, 1998).
BRIDGE NOTES
In September 1998, the Company also issued $40,000,000 in senior
collateralized increasing rate notes (the "Bridge Notes") to a commercial bank
under which the Company drew $20,000,000 on each of September 15, 1998 and
November 30, 1998. The proceeds of the Bridge Notes were used to repay the
outstanding balance of term loans A and B, fund the acquisition of Mid-City (see
Note 7) and for working capital. The Bridge Notes would have matured in 2008 and
bore interest at LIBOR plus 400 basis points, plus an additional 50 basis points
for each three month anniversary from the initial issue date (9.75% at December
31, 1998). Total interest was subject to a cap of 18% per annum, of which 14%
was payable in cash and 4% would be accrued as additional Bridge Notes. Interest
was payable quarterly in arrears.
EQUIPMENT NOTES
The Company also had borrowings with various financial institutions that
financed the purchase of certain equipment which were substantially repaid by
the Senior Subordinated Notes. These borrowings bore interest at rates ranging
from 7.38% to 11.63%.
NONCOMPLIANCE WITH PRIOR DEBT COVENANTS
Prior to the issuance of the Senior Subordinated Notes, the Company's
borrowing agreements required 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 1996 and 1998 Loan Agreements. Such financial covenants
were amended from time to time by agreement among the Company and the lending
banks, and any event of non-compliance by the Company was waived by such banks.
The Company was not in compliance with these covenants for any of its compliance
periods during 1997. The Company has obtained waivers for all events of
noncompliance with respect to these covenants.
F-12
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
Provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------ ------------
Current:
Federal............................................................... $ 1,445,825 $ 2,924,739 $ 592,145
State................................................................. 318,923 645,145 130,103
State refunds resulting from changes in estimates on prior year
returns............................................................. -- -- (164,726)
------------ ------------ ------------
1,764,748 3,569,884 557,522
------------ ------------ ------------
Deferred:
Federal............................................................... 34,394 268,103 1,190,866
State................................................................. 7,698 60,002 259,379
------------ ------------ ------------
42,092 328,105 1,450,245
------------ ------------ ------------
$ 1,806,840 $ 3,897,989 $ 2,007,767
------------ ------------ ------------
------------ ------------ ------------
</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>
1997 1998
----------- -------------
Deferred income tax assets:
Covenant not to compete............................................................ $ 40,134 $ 42,792
Allowance for doubtful accounts.................................................... 54,837 112,827
Accrued liabilities................................................................ 469,495 306,002
----------- -------------
Total deferred income tax assets................................................. 564,466 461,621
----------- -------------
Deferred income tax liabilities:
Property and equipment............................................................. (1,282,181) (2,649,049)
Inventory.......................................................................... (100,726) (81,258)
----------- -------------
Total deferred income tax liabilities............................................ (1,382,907) (2,730,307)
----------- -------------
Net deferred tax liability....................................................... $ (818,441) $ (2,268,686)
----------- -------------
----------- -------------
</TABLE>
F-13
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
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>
1996 1997 1998
--------- --------- ---------
Statutory U.S. tax rate..................................................................... 34.0% 34.0% 34.0%
State taxes net of Federal benefit.......................................................... 6.8 5.5 4.9
Goodwill amortization....................................................................... 18.9 8.6 23.8
Other permanent differences................................................................. (2.8) (1.6) 3.4
--- --- ---
Effective tax rate.......................................................................... 56.9% 46.5% 66.1%
--- --- ---
--- --- ---
</TABLE>
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 was allocated to
the assets and liabilities of NEBC based upon their respective fair values.
Resulting goodwill totaled $17.2 million.
On January 4, 1999, the Company acquired the outstanding capital stock of
Mid-City Lithographers, Inc. ("Mid-City") and certain assets of Viking Leasing
Partnership, a related party of Mid-City, for $10.8 million in cash and the
assumption of $1.7 million of indebtedness. Mid City, located in Lake Forest,
Illinois, supplies book components primarily to the elementary and high school
textbook segment of the book publishing market. Mid-City was merged into the
Company and does not exist as a subsidiary. On February 12, 1999, the Company
acquired the outstanding capital stock of TechniGraphix, Inc. ("TechniGraphix")
for a purchase price of $7.3 million. TechniGraphix is a producer of
print-on-demand books located in Dulles, Virginia. These transactions will be
accounted for as purchase business combinations.
The following unaudited pro forma information sets forth the consolidated
results of operations of the Company had the acquisitions of Mid-City and
TechniGraphix occurred on January 1, 1998. 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, 1998. In addition, this
information does not purport to be indicative of future results of operations of
the consolidated entities.
<TABLE>
<S> <C>
Net sales..................................................... $127,924,000
Net loss...................................................... $ (412,000)
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office and manufacturing facilities under
operating leases. 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
F-14
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
expense under all leases is recognized ratably over the lease terms. Rent
expense under all operating leases was approximately $1,617,445, $1,914,650 and
$2,154,522 for the years ending December 31, 1996, 1997, and 1998, respectively.
Future minimum lease payments, including those of Mid-City and
TechniGraphix, under operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
PHOENIX MID-CITY TECHNIGRAPHIX TOTAL
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
1999..................................................... $ 1,821,225 $ -- $ 173,100 $ 1,994,325
2000..................................................... 1,656,618 -- 178,296 1,834,914
2001..................................................... 1,282,598 -- 183,636 1,466,234
2002..................................................... 1,279,870 -- 189,156 1,469,026
2003..................................................... 1,315,150 -- 194,820 1,509,970
Thereafter............................................... 7,145,250 -- 649,394 7,794,644
------------- ----------- ------------- -------------
$ 14,500,711 $ -- $ 1,568,402 $ 16,069,113
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
In 1997, the Company entered into an agreement to lease a build-to-suit
facility in Taunton, MA. In connection with this agreement, the Company advanced
the developer $175,000 in the form of a note which is included in other
non-current assets on the balance sheet at December 31, 1998. The note bears
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
Capital leases were repaid in their entirety by the proceeds of the Senior
Subordinated Notes, as described in Note 5.
LEGAL CONTINGENCIES
The Company has filed a complaint against Krause Biagosch GmbH and Krause
America ("Krause"), which is pending in the United States District Court for the
District of Maryland, based on breach of contract and statutory warranties on
certain prepress equipment which the Company had agreed to purchase from Krause.
The Company attempted to operate the equipment and contends that the equipment
has failed to perform as warranted. During 1998, the Company removed, the
portion of the equipment actually received, and is seeking recovery of the sum
of $1.6 million paid to date on this equipment, which includes an amount for
deposits on the balance of the equipment not yet received. As of December 31,
1998, the Company has included in other non-current assets a receivable from
Krause of approximately $1.6 million. Krause has recently counterclaimed for
$1.5 million for the balance of the purchase price for all the equipment
(whether or not delivered), plus incidental charges. The Company intends to
vigorously prosecute its claims against Krause and contest Krause's
counterclaims. If Krause were nevertheless to prevail, the Company may be
required to pay Krause's actual lost profit on the equipment. While the
potential amount of such lost profits is not presently determinable, the amount
the Company might be required to pay if Krause prevailed would in no event
exceed the unpaid balance of the purchase price, claimed by Krause to be $1.5
million and by the Company to be $1.2 million. Also, in that event, if the
Company were to attempt to resell the equipment in its possession, assuming a
market existed,
F-15
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and the price received from such resale were less than the price it had paid
Krause, the Company would incur a loss.
The Company is also party to 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, results of operations or
cash flows.
PURCHASE COMMITMENTS
The Company has commitments under contracts, which require deposits, for the
purchase of equipment and for the construction of a building. Portions of such
contracts not completed at year-end are not reflected in the consolidated
financial statements. These unrecorded commitments were approximately $18.2
million as of December 31, 1998.
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, but not less than 7.0% (7.8% and 8.0% at December 31,
1998 and 1997, respectively). The balance due to these stockholders was $252,000
and $468,000 as of December 31, 1998 and 1997, respectively, and is included in
notes payable on the balance sheet.
The Company utilizes the services of a law firm in which a former director
of the Company is also a partner. The Company paid the law firm approximately
$514,000, $127,000 and $250,000 for the years ended December 31, 1998, 1997 and
1996, respectively. As of December 31, 1998 and 1997, included in accrued
expenses is a payable to the law firm of $51,948 and $12,561, respectively.
The Company utilizes the services of a management consulting firm in which a
director of the Company is also a principal. The Company paid the consulting
firm approximately $38,000, $180,000 and $-0- for the years ended December 31,
1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997, included in
accrued expenses is a payable to the consulting firm of $1,800 and $860,
respectively.
The Company purchases raw materials from a supplier in which a former
director of the Company is President and CEO. The Company purchased
approximately $9,215,000, $9,492,000 and $5,840,000 for the years ended December
31, 1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997,
included in accrued expenses is a payable to the supplier of $1,637,897 and
$2,435,167, respectively.
The Company has outstanding $392,765 of demand notes payable to five
stockholders of the Company, which are included in current liabilities in the
Consolidated Balance Sheets. These notes bear interest at the rate of 12%.
Interest expense paid to these stockholders totalled $35,348, $47,131 and
$51,601 for the years ended December 31, 1998, 1997 and 1996, respectively. The
stockholders have agreed to subordinate their claims under these notes to all
other obligations of the Company. The Company has classified all the notes
payable to the aforementioned stockholders as current liabilities.
F-16
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
the year ended December 31, 1997; however, no contribution was made in each of
the years ended December 31, 1996 and 1998.
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, 1998.
11. UNAUDITED QUARTERLY FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1998:
Net sales........................... $ 24,620,306 $ 25,167,939 $ 31,443,964 $ 26,258,836 $ 107,491,045
Cost of sales....................... 19,973,761 19,143,343 20,791,748 20,718,187 80,627,039
Income from operations.............. 846,919 1,983,586 5,076,207 (254,559) 7,652,153
Net income (loss)................... (44,784) 569,790 1,707,431 (1,204,151) 1,028,286
1997:
Net sales........................... $ 23,714,635 $ 23,746,341 $ 28,649,934 $ 28,682,795 $ 104,793,705
Cost of sales....................... 16,804,341 16,930,950 19,668,733 20,317,606 73,721,630
Income from operations.............. 2,618,666 2,615,599 4,815,143 2,876,381 12,925,789
Net income (loss)................... 759,319 827,800 1,996,567 897,858 4,481,544
</TABLE>
F-17
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. GUARANTOR SUBSIDIARIES:
The following summarized consolidating financial information sets forth the
information regarding the Company and its subsidiaries all of which are
restricted subsidiaries (see Note 5) as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
PHOENIX PCC
COLOR EXPRESS, PHOENIX (MD.)
CORP. INC. REALTY, LLC ELIMINATIONS TOTAL
------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance sheet information:
December 31, 1998
Current assets...................... $ 38,030,305 $ 14,036 -- $ (780,892) $ 37,263,449
Noncurrent assets................... 94,837,998 342,908 $ 2,038,789 (2,043,789) 95,175,906
Current liabilities................. 17,071,415 787,147 -- (755,145) 17,103,417
Noncurrent liabilities.............. 98,053,426 -- -- -- 98,053,426
December 31, 1997
Current assets...................... 27,401,061 26,320 -- (402,169) 27,025,212
Noncurrent assets................... 57,608,980 363,313 -- (5,000) 57,967,293
Current liabilities................. 46,268,032 451,410 -- (402,169) 46,317,273
Noncurrent liabilities.............. 22,510,221 111,537 -- -- 22,621,758
Statement of operations information:
December 31, 1998
Sales............................... 107,491,045 915,020 -- (915,020) 107,491,045
Gross profit........................ 26,596,945 (241,697) -- 508,758 26,864,006
Income from operations.............. 7,652,153 (256,889) -- 256,889 7,652,153
Net income.......................... 1,028,286 (256,889) -- 256,889 1,028,286
December 31, 1997
Sales............................... 104,793,705 459,215 -- (459,215) 104,793,705
Gross profit........................ 30,826,302 (169,170) -- 414,943 31,072,075
Income from operations.............. 12,925,789 (178,314) -- 178,314 12,925,789
Net income.......................... 4,481,544 (178,314) -- 178,314 4,481,544
December 31, 1996
Sales............................... 95,262,245 -- -- -- 95,262,245
Gross profit........................ 24,146,292 -- -- -- 24,146,292
Income from operations.............. 7,868,899 -- -- -- 7,868,899
Net income.......................... 1,365,689 -- -- -- 1,365,689
</TABLE>
Upon its acquisition in February, 1999, TechniGraphix became a restricted
subsidiary.
13. REVISION OF FINANCIAL STATEMENTS
In 1996, the Company sold certain operating machinery and equipment obtained
in the acquisition of NEBC (see Note 7). The Company previously recorded a gain
in 1996 of approximately $852,000 related to such sale. The Company has since
determined that the appropriate accounting treatment for this transaction is to
adjust the amount of purchase price allocated to the assets acquired and to
eliminate the gain. The effect on net income of this revision, which has been
reflected in the accompanying financial statements, is a decrease in 1996 of
approximately $431,000 and an increase in both 1997 and 1998 of approximately
$97,000.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Phoenix Color Corp. and one of its subsidiaries, PCC Express, Inc. are
Delaware corporations.
As permitted by Section 102(b) (7) of the Delaware General Corporation Law
(the "DGCL"), Phoenix Color Corp.'s ("Phoenix") and PCC Express, Inc.'s ("PCC")
Certificate of Incorporation and Phoenix's and PCC's By-Laws eliminate in
certain circumstances the liability of directors of Phoenix and PCC 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 Phoenix and PCC 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 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.
II-1
<PAGE>
Phoenix's and PCC's Bylaws require Phoenix and PCC, 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 Phoenix and PCC and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Bylaws of Phoenix and PCC 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 Phoenix and PCC 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 Phoenix and PCC as
authorized in the Bylaws.
In addition, Phoenix and PCC will apply for directors' and officers'
liability insurance which, if issued, insures against liabilities that directors
and officers of Phoenix and PCC may incur in such capacities. The risks covered
by such policies do not exclude liabilities under the Securities Act.
TechniGraphix, Inc. is a Maryland Corporation.
Section 2-148 of the Maryland General Corporation Law ("MGCL") provides that
a Maryland corporation may indemnify any director or officer made party to any
proceeding by reason of service in that capacity against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the director or
officer in connection with such proceeding unless it is established that (i) the
director's or officer's act or omission was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services, or, (iii) in the case
of a criminal proceeding, the director or officer had reasonable cause to
believe that his act was unlawful. However, if the proceeding was one by or in
the right of the corporation, indemnification may not be made if the director or
officer is adjudged to be liable to the corporation. A director or officer may
not be indemnified in respect of any proceeding charging improper personal
benefit, whether or not involving action in his official capacity, in which the
director or officer was adjudged to be liable on the basis that personal benefit
was improperly received. A director or officer who has been successful, on the
merits or otherwise, must be indemnified against reasonable expenses incurred in
connection with the proceeding.
TechniGraphix, Inc.'s Bylaws requires that each and every person who serves
now or hereafter shall serve as a director or officer of TechniGraphix, Inc.,
and each and every person who at the request of TechniGraphix, Inc. serves now
or hereafter shall serve as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall be indemnified
according to the MGCL. TechniGraphix, Inc.'s Bylaws also provide for expenses
incurred by such a director or officer in defending a civil or criminal action,
suit or proceeding shall be paid by TechniGraphix, Inc. in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by TechniGraphix, Inc. Such
right of indemnification shall not be deemed exclusive of any other rights to
which such person may be entitled.
Maryland (MD.) Realty, LLC is a Maryland limited liability company.
Section 4A-301 of the Maryland Limited Liability Company Act of 1992
provides that no member shall be personally liable for the obligations of the
limited liability company, whether arising in contract, tort or otherwise,
solely by reason of being a member of the limited liability company.
The operating agreement of Maryland (MD.) Realty, LLC ("Maryland Realty")
provides that any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate, then, is, or was a member of Maryland Realty, or
II-2
<PAGE>
then serves or has served on behalf of Maryland Realty in any capacity at the
request of Maryland Realty, shall be indemnified by Maryland Realty against
reasonable expenses, judgements, fines and amounts actually and necessarily
incurred in connection with the defense of such action or proceeding or in
connection with an appeal therein, to the fullest extent permissible by the laws
of the State of Maryland. Such right of indemnification shall not be deemed
exclusive of any other rights to which such person may be entitled.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. A list of exhibits included as part of this Registration
Statement is set forth in the Exhibit Index which immediately proceeds such
exhibits and is hereby incorporated by reference.
(b) Financial Statement Schedules.
- Report of Independent Accountants on Financial Statement Schedule.
- Schedule II.
- Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(1) to file, during any period in which offers or sales are made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
II-3
<PAGE>
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of such Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of a Registrant in connection with the
securities being registered, such Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Phoenix Color
Corp. 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 5th day of May, 1999.
PHOENIX COLOR CORP.
By: /s/ LOUIS LASORSA
-----------------------------------------
Louis LaSorsa
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ EDWARD LIEBERMAN
-----------------------------------------
Edward Lieberman
PRINCIPAL ACCOUNTING 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, Chief Executive
- ------------------------------ Officer May 5, 1999
Louis LaSorsa
/s/ EDWARD LIEBERMAN Executive Vice President,
- ------------------------------ Chief Financial Officer, May 5, 1999
Edward Lieberman Secretary and Director
/s/ DION VON DER LIETH Senior Vice President,
- ------------------------------ Sales and Marketing, and May 5, 1999
Dion von der Lieth Director
Vice President,
/s/ JOHN CARBONE Manufacturing, Book
- ------------------------------ Manufacturing, and May 5, 1999
John Carbone Director
/s/ DAVID RUBIN Director
- ------------------------------ May 5, 1999
David Rubin
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCC Express,
Inc. 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 5th day of May, 1999.
PCC EXPRESS, INC.
By: /s/ LOUIS LASORSA
-----------------------------------------
Louis LaSorsa
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ EDWARD LIEBERMAN
-----------------------------------------
Edward Lieberman
PRINCIPAL ACCOUNTING 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, Chief Executive
- ------------------------------ Officer May 5, 1999
Louis LaSorsa
/s/ EDWARD LIEBERMAN Executive Vice President,
- ------------------------------ Chief Financial Officer, May 5, 1999
Edward Lieberman Secretary and Director
/s/ DION VON DER LIETH Senior Vice President,
- ------------------------------ Sales and Marketing, and May 5, 1999
Dion von der Lieth Director
Vice President,
/s/ JOHN CARBONE Manufacturing, Book
- ------------------------------ Manufacturing, and May 5, 1999
John Carbone Director
/s/ DAVID RUBIN Director
- ------------------------------ May 5, 1999
David Rubin
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TechniGraphix,
Inc. 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 5th day of May, 1999.
TECHNIGRAPHIX, INC.
By: /s/ LOUIS LASORSA
-----------------------------------------
Louis LaSorsa
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ EDWARD LIEBERMAN
-----------------------------------------
Edward Lieberman
PRINCIPAL ACCOUNTING 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, Chief Executive
- ------------------------------ Officer May 5, 1999
Louis LaSorsa
/s/ EDWARD LIEBERMAN Executive Vice President,
- ------------------------------ Chief Financial Officer, May 5, 1999
Edward Lieberman Secretary and Director
/s/ DION VON DER LIETH Senior Vice President,
- ------------------------------ Sales and Marketing, and May 5, 1999
Dion von der Lieth Director
Vice President,
/s/ JOHN CARBONE Manufacturing, Book
- ------------------------------ Manufacturing, and May 5, 1999
John Carbone Director
/s/ DAVID RUBIN Director
- ------------------------------ May 5, 1999
David Rubin
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Phoenix (MD.)
Realty, LLC 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 5th day of May, 1999.
PHOENIX (MD.) REALTY, LLC
By: /s/ LOUIS LASORSA
-----------------------------------------
Louis LaSorsa
OPERATING MANAGER
By: /s/ EDWARD LIEBERMAN
-----------------------------------------
Edward Lieberman
PRINCIPAL ACCOUNTING 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
- ------------------------------ --------------------------- -------------------
Chairman, Chief Executive
/s/ LOUIS LASORSA Officer and Director of
- ------------------------------ Phoenix Color Corp., sole May 5, 1999
Louis LaSorsa member of Phoenix (MD.)
Realty LLC
Executive Vice President,
Chief Financial Officer,
/s/ EDWARD LIEBERMAN Secretary and Director of
- ------------------------------ Phoenix Color Corp., sole May 5, 1999
Edward Lieberman member of Phoenix (MD.)
Realty LLC
Senior Vice President,
/s/ DION VON DER LIETH Sales and Marketing, and
- ------------------------------ Director of Phoenix Color May 5, 1999
Dion von der Lieth Corp., sole member of
Phoenix (MD.) Realty LLC
Vice President,
Manufacturing, Book
/s/ JOHN CARBONE Manufacturing, and
- ------------------------------ Director of Phoenix Color May 5, 1999
John Carbone Corp., sole member of
Phoenix (MD.) Realty LLC
/s/ DAVID RUBIN Director of Phoenix Color
- ------------------------------ Corp., sole member of May 5, 1999
David Rubin Phoenix (MD.) Realty LLC
II-8
<PAGE>
PHOENIX COLOR CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Index to Financial Statements Schedules.................................................................... S-1
Report of Independent Accountants.......................................................................... S-2
Schedule II--Valuation and Qualifying Accounts............................................................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Phoenix Color Corp.
Our audits of the consolidated financial statements referred to in our report
dated February 12, 1999, except for Note 13, as to which the date is April 13,
1999, appearing in the Prospectus also included an audit of the financial
statement schedule listed in Item 21(b) on page II-3 of this Registration
Statement. In our opinion, the financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 12, 1999, except Note 13,
as to which the date is April 13, 1999
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO REBATES BALANCE
BEGINNING COSTS AND CHARGED TO AT END OF
DESCRIPTION OF YEAR EXPENSES(1) SALES DEDUCTIONS YEAR
- ------------------------------------------------------ ----------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable and
Rebates:
Year ended December 31, 1998........................ $ 674 $ 150 $ 823 $ 533 $ 1,114
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
Year ended December 31, 1997........................ $ 687 $ -- $ 533 $ 546 $ 674
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
Year ended December 31, 1996........................ $ 18 $ 134 $ 535 $ -- $ 687
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
</TABLE>
(1) Includes an addition of $134 in 1996 associated with the recording of
receivables and the related allowance for doubtful accounts acquired in 1996
in connection with the acquisition of New England Book Holding Corporation.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Acquisition Agreement dated as of November 30, 1998 among the Company, Carl E. Carlson, Wayne L.
Sorensen, Donald Davis, Margaret Davis and Viking Leasing Partnership (schedules and exhibits omitted)
2.2 Acquisition Agreement dated as of February 3, 1999 among the Company, TechniGraphix, Inc., Debra A.
Barry and Jack L. Tiner (schedules and exhibits omitted)
2.3 Stock Purchase Agreement dated as of December 27, 1995 among the Company and various stockholders of New
England Book Holding Corporation
2.4 Plan and Agreement of Merger of Phoenix Color Corp. (New York) into Phoenix Merger Corp. (Delaware)
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Note Purchase Agreement dated January 28, 1999 among the Company, the Guarantors and the Initial
Purchasers
4.2 Indenture dated as of February 2, 1999 among the Company, the Guarantors and Chase Manhattan Trust
Company, National Association, Trustee
4.3 Registration Rights Agreement dated as of February 2, 1999 among the Company, the Guarantors and the
Initial Purchasers
4.4 Form of Initial Global Note (included as Exhibit A to Exhibit 4.2)
4.5 Form of Initial Certificated Note (included as Exhibit B to Exhibit 4.2)
4.6 Form of Exchange Global Note (included as Exhibit C to Exhibit 4.2)
4.7 Form of Exchange Certificated Note (included as Exhibit D to Exhibit 4.2)
5.1 Opinion letter of Bresler Goodman & Unterman, LLP*
10.1 Employment Agreement dated as of February 12, 1999 between the Company and Jack L. Tiner
10.2 Employment Agreement dated as of January 4, 1999 between the Company and Carl E. Carlson
10.3 Non-Competition Agreement dated as of January 4, 1999 between the Company and Wayne L. Sorensen
10.4 Credit Agreement dated as of September 15, 1998 among the Company, the Guarantors and First Union
National Bank as Agent, as Issuer and as Lender (schedules omitted)
10.5 Revolving Credit Note dated as of September 15, 1998 executed by the Company and the Guarantors
10.6 Master Security Agreement dated as of September 15, 1998 among the Company, the Guarantors and First
Union National Bank as Collateral Agent (schedules omitted)*
10.7 Master Pledge Agreement dated as of September 15, 1998 executed by the stockholders of the Company
(schedules omitted)
10.8 Subsidiary Pledge Agreement dated as of September 15, 1998 executed by the Company (schedules omitted)
10.9 Loan and Security Agreement dated as of February 1, 1996 among the Company, CoreStates Bank, N.A. as
Issuer and Lender and Fleet Bank as Co-Agent and Lender
10.10 Form of Stock Pledge Agreement dated as of February 1, 1996 among the Company, CoreStates Bank, N.A. as
Issuer and Lender and Fleet Bank as Co-Agent and Lender
10.11 Form of Surety Agreement dated as of February 1, 1996 among the Company, CoreStates Bank, N.A. as Issuer
and Lender and Fleet Bank as Co-Agent and Lender
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.12 Lease Agreement dated as of January 4, 1999 between the Company and Laurel Limited Partnership for the
facility located at 13825 West Laurel Drive, Lake Forest, IL 60301
10.13 Lease Agreement dated as of March 20, 1998 between the Company and Maurice M. Weill, Trustee under
Indenture dated December 6, 1984 for the facility located at 40 Green Pond Road, Rockaway, NJ 07866*
10.14 Lease Agreement dated as of March 31, 1997 between the Company and Constitution Realty Company, LLC for
the facility located at 555 Constitution Drive, Taunton, MA 02780*
10.15 Lease Agreement dated as of November 16, 1987 between the Company and 474431 Associates, as modified by
a lease modification Agreement with CMC Factory Holding Company, LLC, dated November 4, 1996 for the
facility located at 47-07 30th Place, Long Island City, NY 11101**
10.16 Escrow Agreement dated as of February 1, 1996 among the Company and various stockholders of New England
Book Holding Corporation
12.1 Statement concerning calculation of Ratio of Earnings to Fixed Charges
12.2 Statement concerning calculation of EBITDA, Ratio of total debt to EBITDA, and EBITDA to cash interest
expense
21.1 Subsidiaries of the Company
23.1 Consent of Bresler Goodman & Unterman, LLP (included in Exhibit 5.1)*
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of attorney (included on signature pages)
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Chase Manhattan Trust
Company, National Association
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Instructions to Registered Holder from Beneficial Holder*
99.4 Form of Letter to Brokers, Dealers and Financial Institutions*
99.5 Form of Letter to Client*
</TABLE>
- ------------
* filed with this Amendment No. 2.
** Filed under Form SE in accordance with Rule 201 of Regulation S-T pursuant
to a temporary hardship exemption.
<PAGE>
EXHIBIT 5.1
BRESLER GOODMAN & UNTERMAN, LLP
521 Fifth Avenue
New York, NY 10175
Telephone (212) 661-2150 - Fax (212) 949-6131
May , 1999
Board of Directors
Phoenix Color Corp.
540 Western Maryland Parkway
Hagerstown, MD 21740
Ladies and Gentlemen:
We have been acting as counsel to Phoenix Color Corp., a Delaware
corporation (the "Company"), and to the subsidiaries of the Company (the
"Guarantors"), in connection with the preparation, execution and filing with the
Securities and Exchange Commission (the "Commission"), under the Securities Act
of 1933, as amended (the "Act"), of a Registration Statement on Form S-1, as
amended by Amendments Nos. 1 and 2 on Form S-4 (the "Registration Statement"),
and the offer, issuance and sale pursuant to the Registration Statement and the
prospectus ("Prospectus") included therein of up to $105,000,000 aggregate
principal amount of 103/8% Senior Notes Due 2009 of the Company (the "Exchange
Notes") as described in the Registration Statement. Payment of the Exchange
Notes is to be guaranteed by the Guarantors pursuant to the Indenture, as
defined in the Registration Statement. (Capitalized terms defined in the
Registration Statement are used herein as defined therein.)
In our representation of the Company, we have examined the Registration
Statement, the Indenture pursuant to which the Exchange Notes and the Guarantees
are to be issued, the Articles of Incorporation and By-laws of the Company, the
relevant organizational documents of the Guarantors, the minute books of the
Company and the Guarantors and certificates and representations of officers of
the Company and the Guarantors. We have also examined such other documents, and
have consulted with, as appropriate, officers or representatives of the Company
and the Guarantors, concerning the Registration Statement, the Indenture and the
Exchange Notes and related matters, as we have considered necessary for the
purpose of rendering the opinion expressed below.
In giving the opinion expressed herein and in making our examination in
connection herewith, we have assumed (i) the due authorization by the parties
(other than the Issuer and the
-1-
<PAGE>
Guarantors of the documents examined by us), (ii) the genuineness of all
signatures, (iii) the personal legal capacity of all individual signatories,
(iv) the authenticity of all documents presented to us as originals, (v) the
conformity to the originals of all documents presented to us as copies and (vi)
the integrity and completeness of the minute books and other relevant corporate
and business records of the Company and its subsidiaries presented to us for our
examination.
