<PAGE>
As filed with the Securities and Exchange Commission March 24, 1999
Registration No. 333-71157
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
PREMIER GRAPHICS INC.
and the Guarantor Identified in Footnote (1) below
(exact name of registrant as specified in its charter)
Delaware 2572 62-1694320
(State of incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification Number)
Classification Code
Number)
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
(901) 685-2020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
----------
John P. Miller
President
Premier Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
(901) 685-2020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
Robert J. DelPriore, Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2100
Memphis, Tennessee 38103
(901) 577-2194
----------
Approximate date of commencement of proposed sale of securities to public: As
soon as practicable after the effective date of this Registration Statement.
If the securities 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(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
- ------------------
(1) Master Graphics, Inc., a Tennessee corporation (I.R.S. Employer
Identification Number 62-1694322) and the parent of the registrant, is the
sole Guarantor of the Notes and is a Co-Registrant.
----------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement is filed with the +
+Securities and Exchange Commission and is effective. This prospectus is not +
+an offer to sell these securities and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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SUBJECT TO COMPLETION DATED MARCH 23, 1999
Offer to Exchange
all outstanding 11 1/2% Senior Notes due 2005
($130,000,000 aggregate principal amount outstanding)
for
11 1/2% Senior Notes due 2005 of
Premier Graphics, Inc.
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Terms of Exchange Offer:
. Expires 5:00 p.m. New York City time, 1999, unless extended.
. Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission.
. We will exchange all outstanding notes that are validly tendered and
not validly withdrawn by you.
. You may withdraw your tender of notes any time prior to the expiration
of the exchange offer.
. The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
. We will not receive any proceeds from the exchange offer.
. The terms of the exchange notes are substantially identical to the
outstanding notes, except for transfer restrictions and registration
rights relating to the outstanding notes.
See "Risk Factors" beginning on page 14 for a discussion of certain matters
that should be considered when deciding whether to participate in the exchange
offer.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
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The date of this Prospectus is , 1999
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<PAGE>
Table of Contents
<TABLE>
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 21
The Exchange Offer........................................................ 21
Capitalization -- Premier................................................. 31
Capitalization -- Master Graphics......................................... 32
Selected Financial Data................................................... 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 34
Business.................................................................. 41
Management................................................................ 53
Certain Transactions...................................................... 60
Description of Other Indebtedness......................................... 64
Description of Notes...................................................... 66
Certain Book-Entry Procedures for the Global Notes........................ 107
Certain Federal Income Tax Consideration.................................. 110
Plan of Distribution...................................................... 115
Legal Matters............................................................. 116
Experts................................................................... 116
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because this
is a summary, it does not contain all the information that may be important to
you. To understand the exchange offer fully, you should read the entire
prospectus, including the Risk Factors section beginning on page 14 and the
financial statements beginning on page F-1.
The Exchange Offer
Exchange Notes...........
The form and terms of the exchange notes
are identical in all material respects to
the terms of the old notes, except for
transfer restrictions, registration
rights, and liquidated damages provisions
relating to the old notes.
The Exchange Offer....... Premier Graphics is offering to exchange
up to $130,000,000 of the exchange notes
for up to $130,000,000 of the old notes.
Old notes may be exchanged only in $1,000
increments.
Expiration Date; Withdrawal
of Tender................
Unless we extend the exchange offer, it
will expire at 5:00 p.m., New York City
time, on , 1999. You may withdraw
old notes you tender at any time prior to
5:00 p.m., New York City time on ,
1999. After the end of the exchange
offer, Premier Graphics will return to
you, without cost, all old notes that it
does not accept for exchange.
Termination of the Exchange
Offer....................
We may refuse to accept the old notes or
we may terminate the exchange offer if:
. a lawsuit is instituted or threatened
in a court or before a governmental
agency which may impair our ability to
proceed with the exchange offer;
. a law, statute, rule or regulation is
proposed or enacted or interpreted by
the SEC which may impair our ability
to proceed with the exchange offer; or
. any governmental approval is not
received which we think is necessary
to consummate the exchange offer.
3
<PAGE>
Procedures for Tendering Old
Notes ...................
If you wish to accept the exchange offer,
you must complete, sign and date the
letter of transmittal in accordance with
the instructions, and deliver the letter
of transmittal, along with the old notes
and any other required documentation, to
the exchange agent. By executing the
letter of transmittal, you will represent
to us that, among other things:
. any exchange notes you receive will be
acquired in the ordinary course of
your business;
. you have no arrangement with any
person to participate in the
distribution of the exchange notes;
and
. you are not our affiliate.
If you hold your old notes through the
Depository Trust Corporation and wish to
participate in the exchange offer, you
may do so through the Depository Trust
Corporation's Automated Tender Offer
Program. By participating in the exchange
offer in this manner, you will agree to
be bound by the letter of transmittal as
though you had executed it.
Interest on the Notes.... If we accept old notes tendered by you,
you will receive the same interest
payment on June 1, 1999, the first
interest payment date, that you would
have received if you had not participated
in the exchange offer.
Special Procedures for
Beneficial Owners .......
If you are a beneficial owner whose old
notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and wish to
tender those old notes in the exchange
offer, please contact the registered
holder as soon as possible and instruct
them to tender your notes on your behalf
and comply with our instructions set
forth elsewhere in this prospectus.
4
<PAGE>
Guaranteed Delivery
Procedures............... If you wish to tender your old notes, you
may do so according to the guaranteed
delivery procedures described elsewhere
in this prospectus under the caption "The
Exchange Offer--Guaranteed Delivery
Procedures."
Registration Rights On December 11, 1998, we sold the old
Agreement................ notes and the related guarantees to the
initial purchasers in a transaction
exempt from the registration requirements
of the Securities Act of 1933. At that
time, we entered into a registration
rights agreement with the initial
purchasers which grants you exchange and
registration rights. This exchange offer
satisfies those rights, which terminate
upon completion of the exchange offer.
You will not be entitled to exchange or
registration rights with respect to the
exchange notes.
Certain Federal Tax
Considerations ..........
With respect to the exchange of the old
notes for the exchange notes:
. the exchange should not be a taxable
exchange for U.S. federal income tax
purposes;
. you should not recognize gain or loss
upon receipt of the exchange notes;
and
. for federal tax purposes you must
include interest on the exchange notes
in gross income to the same extent as
the old notes.
Use of Proceeds.......... We will not receive any proceeds from the
exchange of notes pursuant to the
exchange offer. We will pay all expenses
related to the exchange offer.
Exchange Agent........... United States Trust Company of New York
is serving as exchange agent for the
exchange offer. United States Trust
Company of New York is also the trustee
under the indenture. You can contact the
exchange agent at 114 W. 47th Street, New
York, New York 10036-1532. The exchange
agent's telephone number is (212) 852-
1662 and its facsimile number is (212)
852-1620.
5
<PAGE>
Terms of the Notes and Guarantees
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes, except that the exchange notes are registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damages provisions contained in the old notes.
Issuer................... Premier Graphics, Inc.
Guarantor................ Master Graphics, Inc., the parent company
of Premier Graphics
Securities Offered....... $130,000,000 aggregate principal amount
of 11.5% Senior Notes due 2005
Maturity Date............ December 1, 2005
Interest Payment Dates... June 1 and December 1 of each year,
beginning June 1, 1999
Mandatory Redemption; Sinking
Fund ....................
None
Guarantee................ Master Graphics fully and unconditionally
guarantees the notes. If Premier Graphics
cannot make payments on the notes when
due, Master Graphics must make the
payments instead. The guarantee is a
general unsecured obligation of Master
Graphics. The guarantee may be released
under the circumstances described on
pages 66 and 67.
Optional Redemption...... At any time before December 1, 2001, we
may redeem up to 35% of the notes by
paying you 111.5% of the original
aggregate principal amount of the notes
with the cash proceeds of one or more
equity offerings. Otherwise, we may not
voluntarily redeem the notes prior to
December 1, 2002. After December 1, 2002,
we can redeem the notes for the prices
set forth on page 67.
6
<PAGE>
Ranking.................. The notes are our senior unsecured
obligation, which means:
. you will be one of our general
unsecured creditors;
. our senior secured lenders will have
prior claims to the collateral
securing their claims. Since you have
no rights to the collateral, your
right to be paid will effectively be
junior to the claims of our senior
secured lenders; and
. you have the same right to be paid as
our other unsecured creditors,
including trade creditors.
Change of Control........ As described more fully on pages 67 and
68, if we undergo a change of control,
you have the right to require us to
redeem the notes for 101% of the
principal amount of the notes plus any
interest we owe you. However, our credit
facility may prohibit us from redeeming
the notes after a change in control.
Restrictive Covenants.... The indenture governing the exchange
notes and the old notes limits our
ability to:
. pay dividends or make distributions;
. make investments;
. incur additional debt;
. issue preferred stock;
. incur liens;
. enter into sale and lease back,
consolidation, merger, conveyance,
lease or transfer transactions;
. enter into transactions with
affiliates; and
.engage in unrelated businesses.
Additionally, if we sell a significant
amount of our assets, we may be required
to use the proceeds to offer to
repurchase the notes.
7
<PAGE>
Who We Are
Master Graphics is the parent holding company of Premier Graphics. We
acquire, own and operate general commercial printing companies throughout the
United States and are a leading consolidator within the general commercial
printing industry. Since June 1997, we have acquired 17 general commercial
printing companies. Our principal executive office is located at 6075 Poplar
Avenue, Suite 401, Memphis, Tennessee 38119. Our telephone number is (901) 685-
2020.
Recent Developments
On March 9, 1999, we acquired all of the capital stock of Woods
Lithographics, Inc., a general commercial printing company located in Phoenix,
Arizona.
On March 10, 1999, we acquired a significant portion of the assets of White
Arts, Inc., a general commercial printing company located in Indianapolis,
Indiana.
On March 15, 1999, we acquired all of the capital stock of Columbia Graphics
Corporation, a general commercial printing company located in Chicago,
Illinois.
Where You Can Find More Information About Us
Master Graphics files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements and other information Master Graphics files at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. You should call 1-800-SEC-0330 if you would like more information
about the SEC's public reference rooms. Master Graphics' filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC. The SEC's web site is at http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the SEC
the exchange notes to be issued in exchange for the old notes. This prospectus
is part of that registration statement. As allowed by the SEC's rules, this
prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement.
Forward-looking Statements
In addition to statements of historical facts, we make forward-looking
statements in this prospectus. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate" or "believe." We believe that the
expectations reflected in the forward-looking statements are accurate. However,
we cannot assure you that those expectations will occur. Our actual future
performance could differ materially from the forward-looking statements.
Factors that could cause or contribute to that difference include, but are not
limited to,
. the uncertainties regarding general economic conditions in the United
States,
8
<PAGE>
. the ability to integrate acquired companies into our operations and to
enhance the performance of those acquired companies,
. the uncertainties regarding our ability to acquire companies in the
general commercial printing industry on favorable terms, and
. the other risks discussed under "Risk Factors" and elsewhere in this
prospectus, and described from time to time in our SEC reports.
You should not unduly rely on forward-looking statements included in this
prospectus. These forward-looking statements speak only as of the date of this
prospectus. Except as required by law, we are not obligated to publicly release
any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this prospectus or to reflect the
happening of unanticipated events. All written and oral forward-looking
statements attributable to us, or persons acting on our behalf, after the date
of this prospectus are expressly qualified in their entirety by the discussion
of the factors in this prospectus.
9
<PAGE>
Premier Graphics
Summary Financial Information
The following is summary financial information of Premier Graphics
(including Harperprints which was merged into Premier Graphics in March, 1999)
as of and for the year ended December 31, 1998. Premier Graphics is the issuer
of the notes and primary operating subsidiary of Master Graphics.
You should also review "Management's Discussion and Analysis of Financial
Condition and Results of Operations" starting on page 33, and the consolidated
financial statements of Master Graphics and the notes thereto starting on page
F-3.
<TABLE>
<CAPTION>
Year ended
December 31, 1998
----------------------
(dollars in thousands)
<S> <C>
Income Statement Data:
Revenue.................................................. $163,277
Gross profit............................................. 41,937
Operating income......................................... 14,864
Other Data:
Cash interest expense (1)................................ 9,129
Depreciation and amortization............................ 5,962
Capital expenditures..................................... 1,935
Ratio of earnings to fixed charges....................... 1.4x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash.................................................. 13,525
Working capital....................................... 46,629
Total assets.......................................... 249,218
Long-term debt, excluding unamortized discounts of
$4.6 million......................................... 133,181
</TABLE>
- --------
(1) Cash interest expense represents total interest expense less amortization
of deferred financing costs.
10
<PAGE>
Master Graphics
Summary Financial Information
The following is summary financial information for Master Graphics and its
subsidiaries on a consolidated basis as of and for the year ended December 31,
1998. Master Graphics is a guarantor of the notes and the sole parent of
Premier Graphics, the issuer of the old notes.
You should also review "Management's Discussion and Analysis of Financial
Condition and Results of Operations" starting on page 33, and the consolidated
financial statements of Master Graphics and the notes thereto starting on page
F-3.
<TABLE>
<CAPTION>
Year ended
December 31, 1998
----------------------
(dollars in thousands)
<S> <C>
Income Statement Data:
Revenue.................................................. $163.277
Gross profit............................................. 41,937
Operating income......................................... 14,054
Net income (loss) before extraordinary loss (1).......... 4,601
Other Data:
Cash interest expense (2)................................ $ 9,723
Depreciation and amortization............................ 6,660
Capital expenditures..................................... 2,177
Ratio of earnings to fixed charges (3)................... 1.4x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash.................................................. $ 13,525
Working capital....................................... 47,925
Total assets.......................................... 207,876
Long-term debt, excluding unamortized discounts of
$4.6 million......................................... 149,780
</TABLE>
- --------
(1) Master Graphics incurred an extraordinary loss of approximately $2.1
million (net of tax benefit of $1.5 million) related to the write-off of
deferred financing costs and unamortized debt discounts resulting from the
repayment of certain indebtedness in connection with its initial public
offering.
(2) Cash interest expense represents total interest expense less amortization
of deferred financing costs.
11
<PAGE>
RISK FACTORS
You should consider carefully these risk factors, in addition to everything
else we tell you in this prospectus in evaluating whether or not you should
participate in the exchange offer.
Substantial Leverage--Premier Graphics'substantial indebtedness could adversely
affect its financial health and prevent it from fulfilling its obligations
under the exchange notes.
Premier Graphics has a significant amount of indebtedness. The following
chart shows certain important credit statistics as of and for the year ended
December 31, 1998:
<TABLE>
<S> <C>
Total indebtedness (excluding unamortized discounts of $4.6 million)... 133,181
Total capitalization................................................... 234,897
Debt to total capitalization ratio..................................... .57
Ratio of earnings to fixed charges..................................... 1.4x
</TABLE>
In connection with its March, 1999 acquisitions of three general commercial
printing companies, the Company has incurred an additional $18.5 million in
debt under its credit facility and has assumed debt of the acquired businesses
totaling approximately $4.3 million.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
. increase our vulnerability and limit our ability to appropriately
respond to general adverse economic and industry conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing our cash
flow available to finance capital expenditures, acquisitions and ongoing
operations;
. limit our flexibility in planning for, or reacting to, changes in our
business and the general commercial printing industry;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds
and failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on our ability to make payments on the exchange notes.
12
<PAGE>
Additional Borrowings Available--Despite current indebtedness levels, Premier
Graphics may still be able to incur substantially more debt. This could
increase the risks described above.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture do not fully prohibit us from doing so. We currently
have approximately $18.5 million of borrowings outstanding under our recently
amended credit facility, and we have the ability to borrow an additional $61.5
million. All of those borrowings would be senior to the exchange notes and the
guarantees. If new debt is added to our current debt levels, the risks related
to our high level of debt described above could intensify.
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and refinance our indebtedness, including
the exchange notes, and to fund planned capital expenditures and acquisition
efforts will depend on our ability to generate cash in the future. This, to a
degree, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our credit facility
will be adequate to meet our future liquidity needs for the next year.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our
debts, including the exchange notes, or to fund our other cash needs. We may
need to refinance all or a portion of our indebtedness, including the exchange
notes, on or before maturity. We cannot assure you that we will be able to
refinance any of our debt, including our credit facility and the exchange
notes, on commercially reasonable terms or at all.
Restrictive covenants contained in our existing secured credit facilities
may trigger a default under the notes.
We must continue to satisfy financial and operating covenants contained in
our credit facility. We are currently in compliance with all of the financial
and operating covenants in our credit facility. If we fail to comply with these
covenants, we will be in default under our existing credit facility. If we
default under our existing or future secured credit facilities, our lenders
could:
. elect to declare all amounts borrowed to be immediately due and payable,
together with accrued and unpaid interest; and/or
. terminate their commitments to make further extensions of credit under
our then existing credit facilities.
If we are unable to pay our obligations to our lenders, they could proceed
against any or all of the collateral securing the debt under our credit
facility. The collateral under our credit
13
<PAGE>
facility consists of substantially all of our assets. If our lenders accelerate
our obligations to them, it will trigger an event of default under the notes.
However, we may not have sufficient assets to repay the notes in full after we
pay our lenders.
No Collateral--Payment of the exchange notes is not secured by any collateral.
Substantially all of our assets serve as collateral to secure our
obligations under our credit facility. If we are unable to make required
payments on the exchange notes, you will not be able to use our assets to repay
the notes and/or enforce the guarantees until our lenders have been paid in
full. We may not have sufficient assets to repay the exchange notes in full
after we pay our lenders.
Financing Change Of Control Offer--We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture.
If a change of control occurs, you have the right to require us to
repurchase the exchange notes you own. A change in control will occur only when
the conditions on pages 67 and 68 are satisfied. It is possible that we will
not have available funds at the time of a change of control to make the
required repurchase of exchange notes or that restrictions in our credit
facility will not allow such repurchase. A change of control could result in an
event of default under our credit facility. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a change of control under the
indenture.
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to cancel the notes and/or the guarantees.
The federal government and each state has enacted laws designed to protect
creditors. If a court determines that we:
. issued the exchange notes to hinder, delay or defraud our existing or
future creditors; or
. did not receive a fair price for the exchange notes; and
. became insolvent because we issued the exchange notes;
. did not have sufficient assets for our business or any transaction in
which we are involved; or
. intended to incur debts beyond our ability to pay as those debts mature
the court could set aside or annul all or a portion of our obligations to you,
or subordinate your claims to those of our other creditors. This would entitle
other creditors to be paid in full before any payment could be made on the
exchange notes. We may not have sufficient assets after the payment to other
creditors to repay the notes.
The guarantee could be challenged on the same grounds as the exchange notes.
In addition, a creditor may challenge a guarantee based on the level of
benefits received by a guarantor compared to the amount of the guarantee. If a
guarantee of the exchange notes is
14
<PAGE>
set aside or annulled, you would not have any claim against Master Graphics and
would be only a creditor of Premier Graphics. If the guarantee is limited, your
claims against Master Graphics may be subject to the prior payment of all
liabilities (including trade payables). There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy
your claims related to the guarantees.
Preferential Transfer--If a guarantee is a preferential transfer, the
obligations of guarantor could be limited or declared unenforceable by a court.
If Master Graphics declares bankruptcy or its creditors force it to declare
bankruptcy within 90 days (or in certain cases, one year) after the issuance of
the guarantee or the guarantee was made in contemplation of insolvency, the
guarantee could be limited or declared unenforceable by a court as a
preferential transfer. If the guarantee is declared unenforceable, you would
not have any claim against Master Graphics and would be only a creditor of
Premier Graphics. If a guarantee is limited, your claims against Master
Graphics may be subject to the prior payment of all its liabilities (including
trade payables). There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy your claims relating to the
guarantees. In addition, a court could require you to return any payments made
under the guarantees during the 90-day (or one-year) period.
Resale of the Notes--There is no active trading market for the exchange notes.
There is no active trading market for the exchange notes and we cannot
assure you that one will develop. You may not be able to resell the exchange
notes. If any of the exchange notes are traded after their initial issuance,
they may trade at a discount from their initial offering price. Factors that
could cause the exchange notes to trade at a discount are an increase in
prevailing interest rates, a decline in our credit worthiness, a weakness in
the market for similar securities, and declining general economic conditions.
The liquidity of the exchange notes may also be adversely affected by declines
in the markets for high-yield securities generally.
Limited Operating History--Our acquisition and business strategies require
intense management. If we are unable to carry out our strategies, we may not be
able to make payments on the exchange notes.
We have acquired 17 general commercial printing companies since June 1997
including three in 1999. In addition, our management team has been assembled
only recently, and several of its members have not worked in the printing
industry prior to joining us. The management team may not be able to:
. manage effectively the combined operations of the companies we have
acquired;
. integrate successfully the operations of the companies we have acquired
and will acquire in the future; or
. achieve expected operating efficiencies and economies of scale.
If we cannot successfully accomplish the actions described above, we may not
be able to make required payments on the exchange notes.
15
<PAGE>
Integration of Acquisitions--If we do not effectively integrate acquired
companies and implement our operating systems and policies at acquired
companies, we may not be able to make required payments on the exchange notes.
We are faced with the development, implementation and integration of uniform
policies and systems related to our operations. For the foreseeable future, we
will rely on the separate accounting, information and operating systems of the
companies we have acquired. We plan to put in place centralized information and
operating systems, policies and procedures for all of our divisions. However,
as a result of our decentralized operating philosophy:
. we may not be able to implement effectively our proposed operating
systems and policies; and
. we may experience greater than expected expenses, delays, complications
and expenses in implementing, integrating and operating such systems and
policies.
If we face difficulties implementing our systems or incur greater costs than
expected, our cash flow may not be sufficient to make required payments on the
exchange notes.
Operating Losses--Some of the companies we have acquired have had operating
losses in recent fiscal years. If we are not able to cause these companies to
generate operating income and cash flow, we may not be able to make required
payments on the exchange notes.
Six of the companies we have acquired, plus B&M Printing (the predecessor to
Premier Graphics), have had operating losses within the three years prior to
their acquisition. These companies are Sutherland Printing, Phoenix
Communications, Phillips Litho, Golden Rule, White Arts and Woods
Lithographics. If the divisions of Premier Graphics incur operating losses or
fail to generate adequate cash flow, we may not be able to make required
payments on the exchange notes.
Acquisitions--As a result of our acquisition strategy we may not be able to
make required payments on the notes.
A key element of our strategy is to buy general commercial printing
companies throughout the United States. The risks to you associated with this
strategy include:
. management focusing on acquisitions rather than operations;
. a loss of customers as a result of the acquisition;
. the loss of key personnel; and
. the risks associated with the past operations and other unanticipated
problems arising in the acquired businesses.
The success of our acquisition strategy will be dependent upon a number of
factors, including
. our ability to locate general commercial printing companies we want to
acquire; and
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. our ability to finance acquisitions on satisfactory terms.
The indenture and our credit facility may limit our ability to pursue our
acquisition strategy. If our acquisition strategy is not successful, our cash
flow growth will slow and Premier Graphics' may not be able to make payments on
the exchange note. Even if our acquisition strategy is successful, Premier
Graphics may still become unable to make payments on the notes due to events
which are beyond our control such as prevailing business, financial and
economic conditions.
Performance Fluctuations--Our industry has unpredictable fluctuations in
quarterly operating results. If we experience unexpected downturns in our
business, we may not have sufficient funds to make required payments on the
exchange notes.
We compete in the general commercial printing sector, which is generally
characterized by individual orders from customers for specific printing
projects rather than long-term contracts. Future orders by existing customers
are dependent upon the customers' satisfaction with our services. Irregular
purchasing patterns could result in significant fluctuations in operating
results from quarter to quarter. Such fluctuations may be caused by
underutilization of plant capacity, lost business due to lack of plant
capacity, or higher direct costs. If Premier Graphics experiences unpredicted
fluctuations in cash flow, it may not be able to make required payments on the
exchange notes.
Raw Materials--Fluctuating costs of raw materials may adversely affect our cash
flow and ability to make required payments on the exchange notes. We do not
maintain a large paper supply and, if we experience difficulties in obtaining
paper, we may not generate sufficient cash flow to make required payments on
the exchange notes.
The cost of paper is a principal factor in our pricing to customers. We are
generally able to pass increases in the cost of paper to customers, while
decreases in paper costs generally result in lower prices to customers. In the
last three years, paper prices have fluctuated dramatically. To the extent that
there are future paper cost increases and we are not able to pass such
increases to our customers or our customers reduce the size or number of their
orders, Premier Graphics may not be able to make required payments on the
exchange notes.
In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes. In periods of high demand, certain paper grades
have been in short supply, including grades we use. Any loss of the sources for
paper supply or any disruption in their businesses or their failure to meet our
product needs on a timely basis could cause, at a minimum, temporary shortages
in needed materials. This could have a material adverse effect on Premier
Graphics' cash flow and its ability to make payments on the exchange notes.
Although we actively manage our paper supply, we do not maintain large
inventories of paper. Our paper supply may not be adequate and, if our sources
are not adequate, we may not be able to develop alternative sources in a timely
manner.
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Our obligations to the former owners of companies we acquired may adversely
affect our ability to make payments on the notes.
We have agreed to pay the former owners of 11 of the companies we have
acquired additional purchase price consideration if the companies surpass
certain EBITDA-based targets. We believe that the former owners will not earn
more than $36.2 million in additional consideration. We have agreed to pay the
additional purchase price consideration in cash, and the former owners have the
same right to be paid as you, but those payments are due and likely to be made
before we are obligated to repay the notes. If we are required to pay a
significant portion of this additional consideration, it could have a material
adverse effect on Premier's ability to make payments on the notes. For a more
complete description of the additional purchase price consideration we may owe,
please refer to the description of our obligations on page 37.
Employees and Salespersons--If we are unable to retain our skilled employees
and salespersons, Premier Graphics may not generate sufficient cash flow to
make required payments on the exchange notes.
To provide high-quality finished printed products in a timely fashion we
must maintain an adequate staff of skilled technicians, including prepress
personnel, pressmen, bindery operators and fulfillment personnel. Accordingly,
our ability to increase our productivity and profitability will be limited by
our ability to employ, train and retain the skilled technicians necessary to
meet our commitments. From time-to-time:
. the printing industry experiences shortages of qualified technicians,
and we may not be able to maintain an adequate skilled labor force
necessary to operate efficiently;
. our labor expenses may increase as a result of shortages of skilled
technicians; or
. we may have to curtail our planned internal growth as a result of labor
shortages.
Moreover, the general commercial printing industry is characterized by
personal relationships between individual members of a company's sales force
and customers who order printing services. If we do not retain salespeople with
large customer bases it could adversely affect Premier Graphics' ability to
make required payments on the exchange notes.
Environmental Compliance--If we incur an environmental liability, we may not
have sufficient funds to make required payments on the exchange notes.
Phase I environmental site assessments have been obtained on all of our
properties. The purpose of Phase I environmental site assessments is to
identify potential sources of contamination for which we may be responsible and
to assess the status of environmental regulatory compliance. We conduct further
environmental testing when we believe it is prudent and advisable. If we incur
a material environmental liability we may not be able to make required payments
on the notes.
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The Phase I environmental site assessment obtained for the property used by
our Stephenson Printing Division revealed that there are two underground
storage tanks listed with the Virginia Department of Environmental Quality as
"currently in use" on the property. The owner of the property has told us that
the underground storage tanks were removed in the mid-1980's, although there is
no documentation of the removal of the tanks. The storage tanks were previously
used for the storage of alcohol and solvent. There is a potential for soil or
groundwater contamination on the property if there were any releases from the
underground storage tanks.
The Phase I environmental site assessment obtained for the property used by
our recently acquired Columbia Graphics Division disclosed that asbestos-
containing materials may be present in building materials. We intend to conduct
an asbestos survey and remove and/or abate any friable asbestos that we find.
The Phase I study also pointed out possible deficiencies in the filing and
record-keeping practices of the division. Therefore, we also intend to further
study these practices, as well as the waste disposal practices of the division
and take any required corrective measures.
No other environmental testing has revealed any environmental condition,
liability or compliance concern that we believe would have a material adverse
effect on our business, assets or results of operations, nor are we aware of
any such condition, liability or concern by any other means. However, it is
possible that the environmental testing did not reveal all environmental
conditions, liabilities or compliance concerns. It is also possible that there
are material environmental conditions, liabilities or compliance concerns that
arose at a property after the testing was completed. If environmental
contamination exists or existed at a property, we may be liable for the costs
of removal or remediation of the contamination and may be liable for personal
injury or similar claims by private plaintiffs. Moreover, if there is an
environmental compliance issue, we may be liable for the costs of and penalties
associated with any action necessary to correct the deficiency. The existence
of environmental liabilities with regard to a property could adversely affect
our ability to sell or borrow against that property.
Year 2000--If our computer systems, or those of our suppliers or customers, are
not adequately prepared for the Year 2000 issue, our operations could be
adversely effected which could result in our inability to make required
payments on the exchange notes.
Like many other companies, the Year 2000 computer issue creates risks for
us. If our internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on our
operations. The Year 2000 computer issue stems from the computer industry's
practice of conserving data storage by using two digits, instead of four
digits, to represent a year. Systems and hardware which use this two-digit
format may process data incorrectly or fail with the use of dates in the next
century. These types of failures can influence applications that rely on dates
to perform calculations (such as an accounts receivable aging report), as well
as systems such as building security and heating. We have initiated a program
that includes a review of all computers, software and related date-sensitive
equipment used in the management of print jobs, office automation,
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accounting, process control and other applications. We believe our internal
exposure to Year 2000 issues is limited to the purchase of computer hardware,
and to a lesser extent software, at certain of our locations. We also believe
our Year 2000 risk areas are focused on the loss of our ability to operate due
to equipment malfunction, the inability of our customers to forward electronic
images due to their own Year 2000 malfunctions, or the inability of our
suppliers to provide us with important products, such as paper, plates and
film. In a worst case scenario, these potential problems would result in a
material effect for us. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Year 2000 for a discussion of the steps
we have taken to assess our Year 2000 issues and our contingency plans with
respect to Year 2000 issues.
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USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the
exchange notes. The net proceeds received by Premier Graphics from the sale of
the old notes were approximately $125.6 million. Premier Graphics:
(1) used approximately $88.6 million of the net proceeds from the offering
of the outstanding notes to repay substantially all outstanding
indebtedness under its credit facility with General Electric Capital
Corporation, as agent (approximately $300,000 remained outstanding after
payment);
(2) used approximately $4.8 million of the net proceeds from the offering
to repay indebtedness owed to the sellers of the companies we have
purchased;
(3) used approximately $6.5 million of the net proceeds from the offering
to pay-in-full its revolving credit facility with Deutsche Financial
Services Corporation and;
(4) used approximately $12.0 million of the net proceeds of the offering to
acquire Technigrafiks;
The remainder of the net proceeds of the offering were used for general
corporate purposes, including working capital and acquisitions. Premier
Graphics is currently engaged in discussions and negotiations for the
acquisition of additional general commercial printing companies.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
At the time we issued the old notes, we agreed to:
(1) file a registration statement to register the exchange of the old notes
for the exchange notes on or prior to 60 days after December 11, 1998;
(2) use our reasonable best efforts to cause the registration statement to
become effective within 120 days after December 11, 1998; and
(3) consummate the exchange offer within 150 days after December 11, 1998.
In the event that changes in law or applicable interpretations of the staff
of the SEC do not permit us to effect the exchange offer, or if a holder of old
notes notifies us that it is not eligible to participate in, or would not
receive freely tradeable exchange notes in exchange for tendered old notes
pursuant to, the exchange offer, we will use our reasonable best
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efforts to cause to become effective under the Securities Act a shelf
registration statement with respect to the resale of the old notes and keep the
shelf registration statement effective until two years after December 11, 1998.
If we do not comply with the requirements of the exchange offer described
above, we will pay additional interest on the old notes of $.05 per week per
$1,000 in principal amount of the old notes during the first 90 days that we
are not in compliance. The additional interest will increase by an additional
$.05 per week per $1,000 in principal amount of old notes with respect to each
subsequent 90 day period, up to a maximum of $.50 per week per $1,000 in
principal amount of the old notes. Once we are in compliance with the
requirements described above, additional interest will no longer accrue.
If you desire to exchange your old notes for exchange notes, you will be
required to represent that:
. any exchange notes received will be acquired in your ordinary course of
business;
. you have no arrangement with any person to participate in the
distribution of the exchange notes; and
. you are not an "affiliate,"as defined in Rule 405 of the Securities Act,
of Premier Graphics or Master Graphics.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and the letter of transmittal, we will accept for exchange any and all old
notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on , 1999. We 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. Old notes may be tendered only in $1,000 increments.
The form and terms of the exchange notes will be the same as the form and
terms of the old notes except that the exchange notes will be registered under
the Securities Act and will not bear legends restricting their transfer. The
exchange notes will evidence the same debt as the old notes. The exchange notes
will be issued under and entitled to the benefits of the indenture, which also
authorized the issuance of the old notes, such that both series will be treated
as a single class of debt securities under the indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $130.0 million of the old notes are
outstanding. This prospectus, together with the letter of transmittal, is being
sent to all registered holders of old notes as of , 1999.
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement and the applicable requirements of the
Securities Act and the
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rules and regulations of the SEC. Old notes that are not tendered for exchange
in the exchange offer will remain outstanding and continue to accrue interest
and will be entitled to the rights and benefits under the indenture and the
registration rights agreement.
We will be deemed to have accepted for exchange properly tendered old notes
when, as and if we give oral or written notice of acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for
purposes of receiving the exchange notes from us. We expressly reserve the
right to amend or terminate the exchange offer, and not to accept for exchange
any old notes, if any of the events described below under "--Certain Conditions
to the Exchange Offer" occur.
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
pursuant to the exchange offer. We will pay all charges and expenses, other
than taxes described below under "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time on , 1999, unless
we, in our sole discretion, extend the exchange offer, in which case the
expiration date will mean the latest date and time to which the exchange offer
is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will issue a press release
notifying the registered holders of old notes of such extension, each prior to
9:00 a.m., New York City time, on the next business day after the expiration
date.
We reserve the right, in our sole discretion:
. to delay accepting any old notes for exchange, to extend the exchange
offer or terminate the exchange offer if any of the conditions set forth
below under "--Certain Conditions to the Exchange Offer" have not been
satisfied, by giving oral or written notice of such delay, extension or
termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice describing the
event to the registered holders of old notes. If the exchange offer is amended
in a manner we determine constitutes a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the old notes of such amendment.
Without limiting the manner in which we may choose to make a public
announcement of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
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Interest on the Exchange Notes
The exchange notes will bear interest at a rate of 11.5% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing on June 1,
1999. Holders of exchange notes will receive the same interest payment on June
1, 1999 that they would have received if they had not accepted the exchange
offer.
Certain Conditions to the Exchange Offer
We will not be required to accept for exchange, or exchange any exchange
notes for, any old notes, and may terminate the exchange offer before the
acceptance of any old notes for exchange, if:
. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability
to proceed with the exchange offer;
. any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the
staff of the SEC, which, in our reasonable judgment, might materially
impair our ability to proceed with the exchange offer; or
. any governmental approval has not been obtained, which approval we, in
our reasonable discretion, deem necessary for the consummation of the
exchange offer.
If we determine in our sole discretion that any of these events have occurred,
we may
. refuse to accept any old notes and return all 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; or
. waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
If our waiver of a condition constitutes a material change to the exchange
offer, we will promptly disclose the waiver to the registered holders of the
old notes and we may extend the exchange offer.
Procedures for Tendering
Subject to the terms and conditions hereof and the letter of transmittal,
only a holder of old notes may tender such old notes in the exchange offer. To
tender in the exchange offer, a holder must complete, sign and date the letter
of transmittal, or facsimile thereof, have its signature guaranteed if required
by the letter of transmittal, and mail or otherwise deliver such letter of
transmittal or such facsimile so that it is received by the exchange agent
prior
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to 5:00 p.m., New York City time, on the expiration date or, in the
alternative, comply with the Depository Trust Corporation's Automated Tender
Offer Program procedures described below. In addition, either:
. old notes must be received by the exchange agent along with the letter
of transmittal;
. a timely confirmation of book-entry transfer of such old notes, if such
procedure is available, into the exchange agent's account at the
Depository Trust Corporation pursuant to the procedure for book-entry
transfer described below or properly transmitted agent's message, as
defined below, must be received by the exchange agent prior to the
expiration date; or
. the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the letter of transmittal and other required
documents must be 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.
The tender by a holder which is not withdrawn prior to the expiration date
will constitute an agreement between such holder and Premier Graphics in
accordance with the terms and subject to the conditions set forth herein and in
the letter of transmittal.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holder. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the exchange agent before the expiration date. No
letter of transmittal or old notes should be sent to Premier Graphics. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or other 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 the
registered holder of old notes to tender on the beneficial owner's behalf. If
the beneficial owner wishes to tender on the owner's own behalf, the owner
must, prior to completing and executing the letter of transmittal and
delivering the owner's old notes, either make appropriate arrangements to
register ownership of the old notes in the owner's name or obtain a properly
completed bond power from the registered holder of old notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the expiration date.
Signatures on a letter of transmittal and a notice of withdrawal described
below must be guaranteed by an eligible institution, as defined below, unless
the old notes are tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of an eligible institution.
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In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, the guarantor must be an eligible
institution, which means a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act which is a member of one of the
recognized signature guarantee programs identified in the letter of
transmittal.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed therein, those old notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as that registered holder's name appears on the 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, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing, and unless we waive the requirement,
provide evidence satisfactory to us of their authority to so act must be
submitted with the letter of transmittal.
The exchange agent and the Depository Trust Corporation have confirmed that
any financial institution that is a participant in the Depository Trust
Corporation's system may utilize the Depository Trust Corporation's Automated
Tender Offer Program to tender old notes. Accordingly, participants in the
Depository Trust Corporation's Automated Tender Offer Program may, in lieu of
physically completing and signing the letter of transmittal and delivering it
to the exchange agent, electronically transmit their acceptance of the exchange
offer by causing the Depository Trust Corporation to transfer the old notes to
the exchange agent in accordance with the Depository Trust Corporation's
Automated Tender Offer Program procedures for transfer. The Depository Trust
Corporation will then send an agent's message to the exchange agent. The term
"agent's message" means a message transmitted by the Depository Trust
Corporation received by the exchange agent and forming part of the book-entry
confirmation, which states:
. that the Depository Trust Corporation has received an express
acknowledgment from a participant in the Depository Trust Corporation's
Automated Tender Offer Program that is tendering old notes which are the
subject of such book entry confirmation;
. that the participant has received and agrees to be bound by the terms of
the letter of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery, and
that the agreement may be enforced against the participant.
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 Premier Graphics in our sole discretion, which
determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We
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also reserve the right to waive any defects, irregularities or conditions of
tender as to particular old notes. Our 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 we determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither Premier
Graphics, 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 the 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 holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
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 old notes or a timely book-entry confirmation of the
old notes into the exchange agent's account at the book-entry transfer
facility, a properly completed and duly executed letter of transmittal and all
other required documents. If any tendered old notes are not accepted for
exchange 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, the unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder thereof, or, in the case of
old notes tendered by book-entry transfer into the exchange agent's account at
the Depository Trust Company pursuant to the book-entry transfer procedures
described below, such non-exchanged notes will be credited to an account
maintained with the Depository Trust Company, as promptly as practicable after
the expiration or termination of the exchange offer.
Book Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at the Depository Trust Company for purposes of the exchange
offer within two business days after the date of this prospectus. Any financial
institution that is a participant in the Depository Trust Company's system may
make book-entry delivery of old notes by causing the Depository Trust Company
to transfer such old notes into the exchange agent's account at the Depository
Trust Company in accordance with the Depository Trust Company's procedures for
transfer. Although delivery of old notes may be effected through book-entry
transfer at the Depository Trust Company, the letter of transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at the address set forth below under "--Exchange Agent" on or
prior to 5:00 p.m. New York City time on the expiration date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Depository Trust Company does not constitute delivery to the exchange agent.
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Guaranteed Delivery Procedures
Holders who wish to tender their old notes and (A) whose old notes are not
immediately available, or (B) who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date, may effect a tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder, the registered
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 old notes or a book-entry confirmation, as the case
may be, 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 executed letter of transmittal, or facsimile
thereof, or properly transmitted agent's message as well as all tendered
old notes in proper form for transfer or a book-entry confirmation, as
the case may be, 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, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day
immediately preceding the expiration date.
For a withdrawal to be effective:
. written notice of withdrawal must be received by the exchange agent at
one of the addresses set forth below under "--Exchange Agent" or
. holders must comply with the appropriate procedures of the Depository
Trust Company's automated tender offer program system.
Any such notice of withdrawal must specify the name of the person having
tendered the old notes to be withdrawn, identify the old notes to be withdrawn,
including the principal amount of such old notes, and, where certificates for
old notes have been transmitted, specify the name in which such old notes were
registered, if different from that of the withdrawing holder. If certificates
for old notes have been delivered or otherwise identified to the exchange
agent, then, prior to the release of such certificates, the withdrawing holder
must
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also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution. If old notes have
been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Depository Trust Company to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility, including time of receipt, of such notices will
be determined by Premier Graphics, whose determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder, or,
in the case of old notes tendered by book-entry transfer into the exchange
agent's account at the Depository Trust Company pursuant to the book-entry
transfer procedures described above, such old notes will be credited to an
account maintained with the Depository Trust Company for the old notes, as soon
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 under "--Procedures for Tendering" above at any
time on or prior to the expiration date.
Exchange Agent
United States Trust Company of New York, the trustee under the indenture has
been appointed as exchange agent for the exchange offer. Questions and requests
for assistance and requests for additional copies of this prospectus or the
letter of transmittal should be directed to the exchange agent addressed as
follows:
By Mail or Hand Delivery:
114 W. 47th Street
New York, New York 10036-1532
Facsimile Transmission:
(212) 852-1620
Confirm by Telephone:
(212) 852-1662
Fees and Expenses
The expenses of soliciting tenders will be borne by Premier Graphics. The
principal solicitation is being made by mail. However, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of Premier Graphics and its affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. However, we 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 therewith.
The cash expenses to be incurred in connection with the exchange offer will
be paid by Premier Graphics and are estimated in the aggregate to be
approximately $300,000. Such expenses include registration fees, fees and
expenses of the exchange agent and trustee, accounting and legal fees and
printing costs, and related fees and expenses.
29
<PAGE>
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of the
old notes for exchange notes pursuant to the exchange offer. If, however,
certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of notes tendered, or if
tendered notes are registered in the name of any person other than the person
signing the letter of transmittal, or if a transfer tax is imposed for any
reason other than the exchange of notes pursuant to the exchange offer, then
the amount of any such transfer taxes, whether imposed on the registered holder
or any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Consequences of Failure to Exchange
Holders of old notes who do not exchange their old notes for exchange notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the old notes, as set forth:
. in the legend thereon as a consequence of the issuance of the old notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws; and
. otherwise set forth in the offering memorandum dated December 8, 1998,
distributed in connection with the offering of the old notes.
In general, the old notes may not be offered or sold unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not currently anticipate that we will register the old notes under the
Securities Act.
30
<PAGE>
CAPITALIZATION -- PREMIER
The following table sets forth the capitalization of Premier, the issuer of
the notes, as of December 31, 1998 on an historical basis. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated financial statements
of Master Graphics and the notes thereto.
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(in thousands)
<S> <C>
Long-term debt, including current maturities (1)(2):
Credit facilities.......................................... $ 262
Senior notes............................................... 130,000
Capital leases............................................. 2,297
Other...................................................... 622
--------
Total long-term debt, including current maturities....... 133,181
--------
Stockholder's equity:
Common stock, $0.01 par value per share; 1,000 shares
authorized; 100 shares issued and outstanding............. --
Additional paid in capital (3)............................. 100,038
Retained earnings (deficit)................................ 1,078
--------
Total stockholder's equity............................... 101,716
--------
Total capitalization......................................... $234,897
========
</TABLE>
- --------
(1) Does not include the effects of any contingent purchase price consideration
payable to the former owners of the acquired companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Excludes unamortized debt discount of $4.6 million.
(3) In addition to the original equity capitalization of B&M Printing Inc, the
predecessor to Premier, Premier has subsequently been capitalized by Master
Graphics with the net purchase price of each of the Acquired Companies.
31
<PAGE>
CAPITALIZATION -- MASTER GRAPHICS
The following table sets forth the capitalization of Master Graphics, a
guarantor of the notes, as of December 31, 1998 on an historical basis. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the consolidated
financial statements of Master Graphics and the notes thereto.
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(in thousands)
<S> <C>
Long-term debt, including current maturities (1)(2):
Credit facilities.......................................... $ 262
Senior notes............................................... 130,000
Seller notes............................................... 16,599
Capital leases............................................. 2,297
Other...................................................... 622
--------
Total long-term debt, including current maturities....... 149,780
5% Series A Cumulative Redeemable Preferred Stock, $.001 par
value per share, 177,776 shares issued and outstanding...... 1,437
Shareholders' equity:
Preferred stock, $.001 par value per share, 9,822,224
shares authorized, no shares issued and outstanding....... --
Common stock, $.001 par value per share, 100,000,000 shares
authorized, 7,879,997 shares issued and outstanding (3)... 8
Additional paid in capital................................. 39,843
Retained earnings (deficit)................................ (3,659)
--------
Total shareholders' equity............................... 36,192
--------
Total capitalization......................................... $187,409
========
</TABLE>
- --------
(1) Does not include the effects of any contingent purchase price consideration
payable to the former owners of the acquired companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Excludes unamortized debt discount of $4.6 million.
(3) Does not include (i) 177,776 shares of $.001 par value per share common
stock issuable for nominal consideration upon the conversion of the 5%
Series A Cumulative Preferred Stock; (ii) 220,000 shares of common stock
issuable for nominal consideration upon the exercise of a warrant issued to
General Electric Capital Corporation in connection with the acquisition of
Harperprints; (iii) 43,000 shares of Common Stock issuable at $10 per share
upon the exercise of rights granted to former B&M Printing shareholders;
(iv) 1,828,848 shares of common stock issuable at $10 per share upon the
exercise of warrants issued in connection with Master Graphic's acquisition
of certain printing companies; (v) 607,294 shares of common stock issuable
at $10 per share upon the exercise of outstanding stock options held by
directors and employees; (vi) 100,000 shares of common stock issuable at
$10 per share pursuant to Master Graphics' deferred compensation plan; and
(vii) shares of common stock issuable upon conversion of approximately
$3,471,000 in principal amount of seller notes at a conversion ratio equal
to the average of the high and low sales price of the common stock on the
day immediately preceding the conversion.
32
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
on an historical basis for Master Graphics and its predecessors. The following
information should be read in conjunction with the historical financial
statements of Master Graphics, including the related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Six months
Year ended June 30, (1) ended Year ended
---------------------------------- December 31, December 31,
1994 1995 1996 1997 1997 1998
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................. $10,804 $11,426 $13,244 $13,433 $32,394 $163,277
Gross profit............ 2,706 2,498 3,288 2,121 5,866 41,937
Depreciation and
amortization........... 867 747 605 623 1,413
Operating income
(loss)................. 119 (72) 597 (900) (222) 14,059
Net income (loss) before
extraordinary
loss (2)............... (92) (209) 172 (1,273) (3,819) 2,973
Net income.............. (92) (209) 172 (1,273) (3,819) 1,875
Earnings (loss) per
share before
extraordinary item:
Basic.................. $ (0.02) $ (0.05) $ 0.04 $ (0.32) $ (0.95) $ 0.62
Diluted................ $ (0.02) $ (0.05) $ 0.04 $ (0.32) $ (0.95) $ 0.60
Balance Sheet Data (at
end of period):
Total assets............ $ 6,330 $ 6,102 $ 6,426 $37,215 $86,384 $208,946
Long-term obligations... 3,566 3,382 2,794 30,612 69,317 145,147
Redeemable common stock
warrants............... -- -- -- 638 3,376 --
Redeemable preferred
stock.................. -- -- -- -- -- 1,437
Shareholders' equity
(deficit).............. 1,880 1,671 1,843 780 (1,596) 36,192
Other Data:
Ratio of earnings to
fixed charges (3)...... -- -- 1.7x -- -- 1.4x
</TABLE>
- --------
(1) Effective January 1, 1998, Master Graphics changed its annual accounting
period to a calendar year.
(2) Master Graphics incurred an after-tax extraordinary loss in June 1998 of
approximately $2.1 million ($0.34 per share basic and $0.33 per share
diluted) related to the write-off of deferred financing costs and
unamortized debt discounts resulting from the repayment of certain
indebtedness in connection with Master Graphics' initial public offering of
common stock.
(3) In the calculation of the ratio of earnings to fixed charges, earnings were
inadequate to cover fixed charges in certain of the periods presented, as
follows--June 30, 1994, $117,000; 1995, $296,000; 1997, $1.2 million; and
December 31, 1997, $3.8 million.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
consolidated financial statements and related notes of Master Graphics and
Selected Financial Data included elsewhere in this prospectus.
Introduction
From June 1997 through December 31, 1998, Master Graphics had acquired 14
general commercial printing companies which Master Graphics believes are market
leaders in their respective geographic areas in terms of customer service,
responsiveness and quality. Master Graphics acquired three commercial printing
companies in March, 1999. Master Graphics financed the cash portion of the
purchase price for the acquired companies primarily with debt. See Business--
Acquired Companies for information regarding the consideration paid for the
acquired companies. Each acquisition was accounted for as a purchase, and any
purchase price in excess of the fair value of the assets acquired was allocated
to goodwill which is amortized over 40 years. A substantial portion of this
non-cash expense will likely be non-deductible for tax purposes. Master
Graphics' results of operations are also impacted by the effects of purchase
accounting applied to in-process inventory acquired. Such inventory is recorded
at its fair value, which may include manufacturing profit not otherwise
recognizable until the goods are sold. The resulting cost of sales when such
goods are sold, usually in the period immediately following the acquisition
date, may be substantially higher than in a period when acquisitions are not
being made.
The acquired companies were all closely-held businesses and several were
S corporations. In many cases, the tax structure influenced the historical
level of owners' compensation. Many of the owners have agreed to certain
reductions in their compensation and benefits following the acquisition by
Master Graphics.
Results of Operations
The following table sets forth certain financial data for the periods
indicated (dollars in millions) and such results as a percentage of revenue.
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31, Year ended
--------------------------- --------------------------- December 31,
1996(1) 1997(1) 1996 1997(2) 1998
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $13.2 100.0 % $13.4 100.0 % $ 6.4 100.0 % $32.4 100.0 % $163.3 100.0 %
Gross profit............ 3.3 25.0 2.1 15.7 1.0 15.7 5.9 18.2 41.9 25.7
Selling, general and
administrative
expenses............... 2.7 20.5 3.0 22.4 1.3 20.3 6.0 18.5 26.9 16.5
Operating income
(loss)................. 0.6 4.5 (0.9) (6.7) (0.3) (4.7) (0.2) (0.6) 14.1 8.6
Interest expense........ (0.4) (3.0) (0.4) (3.0) (0.2) (3.1) (2.2) (6.8) (10.3) (6.3)
Income tax expense
(benefit).............. 0.2 1.5 -- -- -- -- -- -- 0.6 0.9
Net earnings (loss)
before extraordinary
loss................... 0.2 1.5 (1.3) (9.7) (0.4) (6.3) (3.8) (11.7) 4.0 2.4
Extraordinary loss (3).. -- -- -- -- -- -- -- -- (2.1) (1.3)
Net earnings (loss)..... $ 0.2 1.5 % $(1.3) (9.7)% $(0.4) (6.3)% $(3.8) (11.7)% $ 1.9 1.2 %
</TABLE>
- --------
(1) The results of operations for all periods through June 30, 1997 effectively
reflect only the operations of B&M Printing.
(2) Effective January 1, 1998, Master Graphics changed its annual accounting
period to a calendar year.
34
<PAGE>
(3) The Company incurred an extraordinary loss in June 1998 of approximately
$2.1 million (net of tax benefit of $1.5 million) related to the write-off
of deferred financing costs and unamortized debt discounts resulting from
the repayment of certain indebtedness in connection with Master Graphics'
initial public offering of the common stock.
Year Ended December 31, 1998 Compared To Year Ended June 30, 1997
Revenue. Revenue increased from $13.4 million for the year ended June 30,
1997 to $163.3 for the year ended December 31, 1998. Revenue growth was
attributable primarily to our acquisition of 14 general commercial printing
companies in 1997 and 1998.
Gross Profit. Gross profit increased from $2.1 million for the year ended
June 30, 1997 to $41.9 million for the year ended December 31, 1998. The
increase in gross profit was attributable primarily to our acquisitions in 1997
and 1998. Gross profit as a percentage of sales increased to 25.7% for the year
ended December 31, 1998, from 15.7% in the year ended June 30, 1997. The 1997
gross profit percentage, which as stated above relates only to the operations
of B&M Printing, was negatively impacted by an increase in lease expense and
labor costs related to a then newly-installed and initially under-utilized web
press.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $3.0 million for the year ended June 30,
1997 to $26.9 million for the year ended December 31, 1998. Selling expenses
increased primarily due to increasing revenue mentioned above.
Interest Expense. Interest expense increased from $0.4 million for the year
ended June 30, 1997 to $10.3 million for the year ended December 31, 1998. A
substantial portion of the purchase price for each of our acquisitions was
financed with debt. Accordingly, the increase in interest expense is primarily
attributable to our acquisition program and related financing activities.
Extraordinary Loss. Master Graphics incurred an extraordinary loss in 1998
of approximately $2.1 million (net of tax benefit of $1.5 million) related to
the write-off of deferred financing costs and unamortized debt discounts
resulting from the repayment of certain indebtedness in connection with Master
Graphics's initial public offering.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenue. Revenue was relatively unchanged, increasing approximately 1.5%
from $13.2 million for the year ended June 30, 1996 to $13.4 million for the
year ended June 30, 1997. Revenue growth was attributable to the addition of an
eight-color heat set web press.
Gross Profit. Gross profit decreased 36.4% from $3.3 million for the year
ended June 30, 1996 to $2.1 million for the year ended June 30, 1997. Gross
margin decreased from 25.0% to 15.7% from the year ended June 30, 1996 to the
corresponding period in 1997. The decrease in gross profit was primarily
attributable to the increased labor costs and lease expense associated with
operation of the new web press.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 11.1% from $2.7 million for the year ended
June 30, 1996 to
35
<PAGE>
$3.0 million for the year ended June 30, 1997. The increase was primarily
attributable to increases in sales commissions and in sales support salaries.
Interest Expense. Interest expense remained relatively consistent at
approximately $0.4 million in the year ended June 30, 1996 and in the year
ended June 30, 1997.
Six Months Ended December 31, 1997 Compared to Six Months EndedDecember 31,
1996
Revenue. Revenue increased 406% from $6.4 million for the six months ended
December 31, 1996 to $32.4 million for the six months ended December 31, 1997.
The increase in revenue was primarily volume driven and attributable to the six
acquisitions during the seven months ended December 31, 1997.
Gross Profit. Gross profit increased 490% from $1.0 million for the six
months ended December 31, 1996 to $5.9 million for the six months ended
December 31, 1997. Gross profit percentage increased from 15.7% to 18.2% from
the six months ended December 31, 1996 to the six months ended December 31,
1997. The increase in gross profit percentage was due primarily to the
marginally higher average gross profit percentage of the businesses acquired.
The increase in absolute gross profit was primarily attributable to our
increasing revenue which was driven by acquisitions
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 362% from $1.3 million for the six months
ended December 31, 1996 to $6.0 million for the six months ended December 31,
1997. This increase was primarily attributable to the increases in selling
costs that accompany the volume increases during the same period.
Interest Expense. Interest expense increased from $0.2 million for the six
months ended December 31, 1996 to $2.2 million for the six months ended
December 31, 1997. The increase related to increasing amounts of borrowed funds
for our acquisition strategy.
Liquidity and Capital Resources
Our primary cash requirements are for debt service, capital expenditures,
acquisitions and working capital. Historically, we have financed our operations
and equipment purchases with cash flow from operations, capital leases and
secured loans through commercial banks or other institutional lenders and
credit lines from commercial banks. We have financed our acquisitions primarily
with funds under a credit facility as well as subordinated notes payable to
former owners of the acquired companies. Working capital on December 31, 1998
was $47.9 million, an increase of $41.2 million from December 31, 1997.
During the approximate eighteen months since the inception of our
acquisition strategy in June 1997, we have effectively financed the cash
portion of our acquisitions, $146.0 million, with borrowings from our credit
facility and notes offering and with proceeds from our initial public offering
of common stock. During that same period of time,
36
<PAGE>
cash flows from operating activities have generated approximately $4 million.
The majority of the December 31, 1998 cash balance of approximately $13.5
million was related to the proceeds from the December 1998 notes offering. That
amount along with $18.5 million of borrowings under the credit facility were
used in March 1999 to finance the cash portion of three acquisitions. For the
year ended December 31, 1998, we used approximately $90 million of cash in
business acquisitions which was funded with $3.3 million in cash flow from
operations with the balance funded from financing activities. Our cash position
increased $12.3 million during the year ended December 31, 1998, all of which
was created through financing activities.
Through the third quarter of 1998, our largest source of capital had been
the credit facility with General Electric Capital Corporation which originally
closed in September 1997 and was periodically increased to provide for the
funding of acquisitions completed since that time. In the second quarter of
1998, we completed an initial public offering of common stock, the net proceeds
of which were used primarily to repay approximately $25 million of debt
outstanding under the credit facility along with $4 million of other debt.
During the fourth quarter of 1998, we completed the notes offering the proceeds
of which were used to repay substantially all of the debt under our credit
facilities as well as to acquire Technigrafiks.
Subsequent to December 31, 1998, we have acquired three additional
businesses, which were financed primarily with cash previously generated by the
notes offering and by $18.5 million borrowed under the credit facility. In
addition, we entered into an amended and restated loan and security agreement
with General Electric Capital Corporation, as agent. The $80 million senior
secured credit facility consists of two term loan facilities each of
$30 million and a revolving credit facility of $20 million. Loans made under
the term loan facilities and the revolving credit facility may bear interest
based upon LIBOR or the "Base Rate," which is the prime rate for corporate
loans from U.S. financial institutions as published by The Wall Street Journal
from time to time. The Term Loan A facility bears interest at a floating rate
equal to LIBOR plus 2.5% for loans bearing interest based upon LIBOR or the
Base Rate for loans bearing interest based upon the Base Rate. The Term Loan B
facility bears interest at a floating rate equal to LIBOR plus 3.0% for loans
bearing interest based upon LIBOR or the Base Rate plus .5% for loans bearing
interest based upon the Base Rate. The revolving credit facility bears interest
at a floating rate equal to LIBOR plus 2.5% for advances bearing interest based
upon LIBOR or the Base Rate for advances bearing interest based upon the Base
Rate. The Term Loan A facility matures in March 2004, and principal is payable
in quarterly installments equal to 1/20th of the principal amount advanced,
with the balance due at maturity. The Term Loan B facility matures in March
2005 with quarterly principal payments equal to 2% of the principal amount
advanced with a final balloon payment at maturity. The revolver, which has
certain borrowing base limitations, is repayable in full in March 2004.
The security for the credit facility includes a lien on all of the assets of
Premier Graphics, as well as a pledge by Master Graphics on all of the issued
and outstanding stock of Premier Graphics. Under the credit facility, we are
required to maintain certain financial
37
<PAGE>
tests and ratios including, but not limited to, a covenant requiring a minimum
level of prepayment of the term loan facilities based on 50% of annual excess
cash flows.
Master Graphics financed a portion of the aggregate amount paid for certain
of the acquired companies by issuing unsecured subordinated notes ("seller
notes") to the former owners of these companies. The total principal amount of
seller notes issued was approximately $14.9 million. Master Graphics also
issued unsecured subordinated notes ("replacement notes") to the former owners
of Hederman and Phoenix which replaced notes between such companies and their
owners. The aggregate principal amount of replacement notes issued by Master
Graphics was approximately $5.3 million. In connection with the acquisition of
B&M Printing by John Miller, Master Graphics issued approximately $1.3 million
of unsecured subordinated notes (the "B&M Notes") to the former owners of B&M
Printing.
In connection with the December, 1998 closing of the offering of $130
million of 11 1/2% Senior Notes due 2005, Master Graphics restructured
approximately $12.5 million of seller notes and seller replacement notes to
have the following features: (i) balloon maturity date of June 30, 2006; (ii)
monthly interest payments at 12% per annum if paid when due or, if not paid
when due, interest will accrue at 16% per annum until all accrued interest has
been paid; (iii) no restrictive covenants; and (iv) no rights or remedies
against Master Graphics until maturity. In addition, Master Graphics used
approximately $4.8 million of the net proceeds of the senior notes offering to
repay amounts outstanding under the B&M Notes and certain seller notes or
seller replacement notes. The remaining $4.0 million of Seller Notes and
Replacement Notes generally (i) bear interest at 12% per annum which is payable
quarterly; (ii) are subject to prepayment at the option of Master Graphics only
upon payment of a penalty which equals 20% of the amount prepaid; and (iii)
mature seven years from the date of issuance.
As part of the respective purchase agreements, we have agreed to pay the
former owners of eleven of the acquired companies additional purchase price
consideration if such companies surpass certain EBITDA-based targets, which
generally exceed the pre-acquisition performance levels of those companies.
Reaching these targets will result in additional cash inflow to us arising from
the incremental EBITDA above the targets and additional cash outflow from the
consideration required to be paid. The periods for which the targets will be
measured vary for each of the companies, and the measurement periods range from
one year to five years of operations. For some of the companies, additional
consideration will be payable by us annually for each year in which the EBITDA-
based target is surpassed, and for other companies, only a single lump sum
payment will be made by us if the performance of the company exceeds the
target. The maximum additional purchase price consideration payable to the
former owners of ten of the companies is limited to a specified amount. The
amount of additional consideration payable to the former owners of the other
company is not limited once the EBITDA-based target is surpassed. We will pay
former owners at least $900,000 of additional purchase price consideration in
1999, although we could become liable to pay former owners as much as $7.7
million in this year. Thereafter, assuming that the former owners become
entitled to receive the maximum
38
<PAGE>
amount of additional purchase price consideration at the earliest possible
time, we would pay the former owners, over $17.9 million in 2000, over $4.1
million in 2001, and $6.5 million in 2002. Any additional purchase price
consideration is payable in cash, which will be recorded as additional goodwill
and amortized into income over approximately 40 years.
We anticipate that our cash flow from operating activities will provide cash
adequate to finance its normal working capital needs, debt service requirements
and planned capital expenditures for property and equipment which is currently
anticipated to be approximately $5 million annually, no material amount of
which are under firm commitments. Master Graphics is dependent upon the cash
flow of and the transfer of funds from Premier, its primary operating
subsidiary, which, under its various credit facilities, is subject to
restrictions on its ability to pay dividends to Master Graphics and is
generally limited by specific amounts or amounts in relation to the
profitability of Premier Graphics. To the extent that cash flow from operating
activities is insufficient to fund the payment of any additional purchase price
consideration, we intend to finance the payment of such consideration through
its credit facilities.
We currently believe that our existing cash balances, funds available under
our credit facility and funds expected to be generated from operations will
provide sufficient funds to finance our operations for at least the next 12
months. Considering our operating cash flow in the short-term, we can
adequately dispose of our current obligations including interest and principal
of outstanding debt. In addition, the operating cash flow should provide
adequate liquidity to meet our anticipated capital expenditure plans. We may
not be able to continue our acquisition strategy without ongoing financing from
third parties.
Year 2000
Like many other companies, the Year 2000 computer issue creates risks for
us. If internal systems do not correctly recognize and process date information
beyond the year 1999, there could be an adverse impact on our operations. There
are two other related issues which could also lead to incorrect calculations or
failures: (i) some systems' programming assigns special meaning to certain
dates, such as 9/9/99, and (ii) the year 2000 is a leap year. The Year 2000
compliance issues stem from the computer industry's practice of conserving data
storage by using two digits to represent a year. Systems and hardware using
this format may process data incorrectly or fail with the use of dates in the
next century. These types of failures can influence applications that rely on
dates to perform calculations (such as an accounts receivable aging report), as
well as systems such as building security and heating.
We believe our internal exposure to Year 2000 issues is limited to the
purchase of computer hardware, and to a lesser extent software, at certain of
its locations. We have initiated a program that includes a review of all
computers, software and related date-sensitive equipment used in the management
of print jobs, office automation, accounting, process control and other
applications. This review program consists of both information technology and
non-information technology systems. We expect our corrective action resulting
from the review to be completed during the third quarter of 1999. Testing at
each division will commence as action plans are completed. By September 30,
1999, we expected
39
<PAGE>
to have completed the review, remediation, testing and implementation phases in
all critical areas. We anticipate that the cost of such corrective actions will
be approximately $750,000 for the existing divisions. The due diligence process
for new acquisitions by the Company includes a Year 2000 assessment, with
corrective action plans scheduled for immediate implementation.
We believe our Year 2000 risk areas are focused on the loss of its ability
to operate due to (i) equipment malfunction or (ii) customer inability to
forward electronic images due to its own Year 2000 malfunctions. As part of the
investigation process, our suppliers and other service vendors have been asked
to provide documentation on their Year 2000 compliance status, and the majority
have provided us with compliance assurances. Non-compliant suppliers are
subject to replacement. Each operating division has assigned a Year 2000
compliance officer responsible for identifying local problem areas and managing
corrective actions. We also believe we have the capability in place to provide
expertise to customers to develop the electronic images necessary for
respective print jobs.
While we have requested and received Year 2000 compliance status reports
from customers and suppliers, we have not received completed information in all
respects. If a majority of our key suppliers of raw materials such as paper,
plates and film have a disruption in their ability to supply us, the results
could have a material adverse affect on us. In addition, if key customers have
disruptions in their operations due to Year 2000 compliance issues, the results
could have a material adverse affect on us due to the customers' reallocation
of resources. We are also developing contingency plans, which by their nature
will continue to evolve; with regard to a worst case Year 2000 scenerio in
which a particular division is unable to perform, plans are being developed,
and should be finished in the second quarter of 1999, to shift work to other
divisions.
Impact of Recently Issued Accounting Standards
We do not believe that any recently issued accounting standards which have
not yet been adopted will have a material impact on our consolidated financial
statements. SFAS 133, Accounting for Derivative Financial Instruments, which
will be effective for our year ending December 31, 2000, is not expected to
have a material impact on our financial statements because SFAS 133 deals with
derivative financial instruments, which presently are not instruments that we
are involved in to a material extent. SFAS 131, Disclosure About Segments of an
Enterprise and Related Information, which is effective for our year ended
December 31, 1998 has not had a material impact on our financial statement
disclosures since we consider ourselves to be in the single reporting segment
of general commercial printing.
40
<PAGE>
BUSINESS
General
Premier Graphics is the wholly-owned operating subsidiary of Master
Graphics. Master Graphics and Premier Graphics are the successor entities to
Master Printing and B&M Printing, respectively. Master Printing was originally
formed by John Miller (the current Chairman of the Board, Chief Executive
Officer and President of Master Graphics) in 1992 to acquire all of the
outstanding stock of B&M Printing. In 1997, in anticipation of the
implementation of an acquisition strategy, Master Printing merged with and into
Master Graphics, and B&M Printing merged with and into Premier Graphics.
We are a leading consolidator within the general commercial printing
industry. From June 1997 through March, 1999, we have acquired 17 high quality,
general commercial printing companies which we believe are market leaders in
their respective geographic areas in terms of customer service, responsiveness
and quality. Each of the acquired companies operates as a separate division of
Premier Graphics and provides a full range of general commercial printing
services. The acquired companies have an average operating history of nearly
50 years, established customer relationships and strong reputations for
customer service, responsiveness and quality. We expect that our operating
strategy will enable each division to offer broader services to existing
customers and attract new customers.
We provide service in all areas of general commercial printing, including
prepress, printing and postpress services. Our products include annual reports,
direct mail pieces, sales literature, point of purchase materials, market
letters, newsletters, training manuals, product brochures and catalogs for
customers such as Federal Express, IBM, Provident Life, W. W. Grainger, Turner
Broadcasting and G. D. Searle. Our operating philosophy emphasizes responding
rapidly to customer requirements and producing high quality printed materials.