Based upon the foregoing, it is our opinion that, if and when (i) the
Exchange Notes and the Guarantees have been (a) duly completed, executed,
attested and authenticated in accordance with the Indenture and (b) issued,
exchanged and delivered in the manner and for the consideration stated in the
Indenture, the Prospectus and the Letter of Transmittal (forms of which have
been filed as part of, or as exhibits to, the Registration Statement), (ii) the
Registration Statement has become effective under the Act, and (iii) the
Exchange Notes and the Guarantees have been qualified as required under the
securities or "blue sky" laws of those states in which they are to be issued and
exchanged, then the Exchange Notes and the Guarantees will be legally issued,
fully paid and non-assessable and will be valid and binding obligations of the
Company and the Guarantors, respectively, enforceable against the Company and
the Guarantors in accordance with their terms, except as enforcement thereof may
be limited by applicable bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and general
principles of equity, as the same are now or hereafter may be in effect.
In rendering the opinion set forth above, we have made such examinations
of the laws as we have deemed necessary or relevant in connection therewith.
However, the opinions expressed herein are limited to the federal securities
laws of the United States of America and the laws of the State of New York
(excluding conflict of laws), and we express no opinion as to the laws of any
other jurisdiction.
We hereby consent to the use of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the use of our name under the heading "Legal
Matters" therein. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulation of the Commission thereunder.
Very truly yours,
/s/ Bresler, Goodman & Unterman, LLP
-2-
<PAGE>
MASTER SECURITY AGREEMENT
This Master Security Agreement ("Agreement") dated this 15th day of
September, 1998, is made by Phoenix Color Corp., a Delaware corporation
("Phoenix"), PCC Express, Inc., a Delaware corporation ("PCC") and Phoenix (MD.)
Realty LLC, a Maryland limited liability company ("Realty") (Phoenix, PCC and
Realty are sometimes referred to herein individually as "Debtor" or collectively
as "Debtors") in favor of First Union National Bank, a national banking
association, as collateral agent (in such capacity "Collateral Agent") for (i)
First Union National Bank, as agent (in such capacity "Bank Agent"), for the
lenders ("Lenders") and issuer ("Issuer") parties to the Credit Agreement, dated
as of the date hereof (as amended, modified, restated or supplemented from time
to time, "Credit Agreement"), among the borrowers ("Borrowers"), Bank Agent,
Issuer and Lenders and (ii) First Union Investors, Inc. ("Purchaser") as
purchaser of, and any other holder of the Bridge Notes or Exchange Notes as
defined in, and issued under, the Bridge Securities Purchase Agreement (as
amended, modified, restated or supplemented from time to time, "Purchase
Agreement"), among Phoenix, PCC, Realty and Purchaser.
BACKGROUND
A. Borrowers, Issuer, Lenders and Bank Agent have entered into the Credit
Agreement which, as set forth in the Background thereto (which Background is
incorporated by reference as if fully set forth herein), inter alia, confirms
and preserves the continued effect and operation of liens and security interests
granted under the Existing Loan Agreement (as defined in the Credit Agreement).
B. Phoenix and Purchaser have entered into the Purchase Agreement pursuant
to which Phoenix may issue, from time to time the Bridge Notes and Exchange
Notes (as defined in the Purchase Agreement) and PCC and Realty have guaranteed,
in accordance with the terms of the Purchaser Agreement, the payment and
performance of Phoenix's obligations under the Purchase Agreement.
C. It is a condition precedent to the effectiveness of the Credit
Agreement that each Debtor pledge the Collateral as provided herein in order to
secure the Loan Obligations under, and as defined in, the Credit Agreement.
D. It is a condition precedent to the effectiveness of the Purchase
Agreement that each Debtor pledge the Collateral as herein provided in order to
secure the Bridge Note Obligations and Exchange Note Obligations, each as
defined in the Credit Agreement.
E. It is the intention of the parties that the legal operation and effect
of the Existing Loan Agreement be confirmed, as modified, amended, supplemented
and restated by the Credit
<PAGE>
Agreement and this Agreement and that, in the event of any inconsistency between
the terms of the Existing Credit Agreement, on one hand, and the terms and
conditions of the Credit Agreement and this Agreement, on the other, the terms
of the Credit Agreement and this Agreement shall govern.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement or by reference therein.
(b) The following terms shall have the following meanings:
Bridge Note Majority Holders - The holders of more than fifty
percent (50%) of the outstanding principal amount of the Bridge Notes.
Collateral - As defined in Section 2.
Default - Any Default under and as defined in the Credit Agreement
or any Default under and as defined in the Purchase Agreement.
Event of Default - Any Event of Default under and as defined in the
Credit Agreement or any Event of Default under and as defined in the
Purchase Agreement.
Exchange Note Holders - Any holders of the Exchange Notes.
Obligations - The collective reference to (i) the Loan Obligations,
(ii) the Bridge Note Obligations and (iii) the Exchange Note Obligations,
in each case whether on account of principal, interest, fees, indemnities,
costs, expenses or otherwise.
Secured Parties - Collectively, Bank Agent, Lenders, Issuer,
Purchaser, Trustee, holders of the Bridge Notes and Exchange Note Holders,
and any successors or assigns thereto.
Trustee - The trustee under the Exchange Indenture.
(c) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2
<PAGE>
SECTION 2. SECURITY INTEREST
2.1 Description. As security for the prompt and complete payment and
performance (whether at the stated maturity, by acceleration or otherwise) of
all Obligations, each Debtor hereby assigns and grants to Collateral Agent (for
the benefit of Secured Parties), a continuing Lien on and security interest in,
upon and to the following property (the "Collateral"):
(a) Accounts, Contract Rights, Etc. - All of such Debtor's now owned
and hereafter acquired, created, or arising Accounts, accounts receivable, notes
receivable, contract rights, Chattel Paper, Documents (including documents of
title), Instruments, letters of credit and Goods;
(b) Inventory - All of such Debtor's now owned or hereafter acquired
Inventory of every nature and kind, wherever located;
(c) General Intangibles - All of such Debtor's now owned and
hereafter acquired, created or arising General Intangibles of every kind and
description, including, without limitation, all existing and future rights to
commissions, customer lists, choses in action, claims, books, records, patents
and patent applications, copyrights, copyright applications, servicemarks,
trademarks, tradenames, tradestyles, trademark applications, blueprints,
drawings, designs and plans, trade secrets, contracts, contract rights, 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;
(d) Equipment - All of such Debtor'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;
(e) Deposit Accounts - All of such Debtor's now existing and
hereafter acquired or arising deposit accounts of every nature, including,
without limitation, the Cash Collateral Account, wherever located, and all
documents and records associated therewith;
(f) Property in Lender's Possession - All Property of such Debtor,
now or hereafter in any Secured Party's possession;
(g) Investment Property- All of such Debtor's now owned or hereafter
acquired Investment Property whether registered or unregistered; and
(h) Proceeds - The Proceeds (including, without limitation,
insurance proceeds), whether cash or non-cash, of all of the foregoing.
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<PAGE>
2.2 Lien Documents. As Collateral Agent deems necessary, each Debtor shall
execute and deliver to Collateral Agent, for the benefit of Secured Parties, or
have executed and delivered (all in form and substance satisfactory to
Collateral Agent):
(a) Financing Statements. Financing statements pursuant to the UCC,
which Collateral Agent may file in any jurisdiction where any Collateral is or
may be located and in any other jurisdiction that Collateral Agent deems
appropriate; and
(b) Other Agreements. Any other agreements, documents, instruments
and writings, including, without limitation, intellectual property security
agreements required to evidence, perfect or protect Collateral Agent's Lien and
security interest in the Collateral required hereunder or as Collateral Agent
may request from time to time.
2.3 Other Actions. In addition to the foregoing, each Debtor shall do
anything further that may be lawfully and reasonably required by Collateral
Agent to secure Collateral Agent (for the benefit of Secured Parties), and
effectuate the intentions and objects of this Agreement, including, without
limitation, the execution and delivery of continuation statements, amendments to
financing statements, and any other documents required hereunder. At Collateral
Agent's request, each Debtor shall also immediately deliver to Collateral Agent
all items constituting Collateral for which Collateral Agent must receive
possession to obtain a perfected security interest, including, without
limitation, all notes, certificates and documents of title, Chattel Paper,
Instruments, and any other similar instruments constituting Collateral.
2.4 Filing Security Agreement. A carbon, photographic or other
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.
2.5 Landlord/Warehouseman Waiver. Each Debtor will use its best efforts to
cause each owner of any premises occupied by such Debtor or to be occupied by
such Debtor and each warehouseman of any warehouse, where, in either event,
Collateral is held, to execute and deliver to Collateral Agent an instrument, in
form and substance reasonably satisfactory to Collateral Agent, under which such
owner(s) or warehouseman subordinates its/his/their interests in and waives
its/his/their right to distrain on or foreclose against the Collateral and
agrees to allow Collateral Agent to remain on such premises to dispose of or
deal with any Collateral located thereon.
2.6 Power of Attorney. Each of the officers of Collateral Agent or its
representative is hereby irrevocably made, constituted and appointed the true
and lawful attorney for each Debtor (without requiring it to act as such) with
full power of substitution to do the following: (a) endorse, in favor of
Collateral Agent, the name of Debtor upon any and all checks, drafts, money
orders and other instruments for the payment of monies that are payable to such
Debtor and constitute collections on such Debtor's Accounts or other Collateral;
(b) execute in the name of each Debtor any financing statements in favor of
Collateral Agent; (c) execute in the name of
4
<PAGE>
each Debtor, schedules, assignments, instruments, documents and statements that
such Debtor is obligated to give Collateral Agent hereunder or is necessary to
perfect (or continue to evidence the perfection of) such security interest or
Lien; and (d) do such other and further acts and deeds in the name of each
Debtor that Collateral Agent may reasonably deem necessary or desirable to
enforce any Account or other Collateral or protect Collateral Agent's security
interest or Lien in the Collateral. The power of attorney set forth herein is
coupled with an interest.
2.7 Particular Releases of Security Interests. If it is determined that
the security interest granted in any Debtor's Equipment under Section 2.1(d)
constitutes a violation of any Permitted Lien that is a lease, conditional sale
contract or purchase money security agreement with respect to any particular
item of such Equipment, then upon Phoenix's written request to Collateral Agent,
which request shall be accompanied by such documentation as Collateral Agent may
reasonably require to verify such violation and to specifically identify such
Equipment, Collateral Agent shall execute a UCC-3 partial release statement for
such specified Equipment.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Each Debtor represents and warrants that:
(a) Ratification. Each representation and warranty made by any
Debtor in (or referred to in) the Credit Agreement or the Purchase Agreement
relating to such Debtor is hereby ratified and confirmed and incorporated by
reference as if set forth herein in full.
(b) Perfection. This Agreement is effective to create in favor of
Collateral Agent, for the benefit of Secured Parties, legal, valid and
enforceable Liens and security interests in all right, title and interest of
each Debtor in the Collateral, and when financing statements have been filed in
the offices of the jurisdictions shown on Schedule "3.1(b)" attached hereto and
made a part hereof under such Debtor's name, Collateral Agent, for the benefit
of Secured Parties, will have perfected Liens and security interests in the
Collateral, superior in right to any and all other Liens, existing or future
other than Permitted Liens.
(c) Chief Executive Office. Each Debtor's chief executive office is
located at 540 Western Maryland Parkway, Hagerstown, Maryland 21740.
(d) Inventory and Equipment Location. Each Debtor keeps its
Inventory and Equipment at the locations set forth on Schedule 4.2 to the Credit
Agreement.
SECTION 4. COVENANTS
4.1 Each Debtor covenants and agrees with Collateral Agent and each
Secured Party that, from and after the date of this Agreement, until the
Obligations shall have been paid and satisfied in full and the Revolving Credit
has been terminated:
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<PAGE>
(a) Ratification. Each covenant made by any Debtor in (or referred
to in) the Credit Agreement or the Purchase Agreement relating to such Debtor is
hereby ratified and confirmed and incorporated by reference as if set forth
herein in full.
(b) Change of Location. Each Debtor shall give thirty (30) days
prior written notice to Collateral Agent of any change in the location of any
Collateral from that set forth in Schedule 4.2 to the Credit Agreement or of any
change of its chief executive office.
(c) Insurance. Each Debtor shall maintain casualty, public
liability, product liability and business interruption insurance as set forth in
the Credit Agreement. 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 Collateral Agent under which all losses thereunder shall be paid to
Collateral Agent (for application in accordance with the terms of the Collateral
Agency Agreement) as Collateral 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 Collateral Agent and shall
insure Collateral Agent notwithstanding the act or neglect of any Debtor. Each
Debtor hereby irrevocably appoints Collateral Agent as such Debtor's
attorney-in-fact (which power is coupled with an interest), exercisable at
Collateral 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 Debtor
in order to collect the proceeds of such insurance and any amount or amounts
collected by Collateral Agent pursuant to the provisions of this paragraph may
be applied by Collateral Agent, in its sole discretion, in the manner set forth
in the Collateral Agency Agreement or to repair, reconstruct or replace the loss
of or damage to Collateral as Collateral Agent in its reasonable judgment may
from time to time determine.
SECTION 5. REMEDIES
5.1 Rights and Remedies on Default. Collateral Agent may, at any time
after an acceleration of Loan Obligations, Bridge Note Obligations or Exchange
Note Obligations, following the occurrence of an Event of Default, exercise
rights and remedies of a secured party granted to it under the UCC and may
exercise all rights and remedies under any other applicable law, including,
without limitation, the following rights and remedies:
(i) the right to take possession of, send notices, and collect
directly the Collateral, with or without judicial process (including, without
limitation the right to notify the United States postal authority to redirect
all mail addressed to a Debtor to an address designated by Collateral Agent);
(ii) by its own means or with judicial assistance, enter any
Debtor's premises and take possession of the Collateral, or render it unusable,
or dispose of the Collateral on such premises without any liability for rent,
storage, utilities or other sums, and no Debtor shall resist or interfere with
such action;
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<PAGE>
(iii) require each Debtor at such Debtor's expense to assemble all
or any part of the Collateral and make it available to Collateral Agent at any
place designated by Collateral Agent; and
(iv) in its discretion, collect and dispose of all Proceeds arising
from all Accounts and General Intangibles. Collateral Agent may (A) notify
Account Debtors and other obligors of the grant to and creation in favor of
Collateral Agent of the security interest in the Accounts, General Intangibles
and the Proceeds thereof under this Agreement, (B) direct such Account Debtors
or other obligors to make any payments from time to time due in respect of any
such Accounts and General Intangibles directly to Collateral Agent at such
places as it directs and (C) assume entire control over all of the Proceeds of
such Accounts and General Intangibles. Each Debtor shall promptly remit all such
Proceeds then or subsequently in its possession, and any collections and
receipts with respect to such Proceeds shall be held in trust by such Debtor for
the benefit of Collateral Agent.
Each Debtor hereby agrees that a notice received by it at least ten (10) 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 Collateral Agent without prior notice to such Debtor. Collateral
Agent, Bank Agent, Lenders, Issuer, Purchaser, Trustee, and any holder of the
Bridge Notes or Exchange Notes shall have the right upon any such public sale or
sales and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold free of any equity
or right of redemption which each Debtor hereby waives. Each Debtor covenants
and agrees not to interfere with or impose any obstacle to Collateral Agent's
exercise of its rights and remedies with respect to the Collateral, after the
occurrence of an Event of Default hereunder
5.2 License of General Intangibles. For purpose of enabling Collateral
Agent to exercise its rights and remedies hereunder, each Debtor hereby grants
to Collateral Agent an irrevocable, nonexclusive license (exercisable without
payment of any royalty or other compensation to any Debtor) to use assign,
license or sublicense any Debtor's General Intangibles, wherever the same may be
located, including in such license reasonable access to all media in which any
General Intangibles may be recorded or stored and to all computer programs used
for the compilation or printout thereof; provided that Collateral Agent shall
comply with all reasonable quality control standards and trademark use
requirements of such Debtor. No agreements hereafter acquired or agreed to or
entered into by any Debtor shall prohibit, restrict or impair the rights granted
to Collateral Agent hereunder. Notwithstanding the foregoing, neither Collateral
Agent nor any Secured Party shall have any obligations or liabilities regarding
any Debtor's General Intangibles by reason of, or arising out of, this
Agreement.
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<PAGE>
5.3 Nature of Remedies. Collateral Agent shall have the right to proceed
against all or any portion of the Collateral in any order and may apply such
Collateral to the Obligations in accordance with the terms of the Collateral
Agency Agreement. All rights and remedies granted Collateral Agent hereunder and
under any agreement referred to herein, or otherwise available at law or in
equity, shall be deemed concurrent and cumulative, and not alternative remedies,
and Collateral Agent may proceed with any number of remedies at the same time
until all existing and future Obligations are satisfied in full and the
Revolving Credit has been terminated. The exercise of any one right or remedy
shall not be deemed a waiver or release of any other right or remedy, and
Collateral Agent, upon the occurrence of an Event of Default, may proceed
against any Debtor, and/or the Collateral, at any time, under any agreement,
with any available remedy and in any order.
SECTION 6. COLLATERAL AGENT
6.1 Performance by Collateral Agent of Debtors' Obligations. If any Debtor
fails to perform or comply with any of its agreements contained herein,
Collateral Agent, at its option, but without any obligation so to do, may
perform or comply, or otherwise cause performance or compliance, with such
agreement.
6.2 Duty of Collateral Agent; Release of Collateral. (a) Collateral
Agent's sole duty to any Person with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9207 of
the UCC or otherwise, shall be to deal with it in the same manner as Collateral
Agent deals with similar property for its own account. Neither Collateral Agent
nor any other Secured Party nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Debtor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on Collateral
Agent and the other Secured Parties hereunder are solely to protect such
parties' interests in the Collateral and shall not impose any duty upon any of
such parties to exercise any such powers. Such parties shall be accountable only
for amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to any Debtor for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.
(b) Except as otherwise provided in Section 2.7 hereof, Collateral
Agent shall release the Liens on the Collateral granted hereunder only upon
receipt of notice from Bank Agent, Bridge Note Majority Holders and Trustee
which notices, taken together, confirm the satisfaction in full of all of the
Obligations and termination of the Revolving Credit.
6.3 Authority of Collateral Agent. Each Debtor acknowledges that the
rights and responsibilities of Collateral Agent under this Agreement with
respect to any action taken by
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Collateral Agent or the exercise or non-exercise by the Collateral Agent of any
option, voting right request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between Bank
Agent (for the benefit of Lenders) on the one hand and the holders of the Bridge
Notes and holders of the Exchange Notes on the other hand be governed by the
Collateral Agency Agreement and by such other agreements with respect thereto as
may exist from time to time among them; and as between Bank Agent and Lenders,
be governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them; and as among the Bridge Note
Holders be governed by the Purchase Agreement and such other agreements with
respect thereto as may exist from time to time among them; and as among the
Exchange Note Holders be governed by the Exchange Indenture and such other
agreements with respect thereto as may exist from time to time among them; but,
as between Collateral Agent and Debtors, Collateral Agent shall be conclusively
presumed to be acting as agent for Secured Parties, in accordance with the
Collateral Agency Agreement, with full and valid authority so to act or refrain
from acting and no Debtor shall be under any obligation, or entitlement, to make
any inquiry respecting such authority.
SECTION 7. MISCELLANEOUS
7.1 GOVERNING LAW. THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT
REGARD TO ITS OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. 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.
7.2 Waiver. No omission or delay by Collateral 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 Debtors no waiver will be valid
unless in writing and signed by Collateral Agent and then only to the extent
specified.
7.3 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given to Debtors if effected
in the manner set forth in Section 9.8 of the Credit Agreement and to Collateral
Agent if effected in the manner set forth in the Collateral Agency Agreement.
7.4 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.
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7.5 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 Debtor
may transfer, assign or delegate any of its duties or obligations hereunder.
7.6 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 fully completed fully executed document.
7.7 Modification. No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed by Debtors,
Collateral Agent, Bank Agent, Majority Bridge Note Holders and, if appointed,
Trustee.
7.8 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.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
the day and year first above written.
PHOENIX (MD.) REALTY, LLC PHOENIX COLOR CORP.
By: /s/ Edward Lieberman By: /s/ Edward Lieberman
------------------------------ ------------------------------
Title: Treasurer Title: Exec. VP
PCC EXPRESS, INC.
By: /s/ Edward Lieberman
------------------------------
Title: Exec. VP
Accepted:
FIRST UNION NATIONAL BANK,
as Collateral Agent
By: /s/ Margaret A. Byrne
------------------------------
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Exhibit 10.13
L E A S E A G R E E M E N T
BY AND BETWEEN:
MAURICE M. WEILL, TRUSTEE UNDER
INDENTURE DATED DECEMBER 6, 1984,
"Landlord"
-and-
PHOENIX COLOR CORP.,
a Delaware corporation,
"Tenant"
PREMISES: 40 GREEN POND ROAD
ROCKAWAY, NEW JERSEY
PREPARED BY: ROBERT K. BROWN, ESQ.
DATED:
March 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. LEASED PREMISES..........................................................................................1
2. TERM OF LEASE............................................................................................2
3. RENT.....................................................................................................2
4. CONDITION OF LEASED PREMISES.............................................................................3
5. USE......................................................................................................4
6. REPAIRS AND MAINTENANCE..................................................................................4
7. UTILITIES................................................................................................6
8. TAXES....................................................................................................6
9. INSURANCE................................................................................................8
10. SIGNS...................................................................................................10
11. FIXTURES................................................................................................10
12. GLASS...................................................................................................11
13. ASSIGNMENT AND SUBLETTING...............................................................................11
14. FIRE AND CASUALTY.......................................................................................12
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.............................................................15
16. INSPECTION BY LANDLORD..................................................................................19
17. DEFAULT BY TENANT.......................................................................................20
18. LIABILITY OF TENANT FOR DEFICIENCY......................................................................23
19. NOTICES.................................................................................................23
20. NON-WAIVER..............................................................................................24
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS....................................................24
22. LIMITED LIABILITY OF LANDLORD...........................................................................25
23. WARRANTY OF TITLE.......................................................................................26
24. RESERVATION OF EASEMENT.................................................................................26
25. AIR, GROUND AND WATER POLLUTION.........................................................................26
26. STATEMENT OF ACCEPTANCE.................................................................................27
27. FORCE MAJEURE...........................................................................................27
28. STATEMENTS BY LANDLORD AND TENANT.......................................................................27
29. CONDEMNATION............................................................................................28
30. QUIET ENJOYMENT.........................................................................................29
31. SURRENDER OF LEASED PREMISES............................................................................30
32. INDEMNITY...............................................................................................30
33. SHORT FORM LEASE........................................................................................31
34. LEASE CONSTRUCTION......................................................................................31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
35. BIND AND INURE CLAUSE...................................................................................31
36. DEFINITIONS.............................................................................................32
37. NET RENT................................................................................................32
38. DEFINITION OF TERM OF "LANDLORD"........................................................................32
39. COVENANTS OF FURTHER ASSURANCES.........................................................................33
40. LANDLORD'S REMEDIES.....................................................................................33
41. COVENANT AGAINST LIENS..................................................................................34
42. BROKERAGE...............................................................................................34
43. SUBORDINATION OF LEASE..................................................................................35
44. LIMIT OF LANDLORD'S LIABILITY...........................................................................35
45. LOSS OF OPTION RIGHTS...................................................................................36
46. SECURITY................................................................................................36
47. SURVIVAL OF OBLIGATION..................................................................................37
48. OPTION TO RENEW.........................................................................................37
49. EXECUTION AND DELIVERY..................................................................................39
50. NOTIFICATION OF LANDLORD'S INTENT TO SELL...............................................................39
</TABLE>
LIST OF SCHEDULES
Schedule "A" - Metes and Bounds Description
Schedule "B" - Landscaping Services
Schedule "C" - Title Exceptions
Schedule "D" - Subordination, Non-Disturbance
& Attornment Agreement
<PAGE>
THIS AGREEMENT, made the day of , 1998, by and between MAURICE
M. WEILL, TRUSTEE UNDER INDENTURE DATED DECEMBER 6, 1984, having an office at 51
Commerce Street, Springfield, New Jersey 07081, hereinafter called the
"Landlord"; and PHOENIX COLOR CORP., a Delaware corporation, about to have an
office at 40 Green Pond Road, Rockaway, New Jersey 07866, hereinafter called the
"Tenant".
W I T N E S S E T H :
WHEREAS, the Landlord owns certain lands and premises in the
Township of Rockaway, County of Morris and State of New Jersey, which said lands
and premises are located at 40 Green Pond Road, and are more particularly
referred to and described by metes and bounds on Schedule "A" annexed hereto and
made a part hereof (the "Property"); and
WHEREAS, the Landlord has erected an industrial type building,
containing approximately 84,000 square feet (hereinafter called the "Building"),
on the Property (which Building and Property are hereinafter called the "Leased
Premises"), all in accordance with the terms and conditions hereinafter
mentioned and the considerations herein expressed,
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the
rents reserved, the mutual considerations herein and the parties mutually
intending to be legally bound hereby, the Landlord does demise, lease and let
unto the Tenant and the Tenant does rent and take from the Landlord the Leased
Premises as described in Paragraph #1, and the Landlord and Tenant do hereby
mutually covenant and agree as follows:
1. LEASED PREMISES
The Leased Premises shall consist of the Building
containing approximately 84,000 square feet, based on outside dimensions, as
said Building is located on and together with the Property and all improvements
thereon, and together with all easements, improvements, tenements,
appurtenances, hereditaments, fixtures and rights and privileges appurtenant
thereto.
<PAGE>
2. TERM OF LEASE
2.1 The Landlord leases unto the Tenant and the
Tenant hires the Leased Premises for the term of ten (10) years, to commence on
the Commencement Date, as hereinafter defined, subject to the provisions of
Article 2.2 hereof.
2.2 Subject to the terms and conditions of this
lease, the lease term of ten (10) years shall commence on the first day of the
next succeeding month following delivery of possession of the Leased Premises to
the Tenant in accordance with Article 4 hereof (hereinafter called the
"Commencement Date") and shall continue for a term of ten (10) years thereafter.
The Tenant shall, however, pay to the Landlord a sum equal to the pro rata share
of one (1) month's Base Rent for that portion of the month between the date of
delivery of the Leased Premises to the Tenant and the Commencement Date. During
any such period of partial monthly occupancy, if any, all other terms and
conditions of this lease shall be applicable to the occupancy of the Leased
Premises by the Tenant.
3. RENT
3.1 The Tenant covenants and agrees to pay the rent
("Base Rent") as follows:
(a) During the first (1st) through fifth
(5th) years of the lease term, Tenant shall pay Base Rent in the amount of FOUR
HUNDRED SEVENTY THOUSAND FOUR HUNDRED AND 00/100 ($470,400.00) DOLLARS per
annum, payable in equal installments in the sum of THIRTY NINE THOUSAND TWO
HUNDRED AND 00/100 ($39,200.00) DOLLARS per month.
(b) During the sixth (6th) through tenth
(10th) years of the lease term, Tenant shall pay Base Rent in the amount of FIVE
HUNDRED SEVENTEEN THOUSAND FOUR HUNDRED FORTY AND 00/100 ($517,440.00) DOLLARS
per annum, payable in equal installments in the sum of FORTY THREE THOUSAND ONE
HUNDRED TWENTY AND 00/100 ($43,120.00) DOLLARS per month.
(c) The foregoing installments of Base Rent
shall be paid promptly, in advance, on the first day of each and
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<PAGE>
every month during the term of this lease, without demand and without offset or
deduction, together with such additional rent and other charges required to be
paid by Tenant as are hereinafter set forth.
3.2 Any installment of Base Rent or additional rent
(herein collectively referred to as "Rent") accruing hereunder, and any other
sum payable hereunder by Tenant to Landlord which is not paid prior to the fifth
(5th) business day of any lease month, shall bear a late charge of five (5%) per
cent of such Base Rent or additional rent, to be paid therewith, and the failure
to pay such charge shall be a default. Such late charge shall be deemed to be
additional rent hereunder. It is expressly understood and agreed that the
foregoing late charge is not a penalty, but agreed upon compensation to the
Landlord for administrative costs incurred by Landlord in connection with any
such late payment. In addition, any payment of Base Rent or additional rent,
which is not paid within thirty (30) days of the date upon which it is due shall
require the payment of interest at the rate of one and one-half (1 1/2%) percent
per month, calculated from the date that such payment was due through the date
that any such payment is actually made.
3.3 Receipt and acceptance by Landlord of any Base
Rent, additional rent and any other charge with knowledge of Tenant's default in
any covenant or condition of this lease shall not be deemed a waiver of such
default, except to the extent that such payment cures such default.
3.4 Simultaneously with the execution hereof, the
Tenant has delivered to the Landlord the first monthly installment of Base Rent
payable hereunder, together with the security deposit referred to herein.
4. CONDITION OF LEASED PREMISES
Anything herein contained to the contrary
notwithstanding, it is expressly understood and agreed that the Tenant shall
take the Leased Premises and improvements as of the
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<PAGE>
Commencement Date of the within lease in an "as is", broom clean condition,
except that the Landlord (a) warrants that effective as of the Commencement Date
of the lease all building systems, fixtures and equipment shall be in good
repair and operating condition, and (b) Landlord shall remove the existing sheet
rock demising wall located within the Leased Premises. Landlord shall deliver
the Leased Premises to the Tenant together with a continuing use certificate of
occupancy which shall permit the use and occupancy of the Leased Premises by the
Tenant.
5. USE
The Tenant covenants and agrees to use and occupy
the Leased Premises for offices, warehousing, printing, publishing and mailing
services only, which use by Tenant, however, is and shall be expressly subject
to all applicable zoning ordinances, rules and regulations of any governmental
boards or bureaus having jurisdiction thereof.