Responsiveness is essential because of the typically short lead time on most
general commercial printing jobs.
The General Commercial Printing Market
The printing industry is one of the largest and most fragmented industries
in the United States, with total estimated 1997 sales of $141.7 billion among
an estimated 52,000 printing companies according to the Printing Institute of
America. The printing industry includes general commercial printing, financial
printing, printing and publishing of books, newspapers and periodicals, quick
printing and production of business forms and greeting cards. We focus on
providing general commercial printing and related services. According to the
Printing Institute of America, this segment had approximately $46.8 billion in
revenue in 1997 among approximately 25,000 general commercial printing
companies.
The general commercial printing industry involves developing a customer's
concept into printable material through the use of design and electronic
prepress services; using printing presses to imprint the printable material
onto paper; cutting, folding, and binding the finished product; and, finally,
storing and distributing the finished product at the customer's direction.
Historically, design and prepress services were performed by advertising
agencies, specialty
41
<PAGE>
printing services or the customer, but because of the decreased cost of and
technological advancements in computer-aided design software and hardware,
general commercial printing companies are able to offer electronic prepress
services to their customers on a more efficient and cost-effective basis.
The primary printing process used by the general commercial printing
industry is offset lithography. Paper is fed into the printing presses utilized
in the offset lithography process either sheet by sheet (called sheet fed
presses) or on continuous rolls (called web presses). The sheet fed presses are
generally more cost-effective than web presses for jobs of fewer than 50,000
impressions. Web presses are generally used for large printing jobs such as
catalogs and magazines. Sheet fed presses vary in size and are capable of
printing up to 16 pages of letter-sized finished product on a 25 by 38-inch
sheet of paper with eight pages on each side (known as 16-page "signature") at
speeds of up to 15,000 impressions per hour. Web presses print on a continuous
roll of paper and can print on both sides of the paper at the same time, print
32-page signatures at speeds of over 40,000 impressions per hour and fold, glue
and perforate a finished product.
Large printing companies making extensive use of web presses include R. R.
Donnelley, World Color Press and Quebecor. These companies specialize in large
production runs of over 50,000 copies generally pursuant to long-term
contracts. General commercial printing companies relying heavily on sheet fed
presses tend to be smaller, locally owned and operated companies that service
customers predominately on a job-by-job basis. These companies compete by
offering a high level of customer service and rapid turnaround of projects.
Due to the fragmented nature of the general commercial printing industry, we
believe an abundance of acquisition opportunities exist. The general commercial
printing business is characterized by a significant number of locally oriented,
privately-held businesses, many of which are viable acquisition candidates.
Owners of these independent companies are often motivated to sell their
printing businesses to access the financial capital and other operating
strengths we have to offer to grow the business, increase their personal
financial liquidity or facilitate retirement. Moreover, consolidators like us
are motivated to purchase independent companies because of substantial
potential economies of scale to be achieved from a large multi-plant and
geographically diverse organization.
Operating Strategy
We have developed an integrated operating and acquisition strategy designed
to maximize internal and external growth and maintain and expand our position
as a leading provider of general commercial printing services. Our operating
strategy is to combine the service and responsiveness of a locally-oriented,
independent general commercial printing company with the resources and
economies of scale of a large company. The key elements of our operating
strategy are as follows:
. Provide Premium, High Quality Service. We target the premium segment of
the general commercial printing market. Our customers generally choose
printers
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<PAGE>
primarily based on service, quality and responsiveness, and not based
solely on price.
. Stimulate Internal Growth. In order to maximize each division's internal
growth and profitability, we have developed our proprietary Master
Central equipment utilization and marketing process. Master Central is
designed to maximize utilization of our existing printing capacity and
capabilities by (1) allocating, on a real time basis, certain printing
projects to a particular division based on equipment capabilities and
availability; (2) training our sales force to market the production
capacity and capabilities of all of our divisions; and (3) expanding our
product and service offerings. See "--Master Central."
. Achieve Economies of Scale. As a result of centralized purchasing, we
expect to receive volume discounts and rebates from manufacturers of
paper, film, printing plates and ink that would be unavailable to our
divisions on a stand-alone basis. Paper is generally the largest cost
item for general commercial printing companies, including Premier
Graphics. Our paper costs were approximately 26% of revenue for the year
ended December 31, 1998. We have pricing arrangements with five paper
suppliers which provide discounts and rebates based on volume and is
currently discussing with certain manufacturers purchase terms for film,
printing plates and ink and other printing supplies. In addition, we are
currently centralizing administrative items such as insurance and
employee benefits to further reduce costs.
. Operate on a Decentralized Basis. We intend to retain the key managers
of the businesses we acquire and allow them to maintain substantial
responsibility for the day-to-day operations, profitability and growth
of those businesses as separate divisions. We believe that the operating
autonomy provided by the decentralized structure, together with the
implementation of reporting systems and financial controls at the
corporate level, will enable us to combine the service and
responsiveness of a locally-oriented, independent general commercial
printing company with the resources and economies of scale of a large
company. Moreover, we provide incentives to our employees and align
their interests with our shareholders by using equity based compensation
and earnings based bonuses.
Acquisition Strategy
Our acquisition strategy is to become a leading provider of general
commercial printing services in the United States by acquiring independent
general commercial printing companies that are well managed and market leaders
in customer service, responsiveness and quality. We believe that our profile
within the industry and our philosophy of decentralized operations and
centralized administration enable us to identify and acquire high quality,
market leading independent general commercial printing companies. The key
elements of our acquisition strategy are as follows:
. Acquire High Quality, Well Managed Companies. We evaluate potential
acquisition candidates based on a variety of factors, including
reputation for quality,
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<PAGE>
service, strength of management, competitive market position, historical
financial performance, growth potential, customer base, equipment
capabilities and available capacity. We seek to acquire only those
companies which maintain high levels of quality and service consistent
with our existing divisions. We believe this strategy is essential to
enabling each division to cross-sell the capacity and capabilities of
the other divisions without concerns about quality and service.
. Retain Existing Management of Companies Acquired. We seek to acquire
successful companies whose key managers will become our employees and
continue to operate acquired businesses as divisions of Premier
Graphics. To preserve local market knowledge and customer relationships,
we have entered into employment contracts and agreements not to compete
with the key managers at each acquired company and we intend to continue
to do so in the future.
Acquired Companies
<TABLE>
<CAPTION>
Number of Number of
Year Sheet Fed Web Fed
Acquired Company Founded Location Presses Presses
<S> <C> <C> <C> <C>
B&M Printing............ 1969 Memphis, Tennessee 6 0
Blackwell
Lithographers.......... 1932 Jackson, Mississippi 4 0
Lithograph Printing..... 1947 Memphis, Tennessee 3 2
Sutherland Printing..... 1940 Montezuma, Iowa 6 0
Ozark, Missouri 1 0
The Argus Press......... 1922 Chicago, Illinois 5 0
Phoenix Communications.. 1960 Atlanta, Georgia 6 2
Jones Printing Company.. 1947 Chattanooga, Tennessee 8 1
Hederman Brothers....... 1898 Jackson, Mississippi 7 0
Phillips Litho.......... 1973 Springdale, Arkansas 4 4
Harperprints............ 1974 Henderson, North Carolina 3 0
McQuiddy Printing
Company................ 1903 Nashville, Tennessee 4 2
Golden Rule Printing.... 1978 Huntsville, Alabama 6 0
The Printing Company.... 1983 Indianapolis, Indiana 3 0
Stephenson Printing..... 1953 Alexandria, Virginia 3 2
Technigrafiks........... 1977 Houston, Texas 3 0
Woods Lithographics..... 1978 Phoenix, Arizona 8 0
White Arts.............. 1945 Indianapolis, Indiana 4 0
Columbia Graphics....... 1977 Chicago, Illinois 7 0
--- ---
91 13
=== ===
</TABLE>
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<PAGE>
The following table provides a summary of consideration given to the sellers
in each of the acquisitions.
<TABLE>
<CAPTION>
Seller Common Warrant
Company Date Acquired Cash(1) Notes Stock Shares(2)
<S> <C> <C> <C> <C> <C>
Lithograph Printing
Company................ June 1997 $ 7,433,727 $ 3,750,000 -- 375,000
Blackwell
Lithographers.......... June 1997 3,000,000 1,000,000 -- 100,000
Sutherland Printing..... June 1997 -- 351,053 -- 32,500
The Argus Press......... September 1997 8,500,000 3,750,000 -- 375,000
Phoenix Communications.. December 1997 6,633,030 1,150,000 -- 465,000
Jones Printing Company.. December 1997 2,672,594 1,250,000 -- 124,999
Hederman Brothers....... March 1998 1,500,000 193,000 -- 199,998
Phillips Litho.......... March 1998 8,113,078 854,219 -- 85,421
Harperprints............ March 1998 4,568,875 1,125,00 -- 50,000
McQuiddy Printing
Company................ May 1998 5,012,697 1,502,948 -- 20,930
Golden Rule Printing.... August 1998 4,569,630 -- $1,280,000 --
The Printing Company.... September 1998 5,544,426 -- -- --
Stephenson Printing..... September 1998 9,235,926 -- -- --
Technigrafiks........... December 1998 8,555,132 -- -- --
Woods Lithographics..... March 1999 4,890,000 -- 250,000 --
White Arts.............. March 1999 260,000 -- -- --
Columbia Graphics....... March 1999 11,869,603 -- -- --
----------- ----------- ---------- ---------
Total................................. $92,358,718 $14,926,220 $1,530,000 1,828,848
=========== =========== ========== =========
</TABLE>
- --------
(1) In addition to cash consideration paid to sellers, we incurred other
transaction costs which have totaled approximately $5.2 million.
(2) The respective acquisition agreements specify a dollar value of common
stock which may be acquired by the Seller at $10.00 per share.
Former owners of eleven of the acquired companies have the right to receive a
substantial amount of additional consideration, payable in cash, contingent
upon meeting certain EBITDA-based targets. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources" for a discussion of the amounts and timing of the contingent
payments.
The consideration we paid for each acquired company was the result of arm's
length negotiations between our representatives and representatives of the
acquired company and was based generally on our evaluation of the acquired
company's operating results, assets and capitalization.
Master Central
A successful printing company must have a substantial investment in printing
presses and related equipment and plant facilities. The general commercial
printing industry is characterized by unpredictable demand which affects
equipment utilization. A particular printing facility may at any given time
have either excess capacity or demands from customers which cannot be met.
Further, the size and type of printing jobs a general commercial printing
company is capable of completing is limited by type and number of printing
presses owned by that company. For example, it may not be economically feasible
for one of our divisions which operates only sheet fed presses to bid on a
large printing project which could be produced more efficiently on a web press.
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<PAGE>
We have established Master Central to utilize more efficiently printing
capacity and effectively allocate print jobs across the range of our available
equipment. Currently, three employees located at our headquarters and one
employee in each division, all under the direction of our Chief Operating
Officer, have been designated as the Master Central Team. Master Central acts
as a clearinghouse whereby a division submits a job that it cannot print
either because of capacity restraints or because the division does not have
necessary equipment. Through Master Central, this job is routed to the
division with the necessary equipment or available capacity to handle the job.
Master Central is an operating process which focuses on:
(1) effective marketing of the production capacity and capabilities of all
of our divisions;
(2) increasing equipment availability across all divisions;
(3) responsiveness to customer driven deadlines; and
(4) efficient distribution of finished products to customers.
In connection with Master Central, we are training our sales force to
effectively promote and market the production capacity and capabilities of all
of our divisions. Master Central currently operates via facsimile, telephone
and electronic mail; however, we are currently evaluating high speed
electronic data transfer systems which will facilitate communications and data
transfers between divisions.
Operations
We provide service in all areas of general commercial printing, including:
(1) developing a customer's concept into printable material through the use
of electronic prepress services;
(2) using printing presses to imprint the printable material onto paper;
(3) cutting, folding, and binding the finished product; and
(4) storing and distributing the finished product.
Design and Prepress Services. One of the most significant technological
advancements in the general commercial printing industry in recent years has
been the computerization of the prepress area. Because of such technological
advances and a decrease in the cost of such technology, we are able to offer
design and prepress services to our customers on an efficient and cost-
effective basis. Historically, such design and prepress services were provided
by advertising agencies, specialty printing services or customers in-house.
Prepress services include the development of designs for customers and the
conversion of designs into digitized images. We offer commercial prepress
services at all of our facilities, enabling each division to service customers
from inception of the concept through delivery of the finished product.
Printing. Once a project has finished the prepress area, it is moved to the
press area where the image is reproduced on paper. We operate 91 sheet fed
presses, ranging in size from 11x17 to 28x41, which are capable of
simultaneously printing up to six colors and producing up to 15,000
impressions per hour. We also operate 13 web presses which are
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<PAGE>
capable of producing up to 40,000 impressions per hour, folding, glueing and
perforating a finished product. Our web presses are located in 6 divisions.
Finishing. The finishing operations provided by Premier Graphics include
cutting, folding, binding and other operations to finish the printed product.
Historically, general commercial printing companies outsourced those finishing
operations which required substantial capital investments. Because some of the
acquired companies own such equipment, we are able to offer finishing
operations and provide a completely integrated service from design to
fulfillment.
Fulfillment. The fulfillment area provides a wide range of labor intensive
services that combine, package, store and ship our finished products. The
fulfillment area also provides electronic tracing services for customer
inventory and accumulates data for marketing departments that indicate the
effectiveness of print-related marketing campaigns. Large corporations utilize
a variety of our fulfillment services including: custom assembly of binders;
gathering information from promotional mailings; returning premium or incentive
items to respondents; and combining magnetic media with printed media prior to
shipment.
Customers
Most of our top customers are large companies such as Federal Express, IBM,
Provident Life, W. W. Grainger, Turner Broadcasting and G. D. Searle.
Consistent with the general commercial printing industry as a whole, we
generally have no significant long-term contracts with its customers. Due to
the project-oriented nature of customers' printing requirements, sales to
particular customers may vary significantly from year to year. Our top ten
customers in 1998 accounted for less than 19% of sales; no customer accounted
for more than 3%.
Sales and Marketing
On March 23, 1999, Premier Graphics employed 177 salespeople across all of
its divisions, a majority of which are paid on a commission basis. We market
our services based primarily on quality and responsiveness and, to a lesser
degree, on price. Through our salespeople and other management professionals,
we maintain strict control of the printing process from the time a prospective
customer is identified through the scheduling, prepress, printing and postpress
operations. Our business is principally service-oriented, and our operating
philosophy emphasizes responding rapidly to customer requirements and producing
high quality products. Responsiveness is essential because of the typically
short lead time on most general commercial printing jobs. Premier Graphics,
like other general commercial printing companies, is designed to maintain
maximum flexibility to meet customer needs both on a scheduled and an emergency
basis.
We believe that a well trained, experienced sales force is a vital component
of our internal growth strategy. In addition to the training provided with
respect to Master Central, we have implemented a training program designed to
enhance the effectiveness and knowledge of our sales force. The general
commercial printing business requires a substantial amount of interaction with
customers, including personal sales calls, art work and
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<PAGE>
computer disk reviews, reviews of color and other proofs and "press checks"
(customer approval of the printed piece while it is being printed).
Each of our divisions employs salespeople who are knowledgeable about the
industry and the printing capabilities of the division they serve. As a result
of the implementation of Master Central, each salesperson will also be trained
in the printing capabilities at each of the other divisions. Our sales
philosophy stresses frequent sales calls on existing customers and constant
marketing to prospective new customers. Each division emphasizes to its
customers the breadth and sophistication of the particular division's printing
capacity and the printing capacity of Premier Graphics as a whole, the speed
and quality of its service and the personal attention offered by its
salespeople. In addition to soliciting business from existing and prospective
customers, the salespeople act as liaisons between customers and production
personnel and provide technical advice and assistance to customers throughout
the printing process.
The general commercial printing industry is characterized by strong
relationships between the purchasers of printing services and the salespeople
who service their accounts. We believe that it is important to retain its
existing sales force and attract new salespeople. We believe that our existing
compensation structure is competitive with other companies in the general
commercial printing industry. Moreover, because we generally can offer greater
capacity and a broader array of capabilities than smaller, locally-owned
general commercial printing companies, Premier Graphics believes it can
successfully compete with these other printing companies to hire additional
qualified salespeople.
Purchasing and Raw Materials
As a result of centralized purchasing, we believe we will be able to take
advantage of volume discounts and rebates from manufacturers and suppliers of
paper, film, printing plates and ink that would be unavailable to the divisions
on a stand-alone basis. We purchase various materials, including paper,
prepress supplies, printing plates, ink, film, chemicals, solvents, glue and
wire, from a number of national and local suppliers. Paper is generally the
largest cost item for general commercial printing companies, including Premier
Graphics. Our paper costs were approximately 26.0% of revenue for the year
ended December 31, 1998. We do not maintain a significant inventory of paper
and are generally able to pass the cost of the paper through to our customers.
We have in place pricing arrangements with five paper suppliers which provide
for discounts and rebates based on volume.
We are currently in the process of negotiating national purchasing
arrangements with other major suppliers and manufacturers. We anticipate that
each division will order the goods and services as needed either in accordance
with the terms set forth in the national purchasing arrangements, if
applicable, or on a local basis. We will receive input from each division on
market conditions, local supplier service and product developments which will
enable us to continually maximize the benefits of these master purchasing
arrangements.
We have not experienced any significant difficulty in obtaining raw
materials necessary for our operations.
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<PAGE>
Competition
We compete with a substantial number of other general commercial printing
companies. Because of the nature of our business, most of our competition is
confined to local printing markets. The major competitive factors in our
business are the quality of customer service, the quality of finished products
and price. Our ability to compete effectively in providing customer service and
quality finished products is primarily dependent on production and distribution
capabilities, the availability of equipment and the ability to perform the
services with speed and accuracy. We believe we compete effectively in all of
these areas.
Although the general commercial printing industry in the United States
remains highly fragmented, recent technological developments and over-capacity
in the industry have increased industry consolidation and competitive
pressures. Moreover, we compete for potential acquisition candidates with other
printing industry consolidators, some of which have greater financial resources
than we do.
Employees
On March 23, 1999, we had approximately 1,900 employees. Less than five
percent of our employees are members of the Graphic Communications Union. These
employees work under a collective bargaining agreement which expires on March
31, 2000. We believe our relationship with our employees, including those
covered by a collective bargaining agreement, is good.
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<PAGE>
Facilities
Our principal facilities are described in the table below. All of the listed
facilities contain office, production and storage space. Our facilities are
suitable and adequate for our current needs. For additional information, see
"Certain Transactions."
<TABLE>
<CAPTION>
Approximate
Building Space
Facility and Location Owned/Leased (Square Feet)
<S> <C> <C>
Master Graphics, Inc.
Memphis, Tennessee............................ Leased 3,000
B&M Printing Division
Memphis, Tennessee............................ Leased 70,000
Blackwell Lithographers Division
Ridgeland, Mississippi........................ Owned 18,000
Lithograph Printing Division
Memphis, Tennessee............................ Leased 64,000
Sutherland Printing Division
Ozark, Missouri............................... Owned 15,000
Sutherland Printing Division
Montezuma, Iowa............................... Owned 33,000
Argus Press Division
Niles, Illinois............................... Leased 56,000
Phoenix Communications Division
Chamblee, Georgia............................. Leased 67,000
King Mailing Services Division
Chamblee, Georgia............................. Leased 10,400
Jones Printing Division
Chattanooga, Tennessee........................ Leased 31,000
Jones Printing Division
Chattanooga, Tennessee........................ Leased 16,500
Hederman Brothers Division
Ridgeland, Mississippi........................ Leased 72,000
Phillips Litho Division
Springdale, Arkansas.......................... Owned 73,800
Harperprints Division
Henderson, North Carolina..................... Leased 55,000
McQuiddy Printing Division
Nashville, Tennessee.......................... Owned 83,400
Golden Rule Printing Division
Huntsville, Alabama........................... Leased 65,000
The Printing Company Division
Indianapolis, Indiana......................... Leased 22,000
Stephenson Printing Division
Alexandria, Virginia.......................... Leased 94,000
Technigrafiks Division
Houston, Texas................................ Leased 30,300
Woods Lithographics Division
Phoenix, Arizona.............................. Leased 54,500
White Arts Division
Indianapolis, Indiana......................... Owned 64,000
Columbia Graphics Division
Chicago, Illinois............................. Leased 80,000
</TABLE>
50
<PAGE>
Government and Environmental Regulation
Our manufacturing operations are subject to numerous federal, state and
local laws and regulations relating to human health and safety and the
environment. These laws and regulations address and regulate, among other
matters, wastewater discharge, air quality and the generation, handling,
storage, treatment, disposal and transportation of solid and hazardous wastes
and releases of hazardous substances into the environment. In addition, third
parties and governmental agencies in some cases have the power under such laws
and regulations to require remediation of environmental conditions and, in the
case of governmental agencies, to impose fines and penalties. We make capital
expenditures from time to time to stay in compliance with applicable laws and
regulations.
We have obtained all permits and approvals and filed all registrations
required for the conduct of our business, except where the failure to obtain
any permit or approval or file any registration would not have a material
adverse effect on our business, financial condition or result of operations. We
are in compliance in all material respects with the numerous federal, state and
local laws and regulations and permits, approvals and registrations relating to
human health and safety and the environment except where noncompliance would
not have a material adverse effect on our business, financial condition or
results of operations.
In connection with our acquisitions, each of our properties has been
subjected to a Phase I environmental site assessment (which does not involve
invasive procedures, such as soil sampling or ground water analysis) by
independent environment consultants. The purpose of a Phase I environmental
site assessment is to identify potential sources of contamination for which we
may be responsible and to assess the status of environmental regulatory
compliance. We conduct further environmental testing when we believe it prudent
and advisable.
The Phase I environmental site assessment obtained for the property used by
the Stephenson Printing Division revealed that there are two underground
storage tanks listed with the Virginia Department of Environmental Quality as
"currently in use" on the property. The owner of the property has informed
Premier Graphics that the underground storage tanks were removed in the mid-
1980's, although there is no documentation of the removal of the tanks. The
storage tanks were previously used for the storage of alcohol and solvent.
There is a potential for soil or groundwater contamination on the property if
there were any releases from the underground storage tanks.
The Phase I environmental site assessment obtained for the property used by
our Columbia Graphics Division disclosed that asbestos-containing materials may
be present in building materials. We intend to conduct an asbestos survey and
remove and/or abate any friable asbestos that we find. The Phase I study also
pointed out possible deficiencies in the filing and record-keeping practices of
the division. Therefore, we also intend to further study these practices, as
well as the waste disposal practices of the division.
No other environmental testing has revealed any environmental condition,
liability or compliance concern that we believe would have a material adverse
effect on our business, assets or results of operations, nor are we aware of
any such condition, liability or concern
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<PAGE>
by any other means. However, it is possible that the environmental testing
relating to any one of the properties did not reveal all environmental
conditions, liabilities or compliance concerns. It is also possible that there
are material environmental conditions, liabilities or compliance concerns that
arose at a property after the related review was completed. If environmental
contamination exists or existed at a property, we may be liable for the costs
of removal or remediation of the contamination and may be liable for personal
injury or similar claims by private plaintiffs. Moreover, if there is an
environmental compliance issue, we may be liable for the costs of and penalties
associated with any action necessary to correct this deficiency. The existence
of environmental liabilities with regard to a property could adversely affect
our ability to sell or borrow against that property.
No assurances can be given that all potential environmental liabilities have
been identified or properly quantified or that any prior owner, operator, or
tenant has not created an environmental condition unknown to Premier Graphics.
Moreover, no assurances can be given that
. future laws, ordinances or regulations will not impose any material
environmental liability or
. the current environmental condition of the properties will not be
affected by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by
third parties.
Federal, state and local environmental regulatory requirements change often.
It is possible that compliance with a new regulatory requirement could impose
significant compliance costs on us. Such costs could have a material adverse
effect on our business, financial condition and results of operations.
Legal Proceedings
From time to time we are involved in litigation relating to claims arising
in the normal course of business. We maintain insurance coverage against
potential claims in an amount which we believe to be adequate. While the
outcome of lawsuits or other proceedings against us cannot be predicted with
certainty, we do not believe these matters whether or not covered by insurance
will have a material adverse effect on its business or financial position,
individually or in the aggregate.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the directors
and executive officers of Master Graphics.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
John P. Miller.................. 44 Chairman of the Board; Chief Executive
Officer and President; Class III Director
Lance T. Fair................... 35 Senior Vice President--Acquisitions; Chief
Financial Officer and Secretary
Robert J. Diehl................. 56 Chief Operating Officer
P. Melvin Henson, Jr. .......... 41 Senior Vice President--Finance and
Administration; Chief Accounting Officer
Donald H. Goldman............... 62 Senior Vice President; Chief Information
Officer
James B. Duncan................. 55 Senior Vice President--Sales and Marketing
H. Henry (Hap) Hederman, Jr. ... 52 Class I Director, President Hederman
Brothers Division
Donald L. Hutson................ 52 Class I Director
Frederick F. Avery.............. 67 Class II Director
Cary Rosenthal.................. 58 Class III Director, President Phoenix
Division
</TABLE>
John P. Miller has been Chairman of the Board of Directors, Chief Executive
Officer and President of Master Graphics since its inception. Prior to assuming
his position with the Company, Mr. Miller was the Chairman of the Board of
Directors and Chief Executive Officer of B&M Printing from December 1992 to
June 1997.
Lance T. Fair has been the Senior Vice President--Acquisitions, Chief
Financial Officer and Secretary of Master Graphics since September 1997. From
July 1995 until he joined the Company, Mr. Fair was Vice President and Chief
Financial Officer of Warterfield Holdings, Inc. From June 1989 to July 1995,
Mr. Fair was a principal at Asset Services, L.P., a Memphis, Tennessee-based
mergers and acquisition advisory firm.
Robert J. Diehl has been the Chief Operating Officer of Master Graphics
since January 1998. Mr. Diehl has over 25 years of experience in the general
commercial printing industry. From January 1994 to December 1997, Mr. Diehl was
President of Hollis Digital Imaging Systems, Inc., a digital printing company
located in Tucson, Arizona. From 1989 to December 1993, Mr. Diehl was Managing
Director of R.H. Rosen Associates, Inc., a printing industry consulting firm.
P. Melvin Henson, Jr. has been the Senior Vice President--Finance and
Administration and Chief Accounting Officer of Master Graphics since December
1997. From July 1979 to December 1997, Mr. Henson was employed in a variety of
financial management positions with International Paper Company including
Manager--Finance for International Paper's business process redesign project
and controller for International Paper's pulp and paper manufacturing facility
in Erie, Pennsylvania.
53
<PAGE>
Donald H. Goldman has been a Senior Vice President and the Chief Information
Officer of Master Graphics since July 1998. From 1981 through June 1998, Mr.
Goldman served as the President of ConsultWare, Inc., a graphic arts consulting
firm located in Marblehead, Massachusetts. Mr. Goldman has been a consultant
and speaker to trade organizations within the printing industry. Mr. Goldman
also serves on the advisory board for CIMSPrint, an educational and research
service for the printing industry sponsored by the Rochester Institute of
Technology.
James B. Duncan has been the Senior Vice President--Sales and Marketing of
Master Graphics since October 1997. From November 1996 to September 1997, Mr.
Duncan operated a consulting practice focused on sales training and management.
From April 1989 to October 1996, Mr. Duncan was a Division President for
Smith & Nephew PLC, where he directed global operations for the Center of
Excellence for Smith & Nephew's ear, nose and throat products.
H. Henry (Hap) Hederman, Jr. has been a Director of Master Graphics since
March 1998 and has served as the President of the Hederman Brothers Division
since March 1998. Mr. Hederman has over 30 years of experience in the general
commercial printing industry. From 1982 through March 1998, Mr. Hederman served
as the President and Chief Executive Officer of Hederman Brothers, Inc. (which
was acquired by the Company in March 1998). Mr. Hederman currently serves as a
member of the board of directors and a member of the executive committee of the
board of directors of MS Diversified Corp.
Donald L. Hutson has been a Director of Master Graphics since March 1998.
Since September 1966, Mr. Hutson has been a business trainer, professional
speaker and consultant to corporations and trade associations on employee
development issues.
Frederick F. Avery has been a Director of Master Graphics since March 1998.
Mr. Avery has been a business consultant since April 1994. From July 1987 to
March 1994, Mr. Avery served in a variety of roles with Kraft Foods, including
President of Kraft Food Ingredients and Group Vice President.
Cary Rosenthal has been a Director of Master Graphics since March 1998 and
has served as the President of the Phoenix Division since December 1997. Mr.
Rosenthal has over 30 years of experience in the general commercial printing
industry. From September 1979 to December 1997, Mr. Rosenthal served as
President and Chief Executive Officer of Phoenix Communications, Inc. and King
Mailing Services, Inc. (both of which were acquired by the Company in December
1997). Mr. Rosenthal currently serves as a member of the board of directors and
serves on the audit and option committees of the board of directors of SED
International Holdings, Inc. Additionally, Mr. Rosenthal serves as a member of
the board of directors of Printing Industries Association of Georgia, a trade
organization.
There are no family relationships among any of the executive officers or
directors of Master Graphics.
54
<PAGE>
Master Graphics' Charter divides the Board into three classes of as equal
size as possible, with the terms of each class expiring in consecutive years so
that only one class is elected in any given year. The terms of Messrs. Hederman
and Hutson will expire at the 1999 annual meeting of shareholders; the term of
Mr. Avery will expire at the 2000 annual meeting of shareholders; and the terms
of Messrs. Miller and Rosenthal will expire at the 2001 annual meeting of
shareholders. The executive officers of Master Graphics are elected annually by
the Board following the annual meeting of shareholders and serve at the
discretion of the Board, subject to the terms of their respective employment
agreements, until their successors are elected and qualified.
Committees of the Board of Directors
The Board of Directors of Master Graphics has established an Audit
Committee, an Acquisition Committee, an Options and Benefits Committee and a
Compensation Committee. Pursuant to resolutions of the Board, these committees
have the following described responsibilities and authority.
The Audit Committee has the responsibility, among other things, of
(1) recommending the selection of Master Graphics' independent public
accountants,
(2) reviewing and approving the scope of the independent public
accountants' audit activity and the extent of non-audit services,
(3) reviewing with management and such independent public accountants the
adequacy of Master Graphics' basic accounting systems and the
effectiveness of Master Graphics' internal audit plan and activities,
(4) reviewing with management and the independent public accountants Master
Graphics' financial statements and exercising general oversight of
Master Graphics' financial reporting process, and
(5) reviewing litigation and other legal matters that may affect Master
Graphics' financial condition.
The members of the Audit Committee are Messrs. Avery, Hutson and
Miller.
The Compensation Committee has the responsibility, among other things, of
(1) establishing the salary rates of executive officers of Master Graphics,
and
(2) examining periodically the compensation structure of Master Graphics.
The members of the Compensation Committee are Messrs. Avery, Hutson and
Miller.
The Options and Benefits Committee has the responsibility to administer the
1998 Equity Compensation Plan and to supervise Master Graphics' welfare and
pension plans.
The members of the Options and Benefits committee are Messrs. Avery and
Hutson.
55
<PAGE>
The Acquisition Committee has the authority to approve the terms and
conditions of acquisitions of businesses by Master Graphics, including the
authority to approve the issuance of debt and equity securities of Master
Graphics in connection with such acquisitions, provided that the consideration
paid by Master Graphics for each business is less than $10 million. The members
of the Acquisition Committee are Messrs. Miller, Hederman and Rosenthal.
The Board of Directors may also establish other committees.
Director Compensation
Each director who is not an employee of Master Graphics is paid $1,000 for
each meeting attended. All directors are reimbursed for expenses incurred in
attending meetings of the Board of Directors and committee meetings of the
Board of Directors. Non-employee directors are eligible to receive grants under
Master Graphics' 1998 Non-Employee Director Option Plan. Each non-employee
director received a grant of an option to purchase 1,000 shares of Common Stock
at a purchase price per share equal to $10.00.
Compensation Committee Interlocks and Insider Participation
Mr. Miller serves as a member of the compensation committee of Master
Graphics' Board of Directors. Mr. Miller presently serves as Chief Executive
Officer and President of Master Graphics. Mr. Miller does not participate in
actions or considerations by the compensation committee with respect to his own
compensation.
56
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information concerning the compensation paid by Master Graphics to the Chief
Executive Officer of Master Graphics and the three other most highly paid
executive officers earning in excess of $100,000 during 1998.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------
Fiscal
Name and Principal Position Year Salary Bonus (1)
<S> <C> <C> <C>
John P. Miller....................................... 1998 $250,000 --
Chairman of the Board, President and Chief Executive
Officer 1997 $145,833 --
1996 $ 86,666 --
Lance T. Fair........................................ 1998 $120,000 --
Senior Vice President--Acquisitions and Chief
Financial Officer 1997 $ 34,153 $600,000
Robert J. Diehl...................................... 1998 $175,000
Chief Operating Officer 1997 -- $300,000
James B. Duncan ..................................... 1998 $100,000 --
Senior Vice President--Sales and Marketing 1997 $ 20,833 $ 50,000
</TABLE>
- --------
(1) Includes only deferred compensation payments to the executive officers
named in the Summary Compensation Table. The amount indicated is payable in
cash on December 31, 2002 or, at the option of the applicable executive
officer, in Master Graphics common stock on or before December 31, 2002.
Master Graphics may prepay the full deferred compensation obligation at any
time. If the executive officer elects to receive common stock in lieu of
cash, he is entitled to receive the number of shares of common stock equal
to the quotient of (A) the deferred compensation amount owed to such
executive officer divided by (B) $10.00, the initial public offering price
of the common stock.
Employment Agreements
Master Graphics has employment agreements with each of the executive
officers included in the Summary Compensation Table above. Master Graphics also
has employment agreements with P. Melvin Henson and Donald H. Goldman. The
general terms of the employment agreements are described in the table below:
Term...................... Each employment agreement has an initial
term of three years and is renewable
automatically for one year periods unless
terminated by one of the parties
Compensation.............. The employment agreements provide for the
following annual salaries: Mr. Miller--
$250,000; Mr. Diehl--$175,000; Mr. Fair--
$120,000; Mr. Henson--$100,000; Mr. Duncan--
$100,000; and Mr. Goldman--$100,000. The
annual salaries are subject to adjustment at
the discretion of the
57
<PAGE>
Board of Directors, but may not be decreased
more than 5% from the previous years'
salary. In addition, the agreements provide
for annual incentive compensation to each
officer of up to 100% of his base salary
based on performance targets established by
the Compensation Committee of the Board of
Directors.
Termination Provisions.... In the event that the officer's employment
is terminated without cause or the officer
suffers a constructive termination of his
employment and there has been no change of
control of Master Graphics, Master Graphics
will pay such officer a lump sum severance
payment equal to 200% of the sum of such
officer's combined (1) base salary in effect
at the time of termination and (2) the
average of the annual incentive award for
the two immediately preceding calendar
years.
In the event the officer's employment is
terminated with cause, regardless of whether
there has been a change of control of Master
Graphics, Master Graphics will pay such
officer only accrued but unpaid base salary
through the date of termination.
If the officer's employment is terminated
without cause or the officer suffers a
constructive termination of his employment
upon a change of control of Master Graphics,
he is entitled to receive a lump sum upon
such termination of an amount equal to the
sum of (1) 299% of such officer's combined
(A) base salary in effect at the time of
termination and (B) the average of the
annual incentive award for the two
immediately preceding completed calendar
years and, (2) to the extent that such
payment constitutes an "excess parachute
payment" within the meaning of Section 280G
of the Internal Revenue Code, an amount
equal to any tax incurred by such officer
pursuant to Section 280G of the Internal
Revenue Code.
Confidentiality and
Non-Compete............... Each agreement contains certain
confidentiality and non-competition
covenants.
58
<PAGE>
Option Grants
The following table sets forth the number of options to purchase shares of
common stock that have been granted to the executive officers of Master
Graphics named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term (3)
-------------------------------------------------- -----------------------------
Options % of Total
Granted Options Exercise
(No. of Granted to Price Per
Shares (1) Employees (2) Share(3) Expiration Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John P. Miller.......... -- -- --
Lance T. Fair........... 100,000 16.5% $10.00 June 2008 $ 628,895 $ 1,593,742
Robert J. Diehl......... 30,000 4.9 $10.00 June 2008 188,668 478,122
James B. Duncan......... -- -- --
</TABLE>
- --------
(1) The options reported in this column consist of options granted under Master
Graphics's 1998 Equity Compensation Plan. The options will become
exercisable on each of the first, second, and third anniversaries of the
date of grant with respect to 25%, 25% and 50%, respectively, of the shares
subject to the option.
(2) Based on outstanding options to purchase an aggregate of 607,284 shares of
Common Stock.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by SEC and, therefore, are not
intended to forecast possible future appreciation, if any, in the price of
the common stock. In order to realize the potential values set forth in the
5% and 10% columns of this table, the per share price of the common stock
would be $16.29 and $25.94 respectively, or 62.9% and 159.4%, respectively,
above the exercise price per share. Because the common stock was not
publicly traded prior to the initial public offering, these amounts were
calculated based on the assumption that the fair market value of one share
of common stock on the date of grant was equal to the exercise price.
The following table sets forth the number of options to purchase shares of
Common Stock held, as of December 31, 1998, by the executive officers named in
the Summary Compensation Table above.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at
December 31, 1998
-------------------------
Exercisable Unexercisable
<S> <C> <C>
John P. Miller........................................ -- --
Lance T. Fair......................................... -- 100,000
Robert J. Diehl....................................... -- 30,000
James B. Duncan....................................... -- --
</TABLE>
Equity Compensation Plan
Master Graphics's 1998 Equity Compensation Plan provides for grants of
(1) stock options,
(2) stock appreciation rights and
(3) restricted stock
59
<PAGE>
to selected employees, officers, directors, consultants and advisers of Master
Graphics and Premier Graphics. By encouraging stock ownership, we seek to
attract, retain and motivate these persons and to encourage them to devote
their best efforts to our business and financial success.
The equity compensation plan authorizes up to 750,000 shares of Master
Graphics' Common Stock (subject to adjustment in certain circumstances) for
issuance. If awards expire or are terminated for any reason without being
exercised, the shares of common stock subject to such awards again will be
available for purposes of the plan. As of the date of this prospectus, Master
Graphics has granted options to purchase 605,294 shares of common stock under
the 1998 Equity Compensation Plan. The Board of Directors has adopted a
proposed amendment to the 1998 Equity Compensation Plan to increase the total
number of shares of common stock issuable under the plan from 750,000 to
1,500,000. The shareholders will vote on the amendment at the annual meeting of
shareholders to be held on May 19, 1999.
1998 Non-Employee Director Stock Option Plan
Master Graphics has adopted the 1998 Non-Employee Director Stock Option
Plan. The purposes of the plan are to
(1) promote a greater identity of interest between our non-employee
directors and its shareholders,
(2) provide non-employee directors with an additional incentive to manage
Master Graphics effectively and contribute to its success, and
(3) provide a form of compensation which will attract and retain highly
qualified individuals as members of the board of directors.
The plan is administered by the board of directors. Non-employee directors
will be eligible to participate in the Director Option Plan. A maximum of
50,000 shares of Common Stock is available for issuance and available for
grants under the plan. As of the date of this prospectus, Master Graphics has
granted options to purchase 1,000 shares of common stock to each non-employee
director under the plan.
CERTAIN TRANSACTIONS
Premier Graphics, Inc., Master Graphics wholly-owned subsidiary, on December
10, 1992 loaned Mr. Miller $950,000, at a rate of 7% per annum. Mr. Miller
repaid this amount in full in June 1998.
Premier Graphics leases the facilities in which the B&M Printing Division is
located from Mr. Miller. The lease expires on November 30, 2002. The annual
base rent to be paid under this lease is approximately $140,000. We believe
that the terms of the lease are no less favorable to us than could have been
negotiated by Master Graphics with unaffiliated third parties.
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<PAGE>
On December 31, 1997, Mr. Miller purchased from Premier Graphics a web press
for total consideration of $2.8 million which was represented by a promissory
note from Mr. Miller to Premier Graphics in the principal amount of $2.8
million. Mr. Miller repaid all amounts owed to Premier Graphics in June 1998.
In the connection with the acquisition of Hederman Brothers, Inc. in March
1998, Mr. Hederman and members of his immediate family (or trusts for the
benefit of such individuals) received consideration in the form of $1.5 million
cash. Mr. Hederman and such family members and trusts received warrants to
purchase a total of 199,998 shares of common stock at $10.00 per share. Mr.
Hederman and such family members and trusts received promissory notes in the
aggregate principal amount of $2,000,000 which mature on February 28, 2005 and
bear interest at a rate of 12% per annum. Moreover, Premier Graphics currently
leases its Hederman Brothers Division facility from Mr. Hederman for annual
rental of $300,000 per annum. We believe that the terms of this lease are no
less favorable to us than could have been negotiated by Master Graphics with
unaffiliated third parties.
In the connection with the acquisition of Phoenix Communications, Inc. and
King Mailing Services, Inc. in December 1997, Mr. Rosenthal received
consideration in the form of approximately $3.3 million cash, a warrant to
purchase 232,500 shares of common stock at a price per share equal to $10.00,
and a promissory note in the principal amount of $557,750 which matures on
December 16, 2004 and bears interest at a rate of 12% per annum. Moreover, the
acquisition documents provide for up to $611,100 in contingent consideration to
be paid to Mr. Rosenthal in the event the Phoenix Division achieves certain
annual earnings targets specified in the acquisition agreement. Mr. Rosenthal
owns 50% of RFTA Associates, LLC, which leases the Phoenix Communications
Division facilities to Premier Graphics for an annual rent of approximately
$252,000 per year subject to annual adjustment based upon changes in the
consumer price index. We believe that the terms of such leases are no less
favorable to us than could have been negotiated by Master Graphics with
unaffiliated third parties.
On March 30, 1998, General Electric Capital Corporation exercised a warrant
to purchase an aggregate of 177,776 shares of common stock. The shares of
common stock were issued to a wholly-owned subsidiary of General Electric
Capital Corporation. On March 31, 1998, this subsidiary entered into an
exchange agreement with Master Graphics pursuant to which the 177,776 shares of
common stock were converted into 177,776 shares of Series A Convertible
Preferred Stock. On April 1, 1998, Master Graphics issued to General Electric
Capital Corporation a warrant to purchase 220,000 shares of common stock for
nominal consideration. We paid $3.0 million in advisory fees to General
Electric Capital Corporation for its advice and assistance in structuring and
negotiating the acquisitions of certain of the acquired companies and
approximately $1.5 million in loan origination fees. In addition, General
Electric Capital Corporation is a lender under, and administrative agent for,
Premier Graphics' credit facility.
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<PAGE>
Master Graphics Stock Ownership
Certain Beneficial Owners. To the best of our knowledge, the following are
the only persons who beneficially own five percent or more of our outstanding
common stock:
<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner Number Percentage(1)
- ------------------- --------- ------------
<S> <C> <C>
John P. Miller...................................... 4,138,000 52.2
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
General Electric Capital Corporation................ 397,776(2) 5.0
977 Long Ridge Road
Building B, First Floor
Stamford, Connecticut 06927
</TABLE>
- --------
(1) Based on 7,923,026 shares of common stock outstanding as of the date of
this prospectus. Beneficial ownership is determined in accordance with the
rules of the SEC and include voting or investment power with respect to
securities. Shares of common stock issuable upon the exercise of stock
options, warrant or other rights to acquire common stock, currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this prospectus are deemed outstanding and to be beneficially
owned by the person holding such option, warrant or other right for
purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or indicated to the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such shareholder.
(2) Includes 177,776 shares of common stock issuable upon conversion of our 5%
Series A Cumulative Preferred Stock and 220,000 shares of common stock
issuable upon conversion of warrant issued to General Electric Capital
Corporation.
Ownership of Management. The following table shows, as of March 31, 1999,
the number of shares of common stock beneficially owned by directors, the Chief
Executive Officer and other executive officers earning in excess of $100,000
during 1998, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name Number Percentage (1)
- ---- --------- --------------
<S> <C> <C>
John P. Miller.................................... 4,138,000 52.2
Cary Rosenthal.................................... 232,500(2) 2.9
H. Henry (Hap) Hederman, Jr....................... 242,850(3) 3.0
Frederick F. Avery................................ 2,000 *
Donald L. Hutson.................................. 7,591 *
Lance T. Fair..................................... 61,500(4) *
Robert J. Diehl................................... 30,500(5) *
James B. Duncan................................... 8,800(6) *
All executive officers and directors as a group (8
persons)......................................... 4,723,741 56.8
</TABLE>
62
<PAGE>
- --------
* less than 1.0%.
(1) Based on 7,923,026 shares of common stock outstanding as of the date of
this prospectus. Beneficial ownership is determined in accordance with the
rules of the SEC and include voting or investment power with respect to
securities. Shares of common stock issuable upon the exercise of stock
options, warrant or other rights to acquire common stock, currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this prospectus are deemed outstanding and to be beneficially
owned by the person holding such option, warrant or other right for
purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or indicated to the
footnotes to this table, each shareholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such shareholder.
(2) Includes 232,500 shares of common stock issuable upon exercise of a warrant
held by Mr. Rosenthal.
(3) Includes 70,350 shares of common stock issuable upon exercise of a warrant
held by Mr. Hederman; 120,000 shares of common stock held by the H. Henry
Hederman Jr. Trust of which Mr. Hederman is a trustee; and 20,000 shares
held by Arrowhead Properties, L.P., for which Mr. Hederman has the power to
vote or direct the vote, and to dispose of or direct the disposition of,
such shares.
(4) Includes 60,000 shares of common stock issuable to Mr. Fair in connection
with Master Graphics deferred compensation plan.
(5) Includes 30,000 shares of common stock issuable to Mr. Diehl in connection
with Master Graphics deferred compensation plan.
(6) Includes 5,000 shares of common stock issuable to Mr. Duncan in connection
with Master Graphics deferred compensation plan.
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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
Premier Graphics has obtained an $80.0 million senior secured credit
facility, for which General Electric Capital Corporation serves as agent for
the lenders and for which Deutsche Financial Services Corporation serves as
revolving credit agent for the lenders. The senior credit facility consists of
the following:
<TABLE>
<S> <C> <C> <C> <C>
Senior Facility Amount Term Spread LIBOR Spread Base
(in millions) Loans (1) Rate Loans
Senior Term Loan A(2) $30.0 5 years 250 bps 0bps
Senior Term Loan B 30.0 6 years 300 bps 50bps
Revolving Loan(3) 20.0 5 years 250 bps 0bps
-------------
Total Facilities $80.0
=============
</TABLE>
(1) Prices subject to a leverage-based pricing grid
(2) Includes a letter of credit associated with bond financing on a prior
acquisition
(3) Includes a letter of credit facility of up to $10,000,000
The $30.0 million Senior Term Loan A facility and the $30.0 million Senior
Term Loan B facility will be made available to Premier Graphics for eligible
acquisitions, with the Senior Term Loan A facility including a $4,364,500
letter of credit that is currently outstanding. Simultaneous with the closing
of the loan, $18.5 million was used for acquisitions, with an additional
$262,000.00 remaining outstanding on the prior term debt that was modified by
the current facility. The $20.0 million Senior Revolving Loan facility will be
available for working capital and general corporate purposes including letters
of credit. Currently, the Senior Revolving Credit Facility has provided a
letter of credit in the amount of $6,724,352. Also, if the full amount of the
commitments under Senior Term Loan A facility and the Senior Term Loan B
facility have been advanced, the Senior Revolving Loan Facility may also be
used in connection with the financing of an eligible acquisition, provided
after making an advance under the Revolving Loan Facility and for a period of
60 days thereafter (and the incurrence of any revolving loan letter of credit
obligations relating thereto), Premier Graphics has net borrowing availability
(i.e. lesser of $20,000,000 or its borrowing base after giving effect to
revolving loans outstanding) of at least $5,000,000. The Senior Term Loan A
facility will mature in March 2004, and principal will be payable under this
facility in quarterly installments equal to 1/20th of the principal amount
advanced, with the balance due at maturity. The Senior Term Loan B facility
will mature in March 2005, and principal will be payable under this facility in
quarterly installments equal to 2% of the principal amount advanced, with the
balance due at maturity. The Revolving Loan will be payable in full in March
2004.
The senior credit facility is secured by a perfected first priority security
interest in substantially all of Premier Graphics' tangible and intangible
assets including, but not limited to accounts, equipment, intellectual
property, and real property. Master Graphics has guaranteed the obligations of
Premier and has pledged the stock of Premier Graphics as security for its
guarantee.
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<PAGE>
In addition, the senior credit facility will be subject to several financial
covenants, including (A) minimum fixed charge coverage ratio, (B) maximum
leverage ratio, (C) maximum capital expenditures, and (D) minimum prepayment of
the Senior Tenn Loan A facility and the Senior Term Loan B facility based on
50% of annual excess cash flows.
Acquisition Notes
Master Graphics financed a portion of the aggregate amount paid for ten of
the acquired companies by issuing notes to the former owners of the acquired
companies. The total principal amount of notes issued was approximately $14.9
million. Master Graphics also issued notes to the former owners of Hederman and
Phoenix, which replaced notes between such companies and their owners. The
aggregate principal amount of replacement notes issued by Master Graphics was
approximately $5.3 million. In connection with the acquisition of B&M Printing,
Master Graphics issued approximately $1.3 million of notes to the former owners
of B&M Printing. Master Graphics repaid approximately $200,000 on the notes in
May 1998.
In December 1998, Master Graphics restructured $12.5 million of notes
described above to have the following features:
(1) balloon maturity date of June 30, 2006;
(2) monthly interest payments at 12% per annum if paid when due or, if not
paid when due, interest will accrue at 16% per annum until all accrued
interest has been paid;
(3) no restrictive covenants; and
(4) no rights or remedies against Master Graphics until maturity.
In addition, Master Graphics repaid approximately $4.8 million of the notes
described above. The remaining $4.0 million notes generally (i) bear interest
at 12% per annum which is payable quarterly; (ii) are subject to prepayment at
the option of Master Graphics only upon payment of a penalty which equals 20%
of the amount prepaid; and (iii) mature seven years from the date of issuance.
65
<PAGE>
DESCRIPTION OF NOTES
You can find the definition of certain terms used in this description under
the subheading "Certain Definitions" beginning on page 89.
Premier Graphics will issue the exchange notes under an indenture among
itself, Master Graphics and United States Trust Company of New York, as
trustee. The terms of the notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. Although we
believe that we have disclosed in this prospectus all the material provisions
of the indenture, we urge you to read the indenture because it, and not this
description, defines your rights as a holder of the exchange notes. We have
filed copies of the indenture as an exhibit to the registration statement which
includes this prospectus.
Brief Description of the Notes and the Guarantee
The notes:
. are general, unsecured obligations of Premier Graphics;
. are equal in right of payment to existing and future Senior Debt of
Premier Graphics;
. are effectively subordinated to the secured Senior Debt of Premier
Graphics to the extent of the value of the assets securing that debt;
. are senior in right of payment to any future Subordinated Indebtedness
of Premier Graphics; and
. are unconditionally guaranteed by Master Graphics.
As of December 31, 1998, Premier Graphics had total indebtedness of
approximately $133.2 million. In addition, in March 1999, Premier Graphics has
borrowed an additional $18.5 million under its credit facility and had assumed
Senior Debt of businesses acquired in 1999 totaling $4.3 million. The indenture
will permit Premier Graphics and Master Graphics to incur additional Senior
Debt.
The Guarantee:
. The notes are fully and unconditionally guaranteed by Master Graphics;
The guarantee of the notes:
. is a general, unsecured obligation of Master Graphics;
. is equal in right of payment to existing and future Senior Debt of
Master Graphics;
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<PAGE>
. is effectively subordinated to the secured Senior Debt of Master
Graphics to the extent of the value of the assets securing that
debt;
. is senior in right of payment to any future Subordinated
Indebtedness of Master Graphics
Principal, Maturity and Interest
Premier Graphics will issue notes with a maximum aggregate principal amount
of $130.0 million. Premier Graphics will issue notes in denominations of $1,000
and integral multiples of $1,000. The notes mature on December 1, 2005.
Interest on the notes will accrue at the rate of 11.5% per annum and will be
payable semi-annually in arrears on June 1 and December 1, beginning on June 1,
1999. Premier Graphics will make each interest payment to holders who are
holders of record of the notes on the immediately preceding May 15 or November
15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Guarantees
The Guarantors will fully and unconditionally and jointly and severally
guarantee Premier Graphics' obligations under the notes. As of the date of this
prospectus, Master Graphics is the only Guarantor. The obligations of each
Guarantor under its guarantee will be limited as necessary to prevent that
guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--Fraudulent Conveyance Matters" for a discussion of potential
limitations on the guarantees.
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another person unless:
(1) immediately after giving effect to that transaction, no Default or Event of
Default exists; and
(2) either
(a) the Person acquiring the property in any such sale or disposition or the
Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor pursuant to a supplemental
indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture.
The Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor (including by way of merger or
consolidation), if Premier Graphics
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applies the Net Proceeds of that sale or other disposition, in accordance
with the applicable provisions of the indenture; or
(2) in connection with any sale of all of the capital stock of a Guarantor, if
Premier Graphics applies the net proceeds of that sale in accordance with
the applicable provisions of the indenture; or
(3) if Premier Graphics designates any Subsidiary that is a Guarantor as an
Unrestricted Subsidiary.
Optional Redemption
The notes are redeemable, at Premier Graphics' option, in whole or in part,
at any time and from time to time on and after December 1, 2002 and prior to
maturity. The notes may be redeemed at the following redemption prices,
expressed as a percentage of principal amount, plus accrued interest, if any,
to the redemption date, subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date, if redeemed during the 12-month period beginning on December 1 of the
years set forth below:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2002............................................................ 105.750%
2003............................................................ 102.875%
2004 and thereafter............................................. 100.000%
</TABLE>
In addition, prior to December 15, 2001, Premier Graphics may on any one or
more occasions redeem up to 35% of the original aggregate principal amount of
the notes with the Net Proceeds of one or more Public Equity Offerings at a
redemption price of 111.5% of the principal amount thereof, plus accrued
interest, if any, to the redemption date. Any redemption under this provision
must occur within 90 days following the closing of any such Public Equity
Offering.
Selection and Notice of Redemption
If less than all of the notes are redeemed pursuant to an optional
redemption, selection of the notes for redemption will be made by the Trustee:
(1) based on the rules of the principal exchange, if any, on which the
notes are listed, or, if the notes are not listed on an exchange then
(2) on a pro rata basis, by lot or by such method as the trustee shall deem
fair and appropriate. No notes of $1,000 or less may be redeemed in
part.
Change of Control
Upon the occurrence of a change of control (as defined below), each holder
will have the right to require Premier Graphics to repurchase all or any part
of such holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. A "change of control" means:
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(1) Master Graphics ceases to own 100% of the Voting Stock of Premier
Graphics, unless the decrease in ownership is a result of a Public
Equity Offering of Premier Graphics Voting Stock;
(2) any "person" or "group" as such terms are used in Sections 13(d)(3) or
14(d)(2) of the Exchange Act, other than one or more Permitted Holders
or Master Graphics becomes the direct or beneficial owner, as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, of more than 50% of
the voting power of the outstanding Voting Stock of Premier Graphics;
(3) Premier Graphics is merged with or into or consolidated with another
corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities
entitled to vote generally in the election of directors or persons who
serve similar functions of the surviving entity are then beneficially
owned, as such term is used in Rule 13d-3 and 13d-5 under the Exchange
Act, in the aggregate by (A) the stockholders of Premier Graphics
immediately prior to such merger or consolidation or (B) if the record
date has been set to determine the stockholders of Premier Graphics
entitled to vote on such merger or consolidation, the stockholders of
Premier Graphics as of such record date;
(4) the sale, lease, transfer, conveyance or other disposition, in one or a
series of related transactions other than a merger or consolidation, of
all or substantially all of the assets of Premier Graphics and Master
Graphics taken as a whole to any Person or group of related Persons
other than a Wholly Owned Subsidiary;
(5) the liquidation or dissolution of Premier Graphics;
(6) the first day on which a majority of the individuals who constitute the
Board of Directors of Premier Graphics are not individuals (A) who were
directors on December 11, 1998 or (B) whose nomination for director was
approved by a majority of the directors who were either directors on
December 11, 1998 or whose nomination was approved by directors who
were in office on December 11, 1998; or
(7) at any time prior to a Public Equity Offering of Premier Graphics'
Common Stock, a majority of the individuals who constitute the Board of
Directors of Master Graphics are not individuals (A) who were directors
on December 11, 1998 or (B) whose nomination for director was approved
by a majority of the directors who were either directors on December
11, 1998 or whose nomination was approved by directors who were in
office on December 11, 1998.
Within 30 days following a change of control, Premier Graphics or the
Trustee, at the expense of Premier Graphics, will mail a notice to each holder
stating:
(1) that a change of control has occurred occur and that such holder has
the right to require Premier Graphics to purchase such holder's notes
at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of
purchase;
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(2) that, although holders are not required to tender their notes, all
notes that are validly tendered will be accepted for payment;
(3) the purchase price and the date of purchase, which shall be no earlier
than 30 days nor later than 90 days from the date such notice is
mailed;
(4) that any note accepted for payment and duly paid on the date of
purchase will cease to accrue interest after the date of purchase;
(5) that any notes, or portions thereof, not validly tendered will continue
to accrue interest;
(6) the procedures that holders of notes must follow to withdraw an
election to tender notes, or portions thereof; and
(7) the instructions and any other information determined by Premier
Graphics, consistent with this covenant, that a holder must follow in
order to have its notes purchased; and
Premier Graphics 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 notes pursuant to this
covenant.
The change of control purchase feature is a result of negotiations between
Premier Graphics and the initial purchasers. Premier Graphics has no present
plans to engage in a transaction involving a change of control, although it is
possible that Premier Graphics would decide to do so in the future. Subject to
the limitations discussed below, Premier Graphics could, in the future, enter
into certain transactions, including acquisitions, refinancings or
recapitalizations, 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 Premier Graphics' capital structure or credit
ratings.
The occurrence of a change of control would constitute a default under
Premier Graphics' credit facility. Future Senior Debt of Premier Graphics may
contain prohibitions of certain events which would constitute a change of
control or require such Senior Debt to be repurchased upon a change of control.
In addition, any instruments governing other Indebtedness may prohibit Premier
Graphics from purchasing any notes prior to their maturity. Moreover, the
exercise by the holders of their right to require Premier Graphics to
repurchase the notes could cause a default under such Senior Debt, even if the
change of control itself does not, due to the financial effect of such
repurchase on Premier Graphics. Finally, Premier Graphics' ability to pay cash
to the holders upon a repurchase may be limited by Premier Graphics' then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
The change of control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving Premier Graphics or Master
Graphics by increasing the capital required to effectuate such transactions.
The definition of "change of control" includes a disposition of all or
substantially all of the property and assets of
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Premier Graphics and Master Graphics. With respect to the disposition of
property or assets, the phrase "all or substantially all" as used in the
indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of a Person, and therefore it may be unclear as to whether a change of
control has occurred and whether Premier Graphics is required to make an offer
to repurchase the notes as described above.
Certain Covenants
The indenture contains covenants, including, among other things, the
following:
Limitations on Transactions with Affiliates
Neither Premier Graphics nor any of its Subsidiaries shall engage in any
transaction or series of transactions, including the purchase, sale, lease or
exchange of any property, the making of any Investment, and the giving of any
guarantee or the rendering of any service, with any Affiliate of Premier
Graphics unless:
(1) the transaction or series of transactions is on terms no less favorable
to Premier Graphics or such Subsidiary than the terms that could be
obtained at the time of such transaction in arm's-length dealings with
a non-affiliate;
(2) if the transaction or series of transactions involves an aggregate
amount in excess of $1.0 million, it is approved by a majority of the
members of the board of directors having no material personal financial
interest in such transaction; and
(3) if the transaction or series of transactions involves an aggregate
amount in excess of $3.0 million, Premier obtains a fairness opinion. A
fairness opinion means an opinion from an independent investment
banking firm or appraiser of national prominence which indicates that
the terms of such transaction are fair to Premier Graphics or such
Subsidiary from a financial point of view.
The provisions of the paragraph above shall not prohibit the following actions:
(1) payment of reasonable and customary compensation, indemnification or
other benefits to officers, directors or employees of Premier Graphics
or a Subsidiary;
(2) making any Restricted Payment permitted by the covenant described under
"Limitation on Restricted Payments" or any Permitted Investment;
(3) transactions and agreements existing on December 11, 1998 and described
under the caption "Certain Relationships and Related Transactions;" or
(4) loans to officers and employees made in the ordinary course of business
in an aggregate amount not exceeding $500,000, in the aggregate, at any
one time outstanding.
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Limitations on Restricted Payments
Premier Graphics and its Subsidiaries are not permitted to take the
following actions:
(1) declare or pay any dividend on, or make any distribution with respect
to, the Capital Stock of Premier Graphics or an Affiliate, including
payments in connection with any merger or consolidation involving
Premier Graphics. However, dividends or distributions are permitted if
they are either payable solely in Capital Stock of Premier or such
Affiliate, other than Redeemable Stock, or payable to Premier Graphics
or a Subsidiary Guarantor;
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Premier Graphics or any Affiliate;
(3) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value any Subordinated Indebtedness
before scheduled maturity, scheduled repayment or scheduled sinking
fund payment;
(4) make any Restricted Investment;
(5) designate a Subsidiary as an Unrestricted Subsidiary; or
(6) forgive any Indebtedness of an Affiliate of Premier Graphics to Premier
Graphics or a Subsidiary (all such payments and other actions set forth
in clauses (1) through (6) above being collectively referred to as
"Restricted Payments");
unless at the time of and after giving effect to such Restricted Payment:
(1) no Default shall have occurred and be continuing or would occur as a
consequence thereof;
(2) Premier Graphics could incur at least $1.00 of additional Indebtedness
under the test described in the first sentence of the covenant
described below under the caption "--Limitation on Indebtedness;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Premier Graphics or any Subsidiary
after December 11, 1998 is less than the sum of:
(A) 50% of the Consolidated Net Income of Premier Graphics for the
period (taken as one accounting period) from September 1, 1998 to
the end of Premier Graphics' most recently ended fiscal quarter for
which financial statements are available at the time of such
Restricted Payment (or, if Consolidated Net Income for such period
is a deficit, less 100% of such deficit); minus
(B) 100% of the amount of any writedowns, write-offs and other negative
extraordinary charges not reflected in Consolidated Net Income of
Premier Graphics during the period described in (A) above; plus
(C) 100% of the Net Proceeds received by Premier Graphics since
December 11, 1998 from the issuance or sale (other than to a
Subsidiary) of shares of its Capital Stock, excluding Redeemable
Stock, but including Capital Stock issued
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upon the exercise of options, warrants or rights to purchase Capital
Stock (other than Redeemable Stock) of Premier Graphics; plus
(D) 100% of the liability, expressed as a positive number, shown on the
face of a balance sheet prepared in accordance with GAAP in respect
of any Indebtedness of Premier Graphics, its Subsidiaries, or any
Subsidiary Guarantor which has been converted into, exchanged for or
satisfied by the issuance of shares of Capital Stock, other than
Redeemable Stock, of Premier Graphics or Master Graphics after
December 11, 1998; plus
(E) 100% of the carrying value shown on the face of a balance sheet
prepared in accordance with GAAP of any Redeemable Stock which has
been converted into, exchanged for or satisfied by the issuance of
shares of Capital Stock, other than Redeemable Stock, of Premier
Graphics or Master Graphics after December 11, 1998; plus
(F) 100% of the net reduction in Restricted Investments after December
11, 1998 resulting from payments of interest in Indebtedness,
dividends, repayments of loans or advances or other transfers of
Property (to the extent such amounts are not included in the
calculation of Consolidated Net Income) to Premier Graphics, any
Subsidiary Guarantor or any Subsidiary from any Person, including
Unrestricted Subsidiaries, or from the redesignation of an
Unrestricted Subsidiary as a Subsidiary. The amount calculated
pursuant to this paragraph (F) will not exceed the amount of
Restricted Investments previously made by Premier Graphics, such
Subsidiary Guarantor, or such Subsidiary in such Person and in each
such case which was treated as Restricted Payment.
The provisions of paragraphs (A) through (F) above will not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration, if at the date of declaration such payment would be
permitted by the indenture;
(2) the repurchase or redemption of Capital Stock or Subordinated
Indebtedness of Premier Graphics or a Subsidiary made by exchange for
Capital Stock of Premier Graphics or Master Graphics, other than
Redeemable Stock, or out of the Net Proceeds of a substantially
concurrent sale (other than to a Subsidiary) of Capital Stock of
Premier Graphics or Master Graphics (other than Redeemable Stock);
(3) so long as no Default shall have occurred and be continuing or would
occur as a consequence thereof, any repurchase or redemption of
Subordinated Indebtedness of Premier Graphics or a Subsidiary Guarantor
solely in exchange for, or out of the net cash proceeds from the
substantially concurrent sale of, new Subordinated Indebtedness of
Premier Graphics or a Subsidiary Guarantor, so long as the Subordinated
Indebtedness is permitted under the covenant described under "--
Limitation on Indebtedness," and
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(A) is subordinated to the notes or the guarantees at least to the same
extent as the Subordinated Indebtedness to be exchanged, purchased
or redeemed;
(B) has a stated maturity later than the stated maturity of the
Subordinated Indebtedness to be exchanged, purchased or redeemed;
and
(C) has an Average Life at the time incurred that is greater than the
remaining Average Life of the Subordinated Indebtedness to be
exchanged, purchased or redeemed;
(4) Investments in any Person engaged in the Related Business in an
aggregate amount not to exceed $2.0 million; provided that this amount
may be increased by the aggregate amount received by Premier Graphics
and the Subsidiaries from such a Person on or before such date
resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances or other transfers of Property made to
such a Person, but only to the extent such interest, dividends,
repayments or other transfers of Property are not included in the
calculation of Consolidated Net Income of Premier Graphics;
(5) payments to any member of Premier Graphics' or any Subsidiary
Guarantor's consolidated tax group pursuant to the Tax Sharing
Agreement or to permit such member to pay taxes, other than income
taxes, actually owed and attributable to the operations of Premier
Graphics and the Subsidiary Guarantor or such member's ownership
thereof;
(6) payments to Master Graphics for so long as it owns at least a majority
of the Common Stock of Premier Graphics or a Subsidiary Guarantor in
amounts sufficient to pay Master Graphics':
(A) ordinary operating and administrative expenses,
(B) reasonable professional fees and expenses,
(C) costs of compliance with the reporting and filing obligations of
the SEC and any exchange or interdealer quotation system on which
Master Graphics' securities are traded,
(D) obligations to prepare and distribute business records in the
ordinary course of business, and
(E) Master Graphics' costs and expenses relating to taxes, other than
those referred to in paragraph (5) above, which taxes are
attributable to the operations of Premier Graphics, any Guarantor,
or the ownership thereof, not to exceed $2.5 million per year;
(7) the payment of any dividend or distribution by a Subsidiary to the
holders of its Common Stock on a pro rata basis;
(8) so long as no Default or Event of Default shall have occurred and be
continuing, dividends, distributions and other payments to Master
Graphics for the sole purpose
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of making schedule interest payments on Seller Notes in an aggregate
amount not to exceed $1.0 million; and
(9) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by Premier Graphics, or by Master Graphics so
long as Premier Graphics is a Wholly Owned Subsidiary of Master
Graphics, of Capital Stock (other than Preferred Stock) of Premier
Graphics or the Subsidiary Guarantors from officers and employees of
Premier Graphics or the Subsidiary Guarantors or their authorized
representatives upon the death, disability or termination of employment
of such employee in an aggregate amount not to exceed $1.0 million in
any calendar year.