6. REPAIRS AND MAINTENANCE
6.1 The Landlord shall, with due diligence, at its
own cost and expense, make all structural repairs and repairs to the exterior
bearing walls and foundation of the Building, and Landlord shall be responsible
for any required replacement of the roof of the Building, provided that any
damage to the foregoing is not caused by the negligence of the Tenant, its
servants, employees, agents or invitees, in which case such damage shall be
repaired by the Landlord at the Tenant's sole cost and expense. Notwithstanding
the above, Tenant shall be responsible for the maintenance and repair of the
roof of the Building, and for the maintenance, repair and replacement, as
necessary, of the roof leaders, drains, metal gravel stops and flashings, all at
Tenant's sole cost and expense.
6.2 The Tenant shall, except as provided in Article
6.1 above, take good care of the Leased Premises and, at its cost and expense,
maintain, repair and replace, as necessary, the interior and exterior of the
Building, including, but not limited
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to the floor, loading dock, windows and doors, the air-conditioning and heating
plant, the plumbing, pipes and fixtures belonging thereto; and shall replace all
mechanical systems and working parts used in connection with the
air-conditioning, electrical, heating and plumbing plants, fixtures and systems,
including ballasts and fluorescent fixtures; and shall keep the water and sewer
pipes and connections free from ice and other obstructions, and shall generally
maintain and repair the interior and exterior of the Building and shall, at the
end of the expiration of the term, deliver up the Leased Premises in good order
and condition, damages by the elements, ordinary wear and tear excepted. Tenant
shall enter into a maintenance contract in connection with the maintenance and
repair of the heating, ventilating and air-conditioning system serving the
Building. Said contract shall be with a reputable, recognized contractor who is
reasonably acceptable to Landlord, and said contract shall provide for
inspection and service every two (2) months during the term of this lease.
Tenant shall promptly forward a copy of such contract, and all inspection
reports thereafter received by Tenant, promptly upon Tenant receipt of same.
Notwithstanding anything here and above contained to the contrary, Landlord
hereby agrees that it shall warranty the operation of the HVAC system serving
the Leased Premises (which shall function in accordance with its specifications)
for a period of one (1) year following the commencement date hereunder. The
Tenant covenants and agrees that it shall not cause or permit any waste (other
than reasonable wear and tear), damage or disfigurement to the Leased Premises,
or any overloading of the floors of the Building greater than 300 pounds per
square foot, live load.
6.3 The Tenant shall maintain, repair and replace, as
necessary, the lawns, shrubbery, driveways and parking areas of the entire
Property described on Schedule "A", at Tenant's sole cost and expense. Tenant
may enter into a maintenance and service contract with a landscaper who is
reasonably acceptable to the
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Landlord, providing for the services set forth on Schedule "B" annexed hereto;
Tenant shall enter into such maintenance and service contract in the event that
Landlord is dissatisfied with the performance of landscaping and exterior
maintenance by the Tenant. In addition, the Tenant shall keep the walks and
parking area adjacent to the Building free and clear of ice, snow and debris. At
Tenant's request, Landlord will provide any of the foregoing services to the
Tenant, at Tenant's sole cost and expense, together with an additional ten (10%)
percent of any direct, out-of-pocket cost for Landlord's overhead and profit.
Any such services will be billed to Tenant on a monthly basis, after the
services have been provided, it being understood that Tenant shall reimburse
Landlord for one hundred ten (110%) percent of Landlord's direct, out-of-pocket
cost of such services, as additional rent, within fifteen (15) days following
receipt by Tenant of Landlord's invoice therefor.
7. UTILITIES
The Tenant shall, at its own cost and expense, pay
all utility meter and service charges applicable to the Leased Premises,
including gas, sewer, electric, water and pro rata standby sprinkler charges, if
any, janitorial and garbage disposal service.
8. TAXES
8.1 The Leased Premises are presently taxed as a
separate, stand-alone tax parcel, and are assessed as a completed structure
subject to neither temporary nor "startup" abatement of tax nor to omitted or
concessions in assessment. All real estate taxes which are due and payable prior
to the Commencement Date shall have been paid, and Tenant shall have no
responsibility for any tax, assessment for local improvements, or any other
obligation to any governmental authority which is applicable in any fashion to
the period prior to the Commencement Date of this lease. The Tenant shall,
during the term of the lease, promptly pay monthly, as additional rent, together
with the Base Rent to be paid pursuant
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to Article 3, one-twelfth (1/12th) of all real estate and personal property
taxes assessed against the Leased Premises for land, Building and improvements,
including such added assessment which may be levied against the Leased Premises
any period after the Commencement Date in the year 1998, et seq., by the
applicable governmental taxing authority, said obligation to be prorated as of
the Commencement Date and as of the date of expiration hereunder as applicable.
In addition to the obligation to pay all real estate taxes as hereinabove set
forth, the Tenant shall, during the term of this lease, pay at its cost and
expense the full cost of any levy for the installation of local improvements
affecting the Leased Premises as may be assessed by any governmental boards or
bureaus having jurisdiction thereof. Any assessment or impositions for capital
or public improvements which may be payable by law at the option of the taxpayer
in installments, may be so paid by the Tenant in installments, together with any
required interest. The real estate tax obligation of the Tenant hereinabove set
forth shall include any tax or imposition which may be levied by any
governmental authority, agency or subdivision thereof having jurisdiction
applicable to parking lot usage. Landlord represents that all parking areas
located on the Property are incidental parking for the convenience of Tenant
only and that Landlord has not authorized any third party to park on the Leased
Premises or to use any portion of the Leased Premises as a parking lot. The
Landlord shall furnish to Tenant annually during the month of July a copy of the
annual real estate tax bill applicable to the Leased Premises. In the event of
any change in tax rate which shall require an adjustment of increase or decrease
in Tenant's annual tax obligation, such difference shall be adjusted by Landlord
and Tenant annually during the month of August of each lease year, or as soon
thereafter as is reasonably practicable.
8.2 If at any time during the term of this lease the
method or scope of real property taxation prevailing at the commencement of the
lease term shall be altered, modified or
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enlarged so as to cause the method of real property taxation to be changed, in
whole or in part, so that in substitution for the real estate taxes now assessed
there shall be substituted, in whole or in part, a capital levy or other
imposition based on the value of the Building and the Property, or the rents
received therefrom, or some other form of assessment based in whole or in part
on some other valuation of the Leased Premises, then and in such event, such
substituted tax or imposition on the Leased Premises shall be payable and
discharged by the Tenant in the manner required pursuant to such law promulgated
which shall authorize such change in the scope of taxation, and as required by
the terms and conditions of the within lease.
8.3 Nothing in this lease contained shall require the
Tenant to pay any franchise, estate, inheritance, succession, capital levy or
transfer tax of the Landlord, or Federal Income Tax, State Income Tax, or excess
profits or revenue tax, unless such taxes are in substitution for real property
taxes as a result of such change in the manner and scope of taxation as
hereinbefore provided in Article 8.2.
8.4 The Tenant shall have the right, during the term
of this lease, to contest any assessment of real estate taxes affecting the
Building and Property, the Landlord hereby agrees that it shall cooperate with
Tenant in connection with any such contest. The Tenant shall be entitled to any
refund or rebate of real estate taxes in connection with any such tax appeal,
after deducting the cost and expense of effectuating any such refund or rebate,
provided the Tenant shall have paid any portion of the taxes being refunded or
rebated.
9. INSURANCE
9.1 The Tenant shall obtain for the benefit of the
Landlord, wherein the Landlord shall be the named insured and loss payee, fire
insurance with full extended coverage, including flood insurance if required by
Landlord, insuring the Property, in an amount and value equivalent to the full
replacement value of all of
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the insurable improvements on the Property, without any deductible clause, which
policy of insurance shall include broad form boiler and machinery coverage
(inclusive of air-conditioning system, if any), together with insurance coverage
against sprinkler damage to the Building and its improvements. Said insurance,
in any event, shall not be less than the amount of any first mortgage which may
be placed on the Property by the Landlord and shall be in such form as any such
bona fide mortgagee may reasonably require. The insurance shall be written by a
good and solvent insurance company which is licensed to do business in the State
of New Jersey and which is reasonably satisfactory to the Landlord. The Landlord
shall have the right from time to time to require Tenant to determine the full
replacement value as may be required to comply with full replacement insurance
requirements. The insurance to be obtained by Tenant shall include casualty rent
insurance payable to and insuring the interest of the Landlord as to the value
of the rental obligation hereunder to the extent of one (1) year's gross rental
value, (inclusive of real estate taxes and applicable insurance premiums), and
shall be obtained at Tenant's sole cost and expense.
9.2 The Tenant covenants and agrees that it will, at
its sole cost and expense, carry liability insurance covering the Leased
Premises in the minimum amount of THREE MILLION ($3,000,000.00) DOLLARS. Said
policy shall be a single limit policy. Notwithstanding the above, the
aforementioned liability insurance coverage may be provided by Tenant by way of
a blanket policy, so long as the foregoing coverage is applicable to the Leased
Premises. The Tenant further covenants and agrees that it will add as a party
insured by such policy the interest of the Landlord and will furnish Landlord
with a certificate of said liability insurance prior to the commencement of the
term of this lease. The Tenant agrees that such insurance coverage will be
maintained in full force and effect during the term of the lease.
9.3 Tenant hereby agrees to reimburse Landlord for
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Tenant's pro rata share of the cost of excess liability coverage in the amount
of up to SIXTY MILLION ($60,000,000.00) DOLLARS, pursuant to an "umbrella
policy" to be obtained by Landlord, with respect to any premium or portion
thereof applicable solely to the Leased Premises.
9.4 The Landlord and Tenant mutually waive all right
of recovery against each other, their agents, servants or employees, for any
loss, damage or injury of any nature whatsoever to property or person for which
either party is insured. Each party shall obtain from its insurance carrier
waivers of subrogation rights under their respective policies which shall be
included within the terms of the policies and will furnish evidence of such
waiver upon request.
10. SIGNS
The Tenant shall have the right and privilege of
erecting on and at the Leased Premises only such signs as are required by Tenant
for the purpose of identifying the Tenant, subject to the prior written approval
thereof by Landlord, which approval shall not be unreasonably withheld. The said
signs shall comply with the applicable rules and regulations of the applicable
governmental boards and bureaus having jurisdiction thereof. The erection of
such signs shall not cause any structural damage to the Building. It is
expressly understood and agreed that no party shall erect roof signs on the
Building or elsewhere on the Property. Landlord shall be entitled to place "for
sale" or "for lease" signs on the Property during the last year of the lease
term.
11. FIXTURES
11.1 "Tenant's Equipment" shall include trade
fixtures, machinery, apparatus, furniture, furnishings and other equipment, and
all temporary or auxiliary structures placed by Tenant on or about the Leased
Premises or any part thereof. The Tenant is given the right and privilege of
installing and removing Tenant's Equipment in and from the Leased Premises
during the term
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of the lease. However, if the Tenant is in default and moves out, or is
dispossessed, and fails to remove any of Tenant's Equipment within twenty (20)
days following any dispossess or removal, then and in that event, the said
Tenant's Equipment shall be deemed at the option of the Landlord to be
abandoned; or in lieu thereof, at the Landlord's option, the Landlord may remove
such Tenant's Equipment and charge the reasonable cost and expense of removal,
storage and disposal to the Tenant.
11.2 Anything to the contrary contained herein
notwithstanding, it is expressly understood and agreed that the Tenant may
install, connect and operate Tenant's Equipment as may be deemed necessary by
the Tenant for its business, subject to compliance with applicable rules and
regulations of governmental boards and bureaus having jurisdiction thereof.
Subject to the terms and conditions of this lease, the Tenant's Equipment shall
at all times be considered and intended to be personal property of the Tenant,
and not part of the realty, and subject to removal by the Tenant, provided at
the time of such removal, that the Tenant is not in default pursuant to the
monetary terms and conditions of this lease, and that the Tenant, at its own
cost and expense, pays for any damage to the Leased Premises caused by such
removal.
12. GLASS
The Tenant expressly covenants and agrees to
replace, at Tenant's cost and expense, any broken glass in the windows or other
apertures of the Building which may become damaged or destroyed.
13. ASSIGNMENT AND SUBLETTING
13.1 The Tenant may not assign this lease or sublet
the Leased Premises, or any part thereof, unless it shall first advise the
Landlord in writing, by certified mail, return receipt requested, of Tenant's
intention to assign or sublease. In such event, the Landlord shall have thirty
(30) days from receipt of such notice to elect to recapture the Leased Premises
and terminate the within lease or to consent to the assignment of the lease or
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the sublease of the Leased Premises, which consent shall not be withheld if the
proposed assignee or subtenant is financially responsible, and assumes in
writing the terms and conditions of the within lease on the part of the Tenant
to be performed. In connection with any permitted assignment or subletting, the
Tenant shall pay to the Landlord one half of any increment in Rent, or other
consideration received by Tenant in lieu thereof, per square foot per annum over
the annual Base Rent then in effect.
13.2 The Landlord's consent shall not be required and
the terms and conditions of Article 13.1 shall not apply as to Landlord's right
of first refusal to recapture if the Tenant assigns or subleases the Leased
Premises to a parent, subsidiary, affiliate or a company into which Tenant is
merged or with which Tenant is consolidated, or to the purchaser of all or
substantially all of the assets of Tenant.
13.3 In the event of any assignment or subletting
permitted by the Landlord, the Tenant shall remain and be directly and primarily
responsible for payment and performance of the within lease obligations, and the
Landlord reserves the right, at all times, to require and demand that the Tenant
pay and perform the terms and conditions of this lease. No such assignment or
subletting shall be made to any Tenant who shall occupy the Leased Premises for
any use other than that which is permitted to the Tenant, for any use which
would trigger the applicability of ISRA, as hereinafter defined, or for any use
which may be deemed by the Landlord to be disreputable or extra hazardous, or
which would in any way violate applicable laws, ordinances or rules and
regulations of governmental boards and bodies having jurisdiction.
14. FIRE AND CASUALTY
14.1 In case of (a) any damage to or destruction of
the Building by fire or other casualty occurring during the term of this lease
which is not covered by the insurance required to be carried by Article 9.1, or
(b) in the case of damage to or destruction of the Building which cannot be
repaired within one
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hundred eighty (180) days from the happening of such casualty, or (c) in the
event of damage or destruction which makes the Building substantially unusable
by Tenant in the conduct of its business, and which occurs during the last year
of the lease term, then, in any of such events, the term hereby created shall,
at the option of either party, upon written notice to the other by certified
mail, return receipt requested, within the earlier to occur of thirty (30) days
of such fire or casualty, or fifteen (15) days from the determination that the
repair cannot be effected within said one hundred eighty (180) day period, cease
and become null and void from the date of such destruction or damage. However,
if neither party shall elect to cancel this lease within the period hereinabove
provided, the Landlord shall thereupon repair and restore the Building with
reasonable speed and dispatch, and the Rent shall not be accrued after said
damage or while the repairs and restorations are being made, but shall
recommence immediately after said Building is restored and redelivered to Tenant
together with a certificate of occupancy. Landlord, in any event, shall promptly
advise Tenant in writing as to whether or not the Building can be restored
within the one hundred eighty (180) day period from the date of such casualty.
Anything in this Article 14 to the contrary notwithstanding, it is expressly
understood and agreed that the Landlord shall be obligated to restore the
Building only to the extent of the condition of the Building immediately prior
to the damage or destruction, using first the proceeds received by Landlord
pursuant to the insurance coverage to be provided to Landlord as in Article 9
required. If the insurance proceeds are not sufficient to restore the Building
to substantially the same condition which it was in prior to the casualty, then
the Landlord shall have a period of ten (10) days within which to determine
whether to terminate the term hereby created unless the Landlord and Tenant
shall mutually agree to the funding of any such excess construction costs. In
the event of cancellation in accordance with this Article, the Landlord and
Tenant shall immediately
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terminate this lease. The Tenant shall only pay Rent to the time of such
destruction or damage. The Landlord may re-enter and repossess the Leased
Premises thus discharged from this lease and may remove all parties therefrom.
14.2 In the event of any other insured casualty,
which shall be repairable within one hundred eighty (180) days from the
happening of such damage or casualty, the Landlord shall repair and restore the
Building with reasonable speed and dispatch, and the Rent shall abate and be
equitably apportioned as the case may be as to any portion of the Building which
shall be unfit for occupancy by the Tenant, or which cannot be used by the
Tenant so as to conduct its business. The Rent, however, shall accrue and
recommence immediately upon restoration of the Building.
14.3 Nothing hereinabove contained with respect to
the Tenant's right to abate Rent under proper conditions shall be construed to
limit or affect the Landlord's right to payment under any claim for damages
covered by the rent insurance policy pursuant to the contract therefor required
to be provided pursuant to Article 9 of this lease.
14.4 For the purposes of this Article 14, in
determining what constitutes reasonable speed and dispatch, consideration shall
be given for delays which would be excuses for non-performance as in Article 27
hereinafter provided (Force Majeure).
14.5 In the event of such fire or casualty as above
provided, wherein the Landlord shall rebuild, the Tenant agrees, at its cost and
expense, to forthwith remove any and all of Tenant's Equipment and personal
property as the same may be required to permit Landlord to expedite rebuilding
and/or repair. In any event, the Tenant shall assume at its sole risk the
responsibility for damage or security with respect to Tenant's Equipment,
inventory and other personal property in the event the Building area where the
same may be located has been damaged, until the Building shall be restored and
made secure.
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14.6 Anything in this Article 14 to the contrary
notwithstanding, it is expressly understood and agreed that wherever
reconstruction shall be undertaken, in the event of damage or casualty as in
this Article 14 provided, the Landlord shall prosecute such reconstruction with
reasonable speed and dispatch. In the event, however, such reconstruction or
repair shall not be completed within seven (7) months from the date of such
damage or casualty, then, in that event, the Tenant shall have the option at the
expiration of the seven (7) month period to terminate the lease by notice in
writing by Tenant to Landlord by certified mail, return receipt requested. In
the event of such termination, neither party shall thereafter have any further
liability, one to the other, in accordance with the terms and conditions of the
lease.
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
15.1 (i) The Tenant covenants and agrees that upon
acceptance and occupancy of the Leased Premises, it will, during the lease term,
promptly, at Tenant's cost and expense, execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and City Government and of any and all their departments and bureaus, applicable
to Tenant's activities in the Leased Premises, as the same may require
correction, prevention and abatement of nuisances, violations or other
grievances, in, upon or connected with the Leased Premises, arising from the
operations of the Tenant therein.
(ii) The Tenant covenants and agrees, at its own cost
and expense, to comply with such regulations or requests as may be required by
the fire or liability insurance carriers providing insurance for the Leased
Premises, and will further comply with such other requirements that may be
promulgated by the Board of Fire Underwriters, in connection with the use and
occupancy by the Tenant of the Leased Premises in the conduct of its business.
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(iii) The Tenant covenants and agrees that it will
not commit any nuisance, nor permit the emission of any sound, noise or odors
which would be violative of any applicable governmental rule or regulation. The
Tenant further covenants and agrees that it will handle and dispose of all
rubbish, garbage and waste in connection with the Tenant's operations in the
Leased Premises in accordance with all applicable governmental regulations in
order to avoid unreasonable emission of dirt, fumes, odors or debris which may
constitute a nuisance or induce pests or vermin.
(iv) Nothing required by this lease shall obligate
the Tenant to make any structural repair or alteration to the Building, unless
required due to the specific use of the Leased Premises by Tenant in the conduct
of its business.
15.2 In case the Tenant shall fail or neglect to
comply with the aforesaid statutes, ordinances, rules, orders, regulations and
requirements or any of them, or in case the Tenant shall neglect or fail to make
any necessary repairs, then the Landlord or the Landlord's agents may after
twenty (20) days' notice (except for emergency repairs, which may be made
immediately) enter said Leased Premises and make said repairs and comply with
any and all of the said statutes, ordinances, rules, orders, regulations or
requirements relating to the Leased Premises but not to the operation of the
Tenant's business, at the cost and expense of the Tenant and in case of the
Tenant's failure to pay therefor, the said cost and expense shall be added to
the next month's Rent and be due and payable as such, or the Landlord may deduct
the same from the balance of any sum remaining in the Landlord's hands. This
provision is in addition to the right of the Landlord to terminate this lease by
reason of any default on the part of the Tenant, subject to the rights of the
Tenant as hereinabove mentioned in the manner as in this lease otherwise
provided.
15.3 Without limiting anything hereinabove contained
in this Article 15, Tenant expressly covenants and agrees
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to fully comply with the provisions of the New Jersey Industrial Site Recovery
Act (N.J.S.A. 13:1K-6, et seq.), or any successor statute, hereinafter referred
to as "ISRA", and all regulations promulgated thereto (or under the New Jersey
Environmental Clean-Up Responsibility Act, the predecessor statute of ISRA, as
applicable) prior to the expiration or earlier termination of the within lease
and upon the cessation or announcement of the decision to cease operations by
Tenant at the Leased Premises, or at any time that any action of the Tenant
triggers the applicability of ISRA. In particular, the Tenant agrees that it
shall comply with the provisions of ISRA in the event of any "closing,
terminating or transferring" of Tenant's operations, as defined by and in
accordance with the regulations which have been promulgated pursuant to ISRA. In
the event evidence of such compliance is not delivered to the Landlord prior to
surrender of the Leased Premises by the Tenant to the Landlord, it is understood
and agreed that the Tenant shall be liable to pay to the Landlord an amount
equal to one and one-half (1 1/2) times the Base Rent then in effect, prorated
on a monthly basis, together with all applicable additional rent from the date
of such surrender until such time as evidence of compliance with ISRA has been
delivered to the Landlord, and together with any costs and expenses incurred by
Landlord in enforcing Tenant's obligations under this Article 15.3. Evidence of
compliance, as used herein, shall mean a "letter of non-applicability" issued by
the New Jersey Department of Environmental Protection, hereinafter referred to
as "NJDEP", or an approved "negative declaration", "no further action letter" or
a "remediation work plan" which has been fully implemented and approved by
NJDEP. Evidence of compliance shall be delivered to the Landlord, together with
copies of all submissions made to, and received from, the NJDEP, including all
environmental reports, test results and other supporting documentation. In
addition to the above, Tenant hereby agrees that it shall cooperate with
Landlord in the event of the termination or expiration of any other lease
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affecting the Property, or a transfer of any portion of the property indicated
on Schedule "A", or any interest therein, which triggers the provisions of ISRA.
In such case, Tenant agrees that it shall fully cooperate with Landlord in
connection with any information or documentation which may be requested by the
NJDEP. In the event that any remediation of the Property is required in
connection with the conduct by Tenant of its business at the Leased Premises,
Tenant expressly covenants and agrees that it shall be responsible for that
portion of said remediation which is attributable to the Tenant's use and
occupancy thereof. Tenant hereby represents and warrants that its Standard
Industrial Classification No. is 2735, and that Tenant shall not generate,
manufacture, refine, transport, treat, store, handle or dispose of "hazardous
substances" as the same are defined under ISRA and the regulations promulgated
pursuant thereto, except as shall be required in the ordinary course of Tenant's
business, it being understood and agreed that Tenant shall comply with all
applicable governmental laws, statutes, rules and regulations related thereto.
Tenant hereby agrees that it shall promptly inform Landlord of any change in its
SIC number or the nature of the business to be conducted in the Leased Premises.
The within covenants shall survive the expiration or earlier termination of the
lease term.
15.4 Notwithstanding anything hereinabove
contained, it is understood and agreed that Tenant shall only be responsible for
those releases of hazardous substances which are caused by Tenant, or Tenant's
agents, servants, employees, contractors or invitees. Under no circumstances
will Tenant's liability pursuant to ISRA or any other environmental law apply to
any discharge or release related to any entity other than Tenant (or Tenant's
agents, servants, employees, contractors or invitees) or to any portion of
Landlord's property other than the Leased Premises, unless Tenant's discharge on
the Leased Premises has migrated from the Leased Premises to other property
owned by Landlord. Landlord hereby agrees that it shall indemnify, defend
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and save harmless the Tenant from and against any and all claims or liabilities
incurred in connection with the environmental condition of the Property which
exists as of the Commencement Date of this lease or which is thereafter caused
by Landlord.
15.5 Landlord hereby covenants and agrees that it
shall cooperate with Tenant in the event that any actions of Tenant shall cause
ISRA to apply to the Leased Premises. In such case, Landlord agrees that it
shall fully cooperate with Tenant in connection with any such compliance effort,
including but not limited to, the provision of any information or documentation
which may be requested by NJDEP or any signatures that shall be submitted to
NJDEP. Landlord shall promptly furnish to Tenant: (a) True and complete copies
of all documents, submissions and correspondence provided to any environmental
agency, including but not limited to NJDEP; (b) True and complete copies of any
correspondence received by Landlord from any environmental agency concerning the
Leased Premises; (c) True and complete copies of all sampling and test results
obtained from samples and test taken in and around the Leased Premises.
16. INSPECTION BY LANDLORD
The Tenant agrees that the said Landlord's agents,
and other representatives, shall have the right, during normal business hours,
upon reasonable prior oral notice to the Tenant, and in the company of a
representative of Tenant, to enter into and upon the Leased Premises, or any
part thereof, at all reasonable hours for the purpose of examining the same, or
for exhibiting the same to prospective tenants and purchasers in the presence of
a representative of Tenant (except in the event of emergency) or making such
repairs or alterations therein as may be necessary for the safety and
preservation thereof, without unduly or unreasonably disturbing the operations
of the Tenant (except in the event of emergency). In connection with any such
inspection, Landlord may be excluded from any area where confidential material
is being prepared or stored, except in the event of emergency.
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17. DEFAULT BY TENANT
17.1 Each of the following shall be deemed a default
by Tenant and breach of this lease:
(1) (i) filing of a petition by the Tenant
for adjudication as a bankrupt, or for reorganization, or for an arrangement
under any federal or state statute;
(ii) dissolution or liquidation of the
Tenant;
(iii) appointment of a permanent receiver or
a permanent trustee of all or substantially all the property of the Tenant which
receiver or trustee is not removed within sixty (60) days of his or her
appointment;
(iv) taking possession of the property of
the Tenant by a governmental officer or agency pursuant to statutory authority
for dissolution, rehabilitation, reorganization or liquidation of the Tenant,
unless such action is vacated or stayed within sixty (60) days following such
taking of possession;
(v) making by the Tenant of an assignment
for the benefit of creditors; or
(vi) abandonment, desertion or vacation of
the Leased Premises by Tenant.
If any event mentioned in this subdivision (1) shall
occur, Landlord may thereupon or at any time thereafter elect to cancel this
lease by twenty (20) days' notice to the Tenant, and this lease shall terminate
on the day in such notice specified with the same force and effect as if that
date were the date herein fixed for the expiration of the term of the lease.
(2) (i) Default in the payment of the Base
Rent or additional rent herein reserved or any part thereof for a period of
seven (7) days after the same is due and payable as in this lease required.
(ii) A default in the performance of any
other covenant or condition of this lease on the part of the Tenant to be
performed for a period of thirty (30) days after notice. For purposes of this
subdivision (2) (ii) hereof, no default on the part of Tenant in performance of
work required to be performed or acts to be done or conditions to be modified
shall be deemed to exist if steps shall have been commenced by Tenant diligently
after notice to rectify the same and shall be prosecuted to completion with
reasonable diligence, subject, however, to unavoidable delays.
17.2 In case of any such default under Article
17.1(2) and at any time thereafter following the expiration of the respective
grace periods above mentioned, or in the event that Tenant is consistently
late in the punctual payment of Base Rent and/or additional rent required to
be paid under this lease as shall be evidenced by late payments made during
any period of four
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(4) months during any twelve (12) month period measured from the date of the
first late payment, Landlord may serve a notice upon the Tenant electing to
terminate this lease upon a specified date not less than seven (7) days after
the date of serving such notice and this lease shall then expire on the date
so specified as if that date has been originally fixed as the expiration date
of the term herein granted; however, a default under Article 17.1(2) hereof
shall be deemed waived if such default is made good before the date specified
for termination in the notice of termination served on Tenant.
17.3 In case this lease shall be terminated as
hereinbefore provided, or by summary proceedings or otherwise, Landlord or its
agents may, immediately or any time thereafter, re-enter and resume possession
of the Leased Premises or such part thereof, and remove all persons and property
therefrom, either by summary proceedings or by a suitable action or proceeding
at law without being liable for any damages, provided any entry pursuant to the
foregoing shall be in accordance with law. No re-entry by Landlord shall be
deemed an acceptance of a surrender of this lease.
17.4 In case this lease shall be terminated as
hereinafter provided, or by summary proceedings or otherwise, Landlord may, in
its own name and in its own behalf, relet the whole or any portion of the Leased
Premises, for any period equal to or greater or less than the remainder of the
then current term, for any sum which it may deem reasonable, to any tenant which
it may deem suitable and satisfactory, and for any use and purpose which it may
deem appropriate, and in connection with any such lease Landlord may make such
changes in the character of the improvements on the Leased Premises as Landlord
may determine to be appropriate or helpful in effecting such lease, and Landlord
may grant concessions or free rent. Landlord agrees that it will take reasonable
steps to mitigate Tenant's damages. It is specifically understood and agreed
that Landlord, by listing the Leased Premises
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for lease with a recognized real estate broker doing business in the Morris
County, New Jersey area, shall be conclusively deemed to have utilized
reasonable efforts to mitigate Tenant's damages. Landlord shall not in any event
be required to pay Tenant any surplus of any sums received by Landlord on a
reletting of the Leased Premises in excess of the rent reserved in this Lease.
17.5 (1) In case this lease be terminated by summary
proceedings, or otherwise, as provided in this Article 17, and whether or not
the Leased Premises be relet, Landlord shall be entitled to recover from the
Tenant, the following:
(i) A sum equal to all expenses, if any,
including reasonable counsel fees, incurred by Landlord in recovering possession
of the Leased Premises, and all reasonable costs and charges for the care of
said Leased Premises while vacant, which damages shall be due and payable by
Tenant to Landlord at such time or times as such expenses shall have been
incurred by Landlord; and
(ii) A sum equal to all damages set forth in
this Article 17 and in Article 18 hereinafter referred to.
(2) Without any previous notice or demand,
separate actions may be maintained by Landlord against Tenant from time to time
to recover any damages which, at the commencement of any such action, have then
or theretofore become due and payable to the Landlord under this Article 17 and
subsections hereof without waiting until the end of the then current term.
(3) All sums which Tenant has agreed to pay
by way of taxes, sewer charges, water rents or water meter charges, insurance
premiums and other similar items becoming due from time to time under the terms
of this lease, shall be deemed additional rent reserved in this lease within the
meaning of this Article 17 and subsections hereof. Notwithstanding anything in
this lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this lease, whether or not expressly denominated as rent, shall
constitute rent for the purposes of Section 502(b)(6)of the Bankruptcy Code, 11
U.S.C. Section 502(b)(6), or any successor statute.
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18. LIABILITY OF TENANT FOR DEFICIENCY
In the event that the relation of the Landlord and
Tenant may cease or terminate by reason of the default by the Tenant and the
re-entry of the Landlord as permitted by the terms and conditions contained in
this lease or by the ejectment of the Tenant by summary proceedings or other
judicial proceedings, or after the abandonment of the Leased Premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable to pay in
monthly payments the Rent which shall accrue subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained the difference between the Rent reserved and the
Rent collected and received, if any, by the Landlord, during the remainder of
the unexpired term, as the amount of such difference or deficiency shall from
time to time be ascertained. Anything herein contained to the contrary
notwithstanding, the Rent referred to shall include the stated reserved Base
Rent together with all additional rent and charges required to be paid by the
Tenant under the lease including but not limited to taxes and insurance costs,
and the costs of re-renting.
19. NOTICES
All notices required or permitted to be given to the
Landlord shall be given by certified mail, return receipt requested, or by
recognized overnight delivery service, providing for a receipt at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Landlord may designate in writing.
All notices required or permitted to be given to the
Tenant shall be given by certified mail, return receipt requested, or by
recognized overnight delivery service, providing for a receipt at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Tenant shall designate in writing.
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Every notice, demand, request or other communication
hereunder shall be deemed to have been given or served upon receipt or refusal
of delivery.
20. NON-WAIVER
The failure of the Landlord or Tenant to insist upon
strict performance of any of the covenants or conditions of this lease, or to
exercise any option of the Landlord or Tenant herein conferred in any one or
more instances (except for Tenant's option to renew, which must be exercised
strictly in accordance with its terms), shall not be construed as a waiver by
such party of any of its rights or remedies in this lease, and shall not be
construed as a waiver, relinquishment or failure of any such covenants,
conditions, or options, but the same shall be and remain in full force and
effect.
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS
21.1 The Tenant may make alterations, additions or
improvements to the Building and, if any such work involves an estimated cost of
more than TWENTY THOUSAND AND 00/100 ($20,000.00) DOLLARS, then such
alterations, additions or improvements may be made only with the prior written
consent of the Landlord, which consent shall not be unreasonably withheld or
delayed, provided such alterations, additions or improvements do not require
structural changes in the Building, or do not lessen the value of the Leased
Premises or the Building. Any consent which Landlord gives shall be conditioned
upon Tenant furnishing to Landlord, detailed plans and specifications with
respect to any such changes, to be approved by Landlord in writing. As a
condition of such consent, Landlord reserves the right to require Tenant to
remove, at Tenant's sole cost and expense, any such alterations or additions
prior to the expiration of the lease term. In the event Landlord's consent is
not required for any such work, Tenant shall nonetheless send copies of all
plans and specifications for such work to Landlord, for Landlord's records. If
Landlord does not require such removal, any such alterations or additions shall
be
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deemed to be part of the realty upon installation, provided that Tenant, at its
option, shall have the right to remove the same, so long as Tenant shall be
responsible to repair any damage to the Leased Premises or the Building
occasioned by such removal, and such removal is made prior to the expiration of
the lease term. All such alterations, additions or improvements shall be only in
conformity with applicable governmental and insurance company requirements and
regulations applicable to the Leased Premises. Tenant shall hold and save
Landlord harmless and indemnify Landlord against any claim for damage or injury
in connection with any of the foregoing work which Tenant may make as
hereinabove provided.
21.2 Nothing herein contained shall be construed as
a consent on the part of the Landlord to subject the estate of the Landlord to
liability under the Construction Lien Law of the State of New Jersey, it being
expressly understood that the Landlord's estate shall not be subject to such
liability.
21.3 It is expressly understood and agreed that in
the event alterations or improvements required by Tenant are performed by
Landlord's designated contractor, Tenant shall make payments to said contractor
strictly in accordance with the agreement entered into between said parties.
Default in payment by Tenant under said construction contract shall be deemed to
be a default under this lease for which Landlord shall have the right of
termination as hereinbefore set forth in Article 17.
22. LIMITED LIABILITY OF LANDLORD
22.1 It is expressly understood and agreed by and
between the parties to this agreement that the Tenant shall assume all risk of
damage to its property, equipment and fixtures occurring in or about the Leased
Premises, whatever the cause of such damage or casualty.
22.2 It is expressly understood and agreed that in
any event, the Landlord shall not be liable for any damage or injury to
property or person caused by or resulting from steam, electricity, gas,
water, rain, ice or snow, or any leak or flow
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from or into any part of the Building, or from any damage or injury resulting or
arising from any other cause or happening whatsoever, except for damage or
injury arising from Landlord's negligence.
23. WARRANTY OF TITLE
Landlord represents that it has title to the lands
and Leased Premises which are the subject of this lease and that it has the full
right, capacity and authority to enter into the within lease agreement. The
Leased Premises are subject to the title exceptions which are annexed hereto and
made a part hereof as Schedule "C".
24. RESERVATION OF EASEMENT
The Landlord reserves the right, easement and
privilege to enter, upon thirty (30) days' prior notice, on the Leased Premises
in order to install, at its own cost and expense, any storm drains and sewers
and/or utility lines in connection therewith as may be required by the Landlord.
It is understood and agreed that if such work as may be required by Landlord
requires an installation which may displace any paving, lawn, seeded area or
shrubs, the Landlord, shall, at its own cost and expense, restore said paving,
lawn, seeded area or shrubs. The Landlord covenants that the foregoing work
shall not unreasonably interfere with the normal operation of Tenant's business,
and the Landlord shall indemnify and save the Tenant harmless in connection with
such installations.
25. AIR, GROUND AND WATER POLLUTION
The Tenant expressly covenants and agrees to
indemnify, defend, and save the Landlord harmless against any claim, damage,
liability, costs, penalties, or fines which the Landlord may suffer as a result
of air, ground or water pollution caused by the Tenant in its use of the Leased
Premises. Tenant shall have no liability or obligation whatsoever for any air,
ground or water pollution caused by or attributable to any other entity or
person (unless under the direction and control of Tenant) including, but not
limited, to Landlord and any other tenant of the
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Property, past, present or future. The Tenant covenants and agrees to notify the
Landlord immediately of any claim or notice served upon it with respect to any
such claim the Tenant is causing water, ground or air pollution; and the Tenant,
in any event, will take immediate steps to halt, remedy or cure any pollution of
air, ground or water caused by the Tenant by its use of the Leased Premises.
This covenant shall survive the expiration or earlier termination of this lease.
26. STATEMENT OF ACCEPTANCE
During the term of this lease, the Tenant agrees
that it will furnish to the Landlord a statement that the lease is in full force
and effect in accordance with its terms, so as to provide for Landlord's
benefit, an estoppel certificate as the same may be required from time to time
for legitimate business purposes of Landlord. Said statement shall set forth the
Date of Commencement and the Date of Expiration of the lease term.
27. FORCE MAJEURE
Except for the obligation of the Tenant to pay Rent
and other charges as in this lease provided, the period of time during which the
Landlord or Tenant is prevented from performing any act required to be performed
under this lease by reason of fire, catastrophe, strikes, lockouts, civil
commotion, acts of God or the public enemy, government prohibitions or
preemptions, embargoes, inability to obtain material or labor or access to such
party's existing capital, the act or default of the other party, or other events
beyond the reasonable control of Landlord or Tenant, as the case may be, shall
be added to the time for performance of such act.
28. STATEMENTS BY LANDLORD AND TENANT
Landlord and Tenant agree at any time and from time
to time upon not less than fifteen (15) days' prior notice from the other to
execute, acknowledge and deliver to the party requesting same, a statement in
writing, certifying that this lease is unmodified and in full force and effect
(or if there have been
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modifications, that the same is in full force and effect as modified and stating
the modifications), that it is not in default (or if claimed to be in default,
stating the amount and nature of the default) and specifying the dates to which
the Base Rent and other charges have been paid in advance, if any; it being
intended that any such statement delivered pursuant to this paragraph may be
relied upon as to the facts contained therein.
29. CONDEMNATION
29.1 Upon receipt by either Landlord or Tenant of
notice of the institution of any proceedings for the taking of any part of the
Leased Premises by the exercise of any power of condemnation or eminent domain,
or for any street widening or change of grade, the party receiving such notice
shall promptly notify the other party of the institution of such proceedings.
Each party shall be entitled to be represented by its own counsel in connection
with any such proceeding. If due to condemnation or taking or seizure by any
authority having the right of eminent domain, (i)any portion of the Building is
taken, or (ii) in the event that any portion of the parking or loading area
serving Leased Premises are taken which materially affects the ability of Tenant
to conduct its business, and provided that Landlord is not able to replace such
parking or loading areas elsewhere on the Property, or (iii) if access to the
Leased Premises be materially limited or denied, which taking in the manner
hereinabove referred to and in excess of the foregoing percentage amounts shall
unreasonably or unduly interfere with the use of the Building, ground area,
parking area, materially limit, or deny access to the Leased Premises, then and
in any of such events as hereinabove provided, the lease term created shall, at
the option of the Tenant, terminate, cease and become null and void from the
date when the authority exercising the power of eminent domain takes or
interferes with the use of the Leased Premises, Tenant's use of the ground area,
parking area, or area of access to the Leased Premises. The Tenant shall only be
responsible for the payment of
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Rent until the time of surrender. In any event, no part of the Landlord's
condemnation award shall belong to or be claimed by the Tenant. Without
diminishing Landlord's award, the Tenant shall have the right to make a claim
against the condemning authority for such independent claim which it may have
and as may be allowed by law, for costs and damages due to relocating, moving
and other similar costs and charges directly incurred by the Tenant and
resulting from such condemnation.
29.2 In the event of any partial taking which would
not be cause for termination of the within lease or in the event of any partial
taking in excess of the percentages provided in Article 29.1, and in which event
the Tenant shall elect to retain the balance of the Leased Premises remaining
after such taking, then and in either event, the Rent shall abate in an amount
mutually to be agreed upon between the Landlord and Tenant based on the
relationship that the character of the property taken bears to the property
which shall remain after such condemnation. In any event, no part of the
Landlord's condemnation award shall belong to or be claimed by the Tenant.
However, the Landlord shall, to the extent permitted by applicable law and as
the same may be practicable on the site of the Leased Premises, at the
Landlord's sole cost and expense, promptly make such repairs and alterations in
order to restore the Building and/or improvements to the extent of the
condemnation award.
30. QUIET ENJOYMENT
The Landlord further covenants that the Tenant, on
paying the rental and performing the covenants and conditions contained in this
lease, shall and may peaceably and quietly have, hold and enjoy the Leased
Premises for the term aforesaid, without molestation or disturbance by or from
Landlord or any person claiming through Landlord, and free of any encumbrance
created or suffered by Landlord, except those to which this lease is made
subject and subordinate as herein provided and except for easements
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which may need to be created in favor of utility companies or governmental
entities.
31. SURRENDER OF LEASED PREMISES
On the last day, or earlier permitted termination
of the lease term, Tenant shall quit and surrender the Leased Premises in
good and orderly condition and repair (reasonable wear and tear, and damage
by fire or other casualty excepted) and shall deliver and surrender the
Leased Premises to the Landlord peaceably, together with all alterations,
additions and improvements in, to or on the Leased Premises made by Tenant as
permitted under the lease. The Landlord reserves the right, however, to
require the Tenant at its cost and expense to remove any alterations or
improvements installed by the Tenant and not permitted or consented to by the
Landlord pursuant to the terms and conditions of the lease, which covenant
shall survive the surrender and the delivery of the Leased Premises as
provided hereunder. Prior to the expiration of the lease term the Tenant
shall remove all of its property, fixtures, equipment and trade fixtures from
the Leased Premises. All property not removed by Tenant shall be deemed
abandoned by Tenant, and Landlord reserves the right to charge the reasonable
cost of such removal to the Tenant, which obligation shall survive the lease
termination and surrender hereinabove provided. If the Leased Premises not be
surrendered at the end of the lease term, Tenant shall be responsible to pay
Landlord, monthly, an amount equal to one and one-half (1 1/2) times the
monthly installment of Base Rent payable by Tenant prior to the expiration or
earlier termination of this lease for each month or part thereof that Tenant
holds over in the Leased Premises.
32. INDEMNITY
Anything in this lease to the contrary
notwithstanding, and without limiting the Tenant's obligation to provide
insurance pursuant to Article 9 hereunder, the Tenant covenants and agrees that
it will indemnify, defend and save harmless the Landlord against and from all
liabilities,
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obligations, damages, penalties, claims, costs, charges and expenses, including
without limitation reasonable attorneys' fees, which may be imposed upon or
incurred by Landlord by reason of any of the following occurring during the term
of this lease:
(i) Any matter, cause or thing arising out of use,
occupancy, control or management of the Leased Premises and any part thereof;
(ii) Any negligence on the part of the Tenant or any
of its agents, contractors, servants, employees, licensees or invitees;
(iii) Any accident, injury, damage to any person or
property occurring in, or about the Leased Premises;
(iv) Any failure on the part of Tenant to perform or
comply with any of the covenants, agreements, terms or conditions contained in
this lease on its part to be performed or complied with.
Landlord shall promptly notify Tenant of any such claim
asserted against Landlord and shall promptly send to Tenant copies of all papers
or legal process served upon Landlord in connection with any action or
proceeding brought against Landlord by reason of any such claim. Tenant will, at
Tenant's expense, resist and defend such action or proceeding by counsel to be
approved by Landlord, in writing, which approval shall not be unreasonably
withheld or delayed.
33. SHORT FORM LEASE
It is understood between the parties hereto that
this lease will not be recorded, but that a short form lease, describing the
property leased hereby, giving the term of this lease, and making particular
mention of any special clauses as herein contained, may be recorded by Landlord
in accordance with the laws governing and regulating the recording of such
documents in the State of New Jersey.
34. LEASE CONSTRUCTION
This lease shall be construed pursuant to the laws
of the State of New Jersey.
35. BIND AND INURE CLAUSE
The terms, covenants and conditions of the within
lease shall be binding upon and inure to the benefit of each of the
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parties hereto, their respective executors, administrators, heirs, successors
and assigns, as the case may be.
36. DEFINITIONS
The neuter gender, when used herein and in the
acknowledgment hereafter set forth, shall include all persons and corporations,
and words used in the singular shall include words in the plural where the text
of the instrument so requires.
37. NET RENT
It is the purpose and intent of the Landlord and
Tenant that the Rent shall be absolutely net to Landlord, so that this lease
shall yield, net, to Landlord, the Rent specified in Article 3 hereof in each
month during the term of the lease, and that all costs, expenses and obligations
of every kind and nature whatsoever relating to the Leased Premises which may
arise or become due during or out of the term of this lease, shall be paid by
the Tenant, except for such obligations and charges as have otherwise expressly
been assumed by the Landlord in accordance with the terms and conditions of the
lease. Nothing herein shall require the Tenant to undertake obligations in
connection with the sale or mortgaging of the Leased Premises, unless otherwise
expressly provided in accordance with the terms and conditions of this lease.
38. DEFINITION OF TERM OF "LANDLORD"
When the term "Landlord" is used in this lease it
shall be construed to mean and include only the owner of the fee title of the
Leased Premises. Upon the transfer by the Landlord of the fee title
hereunder, the Landlord shall advise the Tenant in writing by certified mail,
return receipt requested of the name of the Landlord's transferee. In such
event, the then Landlord shall be automatically freed and relieved from and
after the date of such transfer of title of all personal liability with
respect to the performance of any of the covenants and obligations on the
part of the Landlord herein contained to be performed, provided any such
transfer and conveyance by the Landlord is expressly subject to the
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assumption by the grantee or transferee of the obligations of the Landlord to be
performed pursuant to the terms and conditions of the within lease.
39. COVENANTS OF FURTHER ASSURANCES
If, in connection with obtaining financing for the
improvements on the Leased Premises, an institutional mortgage lender shall
request reasonable modifications in this lease as a condition to such financing,
Landlord and Tenant will not unreasonably withhold, delay or refuse its consent
thereto, provided that such modifications do not in each party's reasonable
judgment increase its obligations hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's use and enjoyment of the Leased
Premises.
40. LANDLORD'S REMEDIES
40.1 The rights and remedies given to the Landlord in
this lease are distinct, separate and cumulative remedies, and no one of them,
whether or not exercised by the Landlord, shall be deemed to be in exclusion of
any of the others.
40.2 In addition to any other legal remedies for
violation or breach by or on the part of the Tenant or by any undertenant or by
anyone holding or claiming under the Tenant or any one of them, of the
restrictions, agreements or covenants of this lease on the part of the Tenant to
be performed or fulfilled, such violation or breach shall be restrainable by
injunction at the suit of the Landlord.
40.3 Except as otherwise provided by law, no receipt
of money by the Landlord from any receiver, trustee or custodian, debtor in
possession, or any permitted subtenant, shall reinstate, continue or extend the
term of this lease or affect any notice theretofore given to the Tenant, or to
any such receiver, trustee or custodian, debtor in possession, or any permitted
subtenant, or operate as a waiver or estoppel of the right of the Landlord to
recover possession of the Leased Premises for any of the causes therein
enumerated by any lawful remedy; and the failure of the
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Landlord to enforce any covenant or condition by reason of its breach by the
Tenant shall not be deemed to void or affect the right of the Landlord to
enforce the same covenant or condition on the occasion of any subsequent default
or breach.
40.4 Landlord and Tenant agree that the prevailing
party in any action to enforce the terms and conditions of this lease on the
part of the other party to be performed shall be entitled to reimbursement of
such party's reasonable attorney's fees, costs and expenses incurred by such
party in connection with its law suit. Tenant further agrees to reimburse
Landlord for Landlord's attorney's fees incurred in connection with the review
by Landlord of the second and any subsequent Landlord's waiver, assignment or
sublet agreement or any other documentation reviewed by Landlord at Tenant's
request, during each lease year.
41. COVENANT AGAINST LIENS
Tenant agrees that it shall not knowingly encumber,
or suffer or permit to be encumbered, the Leased Premises or the fee thereof by
any lien, charge or encumbrance, and Tenant shall have no authority to mortgage
or hypothecate this lease in any way whatsoever. The violation of this Article
shall be considered a breach of this lease.
42. BROKERAGE
The parties mutually represent to each other that
HELMSLEY SPEAR, INC. and GRUBB & ELLIS are the sole brokers who negotiated and
consummated the within transaction, and that neither party dealt with any other
broker in connection with the within lease, it being understood and agreed that
the Landlord shall be responsible, at its sole cost and expense, to pay the real
estate brokerage in connection with this lease transaction. Landlord agrees to
indemnify, defend and save harmless Tenant in connection with the claims of any
other real estate brokers claiming commissions in connection with the within
transaction and claiming authority from Landlord. Tenant agrees to indemnify,
defend and save harmless Landlord in connection with the claims of any other
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real estate brokers claiming commissions in connection with the within
transaction and claiming authority from Tenant.
43. SUBORDINATION OF LEASE
This lease shall be subject and subordinate at all
times to the lien of any bona fide institutional mortgages, ground leases or
other encumbrances now or hereafter placed on the Leased Premises without the
necessity of any further instrument or act on the part of Tenant to effectuate
such subordination, but Tenant covenants and agrees to execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
the lease to the lien of any such mortgages or ground leases or other
encumbrances as shall be desired by a mortgagee or proposed mortgagee or by any
person. Landlord shall obtain, for the benefit of Tenant, from Landlord's
current mortgagee a subordination, non-disturbance and attornment in
substantially in the form which is annexed hereto and made a part hereof as
Schedule "D". Landlord shall obtain a subordination, non-disturbance and
attornment agreement from all future institutional mortgagees of the Leased
Premises, provided that any such agreement shall be written on the mortgagee's
customary form.
44. LIMIT OF LANDLORD'S LIABILITY
In case the Landlord shall be a joint venture,
partnership, tenancy in common, trust, association or other form of joint
ownership, the individual members thereof shall have absolutely no personal
liability or obligation with respect to any provision of this lease, or any
obligation or liability arising therefrom or in connection therewith, except to
the extent of any individual member's equity ownership of the land, Building and
improvements located on the Property, which covenant hereinabove referred to,
shall be deemed effective as of the date Landlord completes and delivers the
Leased Premises in accordance with the terms and conditions of the lease.
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45. LOSS OF OPTION RIGHTS
Anything in this lease to the contrary
notwithstanding, it is expressly understood and agreed that the Option to Renew
as provided in Article 48 shall be deemed null and void and of no further force
and effect upon notice by Landlord to Tenant in the event (i) Landlord is
obligated to institute litigation to enforce payment and performance as required
under this lease, and providing Landlord is successful and prevails in such
action; or (ii) Tenant is consistently late in the punctual payment of annual
Base Rent and/or additional rent required to be paid under this lease as shall
be evidenced by late payments made during any period of four (4) months during
any twelve (12) month period measured from the date of the first late payment.
46. SECURITY
Upon execution of this lease, the Tenant shall
deposit with the Landlord the sum of SEVENTY EIGHT THOUSAND FOUR HUNDRED AND
00/100 ($78,400.00) DOLLARS as security for the full and faithful performance of
this lease upon the part of the Tenant to be performed. Said security deposit
may be in the form of (a) cash or (b) an irrevocable, unconditional letter of
credit issued by a recognized banking institution located within the State of
New Jersey or the City of New York. Any such letter of credit shall be payable
upon sight draft, together with a certification of Landlord that Tenant is in
default uncured pursuant to the terms and conditions of the lease. The Tenant
shall be obligated to renew and furnish to Landlord evidence of the renewal of
the letter of credit at least thirty (30) days prior to the effective expiration
thereof. If such renewal is not furnished by Tenant to Landlord within thirty
(30) days of the expiration date of the letter of credit, Landlord shall have
the unrestricted right to cash the letter of credit and to retain the proceeds
as security hereunder in accordance with the terms and conditions as herein
provided. Upon termination of this lease, and providing the Tenant is not in
default hereunder and has performed all of the conditions of this
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lease, the Landlord shall return the said sum of SEVENTY EIGHT THOUSAND FOUR
HUNDRED AND 00/100 ($78,400.00) DOLLARS to the Tenant. Anything herein contained
to the contrary notwithstanding, it is expressly understood and agreed that the
said security deposit shall not bear interest. Tenant covenants and agrees that
it will not assign, pledge, hypothecate, mortgage or otherwise encumber the
aforementioned security during the term of this lease. It is expressly
understood and agreed that the Landlord shall have the right to co-mingle the
security funds with its general funds and said security shall not be required to
be segregated. Landlord hereby agrees that it shall place any such cash security
deposit in an segregated account in the event that Landlord shall convey title
to the Property or in the event that Landlord desires to mortgage or pledge the
Property as additional collateral for any loan except for a bona fide first
mortgage as is contemplated by Article 43 hereof.
47. SURVIVAL OF OBLIGATION
It is expressly understood and agreed that in the
event there are any obligations of Tenant with respect to payment or performance
as required under the terms and conditions of this lease that shall have not
been performed prior to the expiration or termination of the lease in accordance
with its terms, such obligation, including the obligation to make Rent
adjustments and other lease adjustments, shall survive the expiration or
termination of the lease term and surrender of the Leased Premises by the Tenant
to the Landlord.
48. OPTION TO RENEW
Provided the Tenant is not in default pursuant to
the terms and conditions of this lease, the Tenant is hereby given the right and
privilege to renew the within lease, for one (1) five (5) year period, to
commence at the end of the initial term of this lease, which renewal shall be
upon the same terms and conditions as in this lease contained, except as
follows:
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(1) Tenant shall pay during the five) year renewal
term annual Base Rent based upon the fair market value per square foot
applicable to the Leased Premises. The fair market value shall be determined as
follows: After Tenant has given written notice to the Landlord, as hereinafter
provided, of its exercise of the within option, the Landlord shall deliver to
Tenant a written notice stating the Base Rent to be paid for the Leased Premises
during the five (5) year renewal term. In the event that the Tenant objects to
the Base Rent quoted by Landlord, the issue of fair market value shall be open
to negotiation between Landlord and Tenant. In the event the parties cannot
agree within thirty (30) days after Landlord's notice of the then fair market
Base Rental value, the parties shall agree on the appointment of a real estate
appraiser (the "Appraiser") having the M.A.I. designation, the cost of which
shall be shared equally by Landlord and Tenant, which Appraiser shall be
knowledgeable in the Morris County, New Jersey market rental area, who shall
make a fair market rental determination. If the parties cannot agree within
thirty (30) days subsequent to the appointment of the Appraiser, then the matter
shall be submitted to binding arbitration pursuant to the rules for commercial
arbitration of the American Arbitration Association, at the equal administrative
cost of Landlord and Tenant. It is expressly understood and agreed that in any
event the renewal Base Rent for the five (5) year renewal term shall not be less
than the annual Base Rent of FIVE HUNDRED SEVENTEEN THOUSAND FOUR HUNDRED FORTY
AND 00/100 ($517,440.00) DOLLARS, in the event fair market rent shall be
determined to be less than said sum as such determination shall be made in the
manner hereinabove provided.
(2) The right, option, and privilege of the Tenant
to renew this lease as hereinabove set forth is expressly conditioned upon the
Tenant delivering to the Landlord, in writing, by certified mail, return receipt
requested, twelve (12) months' prior notice of its intention to renew, which
notice shall be given to the Landlord by the Tenant no later than twelve (12)
months'
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prior to the date fixed for termination of the original term of
this lease.
(3) The obligation to pay the Base Rent as
hereinabove provided shall be in addition to the obligation to pay all
additional rent and other charges required by the terms and conditions of this
lease.
49. EXECUTION AND DELIVERY
The submission of the within lease by Landlord to
Tenant for review and approval shall not be deemed an option to lease, an offer
to lease, or a reservation of the Leased Premises in favor of Tenant, it being
intended that no rights or obligations shall be created by Landlord or Tenant
until the execution and delivery of the within lease by Landlord and Tenant, one
to the other.
50. NOTIFICATION OF LANDLORD'S INTENT TO SELL
In the event Landlord determines to offer the Leased
Premises for sale, Landlord agrees that it shall give notice of such intention
to the Tenant, so as to afford the Tenant an opportunity to enter into
negotiations with Landlord for the purchase of the Leased Premises. This Article
shall not prohibit Landlord from otherwise marketing the Leased Premises for
sale, or from negotiating with any third party for the sale of the Leased
Premises.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals or caused these presents to be signed by its proper corporate
officers and caused its proper corporate seal to be hereunto affixed, the day
and year first above written.
WITNESS:
(L.S.)
- ---------------------------- ----------------------------------
MAURICE M. WEILL, TRUSTEE UNDER
INDENTURE DATED DECEMBER 6, 1984
ATTEST: PHOENIX COLOR CORP.
By:
- ---------------------------- -------------------------------
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<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF )
BE IT REMEMBERED, that on this day of ,
1998, before me, the subscriber,
personally appeared MAURICE M. WEILL, TRUSTEE UNDER INDENTURE DATED DECEMBER 6,
1984, who, I am satisfied, is the Landlord mentioned in the within Instrument,
and thereupon he acknowledged that he signed, sealed and delivered the same as
his act and deed, for the uses and purposes therein expressed.
---------------------------------
STATE OF )
) SS.:
COUNTY OF )
BE IT REMEMBERED, that on this day of ,
1998, before me, the subscriber, ,
personally appeared , who, I am
satisfied, is the person who signed the within Instrument as
, of PHOENIX COLOR CORP., a Delaware corporation, the Tenant
named therein, and he thereupon acknowledged that the said instrument made by
the corporation and sealed with its corporate seal, was signed and sealed with
the corporate seal and delivered by him as such officer, and is the voluntary
act and deed of the corporation, made by virtue of authority from its Board of
Directors.