Restricted Payments permitted to be made as described in clauses (1) through
(9) above will be excluded in calculating the amount of Restricted Payments
for purposes of clause (3) of the immediately preceding paragraph, except
that:
. amounts expended pursuant to clause (1), but only if the declaration
thereof has not been counted in a prior period;
. amounts paid pursuant to clause (4);
. payments made pursuant to clause (5), other than to the extent otherwise
reducing the Consolidated Net Income of Premier Graphics;
. any dividends, distributions or other payments made to a Person other
than Premier or a Wholly Owned Subsidiary permitted to be made pursuant
to clause (6); and
. any repurchases of Capital Stock of Premier Graphics or Master Graphics
permitted to be made pursuant to clause (7)
will be included in calculating the amount of Restricted Payments thereafter.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of
the non-cash portion of such Restricted Payment.
Limitation on Indebtedness.
Neither Premier Graphics nor any Subsidiary may incur any Indebtedness,
including Acquired Indebtedness, unless after giving pro forma effect to the
incurrence of such Indebtedness, the Consolidated Interest Coverage Ratio for
the four fiscal quarters for which financial information is available
immediately preceding the date on which such Indebtedness is to be incurred is
at least 2.0 to 1.0.
Premier Graphics and its Subsidiaries may incur the following types of
Indebtedness (collectively, the "Permitted Indebtedness") without complying
with the calculation described above:
(1) Indebtedness of Premier Graphics under the notes and the indenture;
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(2) Indebtedness under one or more credit or revolving credit facilities
with a bank or financial institution or syndicate of banks or financial
institutions, in an aggregate principal amount at any one time
outstanding not to exceed at the time of incurrence the greater of:
(A) $50.0 million; or
(B) the Borrowing Base less any amounts derived from Asset Sales and
applied to the required permanent reduction of Senior Debt (and a
permanent reduction of the related commitment to lend or amount
available to be reborrowed in the case of a revolving credit
facility) under such credit facilities as contemplated by the
"Limitation on Asset Sales" covenant;
(3) Indebtedness of Premier Graphics or any Subsidiary under Interest Swap
Obligations, provided that:
(A) such Interest Swap Obligations are related to payment obligations
on Indebtedness otherwise permitted under the covenants described
in "Limitation on Indebtedness"; and
(B) the notional principal amount of such Interest Swap Obligations
does not exceed the principal amount of the Indebtedness to which
such Interest Swap Obligations relate;
(4) Indebtedness of Premier Graphics or any Subsidiary under Currency Hedge
Obligations, provided that:
(A) such Currency Hedge Obligations are related to payment of
obligations on Indebtedness otherwise permitted under the
covenants described under the caption "Limitation on Indebtedness"
or to the foreign currency cash flows reasonably expected to be
generated by Premier Graphics and the Subsidiaries; and
(B) the notional principal amount such Currency Hedge Obligations does
not exceed the principal amount of the Indebtedness and the amount
of foreign currency cash flows to which such Currency Hedge
Obligations relate;
(5) Indebtedness of Premier Graphics or any Subsidiary outstanding on
December 11, 1998 and listed on a schedule to the indenture, excluding:
(A)Indebtedness under Premier Graphics' credit facility, and
(B) Indebtedness that was repaid with the proceeds of the notes which
were issued on December 11, 1998;
(6) the guarantee of the notes and any assumption of the Obligations
guaranteed thereby;
(7) Indebtedness of Premier Graphics or any Subsidiary in respect of bid
and performance bonds, surety bonds, appeal bonds and letters of credit
or similar arrangements issued for the account of Premier Graphics or
any Subsidiary Guarantor, in each case in the ordinary course of
business and other than for an obligation for money borrowed;
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(8) Indebtedness of Premier Graphics to a Subsidiary Guarantor and
Indebtedness of a Subsidiary Guarantor to Premier Graphics or another
Subsidiary Guarantor, provided that upon any subsequent event which
results in
(A)any such Subsidiary Guarantor ceasing to be a Subsidiary; or
(B) any other subsequent transfer of any such Indebtedness, except to
Premier Graphics or a Subsidiary Guarantor,
such Indebtedness shall be deemed, in each case, to be incurred and shall be
treated as in incurrence for purposes of the "Limitation on Indebtedness"
covenants at the time the Subsidiary in question ceased to be a Subsidiary
or on which such subsequent transfer occurred;
(9) Indebtedness of Premier Graphics incurred in connection with a purchase
of the notes after a change of control up to a maximum of 101% of the
aggregate principal amount at Stated Maturity of the notes purchased,
provided that such Indebtedness:
(A) has an Average Life equal to or greater than the remaining Average
Life on the notes; and
(B) does not mature prior to one year following the Stated Maturity of
the notes;
(10) Indebtedness of Premier Graphics ("Permitted Refinancing
Indebtedness") incurred in exchange for, or the net proceeds of which
are used to renew, extend, refinance, refund or repurchase,
outstanding Indebtedness of Premier Graphics which outstanding
Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (1) and (5) above, provided that:
(A) if the Indebtedness being renewed, extended, refinanced, refunded
or repurchased is pari passu with or subordinated in right of
payment (without regard to its being secured) to the notes, then
such new Indebtedness is pari passu with or subordinated in right
of payment (without regard to its being secured) to, as the case
may be, the notes at least to the same extent as the Indebtedness
being renewed, extended, refinanced, refunded or repurchased;
(B) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased;
(C) such new Indebtedness has an Average Life at the time such
Indebtedness is incurred that is greater than the Average Life of
the Indebtedness being renewed, extended, refinanced, refunded or
repurchased; and
(D) such new Indebtedness is in aggregate principal amount (or, if such
Indebtedness is issued at a price less than the principal amount
thereof, the aggregate amount of gross proceeds therefrom is) not
in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than
the principal amount thereof, then not in excess of the amount of
liability in respect thereof determined in accordance
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with GAAP) plus the amount of reasonable fees, expenses, and premium,
if any, incurred by Premier Graphics or such Subsidiary in connection
therewith.
(11) Indebtedness of any Subsidiary ("Permitted Subsidiary Refinancing
Indebtedness"), incurred in exchange for, or the net proceeds of which
are used to renew, extend, refinanced refunded or repurchased,
outstanding Indebtedness of such Subsidiary which outstanding
Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (5) and (6) above, provided that
(A) if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased is pari passu with or subordinated in right of payment
(without regard to its being secured) to the Guarantee of such
Subsidiary, then such new Indebtedness is pari passu with or
subordinated in right of payment (without regard to its being
secured) to, as the case may be, the Guarantee of such Subsidiary at
least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased;
(B) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased;
(C) such new Indebtedness has an Average Life at the time Indebtedness
is incurred that is greater than the Average Life of the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased; and
(D) such new Indebtedness is in an aggregate principal amount (or, if
such Indebtedness is issued at a price less than the principal
amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of
the Indebtedness being renewed, extended, refinanced, refunded or
repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than
the principal amount hereof, then not in excess of the amount of
liability in respect thereof determined in accordance with GAAP)
plus the amount of reasonable fees, expenses, and premium, if any,
incurred by Premier or such Subsidiary in connection therewith; and
(12) additional Indebtedness in an aggregate principal amount not to exceed
$5.0 million at any time outstanding.
Any Indebtedness of a Person existing at the time at which such Person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be incurred by such Subsidiary at the time at
which it becomes a Subsidiary.
Limitation on Subsidiary Indebtedness and Preferred Stock.
No Subsidiary will incur any Indebtedness or issue any Preferred Stock
except:
(1) Indebtedness or Preferred Stock issued to and held by Premier Graphics
or a Subsidiary Guarantor, so long as any transfer of such Indebtedness
or Preferred Stock to a Person other than Premier Graphics or a
Subsidiary Guarantor will be
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deemed to constitute an incurrence of such Indebtedness or Preferred
Stock by the issuer thereof as of the date of such transfer;
(2) Acquired Indebtedness or Preferred Stock of a Subsidiary issued and
outstanding prior to the date on which such Subsidiary was acquired by
Master Graphics, other than Indebtedness or Preferred Stock issued in
connection with or in anticipation of such acquisition;
(3) Indebtedness or Preferred Stock outstanding on December 11, 1998 and
listed in a schedule attached to the indenture;
(4) Indebtedness permitted to be incurred by the first sentence of the
covenant described in "Limitation on Indebtedness" above;
(5) Indebtedness described in clauses (2), (3), (4), (5), (6), (7), (8),
(9) and (11) in the second paragraph under the covenant described in
"Limitation on Indebtedness" above;
(6) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary; and
(7) Indebtedness of a Subsidiary which represents the assumption by such
Subsidiary of Indebtedness of another Subsidiary in connection with a
merger of such Subsidiaries, provided that no Subsidiary or any
successor (by way of merger) thereto existing on December 11, 1998
shall assume or otherwise become responsible for any Indebtedness of an
entity which is not a Subsidiary on December 11, 1998, except to the
extent that a Subsidiary would be permitted to incur such Indebtedness
under this paragraph.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries.
Neither Premier Graphics nor any Subsidiary will enter into any agreement
or otherwise create any restriction which restricts the ability of any of its
Subsidiaries to:
(1) pay dividends, in cash or otherwise, or make any other distributions on
its Capital Stock to Premier Graphics or any Subsidiary Guarantor;
(2) pay any Indebtedness owed to Premier Graphics or any Subsidiary
Guarantor;
(3) make loans or advances to Premier Graphics or any Subsidiary Guarantor;
or
(4) transfer any of its Property or assets to Premier Graphics or any
Subsidiary Guarantor except any encumbrance or restriction contained in
any agreement or instrument:
(A) existing on December 11, 1998;
(B) relating to any Property or assets acquired after December 11, 1998,
so long as such encumbrance or restriction relates only to the
Property or assets so acquired and is not and are not created in
anticipation of such acquisition;
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(C) relating to any Acquired Indebtedness of any Subsidiary at the date
on which such Subsidiary was acquired by Master Graphics or any
Subsidiary (other than Indebtedness incurred in anticipation of
such acquisition);
(D) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (A) through (C), so
long as the encumbrances and restrictions contained in any such
refinancing agreement are no more restrictive than the encumbrances
and restrictions contained in such agreements;
(E) constituting customary provisions restricting subletting or
assignment of any lease of Premier Graphics or any Subsidiary or
provisions in license agreements or similar agreements that
restrict the assignment of such agreement or any rights thereunder;
(F) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on
such Property;
(G) constituting any temporary encumbrance or restriction with respect
to a Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the
Capital Stock of or Property and assets of such Subsidiary; or
(H) governing Indebtedness permitted to be incurred under the
indenture, provided that the terms and conditions of any such
restrictions and encumbrances are not materially more restrictive
than those contained in the indenture.
Limitation on Asset Sales.
Neither Premier Graphics nor any Subsidiary shall engage in an Asset Sale
unless:
(1) Premier Graphics or such Subsidiary receives consideration at least
equal to the fair market value of the Property or asset subject to such
Asset Sale.
(2) at least 75% of the consideration for any Asset Sale received by
Premier Graphics or such Subsidiary consists of Cash Proceeds or the
assumption of Indebtedness of Premier Graphics or such Subsidiary
relating to the Capital Stock or Property or asset that was the subject
of such Asset Sale and the unconditional release of Premier Graphics or
such Subsidiary from such Indebtedness;
(3) after giving effect to such Asset Sale, the total non-cash
consideration held by Premier Graphics from all such Asset Sales does
not exceed $2.0 million; and
(4) Premier Graphics delivers to the Trustee an Officers' Certificate
certifying that such Asset Sale complies with clauses (1), (2) and (3).
Premier Graphics or such Subsidiary, as the case may be, may apply the Net
Available Proceeds from each Asset Sale:
. to the acquisition of one or more Replacement Assets; or
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. to repurchase or repay Senior Debt of Premier Graphics or a Subsidiary
Guarantor (with a permanent reduction of availability in the case of
revolving credit borrowings)
provided that such acquisition or such repurchase or repayment shall be made
within 270 days after the consummation of the relevant Asset Sale and that any
such Net Available Proceeds that are applied to the acquisition of Replacement
Assets useful in the business of Premier Graphics or any of its Subsidiaries or
the Subsidiary making the Asset Sale, pursuant to any binding agreement
relating thereto shall be deemed to have been applied for such purpose within
such 270-day period so long as they are so applied within 30 days of the
effective date of such agreement.
Any Net Available Proceeds from any Asset Sale that are not used to acquire
Replacement Assets or repurchase or repay Senior Debt within 270 days after
consummation of the relevant Asset Sale constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Premier shall within
30 days thereafter make a pro rata offer to all holders of the notes and to
holders of Senior Debt, if required by the instruments governing the Senior
Debt, to purchase notes and such Senior Debt in an aggregate amount equal to
the Excess Proceeds, at a cash price equal to 100% of the outstanding principal
of the notes or Senior Debt plus accrued interest to the date of purchase, in
accordance with the procedures set forth in the indenture. At any time during
which Excess Proceeds exist, but are less than $5.0 million, Premier Graphics
has the option to make an offer identical to the offer described in the
preceding sentence. Upon the completion of the offer described in the two
immediately preceding sentences, the amount of Excess Proceeds shall be reset
to zero and Premier Graphics may use any remaining amount for general corporate
purposes.
Premier Graphics will comply with any applicable requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, Premier Graphics will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant as a result of such compliance.
Limitation on Sale and Lease-Back Transactions.
Neither Premier Graphics nor any Subsidiary will enter into any direct or
indirect arrangement pursuant to which Property is sold or transferred by such
Person or a subsidiary of such Person and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its subsidiaries (a
"Sale and Lease-Back Transaction") unless:
(1) the proceeds from such Sale and Lease-Back Transaction are at least
equal to the Fair Market Value of such Property being transferred; and
(2) Premier Graphic or such Subsidiary would have been permitted to enter
into such transaction under the covenants described in "--Limitation on
Indebtedness,"
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"--Limitation or Liens" and "--Limitation on Subsidiary Indebtedness and
Preferred Stock."
Limitation on Liens.
Neither Premier Graphics nor any Subsidiary shall create or permit to exist
any Lien, other than Permitted Liens, on or with respect to any Property or
assets of Premier Graphics or such Subsidiary or any interest therein or any
income or profits therefrom, whether owned on December 11, 1998 or thereafter
acquired, without effectively providing that the notes or the guarantees, as
applicable, shall be secured equally and ratably with (or prior to) the
Indebtedness so secured for so long as such obligations are so secured. The
following Liens are "Permitted Liens":
(1) Liens in existence on December 11, 1998;
(2) Liens created for the benefit of the notes and/or the guarantees;
(3) Liens on Property of a Person existing at the time such Person is
merged or consolidated with or into Premier Graphics or a Subsidiary
(and not incurred as a result of, or in anticipation of, such
transaction), provided that any such Lien relates solely to such
Property;
(4) Liens on Property existing at the time of the acquisition thereof (and
not incurred as a result of, or in anticipation of such transaction),
provided that any such Lien relates solely to such Property;
(5) Liens incurred or pledges and deposits made in connection with worker's
compensation, unemployment insurance and other social security
benefits, statutory obligations, bid, surety or appeal, bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business;
(6) Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's,
materialmen's, suppliers' and vendors' Liens and incurred in the
ordinary course of business for sums not delinquent or being contested
in good faith, if such reserves or other appropriate provisions, if
any, as shall be required by GAAP shall have been made with respect
thereof;
(7) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property and defects, irregularities
and deficiencies in title to real property that do not, individually or
in the aggregate, materially affect the ability of Premier or any
Subsidiary to conduct its business presently conducted;
(8) Liens for taxes or assessments or other governmental charges or levies
not yet due and payable, or the validity of which is being contested by
Premier or a Subsidiary in good faith and by appropriate proceedings
upon stay of execution or the enforcement thereof and for which
adequate reserves in accordance with GAAP or other appropriate
provision has been made;
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(9) Liens to secure Indebtedness incurred for the purpose of financing all
or a part of the purchase price or construction cost of Property or
assets acquired or constructed after December 11, 1998, provided that:
(A) the principal amount of Indebtedness secured by such Liens shall
not exceed 100% of the lesser of cost or Fair Market Value of the
Property or assets so acquired or constructed plus transaction
costs related thereto;
(B) such Liens shall not encumber any other assets of Property of
Premier Graphics or any Subsidiary (other than the proceeds thereof
and accessions and upgrades thereto); and
(C) such Liens shall attache to such Property within 120 days of the
date of completion of the construction or acquisition of such
Property for assets;
(10) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in whole
or in part, of any Indebtedness secured by Liens referred to in
clauses (1), (3) and (4) above, provided that such Lien does not
extend to any other Property or assets of Premier Graphics or any
Subsidiary and the principal amount of the Indebtedness secured by
such Lien is not increased;
(11) leases or subleases of real property to other Persons;
(12) judgment liens not giving rise to an Event of Default so long as any
appropriate legal proceedings which may have been initiated for the
review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(13) rights of off-set of banks and other Persons;
(14) liens in favor of Premier Graphics;
(15) Liens securing Indebtedness described in clause (2) of the definition
of Permitted Indebtedness found on page ; and
(16) Liens securing Senior Debt if at the time of the incurrence of such
Indebtedness or the granting of such Liens, whichever is later to
occur, and after giving of pro forma effect to such incurrence of
Indebtedness or granting of Liens, the Senior Debt to EBITDA Ratio
does not exceed 4.0 to 1.0 until December 1, 2000 and thereafter does
not exceed 3.75 to 1.0.
Limitation on Guarantees by Subsidiaries.
No Subsidiary which is not a Subsidiary Guarantor will guarantee any
Indebtedness of Premier Graphics or Master Graphics or any other Obligor
("Guaranteed Indebtedness") unless
(1) such Subsidiary simultaneously executes and delivers a supplemental
indenture to the indenture providing for a Guarantee of payment of the
notes by such Subsidiary; and
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(2) such Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against Premier Graphics
or any other Subsidiary as a result of any payment by such Subsidiary
under its Guarantee.
If the Guaranteed Indebtedness is pari passu with the notes or, if the
Guaranteed Indebtedness was incurred by Master Graphics, then the guarantee of
such Guaranteed Indebtedness shall be pari passu with or subordinated to the
Guarantee; and if the Guaranteed Indebtedness is subordinated to the notes,
then the guarantee of such Guaranteed Indebtedness shall be subordinated to the
Guarantee at least to the extent that all Guaranteed Indebtedness is
subordinated to the notes.
Any Guarantee by a Subsidiary that was incurred pursuant to the terms of the
preceding paragraph (but not otherwise) shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon the
release or discharge of the guarantee which resulted in the creation of such
Subsidiary's Guarantee, except a discharge or release by, or as a result of,
payment under such guarantee.
Designation of Unrestricted Subsidiaries.
Premier Graphics may designate a subsidiary (including a newly formed or
newly acquired subsidiary) of Master Graphics or any of its Subsidiaries as an
Unrestricted Subsidiary; provided that:
(1) immediately after giving effect to the transaction, Premier could incur
$1.00 of additional Indebtedness pursuant to the first sentence of "--
Limitation on Indebtedness" and
(2) such designation is at the time permitted under "--Limitation on
Restricted Payments."
All subsidiaries of an Unrestricted Subsidiary will be Unrestricted
Subsidiaries.
Generally, neither Premier Graphics nor any Subsidiary will take any action
or enter into any transaction or series of transactions that would result in a
Person becoming a Subsidiary unless, after giving effect to such action,
transaction or series of transactions on a pro forma basis,
(1) Premier could incur at least $1.00 of additional Indebtedness pursuant
to the first sentence of "--Limitation on Indebtedness" and
(2) no Default or Event of Default would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an
Unrestricted Subsidiary or the designation of an Unrestricted Subsidiary as a
Subsidiary in compliance with the preceding paragraphs shall be made by the
Board of Directors pursuant to a Board Resolution delivered to the Trustee and
shall be effective as of the date specified in such Board Resolution, which
shall not be prior to the date such Board Resolution is delivered to the
Trustee. Any
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Unrestricted Subsidiary shall become a Subsidiary if it incurs any Indebtedness
other than Non-Recourse Indebtedness. If at any time Indebtedness of an
Unrestricted Subsidiary which was Non-Recourse Indebtedness no longer so
qualifies, such Indebtedness shall be deemed to have been incurred when such
Non-Recourse Indebtedness becomes Indebtedness.
Limitations on Line of Business.
Neither Premier Graphics nor any Subsidiary will directly or indirectly
engage to any substantial extent in any line or lines of business activity
other than a Related Business.
Reports.
As long as any of the notes are outstanding, Premier Graphics will file with
the SEC, unless the SEC will not accept such a filing, the annual reports,
quarterly reports, and other documents required to be filed with the SEC
pursuant to Sections 13 and 15 of the Exchange Act, whether or not Premier
Graphics is then obligated to file such reports. Premier Graphics will be
required to file with the Trustee and provide to each holder of notes copies of
such reports and documents within 30 days after filing with the SEC, or if any
such filing is not permitted under the Exchange Act, 30 days after Premier
Graphics would have been required to make such filing.
Premier Graphics' obligations described in the preceding paragraph may be
satisfied by Master Graphics filing the reports which it is required to file
with the SEC pursuant to Sections 13 and 15 of the Exchange Act which contain
summary financial information about Premier Graphics in a footnote to Master
Graphics' financial statements and otherwise comply with the rules and
regulations of the SEC.
Consolidation, Merger, Conveyance, Lease or Transfer
Premier Graphics will not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Surviving Entity")
will be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia;
(2) the Surviving Entity, if not Premier Graphics, will expressly assume,
by a supplemental indenture the due and punctual payment of the
principal of, and premium, if any, and interest on the notes and the
performance of Premier Graphics' covenants and obligations under the
indenture;
(3) immediately before and after giving pro forma effect to such
transaction or series of transactions no Default or Event of Default
exists;
(4) immediately after giving effect to such transaction or series of
transactions on a pro forma basis Premier Graphics or the Surviving
Entity has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Premier Graphics immediately prior to such
transactions; and
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(5) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred at the beginning of the applicable four-
quarter period, Premier Graphics or the Surviving Entity would be
permitted to incur $1.00 of additional Indebtedness pursuant to the
test described in the first sentence under the caption "--Limitation on
Indebtedness."
The provision of clause (5) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of Premier Graphics and the Subsidiaries taken as a whole into,
Premier Graphics.
In connection with any consolidation, merger, continuance, transfer of
assets or other transactions contemplated by this provision, Premier Graphics
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion
of counsel, each stating that such consolidation, merger, continuance, sale,
assignment, conveyance or transfer and the supplemental indenture in respect
thereto comply with the provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transactions have been complied
with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs,
the Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, Premier Graphics under the indenture and the notes
with the same effect as if such Surviving Entity had been named as Premier
Graphics in the indenture; and when a Surviving Person duly assumes all of the
Obligations and covenants of Premier Graphics pursuant to the indenture and the
notes, except in the case of a lease, the predecessor Person shall be relieved
of all such Obligations.
Events of Default
An Event of Default under the indenture is defined as:
(1) a default in the payment of interest on any note when the same becomes
due and payable, which continues for a period of 30 days;
(2) a default in the payment of the principal of any note at its Stated
Maturity, upon optional redemption, upon required repurchase or
otherwise, or the failure to make an offer to purchase any such note as
required;
(3) the failure by Premier Graphics to comply with any of its covenants or
agreements contained in "-- Change of Control," "-- Certain
Covenants -- Limitation on Restricted Payments," "-- Certain
Covenants -- Limitation on Asset Sales," "-- Certain Covenants --
Limitation on Indebtedness," "-- Certain Covenants --Limitation on
Subsidiary Indebtedness and Preferred Stock," "-- Certain Covenants--
Limitation on Sale and Lease-Back Transactions" or "-- Consolidation,
Merger, Conveyance Lease or Transfer";
(4) the failure by Premier Graphics to comply for 30 days after notice with
its other obligations and agreements contained in the notes and the
indenture;
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(5) the failure by Premier or a Subsidiary to pay any Indebtedness within
any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if
the total amount of such Indebtedness unpaid or accelerated exceeds
$10.0 million;
(6) the entry by a court of competent jurisdiction of one or more final
judgments against Premier or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5.0 million which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period
of 60 consecutive days;
(7) events of bankruptcy, insolvency or reorganization of Premier Graphics
or a Significant Subsidiary; or
(8) the failure of any Guarantee of the notes to be in full force, excepted
as contemplated by the terms thereof or by the indenture.
The events listed above will constitute Events of Default regardless of
their reasons, whether voluntary or involuntary or whether effected by
operation of law or pursuant to any judgment, decree, order, rule or regulation
of any administrative or governmental body.
If an Event of Default, other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of Premier Graphics, occurs and is
continuing, either the Trustee, by notice to Premier Graphics, or the holders
of not less than 25% of the outstanding aggregate principal amount at Stated
Maturity of the notes, by notice to Premier Graphics and the Trustee, may
declare the principal of, and any accrued and unpaid interest on, the notes to
be due and payable. Upon such a declaration, such principal and interest will
be due and payable immediately.
If any Event of Default relating to events of bankruptcy, insolvency or
reorganization of Premier Graphics occurs and is continuing, the principal of,
and any accrued and unpaid interest on, the notes will become immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder.
Under certain circumstances, the holders of a majority in principal amount
of the outstanding notes by notice to Premier Graphics and the Trustee may
rescind an acceleration 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 its rights or powers under the
indenture at the request or direction of any of the holders, unless such
holders have offered to the Trustee reasonable security or indemnity against
any loss liability or expense. Subject to the provisions of the indenture and
applicable law, the holders of a majority in aggregate principal amount of the
notes at the time outstanding have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee.
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Premier Graphics is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and Premier Graphics is required
within five Business Days after becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement describing such Default or Event
of Default, its status and what action Premier Graphics is taking or proposes
to take with respect thereto.
Amendment, Supplement and Waiver
Without notice to or the consent of any holder, Premier Graphics, the
Guarantors and the Trustee may amend the indenture to:
(1) provide for the assumption by a successor corporation of the
obligations of Premier Graphics and the Guarantors under the indenture;
(2) add to the covenants of Premier Graphics, for the benefit of the
holders, or to surrender any right or power conferred upon Premier
Graphics or the Guarantors by the Indenture;
(3) add any additional Events of Default;
(4) provide for uncertificated notes in addition to or in place of
certificated notes;
(5) evidence and provide for the acceptance of appointment under the
indenture by the successor Trustee;
(6) secure the notes and/or the guarantees;
(7) cure any ambiguity, to correct or supplement any provision in the
indenture which may be inconsistent with any other provision therein or
to add any other provisions with respect to matters or questions
arising under the indenture, provided that such actions will not
adversely affect the interests of the holders in any material respect;
(8) add or release any Guarantor pursuant to the terms of the indenture; or
(9) comply with the requirements of the SEC to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
Subject to certain exceptions, the indenture may be amended with the consent
of the holders of a majority in principal amount of the notes then outstanding.
Additionally, any past default on any provisions may be waived with the consent
of the holders of a majority in principal amount of the notes then outstanding.
However, without the consent of each holder, no amendment may, among other
things:
(1) reduce the rate of or extend the time for payment of interest on any
note;
(2) reduce the principal amount of or extend the Stated Maturity of any
note;
(3) reduce the principal amount of notes whose holders must consent to an
amendment;
(4) reduce the premium payable upon the redemption of any note or change
the time at which any note may be redeemed;
(5) make any note payable in money other than that stated in the note;
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(6) modify the Obligations of Premier Graphics to make offers to purchase
notes upon a Change of Control or from the proceeds of Asset Sales,
(7) modify the subordination provisions in a manner adverse to the holders
of the notes,
(8) amend, supplement or otherwise modify the provisions of the indenture
relating to Guarantees; or
(9) modify any of the provisions of this paragraph (except to increase any
percentage set forth herein).
Satisfaction and Discharge of the Indenture; Defeasance
Premier Graphics may terminate its Obligations and the Obligations of the
Guarantors under the notes, the indenture and the guarantees when
(1) either:
(A) all outstanding notes have been delivered to the Trustee for
cancellation; or
(B) all outstanding notes not delivered to the Trustee for cancellation
have become due and payable, will become due and payable within one
year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name and at the
expense of Premier Graphics, and Premier Graphics has irrevocably
deposited or caused to be deposited with the Trustee, in trust for
the benefit of the holders, funds in an amount sufficient to pay
and discharge the entire debt on the notes not theretofor delivered
to the Trustee for cancellation, for principal of (premium, if any,
on) and interest to the date of deposit or Maturity or date of
redemption;
(2) Premier Graphics has paid or caused to be paid all sums then due and
payable by Premier Graphics under the indenture; and
(3) Premier Graphics has delivered an officers' certificate and an opinion
of counsel relating to compliance with the conditions set forth in the
indenture.
Premier, at its election, shall
(1) be deemed to have paid and discharged its debt on the notes and the
indenture and guarantees shall cease to be of further effect as to all
outstanding notes except as to
(A) rights of registration of transfer, substitution and exchange of
notes,
(B) Premier's right of optional redemption,
(C) rights of holders to receive payments of principal of, premium, if
any, and interest on the notes and any rights of the holders with
respect to such amounts,
(D) the rights, obligations and immunities of the Trustee under the
Indenture, and
(E) certain other specified provisions in the Indenture or
(2) cease to be under any obligation to comply with certain restrictive
covenants that are described in the indenture.
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In order to exercise the defeasance rights described above,
(1) Premier Graphics must irrevocably deposit with the Trustee, in trust
for the benefit of the holders, cash in U.S. dollars, U.S. Government
Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of,
premium, if any on, and interest on the outstanding notes at Stated
Maturity or the applicable redemption date, as the case may be, and
Premier Graphics must specify whether the notes are being defeased to
maturity or to a particular redemption date; and
(2) Premier Graphics must deliver to the Trustee an opinion of outside
counsel acceptable to the Trustee to the effect that (A) such deposit,
defeasance and discharge will not be deemed, or result in, a taxable
event for federal income tax purposes with respect to the holders and
(B) Premier's deposit will not result in the trust or the Trustee being
subject to regulation under the Investment Company Act of 1940, as
amended.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to Premier Graphics at 6075 Poplar Avenue, Suite 401,
Memphis, Tennessee 38118; Attn: Lance T. Fair.
Concerning the Trustee
United States Trust Company of New York serves as the Trustee for the notes.
The Trustee has been appointed by Premier Graphics as Registrar and Paying
Agent with regard to the notes.
Governing Law
Both the indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York. Principles of conflicts of
law will not apply to the extent that such principles would require the
application of the law of another jurisdiction.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any capitalized terms used herein for, which no
definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
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connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the amount by
which the fair value of the Property and other assets of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the
Guarantee of such Guarantor.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Asset Acquisition" means
(1) an Investment by Premier Graphics or any Subsidiary in any other Person
pursuant to which such Person becomes a Subsidiary, or is merged with
or into Premier Graphics or any Subsidiary; or
(2) the acquisition by Premier Graphics or any Subsidiary of the assets of
any Person (other than a Subsidiary) which constitute all or
substantially all of the assets of such Person or comprise any division
or line of business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by Premier
Graphics or any Subsidiary to any Person other than Premier Graphics or a
Subsidiary Guarantor, in one transaction or a series of related transactions,
of
(1) any Capital Stock of any Subsidiary of Premier Graphics or any
Subsidiary Guarantor (except for directors' qualifying shares or
certain minority interests sold to other Persons solely due to local
law requirements that there be more than one stockholder, but which are
not in excess of what is required for such purpose), or
(2) any other Property or assets of Premier Graphics or any Subsidiary,
other than
(A) sales of obsolete or worn out equipment in the ordinary course of
business or other assets that, in Premier Graphics' reasonable
judgment, are no longer used or useful in the conduct of the
business of Premier or such Subsidiary, as applicable,
(B) a Restricted Payment or Restricted Investment permitted under "--
Certain Covenants--Limitation on Restricted Payments,"
(C) a Change of Control,
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(D) a consolidation, merger, continuance or the disposition of all or
substantially all of the assets of Premier Graphics (determined on
a consolidated basis) in compliance with the provision of the
Indenture described in "--Consolidation, Merger, Conveyance, Lease
or Transfer" and
(E) any transfer, conveyance, sale, lease or other disposition of
Property or assets, the gross proceeds of which (exclusive of
indemnities) do not exceed $250,000.
An Asset Sale shall include the requisition of title to, seizure of or
forfeiture of any Property or assets, or any actual or constructive total loss
or an agreed or compromised total loss of any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease (or to
the first date on which the lessee is permitted to terminate such lease without
the payment of a penalty) included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security, the
quotient obtained by dividing
(1) the sum of the products of (A) the number of years from such date to the
date of each scheduled principal payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security
multiplied in each case by (B) the amount of such principal payment by
(2) the sum of all such principal payments.
"Board of Directors" of any Person means the Board of Directors of such
Person, or any authorized committee of such Board of Directors.
"Board Resolution" means a duly authorized resolution of the Board of
Directors in full force and effect of the terms of determination and certified
as such and delivered to the Trustee.
"Borrowing Base" means, at any date of determination, an amount equal to 85%
of the accounts receivable owned by Premier Graphics and its Subsidiaries that
are not more than 90 days past due and 60% of the inventory of Premier Graphics
and its Subsidiaries, each calculated on a consolidated basis in accordance
with GAAP as shown on the last financial statements delivered to the Trustee
pursuant to the covenant described in "--Certain Covenants--Reports."
"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be
capitalized and accounted for as a capital lease on the balance sheet of such
Person prepared in accordance with GAAP.
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"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof or marketable securities that are
converted into cash or cash equivalents within 30 days of an Asset Sale),
including payments in respect of deferred payment obligations when received in
the form of cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to such Person or any subsidiary
thereof).
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of:
(1) the aggregate amount of EBITDA of Premier Graphics and the Subsidiaries
on a combined consolidated basis for the four fiscal quarters for which
financial information in respect thereof is available immediately prior
to the applicable Transaction Date (the "Determination Period") to
(2) the aggregate Consolidated Interest Expense of Premier Graphics and the
Subsidiaries on a combined consolidated basis for such Determination
Period.