---------------------------------
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L E A S E A G R E E M E N T
BY AND BETWEEN
MAURICE M. WEILL, TRUSTEE UNDER
INDENTURE DATED DECEMBER 6, 1984,
"Landlord"
-and-
PHOENIX COLOR CORP.,
a Delaware corporation,
"Tenant"
-------------------------
DATED: , 1998
-------------------------
LAW OFFICES
EPSTEIN, EPSTEIN, BROWN & BOSEK
A Professional Corporation
245 Green Village Road
P.O. Box 901
Chatham Township, NJ 07928-0901
(973) 593-4900
Fax (973) 593-4966
<PAGE>
Exhibit 10.14
LEASE
THIS LEASE (this "Lease") is made as of the 31st day of March, 1997, by
and between CONSTITUTION REALTY COMPANY, LLC, having a business address c/o
Keller/Davis Company, LLC, 101 Derby Street, Hingham, Massachusetts 02043
("Landlord"), and PHOENIX COLOR CORP., having a business address at 540 Western
Maryland Parkway, Hagerstown, Maryland 21740 ("Tenant")
Landlord hereby leases to Tenant and Tenant hereby rents and leases from
Landlord all of Landlord's rights and interests in and to the following
(collectively, the "Leased Property"):
(a) the real property having an address at ______ Constitution Drive,
Taunton, Massachusetts, as more particularly described in EXHIBIT A attached
hereto (the "Land");
(b) all buildings, structures, and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines, and parking areas and roadways appurtenant to
such buildings and structures presently or hereafter situated upon the Land
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances of every nature and
description now or hereafter relating to or benefitting any or all of the Land
and the Leased Improvements; and
(d) all equipment, machinery, building fixtures, and other items of
property (whether realty, personalty or mixed), including all components
thereof, owned by Landlord and now or hereafter located in, on or used in
connection with, and permanently affixed to or incorporated into the Leased
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, and built-in oxygen and vacuum systems, all of which, to
the greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto.
1. REFERENCE DATA.
Each of the following capitalized terms used in this Lease shall have the
meaning set forth opposite such term below:
COMMENCEMENT DATE: The later of (a) December 1, 1997 or (b) the date
determined under Section 25 below.
<PAGE>
RENTABLE AREA OF FLOOR
SPACE WITHIN THE
LEASED IMPROVEMENTS: 54,300 square feet
PERMITTED USE: The use of the Leased Property as a Light Industrial
and Printing Facility.
SECURITY DEPOSIT: None
TENANT'S
MAILING ADDRESS: Phoenix Color Corp
540 Western Maryland Parkway
Hagerstown, Maryland 21740
Attention: Edward Lieberman
with a copy to:
Andrew J. Goodman, Esq.
Rosner, Bresler, Goodman & Bucholz
521 Fifth Avenue, 28th Floor
New York, NY 10175
LANDLORD'S MAILING
ADDRESS: Constitution Realty Company, LLC
c/o Keller/Davis Company, LLC
101 Derby Street
Hingham, Massachusetts 02043
Attention: Ronald A. Davis
with a copy to:
Fruik Giso III, Esq.
Choate, Hail & Stewart
Exchange Place
53 State Street
Boston, MA 02109
BROKER: Rader Properties and Whittier Partners, as equal
co- brokers
RENT: Collectively, the Base Rent, the Additional Rent and
all other sums payable under this Lease.
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<PAGE>
ADDITIONAL RENT: All charges payable by Tenant pursuant to this Lease
other than Base Rent, including without implied
limitation: Real Estate and Other Taxes as provided
in Section 5; Operating Expenses in accordance with
Section 6; and insurance premiums in accordance with
Section 18.
LEASE YEAR: A period of twelve (12) consecutive calendar months
commencing on the Commencement Date or the first day
of the month subsequent to the month in which the
Commencement Date occurs if the Commencement Date
is any day other than the first day of a month, and
then each consecutive twelve (12) month period
occurring thereafter during the Term of this Lease.
GOVERNMENTAL
AUTHORITIES: Collectively, all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities,
legislatures, and offices of any nature whatsoever
of any government, quasi-government unit or
political subdivision, whether with a federal,
state, county, district, municipal, city or
otherwise and whether now or hereinafter in
existence.
LEGAL
REQUIREMENTS: Collectively, all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions, orders,
judgments, decrees and injunctions (including,
without limitation, all applicable building, health
code, zoning, subdivision, and other land use and
assisted living licensing statutes, ordinances,
by-laws, codes, rules and regulations), whether now
or hereafter enacted, promulgated or issued by any
Governmental Authority, affecting the Tenant, or the
Leased Property or the ownership, construction,
development, maintenance, management, repair, use,
occupancy, possession or operation thereof or the
operation of any programs or services in connection
with the Leased Property, including, without
limitation, any of the foregoing which may (i)
require repairs, modifications or alterations in or
to the Leased Property, (ii) in any way affect
(adversely or otherwise) the use and enjoyment of
the Leased Property or (iii) require the assessment,
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<PAGE>
monitoring, clean-up, containment, removal,
remediation or other treatment of any hazardous
substances on, under or from the Leased Property.
CONSUMER PRICE INDEX: United States Department of Labor Bureau of Labor
Statistics Consumer Price Index, All Urban
Consumers, All Items, (1982-84 equals 100) for
Boston-Lawrence-Salem, Massachusetts-New Hampshire;
if the Bureau of Labor Statistics substantially
revises the manner in which the Consumer Price Index
is determined, an adjustment shall be made in the
revised index which would produce results
equivalent, as nearly as possible, to those which
would be obtained if the Consumer Price Index had
not been so revised. If the Consumer Price Index
becomes unavailable to the public because
publication is discontinued or for any other reason,
or if data is not readily available to enable
Landlord to make the adjustment to the revised index
referred to above, Landlord shall substitute a
comparable index based on changes in the cost of
living or purchasing power of the consumer dollar
published by any other governmental agency or, if no
such index is available, then a comparable index
published by a major bank, other financial
institution, university or recognized financial
publication, generally recognized and used for such
adjustments in the Boston Metropolitan Area; any
such substituted Index shall be subject to Tenant's
approval, which approval shall not be unreasonably
withheld or delayed.
2. LEASE TERM: EXTENSIONS.
The term of this Lease shall be for a period of fifteen (15) years
commencing on the Commencement Date and ending on the last day of the month in
which the fifteenth (15th) anniversary of the Commencement Date occurs (the
"Term" or the "Original Term", as the case may be).
3. BASE RENT.
3.1 BASE RENT. Subject to the immediately following sentence, Tenant
shall pay to Landlord rent ("Base Rent") as follows: Four Hundred Seventy Five
Thousand One Hundred
4
<PAGE>
Twenty Five Dollars ($475,125.00) per year, for the period from December 1, 1997
to November 30, 2004; Five Hundred Twenty Five Thousand Eighty One Hundred
Dollars ($525,081.00) per year for the period from December 1, 2004 to November
30, 2008; and Six Hundred Twenty Four Thousand Four Hundred Fifty Dollars
($624,450.00) per year for the period from December 1, 2008 to November 30,
2012. In the event that the Commencement Date shall be determined under Section
25 to be a date other than December 1, 1997, then all other dates specified in
this Section 3.1 shall be adjusted so that each of the segments of the Term
determined by the dates specified in this Section 3.1 shall contain the same
number of months.
3.2 PAYMENT OF RENT. Payment of Base Rent shall be made by Tenant in
equal monthly installments on the Commencement Date and thereafter on the first
day of each month during the Term in advance, in lawful money of the United
States. The Base Rent payment for any fractional month at the commencement,
termination or expiration of the Term will be pro rated accordingly. All Rent
shall be paid and sent to Landlord at Landlord's Mailing Address.
3.3 NO TERMINATION. ABATEMENT, OFFSETS, ETC. Except as otherwise
specifically provided in this Lease, Tenant, to the maximum extent permitted by
law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the consent of Landlord to modify, surrender or
terminate the same, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of the annual Base Rent or Additional Rent, or set-off
against any Rent hereunder, nor shall the respective obligations of Landlord and
Tenant be otherwise affected by reason of (a) any damage to, or destruction of;
all or any part of the Leased Property as a result of condemnation. or any other
cause; (b) the prohibition or restriction upon Tenant's use of all or any part
of the Leased Property; (c) any claim which Tenant may have against Landlord by
reason of any breach or default by Landlord under this Lease; (d) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Landlord or any assignee
or transferee of Landlord; or (e) for any other cause whether similar or
dissimilar to any of the foregoing. Except as otherwise expressly and
specifically provided in this Lease, the obligations of Landlord and Tenant
hereunder shalt be separate and independent covenants and agreements and all
Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all events. However, the foregoing provisions of this Section shall not be
construed to prohibit Tenant from exercising any other rights or remedies
available to Tenant at law or in equity, including, without limitation, a
proceeding to obtain injunctive relief to enforce Landlord's obligations under
this Lease.
3.4 NET LEASE. It is understood and agreed that this Lease is an absolute
net lease so that, except as otherwise expressly herein provided, the annual
Base Rent is entirely net to Landlord and Landlord shall not be required to
incur any costs or expenses with respect to the Leased Property during the Term,
excepting only (a) Landlord's obligation to perform the Landlord's Work (as
defined in Section 25 below), (b) Landlord's obligations to restore the Leased
Property in the event of casualty or condemnation as contemplated under Sections
19.1 and 19.3, respectively, (c) Landlord's obligations to make certain
structural and other repairs as
5
<PAGE>
contemplated under Section 12.2 and (d) any other obligations expressly imposed
upon Landlord in this Lease.
3.5 TENANT ALLOWANCE FOR LANDSCAPING AND BUILDING IMPROVEMENTS.
The annual Base Rent set forth above includes a so-called "allowance"
figure in the amount of ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000.00) (the
"Allowance Account") that was used in calculating such annual Base Rent. This
Allowance Account is intended to cover the cost of any and all landscaping of
the Leased Property and also any additional costs resulting from Tenant's
request to change any of the plans and specifications for the Leased
Improvements to be constructed by Landlord not currently specified in EXHIBIT LW
attached hereto. However,. if there are any savings associated with Tenant's
deletion of items from the work currently specified in EXHIBIT LW, then such
savings shall be added to the Allowance Account. The amount to be charged to the
Allowance Account for Tenant requested changes to the work described in EXHIBIT
LW shall be determined as part of the change order process under Landlord's
construction contract. Any unspent portion of the Allowance Account remaining
after deductions for landscaping and Tenant requested changes shall be paid to
Tenant within 60 days after the Commencement Date.
4. EXTENSION RIGHTS.
Provided there is not then an uncured Event of Default hereunder or at
the commencement of the Option Term (as hereinafter defined), Tenant shall have
the right to extend the Term for one (1) five-year extension period. (the
"Option Term") upon the following terms and conditions:
4.1 Tenant must notify Landlord of its election to extend the Term for
the Option Term on or before the date which is one year prior to the date on
which the Original Term expires.
4.2 The annual Base Rent for the Option Term shall be equal to the lower
of (i) the Fair MarKet Rental Value as determined in EXHIBIT FMRV attached
hereto, as determined on the last day of the Original Term or (2) the Base Rent
for the last year of the Original Term escalated at one-half of the total change
in the Consumer Price Index over the preceding five (5) year period. In no event
will Base Rent be less than the Base Rent for the last year of the Original
Term.
4.3 All provisions of this Lease shall remain in effect during the Option
Term except the right to extend as set forth in this Section 4, it being agreed
that there are no further rights of extension after the Option Term. Unless
expressly stated herein to the contrary, all references in this Lease to the
"Term" shall include the Option Term when and if Landlord receives Tenant's
notice of election to extend the Term as herein provided.
6
<PAGE>
5. REAL ESTATE AND OTHER TAXES.
(a) From and after the Commencement Date, during the Term, Tenant shall
pay directly to the applicable taxing authority or agency, as Additional Rent,
Real Estate Taxes, as hereinafter defined, in accordance with this Section 5 and
also all taxes relating to any of Tenant's personal property or equipment on the
Leased Property. The terms used in this Section 5 are defined as follows:
(i) "Tax Year" means the 12-month period beginning July 1 each
year or if the appropriate governmental tax fiscal period shall begin on
any date other than July 1 such other date.
(ii) "Real Estate Taxes" means all taxes, special taxes and special
assessments of every kind and nature assessed by any governmental
authority on the Leased Property during the Term of this Lease, reduced
by any abatement receipts with respect to any Tax Year. The amount of
special taxes or special assessments to be included shall be limited to
the amount of the installment (plus any interest thereon) of such
special tax or special assessment (which shall be payable over the
longest period permitted by law) required to be paid during the Tax Year
in respect of which such taxes are being determined and for any Tax Year
at the beginning or end of the Term which is not wholly included within
the Term of this Lease, the amount of Real Estate Taxes owed by Tenant
for such partial Tax Year shall be prorated. There shall be excluded
from such taxes any income, estate, succession, inheritance, excess
profit, franchise and transfer taxes assessed against Landlord: PROVIDED,
HOWEVER, that if at any time during the Term the present system of
taxation of real property shall be changed so that in lieu all or any
portion of such real property tax, there shall be assessed on Landlord a
capital levy or other tax on the gross rents received with respect to the
Leased Property, or a federal, state, county, municipal, or other local
income, franchise, excise or similar tax, assessment, levy or charge
(distinct from any now in effect) based, in whole or in part, upon any
such gross rents, then any and all of such taxes, assessments, levies or
charges, to the extent so based and to the extent that such gross Tents
are the sole rents of Landlord received with respect to the Leased
Property, shall be deemed to be included within the term "Real Estate
Taxes"
(b) Payments by Tenant on account of Real Estate Taxes shall be made at
least ten (10) days prior to the due date of the applicable installment.
Landlord and Tenant shall arrange For Tenant to be billed directly by all
applicable taxing authorities or agencies. Tenant shall promptly furnish
Landlord with satisfactory evidence that Real Estate Taxes have been timely
paid. If Tenant shall fail to pay any Real Estate Taxes required hereunder to be
paid by Tenant, Landlord shall have the right, in addition to any other rights
of Landlord hereunder, to pay the same, and Tenant shall reimburse Landlord
therefor upon demand.
(c) Tenant shall have the right to contest or seek a reduction or
abatement of Real Estate Taxes, provided that Tenant shall continue to pay all
Real Estate Taxes as required
7
<PAGE>
hereinunder until such time as an abatement or reduction is granted. Tenant
shall not have the right to seek reimbursement from Landlord or reduce or
offset its obligation to pay annual Base Rent for any out-of-pocket expenses,
including, without limitation, attorneys' and experts' fees and costs,
incurred by Tenant in connection with any attempted reduction or abatement of
Real Estate Taxes. Landlord shall, at Tenant's request, assist Tenant in
seeking any abatement for reduction of Real Estate Taxes, provided however
that the Landlord shall not be required to incur any out-of-pocket expenses
or liability in connection with such assistance to Tenant. Similarly, if
Landlord elects to file a petition or an action for the abatement or
reduction of Real Estate Taxes (it being understood, however, that Landlord
has absolutely no obligation to do so) and Landlord incurs any out-of-pocket
expenses in connection with such an attempted abatement or reduction in Real
Estate Taxes, Tenant shall reimburse Landlord for such expenses immediately
upon demand therefor.
(d) Notwithstanding any of the foregoing, in the event any mortgagee of
the Leased Property requires Landlord to escrow taxes with such mortgagee, then
promptly upon written notice of such requirement to Tenant, Tenant shall pay all
Real Estate Taxes directly to Landlord monthly at the time and in the fashion
herein provided for the payment of Base Rent and in an amount equal to
one/twelfth of Real Estate Taxes for the current tax year, which amount shall be
reasonably estimated by Landlord or Landlord's mortgagee to pay in full all Real
Estate Taxes when due. Not later than 90 days after the end of the relevant tax
year, Landlord shall render a statement in reasonable detail showing all Real
Estate Taxes for the prior year. If at the time such statement is rendered it is
determined with respect to any tax year that Tenant has paid (i) less than the
full amount of Real Estate Taxes or (ii) more than the full amount of Real
Estate Taxes, then in the case of (i) Tenant shall pay to Landlord, as
Additional Rent, within fifteen (15) days after receiving such statement, the
amount of such underpayment and in the case of (ii) Landlord shall credit the
amount of such overpayment within fifteen (15) days after rendering such
statement against the monthly installments of Real Estate Taxes next thereafter
coming due (or refund such overpayment if the term has expired).
6. OPERATING EXPENSES.
From and after the Commencement Date, during the Term, Tenant shall pay
directly to the vendor of the services or commodity being supplied to the Leased
Property, as Additional Rent, Operating Expenses, as hereinafter defined, in
accordance with this Section 6. "Operating Expenses" means all costs of
operating, cleaning, maintaining and repairing the Leased Improvements, all
landscaping upon the Leased Property and the parking lot thereon and the
driveways and walkways and all other improvements and amenities which are pant
of the Leased Property, including without limitation, (i) the amount deductible
from any insurance claim (unless the damage to which such insurance claim
related was caused by the negligence or intentional misconduct of Landlord),
(ii) interior and exterior maintenance, (iii) steam, water, sewer, gas, oil,
electricity, telephone and other utility charges, (iv) the cost of HVAC service
and maintenance (v) the cost of building and cleaning supplies, (vi) rental and
leasing costs for equipment used in the operating, cleaning, maintaining or
repairing of the Leased Property, (vii) the cost of cleaning the Leased
Improvements, (viii) the cost of maintenance, repairs and replacements (other
8
<PAGE>
than Structural Repairs which are the obligation of Landlord), (ix) the cost of
maintaining off site amenities and improvements required by the county,
municipality or any commission or other agency having jurisdiction over the
Leased Property, in connection with obtaining any permit or approval for the
operation of the Leased Property, (x) the allocable costs from-om any business
owner's association(s) in which membership of Landlord or Tenant is required by
virtue of the location of the Leased Property, (xi) the cost of landscape
maintenance, (xii) the cost of security and alarm systems, and (xiii) payments
under service contracts with independent contractors for services to the Leased
Property.
7 WARRANTIES AND COVENANTS.
7.1 LANDLORD WARRANTIES. Landlord represents and warrants the following
to Tenant as of the date hereof and as of the Commencement Date:
(a) Landlord is duly organized and validly existing as a limited
liability company in the Commonwealth of Massachusetts. Landlord has full power
and authority to execute and deliver this Lease, and to carry on its business as
presently conducted.
(b) Landlord has the complete and unrestricted power to enter into
this Lease and perform its obligations hereunder. The Lease when executed and
delivered by Landlord, constitutes the valid and legally binding obligation of
Landlord, enforceable against Landlord in accordance with its term; subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally and (ii) the exercise of judicial
discretion in accordance with general principles of equity.
(c) Landlord is not a parry to any litigation, proceeding or
controversy pending before any court or administrative agency or, to Landlord's
knowledge, threatened against Landlord; nor is Landlord in receipt of any
inquiry, notice, citation, investigation or complaint from any governmental
agency or department, which might materially adversely affect Landlord's ability
to enter into and/or perform its obligations under this Lease.
(d) Landlord is not a party to, subject to or bound by, any
agreement, judgment, order, writ, injunction or decree of any court or
Governmental Authority which could prevent the consummation of the transactions
contemplated herein.
(e) Neither the execution or delivery, nor performance of this Lease
or the other agreements contemplated herein in accordance with their respective
terms, does, nor will, after the giving of notice; the lapse of time or
otherwise, conflict with, result in a breach of, or constitute a default under,
the charter of Landlord or to the knowledge of Landlord constitute a default
under any contract or other agreement to which Landlord is a party (except those
for which consent has been or will be obtained by the Commencement Date) or by
which Landlord is bound, or of any federal or state law; statute, ordinance,
rule or regulation, or of any court or administrative order or process
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<PAGE>
7.2 TENANT'S WARRANTIES. Tenant hereby represents and warrants to
Landlord as of the date hereof and as of the Commencement Date the following:
(a) Tenant is a duly organized and validly existing corporation in
the State of Delaware. Tenant has fill power and authority to execute and
deliver this Lease and to carry on the business contemplated by this Lease.
(b) Tenant has the complete and unrestricted authority and power to
enter into this Lease and perform its obligations hereunder. The Lease, when
executed and delivered by Tenant, constitutes the valid and legally binding
obligation. of Tenant, enforceable against Tenant in accordance with its terms;
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the rights of creditors generally and (ii) the exercise of
judicial discretion in accordance with general principles of equity.
(c) Neither the execution or delivery, nor performance of this Lease
or the other agreements contemplated herein in accordance with their respective
terms, does nor will, after the giving of notice, the lapse of time or
otherwise, conflict with, result in a breach of, or constitute a default under,
the charter or bylaws of Tenant or to the knowledge of Tenant constitute a
default under any contract or other agreement to which Tenant is a party (except
those for which consent has been or will be obtained by the Commencement Date)
or by which Tenant is bound, or of any federal or state law, statute, ordinance,
rule or regulation, or of any court or administrative order or process.
(d) Tenant is not a party to, subject to or bound by, any agreement,
judgment, order, writ, injunction or decree of any court or governmental body
which could prevent the consummation of the transactions contemplated herein.
8. SECURITY DEPOSIT. NOT APPLICABLE.
9. UTILITIES: TRASH REMOVAL.
9.1 TENANT'S DIRECT PAYMENT TO UTILITY PROVIDERS. Tenant shall pay
relevant provider, as they become due, all bills for utilities (whether they
are used for furnishing heat or other purposes) that are furnished directly
to the Leased Property. Tenant all relevant deposits and utility access fees.
9.2 TENANT'S OBLIGATIONS REGARDING ADDITIONAL UTILITIES. Landlord
warrants and represents to Tenant that the following utilities are presently
available to the Leased Property, or will be available upon completion of the
Landlord's Work: water, sewer, gas, electricity, and telephone. Landlord shall
have no obligation to provide utilities or equipment other than the utilities
and equipment within the Leased Property as of the Commencement Date of this
Lease. In the event Tenant requires additional utilities or equipment or
utilities of greater capacity, the
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installation and maintenance thereof shall be Tenant's sole obligation and shall
be performed at Tenant's sole cost and expense, provided that such installation
shall be subject to the prior written consent of Landlord.
9.3 TRASH REMOVAL. Trash generated in the ordinary course of business by
Tenant shall be deposited in dumpster(s) and the cost of this dumpster(s) and
removal of trash from the dumpster(s) shall be the sole responsibility of Tenant
It also shall be the sole responsibility of Tenant to segregate any and all
hazardous waste from the trash deposited in such dumpster and to have such
hazardous waste also removed at its own cost and expense from the Leased
Property by a licensed contractor in accordance with all applicable laws as more
fully detailed in Section 11.5 below.
10. BROKERAGE.
Tenant warrants that it has dealt with no broker in connection with
this Lease other than the Broker or Brokers named in Section 1 above and
agrees to defend and indemnify Landlord against any claim, loss, damage, cost
or expense (including, without limitation, reasonable attorney's fees)
incurred by Landlord on account of any breach of such warranty. Landlord
warrants that it has dealt with no broker in connection with the consummation
of this Lease except the Broker or Brokers named in Section l above, and
agrees to indemnify Tenant against any claim, loss damage, cost or expense
(including, without limitation, reasonable attorney's fees) incurred by
Tenant on account of any breach of such warranty. Landlord will be
responsible for paying any commission or other fees owed to the Brokers named
in Section 1 above.
11. USE OF LEASED PROPERTY: COMPLIANCE WITH LAWS AND FIRE INSURANCE
REQUIREMENTS: HAZARDOUS MATERIALS.
11.1 USE OF LEASED PROPERTY. Tenant acknowledges that no trade or
occupation shall be conducted in the Leased Property or use made thereof other
than the Permitted Use without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
11.2 COMPLIANCE WITH LAWS. Landlord shall complete the Landlord's Work
in compliance with all Legal Requirements. Thereafter, Tenant, at its sole
expense, shall comply with all Legal Requirements affecting the Leased Property.
11.3 NO NUISANCE OR OTHER HARMFUL OR DISRUPTIVE ACTIVITY. Tenant shall
not perform any acts or carry on any practices which may injure any part of the
Leased Property, the Property or common areas, violate any certificate of
occupancy affecting the same, constitute a public or private nuisance or a
menace to other tenants on the Property, produce undue noise, create obnoxious
fumes or other odors.
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11.4 COMPLIANCE WITH FIRE INSURANCE REQUIREMENTS. Tenant shall not permit
any use of the Leased Property which will make voidable any insurance on the
Leased Property or which shall be contrary to any law.
11.5 HAZARDOUS MATERIALS. Tenant shall not permit the emission, release,
threat of release or other escape of any Hazardous Materials so as to adversely
affect in any manner, even temporarily, any element or part of the Leased
Property. Tenant shall not use, generate, store or dispose of Hazardous
Materials in or about the Leased Property, or dump, flush or in any way
introduce Hazardous Materials into sewage or other waste disposal systems
serving the Leased Property (nor shall Tenant permit or suffer any of the
foregoing), in any manner not in full compliance with all applicable federal,
state and local statutes, laws, codes, ordinances, by-laws, rules and
regulations for the use, generation, storage and disposal of Hazardous
Materials.
Tenant will indemnify, defend and hold Landlord harmless from and against
all claims, loss, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements, diminution in the value of the Leased
Property, costs incurred in connection with any investigation of site conditions
or any clean-up or remedial work required by any federal, state or local
governmental agency) incurred as a result of any breach of Tenant's covenants in
the first paragraph of this Section by Tenant or Tenant's contractors,
licensees, invitees, agents, servants or employees. Without limiting the
foregoing, if the presence of any Hazardous Materials in, on or under the Leased
Property caused or permitted by Tenant results in any contamination of the
Leased Property or the Property, Tenant shall promptly take all actions at its
sole expense as are necessary to return the Leased Property to the condition
existing prior to the introduction of any such Hazardous Material by Tenant,
provided that Landlord's approval of such action shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
Leased Property.
Landlord will indemnify, defend and hold harmless Tenant from and against
all claims, loss, cost and expenses (including, without limitation, reasonable
attorneys fees and disbursements) incurred by Tenant as a result of Hazardous
Materials existing in, on or under the Leased Property as of the Commencement
Date; however, Tenant shall have the burden of proof to establish that such
Hazardous Material was present on or under the Leased Property as of the
Commencement Date.
The obligations of Tenant and Landlord in this Section shall survive the
expiration or earlier termination of this Lease and any transfer of title to the
Leased Property, whether by sale, foreclosure, deed in lien of foreclosure or
otherwise.
For purposes of this Lease, "Hazardous Materials" means, collectively,
any animal wastes, medical waste, blood, biohazardous materials, Hazardous
waste, hazardous substances, pollutants or contaminants, oils, radioactive
materials, asbestos in any form or condition, or any pollutant or contaminant or
hazardous, dangerous or toxic chemicals, materials or substances within the
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meaning of any applicable federal, state or local law, regulation, ordinance or
requirement relating to or imposing liability or standards of conduct concerning
any such substances or materials on account of their biological, chemical,
radioactive, hazardous or toxic nature, all as now in effect or hereafter from
time to time enacted or amended.
12. MAINTENANCE: REPAIRS.
12.1 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's sole cost and
expense, (a) maintain and keep the Leased Property in good repair, good working
order and free of litter and refuse and make any and all repairs and
replacements thereto as and when required, ordinary or extraordinary,
foreseeable or unforeseeable, but specifically excluding any repairs or
replacements required by damage from fire or other casualty (except that Tenant
shall be fully liable and responsible to Landlord for the deductible amount of
any insurance unless the damage to which such insurance claim related was caused
by the negligence or intentional misconduct of Landlord); and (b) periodically
repaint and redecorate the Leased Property as and when required to maintain a
clean and fresh appearance. Landlord understands that the Leased Property will
incur reasonable, normal wear and tear during the term of the Lease and agrees
that Tenant shall not be obligated to repair or replace every incidence of
reasonable and normal wear and tear; however, nothing herein shall relieve
Tenant of its obligations to maintain the Leased Property in good order and
repair.
Further, Tenant shall, at Tenant's sole cost and expense, procure and
maintain contracts, with copies to Landlord, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarms and/or smoke detection, (iv) landscaping, (v) roof
covering and drain maintenance, and (vi) asphalt and parking lot and parking
garage maintenance.
12.2 LANDLORD'S OBLIGATIONS. Landlord agrees to maintain the structural
elements and the roof of the Leased Property in good working order and repair,
reasonable wear and tear, damage by fire and other casualty only excepted.
Further, if such maintenance is required because of the act or negligence of
Tenant or those for whose conduct Tenant is equally responsible and such
maintenance is not covered by insurance, then Tenant shall be responsible for
such maintenance, and if such maintenance is covered by insurance, then Tenant
shall be fully liable and responsible to Landlord for the deductible amount of
any such insurance.
12.3 REMOVAL OF SNOW AND ICE. Removal of snow and ice from the sidewalks,
driveways and parking areas of the Leased Property shall be the responsibility
of Tenant.
12.4 TENANT'S FAILURE TO MAKE REPAIRS. If repairs are required to be made
by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make
the same forthwith, and if Tenant refuses or neglects to commence such repairs
and complete the same with reasonable
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dispatch, after such demand, Landlord may (but shall not be required to do so)
make or cause such repairs to be made (the provisions of Section 20.4 being
applicable to the costs thereof).
12.5 COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord will
complete the Landlord's Work in compliance with applicable provisions of the
Americans with Disabilities Act and all of the regulations promulgated
thereunder (collectively, the "ADA"). Thereafter, without in any way limiting
the generality of the obligations set forth in Sections 11.2 and 12.1 above
Tenant also shall comply at Tenant's sole cost and expense with all
provisions of the ADA as they apply to Tenant's use and occupancy of the
Leased Property and the operation of Tenant's business therein and shall be
fully responsible for any modifications or alterations to the Leased Property
necessary to meet requirements of the ADA which have become applicable to the
Leased Property as a result of Tenant's operation of its business within the
Leased Property.