For purposes of this definition, "EBITDA" and "Consolidated Interest
Expense" shall be calculated after giving effect on a pro forma basis to:
(1) the incurrence of any Indebtedness by Premier Graphics or any of the
Subsidiaries (and the application of the proceeds thereof) giving rise
to the need to make such calculation;
(2) any incurrence or repayment of other Indebtedness (and the application
of the proceeds thereof) occurring on or after the first day of the
Determination Period and on or prior to the Transaction Date, in each
case set forth in clauses (1) and (2), as if such incurrence or
repayment, as the case may be, (and the application of proceeds
thereof) occurred on the first day of the Determination Period (except
that Indebtedness under any revolving credit facility shall be deemed
to be the average daily balance of such Indebtedness during such
Determination Period); and
(3) any Asset Sales or Asset Acquisitions.
For purposes of this definition, whenever pro forma effect is to be given to
an Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith shall be determined in good faith by a
responsible financial or accounting officer of Premier Graphics.
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"Consolidated Interest Expense" means without duplication:
(1) the sum of:
(A) the aggregate amount of cash and noncash interest expense
(including capitalized interest) of such Person and its
subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP (or in respect of Indebtedness of Premier
Graphics and the Subsidiaries on a combined consolidated basis),
including, without limitation,
(i) net costs associated with Interest Swap Obligations (including
any amortization of discounts);
(ii) the interest portion of any deferred payment obligation
calculated in accordance with the effective interest method;
and
(iii) all accrued interest paid or accrued, or scheduled to be paid
or accrued, during such period;
(B) dividends on Preferred Stock or Redeemable Stock of such Person
(and Preferred Stock or Redeemable Stock of its subsidiaries if
paid to a Person other than such Person or its subsidiaries and in
the case of Premier Graphics, also to any Guarantor) declared and
payable in cash;
(C) the portion of any rental obligation of such Person or its
subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP;
(D) the portion of any rental obligation of such Person or its
subsidiaries in respect of any Sale and Lease-Back Transaction
allocable to interest expense (determined as if such were treated
as a Capital Lease Obligation); and
(E) to the extent any debt of any other Person is guaranteed by such
Person or any of its subsidiaries, the aggregate amount of interest
paid, accrued or scheduled to be paid or accrued, by such other
Person during such period attributable to any such debt;
less
(2) to the extent included in (1) above, amortization or write-off of
deferred financing costs of such Person and its subsidiaries during
such period and any charge related or any premium or penalty paid in
connection with redeeming or retiring any Indebtedness of such Person
and its subsidiaries prior to its stated maturity.
For purposes of the above calculation:
(1) intercompany accounts shall be eliminated in accordance with GAAP; and
(2) dividend requirements attributable to any Preferred Stock or Redeemable
Stock shall be deemed to be an amount equal to the amount of dividend
requirements on such Preferred Stock or Redeemable Stock times a
fraction, the numerator of which is one, and the denominator of which
is one minus the applicable combined federal,
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state, local and foreign income tax rate of Premier and its Subsidiaries
(expressed as a decimal), on a consolidated basis for the fiscal year
immediately preceding the date of the transaction giving rise to the
need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis (or in the case of
Premier Graphics, Premier Graphics and the Subsidiaries on a combined
consolidated basis), determined in accordance with GAAP, provided that there
shall be excluded therefrom, without duplication,
(1) any net income of any Unrestricted Subsidiary, except that Premier
Graphics' or any Subsidiary's interest in the net income of such
Unrestricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash or cash
equivalents actually distributed by such Unrestricted Subsidiary during
such period to Premier Graphics or a Subsidiary as a dividend or other
distribution;
(2) gains and losses, net of taxes, from Asset Sales or reserves relating
thereto;
(3) the net income of any Person that is not a subsidiary or that is
accounted for by the equity method of accounting which shall be
included only to the extent of the amount of dividends or distributions
paid to such Person or its subsidiaries;
(4) items (but not loss items) classified as extraordinary, unusual or
nonrecurring (other than the tax benefit, if any, of the utilization of
net operating loss carryforwards or alternative minimum tax credits);
(5) the net income (or net loss) of any Person acquired by such specified
Person or any of its subsidiaries in a pooling of interests transaction
for any period prior to the date of such acquisition;
(6) any gain or loss, net of taxes, realized on the termination of any
employee pension benefit plan;
(7) the net income (but not net loss) of any subsidiary of such specified
Person to the extent that the transfer to that Person of that income is
not at the time permitted, directly or indirectly, by any means
(including by dividend, distribution, advance or loan or otherwise), by
operation of the terms of its charter or any agreement with a Person
other than with such specified Person, instrument held by a Person
other than by such specified Person, judgment, decree, order, statute,
law, rule or governmental regulations applicable to such subsidiary or
its stockholders, except for any dividends or distributions actually
paid by such subsidiary to such Person; and
(8) with regard to a non-Wholly Owned Subsidiary, any aggregate net income
(or loss) in excess of such Person's or such subsidiary's pro rata
share of such non-Wholly Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a
consolidated basis at such date, each item determined
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in accordance with GAAP, less amounts attributable to Redeemable Stock of such
Person or any of its subsidiaries.
"Continuing Director" means an individual who
(1) is a member of the Board of Directors of Premier Graphics or Master
Graphics, as the case be; and
(2) either:
(A) was a member of the Board of Directors of Premier Graphics or
Master Graphics, as the case may be, on the Issue Date; or
(B) whose nomination for election or election to the Board of Directors
of Premier Graphics or Master Graphics, as the case may be, was
approved by vote of at least a majority of the directors then still
in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage time or both would be, an Event of Default.
"Determination Period" has the meaning specified in clause (a) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period from which Consolidated Net
Income is determined, without duplication,
(1) Consolidated Interest Expense,
(2) income tax expense,
(3) depreciation expense,
(4) amortization expense,
(5) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity,
(6) any one-time write-off of non-recurring closing costs incurred in
connection with any merger consummated after the Issue Date, and
(7) any other non-cash charges minus, to the extent reflected in such
income statement, any noncash credits that had the effect of increasing
Consolidated Net Income of such Person for such period.
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"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of
Premier and, in the case of a determination including a Fair Market Value in
excess of $1.0 million, shall be evidenced by a Board Resolution delivered to
the Trustee.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants ("AICPA") and statements of the Financial Accounting Standards
Board, or in such other statements by such other entity as may be designated by
the AICPA, that are applicable to the circumstances as of the date of
determination; provided, however, that all calculations made for purposes of
determining compliance with the provisions set forth in the Indenture shall
utilize GAAP in effect at the Issue Date.
"Guarantee" means any guarantee of the notes by any Guarantor in accordance
with the provisions described under "--Guarantees of Notes."
"Guarantor" means Master Graphics and each other future Subsidiary that is
required to guarantee Premier Graphics' Obligations under the notes and the
indenture as described in "--Guarantees of Notes" and "--Certain Covenants--
Limitation on Guarantees by Subsidiaries" and any other Subsidiary that
executes a supplemental indenture in which such Subsidiary agrees to guarantee
Premier's Obligations under the notes and the indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP
that results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary
shall be deemed to have been incurred at the time at which it becomes a
Subsidiary. A guarantee otherwise permitted by the Indenture to be incurred by
Premier Graphics or a Subsidiary of Indebtedness incurred in compliance with
the terms of the Indenture by Premier Graphics or a Subsidiary, as applicable,
shall not constitute a separate incurrence of Indebtedness.
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"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent,
(1) any obligation of such Person for borrowed money;
(2) any obligation of such Person evidenced by bonds, debentures, notes or
other similar instruments, including, without limitation, any such
obligations incurred in connection with acquisition of Property, assets
or businesses, excluding accounts payable made in the ordinary course
of business which are not more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings;
(3) any obligation of such Person for all or any part of the purchase price
of Property or assets, or for the cost of Property constructed or of
improvements thereto (including any obligation under or in connection
with any letter of credit related thereto), other than accounts payable
incurred in respect of Property and services purchased in the ordinary
course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings;
(4) any obligation of such Person upon which interest charges are
customarily paid (other than accounts payable incurred in the ordinary
course of business);
(5) any obligation of such Person under conditional sale or other title
retention agreements relating to purchased Property;
(6) any obligation of such Person issued or assumed as the deferred
purchase price of Property or assets (other than accounts payable
incurred in the ordinary course of business which are no more than 90
days overdue or which are being contested in good faith and by
appropriate proceedings);
(7) any Capital Lease Obligation or Attributable Indebtedness pursuant to
any Sale and Lease-Back Transaction of such Person;
(8) any obligation of any other Person secured by (or for which the obligee
hereof has an existing right, contingent or otherwise, to be secured
by) any Lien on Property owned or acquired, whether or not any
obligation secured thereby has been assumed, by such Person;
(9) any obligation of such Person in respect of any letter of credit
supporting any obligation of any other Person;
(10) the maximum fixed repurchase price of any Redeemable Stock of such
Person (or if such Person is a subsidiary, any Preferred Stock of such
Person);
(11) the notional amount of any Interest Swap Obligation or Currency Hedge
Obligation of such Person at the time of determination; and
(12) any obligation which is in economic effect a guarantee, regardless of
its characterization (other than endorsements of negotiable
instruments in the ordinary course of business), with respect to any
Indebtedness of another Person, to the extent guaranteed.
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For purposes of the preceding sentence, the maximum fixed repurchase price
of any Redeemable Stock or subsidiary Preferred Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock or subsidiary Preferred Stock as if such Redeemable Stock or
subsidiary Preferred Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture; provided that if
such Redeemable Stock or subsidiary Preferred Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock or subsidiary Preferred Stock. The amount of Indebtedness of any Person
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided, further, that for purposes of calculating the amount of
any non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
"Interest Swap Obligations" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
subsidiaries' exposure to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or similar credit extension constituting
Indebtedness of such other Person, and any guarantee of Indebtedness of any
other Person; provided that the term "Investment" shall not include any
transaction involving the purchase or other acquisition (including by way of
merger) of Property or assets (including Capital Stock) by Premier Graphics or
any Subsidiary in exchange for Capital Stock (other than Redeemable Stock) of
Premier Graphics or Master Graphics. The amount of any Person's Investment
shall be the original cost of such Investment to such Person, plus the cost of
all additions thereto paid by such Person, and minus the amount of any portion
of such Investment repaid to such Person in cash as a repayment of principal or
a return of capital, as the case may be, but without any other adjustments for
increases or decreases in value, or write-ups, writedowns, or write-offs with
respect to such Investment. In determining the amount of any Investment
involving a transfer of any Property or assets other than cash, such Property
or assets shall be valued at its Fair Value at the time of such transfer as
determined in good faith by the board of directors (or comparable body) of the
Person making such transfer. Premier Graphics shall be deemed to make an
"Investment" in the amount of the Fair Value of the Property and assets of a
Subsidiary at the time such Subsidiary is designated an Unrestricted
Subsidiary.
"Issue Date" means the date on which the notes are first authenticated and
delivered under the indenture.
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"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Maturity" means the date on which the principal of a note becomes due and
payable as provided therein or in the indenture, whether at the Stated Maturity
or the change of control payment date or the purchase date established pursuant
to the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, as to any Asset Sale, the Cash Proceeds
therefrom, net of all legal and title expenses, commissions and other fees and
expenses incurred, and all Federal, state, foreign, recording and local taxes
payable, as a consequence of such Asset Sale, net of all payments made to any
Person other than Premier or a Subsidiary on any Indebtedness which is secured
by such assets, in accordance with the terms of any Lien upon or with respect
to such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds
from such Asset Sale and, as for any Asset Sale by a Subsidiary, net of the
equity interest in such Cash Proceeds of any holder of Capital Stock of such
Subsidiary (other than Premier, any other Subsidiary or any Affiliate of
Premier or any such other Subsidiary).
"Net Proceeds" means
(1) in the case of any sale of Capital Stock by a Person, the aggregate net
cash proceeds received by such Person, after payment of expenses,
commissions, and the like incurred in connection therewith; and
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock
of any Person which is not Redeemable Stock, the net book value of such
outstanding securities on the date of such exchange, exercise,
conversion or surrender (plus any additional amount required to be paid
by the holder to Premier Graphics or Master Graphics, as applicable,
upon such exchange, exercise, conversion or surrender) less any and all
payments made to the holders, e.g., on account of fractional shares and
less all expenses incurred by such Person in connection therewith.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary as to which
(1) neither Premier Graphics nor any other Subsidiary (other than an
Unrestricted Subsidiary)
(A) provides credit support including any undertaking, agreement or
instrument which would constitute Indebtedness, or
(B) is directly or indirectly liable for such Indebtedness, and
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(2) no default with respect to such Indebtedness (including any rights
which the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of Premier or any other
Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated
maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon and, with respect to the notes,
Special Interest), penalties, fees, costs, expenses, indemnifications,
reimbursements, damages and other liabilities.
"Obligors" means Premier Graphics and the Guarantors, collectively;
"Obligor" means Premier Graphics or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of Premier Graphics, Master Graphics or a Subsidiary and delivered to
the Trustee, which shall comply with the Indenture.
"Permitted Holders" means John P. Miller and any person related to him by
kinship or marriage, trusts or similar arrangements established solely on the
behalf of one or more of them, and partnerships and other entities that are
controlled by them.
"Permitted Investments" means:
(1) certificates of deposit, bankers acceptances, time deposits,
Eurocurrency deposits and similar types of Investments routinely
offered by commercial banks with final maturities of one year or less
issued by commercial banks organized in the United States, or foreign
branches thereof, having capital and surplus in excess of
$500.0 million;
(2) commercial paper issued by any corporation, if such commercial paper
has credit ratings of at least "A-1" or its equivalent by S&P and at
least "P-1" or its equivalent by Moody's;
(3) U.S. Government Obligations with a maturity of one year or less;
(4) repurchase obligations for instruments of the type described in clause
(c) with any bank meeting the qualifications specified in clause (1)
above;
(5) shares of money market mutual or similar funds having assets in excess
of $500.0 million;
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(6) payroll advances in the ordinary course of business and other advances
and loans to officers and employees of Premier Graphics or any
Subsidiary, so long as the aggregate principal amount of such advances
and loan, does not exceed $1.5 million at any one time outstanding;
(7) Investments represented by that portion of the proceeds from Asset
Sales that is not required to be Cash Proceeds by the covenant
described in "--Certain Covenants--Limitation on Asset Sales";
(8) Investments made by Premier Graphics in Subsidiary Guarantors (or any
Person that will be a Subsidiary and a Subsidiary Guarantor as a result
of such Investment) or by a Subsidiary in Premier Graphics or in one or
more Subsidiary Guarantors (or any Person that will be a Subsidiary of
Premier Graphics as a result of such Investment);
(9) Investments in stock, obligations or securities received in settlement
of debts owing to Premier Graphics or any Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of Premier Graphics or
any Subsidiary, in each case as to debt owing to Premier Graphics or
any Subsidiary that arose in the ordinary course of business of Premier
Graphics or any such Subsidiary;
(10) Interest Swap Obligations with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(11) Currency Hedge Obligations, provided that such Currency Hedge
Obligations constitute Permitted Indebtedness permitted by clause (d)
of the definition thereof;
(12) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility, worker's compensation and performance
and other similar deposits in the ordinary course of business; and
(13) Investments pursuant to any agreement or obligation of Premier or any
Subsidiary in effect on the Issue Date and listed on a schedule
attached to the Indenture.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of Premier Graphics or Master Graphics for cash pursuant to
an effective registration
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statement (other than on a Form S-4 or a Form S-8 or any other form relating to
securities issuable under any employee benefit plan of Premier or Master
Graphics) under the Securities Act; provided that in the event of a Public
Equity Offering by Master Graphics, Master Graphics contributes the Net
Proceeds of such Public Equity Offering to the common equity of Premier
Graphics.
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such
Person or any of its subsidiaries.
"Related Business" means the general commercial printing business and any
business reasonably complementary, related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of Premier Graphics as evidenced by a Board Resolution, is
used or is useful in a Related Business.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its subsidiaries.
"Senior Debt" means any Indebtedness incurred by Premier Graphics or a
Guarantor, as the case may be, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to the notes or such Guarantor's guarantee, as applicable, provided
that Senior Debt will not include:
(1) any liability for federal, state, local or other taxes owed or owing,
(2) any Indebtedness owing to any Subsidiaries or to Master Graphics or to
any Affiliate,
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
"Senior Debt to EBITDA Ratio" means, at any time of determination, the ratio
of:
(1) the aggregate amount of Senior Debt outstanding on the date of
determination, other than Senior Debt secured by Permitted Liens
described in clause (15) of the definition of Permitted Liens under "--
Limitation on Liens", to
(2) the aggregate amount of EBITDA of Premier Graphics and the Subsidiaries
on a combined consolidated basis for the four fiscal quarters for which
financial information is available immediately prior to date of
determination; provided that
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any Senior Debt incurred or retired by Premier Graphics or any of the
Subsidiaries during the fiscal quarter in which the date of
determination occurs shall be calculated as if such Senior Debt were so
incurred or retired on the first day of the fiscal quarter in which the
date of determination occurs; and provided, further, that
(A) if the transaction giving rise to the need to calculate the Senior
Debt to EBITDA Ratio would have the effect of increasing or
decreasing Senior Debt or EBITDA in the future, Senior Debt or
EBITDA shall be calculated on a pro forma basis as if such
transaction had occurred on the first day of such four fiscal
quarter period preceding the date of determination, and
(B) if during such four fiscal quarter period, Premier Graphics or any
of the Subsidiaries shall have engaged in any Asset Sale, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject
of such Asset Sale and any related retirement of Senior Debt as if
such Asset Sale and related retirement of Senior Debt had occurred
on the first day of such four fiscal quarter period or
(C) if during such four fiscal quarter period Premier or any of the
Subsidiaries shall have made any Asset Acquisition, EBITDA shall be
calculated on a pro forma basis as if such Asset Acquisition and any
related financing had occurred on the first day of such four fiscal
quarter period. For purposes of this definition, whenever pro forma
effect is to be given to an Asset Acquisition, the amount of income
or earnings relating thereto shall be determined in good faith by a
responsible financial or accounting officer of Premier Graphics.
"Significant Subsidiary" means any Subsidiary Guarantor or any other
Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"subsidiary" means, with respect to any Person,
(1) any corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person, or by one or more
other subsidiaries of such Person, or by such Person and one or more
other subsidiaries of such Person,
(2) any general partnership, joint venture or similar entity, more than 50%
of the outstanding partnership or similar interest of which is owned,
directly or indirectly, by such Person, or by one or more other
subsidiaries or such Person, or by such Person and one or more other
subsidiaries of such Person and
(3) any limited partnership of which such Person or any subsidiary of such
Person is a general partner.
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"Subordinated Indebtedness" means any Indebtedness of Premier Graphics or
any Subsidiary that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be.
"Subsidiary" means a subsidiary of Master Graphics (or Premier Graphics, if
Premier Graphics is no longer a Subsidiary of Master Graphics) other than an
Unrestricted Subsidiary.
"Subsidiary Guarantor" means a Guarantor that is a Subsidiary.
"Tax Sharing Agreement" means that certain tax sharing agreement among
Premier Graphics and Master Graphics.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are:
(1) direct obligations of the United States of America for the payment of
which its full faith and credit is pledged;
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment
of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case under
clauses (1) or (2) above, are not callable or redeemable at the option
of the issuers thereof; or
(3) depositary receipts issued by a bank or trust company as custodian with
respect to any such U.S. Government Obligations or a specific payment
of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation evidenced by
such depository receipt.
"Unrestricted Subsidiary" means any subsidiary of Premier Graphics or a
Subsidiary that Premier Graphics has classified as an Unrestricted Subsidiary,
and that has not been reclassified as a Subsidiary, pursuant to the terms of
the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
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"Wholly Owned Subsidiary" means any Subsidiary to the extent
(1) all of the Capital Stock or other ownership interests in such
Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by Master Graphics or
Premier Graphics, as the case may be, or
(2) such Subsidiary is organized in a foreign jurisdiction and is required
by the applicable laws and regulations of such foreign jurisdiction to
be partially owned by the government of such foreign jurisdiction or
individual or corporate citizens of such foreign jurisdiction in order
for such Subsidiary to transact business in such foreign jurisdiction,
provided that Master Graphics or Premier Graphics, directly or
indirectly, owns the remaining Capital Stock or ownership interest in
such Subsidiary and, by contract or otherwise, controls the management
and business of such Subsidiary and derives the economic benefits of
ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a Wholly Owned Subsidiary.
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CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
Except as set forth below, the exchange notes will be represented by one
permanent global registered note in global form, without interest coupons
(called a "global note"). The global note will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of Cede &
Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant
to the FAST Balance Certificate Agreement between DTC and the Trustee.
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Premier
Graphics takes no responsibility for these operations or procedures, and
investors are urged to contact the relevant system or its participants directly
to discuss these matters.
DTC has advised Premier Graphics that it is
(1) a limited purpose trust company organized under the laws of the State
of New York,
(2) a "banking organization" within the meaning of the New York Banking
Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of
certificates. DTC's participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies ("indirect participants") that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. Investors who are not participants may beneficially own
securities held by or on behalf of DTC only through participants or indirect
participants.
Premier Graphics expects that pursuant to procedures established by DTC (A)
upon deposit of each global note, DTC will credit the accounts of the
appropriate Participants with an interest in the global note, and (B) ownership
of the notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC, with respect to the interests
of participants, and the records of participants and the indirect participants,
with respect to the interests of persons other than participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer
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interests in the notes represented by a global note to such persons may be
limited. In addition, because DTC can act only on behalf of its participants,
who in turn act on behalf of persons who hold interests through participants,
the ability of a person having an interest in notes represented by a global
note to pledge or transfer such interest to persons or entities that do not
participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not be entitled to have notes represented by such global note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated notes, and will not be considered the owners or
holders thereof under the indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if such holder is not a participant or an
indirect participant, on the procedures of the participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
indenture or such global note. Premier Graphics understands that under existing
industry practice, in the event that Premier Graphics requests any action of
holders of notes, or a holder that is an owner of a beneficial interest in a
global note desires to take any action that DTC, as the holder of such global
note, is entitled to take, DTC would authorize the participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither Premier Graphics nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any notes represented by a global note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the global note representing such notes under the indenture. Under the terms of
the indenture, Premier Graphics and the Trustee may treat the persons in whose
names the notes, including the global notes, are registered as the owners
thereof for the purpose of receiving payment thereon and for any and all other
purposes whatsoever. Accordingly, neither Premier Graphics nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a global note (including principal, premium,
if any, and interest). Payments by the participants and the indirect
participants to the owners of beneficial interests in a global note will be
governed by standing instructions and customary industry practice and will be
the responsibility of the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in
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Euroclear or Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counter party in such system in accordance with the
rules and procedures and within the established deadlines, Brussels time, of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing
day, which must be a business day for Euroclear and Cedel, immediately
following the settlement date of DTC. Cash received in Euroclear or Cedel as a
result of sales of interest in a global note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither Premier Graphics nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or Cedel or their respective participants
or indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes
If
(A) Premier Graphics notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as
a clearing agency under the Exchange Act and a successor depositary is
not appointed within 90 days of such notice or cessation,
(B) Premier Graphics, at its option, notifies the Trustee in writing that it
elects to cause the issuance of notes in definitive form under the
indenture, or
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(C) upon the occurrence of certain other events as provided in the
indenture, then, upon surrender by DTC of the global notes, certificated
notes will be issued to each person that DTC identifies as the
beneficial owner of the notes represented by the global notes. Upon any
such issuance, the Trustee is required to register such certificated
notes in the name of such person or persons, or the nominee of any
thereof, and cause the same to be delivered thereto.
Neither Premier Graphics nor the Trustee shall be liable for any delay by
DTC or any participant or indirect participant in identifying the beneficial
owners of the related notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the notes to be issued.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of United States federal income tax
considerations that may be relevant to the exchange of old notes for exchange
notes and to the purchase, ownership and disposition of the exchange notes.
This summary does not purport to be a complete analysis of all of the potential
United States federal income tax considerations relating to the purchase,
ownership and disposition of the exchange notes and generally does not address
any other taxes that might be applicable to a holder of the exchange notes. In
the opinion of Baker, Donelson, Bearman & Caldwell special United States tax
counsel to Premier Graphics, the discussion accurately reflects the material
United States federal income tax consequences to U.S. and non-U.S. Holders (as
defined) of the consummation of the exchange offer and the ownership and
disposition of the exchange notes. We cannot assure you that the United States
Internal Revenue Service will take a similar view of such consequences.
Further, the discussion does not address all aspects of taxation that may be
relevant to particular holders of initial notes or exchange notes in light of
their individual circumstances, including the effect of any foreign, state or
local laws, or to certain types of purchasers subject to special treatment
under United States federal income tax laws (including dealers in securities,
insurance companies, financial institutions, persons that hold the initial
notes or exchange notes that are a hedge or that are hedged against currency
risks or that are part of a straddle or conversion transaction or a
constructive sale, persons whose functional currency is not the U.S. dollar and
tax-exempt entities). The discussion below assumes that the initial notes or
exchange notes are held as capital assets within the meaning of section 1221 of
the Internal Revenue Code of 1986.
The discussion of the United States federal income tax considerations below
is based on currently existing provisions of the Code, the applicable Treasury
regulations promulgated and proposed thereunder, judicial decisions, and
administrative interpretations, all of which are subject to change, possibly on
a retroactive basis. Because individual circumstances may differ, you are
strongly urged to consult your tax advisor with respect to your particular tax
situation and the particular tax effects of any state, local, non-United States
or other tax laws and possible changes in the tax laws.
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As used in this section, the term "U.S. holder" means a beneficial owner of
an exchange note who or which is for United States federal income tax purposes
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof,
(3) an estate the income of which is subject to United States federal
income taxation regardless of its source, or
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust.
The term also includes certain former citizens of the United States whose
income and gain on the exchange notes will be subject to United States
taxation. As used herein, the term "non-U.S. holder" means a beneficial owner
of an exchange note that is not a U.S. holder.
Federal Income Tax Consequences of the Exchange Offer
The exchange of old notes for exchange notes pursuant to the exchange offer
will not be treated as an "exchange" or otherwise as a taxable event to
holders. Consequently,
. no gain or loss will be realized by a holder upon receipt of an exchange
note;
. the holding period of the exchange note will include the holding period
of the initial note exchanged therefor; and
. the adjusted tax basis of the exchange note will be the same as the
adjusted tax basis of the initial note exchanged therefor immediately
before the exchange.
Tax Considerations for U.S. Holders
Payments of Interest
Interest on an exchange note generally will be taxable to a U.S. holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. holder's method of accounting for United States federal income
tax purposes.
Market Discount and Bond Premium
If a U.S. holder purchases an exchange note for an amount that is less than
its principal amount, the difference generally will be treated as "market
discount". In such case, any partial principal payment on and gain realized on
the sale, exchange or retirement of the exchange note and unrealized
appreciation on certain nontaxable dispositions of the note will be treated as
ordinary income to the extent of the market discount that has not previously
been included in income and that is treated as having accrued on the exchange
note prior to such payment or disposition and the U.S. holder might be required
to defer all or a portion of the interest expense on any indebtedness incurred
or continued to purchase or carry such
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exchange note (in each case, unless the U.S. holder has made an election to
include such market discount in income as it accrues). Unless the U.S. holder
elects to treat market discount as accruing on a constant yield method, market
discount will be treated as accruing on a straight-line basis over the
remaining term of the exchange note. An election made to include market
discount in income as it accrues will apply to all debt instruments acquired by
the U.S. holder on or after the first day of the taxable year to which such
election applies and may be revoked only with the consent of the Internal
Revenue Service.
If a U.S. holder purchases an exchange note for an amount in excess of all
amounts payable on the exchange note after the purchase date, other than
payments of stated interest, such excess will be treated as "bond premium". In
general, a U.S. holder may elect to amortize bond premium over the remaining
term of the exchange note on a constant yield method. The amount of bond
premium allocable to any accrual period is offset against the stated interest
allocable to such accrual period (and any excess may be deducted, subject to
certain limitations). An election to amortize bond premium applies to all
taxable debt instruments held at the beginning of the first taxable year to
which such election applies and thereafter acquired by the U.S. holder and may
be revoked only with the consent of the Internal Revenue Service.
Sale, Exchange or Retirement of Notes
Upon the sale, exchange or retirement of a an exchange note, a U.S. holder
will recognize taxable gain or loss equal to the difference between the amount
of cash plus the fair market value of any property received (not including any
amount attributable to accrued but unpaid interest) and such holder's adjusted
tax basis in the exchange note. A U.S. holder's adjusted tax basis in an
exchange note will be its cost, increased by any accrued market discount
included in income and reduced by any amortized bond premium and any principal
payment on the exchange note received by such holder.
Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or retirement of an exchange note by a U.S. holder generally
will be capital gain or loss if the exchange note is held as a capital asset by
the U.S. holder. Net capital gains of individuals are subject to tax at lower
rates than items of ordinary income. The deductibility of capital losses is
subject to limitations.
Tax Considerations for Non-U.S. Holders
Generally, payments of principal or interest on the exchange notes by
Premier Graphics or any paying agent to a beneficial owner of an exchange note
that is a non-U.S. holder will not be subject to U.S. federal income or income
withholding tax, provided that, in the case of interest,
(1) such non-U.S. holder does not own, actually or constructively, 10% or
more of the combined voting power of all classes of stock of Premier
Graphics entitled to vote,
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(2) such non-U.S. holder is not, for U.S. federal income tax purposes, a
controlled foreign corporation related to Premier Graphics actually or
constructively through stock ownership,
(3) such non-U.S. holder is not a bank receiving interest described in
section 881(c)(3)(A) of the Code, and
(4) either (A) the non-U.S. holder provides Premier Graphics or its agent
with an Internal Revenue Service Form W-8 (or a suitable substitute
form) signed under penalties of perjury that includes its name and
address and certifies as to its non-United States status in compliance
with applicable law and Treasury regulations or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
holds the exchange note and provides a statement to Premier Graphics or
its agent signed under penalties of perjury in which such organization,
bank or financial institution certifies that such a Form W-8 (or
suitable substitute) has been received by it from the non-U.S. holder
or from another financial institution acting on behalf of the non-U.S.
holder and furnishes Premier Graphics or its agent with a copy thereof.
If these requirements cannot be met, a non-U.S. holder generally will
be subject to United States federal income withholding tax at a rate of
30% (or such lower rate provided by an applicable treaty) with respect
to payments of interest on the exchange notes. The non-U.S. holder must
inform Metromedia Fiber Network or its agent or the financial
institution to which the non-U.S. holder provided the Form W-8 (or
suitable substitute) within 30 days of any change in the information
provided in such form.
Treasury regulations generally effective for payments made after December
31, 1999 (the "new regulations") provide alternative methods for satisfying the
certification requirements described in clause (4) above. The new regulations
also will require, in the case of exchange notes held by a foreign partnership,
that (1) the certification be provided by the partners rather than by the
foreign partnership and (2) the partnership provide certain information,
including a U.S. taxpayer identification number.
A non-U.S. holder of an exchange note generally will not be subject to
United States federal income or income withholding tax on gain realized on the
sale, exchange, redemption, retirement or other disposition of such exchange
note, unless
(1) such non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of the disposition, and
certain other conditions are met or
(2) such gain is effectively connected with the conduct by such non-U.S.
holder of a trade or business in the United States.
Notwithstanding the above, if a non-U.S. holder of an exchange note is
engaged in a trade or business in the United States and if interest on the
exchange note, or gain realized on the disposition of the exchange note, is
effectively connected with the conduct of such trade or business, the non-U.S.
holder generally will be subject to regular United States
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federal income tax on such interest or gain in the same manner as if it were a
U.S. holder, unless an applicable treaty provides otherwise. In addition, if
such non-U.S. holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments. Even though such effectively connected income is
subject to income tax, and may be subject to the branch profits tax, it
generally is not subject to income withholding if the non-U.S. holder delivers
a properly executed Internal Revenue Service Form 4224 (or other form
applicable under the new regulations) to the payor.
An exchange note held by an individual non-U.S. holder who at the time of
death is not a United States citizen or resident of the United States (as
defined for United States federal estate tax purposes) will not be subject to
United States federal estate taxation as a result of such individual's death
unless
(1) the individual owns, actually or constructively, 10% or more of the
combined voting power of all classes of stock of Premier Graphics
entitled to vote or
(2) the interest on the exchange note is effectively connected with the
conduct by such individual of a trade or business in the United States.
Tax Considerations Applicable to Both U.S. Holders and Non-U.S. Holders
Backup Withholding and Information Reporting
Under current United States federal income tax law, a 31% backup withholding
tax might apply to certain payments on, and the proceeds from a sale, exchange
or redemption of, the exchange notes, unless the holder of the exchange note
(1) is a corporation or comes within certain other exempt categories and,
when required, demonstrates that fact or
(2) provides a correct taxpayer identification number, certifies as to its
exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Backup withholding and information reporting generally will not apply to
payments made by Premier Graphics or a paying agent on an exchange note to a
non-U.S. holder if the certification described under "Tax Considerations for
Non-U.S. Holders" is duly provided or the non-U.S. holder otherwise establishes
an exemption and the payor does not have actual knowledge that the holder is a
U.S. holder or that the conditions of any other exemption are not, in fact,
satisfied. The payments of proceeds from the disposition of an exchange note to
or through a non-United States office of a "broker" (as defined in applicable
Treasury regulations) that is
(1) a United States person,
(2) a controlled foreign corporation for United States federal income tax
purposes,
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(3) a foreign person, 50% or more of whose gross income from all sources
for certain periods is from activities effectively connected with the
conduct of a United States trade or business, or
(4) after December 31, 1999, a foreign partnership if either (A) more than
50% of the income or capital interest is owned by U.S. holders or (B)
such partnership has certain connections to the United States, will be
subject to information reporting requirements unless such broker has
documentary evidence in its files of the holder's non-U.S. holder
status and has no actual knowledge to the contrary or otherwise
establishes an exemption. Before January 1, 2000, backup withholding
will not apply to any payment of the proceeds from the sale of an
exchange note made to or through a foreign office of a broker. However,
after December 31, 1999, backup withholding might apply if the broker
has actual knowledge that the payee is a U.S. holder. Payments of the
proceeds from the sale of an exchange note to or through the United
States office of a broker are subject to information reporting and
possible backup withholding unless the holder certifies, under
penalties of perjury, that it is not a U.S. holder and that certain
other conditions are met or otherwise establishes an exemption,
provided that the broker does not have actual knowledge that the holder
is a U.S. holder or that the conditions of any other exemption are not,
in fact, satisfied.
Holders of exchange notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against the holder's United
States federal income tax liability and may entitle the holder to a refund if
the required information is furnished to the Internal Revenue Service.
The foregoing discussion is for general information only and is not tax
advice. Accordingly, you should consult your tax advisor as to the particular
tax consequences to you of the exchange offer and of purchasing, holding and
disposing of the old notes or the exchange notes, including the applicability
and effect of any state, local or non-United States tax laws and any recent or
prospective changes in applicable tax laws and the effect of the new
regulations with respect to payments made after December 31, 1999.
PLAN OF DISTRIBUTION
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. Premier Graphics has agreed that for a period of one
year after the expiration of the exchange offer, it will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in
connection with any such resales.
115
<PAGE>
Premier Graphics will not receive any proceeds from any sale of exchange
notes by broker-dealers. 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 Securities Act and
any profit on 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 Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We have been advised by Donaldson Lufkin & Jenrette Securities Corporation,
Prudential Securities Incorporated and Morgan Keegan & Company, Inc., the
Initial Purchasers of the old notes, that following completion of the exchange
offer they intend to make a market in the exchange notes to be issued in the
exchange offer; however, such entities are under no obligation to do so and any
market activities with respect to the exchange notes may be discontinued at any
time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
exchange notes offered hereby will be passed upon for Premier Graphics by
Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee.
EXPERTS
The financial statements of Master Graphics, Inc., as of December 31, 1997
and 1998 and for the years ended June 30, 1996 and 1997, the six months ended
December 31, 1997 and the year ended December 31, 1998, have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of McQuiddy as of June 30, 1996 and 1997, and for
each of the years in the three-year period ended June 30, 1997, have been
included herein and in the registration statement in reliance upon the report
of Marlin & Edmondson, P.C., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
116
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Master Graphics, Inc. and subsidiaries:
Reports of Independent Public Accountants............................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-3
Consolidated Statements of Operations for the years ended June 30, 1996
and 1997, the six months ended December 31, 1997 and the year ended
December 31, 1998...................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1996 and 1997, the six months ended December 31, 1997, and the year
ended December 31, 1998................................................ F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1996
and 1997, the six months ended December 31, 1997, and the year ended
December 31, 1998...................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
McQuiddy Printing Company:
Report of Independent Public Accountants................................ F-22
Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998
(unaudited)............................................................ F-23
Statements of Earnings for the years ended June 30, 1995, 1996 and 1997
and the nine months ended March 31, 1997 and 1998 (unaudited).......... F-24
Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997 and the nine months ended March 31, 1997 and 1998
(unaudited)............................................................ F-25
Statements of Cash Flows for the years ended June 30, 1995, 1996 and
1997 and the nine months ended March 31, 1997 and 1998 (unaudited)..... F-26
Notes to Financial Statements........................................... F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Master Graphics, Inc.:
We have audited the consolidated balance sheets of Master Graphics, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the two-year period ended June 30, 1997, the six-month period ended
December 31, 1997, and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Master
Graphics, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1997, the six-month period ended December 31,
1997, and the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Memphis, Tennessee
March 18, 1999
F-2
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,174 $ 13,525
Trade accounts receivable, net............................. 14,989 38,529
Inventories:
Raw materials and supplies................................ 1,927 2,909
Work-in-process........................................... 2,909 5,186
------- --------
Total inventories........................................ 4,836 8,095
Deferred income taxes...................................... 161 1,057
Prepaid expenses and other current assets.................. 1,320 4,012
------- --------
Total current assets...................................... 22,480 65,218
------- --------
Property, plant and equipment, net.......................... 29,550 75,251
Goodwill, net............................................... 28,853 64,469
Deferred loan costs, net.................................... 1,396 1,352
Due from shareholder........................................ 3,895 64
Other....................................................... 210 1,522
------- --------
Total assets.............................................. $86,384 $207,876
======= ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current installments of long-term debt..................... $ 3,834 $ 924
Accounts payable........................................... 5,466 10,829
Accrued expenses........................................... 6,489 5,540
------- --------
Total current liabilities................................. 15,789 17,293
------- --------
Long-term debt, net of current installments................. 65,484 144,223
Deferred income taxes....................................... 2,266 7,554
Other liabilities........................................... 1,065 1,177
Redeemable common stock warrants............................ 3,376 0
Redeemable preferred stock.................................. 0 1,437
Commitments and contingencies
Shareholders' equity:
Common stock ($0.001 par value; 100,000,000 shares
authorized; 4,000,000 shares issued and outstanding at
December 31, 1997; 7,879,997 shares issued and outstanding
at December 31, 1998)..................................... 4 8
Additional paid-in capital................................. 3,850 39,843
Retained earnings (deficit)................................ (5,450) (3,659)
------- --------
Total shareholders' equity (deficit)...................... (1,596) 36,192
------- --------
$86,384 $207,876
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years ended June 30, Six months ended Year ended
---------------------- December 31, December 31,
1996 1997 1997 1998
---------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Net revenue............. $ 13,244 $ 13,433 $ 32,394 $163,277
Cost of revenue......... 9,955 11,312 26,528 121,340
---------- ---------- -------- --------
Gross profit.......... 3,289 2,121 5,866 41,937
Selling, general and
administrative
expenses............... 2,691 3,021 5,990 26,876
Amortization of
goodwill............... 0 0 98 1,007
---------- ---------- -------- --------
Operating income
(loss)............... 598 (900) (222) 14,054
Other income (expense):
Redeemable warrant
valuation
adjustment........... 0 0 (1,635) 0
Interest income....... 68 68 48 250
Interest expense...... (376) (439) (2,181) (10,271)
Other, net............ 44 23 191 568
---------- ---------- -------- --------
Other income
(expense), net..... (264) (348) (3,577) (9,453)
---------- ---------- -------- --------
Income (loss) before
income taxes and
extraordinary loss... 334 (1,248) (3,799) 4,601
Income tax expense...... 162 25 20 628
---------- ---------- -------- --------
Net earnings (loss)
before extraordinary
loss................. 172 (1,273) (3,819) 3,973
Extraordinary loss on
extinguishment of
debt,
net of income tax
benefit of $1,458.... 0 0 0 (2,098)
---------- ---------- -------- --------
Net earnings (loss)... $ 172 $ (1,273) $ (3,819) $ 1,875
========== ========== ======== ========
Basic earnings per
share:
Net earnings (loss)
before extraordinary
loss................. $ 0.04 $ (0.32) $ (0.95) $ 0.62
Extraordinary loss,
net.................. 0.00 0.00 0.00 (0.34)
---------- ---------- -------- --------
Net earnings (loss)... $ 0.04 $ (0.32) $ (0.95) $ 0.28
========== ========== ======== ========
Diluted earnings per
share:
Net earnings (loss)
before extraordinary
loss................. $ 0.04 $ (0.32) $ (0.95) $ 0.60
Extraordinary loss,
net.................. 0.00 0.00 0.00 (0.33)
---------- ---------- -------- --------
Net earnings (loss)... $ 0.04 $ (0.32) $ (0.95) $ 0.27
========== ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common stock
Additional Retained Total
paid-in earnings shareholder's
Shares Amount capital (deficit) equity (deficit)
--------- ------ ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 4,000,000 $100 $ 2,100 $ (530) $ 1,670
Net earnings for year
ended June 30, 1996.. -- 0 0 172 172
--------- ---- ------- ------- -------
Balances at June 30,
1996................... 4,000,000 $100 $ 2,100 $ (358) $ 1,842
Effects of re-
incorporation........ 0 (96) 96 0 0
Issuance of seller
warrants............. 0 0 210 0 210
Net (loss) for year
ended June 30, 1997.. 0 0 0 (1,273) (1,273)
--------- ---- ------- ------- -------
Balances at June 30,
1997................... 4,000,000 $ 4 $ 2,406 $(1,631) $ 779
Issuance of seller
warrants............. 0 0 1,444 0 1,444
Net (loss) for six
months ended December
31, 1997............. 0 0 0 (3,819) (3,819)
--------- ---- ------- ------- -------
Balances at December 31,
1997................... 4,000,000 $ 4 $ 3,850 $(5,450) $(1,596)
Initial public
offering............. 3,400,000 4 29,818 0 29,822
Acquisition of
businesses........... 213,333 0 1,282 0 1,282
Exercise of lender
warrants............. 266,664 0 2,025 0 2,025
Issuance of seller
warrants............. 0 0 755 0 755
Issuance of lender
warrants............. 0 0 2,200 0 2,200
Preferred stock
accretion............ 0 0 (87) 0 (87)
Preferred stock
dividend............. 0 0 0 (84) (84)
Net earnings for year
ended
December 31, 1998.... 0 0 0 1,875 1,875
--------- ---- ------- ------- -------
Balances at December 31,
1998................... 7,879,997 $ 8 $39,843 $(3,659) $36,192
========= ==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended June 30, Six months ended Year ended
--------------------- December 31, December 31,
1996 1997 1997 1998
--------------------- ---------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)...... $ 172 $ (1,273) $ (3,819) $ 1,875
Adjustments to reconcile
net income to net cash
from operating
activities:
Depreciation........... 275 293 1,087 4,998
Amortization of intan-
gibles................ 330 330 326 1,662
Deferred compensation
provision............. 0 0 765 47
Redeemable warrants ad-
justment.............. 0 0 1,635 0
Deferred income taxes.. 63 163 0 437
(Gain) loss on disposal
of equipment.......... (10) 0 0 0
Extraordinary loss, net
of tax benefit........ 0 0 0 2,098
Changes in operating
assets and
liabilities, net of
effect of business
acquisitions:
Trade accounts re-
ceivable............ (128) (1,124) 459 (7,411)
Inventories.......... 81 (300) 651 3,937
Other assets......... (622) 197 (499) 1,285
Accounts payable..... 261 797 (15) (2,322)
Accrued expenses..... 206 837 1,903 (2,850)
-------- ----------- -------- ---------
Net cash provided by
(used in) operating
activities......... 628 (80) 2,493 3,756
-------- ----------- -------- ---------
Cash flows from investing
activities:
Business acquisitions,
net of cash acquired.... 0 (13,392) (28,511) (90,212)
Purchases of equipment... (374) (4,151) (328) (2,177)
Proceeds from sale of
equipment............... 10 0 0 0
Repayment of shareholder
note receivable......... 0 0 0 3,895
-------- ----------- -------- ---------
Net cash used in invest-
ing activities.......... (364) (17,543) (28,839) (88,494)
-------- ----------- -------- ---------
Cash flows from financing
activities:
Net proceeds from initial
public offering of
common stock............ 0 0 0 29,822
Net borrowings (repay-
ments) on lines of cred-
it...................... (272) (113) 570 (748)
Net proceeds from issu-
ance of long-term debt.. 0 20,821 27,940 72,606
Principal payments of
long-term debt.......... (291) (1,381) (778) (129,846)
Net proceeds from issu-
ance of senior notes.... 0 0 0 126,100
Loan costs incurred...... 0 (777) (709) (845)
-------- ----------- -------- ---------
Net cash provided by
(used in) financing
activities......... (563) 18,550 27,023 97,089
-------- ----------- -------- ---------
Net increase (decrease) in
cash...................... (299) 927 677 12,351
Cash (overdraft) at begin-
ning of period............ (131) (430) 497 1,174
-------- ----------- -------- ---------
Cash (overdraft) at end of
period.................... $ (430) $ 497 $ 1,174 $ 13,525
Supplemental Disclosure of
Cash Flow Information:
Cash paid for:
Interest................. $ 445 $ 312 $ 1,780 $ 8,980
Income Taxes............. $ 32 $ 156 $ 25 $ 0
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
Master Graphics, Inc. (Master Graphics) and its wholly-owned operating
subsidiaries, Premier Graphics, Inc. (Premier) and Harperprints, Inc.
(Harperprints), (collectively the "Company") are engaged in the business of
commercial printing, with 18 facilities in 12 states at December 31, 1998.
Prior to June 1997, the Company was comprised of a holding company, Master
Printing, Inc. and its wholly-owned operating subsidiary, B&M Printing, Inc. In
June 1997, the sole shareholder of Master Printing, Inc. formed a new corporate
holding company, Master Graphics, and merged Master Printing, Inc. into Master
Graphics. Contemporaneously, Master Graphics formed a new wholly-owned
subsidiary, Premier Graphics, Inc., and merged B&M Printing, Inc. into Premier.
Harperprints was acquired in March 1998. References in these consolidated
financial statements to the Company for periods prior to the June 1997
transactions described above are to Master Printing, Inc. and B&M Printing,
Inc. consolidated. The transactions discussed above were among entities totally
controlled by the sole shareholder, and, as such, gave rise to no changes in
accounting or reporting, other than an adjustment to the Company's
shareholder's equity as a result of changing the par value of common stock from
no par value to $0.001 per share.
The Company operated on a fiscal year ending June 30, through its year ended
June 30, 1997. In conjunction with the corporate reorganization described above
and the acquisitions and related financings described in Notes 3 and 5 below,
the Company changed its fiscal year-end to December 31.
On May 14, 1998, the Board of Directors of the Company approved a 40,000 to 1
stock split. All references to share and per share amounts in these
consolidated financial statements have been retroactively restated to reflect
the stock split.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Master
Graphics, Inc. and its wholly- owned subsidiaries after the elimination of
intercompany transactions.
(b) Use of Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of
acquisition.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
(e) Property, Plant and Equipment
Property, plant, and equipment is stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the assets, which range from 5 to 39 years. Leasehold improvements are
amortized on a straight-line basis over the estimated useful lives of the
related property,
F-7
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
generally fifteen to forty years. Amortization of assets held under capital
leases of approximately $225,000 is included with depreciation expense.
Expenditures that materially increase values or extend the useful lives
of assets are capitalized while replacements, maintenance and repairs that
do not improve or extend the lives of the respective assets, are charged
against income as incurred. Depreciation expense for fiscal years 1996 and
1997, the six months ended December 31, 1997 and the year ended December
31, 1998 was approximately $275,000, $293,000, $1,087,000, and $4,998,000,
respectively.
(f) Intangibles
Goodwill represents costs in excess of the fair value of the net assets
of businesses acquired. Goodwill is being amortized over forty years, using
the straight-line method; accumulated amortization of goodwill was
approximately $98,000 and $1,198,000 at December 31, 1997 and 1998. In
accordance with Statement of Financial Accounting Standards No. 121, long-
lived assets, including goodwill, are reviewed for impairment whenever
events and circumstances indicate that their carrying value may not be
recoverable. Such reviews are performed using estimated undiscounted cash
flows over the remaining lives of the assets. No impairment write-downs
have been required to date.
Costs incurred in obtaining long-term financing are deferred and
subsequently amortized, using the interest method over the life of the
respective financing, as a component of interest expense. Accumulated
amortization at December 31, 1997 and 1998 was approximately $90,000 and
$356,000, respectively.
(g) Income Taxes
The Company follows the asset and liability method for deferred income
taxes as required by the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
(h) Financial Instruments
The Company's financial instruments recorded on the consolidated balance
sheet include cash and cash equivalents, accounts and notes receivable,
accounts payable and debt. Because of their short maturity, the carrying
amount of cash and cash equivalents, accounts and notes receivable,
accounts payable and short-term bank debt approximates fair value. The fair
value of long-term debt, which approximates its carrying value, is based on
rates available to the Company for debt with similar terms and maturities.
(i) Revenue Recognition
Substantially all revenue is recognized when products are shipped to
customers.
(j) Earnings Per Share
Basic earnings per share for each period presented has been computed by
dividing net earnings (loss) by the weighted-average number of common
shares outstanding. Diluted earnings per share are calculated by dividing
net earnings (loss) by the sum of (1) the weighted-average number of shares
outstanding and (2) the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued. A
reconciliation of calculation of basic and diluted earnings per share is
presented in Note 14.
F-8
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(k) Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
(l) Segment Reporting
The Company considers its entire business to be in the single reporting
segment of general commercial printing.
(3) Acquisitions
In June 1997, the Company acquired all of the outstanding common stock of
Blackwell Lithographers, Inc. and of Lithograph Printing Company of Memphis,
and the assets of Sutherland Printing Company. All of these businesses are
engaged in commercial printing. The acquisitions were paid for with a
combination of cash ($10.4 million), notes given to the sellers ($5.1 million)
(see Note 5), and warrants to acquire common stock (valued at $210,000) (see
Note 13). In addition, the Company incurred other acquisition costs totaling
approximately $470,000. These acquisitions have been accounted for by the
purchase method and, accordingly, the results of operations of Blackwell,
Lithograph and Sutherland have been included in the Company's consolidated
financial statements from June 19, 1997. The excess of the purchase prices over
the fair value of the net identifiable assets acquired of $6.4 million has been
recorded as goodwill and is being amortized on a straight line basis over 40
years.
During the six months ended December 31, 1997, the Company acquired all of
the outstanding common stock of the following companies: The Argus Press, Inc.
(September 1997); Phoenix Communications, Inc. (December 1997); and Jones
Printing Company, Inc (December 1997). All of these businesses are engaged in
commercial printing. The acquisitions were paid for with a combination of cash
($17.8 million), notes given to the sellers ($6.2 million) (see Note 5), and
warrants to acquire common stock (valued at $1.4 million) (see Note 13). In
addition, the Company incurred other acquisition costs totaling approximately
$2.3 million. These acquisitions have been accounted for by the purchase method
and, accordingly, their results of operations have been included in the
Company's consolidated financial statements from their respective acquisition
dates. The excess of the purchase prices over the fair value of the net
identifiable assets acquired of $24.9 million has been recorded as goodwill and
is being amortized on a straight line basis over 40 years.
During 1998, the Company acquired eight businesses, primarily by stock
purchases, which are engaged in general commercial printing. The businesses
acquired were Harperprints, Inc., Hederman Brothers, Inc., and Phillips Litho
Company, Inc. (March 1998); McQuiddy Printing Company, Inc. (May 1998); Golden
Rule Printing (August 1998); The Printing Company and Stephenson Incorporated
(September 1998); and Technigrafiks, Inc. (December 1998). These acquisitions
were paid for with a combination of cash ($45.6 million), sellers' notes ($3.7
million), common stock (valued at $1.3 million) and warrants to acquire common
stock (valued at $0.8 million). In addition, the Company incurred other
acquisition costs totaling approximately $.9 million. All of these acquisitions
have been accounted for by the purchase method, and accordingly, the results of
their operations have been included in the company's consolidated financial
statements from their respective acquisition dates. The aggregate excess of the
purchase prices over the fair value of the net assets acquired of approximately
$34.4 million has been recorded as goodwill and is being amortized on the
straight-line method over forty years.
As a part of their respective acquisition agreements, the Company has agreed
to pay the former owners of eight of the acquired businesses additional cash
purchase price consideration, based on their surpassing certain cash flow based
targets which generally exceed the pre-acquisition performances of those
businesses. The measurement periods range from one to four years of post-
acquisition operations. Management believes that the aggregate maximum payout
will not exceed $27 million and that the actual amount is likely to be
considerably less. Payments will primarily be due in 1999-2001. Such payments
would be recorded as additional goodwill to be amortized over its remaining
life.
F-9
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma financial information presents the combined
results of operations of Master Graphics and the acquired businesses as if the
acquisitions and financings, including the issuances of common stock and Senior
Notes, had occurred as of January 1, 1997, and January 1, 1998, after giving
effect to certain adjustments, including amortization of goodwill, adjusted
depreciation expense and increased interest expense on debt related to the
acquisitions. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had Master Graphics and the
acquired businesses constituted a single entity during such periods (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1998
--------- ----------
<S> <C> <C> <C>
Net revenue..................................... $ 215,077 $ 221,955
Operating income................................ 13,768 19,175
Interest expense................................ 18,431 18,431
Net earnings (loss)............................. (4,196) 1,023
Net earnings (loss) per share
Basic......................................... $ (1.05) $ 0.10
Diluted....................................... $ (1.05) $ 0.10
</TABLE>
(4) Initial Public Offering
In June 1998, the Company completed an initial public offering of 3,400,000
shares ($.001 par value; 100,000,000 shares authorized) of common stock at
$10.00 per share. Proceeds of the initial public offering were used to repay
$4.3 million of indebtedness owed to Sirrom Capital, to repay $25.0 million of
the indebtedness owed to its senior lender and to pay $1.5 million of
acquisition advisory fees deferred until the completion of the offering. The
write-off of related deferred loan costs ($.6 million) and unamortized debt
discounts ($3.0 million) has been recorded as a $2.1 million extraordinary
loss, net of tax of $1.5 million.
(5) Long-Term Debt
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- --------
<S> <C> <C>
Senior Notes................................................ $ 0 $130,000
Credit Facilities:
Term Debt.................................................. 47,805 262
Working Capital Debt....................................... 570 0
Sellers' notes.............................................. 15,870 16,599
Sirrom Capital Corporation note............................. 4,300 0
Capital leases.............................................. 2,343 2,297
Other....................................................... 176 622
------- --------
71,064 149,780
Less unamortized debt discount.............................. 1,746 4,633
------- --------
69,318 145,147
Less current maturities..................................... 3,834 924
------- --------
$65,484 $144,223
======= ========
</TABLE>
In December 1998, the Company's primary operating subsidiary, Premier
Graphics, issued $130 million senior notes (Senior Notes). The approximate
$125.6 million of net proceeds from issuance were used to (1) repay the
outstanding borrowings under Premier Graphics acquisition credit facility
($88.6 million); (2) repay $4.8 million of sellers' notes; (3) repay
outstanding borrowings under Premier Graphics working capital line of credit
($6.5 million); and (4) acquire Technigrafiks, Inc., a general commercial
printing
F-10
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
company, for $12.0 million; the remaining $13.7 million was available for
general corporate purposes, and in March, 1999 was effectively used to
partially finance acquisitions (see Note 17). The Senior Notes are guaranteed
by Master Graphics and by Harperprints, Inc., the Company's other operating
subsidiary. The Senior Notes mature in December 2005 and bear interest at 11
1/2 percent payable semi-annually. The Senior Notes are redeemable, in whole or
in part, beginning in December 2002 at a premium of 5.75%, declining to 2.875%
in December 2003 and to the face amount in December 2004. Additionally, during
the first three years after issuance, the Company may redeem up to 35% of the
aggregate principal amount of the Senior Notes with the net proceeds of equity
offerings; the redemption price would include an 11.5% premium.
The Company, through its primary operating subsidiary, Premier Graphics, has
borrowed term debt under various loan and security agreements (Term Debt) from
its senior secured lender. Proceeds from the loan agreement have been primarily
used for acquisitions described in Note 3. At December 31, 1997, the loan
balance under its Term Debt was $47.8 million. After four acquisitions in 1998,
the Term Debt balance reached approximately $85 million. Proceeds from the
Company's initial public offering were in part used to pay the Term Debt down
to approximately $60 million. Subsequent to its initial public offering and
after an additional three acquisitions in 1998, the Company's Term Debt reached
approximately $90 million. Proceeds from its Senior Notes offering were used to
substantially repay the outstanding balance under its Term Debt. At December
31, 1998, the loan balance under its Term Debt was $.3 million. In conjunction
with the acquisitions and financings thereof, the Company incurred fees of
approximately $2.3 million. The Company also issued to the senior lender common
stock warrants that are described in Note 12.
The Company, through its operating subsidiary, Premier Graphics, has borrowed
working capital funds (Working Capital Debt) from a commercial bank and finance
company. At December 31, 1997, the loan balance under its Working Capital Debt
was $.6 million. At December 31, 1998, there was no loan balance under its
Working Capital Debt.
As a part of the Senior Notes Offering, the Company received a non-binding
term sheet from a finance company for a new $80 million senior secured credit
facility to replace the previous Term Debt facilities and Working Capital Debt.
The new senior credit facility is more fully described in Note 17.
The Company has financed a portion of the purchase price paid for certain of
the acquired businesses by issuing unsecured subordinated notes (Seller Notes)
to the former owners of those companies. The Company also issued $5.3 million
of unsecured subordinated noted to the former owners of Hederman and Phoenix
that replaced notes between such companies and their owners. In general, the
Seller Notes (i) bore interest at 12% per annum payable quarterly, (ii) were
subject to prepayment at the option of Master Graphics upon payment of a
penalty which equaled or exceeded 20% of the amount prepaid; and (iii) matured
seven years from the date of issuance. In connection with closing of the Senior
Notes offering, the holders of approximately $12 million of Seller Notes agreed
to exchange their existing notes for new unsecured subordinated notes with the
following features: (i) balloon maturity date of June 30, 2006; (ii) monthly
interest payments at 12% per annum if paid when due, or if not paid when due
interest will accrue at 16% per annum until all accrued interest has been paid;
(iii) no restrictive covenants; and (iv) no rights or remedies against the
Company until maturity. As noted above, $4.8 million of Seller Notes were
repaid with a portion of the net proceeds of the Senior Notes offering.
In June 1997 the Company borrowed $4.3 million from Sirrom Capital
Corporation ("Sirrom") to partially finance its June 1997 business acquisitions
described on Note 3. The loan bore interest at 13.25%, payable monthly and was
subject to a security agreement, with collateral consisting of all equipment,
inventory, accounts receivable, and intangible assets. In conjunction with the
obtaining of the loan, the Company paid a processing fee of $107,500 and issued
to Sirrom a common stock warrant more fully described in Note 13. As discussed
in Note 4 above, the Sirrom note was repaid with a portion of the net proceeds
of the June 1998 initial public offering.
F-11
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Senior Notes Indenture includes restrictive covenants which limit
Premier's ability to pay dividends or make distributions to Master Graphics,
make investments, incur additional debt, issue preferred stock, incur liens,
enter into sale-leaseback, consolidation, merger, conveyance, lease or transfer
transactions, enter into transactions with affiliates, and engage in unrelated
businesses; the covenants also may require the repurchase of Senior Notes with
the proceeds of the sale of significant amounts of assets.
Under its acquisition line of credit and its working capital line of credit,
Premier is required to maintain certain financial ratios, including tests
related to net worth, EBITDA, interest coverage, fixed charge coverage and
leverage ratios. Premier is also subject to affirmative and negative covenants
which, among other things, limit capital expenditures and the payment of
dividends, and require certain debt repayments based on 50% of annual excess
cash flows, as defined.
The aggregate maturities of long-term debt, including capital lease
obligations, for each of the five years subsequent to December 31, 1998 are as
follows: 1999, $.9 million; 2000, $.6 million; 2001, $.4 million; 2002, $.4
million; 2003, $.9 million; thereafter, $146.6 million. In March, 1999, the
Company incurred additional acquisition debt of $18.5 million and assumed $4.3
million of debt of an acquiree. In addition, the Company agreed to certain
modifications to the amortization of term loans under the credit facility.
These subsequent events are not reflected in the maturities shown above.
(6) Property, Plant and Equipment
Property, plant and equipment (in thousands) was comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Land......................................................... $ 176 $ 486
Buildings.................................................... 1,386 3,830
Leasehold improvements....................................... 991 1,115
Machinery and equipment...................................... 29,508 75,602
Furniture and fixtures....................................... 2,275 3,331
Vehicles..................................................... 703 1,374
------- -------
35,039 85,738
Less accumulated depreciation................................ 5,489 10,487
------- -------
$29,550 $75,251
------- -------
</TABLE>
(7) Leases
The Company is obligated under various capital leases for certain machinery
and equipment that expire at various dates during the next 5 years. At December
31, 1998, the gross amount of machinery and equipment and related accumulated
amortization recorded under capital leases were approximately $2,721,000 and
$254,000, respectively. The recorded liability for capital leases is classified
as long-term debt.
F-12
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company also has various non-cancelable operating leases, primarily for
facilities and printing equipment that expire over the next seven years. Rental
expense for operating leases during fiscal years 1996 and 1997, the six months
ended December 31, 1997, and the year ended December 31, 1998 totaled
approximately $410,000, $1,050,000, $398,000, and $2,267,000 respectively.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1998 are:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
Year ending December 31,
1999.......................................... $ 670 $ 3,564
2000.......................................... 589 3,440
2001.......................................... 471 3,246
2002.......................................... 430 3,267
2003.......................................... 412 2,605
Later years, through 2005..................... 296 6,418
------ -------
Total minimum lease payments................. 2,868 $20,740
=======
Less amount representing interest (at rates
ranging from 5.0% to 11.5%).................. 571
Present value of net minimum capital lease
payments..................................... 2,297
Less current installments of obligations under
capital leases............................... 472
------
Obligations under capital leases, excluding
current installments......................... $1,825
======
</TABLE>
(8) Retirement Plans
The Company has retained the acquired companies' existing employee benefit
plans, primarily 401(k)-type arrangements with the Company matching amounts.
The Company's benefit plan expense for the plans was approximately $37,000,
$40,000, $24,000, and $348,000 for the years ended June 30, 1996 and 1997, the
six months ended December 31, 1997, and the year ended December 31, 1998.
Of those retirement plans, there is one defined benefit plan covering
employees of the Hederman Division, which represents approximately 100 of the
Company's 1,600 total employees. As of December 31, 1998, the plan had a
pension benefit obligation of $1.9 million, plan assets of $2.2 million and
prepaid pension cost of $.8 million recorded in other non-current assets.
Related net pension cost (credit) for the period was $(58,000).
(9) Related Party Transactions
As of December 31, 1997, the Company sold to its majority shareholder certain
of B&M Printing's printing equipment that was considered to be redundant as a
result of the various 1997 acquisitions. The equipment was sold at its net book
value ($2.8 million), which the Company believes approximated its fair market
value. The Company received a promissory note for the sale amount, which was
classified as an other asset at December 31, 1997. The note was repaid in 1998.
The Company's majority shareholder also had a $950,000 note payable to the
Company at December 31, 1997; the note was repaid in 1998.
The Company has leasing arrangements with its president and with certain of
the former owners of the acquired companies (each of whom is a current employee
of the Company) for certain plant facilities. The Company's aggregate annual
obligation under these operating lease agreements is approximately $2.1
million, and the agreements generally expire from 2000 through 2007.
F-13
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Income Taxes
Income tax expense (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30, Six Months Ended Year Ended
-------------------- December 31, December 31,
1996 1997 1997 1998
---------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Income tax (benefit) from:
Net earnings (loss)
before extraordinary
item................... $ 161 $ 25 $20 $ 628
Extraordinary loss...... 0 0 0 (1,458)
---------- --------- --- -------
$ 161 $ 25 $20 $ (830)
========== ========= === =======
</TABLE>
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended June 30, 1996:
U.S. Federal........................................ $ 148 $ 19 $ 167
State and local..................................... 13 (19) (6)
----- ----- -----
$ 161 $ 0 $ 161
===== ===== =====
Year ended June 30, 1997:
U.S. Federal........................................ 0 0 0
State and local..................................... 0 25 25
----- ----- -----
$ 0 $ 25 $ 25
===== ===== =====
Six months ended December 31, 1997:
U.S. Federal........................................ 0 0 0
State and local..................................... 20 0 20
----- ----- -----
$ 20 $ 0 $ 20
===== ===== =====
Year ended December 31, 1998:
U.S. Federal........................................ (199) (578) (777)
State and local..................................... (53) 0 (53)
----- ----- -----
$(252) $(578) $(830)
===== ===== =====
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
June 30, December 31, December 31,
------------ ---------------- ------------
1996 1997 1997 1998
----- ------ ---------------- ------------
<S> <C> <C> <C> <C>
Computed "expected" tax expense.... $ 113 $ (424) $(1,292) $ 355
Increase (reduction) in income
taxes resulting from:
Change in the beginning-of-the-
year balance of the valuation
allowance for deferred tax assets
allocated to income tax expense.. 0 527 1,272 (951)
State and local income taxes, net
of federal income tax benefit.... 13 (49) (150) (35)
Effect of S-Corporation termina-
tion............................. 0 0 (318) 0
Warrants valuation adjustment..... 0 0 556 0
Other, net........................ 35 (29) (48) (199)
----- ------ ------- -----
$ 161 $ 25 $ 20 $(830)
===== ====== ======= =====
</TABLE>
F-14
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1998 are presented below.
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful
accounts.................................................... $ 136 $ 417
Income tax loss carryforwards and tax credit carryforwards... 1,467 1,482
Vacation accrual............................................. 0 264
Alternative minimum tax credit carryforwards................. 80 80
Deferred compensation........................................ 253 357
Other........................................................ 218 376
------- ------
Total gross deferred tax assets............................. 2,154 2,976
Less valuation allowance...................................... (1,800) (849)
------- ------
Net deferred tax assets....................................... 354 2,127
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest....................... 381 6,620
Purchase accounting adjustments.............................. 2,028 1,878
Other........................................................ 50 126
------- ------
Total gross deferred liabilities.............................. 2,459 8,624
------- ------
Net deferred tax liability.................................... $ 2,105 $6,497
======= ======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997 and
1998 was $1,800,000 and $849,000, respectively. The net change in the total
valuation allowance for the year ended December 31, 1997 and the year ended
December 31, 1998 was a decrease of $951,000 due to a net operating loss and
alternative minimum tax credit carryforwards. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1998.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $4 million which are available to
offset future federal taxable income, if any, through 2010. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$80,000 which are available to reduce future federal regular income taxes, if
any, over an indefinite period.
(11) Other Liabilities
As of December 31, 1997, the Company entered into deferred compensation
agreement with its executive officers. In the aggregate, these agreements
obligate the Company to pay a total of $1,000,000 to those officers on December
31, 2002. The agreements allow the officers to receive 100,000 shares of common
stock in lieu of cash. Such calls, for settlement in stock, may be exercised at
any time. The net present values of the ultimate obligation of $1.0 million was
accrued as compensation as of December 31, 1997, with the discount being
amortized as additional compensation over the five year life of the agreement;
the net present value at December 31, 1997 and 1998 was approximately $766,000
and $813,000, respectively. An early exercise of the calls by the officers
would result in an acceleration of the discount amortization.