13. ALTERATIONS: LEASED EQUIPMENT OR PERSONAL PROPERTY.
13.1 ALTERATIONS OR ADDITIONS BY TENANT. Tenant shall not make structural
alterations or additions to the Leased Property, but may make non-structural
alterations provided that, in cases involving an expenditure in excess of
Twenty-Five Thousand Dollars ($25,000.00), Landlord gives its prior written
consent thereto, which consent shall not be unreasonably withheld or delayed.
All such allowed alterations shall be at Tenant's sole cost and expense. Tenant
shalt not permit any mechanics' liens, or similar liens, to remain upon the
Leased Property for labor and material furnished to Tenant or claimed to have
been furnished to Tenant in connection with work of any character performed or
claimed to have been performed at the direction of Tenant and shall cause any
such lien to be released of record by bond or otherwise forthwith without cost
to Landlord. Prior to commencement of any alterations or additions to be made by
Tenant, Landlord and Tenant shall agree (which agreement shall not be
unreasonably withheld or delayed by either party) whether such alterations or
improvements will become the property of the Landlord or be removed from the
Leased Premises at the expiration or earlier termination of the Term. All
alterations or additions made by Tenant shall be performed in a good and
workmanlike manner and in compliance with all the applicable laws, ordinances,
orders, rules, regulations and requirements applicable thereto and shall he
performed only by contractors or mechanics approved by Landlord. All such
contractors and mechanics shall carry adequate liability insurance (which shall
name Landlord and Tenant as an additional insured) and workmen's compensation
insurance and Landlord shall be presented with certificates of same prior to the
commencement of any work.
13.2 EQUIPMENT OR PROPERTY LEASED BY TENANT. If requested by Tenant in
writing, Landlord will execute one or more agreements in favor of an equipment
lessor who is leasing equipment or personal property to Tenant for use at the
Leased Property which will allow such equipment lessor to have access to the
Leased Premises to remove such equipment or personal property in the event of
Tenant's default under such equipment lease agreement; however, any such
agreement shall also provide that (a) any such right of entry on behalf of the
equipment lessor shalt terminate as long as there is any uncured Event of
Default relating to the non-payment of any monetary obligations of Tenant lender
this Lease and (b) such equipment lessor shall repair to
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Landlord's reasonable satisfaction any damage to the Leased Property caused by
the equipment lessor's removal of such equipment or personal property.
14. ASSIGNMENT: SUBLEASING.
Tenant shall not assign this Lease or sublet the whole or any part of the
Leased Property without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed; it being agreed, however, that Landlord
will give its consent to any sublease or assignment of all or any portion of the
Leased Property to an affiliate (i.e., an entity in common ownership with Tenant
or wholly owned by Tenant or wholly owning Tenant) of Tenant for the Permitted
Use. Notwithstanding such consent, Tenant shall remain liable to Landlord for
the payment of all Base Rent, Additional Charges, any other charges due
hereunder, and for the full performance of the covenants and conditions of this
Lease. Landlord's consent to any such transfer, assignment or sublease will not
be deemed a consent to any subsequent transfer, assignment or sublease. In the
event of a default under the terms of this Lease, if the Leased Property or any
part thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided or provided by law, may at its option collect directly
from assignee or subtenant all rents becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due it by Tenant
hereunder, and no such collection shall be construed to constitute a novation or
a release of Tenant from the further performance of its obligations hereunder.
In the event of a permitted sublease. Landlord shall have the right to elect to
share equally in any profit to Tenant from subleasing of the Leased Property.
15. SUBORDINATION TO MORTGAGES: ESTOPPEL CERTIFICATES.
15.1 SUBORDINATION. This Lease shall be subject and subordinate to any
and all mortgages, deeds of trust and other instruments in the nature of a
mortgage, easements or rights of way (provided no such easement or right of way
shall unreasonably interfere with Tenant's use of the Leased Property) now or at
a time hereafter, constituting a lien or encumbrance on the Property and Tenant
shall, when requested, promptly execute and deliver such written instruments as
shall be necessary to show the subordination of this Lease to such mortgages,
deeds of trust or other such instruments and, if requested, an agreement to
recognize any mortgagee as a successor landlord in the event of a foreclosure or
deed in lieu of foreclosure of such mortgage. Failure to execute any such
instruments within twenty (20) days after receipt of an execution copy of the
instrument requested shall constitute a default hereunder. It is the
understanding of the parties hereto that Landlord shall obtain and deliver a
recognition and non-disturbance agreement from the current mortgagee of the
Leased Property as of the date of this Lease and shall use its best efforts to
secure a recognition and non-disturbance agreement with any and all subsequent
lenders requiring such subordination from Tenant or grantees under such other
instruments, but the effectiveness of the other provisions of this Section 15.1
shall not be conditioned in any manner upon the actual receipt of a recognition
and non-disturbance agreement from such subsequent lenders.
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15.2 ESTOPPEL CERTIFICATES. Tenant shall, within ten (10) days after
request from Landlord, deliver to any proposed mortgagee or purchaser of all or
any part of the Property, in recordable form, a certificate certifying and
covenanting any and all information requested, including, but not limited to,
the following: (a) the date of this Lease, the date when the Term of this Lease
commenced, the date of the expiration of the Term, and the date when Base Rent
and Additional Rent commenced to accrue hereunder; (b) that this Lease is
unmodified, not amended, and in full force and effect; or, if there have been
any amendments or modifications, that the Lease is in frill force and effect as
so amended or modified and stating the amendments or modifications and the dates
thereof; (c) whether or not there are, to the best of Tenant's knowledge, then
existing any setoffs or defenses against the enforcement of any of the terms
and/or conditions of this Lease and any amendments or modifications hereof on
the part of Tenant to be performed, and, if so, specifying the same; (d) the
dates, if any, to which the Base Rent, the Additional Rent and other sums on
Tenant's part to be paid hereunder have been paid and/or paid in advance; and
(e) that Tenant has accepted the Leased Property in the condition then existing
and in accordance with the Lease, or Tenant will specify any particular items
which Tenant has not accepted. If Landlord shall submit to Tenant a proposed
instrument containing any of the foregoing information, then, if Tenant shall
fail to respond to Landlord's request for confirmation of the information set
forth therein within twenty (20) days after receipt of such document from
Landlord any information contained in such proposed instrument shall be deemed
to be true, and Tenant shall be deemed to have waived any rights accruing by
reason of any inaccuracy in such proposed instrument. Further, Tenant's failure
or refusal to execute and deliver such certificate within such twenty (20) day
period shall constitute a default under this Lease.
15.3 MORTGAGEE'S CURE RIGHTS. Tenant agrees to provide any mortgagee of
the Leased Property with a copy of any notice given to Landlord alleging a
default by Landlord under this Lease at the same time such notice of default is
given to Landlord, and that in the event of any defaults by Landlord under the
Lease, Tenant will take no action to terminate the Lease (a) if the default is
not curable by such mortgagee (so long as the default does not interfere with
Tenant's use and occupation of the Leased Property) or (b) if the default is
curable by mortgagee, unless the default remains uncured for a period of thirty
(30) days beyond the date on which the Landlord would be obligated to cure such
default under the terms of this Lease; provided, however, that if any such
default is not reasonably capable of cure within such thirty (30) day period,
such period shall be extended for such additional period of time as shall be
reasonably necessary (including, without Limitation, a reasonable period of time
for such mortgagee to obtain possession of the Leased Property), if such
mortgagee gives Tenant written notice within such thirty (30) day period of
mortgagee's election to undertake the cure of such default and if curative
action (including, without limitation, action to obtain possession and foreclose
upon the Leased Property) is instituted within a reasonable period of time and
is thereafter diligently pursued. However, unless such mortgagee so notifies
Tenant as provided in the preceding sentence, no such mortgagee shall have any
obligation to cure any default under the Lease.
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16. LANDLORD'S ACCESS.
Landlord or agents of Landlord may, upon forty-eight (48) hours prior
notice to Tenant (or at any time without notice in the case of emergency), enter
the Leased Property to (a) inspect the same, (b) make alterations as provided
in Section 13.2 above or repairs, (c) show the Leased Property to prospective
lenders at any time and to prospective tenants within one year prior to the
then-scheduled expiration of the Term, and (d) at any time within six (6) months
before the expiration of the Term, affix to any suitable part of the Leased
Property a notice that the Leased Property are available for lease and keep the
same so affixed without hindrance or molestation.
17. INDEMNIFICATION AND LIABILITY.
17.1 DAMAGE TO PROPERTY. Tenant shall save Landlord harmless from all
loss and damage to property occurring within the Leased Property occasioned by
the use or escape of water or by the bursting of pipes, as well as from any
claim or damage resulting from neglect in not removing snow and ice from the
roof of the Leased Improvements, or by any nuisance made or suffered on the
Leased Property. Tenant also agrees to save Landlord harmless from any claim or
damage resulting from neglect in not removing snow and ice from the sidewalks
bordering upon the Leased Property, unless such loss is caused by the
intentional misconduct or negligence of Landlord. Landlord shall not be liable
for any loss or damage arising from any latent defect in the Leased Property
except as may be otherwise expressly and specifically provided herein. All
personal property or improvements of Tenant at or about the Leased Property
shall be installed, used, or enjoyed at the sole risk of Tenant, and Tenant
shall defend, indemnify and hold Landlord harmless from and against any and all
claims and/or causes of action pertaining to or arising out of damage to the
same, including but not limited to subrogation claims, if any, by Tenant's
insurance carrier, but excepting such claims and/or causes of action resulting
from the actual negligence and/or willful and wanton conduct of Landlord.
17.2 INDEMNITY LIABILITY. Tenant shall also indemnify and hold
Landlord harmless, to the fullest extent permitted by law, from and against any
and all claims, actions, loss, damage, liability and expense (including, without
limitation, reasonable attorney's fees and related legal costs incurred by
Landlord) in connection with loss of life, personal injury and/or damage to
property arising out of or resulting from any occurrence in, upon or at the
Leased Property or the occupancy or use of the Leased Property or any part
thereof, or anywhere on or about the Property if caused wholly or in part by any
act, neglect or failure to perform the obligations imposed by this Lease or any
breach thereof, or omission of Tenant, its officers, agents, employees,
subtenants, licensees, concessionaires, or others occupying space in the Leased
Property.
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18. INSURANCE.
18.1 INSURANCE TO BE MAINTAINED BY TENANT. At its own cost and expense,
Tenant shall obtain and maintain throughout the Term of this Lease the following
insurance coverage: (a) comprehensive general public liability insurance
covering claims for injury to persons or property occurring in or about the
Leased Property, or arising out of ownership, maintenance, use, or occupancy
thereof by the Tenant, with limits of One Million Dollars ($1,000,000.00) per
occurrence and Three Million Dollars ($3,000,000.00) in the aggregate, with an
excess liability policy of at least Twenty-Five Million Dollars
($25,000,000.00); (b) all risk hazard insurance including and not limited to
fire, extended coverage, vandalism and malicious mischief insurance, covering
any and all of the Leased Property, in the full amount of the stated amount
requirements of Landlord's mortgagee, including inflation protection; (c)
Worker's Compensation and all other insurance coverages for employees, agents,
servants, and others at or about the Leased Property in compliance with and as
required by any and all applicable governmental regulations and statutes; and
(d) rental insurance in the amount which corresponds to the Base Rent for the
respective year of the Term. Landlord may from time to time require Tenant to
maintain other insurance coverage or may increase the amount of the foregoing
insurance to be maintained by Tenant so as to provide insurance coverage in
forms and amounts consistent with the extent of coverage' maintained by similar
tenants in similar buildings located in the vicinity of the Leased Property.
18.2 OTHER INSURANCE REQUIREMENTS; WAIVER OF SUBROGATION. All such
insurance procured by Tenant as provided herein shall be in responsible
companies (i.e., a company having a Best's rating of at least A-, provided
that a lower rating will be accepted if it is acceptable to the mortgagee of
the Leased Property) qualified to do business in Massachusetts and in good
standing therein, insuring Landlord and Landlord's mortgagee (if any) as well
as Tenant against injury to persons or damage to property as herein provided.
Tenant shall deposit with Landlord certificates for such insurance at or
prior to the Commencement Date, and thereafter within thirty (30) days prior
to the expiration of any such policies. All such insurance certificates shall
provide that such policies shall not be cancelled or modified without at
least ten (10) days prior written notice to each insured named therein.
Insofar as, and to the extent that, the following provision may be effective
without invalidating or making it impossible to secure insurance coverage
obtainable from responsible insurance companies doing business in the
locality in which the Property is located (even though an extra premium may
result therefrom), Landlord and Tenant mutually agree that, with respect to
any hazard, the loss from which is covered by insurance then being carried by
them, respectively, the party carrying such insurance and suffering such loss
releases the other of and from any and all claims with respect to such loss
to the extent of the insurance proceeds paid with respect thereto; and they
further mutually agree that their respective insurance companies shall have
no right of subrogation against the other on account thereof.
18.3 ESCROW FOR INSURANCE PREMIUMS. (a) Notwithstanding any of the
foregoing, in the event that any mortgagee of the Leased Property requires
Landlord to escrow insurance
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payments or in the event that Landlord elects to purchase property and liability
insurance for the Leased Property directly as a result of Tenant's failure to do
so, Tenant shall also pay to Landlord, as Additional Rent, die full amount of
all premiums for property and liability insurance maintained by Landlord with
respect to the Leased Property. Payments by Tenant on account of such insurance
premiums shall be made monthly at the time and in the fashion herein provided
for the payment of Base Rent and shall be in an amount, specified by Landlord
in a notice given by Landlord to Tenant, from time to time reasonably estimated
by Landlord to be sufficient, if paid monthly, to aggregate a sum equal to the
total insurance premiums paid by Landlord in connection with the Leased
Property.
(b) Not later than ninety (90) days after the end of each calendar year
or fraction thereof during the Term or fraction thereof at the end of the Term,
Landlord shall render Tenant a statement in reasonable detail and according to
usual accounting practices certified by a financial officer of Landlord, showing
for the preceding calendar year or fraction thereof, as the case may be, the
total insurance premiums paid by Landlord in connection with the Premises. Said
statement to be rendered to Tenant also shall show for rho' preceding calendar
year or fraction thereof, as the case may be; the amounts of insurance premiums
already paid by Tenant. If at the time such statement is rendered it is
determined with respect to any calendar year that Tenant has paid (i) less or
(ii) more than the total insurance premiums for the relevant period, then, in
the case of (i), Tenant shall pay to Landlord; as Additional Rent, within
fifteen (15) days after such statement, the amounts of such underpayment, and,
in the ease of (ii), Landlord shall credit the amount of such overpayment
against the monthly installments of annual Base Rent and Additional Rent next
thereafter coming due (or refund such overpayment if the Term has expired and
Tenant has no further obligation to Landlord).
19. FIRE: CASUALTY: EMINENT DOMAIN.
19.1 DAMAGE BY CASUALTY. Should more than fifty percent (50%) of the
floor space of the Leased Improvements be substantially damaged by fire or other
casualty, Landlord may elect to terminate this Lease. When such fire or casualty
renders the Leased Property substantially unsuitable for its intended use, a
just and proportionate abatement of rent shall be made. Further; within thirty
(30) days after such fire or other casualty, Landlord shall give written notice
to Tenant with respect to whether or not Landlord will restore the Leased
Property. Tenant may elect to terminate this Lease if either (a) Landlord
notifies Tenant that Landlord has elected not to restore the Leased Property, or
(b) Landlord elects to restore but fails to restore the Leased Property to a
condition substantially suitable for its intended use with one hundred eighty
(180) days after such fire or casualty. However, Tenant's failure to give such
notice of termination within five (5) days after the date on which the right to
terminate ripens under either (a) or (b) above shall constitute a waiver of such
right by Tenant. Landlord will use its best efforts to cause the first
mortgagee of the Leased Property, if any, to allow application of hazard
insurance loss proceeds to the repair or reconstruction of the Leased Property
upon any hazard loss. Notwithstanding the foregoing, in the event such mortgagee
shall not make the insurance loss proceeds available for repair or restoration,
Landlord shall not be required to repair or
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reconstruct the Leased Property and shall notify Tenant within thirty (30) days
next following such hazard loss, of its election in this respect and thereupon,
Tenant shall have the termination rights described above in this Section 19.1.
19.2 "COMPLETE" TAKING OF LEASED PROPERTY. If, prior to the Commencement
Date or otherwise, the Leased Property shall be taken in its entirety under any
condemnation or eminent domain proceedings (each such occurrence being
hereinafter referred to as a "Taking") by any governmental authority (the
"Taking Authority") during the Term hereof, this Lease shall terminate.
Similarly, if there is a Taking of the Leased Property where, even after
restoration of the Leased Property to the maximum extent feasible under the
circumstances, either (a) more than thirty percent (30%) of the floor space of
the Leased Improvements has been eliminated by such Taking or (b) more than
twenty-five (25) parking spaces have been eliminated by such Taking or (c)
parking spaces are reduced below the number required for compliance with local
zoning or (d) access to and from the Leased Improvements and Constitution Drive
has been eliminated, then provided that no Event of Default (or set of
circumstances which could constitute and Event of Default, with the giving of
notice) then exists, Tenant may terminate this Lease on thirty (30) days prior
written notice given to Landlord within thirty (30) days after the date of such
Taking. In the event of a termination pursuant to either of the preceding two
sentences, this Lease and the Term hereof shall terminate and Tenant
shall be liable for the payment of Base Rent. Additional Charges and all other
charges due from Tenant hereunder, and performance of the other terms and
conditions of this Lease on Tenant's part to be performed only up to date of
such termination, and any Base Rent paid in advance for periods following such
date shall be apportioned and promptly refunded to Tenant.
19.3 "PARTIAL" TAKING OF LEASED PROPERTY. In the event of a Taking that
does not result in a termination of this Lease as provided in Section 19.2
above, and either (a) the mortgagee of the Leased Property shall not make the
proceeds of any awards or damages payable as to the Taking available for
restoration and repair of the Leased Property, or (b) Landlord shall determine
in its reasonable discretion that the restoration and repair of the Leased
Property shall be impracticable, or (c) the Taking occurs within the last
eighteen (18) months of the initial Term (or of a renewal term, if any),
Landlord shall be entitled to terminate this Lease by reason of such Taking
without liability to Tenant. If Landlord does not so terminate this Lease, this
Lease shall continue in effect and Landlord shall rebuild and restore the Leased
Property as nearly as possible to the condition existing next preceding such
Taking, with due allowance for the portion so taken. Further, Tenant shall
promptly restore or repair any improvements made by it in the Leased Property to
the extent proceeds from such awards are made available to Tenant for such
purpose and this Lease shall be and remain in full force and effect and be
unaffected by, the Taking, except that from the date possession of the taken
portion of the Leased Property is acquired by the Taking Authority, the Base
Rent payable under this Lease shall be diminished by the Fair Market Rental
Value of the portion of the Leased Property so taken. The restoration or repair
work to be done by Tenant shall be done subject to any and all terms and
conditions elsewhere set forth in this Lease governing alterations or work on
Tenants part to be performed.
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19.4 MISCELLANEOUS PROVISIONS REGARDING CASUALTY OR TAKING.
19.4.1 In the event this Lease is terminated or terminates by
reason of a Taking or a Casualty, the provisions of the Lease applicable upon
expiration of the Lease shall govern the parties, except for those provisions
which, by their nature, are affected by the Casualty or Taking such that
their performance is not equitable under the circumstances.
19.4.2 Landlord will seek to have any mortgagee of the Leased
Property provide for application of the proceeds of any Taking awards to
restoration, repair, and reconstruction of the portion of such property
remaining after the Taking Notwithstanding the amount of land, building or
improvements taken by condemnation or eminent domain or the termination or
continuance of this Lease with respect thereto, Tenant shall not participate
or share in any recovery, award, or damages payable or paid as to such
Taking, nor have or assert any right, claim, or cause of action against
Landlord, the fee owner, or mortgagee of the Leased Property or, except as
expressly provided in Section l9.4.3 below, the Taking Authority whether for
the loss of or diminution in value of, the unexpired Term of this Lease, or
as to the Taking of any such land, building, and/or improvements or
otherwise; and Tenant for itself and its successors and assigns hereby
waives, surrenders, and releases to Landlord any and all claims or rights to
claim or receive all or any portion of any and all recovery, awards, and/or
damages as to such Taking.
19.4.3 If permitted by statute, Tenant may assert a separate and
independent claim for and recover from the Taking Authority but not from
Landlord, any compensation as may be separately awarded or recoverable by
Tenant in its own name and right for relocation expenses or any damage to
Tenant's portable fixtures and equipment, or on account of any expenses which
it shall incur in removing its merchandise, furnishings, and equipment from
the Leased Property, but in no event shall any such claims or recoveries be
claims or asserted in the event the same would, may, or shall diminish,
offset, or bar any damages, recovery, or award to Landlord or the fee owner
of the Leased Property.
20. DEFAULT: REMEDIES: BANKRUPTCY
20.1 EVENTS OF DEFAULT. Each of the following shall be an event of
default ("Event of Default") under this Lease:
20.1.1 Tenant shall default in the payment of any installment of
Rent or other sum herein specified and such default shall continue for five (5)
days after written notice thereof provided, however, that Landlord shall not be
required to give more than one (1) such notice during any consecutive twelve
(12) month period with regard to defaults in the payment of installments of Base
Rent, or any other sums due under this Lease, and in the event that Landlord has
already given one (1) such notice during any consecutive twelve (12) month
period, any subsequent failure of Tenant during such twelve (12) month period to
make any payment due hereunder shall immediately constitute a default even
though no notice has been given:
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20.1.2 Tenant shall fail to maintain insurance as required by this
Lease:
20.1.3 Tenant shall default in the observance or performance of any
other of Tenant's covenants, agreements, or obligations hereunder and such
default shall not be cured within thirty (30) days after written notice thereof,
or if such default is of a nature that it cannot be reasonably cured within such
thirty (30) day period, Tenant shall not have commenced to cure such default
within said thirty (30) day period and diligently proceed to completion of said
cure, provided such extended period without a completed cure will not have a
material adverse effect on the value of the Leased Property or expose Landlord
to any liability; provided however, that Landlord shall not be required to give
more than two (2) notices during any consecutive twenty-four (24) month period
with regard to Tenant's failure to perform its obligations under a particular
Section of' this Lease (a 'Previously Defaulted Provision") and in the event
that Landlord has already given two (2) such notices during any consecutive
twenty-four (24) month period, any subsequent failure of Tenant during such
twenty-four (24) month period to fully and punctually observe such Previously
Defaulted Provision shall immediately constitute a default even though no notice
has been given; or
20.1.4 Tenant or any other party shall file a petition or
application lender any state or federal bankruptcy, insolvency or debtor's
relief law relating to Tenant or Tenant shall consent to an assignment or
composition for the benefit of Tenant's creditors or consent to the appointment
of a receiver for any of Tenant's property; provided, however, that if such
petition, application or receivership proceedings are instituted against Tenant
by a third party, there shall be no default hereunder unless the same shall
remain undischarged for a period of greater than sixty (60) days from the filing
of such petition or application or the commencement of the receivership
proceedings, as the case may be.
20.2 LANDLORD'S REMEDIES. Upon the occurrence of an event of default,
Landlord shall have the following rights and remedies:
20.2.1 Landlord shall have the right at its election, at any time
thereafter, to give Tenant written notice of Landlord's election to terminate
this Lease on a date specified in such notice. Upon the giving of such notice,
this Lease and the estate hereby granted shall expire and terminate on such date
as fully and completely and with the same effect as if such date were the date
hereinbefore fixed for the expiration of the Term, and all rights of Tenant
hereunder shall expire and terminate, but Tenant shall remain liable as
hereinafter provided.
20.2.2 Landlord shall have the immediate right to reenter and
repossess the Leased Property or any part thereof by summary or other judicial
proceedings and the right to remove all persons and property therefrom. Landlord
shall be under no liability for or by reason of any such entry, repossession or
removal. No such re-entry or taking of possession of the Leased Property by
Landlord shall be deemed to waive or prejudice any remedies provided to Landlord
hereunder, nor be construed as an election on Landlord's part to terminate this
Lease
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unless a written notice of such election be given to Tenant pursuant to Sections
20.2.1 and 21 or unless the termination of this Lease be decreed by a court of
competent jurisdiction.
20.2.3 Landlord may relet the Leased Property or any part thereof
for the account of Tenant in the name of Tenant or Landlord or otherwise,
without notice to Tenant, for such term or terms (which may be greater or less
than the period which would otherwise have constituted the balance of the Term)
and on such conditions (which may include free rent and any other concessions)
and for such uses as Landlord, in its absolute discretion reasonably exercised,
may determine; and Landlord may collect and receive any rents payable by reason
of such reletting. Landlord shall not be responsible or liable for any failure
to relet or to collect any rent due upon such reletting.
20.2.4 In the event of any termination of this Lease by reason of
the occurrence of an Event of Default, Tenant will pay to Landlord the Base
Rent, and any Additional Charges and other sums required to be paid by Tenant
for the period to and including the date of such termination.
20.2.5 Landlord shall be entitled to recover from Tenant, and Tenant
will pay to Landlord on demand, as and for liquidated and agreed final damages
for Tenant's default and in lieu of all current damages beyond the date of
termination (it being agreed that it would be impracticable or extremely
difficult to fix the actual damages), an amount equal to the excess, if any, of
the present value of the excess of (a) the total of (i) the Base Rent, any
Additional Charges and other sums which would be payable under this Lease from
the date of such termination for what would be the then unexpired Term in the
absence of such termination plus (ii) the aggregate of all expenses relating to
Landlord's reletting the Leased Property, including, without limitation,
brokerage fees and the cost of any alterations needed to relet, over (b) the
then net fair rental value of the Leased Property for the same period (after
deducting from such fair rental value the time needed to relet the Leased
Property in the amount and concessions which would normally be given to a new
tenant). Fair rental value shall be established in accordance with the appraisal
procedures set forth in EXHIBIT FMRV.
20.3 LANDLORD'S CURE RIGHTS. If Tenant shall default in the observance or
performance of any conditions or covenants on Tenant's part to be observed or
performed under or by virtue of any of the provisions of this Lease and such
default shall continue beyond any period provided in this Lease for Tenant to
cure such default, Landlord, without being under any obligation to do so and
without thereby waiving such default, may remedy such default for the account
and at the expense of Tenant.
20.4 TENANT'S OBLIGATION TO REIMBURSE LANDLORD. If Landlord makes any
expenditures (pursuant to Section 20.3 above or otherwise) or incurs any
obligations for the payment of money in connection with any failure of Tenant to
perform fully all of its obligations under this Lease, which failure continues
beyond any period provided in this Lease for Tenant to cure such default, such
sums paid or obligations incurred (including but not limited to,
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reasonable attorney's fees and court costs in instituting, prosecuting or
defending any action or proceeding), with interest at the rate of one and one
half percent (1-1/2%) per month and costs, shall upon demand be paid to Landlord
by Tenant as an Additional Charge
20.5 NO WAIVER. Landlord's failure to take action against Tenant with
respect to any default in Tenant's performance of its obligations hereunder
shall not, under any circumstances, constitute a waiver of any of Landlord's
rights under this Lease and, further, no waiver of any of the provisions of this
Lease shall be effective unless given in writing nor shall any waiver be
construed as a waiver of any of the other provisions hereof or as a waiver of
the same provisions for any subsequent time,
20.6 ACCEPTANCE OF LATE PAYMENTS. No payment by Tenant, or acceptance by
Landlord, of a lesser amount than then due from Tenant to Landlord shall be
treated otherwise than as a payment on account regardless of any letter
accompanying such check or legend entered upon such check. Further, no
acceptance of any payment by Landlord from Tenant shall in any way constitute a
waiver of any default then existing or which would exist with the proper giving
of notice.
20.7 INTEREST ON LATE PAYMENTS. If Tenant shall fail to pay, when the
same is due and payable, any Base Rent, Additional Rent, Additional Charges or
any other charges or payments required hereunder (excluding the payments
described in Section 20.4 above), such unpaid amounts shall bear interest from
ten (10) days after the due date thereof to the date of payment at the annual
rate of interest of twelve percent (12%) per annum, but in no event higher than
the maximum rate permitted by law; and, in addition, Tenant shall pay Landlord a
late charge for any Base Rent, Additional Rent, Additional Charges or any other
charges or payments due hereunder which is paid more than ten (10) days after
its due date equal to five percent (5%) of such payment.
20.8 REMEDIES CUMULATIVE. Any and all remedies set forth in this Lease
(a) shall be in addition to any and all other remedies Landlord may have at law
or in equity, (b) shall be cumulative, and (c) may be pursued successively or
concurrently as Landlord may elect. The exercise of any remedy by Landlord shall
not be deemed an election of remedies or preclude Landlord from exercising any
other remedies in the future.
20.9 LANDLORD'S RIGHTS IN TENANT'S BANKRUPTCY. If this Lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. 101 ET SEQ. as now existing or hereafter amended (the Bankruptcy Code"),
any and all monies or other considerations payable or otherwise to be delivered
in connection with such assignment shall be paid and delivered to Landlord,
shall be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly paid
to or turned over to the Landlord. Notwithstanding anything in
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this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated as rent,
including, without limitation, the Base Rent and Additional Rent specified
herein, shall constitute rent for the purpose of Section 502(b)(7) of the
Bankruptcy Code.