F-15
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Redeemable Preferred Stock
The company and its senior lender effectively entered into an exchange in
March 1998, whereby the Company issued 177,776 shares of its newly created
Series A Cumulative Convertible Preferred Stock, par value $0.001 ("Series A
Preferred Stock") in exchange for the senior lender's warrant to purchase a 4%
interest in the Company's outstanding common stock. The Series A Preferred
Stock carries an annual dividend rate of 5% of its liquidation value ($12.8125
per share); dividends are payable quarterly. The Series A Preferred Stock is
convertible into common stock at the holder's option at a ratio of 1 share of
common stock per each share of Series A Preferred Stock. The Series A Preferred
Stock is redeemable by the holder at the end of seven years at a price
effectively equal to the greater of its liquidation value or the fair value of
the underlying common stock on an as-if converted basis. The Series A Preferred
Stock has been classified out of stockholders' equity because of certain holder
put features that are out of the control of the Company. The preferred stock
was initially recorded at its fair value at the date of issuance (approximately
$1.35 million) and is being accreted to its mandatory redemption value.
(13) Shareholders' Equity
The Company has reserved 2,976,918 shares of common stock for their issuance
upon the conversion of its Series A Preferred Stock, the exercise of its seller
and lender warrants, and the exercise of its stock options.
Sellers' Warrants and Rights
As part of the consideration given in certain of the acquisitions, the
Company issued common stock warrants to the sellers. The terms of warrants were
generally the same, stating that the seller would have the ability to exercise
his warrant at any time during the ten years subsequent to an initial public
offering of common stock (June 1998). The exercise price is the initial public
offering price ($10 per share), and the shares obtainable are generally the
face amount of the sellers' notes divided by the initial public offering price
(231,000 shares). The estimated fair value of the warrants at the dates of
issuance, which totaled $1.6 million and $2.4 million at December 31, 1997 and
1998, respectively, has been recorded in shareholders' equity as additional
paid-in capital.
In connection with the acquisition of B&M Printing and relating financing,
the Company gave rights to acquire common stock to the former owners of B&M
Printing. As of December 31, 1998 rights to acquire 43,000 shares of common
stock at $10 per share were outstanding; the rights will expire in June, 2001.
Lenders' Warrants
In connection with the obtaining of a loan to partially fund its June 1997
acquisitions, the Company issued a common stock warrant to Sirrom. The warrant
granted Sirrom the right to acquire shares of common stock equivalent to six
percent of the Company's outstanding shares on a diluted basis on the date of
exercise, at exercise price of $0.01. In March 1998, Sirrom exercised the
warrant and was issued 266,664 shares of common stock.
In connection with the obtaining of acquisition financing under its loan and
security agreement, the Company issued to its senior lender a warrant to
acquire a fully-diluted four percent interest in its outstanding common stock
for a total purchase price of $100. The Senior Lender was granted a right to
put the warrant back to the Company under certain conditions. The redemption
price of the warrant was its current market value (as defined) on the date of
redemption. In March 1998, this warrant was exchanged for redeemable,
convertible preferred stock (see Note 12).
Because both of the lenders' warrants described above gave the holders the
right to put the warrants back to the Company for cash, these instruments were
recorded, at their respective fair values at the dates of issuance, as
redeemable common stock warrants in the accompanying consolidated balance
sheet, and therefore were initially excluded from shareholders' equity. The
initial fair market value of the lenders' warrants was netted against the
related debt and will be amortized as a component of interest expense over the
life of the
F-16
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
debt. The carrying value of the redeemable common stock warrants was adjusted
to fair value, with a corresponding charge to other expense in the statement of
operations in accordance with EITF Issue No. 96-13 until their respective
exercise and exchange as described above. Additionally, upon their exercise and
exchange, the carrying values of those warrants was reclassified to additional
paid-in capital and redeemable preferred stock, respectively.
In connection with the obtaining of certain acquisition financing in March
1998, the Company issued to its senior lender a warrant to acquire 220,000
shares of common stock. The warrant expires, if unexercised, on September 26,
2007. The senior lender was granted demand and piggyback registration rights.
The Company has the option to call the warrant under certain conditions,
including the passage of five years, at a price equal to the warrant's current
market value at that date. This instrument was recorded at its fair value at
the date of issuance as additional paid-in capital. The initial fair market
value of this warrant was netted against the related debt, and the resulting
discount was being amortized as a component of interest expense over the life
of the debt. As discussed above in Note 4, the remaining unamortized discount
was written off upon the extinguishment of the related debt in June 1998.
Stock Options
During 1998, the Company adopted the 1998 Equity Compensation Plan, which
provides for grants of stock options, stock appreciation rights, and restricted
stock to selected employees, officers, directors, consultants, and advisers to
the Company. The plan authorizes the issuance of up to 750,000 shares of the
Company's common stock. As of December 31, 1998, options to purchase 605,294
shares had been granted to employees of the Company. The exercise price for all
shares under option is the fair market value on the grant date ($10 per share).
The options vest over three years, and will expire, if unexercised, from five
to ten years from the grant date. The weighted average remaining contractual
life of the options is 5.9 years.
During 1998, the Company also adopted the 1998 Non-Employee Director Stock
Option Plan, which authorizes the issuance of up to 50,000 shares of common
stock. Under this plan, non-employee directors have been granted options
covering 2,000 shares of common stock; the options vest over 3 years and may be
exercised over the five-year period following the grant. The exercise price is
the fair market value of the common stock at the date of grant ($10 per share).
Changes in outstanding options under the Plans during the year ended December
31, 1998 and options exercisable at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Outstanding at December 31, 1997........................................ 0
Granted .............................................................. 607,294
Exercised............................................................. 0
Canceled or expired................................................... 0
-------
Outstanding at December 31, 1998........................................ 607,294
=======
Exercisable at December 31, 1998 at $10.00.............................. 0
=======
</TABLE>
The Company accounts for its stock based employee compensation plans in
accordance with Accounting Principals Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for fixed stock-option plans. In accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," a valuation using the fair-value-based accounting method has
been made for stock options issued in 1998. That valuation was performed using
the Black-Scholes option-pricing model.
The Company's options were valued assuming a risk-free interest rate of 4.87%
as of their issuance date in 1998, a dividend yield of 0%, an average expected-
option life of 5.6 years, and volatility of 78.5%. The
F-17
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
valuation determined a per share weighted-average fair value for the options
granted during 1998 of $2.66. Had those options been accounted for using the
fair-value method, they would have resulted in additional compensation cost in
1998 of $0.3 million; net earnings would have been $1.7 million ($0.25 per
share basic and $0.24 per share diluted).
(14) Earnings Per Share
Basic earnings per share are calculated by dividing net earnings less
preferred stock dividend and discount accretion by the weighted average number
of common shares outstanding. For the years ended June 30, 1996 and 1997, and
the six months ended December 31, 1997, there were 4,000,000 basic weighted
average shares outstanding; for the year ended December 31, 1998, there were
6,130,117 basic weighted average shares outstanding. There were no potentially
dilutive equity instruments outstanding in the years ended June 30, 1996 and
1997. Exercise of potential equity securities, including warrants, has not been
reflected in the computation of diluted EPS for the six months ended December
31, 1997 because their impact would have been antidilutive. Conversion of the
preferred stock is not assumed in the 1998 diluted earnings per share
calculations, as the effect is anti-dilutive on an incremental basis. Exercise
of employee stock options and certain other warrants are not assumed because
their 1998 effect would be anti-dilutive using the treasury stock method. For
the six months ended December 31, 1997 and the year ended December 31, 1998,
the diluted weighted average shares outstanding were 4,000,000 and 6,367,340,
respectively. Following is a reconciliation of the numerator and denominator of
the earnings (loss) per share (EPS) computations (in thousands except shares
and per share amounts):
<TABLE>
<CAPTION>
Years ended June 30, Six months ended Year ended
--------------------- December 31, December 31,
1996 1997 1997 1998
---------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Net earnings (loss) before
extraordinary loss....... $ 172 $ (1,273) $ (3,819) $ 3,973
Less preferred stock divi-
dends.................... 0 0 0 (84)
Less accretion of pre-
ferred stock discount.... 0 0 0 (87)
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
applicable to common
shares................... 172 (1,273) (3,819) 3,802
Extraordinary loss........ 0 0 0 (2,098)
---------- ---------- ---------- ----------
Net earnings (loss) appli-
cable to common shares... $ 172 $ (1,273) $ (3,819) $ 1,704
========== ========== ========== ==========
Basic:
Weighted average common
shares outstanding...... 4,000,000 4,000,000 4,000,000 6,130,117
========== ========== ========== ==========
Basic earnings (loss) per
share before extraordi-
nary loss............... $ 0.04 $ (0.32) $ (0.95) $ 0.62
========== ========== ========== ==========
Basic loss per share--ex-
traordinary loss........ 0.00 0.00 0.00 (0.34)
========== ========== ========== ==========
Basic earnings (loss) per
share................... $ 0.04 $ (0.32) $ (0.95) $ 0.28
========== ========== ========== ==========
Diluted:
Weighted average common
shares outstanding...... 4,000,000 4,000,000 4,000,000 6,130,117
Assumed exercise of war-
rants................... 0 0 0 237,223
---------- ---------- ---------- ----------
4,000,000 4,000,000 4,000,000 6,367,340
========== ========== ========== ==========
Diluted earnings (loss)
per share before ex-
traordinary loss........ $ 0.04 $ (0.32) $ (0.95) $ 0.60
========== ========== ========== ==========
Diluted loss per share--
extraordinary loss...... 0.00 0.00 0.00 (0.33)
========== ========== ========== ==========
Diluted earnings (loss)
per share............... $ 0.04 $ (0.32) $ (0.95) $ 0.27
========== ========== ========== ==========
</TABLE>
F-18
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(15) Other Financial Information
Accrued expenses (in thousands) consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
<S> <C> <C>
Accrued compensation........................................... $1,841 $2,666
Accrued interest............................................... 438 1,181
Accrued acquisitions costs..................................... 1,852 183
Other accrued expenses......................................... 2,358 1,510
------ ------
$6,489 $5,540
====== ======
</TABLE>
The allowance for doubtful accounts was $662,000 and $1,182,000, at December
31, 1997 and 1998, respectively.
(16) Wholly-owned Operating Subsidiaries
Master Graphics is a holding company with no operating assets or operations.
Premier Graphics, its primary operating subsidiary, is the primary obligor for
the Senior Notes. The Senior Notes are fully and unconditionally guaranteed on
a joint and several basis by Master Graphics and Harperprints, Master Graphics'
only other subsidiary which was merged into Premier Graphics in March 1999.
Premier was formed in late June, 1997, and Harperprints was formed in late
March, 1998. Following is summarized combined financial information of Premier
and Harperprints, as of December 31, 1997 and 1998 and for the six-month period
and year then ended (in thousands).
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Balance sheet data:
Current assets........................... $ 24,657 $ 62,956
Property, plant and equipment............ 29,351 74,943
Goodwill, net............................ 27,653 63,771
Due from Shareholder .................... 24,084 46,025
Other non-current assets................. 2,908 1,523
-------- --------
Total assets........................... $108,653 $249,218
======== ========
Current liabilities, including current
installments of long-term debt of $3,721
and 924 in
1997 and 1998........................... $ 15,044 $ 16,327
Long-term debt, net...................... 46,793 127,624
Other liabilities........................ 2,049 3,551
-------- --------
Total liabilities...................... 63,886 147,502
Stockholders' equity..................... 44,767 101,716
-------- --------
Total liabilities and stockholders'
equity................................ $108,653 $249,218
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended Year ended
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Statement of operations data:
Net revenue............................... $32,394 $163,277
Gross profit.............................. 5,926 41,937
Operating income.......................... 1,248 14,864
Interest expense.......................... 2,181 9,677
Income tax expense (credit)............... 20 628
Extraordinay (loss)....................... 0 (2,098)
Net earnings (loss)....................... (2,471) 1,181
</TABLE>
F-19
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma financial information presents the combined
results of operations of Premier and Harperprints and the businesses acquired
in 1997 and 1998 as if the acquisitions and related financings, including the
initial public offering of Master Graphics common stock and the Senior Notes
offering had occurred as of January 1, 1997 and January 1, 1998, after giving
effect to certain adjustments, including amortization of goodwill, adjusted
depreciation expense and increased interest expense on debt related to the
acquisitions. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had Premier Graphics and the
acquired businesses constituted a single entity during such periods (in
thousands).
<TABLE>
<CAPTION>
Years ended December 31, 1997 1998
- ------------------------ -------- --------
<S> <C> <C>
Net revenue................................................. $215,077 $221,955
Operating income............................................ 13,768 19,935
Depreciation and amortization............................... 9,271 9,455
Net earnings (loss) ........................................ (2,226) 3,734
</TABLE>
Management believes that there are specific items included in the acquirees'
results of operations which are non-recurring and which, if removed from the
pro forma results noted above, would increase earnings by $1.2 million and $1.3
million for the years ended December 31, 1997 and 1998, respectively.
(17) Subsequent Events
In March 1999, the Company acquired all of the outstanding common stock of
Woods Lithographics, Inc. and Columbia Graphics Corporation. In addition, in
March, 1999, the Company acquired substantially all of the assets of White
Arts, Inc. All of these businesses are engaged in commercial printing. The
three acquisitions were paid for with a combination of cash ($30.7 million),
assumption of debt ($4.3 million) and issuance of 43,029 shares common stock
(valued at $.25 million). These acquisitions will be accounted for by the
purchase method and, accordingly, the results of operations will be included in
the Company's 1999 consolidated financial statements from their respective
acquisition dates in 1999. The estimated excess of the purchase prices over
fair value of the net identifiable assets acquired is estimated to be
approximately $9.1 million, which will be recorded as goodwill and amortized on
a straight line basis over 40 years.
Approximately $13 million of the cash portion of the acquisitions was funded
by the remaining cash from the Company's Senior Notes offering. The balance of
approximately $18.5 million was funded from the Company's senior credit
facility.
In March 1999, the Company completed an amendment to its senior secured
credit facility. Pursuant to the agreement, the facility consists of two term
loans ("Term Loan A" and "Term Loan B") each of $30 million and a revolving
credit facility ("Revolver") of $20 million. Term Loan A bears interest,
payable monthly, at a floating rate equal to LIBOR plus 2.5% (7.5% at
December 31, 1998), and Term Loan B bears interest, payable monthly, at a
floating rate equal to LIBOR plus 3.0% (8.0% at December 31, 1998). Term Loan A
matures in March 2004, and principal is payable based on a five year
amortization. Term Loan B matures in March 2005 with quarterly principal
payments based on amount of principal outstanding with a final balloon payment
at maturity. The annual amortization of the $18.5 million borrowed in March
1999 will approximate $2.6 million for each of the next five years. The
Revolver, which contains certain borrowing base limitations, bears interest at
7.75% and is repayable in full in March 2005.
F-20
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The security for the facility includes a lien on all of the assets of Premier
and Harperprints, as well as a pledge by Master Graphics on all of the issued
and outstanding stock of Premier and Harperprints. The facility includes a
prepayment penalty of 3% of the amount prepaid during the first year of the
loan, 2% during the second year, 1% during the third year, and no prepayment
penalty after March 2002.
Under the facility, the Company is required to maintain certain financial
tests and ratios including, but not limited to a covenant requiring a minimum
level of prepayment to Term Loan A and Term Loan B based on 50% of annual
excess cash flows, as defined.
In March, 1999, Harperprints was merged into Premier Graphics, as a result
Premier is sole subsidiary of Master Graphics.
F-21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors McQuiddy Printing Company:
We have audited the accompanying balance sheets of McQuiddy Printing Company
as of June 30, 1996 and 1997, and the related statements of earnings,
stockholders' equity, and cash flows for the years ended June 30, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McQuiddy Printing Company, as
of June 30, 1996 and 1997, and the results of its operations and its cash flows
for each of the years ended June 30, 1995, 1996 and 1997 in conformity with
generally accepted accounting principles.
Marlin & Edmondson, P.C.
Nashville, Tennessee
August 8, 1997, except for Note 11, which is April 6, 1998
F-22
<PAGE>
McQUIDDY PRINTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
--------------------- ----------
1996 1997 1998
---------- ---------- ----------
Audited Unaudited
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents (note 1).......... $ 240,548 37,759 132,805
Receivables:
Trade accounts, less allowance for
doubtful accounts........................ 2,768,626 3,327,517 2,501,305
Inventories (notes 1 and 2)................. 1,379,486 1,022,100 1,428,184
Prepaid expenses and deposits............... 184,328 127,980 35,606
Income taxes receivable (note 5)............ 109,765 31,057 182,208
Deferred income taxes--current (note 5)..... 55,312 110,721 66,124
---------- ---------- ----------
Total current assets.................... 4,738,065 4,657,134 4,346,232
---------- ---------- ----------
Property, plant and equipment, net (notes 1, 3
and 4)....................................... 3,340,244 5,589,759 5,912,363
Other assets:
Notes receivable............................ 3,584 3,584 --
Investment ................................. 67,448 34,951 --
Cash surrender value of officers' life
insurance (note 9)......................... 335,445 396,513 394,379
---------- ---------- ----------
Total other assets...................... 406,477 435,048 394,379
---------- ---------- ----------
$8,484,786 10,681,941 10,652,974
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (note
4)......................................... $ 528,625 867,242 1,054,551
Accounts payable............................ 445,816 601,273 788,392
Accrued liabilities......................... 325,641 356,879 336,318
Income taxes payable........................ -- -- 15,512
---------- ---------- ----------
Total current liabilities............... 1,300,082 1,825,394 2,194,773
---------- ---------- ----------
Deferred income taxes (note 5)................ 192,412 270,261 309,185
Long-term debt (note 4)....................... 2,349,742 3,655,679 3,024,420
Stockholder's equity:
Common stock................................ 841,310 841,310 841,310
Additional paid-in capital.................. 230,229 230,229 230,229
Retained earnings........................... 5,991,292 6,119,341 6,193,131
---------- ---------- ----------
7,062,831 7,190,880 7,264,670
---------- ---------- ----------
Less reduction in stockholders' equity for
note payable of 401(k) and Employee Stock
Ownership Plan (notes 5 and 7)............. 773,332 613,324 493,125
Less treasury stock, at cost................ 1,646,949 1,646,949 1,646,949
---------- ---------- ----------
Total stockholders' equity.............. 4,642,550 4,930,607 5,124,596
---------- ---------- ----------
$8,484,786 10,681,941 10,652,974
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
McQUIDDY PRINTING COMPANY
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
Audited Unaudited
<S> <C> <C> <C> <C> <C>
Sales................... $15,680,821 15,574,308 16,583,201 12,176,357 13,205,659
Cost of sales........... 12,176,152 12,558,905 13,145,115 9,849,054 10,609,706
----------- ---------- ---------- ---------- ----------
Gross profit........ 3,504,669 3,015,403 3,438,086 2,327,303 2,595,953
Selling, general and
administrative
expenses............... 2,589,315 2,605,816 2,741,593 1,978,482 2,236,820
----------- ---------- ---------- ---------- ----------
Earnings from
operations......... 915,354 409,587 696,493 348,821 359,133
Other income (expenses),
net.................... 466,367 (170,451) (483,848) (374,717) (229,812)
----------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
for income taxes... 1,381,721 239,136 212,645 (25,896) 129,321
Income taxes (note 6):
Current provision..... 563,949 52,416 62,156 -- 49,090
Deferred benefit...... 6,470 87,107 22,440 (3,522) 6,436
----------- ---------- ---------- ---------- ----------
Total income taxes.. 570,419 139,523 84,596 (3,522) 55,526
----------- ---------- ---------- ---------- ----------
Net earnings
(loss)............. $ 811,302 99,613 128,049 (22,374) 73,795
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
McQUIDDY PRINTING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
Audited Unaudited
<S> <C> <C> <C> <C> <C>
Beginning balance:
Common Stock.......... $ 841,310 841,310 841,310 841,310 841,310
Additional Paid-in
Capital.............. 230,229 230,229 230,229 230,229 230,229
Retained Earnings..... 5,122,780 5,900,158 5,991,292 5,991,292 6,119,341
Less: Treasury stock.. (1,646,949) (1,646,949) (1,646,949) (1,646,949) (1,646,949)
Less: Reduction in
Equity for ESOP
note................. -- -- (773,332) (773,332) (613,324)
----------- ---------- ---------- ---------- ----------
4,547,370 5,324,748 4,642,550 4,642,550 4,930,607
Changes:
Net earnings.......... 811,302 99,613 128,049 (22,374) 73,790
Increase (reduction)
in Equity for ESOP
note................. -- (773,332) 160,008 120,007 120,199
Dividends paid........ (33,924) (8,479) -- -- --
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,740,183 5,124,596
=========== ========== ========== ========== ==========
Ending balance:
Common stock.......... $ 841,310 841,310 841,310 841,310 841,310
Additional Paid-in
Capital.............. 230,229 230,229 230,229 230,229 230,229
Retained Earnings..... 5,900,158 5,991,292 6,119,341 5,968,919 6,193,131
Less: Treasury stock.. (1,646,949) (1,646,949) (1,646,949) (1,646,949) (1,646,949)
Less: Reduction in
Equity for ESOP
note................. -- (773,332) (613,324) (653,326) (493,125)
----------- ---------- ---------- ---------- ----------
$ 5,324,748 4,642,550 4,930,607 4,740,183 5,124,596
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
McQUIDDY PRINTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- ---------
Audited Unaudited
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings........... $ 811,302 99,613 128,049 (22,374) 73,795
---------- --------- ---------- ---------- ---------
Adjustments to
reconcile net earnings
to net cash provided
by operating
activities:
Depreciation........... 844,216 735,348 788,839 549,712 625,054
Amortization of
financing costs....... 1,506 -- -- -- --
Amortization of
noncorporate
agreements income..... (22,500) -- -- -- --
Increase in deposits... (10,458) -- -- -- --
Increase in deferred
income taxes.......... 136,627 124,050 22,440 (3,522) 83,520
Gain on sale of
property.............. (638,314) (2,601) (8,700) 8,100 --
(Increase) decrease in
accounts receivable... 329,057 (465,139) (558,891) 532,729 826,212
(Increase) decrease in
investment in joint
venture............... (61,950) (5,498) 32,497 31,508 34,951
(Increase) decrease in
income taxes
receivable............ -- (109,765) 78,708 11,745 (151,151)
(Increase) decrease in
inventory............. (924,607) 276,487 357,386 379,998 (406,084)
(Increase) decrease in
prepaid expenses and
deposits.............. (729) (122,011) 56,348 151,515 92,374
Increase (decrease) in
accounts payable...... (209,647) 73,293 155,457 93,370 187,119
Increase (decrease) in
accrued liabilities... 121,540 (62,464) 31,238 (14,048) (20,561)
Increase (decrease) in
income taxes payable.. 346,605 (359,240) -- 680 15,512
---------- --------- ---------- ---------- ---------
Total adjustments..... (88,654) 82,460 955,322 1,741,787 1,286,946
---------- --------- ---------- ---------- ---------
Net cash provided by
operating
activities........... 722,648 182,073 1,083,371 1,719,413 1,360,741
---------- --------- ---------- ---------- ---------
Cash flows from
investing activities:
(Increase) decrease in
cash surrender value
of officers' life
insurance............. (8,161) (57,639) (61,068) (42,534) 2,134
Purchase of property,
plant and equipment... (757,137) (512,970) (3,038,354) (2,989,525) (947,663)
Proceeds from sale of
property, plant and
equipment............. 732,750 2,601 8,700 -- --
(Increase) decrease of
notes receivable...... 5,700 (3,584) -- -- 3,584
---------- --------- ---------- ---------- ---------
Net cash used in
investing
activities........... (26,848) (571,592) (3,090,722) (3,032,059) (941,945)
---------- --------- ---------- ---------- ---------
Cash flows from
financing activities:
Proceeds from the
issuance of ESOP
note.................. -- 800,000 -- -- --
Increase (reduction) in
equity for ESOP note
payable............... -- (773,332) 160,008 120,006 120,199
Proceeds from the
issuance of long term
debt.................. -- -- 2,218,900 2,218,900 248,676
Retirement of long-term
debt.................. (710,211) (523,510) (574,346) (427,959) (692,625)
Dividends paid......... (33,923) (8,479) -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
(used in) financing
activities........... (744,134) (505,321) 1,804,562 1,910,947 (323,750)
---------- --------- ---------- ---------- ---------
Net increase (decrease)
in cash................ (48,334) (894,840) (202,789) 598,301 95,046
Cash and cash equivalent
beginning.............. 1,183,722 1,135,388 240,548 240,548 37,759
---------- --------- ---------- ---------- ---------
Cash and cash equivalent
ending................. $1,135,388 240,548 37,759 838,849 132,805
========== ========= ========== ========== =========
Supplemental disclosures
of cash flows
information:
Cash paid (received)
during the year for:
Interest............... $ 208,972 186,892 314,585 230,723 237,992
Income taxes........... 211,179 496,490 (98,020) -- --
========== ========= ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company was organized in 1908 to carry on the business of commercial
printing. The Company serves customers nationally and in the normal course of
its business grants credit to those customers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make reasonable estimates and
assumptions that may affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could differ from those estimates; however, management
believes the estimates to be conservative and no significant adjustment to the
estimates are anticipated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(see note 2).
Property, Plant and Equipment
Property, plant and equipment is stated in the accounts at cost. The Company
provides for depreciation on such assets principally using accelerated methods.
The following is a summary of the estimated useful lives used for computing
depreciation.
<TABLE>
<S> <C>
Building and improvements...................................... 20 - 40 years
Machinery and equipment........................................ 5 - 10 years
Furniture and fixtures......................................... 5 - 10 years
Vehicles....................................................... 5 years
</TABLE>
Expenditures for maintenance and repairs are charged against earnings.
Expenditures for improvements and major renewals are capitalized. Cost and
accumulated depreciation for properties sold or retired are removed from the
accounts with any gain or loss included in earnings in the year of disposition
(See note 4).
Income Taxes
Income taxes are provided for the tax effect of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related to differences between the basis of financial transactions for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences which will
either be taxable or deductible when assets and liabilities are recovered or
settled. (See note 6).
F-27
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) INVENTORIES
Inventories (first-in, first-out), consisted of the following:
<TABLE>
<CAPTION>
Audited Unaudited
-------------------- ---------
June 30, June 30, March 31,
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Raw materials:
Paper....................................... $ 969,993 549,400 552,868
Bindery materials........................... 6,509 2,965 4,204
Litho materials............................. 6,160 6,775 14,830
Ink......................................... 517 1,854 32,313
Indigo...................................... -- -- 5,271
---------- --------- ---------
983,179 560,994 609,486
Manufactured stock.......................... 37,593 49,367 47,756
Work in process............................. 291,603 379,135 601,757
Finished goods.............................. 67,111 32,604 169,185
---------- --------- ---------
$1,379,486 1,022,100 1,428,184
========== ========= =========
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
Audited Unaudited
------------------------ ----------
June 30, June 30, March 31,
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Land.................................... $ 110,000 110,000 110,000
Building................................ 1,447,408 1,447,408 1,447,408
Building improvements................... 247,547 247,547 240,856
Machinery and equipment................. 9,691,511 12,223,333 13,041,595
Furniture and fixtures.................. 374,658 405,569 535,281
Automobiles and trucks.................. 87,629 54,779 54,778
----------- ----------- ----------
11,958,753 14,488,636 15,429,918
Less accumulated depreciation........... (8,618,509) (8,898,877) 9,517,555
----------- ----------- ----------
$ 3,340,244 5,589,759 5,912,363
=========== =========== ==========
</TABLE>
Depreciation expense was $844,216, $735,348 and $788,839 for June 30, 1995,
1996 and 1997, respectively using principally accelerated methods.
Depreciation expense was $549,712 and $625,054 for the nine months ended
March 31, 1997 and 1998 using principally accelerated methods.
F-28
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
Audited Unaudited
-------------------- ---------
June 30, June 30, March 31,
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
SunTrust Bank Equipment note................ $ -- 2,218,900 2,003,174
SunTrust Bank--ESOP note payable............ 773,332 613,324 493,125
Capital lease obligation--Fleet Credit
Corporation................................ -- -- --
Capital lease obligation--NationsBanc
Leasing Corporation........................ 2,105,035 1,690,697 1,360,069
PBCC lease.................................. -- -- 222,603
---------- --------- ---------
2,878,367 4,522,921 4,078,971
Less current maturities..................... 528,625 867,242 1,054,551
---------- --------- ---------
$2,349,742 3,655,679 3,024,420
========== ========= =========
</TABLE>
The Equipment note payable with SunTrust Bank dated August 20, 1996, was used
to fund the purchase of equipment. The interest rate is based on a varying rate
of interest which is equal to the lesser of 150 basis points above the 30-day
LIBOR Rate as defined in the note or 135 basis points below the bank's base
rate and requires monthly payments of $30,818 plus interest. The interest rate
at June 30, 1997 and March 31, 1998 was 7.15%. The note is secured by
equipment. The note is due August 2003.
The ESOP note payable with SunTrust Bank dated April 23, 1996, is to fund the
purchase of 6,400 shares of the Company's outstanding stock for the Company's
401(k) and Employee Stock Ownership Plan. At June 30, 1997 SunTrust Bank held
the 5,547 shares as collateral on the loan. As principal payments are made the
bank will release a pro-rata amount of shares held as collateral. The interest
rate is based on a varying rate of interest which is equal to 180 basis points
above the 30-day LIBOR Rate as defined in the note and requires monthly
payments of $9,524 plus interest. The interest rate at June 30, 1996 and 1997
was 7.49%. The interest rate at December 31, 1997 was 7.52%. The note is due
April 2003 (See note 6).
The capital lease obligation with NationsBanc Leasing Corporation dated March
26, 1992, is a financing lease for the acquisition of printing equipment. The
fixed rate lease bears interest at 7.06% and requires monthly payments of
$45,832. The lease matures in August 1999.
The PBCC lease obligation dated March 30, 1995, is a financing lease for the
acquisition of printing equipment. The fixed rate lease bears interest at 9.97%
and requires monthly payments of $10,019. The lease matures in May of 2000.
Current maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
---------- ---------
Audited Unaudited
<S> <C> <C>
1998.................................................... $ 867,242 --
1999.................................................... 961,331 1,054,551
2000.................................................... 1,252,795 1,496,400
2001.................................................... 484,102 484,133
2002.................................................... 484,102 484,127
Thereafter.............................................. 473,349 559,760
---------- ---------
$4,522,921 4,078,971
========== =========
</TABLE>
F-29
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Notes payable are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
SunTrust Bank--Line of credit................................. $-- -- --
==== === ===
</TABLE>
The Company has available a $750,000 line of credit, with an interest rate of
8.50% at June 30, 1997.
(5) INCOME TAXES
The Company adopted FASB Statement 109 as of July 1, 1993 and there was no
significant cumulative effect adjustment.
The Company has previously accounted for the credit carryforwards when used.
A deferred tax liability has been provided for the tax and book depreciation
differences and a deferred tax benefit has been recorded for the allowances for
doubtful accounts.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30, March 31, March 31,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
Audited Unaudited
<S> <C> <C> <C> <C> <C>
Federal:
Current..................... $471,886 46,127 56,093 -- 41,331
Deferred.................... 5,423 74,167 49,836 (2,965) 5,419
State:
Current..................... 92,063 (379) 6,063 -- 7,759
Deferred.................... 1,047 19,608 (27,396) (557) 1,017
-------- ------- ------- ------ ------
$570,419 139,523 84,596 (3,522) 55,526
======== ======= ======= ====== ======
</TABLE>
A reconciliation of the "expected" tax expense computed at the federal
statutory rate of 34% to actual expense is as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30, March 31, March 31,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
Audited Unaudited
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit)........... $469,786 81,306 72,300 (9,830) 43,969
State income tax (benefit),
net of federal income tax
benefits and industrial
excise tax credit......... 61,453 12,691 (29,983) (1,025) 9,108
Other, net................. 39,180 45,526 42,279 7,333 2,449
-------- ------- ------- ------ ------
Actual tax expense........... $570,419 139,523 84,596 (3,522) 55,526
======== ======= ======= ====== ======
</TABLE>
F-30
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability, are as follows:
<TABLE>
<CAPTION>
June 30, June 30, March 31,
1996 1997 1998
--------- -------- ---------
Audited Unaudited
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts--current.. $ 55,312 66,252 66,252
Industrial machinery credit carryforward--
current.................................. -- 44,469 (128)
--------- -------- --------
55,312 110,721 66,124
Deferred tax liabilities:
Depreciation--long-term................... 192,412 270,261 309,185
--------- -------- --------
Net deferred tax liability.............. $(137,100) (159,540) (243,061)
========= ======== ========
</TABLE>
(6) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) and Employee Stock Ownership Plan. The plan is
contributory and employees are eligible to participate after service and age
requirements are satisfied. Plan costs are funded as they accrue. Contributions
and expenses under the plan amounted to $97,718, $104,736 and $211,941 for the
years ended June 30, 1995, 1996 and 1997, respectively. Expenses of the Plan
for the nine months ended March 31, 1997 and 1998 were $143,226 and $147,998,
respectively.
The Company has guaranteed the bank debt of the plan. The balance outstanding
at June 30, 1996 and 1997 was $773,332 and $613,324. The balance outstanding at
March 31, 1998 was $493,125. Accordingly such debt has been shown in the
accompanying financial statements as a long-term liability (see note 4) with a
corresponding reduction in stockholders' equity.
(7) CONCENTRATIONS OF CREDIT RISK
The Company maintains its checking and investment accounts with financial
institutions in the middle Tennessee area. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
The carrying amounts of cash, receivables and accounts payable approximate
fair value due to the short-term nature of those items.
The carrying amount of other financial instruments is a reasonable estimate
of their fair value.
The fair value of all debt obligations is estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rate. Based
on the analyses, the carrying amounts approximate fair value.
F-31
<PAGE>
McQUIDDY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) CASH SURRENDER VALUE OF LIFE INSURANCE
The components of cash surrender value of life insurance are as follows:
<TABLE>
<CAPTION>
Audited Unaudited
---------------------------------------- ---------
June 30, June 30, March 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C>
$335,445 396,513 394,379
</TABLE>
- ---------------------
(A) The Company is the owner of six policies with The New England which have a
face value of $1,450,000.
(B) The