If Tenant assumes this Lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth (a) the name
and address of. such person; (b) all of the terms and conditions of such offer,
and (c) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including without limitation, the assurance
referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to
Landlord by the Tenant no later than twenty (20) days after receipt by the
Tenant, but in any event no later than ten (10) days prior to the date that the
Tenant shall make application to a court of competent jurisdiction for authority
and application to enter into such assignment and assumption, and Landlord shall
thereupon have the prior right and option, to be exercised by notice to the
Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed without further act or deed to have assumed
on and after the date of such assignment all of the obligations arising under
this Lease. Any such assignee shall upon demand execute and deliver to Landlord
an instrument confirming such assumption.
21. NOTICES.
Any and all notices, demands, consents or approvals required hereunder
shall be given in writing in accordance with this Section 21. Any notice from
Landlord to Tenant shall be deemed duly served, if delivered by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid to Tenant's Mailing Address (as defined in Section 1 above) or if sent
by telefax transmission to (301) 733-6782 with confirmation of receipt of such
telefax transmission. Any notice from Tenant to Landlord shall be deemed duly
served, if delivered to Landlord by overnight courier, or by registered or
certified mail, return receipt requested, postage prepaid, addressed to Landlord
at Landlord's Mailing Address (as defined in Section 1 above) or sent to
Landlord by telefax transmission to (617) 740-4330. Either Landlord or Tenant
may change their respective Mailing Address or telefax transmission number by
notice given to the other party in accordance with this Section 21.
22. SURRENDER: HOLDING OVER.
22.1 SURRENDER OF LEASED PROPERTY. Tenant shall, at the expiration or
other termination of the Term, (a) remove all of Tenant's goods and effects from
the Leased Property
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(including, without hereby limiting the generality of the foregoing, all signs
and lettering affixed or painted by Tenant either inside or outside the Leased
Property), and (b) deliver to Landlord the Leased Property, in broom clean
condition, and otherwise in the same condition as existed as of the Commencement
Date (normal wear and tear in accordance with Section 12.1 above and damage by
fire or other casualty excepted), all keys, locks thereto, other fixtures
connected therewith and all alterations and additions made to or upon the Leased
Property. Upon Tenant's failure to comply with the preceding sentence, Landlord
is hereby authorized, without liability to Tenant for loss or damage thereto,
and at the sole risk of Tenant, to remove and store any of such property at
Tenant's expense, or to retain same under Landlord's control or to sell, at
public or private sale, without notice, any or all of such property not so
removed and to apply the net proceeds of such sale to the payment of any sum due
hereunder, or to destroy such property.
22.2 HOLDING OVER. If Tenant remains in Possession of the Leased Property
or any part thereof after the expiration or earlier termination of the Term of
this Lease, Tenant shall be deemed to be in use and Occupancy of the Leased.
Property as a month-to-month tenant at a rate of monthly rent one and one-half
(1 1/2) times the rate of the total monthly installment of Base Rent then in
effect upon the date of expiration or termination of this Lease and subject to
the same terms and conditions (including, without limitation, provisions
concerning the payment or all other charges hereunder) as those set forth in
this Lease other than as to the length of Term However, nothing in this Lease
provision shall be deemed to extend the Term beyond that set forth in Section 2
hereof, nor grant any right to Tenant or any other person to use, occupy, or
remain in Possession of all or any part of the Leased Property beyond the
expiration or earlier termination of the Term of this Lease.
23. LANDLORD'S LIABILITY.
23.1 NO CONSEQUENTIAL DAMAGES. In no event shall either Landlord or
Tenant ever be liable to the other for any loss of business or any other
indirect or consequential damages suffered by such other party as a result of
the defaulting party's breach of its obligations under this Lease.
23.2 LIABILITY AFTER CONVEYANCE OF PROPERTY. The term "Landlord," as used
herein, shall mean and refer to the owner of the fee estate in the Leased
Property whosoever such owner may be from time to time or to the person or
entity named as Landlord above or its successors or assigns, as the case may be;
and upon any conveyance or transfer of the interest of such person or entity as
Landlord, such person or entity shall be thereupon released and discharged from
any and all liability under this Lease or otherwise to Tenant and any and all
others whomsoever except for breaches of this Lease occurring prior to such
transfer.
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24. MISCELLANEOUS.
24.1 GOVERNING LAW. This Lease shall be governed by the law of the
Commonwealth of Massachusetts and shall be deemed to have been made, executed,
delivered and accepted by the respective parties in that state.
24.2 PARTIAL INVALIDITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Lease, or the application of such term
or provision to persons Or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law. It is the intention of the parties hereto that if any
provision of this Lease is capable of two constructions, one of which would
render the provision valid, then the provision shall have the meaning which
renders it valid.
24.3 CAPTIONS. The captions of this Lease are for convenience and
reference only and shall not be deemed or construed to bind, modify, increase,
or decrease the terms and conditions of this Lease, or any interpretation or
construction thereof.
24.4 SUCCESSORS AND ASSIGNS. The terms and conditions in this Lease shall
apply to and be binding upon the parties herein and their respective successors
and assigns except as expressly otherwise provided.
24.5 RECORDING OF LEASE. Tenant shall not record this Lease. However at
the request of either party, Landlord and Tenant shall executor acknowledge,
deliver, exchange, and record at the requestor's expense a Notice of Lease in
the form attached hereto as EXHIBIT NL.
24.6 ENTIRE AGREEMENT. This Lease and any and all exhibits and. riders
attached hereto and made a part of this Lease constitute the entire agreement of
the parties concerning this Lease, and any and all other or prior agreements,
representations, or warranties are hereby terminated, cancelled, and agreed to
be void and of no force or effect.
24.7 AMENDMENTS. No change, amendment, deletion, or addition to this
Lease shall be effective unless in writing and signed by the parties.
24.8 QUIET ENJOYMENT. So long as Tenant is not in default of any of its
obligations under this Lease, beyond any applicable grace period, Tenant shall
peaceably and quietly have, hold and enjoy the Leased Property free of any
claims by, through or under Landlord.
24.9 NO PARTNERSHIP. Nothing in this Lease shall create or be construed
to create a between Tenant and Landlord, or make them joint ventures, or bind
or make any way liable or responsible for any acts, omissions, negligence, debts
or obligations of Tenant.
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24.10 TIME OF ESSENCE. Time is of the essence in this Lease.
24.11 PURCHASE OPTION. Tenant shall have the option to purchase the
Leased Property (the "Purchase Option") on the following dates and for the
following respective prices on each such date: January 15, 2000 at the price of
$4,900,000 (which the parties reasonably estimate to represent 87(pound) 5% of
Fair Market Value of the Leased Property); on January 15, 2003 at the price of
$5,275,000; and on January 15, 2005 at the price of $5,550,000 (each such date
being hereinafter referred to as the "Purchase Option Date," and each such
dollar amount being hereinafter referred to as the "Option Price"). The Purchase
Option shall also be subject to the following terms:
(a) CONDITIONS TO OPTION. On the conditions (which conditions
Landlord may waive, at its sole option, by notice to Tenant at any time) that
(i) at the time of exercise of the Purchase Option and on the Option Closing
Date (defined below), there then exists no uncured Event of Default regarding
the payment of money, and Landlord has not given notice of any fact or
circumstance that remains uncured which if not cured during the appropriate
grace period would constitute an Event of Default; and (ii) Tenant strictly
complies with the provisions of this Section 24.11. then Tenant shall have the
right to exercise the Purchase Option.
(b) NOTICE. Tenant shall give Landlord written notice of Tenant's
election to exercise the Purchase Option at least one hundred eighty (180) days
prior to the relevant Purchase Option Date.
(c) CONVEYANCE. It the Purchase Option is exercised by Tenant in
accordance with the terms hereof then, subject to the conditions of subsection
(g) below, Landlord shall convey to Tenant good and clear record and marketable
title to the Leased Property by delivery to Tenant of a duly executed and
acknowledged quiteclaim deed (the "Deed"), subject to all Existing Encumbrances
listed on EXHIBIT EE attached hereto as well as any other encumbrances created
during the term of this Lease by Landlord with the consent of Tenant (however,
in no event shall the Leased Property be subject to any voluntary monetary
encumbrances created by Landlord).
(d) PAYMENT OF OPTION PRICE. The Option Price shall be paid by Tenant
on the Option Closing Date by certified, cashier's, treasurer's or bank check(s)
or wire transfer pursuant to instructions received from Landlord.
(e) PLACE AND TIME OF CLOSING. If this Purchase Option is exercised,
the closing shall occur and the Deed shall be delivered (the "Closing") at the
office of Landlord at 12:00 o'clock noon (E.S.T.)) on the relevant Purchase
Option Date (such time, as the same may be extended by mutual written agreement
of Landlord and Tenant, being hereinafter referred to as the "Option Closing
Date"). It is agreed that time is of the essence of this Purchase Option.
(f) CONDITION OF LEASED PROPERTY. The Leased Property is to be
purchased "AS IS" and "WHERE IS" as of the Option Closing Date.
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(g) QUALITY OF TITLE. If Landlord shall be unable to give title or to
make conveyance, as stipulated in this Section 24.11, then, Landlord shall use
reasonable efforts to remove all defects in title and the Option Closing Date
shall be extended for period of ninety (90) days. Landlord shall not be required
to expend more than THIRTY THOUSAND and NO/100 DOLLARS ($30,000.00) (inclusive
of attorney's fees) in order to have used 'treasonable efforts." However,
Landlord's obligation to remove any voluntary encumbrances on the Leased
Property created by Landlord from the date of this Lease (except those
encumbrances for which Tenant has given its express approval at the time of the
creation of the same other than voluntary monetary encumbrances created by
Landlord) shall not be limited to reasonable efforts only.
(h) LANDLORD'S INABILITY TO PERFORM: LANDLORD'S DEFAULT. If at the
expiration of the extended time Landlord, after having complied with its
obligations under subsection (g) above, shall have failed so to remove any such
defects in title, then all other obligations of all parties hereto under this
Section 24.11 shall cease and this Section 24.11 shall be void and without
recourse to the parties hereto, but this Lease shall otherwise continue in full
force and effect. Notwithstanding the foregoing, Tenant shall have the election,
at either the original or extended Option Closing Date, to accept such title as
Landlord can deliver to the Leased Property in its then condition and to pay
therefor the Option Price without reduction, in which case Landlord shall convey
such title; PROVIDED, THAT, in the event of such conveyance, if any portion of
the Leased Property shall have been taken by exercise of the power of
condemnation prior to the Option Closing Date, Landlord shall pay over or assign
to Tenant at the Option Closing Date, all awards recovered on account of such
taking, less any amounts reasonably expended by Landlord in obtaining such
award, or, to the extent such awards have not been recovered as of the Option
Closing Date, Landlord shall assign to Tenant all its rights with respect to any
claim therefor If Landlord wilfully fails to perform its obligations under
subsection (f) or for any other reason wilfully and without excuse fails to
deliver the Deed, then Tenant shall be entitled to sue for specific performance
of Landlord's obligations to convey the Leased Property and shall be entitled to
all reasonable costs and expense associated with such suit (including, without
limitation, reasonable attorney's fees).
(i) USE OF OPTION PRICE TO CLEAR TITLE. To enable Landlord to make
conveyance as provided in this Section 24.11, Landlord may, at the Closing, use
the Option Price or any portion thereof to clear the title of any lien; provided
that all instruments so procured are recorded contemporaneously with the Closing
or reasonable arrangements are made for a recording subsequent to the Option
Closing Date in accordance with customary conveyancing practices.
(j) TENANT'S DEFAULT. If Tenant delivers a notice to Landlord
exercising the Purchase Option and then fails to consummate the purchase of the
Leased Property in accordance with the terms hereof for any reason other than
Landlord's inability to perform its obligations or Landlord's wilful and
unexcused failure to comply with the provisions of this Section 24.11, Tenant
shall thereafter have no farther right to purchase the Leased Property, although
this Lease shall otherwise continue in full force and effect.
24.12 FINANCIAL STATEMENTS. On or before April 30 of each year during the
Term of this
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Lease, Tenant shall provide to Landlord and Landlord's mortgagee copies of
Tenant's certified financial statements for the immediately preceding calendar
year which have been prepared for Tenant by Tenant's independent certified
public accountant.
25. CONSTRUCTION OF TENANT IMPROVEMENTS.
Landlord shall perform the work (the "Landlord Work") described in
EXHIBIT LW attached hereto in a good and workmanlike manner.
The term of this Lease shall commence (the "Commencement Date") fourteen
(14) days after the date Landlord shall have substantially completed the
Landlord Work (that is, has completed the Landlord Work, except for normal
"punch list" items) and shall have delivered to Tenant a copy of either (i) a
permanent Certificate of Occupancy for the Leased Property from the appropriate
building official of the City of Taunton, Massachusetts or (ii) a Temporary
Certificate of Occupancy for the Leased Property from such official, provided
that such Temporary Certificate of Occupancy contains no conditions which would
render the Premises unusable by Tenant for the Permitted Use.
In the event the Landlord's Work is not completed on or before December
31, 1997, Tenant shall have the right to terminate its obligations under this
Lease by giving written notice of such termination to Landlord on or before
February 1, 1998; provided, however, that (1) such dates shall be extended for a
period equal to the duration of any delays in construction caused by strikes,
shortages or materials, acts of God or other matters not reasonably within the
control of Landlord, and (2) in the event any delays in completing the
Landlord's Work are as a result of change orders or other delays caused by
Tenant. The foregoing dates shall be extended day for day for each such delay
caused by Tenant or longer if appropriate to compensate for additional delays
which were encountered on account of items enumerated in (1) above that would
not otherwise have been encountered but for the Tenant-caused delays. Tenant's
failure to give such notice of termination on or before February 1, 1998 (or
such later date as extended pursuant to (1) or (2) above) shall constitute a
waiver of such termination right with the result that February 1, 1998 (or such
later date as extended pursuant to (1) or (2) above) shall become the
Commencement Date.
Thirty (30) days after the Commencement Date, Landlord shall be deemed to
have satisfactorily completed the construction of the Landlord Work, and Tenant
shall be deemed to have waived all rights and remedies with respect to
deficiencies in such construction, except for (a) deficiencies in the HVAC
system of which Tenant has informed the Landlord in writing not later than three
hundred sixty-five (365) days following the Commencement Date, (b) deficiencies
of any other type of which Tenant has informed Landlord, in writing, not later
than thirty (30) days following the Commencement Date, and (c) latent defects in
the roof or structural integrity of the building constructed as part of the
Landlord Work. Further, with respect to any portions of the Landlord's Work for
which Landlord has received a guaranty or warranty from the general contractor
or subcontractor performing such work, Tenant shall have the full benefit of
such warranty or guaranty as long as Tenant gives Landlord written notice of
such defect or deficiency in a timely manner so that Landlord is capable of
making a timely claim under the guaranty or warranty in question.
30
<PAGE>
26.1 Landlord and Tenant acknowledge that Landlord intends to enter into
agreements with the Massachusetts Development Finance Agency ("MDFA") providing
for the issuance of industrial revenue bonds in a principal amount of
approximately $4,175,000 (the "Bonds") pursuant to Chapters 23A and 40D of the
Massachusetts General Laws. The proceeds from the sale of the Bonds have been or
will be used to finance the acquisition of the Leased Property and performance
of Landlord's construction work referenced in Section 25 and the repayment of
the Bonds will be secured by a mortgage of the Leased Property. The Bonds will
be issued and sold on the condition that interest due thereon will be excluded
from gross income for purposes of Federal income taxation under Section 103 of
the Internal Revenue Code of 1986, as amended (the "Code") and exempt from
Massachusetts income taxation.
26.2 Landlord and Tenant further acknowledge that Landlord's willingness
to enter into this Lease is specifically and expressly condition upon the
agreements of Tenant set forth in this Section 26, all of which are necessary to
the establishment and preservation of the aforesaid tax-exempt status. Tenant
acknowledges that qualification of the Bonds for tax-exempt status depends upon
the continuing qualification under the small issue exemption of Section 144(a)
of the Code, and that the Bonds will continue to be treated as a qualified small
issue only so long as (a) the sum of (i) the authorized amount of the Bonds plus
(ii) the aggregate face amount of certain other exempt small issues plus (iii)
the aggregate amount of certain capital expenditures does not exceed $10,000,000
and (b) with respect to (i) the Tenant, (ii) the Landlord, and (iii) each other
test-period beneficiary (as defined in Section 144(a)(10)(D) of the Code) of
the Leased Property, the sum of the authorized face amount of the Bonds
allocable to such test-period beneficiary plus the respective aggregate face
amount of all tax-exempt facility related bonds presently outstanding that are
allocable to such test-period beneficiary does not exceed $40,000,000. (Except
as expressly stated to the contrary, all quoted terms used in this Article 26
shall have the meanings set forth in Sections 103 and 141 through 150 of the
Code and in the regulations, rulings and judicial decisions thereunder.) Tenant
agrees that each of the following agreements, covenants, obligations and duties
of Tenant shall constitute a "Bond Related Obligation" such that the failure of
Tenant to perform or observe a Bond Related Obligation shall entitle Landlord to
the special remedies set forth in Section 26.4 hereof in addition to any other
remedies Landlord may have under this Lease:
(a) Tenant covenants and agrees that neither it nor any related
person" will make or incur any "capital expenditures" (which term for
purposes of this subsection (a) only, shall include both capital
expenditures and any exempt small issue industrial revenue bonds (other
than the Bonds) for purposes of Section 144(a) of the Code) within the
City of Taunton (or with respect to a contiguous or integrated facility
within a municipality adjacent to the City of Taunton) such that the
total of all such "capital expenditures" from and after the date of this
lease exceeds $10,000,000 if the effect thereof is to cause a loss in the
tax-exempt status of the Bonds.
(b) Tenant covenants and agrees that neither it nor any "related
person" will become a principal user" of any facility other than the
Leased Property located in the City of Taunton (or of a contiguous or
integrated facility within a municipality adjacent to the City of
Taunton) if the effect thereof is to cause a loss in the tax-exempt
status of the Bonds.
(c) Tenant covenants and agrees that neither it nor any "related
persons" will acquire the stock or assets of any person or entity in a
tax-free exchange or reorganization
31
<PAGE>
and will not allow its stock or assets to be acquired by any other person
or entity in a tax-free exchange or reorganization, or otherwise merge or
combine itself with any other person or entity in a tax-free transaction,
in each such case if any such person or entity shall be a "principal
user" of a facility located within the City of Taunton (or of a
contiguous or integrated facility within a municipality adjacent to the
City of Taunton) or shall be a test period beneficiary" of any
outstanding tax-exempt industrial development bonds, whenever issued, of
a facility, wherever located, if the effect thereof is to cause the loss
of the tax-exempt status of the Bonds.
(d) Tenant covenants and agrees that neither it nor any "related
person" will become a "test period beneficiary" of any outstanding
tax-exempt facility related bonds if the sum of the percentage of
outstanding principal amount of all tax-exempt facility related bonds,
whenever issued, allocable to Tenant and any "related persons", including
the Bonds, shall exceed $40,000,000.
(e) Any assignee, mortgagee, pledge or sublessee under Section 14
of this Lease will comply with the provisions of this Section 26 in
addition to all other provisions of this lease and such assignee,
mortgagee, pledge or sublessee must so agree in writing with Landlord.
(f) Tenant agrees that Landlord may withhold its consent under
Section 14 of this Lease, if, in addition to any other basis for
withholding such consent, any requested use of the demised premises will
not comply the requirements of the Code with respect to use of facilities
financed by the Bonds.
26.3 Tenant hereby represents that within the last six (6) years the
total amount of all "capital expenditures" plus all exempt small issue
industrial revenue bond financings with respect to any facility located in the
City of Taunton (or with respect to a contiguous or integrated facility within a
municipality adjacent to the City of Taunton) of which Tenant or any "related
person" is a "principal use?' does not exceed $1,000.00, excluding for purposes
of making such computation the "capital expenditures" made by Landlord in
connection with acquisition of the Leased Property and performance of Landlord's
construction work.
26.4 In the event of any failure to observe or perform any of the Bond
Related Obligations by Tenant, which failure has caused the loss of the
tax-exempt status of the Bonds, in addition to any other remedy which Landlord
may have under this Lease or otherwise, Landlord shall be entitled to recover
damages from Tenant in an amount equal to the interest payments, fees,
back-taxes, penalties and other amounts required to be paid by Landlord to the
holder of the Bonds from the date such loss shall occur until the Bonds are
redeemed or retired and that, upon such redemption or retirement, the Base Rent
shall be recalculated so as to provide the same debt coverage ratio for the
Leased Property with respect to the replacement mortgage financing that existed
before redemption or retirement of the Bonds The underwriting standards to be
applied in determining what adjustment to Base Rent is necessary to create the
same debt coverage ratio for the Leased Property shall be those underwriting
standards which were employed
32
<PAGE>
in determining the debt coverage ratio that existed with respect to the Leased
Property when the Bonds remained in effect Landlord shall give Tenant notice of
any claimed loss of tax-exempt status of the Bonds promptly after its receipt of
such claim, shall afford Tenant an opportunity to participate in any action
contesting such loss and shall permit Tenant to cure (if possible) any default
on its part giving rise to such loss It is understood and agreed that Tenant
shall not be deemed in default of this Lease nor shall Tenant be responsible for
any damages as set forth in this Paragraph 26E4 if the loss of tax-exempt status
of the Bonds is caused by Landlord
26.5 In the event that Landlord does not obtain Bond financing for the
acquisition of the Leased Property or the Landlord's construction work, as
contemplated by Section 261 of this Lease, within four (4) years from the date
of execution of this Lease, the provisions of this Section 26 shall be deemed
null and void of no further force and effect
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed and delivered as a sealed instrument by their respective duly
authorized officers as of the day and year first written above
<TABLE>
<S> <C>
LANDLORD: TENANT:
CONSTITUTION REALTY PHOENIX COLOR CORP
COMPANY, LLC)
By: /s/ Ronald A. Davis By: /s/ Edward Lieberman
----------------------- ------------------------
Name: Ronald A Davis Name: Edward Lieberman
Title: Manager Title: CFO
</TABLE>
<TABLE>
<CAPTION>
List of Exhibits
<S> <C>
Exhibit A - Legal Description of Land
Exhibit LW - Landlord's Work
Exhibit FMRV - Calculation of Fair Market Rental Value
Exhibit EE - Existing Encumbrances
Exhibit NL - Notice of Lease
</TABLE>
33
<PAGE>
Exhibit 12.1
Exhibit 12.1 - Calculation of ratio of earnings to fixed charges
<TABLE>
<CAPTION>
(Dollars in thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings before income
Tax provision $5,602 $6,400 $3,173 $ 8,380 $3,036
Add:
Portion of rents attributable to interest 189 189 539 478 717
Interest excluding capitalized interest 1,341 1,827 4,787 4,304 4,866
Amortization of deferred financing costs - - 150 180 210
------ ------ ------ ------- ------
Earnings as adjusted $7,132 $8,416 $8,649 $13,342 $8,829
------ ------ ------ ------- ------
------ ------ ------ ------- ------
Fixed Charges
Portion of rents attributable to interest 189 189 539 476 717
Interest including capitalized interest 1,341 1,827 4,787 4,304 4,866
Amortization of deferred financing costs - - 150 180 210
------ ------ ------ ------- ------
Fixed Charges $1,530 $2,016 $5,476 $ 4,962 $5,793
------ ------ ------ ------- ------
------ ------ ------ ------- ------
Ratio of earnings to fixed charges 4.7x 4.2x 1.6x 2.7x 1.6x
------ ------ ------ ------- ------
------ ------ ------ ------- ------
</TABLE>
<PAGE>
Exhibit 12.2
Exhibit 12.2 - Calculation of (1) EBITDA, (2) Ratio of total debt to EBITDA,
and (3) EBITDA to cash interest expense (Dollars in thousands)
<TABLE>
<CAPTION>
Proforma
(1) EBITDA CALCULATION: 1994 1995 1996 1997 1998 1998
------------------- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Pretax Income $ 5,602 $ 6,400 $ 3,173 $ 8,380 $ 3,036 $ 1,249
Interest Expense 1,341 1,827 4,937 4,483 5,076 7,497
Depreciation and amortization expense 3,265 3,119 8,389 9,142 10,834 12,304
------- ------- ------- ------- ------- -------
Total EBITDA $10,208 $11,346 $16,499 $22,005 $18,946 $21,050
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
Interest expense includes amortization of deferred financing costs of
$150,000, $180,000 and $210,000 in 1996, 1997 and 1998, respectively.
<TABLE>
<CAPTION>
Proforma
(2) RATIO OF TOTAL DEBT TO EBITDA: 1998
------------------------------ --------
<S> <C>
Total Debt $105,000
EBITDA 21,050
--------
Ratio of total debt to EBITDA 4.9x
--------
--------
</TABLE>
<TABLE>
<CAPTION>
Proforma
(3) RATIO OF EBITDA TO CASH INTEREST EXPENSE: 1998
----------------------------------------- --------
<S> <C>
Total Debt $105,000
Multiplied by Annual Yield 10.375%
--------
Cash interest expense $ 10,894
--------
--------
EBITDA $ 21,050
--------
--------
Ratio of EBITDA to cash interest expense 1.9x
--------
--------
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 on Form S-4 to Registration
Statement on Form S-1 (File No. 333-50995) of our reports dated February 12,
1999, except Note 13, as to which the date is April 13, 1999, relating to the
financial statements and financial statement schedule of Phoenix Color Corp. and
Subsidiaries which appear in such Registration Statement. We also consent to the
references to us under the captions "Experts" and "Selected Historical
Consolidated Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
May 5, 1999
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10? % SENIOR SUBORDINATED NOTES DUE 2009
OF
PHOENIX COLOR CORP.
PURSUANT TO THE PROSPECTUS DATED MAY __, 1999
================================================================================
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ____________________ (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER
IS EXTENDED, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE
AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
================================================================================
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent.
THE EXCHANGE AGENT IS:
CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
BY REGISTERED OR CERTIFIED MAIL BY HAND OR OVERNIGHT DELIVERY
Chase Manhattan Trust Company, Chase Manhattan Trust Company,
National Association National Association
1650 Market Street 1650 Market Street
One Liberty Place, Suite 1650 One Liberty Place Suite 1650
Philadelphia, PA 19103 Philadelphia, PA 19103
Attn: Joseph Progar Attn: Joseph Progar
CONFIRM BY TELEPHONE:
(215) 988- 1317
FACSIMILE TRANSMISSION:
(ELIGIBLE INSTITUTION ONLY)
Chase Manhattan Trust Company,
National Association
(215) 972-8372
Attn: Joseph Progar
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS SET FORTH IN THIS LET'TER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED
1
<PAGE>
The undersigned hereby acknowledges receipt of the
Prospectus dated _____________(the "Prospectus"), of Phoenix Color Corp., a
Delaware corporation (the "Company"), and this letter of transmittal (the
"Letter of Transmittal"), which together with the Prospectus constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 10?% Senior Subordinated Notes due 2009 (the "Exchange Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for each $1,000 principal amount of its 10? % Senior Notes due 2009 (the "Old
Notes") of which $105,000,000 principal amount is outstanding. Recipients of the
Prospectus should read the requirements described in such Prospectus with
respect to eligibility to participate in the Exchange Offer. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Old Notes described in
the box entitled "Description of Old Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Old Notes and the undersigned
represents that it has received from each beneficial owner of Old Notes
("Beneficial Owners") a duly completed and executed form of "Instruction to
Registered Holder from Beneficial Owner" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
This Letter of Transmittal is to be used only by a holder of
Old Notes (i) if certificates representing Old Notes are to be forwarded
herewith or (ii) if delivery of Old Notes is to be made by book-entry transfer
to the Exchange Agent's account at The Depository Trust Company ("DTC"),
pursuant to the procedures set forth in the section of the Prospectus entitled
"Exchange Offer -- Procedures for Tendering Old Notes." If delivery of the Old
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at DTC, this Letter of Transmittal need not be manually executed;
PROVIDED, HOWEVER, that tenders of the Old Notes must be effected in accordance
with the procedures mandated by DTC's Automated Tender Offer Program and the
procedures set forth in the Prospectus under the caption "Exchange Offer
- -Procedures for Tendering Old Notes."
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder of Old Notes promptly
and instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered holder of Old Notes. The
transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a
holder of Old Notes must(i) complete the box entitled "Description of Old
Notes," (ii) if appropriate, check and complete the boxes relating to book-entry
transfer, guaranteed delivery, Special Issuance Instructions and Special
Delivery Instructions,(iii) sign the Letter of Transmittal by completing the box
entitled "Sign Here" and (iv) complete the Substitute FormW-9. Each holder of
Old Notes should carefully read the detailed instructions below prior to
completing the Letter of Transmittal.
Holders of Old Notes who desire to tender their Old Notes
for exchange and (i) whose Old Notes are not immediately available, (ii) who
cannot deliver their Old Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date or (iii) who are unable to
complete the procedure for book-entry transfer on a timely basis, must tender
the Old Notes pursuant to the guaranteed delivery procedures set forth in the
section of the Prospectus entitled "Exchange Offer Guaranteed Delivery
Procedures." See Instruction 2 of the Instructions beginning on page 9 hereof.
Holders of Old Notes who wish to tender their Old Notes for
exchange must, at a minimum, complete columns (1), (2), if applicable, and (3)
in the box below entitled "Description of Old Notes" and sign the box on page 8
under the words "Sign Here." If only those columns are completed such holder of
Old Notes will have tendered for exchange all Old Notes listed in column (3)
below. If the holder of Old Notes wishes to tender for exchange less than all of
such Old Notes, column (4) must be completed in full. In such case, such holder
of Old Notes should refer to Instruction 5 on page 10.
2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT
REGISTERED HOLDER(S) OF OLD NOTE(S), TENDERED FOR EXCHANGE
EXACTLY AS NAME(S) OLD NOTE (ONLY IF DIFFERENT
APPEAR(S) ON OLD NOTE NUMBER(S) (1) AMOUNT FROM COLUMN
CERTIFICATE(S) (ATTACH SIGNED AGGREGATE PRINCIPAL (3) ) (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK) LIST IF NECESSARY) AMOUNT MULTIPLES OF $1,000) (2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Column (2) need not be completed by holders of Old Notes tendering Old
Notes for exchange by book-entry transfer. Please check the appropriate box
on the next page and provide the requested information.
(2) Column (4) need not be completed by holders of Old Notes who wish to tender
for exchange the principal amount of Old Notes listed in column (3).
Completion of column (4) will indicate that the holder of Old Notes wishes
to tender for exchange only the principal amount of Old Notes indicated in
column (4).
- --------------------------------------------------------------------------------
3
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY):
Name of Tendering Institution:
------------------------------------------
Account Number:
------------------------------------------
Transaction Code Number
------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITITIONS ONLY):
Name of Registered Holder of Old Note(s):
-------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------
Window Ticket Number (if available):
-------------------
Name of Institution with Guaranteed Delivery:
-------------------
Account Number (if delivered by book-entry transfer):
-------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
------------------------------------------------------------
Address:
------------------------------------------------------------
4
<PAGE>
<TABLE>
<S> <C>
=================================================== ===============================================
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8) (See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if the Exchange Notes To be completed ONLY if the Exchange Notes
issued in exchange for Old Notes, certificates issued in exchange for Old Notes,
for Old Notes in a principal amount not exchanged certificates for Old Notes in a principal
for Exchange Notes or Old Notes (if any) not amount not exchanged for Exchange Notes or
tendered for exchange, are to be issued in the Old Notes (if any) not tendered for exchange,
name of someone other than the undersigned, or are to be mailed or delivered (i) to someone
(ii) if Old Notes tendered by book-entry transfer other than the undersigned, or (ii) to the
which are not exchanged are to be returned by undersigned at an address other than the
credit to an account maintained at DTC. address shown below the undersigned's
Issue to: signature.
Name Mail or deliver to:
-----------------------------------------------
(Please Print)
Address Name
-------------------------------------------- -------------------------------------------
(Please Print)
- --------------------------------------------------- Address
----------------------------------------
- ---------------------------------------------------
(Include Zip Code) -----------------------------------------------
- --------------------------------------------------- -----------------------------------------------
(Tax identification or Social Security No.) (Include Zip Code)
-----------------------------------------------
/ / Credit Old Notes not exchanged and (Tax identification or Social Security No.)
delivered by book-entry transfer to the
DTC account set forth below:
- ---------------------------------------------------
(Account Number)
=================================================== ===============================================
</TABLE>
If delivery of Old Notes is to be made by book-entry transfer
to the account maintained by the Exchange Agent at DTC, then tenders of Old
Notes must be effected in accordance with the procedures mandated by DTC's
Automated Tender Offer Program and the procedures set forth in the Prospectus
under the caption "Exchange Offer - Procedures for Tendering Old Notes."
5
<PAGE>
CERTAIN CONDITIONS AND REPRESENTATIONS
Pursuant to the offer by PHOENIX COLOR CORP., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated ___________ (the "Prospectus") and this letter of
transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 10? % Senior Notes due 2009 (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for each $1,000 principal amount of its outstanding 10? % Senior
Notes due 2009 (the "Old Notes"), the undersigned hereby tenders to the Company
for exchange the Old Notes.
By executing this Letter of Transmittal and subject to and
effective upon acceptance for exchange of the Old Notes tendered for exchange
herewith, the undersigned (A) acknowledges and agrees that, except as set forth
in the Prospectus under the caption "Exchange Offer - Terms of the Exchange
Offer," all of the rights of such undersigned pursuant to that certain
Registration Rights Agreement, dated as of February 2, 1999 between Phoenix
Color Corp. and First Union Capital Market Corp. will have been satisfied and
extinguished in all respects and (B) will have irrevocably sold, assigned,
transferred and exchanged, to the Company, all right, title and interest in, to
and under all of the Old Notes tendered for exchange hereby, and hereby appoints
the Exchange Agent as the true and lawful agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as agent of the Company) of such
holder of Old Notes with respect to such Old Notes, with full power of
substitution to (i) deliver certificates representing such Old Notes, or
transfer ownership of such Old Notes on the account books maintained by DTC
(together, in any such case, with all accompanying evidences of transfer and
authenticity), to the Company, (ii) present and deliver such Old Notes for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights and incidents of beneficial ownership with respect
to such Old Notes, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed to be irrevocable
and coupled with an interest.
The undersigned hereby represents and warrants that (i) the
undersigned is the owner; (ii) has a net long position within the meaning of
Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4")
equal to or greater than the principal amount of Old Notes tendered hereby;
(iii) the tender of such Old Notes complies with Rule 14e-4 (to the extent that
Rule 14e-4 is applicable to such exchange); (iv) the undersigned has tall full
power and authority to tender, exchange, assign and transfer the Old Notes; and
(v) that when such Old Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered for exchange hereby.
The undersigned hereby further represents to the Company
that (i) the Exchange Notes to be acquired by the undersigned in exchange for
the Old Notes tendered hereby and any beneficial owner(s) of such Old Notes in
connection with the Exchange Offer will be acquired by the undersigned and such
beneficial owner(s) in the ordinary course of business, (ii) the undersigned (if
not a broker-dealer referred to in the last sentence of this paragraph) is not
currently participating, does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the undersigned and each beneficial owner acknowledge and
agree that any person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and Prospectus
delivery requirements of the Securities Act in connection with any resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Securities and Exchange Commission (the
"Commission") set forth in certain no-action letters, (iv) the undersigned and
each beneficial owner understand that a secondary resale transaction described
in clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or 508,
as applicable, of Regulation S-K of
6
<PAGE>
the Commission and (v) neither the undersigned nor any beneficial owner is an
"affiliate" of the Company, as defined under Rule 405 under the Securities Act.
If the undersigned is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a Prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes received in respect of such
Old Notes pursuant to the Exchange Offer; however, by so acknowledging and by
delivering a Prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be
deemed to have accepted for exchange, and to have exchanged, validly tendered
Old Notes, if, as and when the Company gives oral or written notice thereof to
the Exchange Agent. Tenders of Old Notes for exchange may be withdrawn at any
time prior to 5:00p.m., New York City time, on the Expiration Date. See the
section of the Prospectus entitled "Exchange Offer - Withdrawal of Tenders." Any
Old Notes tendered by the undersigned and not accepted for exchange will be
returned to the undersigned at the address set forth above unless otherwise
indicated in the box above entitled "Special Delivery Instructions."
The undersigned acknowledges that the Company's acceptance
of Old Notes validly tendered for exchange pursuant to any one of the procedures
described in the section of the "Prospectus" entitled "Exchange Offer" and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated in the box entitled "Special
Issuance Instructions," please return any Old Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for Old
Notes not tendered or exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Old Notes accepted for exchange in the
name(s) of, and return any Old Notes not tendered for exchange or not exchanged
to, the person(s) so indicated. The undersigned recognizes that the Company has
no obligation pursuant to the Special Issuance Instructions" and "Special
Delivery Instructions" to transfer any Old Notes from the name of the holder of
Old Note(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange or if such transfer would not be in compliance
with any transfer restrictions applicable to such Old Note(s).
Except as stated in the Prospectus, all authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Old Notes is irrevocable.
IN ORDER TO VALIDLY TENDER OLD NOTES FOR EXCHANGE, HOLDERS
OF OLD NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
7
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
================================================================================
SIGN HERE
- --------------------------------------------------------------------------------
(Signature(s) of Owner(s) )
Date: ,
Must be signed by the registered holders of Old Notes exactly as name(s)
appear(s) on certificate(s) representing the Old Notes or on a security
position listing or by person(s) authorized to become registered Old Note
holder(s) by certificates and documents transmitted herewith. If signature is
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, please provide the following information. (See Instruction 6 )
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print )
Capacity (full title):
----------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No. ( )
-----------------------------------------------
Tax Identification or Social Security Nos.:
-------------------------------------
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURES(S)
(Signature(s) must be guaranteed if required by Instruction 1)
Authorized Signature:
-----------------------------------------------------------
Dated:
--------------------------------------------------------------------------
Name and Title:
-----------------------------------------------------------------
(Please Print)
Name of Firm:
-------------------------------------------------------------------
================================================================================
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below,
all signatures on this Letter of Transmittal must be guaranteed by an
institution which is an "eligible guarantor institution" within the meaning of
Rule l7Ad-15 under the Securities Exchange Act of 1934, and which is a member of
one of the following recognized Signature Guarantee Programs (an "Eligible
Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Old Notes
tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Old Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES;
GUARANTEED DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by
holders of Old Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to made pursuant to the procedures for tender by book-entry transfer
or guaranteed delivery set forth in the section of the Prospectus entitled
"Exchange Offer." Certificates for all physically tendered Old Notes or any
confirmation of a book-entry transfer (a "Book-Entry Confirmation") as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof, and any other documents required by this letter of Transmittal
must be delivered to the Exchange Agent prior to 5:00 p.m., New York City time,
on the Expiration Date. Holders of Old Notes who elect to tender Old Notes and
(i) whose Old Notes are not immediately available, (ii) who cannot deliver the
Old Notes or other required documents to the Exchange Agent prior to 5:00 p.m.
New York City time, on the Expiration Date or (iii) who are unable to complete
the procedure for book-entry transfer on a timely basis, may have such tender
effected if: (a) such tender is made by or thorough an Eligible Institution; (b)
prior to 5:00 p.m., New York time, on the Expiration Date, the Exchange Agent
has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile hereof) and Notice of Guaranteed
Delivery (by telegram, telex, facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of such Old Notes, the
certificate number(s) of such Old Notes and the principal amount of Old Notes
tendered for exchange, stating that tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, the certificates representing such Old Notes (or a Book-Entry
Confirmation), in proper form for transfer, and any other documents required by
this Letter of Transmittal, will be deposited by such Eligible Institution with
the Exchange Agent; and (c) certificates for all tendered Old Notes, or a
Book-Entry Confirmation, together with a copy of the previously executed Letter
of Transmittal (or facsimile thereof) and any other documents required by this
Letter of Transmittal are received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDER OF OLD NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT.
DELIVERY BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY OLD NOTES SHOULD BE SENT
TO THE COMPANY.
9
<PAGE>
No alternative, conditional or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter of
Transmittal (or facsimile hereof, if applicable), waive any right to receive
notice of the acceptance of their Old Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled
"Description of Old Notes" above is inadequate, the certificate numbers and
principal amounts of the Old Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written notice of withdrawal to the Exchange Agent at the address set forth on
the cover of this Letter of Transmittal. To be effective, a notice of withdrawal
of Old Notes must (i) specify the name of the person who tendered the Old Notes
to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and aggregate principal amount of
such Old Notes), (iii) be signed by the holder of Old Notes in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the applicable transfer agent register
the transfer of such Old Notes into the name of the person withdrawing the
tender. Withdrawals of tenders of Old Notes may not be rescinded, and any Old
Notes withdrawn will thereafter be deemed not validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old
Notes may be retendered by following one of the procedures described in the
section of the Prospectus entitled "Exchange Offer - Procedures for Tendering
Old Notes" at any time prior to 5.00 p.m., New York City time, on the Expiration
Date.
5. PARTIAL TENDERS. (Not applicable to holders of Old Notes who
tender Old Notes by book-entry transfer.) Tenders of Old Notes will be accepted
only in integral multiples of $1,000 principal amount. If a tender for exchange
is to be made with respect to less than the entire principal amount of any Old
Notes, fill in the principal amount of Old Notes which are tendered for exchange
in column (4) of the box entitled "Description of Old Notes" on page 3, as more
fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of the
principal amount of the Old Notes, will be sent to the holders of Old Notes
unless otherwise indicated in the appropriate box on this Letter of Transmittal
as promptly as practicable after the expiration or termination of the Exchange
Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY
AND ENDORSEMENTS.
(a) The signature(s) of the holder of Old Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the Old
Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary or required
documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the
Old Notes listed and transmitted hereby, no endorsements of Old Notes or
separate powers of attorney are required. If, however, Old Notes not tendered or
not accepted are to be issued or returned in the name of a person other than the
holder of Old Notes, then the Old Notes transmitted hereby must be endorsed or
accompanied by appropriate powers of attorney in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Old Notes
appear(s) on the Old Notes. Signatures on such Old Notes or powers of attorney
must be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
10
<PAGE>
(e) If this Letter of Transmittal or Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the Company of their authority so to act must be
submitted.
(f) If this Letter of Transmittal is signed by a person other than
the registered holder of Old Notes listed, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name(s) of the registered holder of Old Notes appear(s) on the certificates.
Signatures on such Old Notes or powers of attorney must be guaranteed by an
Eligible Institution (unless signed by an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction, the
Company will pay all transfer taxes, if any, applicable to the transfer and
exchange of Old Notes pursuant to the Exchange Offer. If, however, issuance of
Exchange Notes is to be made to, or Old Notes not tendered for exchange are to
be issued or returned in the name of, any person other than the holder of Old
Notes, and satisfactory evidence of payment of such taxes or exemptions from
taxes therefrom is not submitted with this Letter of Transmittal, the amount of
any transfer taxes payable on account of the transfer to such person will be
imposed on and payable by the holder of Old Notes tendering Old Notes for
exchange prior to the issuance of the Exchange Notes.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange
Notes are to be issued, or if any Old Notes not tendered for exchange are to be
issued or sent to someone other than the holder of Old Notes or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Holders of Old Notes tendering Old Notes by book-entry
transfer may request that Old Notes not accepted be credited to such account
maintained at DTC as such holder of Old Notes may designate.
9. IRREGULARITIES. All questions as to the form of documents and
the validity, eligibility (including time of receipt), acceptance and withdrawal
of Old Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders for exchange of any particular Old Notes that
are not in proper form, or the acceptance of which would, in the opinion of the
Company or its counsel, be unlawful. The Company reserves the absolute right to
waive any defect, irregularity or condition of tender for exchange with regard
to any particular Old Notes. The Company's interpretation of the terms of, and
conditions to, the Exchange Offer (including the instructions herein) will be
final and binding. Unless waived, any defects or irregularities in connection
with the Exchange Offer must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notice of any defects or irregularities in Old Notes
tendered for exchange, nor shall any of them incur any liability for failure to
give such notice. A tender of Old Notes will not be deemed to have been made
until all defects and irregularities with respect to such tender have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in this Letter of Transmittal as soon as practicable
following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right
to waive, amend or modify certain of the specified conditions as described under
"Exchange Offer - Conditions" in the Prospectus in the case of any Old Notes
tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. If a holder of
Old Notes desires to tender Old Notes pursuant to the Exchange Offer, but any of
such Old Notes has been mutilated, lost, stolen or destroyed, such holder Old
Notes should write to or telephone the Trustee at the address listed below,
concerning the procedures for obtaining replacement certificates for such Old
Notes, arranging for indemnification or any other matter that requires handling
by the Trustee:
11
<PAGE>
Chase Manhattan Trust Company,
National Association
1650 Market Street
One Liberty Place, Suite 5210
Philadelphia, PA 19103
Attn: Joseph Progar
(215) 972 - 8372
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for
information or for additional copies of the Prospectus and this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
12
<PAGE>
IMPORTANT TAX INFORMATION
Under United States federal income tax law, a holder of Old
Notes whose tendered Old Notes are accepted for exchange may be subject to
backup withholding unless the holder provides the Company (as payor), through
the Exchange Agent, with either (i) such holder's correct taxpayer
identification number ("TIN") on Substitute form W-9 attached hereto, certifying
that (A) the TIN provided on Substitute form W-9 is correct (or that such holder
of Old Notes awaiting a TIN) and that (B) the holder is not subject backup
withholding because (a) the holder is exempt from backup withholding, (b) the
holder of Old Notes has not been notified by the Internal Revenue Service that
he or she is subject to backup withholding as a result of a failure to report
all interest or dividends or (c) the Internal Revenue Service has notified the
holder of Old Notes that he or she is no longer subject to backup withholding;
or (ii) an adequate basis for exemption from backup withholding. If such holder
of Old Notes is an individual, the TIN is generally such holder's social
security number. If the Exchange Agent is not provided with the correct taxpayer
identification number, the holder of Old Notes may be subject to backup
withholding and a penalty imposed by the Internal Revenue Service.
Certain holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt holders of Old Notes should
furnish their TIN, write "Exempt" on the face of the Substitute Form W-9, and
sign, date and return the Substitute Form W-9 to the Exchange Agent. A foreign
individual may qualify as an exempt recipient by submitting to the Exchange
Agent a properly completed Internal Revenue Service Form W-8 (the terms of which
the Exchange agent will provide upon request) signed under penalty of perjury,
attesting to the holder's exempt status.
If backup withholding applies, the Company is required to
withhold 31% of any reportable payment made to the holder of Old Notes or other
Payee. Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service. The
Company reserves the right in its sole discretion to take whatever steps are
necessary to comply with the Company's obligation regarding backup withholding.
The holder of Old Notes is required to give Exchange Agent the
TIN (e.g., social security number or employer identification number) of the
record owner of the Old Notes. If the Old Notes are held in more than one name
or are not held in the name of the actual owner, consult the enclosed Guidelines
for additional guidance regarding which number to report.
13
<PAGE>
<TABLE>
<S><C><C>
- ----------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------ --------------------------------------------- -----------------------------------
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX _________________________________
Form W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING Social Security Number
Department of the Treasury BELOW
Internal Revenue Service OR
Payer's Request for Taxpayer _________________________________
Identification Number(TIN) Employer Identification Number
---------------------------------------------------------------------------------
Part 2 - Part 3 -
Certification Under Penalties of Perjury, Awaiting / /
I certify that: TIN
1. The number shown on this form is
my current taxpayer identification
number (or I am waiting for a number
to be issued to me), and
2. I am not subject to backup
withholding because (a) I am exempt
from backup withholding or (b) I have
not been notified by the Internal
Revenue Service (the "IRS") that I am
subject to backup withholding as a
result of a failure to report all
interest or dividends, or (c) the IRS
has notified me that I am no longer
subject to backup withholding.
---------------------------------------------------------------------------------
Certification instructions - You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup withholding you receive
another notification from the IRS stating that you are no longer subject to
backup withholding do not cross out item (2).
- ----------------------------------------------------------------------------------------------------------------
SIGNATURE DATE
--------------------------------------------------------------- -----------------------------
NAME
------------------------------------------------------------------------------------------------------
ADDRESS
---------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
--------------------------------- ----------------------------- ---------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
14
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
================================================================================
PAYOR'S NAME:
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver such an application in the near future. I understand that until I
provide a taxpayer identification number, 31% of all reportable payments made to
me will be withheld, but that such withheld amount shall be refunded to me if I
provide my taxpayer identification number within 60 days .
- --------------------------------------------------------------------------------
Signature Date
================================================================================
15
<PAGE>
Exhibit 99.2
PHOENIX COLOR CORP
EXCHANGE OFFER
TO HOLDERS OF ITS
10?% SENIOR SUBORDINATED NOTES DUE 2009
NOTICE OF GUARANTEED DELIVERY
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept the Exchange Offer of Phoenix Color Corp. (the
"Company") made pursuant to the prospectus dated May__, 1999 (the "Prospectus")
and the accompanying letter of transmittal (the "Letter of Transmittal"), if
certificates for the above-referenced 10?% Senior Notes due 2009 (the "Old
Notes") are not immediately available or time will not permit all required
documents to reach Chase Manhattan Trust Company, National Association (the
"Exchange Agent") prior to the Expiration Date (as defined in the Prospectus) of
the Exchange Offer (as defined below) or if the procedures for book-entry
transfer cannot be completed on a timely basis. This form may be delivered by an
Eligible Institution (as defined in the Letter of Transmittal) by hand or by
telegram, facsimile transmission or mail to the Exchange Agent as follows:
To: CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
Chase Manhattan Trust Company, Chase Manhattan Trust Company,
National Association National Association
1650 Market Street 1650 Market Street
One Liberty Place, Suite 5210 One Liberty Place, Suite 5210
Philadelphia, PA 19103 Philadelphia, PA 19103
Attn: Joseph Progar Attn: Joseph Progar
CONFIRM BY TELEPHONE:
(215) 988-1317
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
Chase Manhattan Trust Company,
National Association
(215) 972-8372
Attn: Joseph Progar
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal is required to be guaranteed by a Medallion Signature
Guarantor under the instructions thereto, such signature guarantee must appear
in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in the Letter of Transmittal and in the
Prospectus under the heading "Exchange Offer-Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender the Old Notes. The undersigned authorizes the
Exchange Agent to deliver this Notice of Guaranteed Delivery to the Company and
the Exchange Agent as evidence of the undersigned's tender of the Old Notes.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be building upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
Signature(s) Address
------------------------- -----------------------------
- ------------------------------------- ------------------------------------
Name(s) Area Code and Tel.No.(s)
------------------------------ ------------
- ------------------------------------- If Old Notes will be delivered by
Please Type or Print book-entry transfer, check box and
provide account number.
Certificate Nos. (if available) The Depository Trust Company
------ Account Number:
---------------------
Principal Amount of Old Notes
Represented by Certificate(s)
---------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of a recognized signature guarantee program
within the meaning of Rule l7Ad-15 under the Securities Exchange Act of 1934,
(the "Exchange Act"), hereby guarantees (a) that the above-named person(s)
own(s) the above-described securities tendered hereby within the meaning of Rule
14e-4 under the Exchange Act, (b) that such tender of the above-described
securities complies with Rule 14e-4 and (c) that delivery to the Exchange Agent
of certificates representing the principal amount of Old Notes tendered hereby,
in proper form for transfer, or timely confirmation of the book-entry transfer
of such Old Notes into the Exchange Agent's account at The Depository Trust
Company, in either case with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees and
any other required documents, will be received by the Exchange Agent at one of
its addresses set forth above, no later than five New York Stock Exchange
trading days after the date of execution of this Notice of Guaranteed Delivery.
<PAGE>
The institution that completes this form must communicate the guarantee
to the Exchange Agent and must deliver the Letter of Transmittal and Old Notes
to the Exchange Agent within the time period shown herein.
Failure to do so could result in a financial loss to the undersigned.
- ---------------------------------- ------------------------------------
Name of Firm Authorized Signature
- ---------------------------------- ------------------------------------
Address Title
- ----------------------------------
Zip Code Please Type or Print
Area Code and Tel. No. Dated
------------ -----------------------
<PAGE>
Exhibit 99.3
INSTRUCTIONS
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT
OF
10 3/8% SENIOR SUBORDINATED NOTES DUE 2009
OF PHOENIX COLOR CORP.
The undersigned hereby acknowledges receipt of the prospectus dated May
__, 1999 (the "Prospectus") of Phoenix Color Corp., a Delaware corporation (the
"Company") and the accompanying letter of transmittal (the "Letter of
Transmittal"), that together constitute the exchange offer by the Company (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with the respect to the 10 3/8% Senior Subordinated Notes due
2009 (the "Old Notes") held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$
------------------------
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
|_| To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if any):
$
------------------------
|_| NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized: (a) to
make, on behalf of the undersigned (and the undersigned, by it signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner of the Old Notes, including but not limited to the
representations that (i) the undersigned is acquiring the Exchange Notes in the
ordinary course of the business of the undersigned, (ii) the undersigned is not
currently participating, does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of Exchange
Notes, (iii) the undersigned acknowledges that any person participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), in connection with any resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of Securities and Exchange Commission (the "Commission")
set forth in certain no-action letters, (iv) the undersigned understands that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K of the
Commission, (v) the undersigned is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company, (vi) if undersigned is not a
broker-dealer, that the undersigned is not participating in, does not intend to
participate in, and has no arrangement or understanding with any person to
participate in, the distribution of Exchange Notes, and (vii) if the undersigned
is a broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes received in respect of such Old Notes pursuant to
the Exchange Offer; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act; and (b) to agree, on behalf of the
undersigned, to the provisions of the Letter of Transmittal and to bind the
undersigned to such provisions; and (c) to take such other action as necessary
under the Prospectus or the Letter of Transmittal to effect the valid tender of
Old Notes.
<PAGE>
|_| Check this box if the Beneficial Owner of the Old Notes is a participating
Broker-Dealer and such participating Broker-Dealer acquired the Old Notes
for its own account as result of market-making activities.
- --------------------------------------------------------------------------------
SIGN HERE
Name of Beneficial Owner(s):
------------------------------------------------
Signature(s):
---------------------------------------------------------------
Names(s) (please print):
----------------------------------------------------
Address:
--------------------------------------------------------------------
Telephone Number:
-----------------------------------------------------------
Taxpayer Identification or Social Security Number:
--------------------------
Date:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 99.4
PHOENIX COLOR CORP.
OFFER TO EXCHANGE
10 ?% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
10 ?% SENIOR SUBORDINATED NOTES DUE 2009
May __, 1999
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Upon and subject to the terms and conditions set forth in the
Prospectus, dated May __, 1999 (the "Prospectus"), and the enclosed letter of
transmittal (the "Letter of Transmittal"), an offer is being made by Phoenix
Color Corp. (the "Company") to exchange (the "Exchange Offer") the Company's
registered 10 ?% Senior Subordinated Notes due 2009 (the " Exchange Notes") for
any and all outstanding 10 ?% Senior Subordinated Notes due 2009 (the "Old
Notes") (CUSIP No. _____________for Old Notes issued pursuant to Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act") and CUSIP
No._____________ for Old Notes issued pursuant to Regulation S under the
Securities Act) is being made pursuant to such Prospectus. The Exchange Offer is
being made in order to satisfy certain obligations of the Company and its
subsidiaries (each a "Guarantor" and collectively, the "Guarantors") contained
in the registration Rights Agreement, dated as of February 2, 1999 between the
Company, the Guarantors, and First Union Capital Markets Corp. (the "Initial
Purchaser").
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Notes registered in your name or in the name
of your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated May __, 1999;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis; and
<PAGE>
4. A form of instruction letter which may be sent to your clients for
whose account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on _______________, ______ (the "Expiration Date") (30
calendar days following the commencement of the Exchange Offer), unless extended
by the Company. Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal, with any required signature guarantees and any
other required documents, should be sent to the Exchange Agent and certificates
representing the Old Notes should be delivered to the Exchange Agent, all in
accordance with the instructions set forth in the Letter of Transmittal and the
Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for
them to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Notice of Guaranteed Delivery and in the Prospectus under
"Exchange Offer -- Guaranteed Delivery Procedures."
Additional copies of the enclosed material may be obtained from the
Exchange Agent, Chase Manhattan Trust Company, National Association, Attn:
Joseph Progar, 1650 Market Street, One Liberty Place, Suite 5210 Philadelphia,
PA 19103, telephone: (215) 988 - 1317
PHOENIX COLOR CORP.
By:
--------------------------------
Enclosures
<PAGE>
Exhibit 99.5
PHOENIX COLOR CORP.
Offer to Exchange
10 3/8% Senior Subordinated Notes due 2009
for any and all outstanding
10 3/8% Senior Subordinated Notes due 2009
[May , 1999]
To All Holders of 10 3/8% Senior Subordinated Notes of Phoenix Color Corp.:
Enclosed for your consideration is a Prospectus, dated May , 1999 (as
the same may be amended or supplemented from time to time, the "Prospectus"),
and a letter of transmittal (the "Letter of Transmittal"), relating to the offer
(the "Exchange Offer") by Phoenix Color Corp. (the "Company") to exchange $1,000
principal amount of its 10 3/8% Senior Subordinated Notes due 2009 (the
"Exchange Notes"), which exchange has been registered under the Securities
Act of 1933 as amended (the "Securities Act"), for each $1,000 principal
amount of the Company's outstanding 10 3/8% Senior Subordinated Notes due
2009 (the "Private Notes"), of which $105,000,000 aggregate principal amount
was issued and sold on February 2, 1999 in a transaction exempt from
registration under the Securities Act and is outstanding on the date hereof.
The Company will accept for exchange any and all Private Notes properly
tendered according to the terms of the Prospectus and the accompanying Letter
of Transmittal. Consummation of the Exchange Offer is subject to certain
conditions described in the Prospectus.
This material is being forwarded to you as the beneficial owner of
Private Notes carried by us for your account or benefit but not registered in
your name. A tender of such Private Notes may only be made by us as the
registered holder and pursuant to your instructions. Therefore, the Company
urges beneficial owners of Private Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee to contact such
registered holder promptly if such beneficial owners wish to tender Private
Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
tender any or all such Private Notes held by us for your account, pursuant to
the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal. However, we urge you to read the Prospectus carefully before
instructing us as to whether or not to tender your Private Notes.
Your instruction to us should be forwarded as promptly as possible in
order to permit us to tender Private Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on [ day ], [ date ], unless the Exchange Offer is extended
by the Company. The time the Exchange Offer expires is referred to as the
"Expiration Date." Tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
IF YOU WISH TO HAVE US TENDER ANY OR ALL OF YOUR PRIVATE NOTES, PLEASE SO
INSTRUCT US BY COMPLETING, EXECUTING AND RETURNING TO US THE INSTRUCTION FORM ON
THE REVERSE HEREOF. The accompanying Letter of Transmittal is furnished to you
for your information only and may not be used by you directly to tender private
Notes held by us and registered in our name for your account or benefit.
If we do not receive written instructions in accordance with the
procedures presented in the Prospectus and the Letter of Transmittal, we will
not tender any of the Private Notes on your account.
Please carefully review the enclosed material as you consider the
Exchange Offer.
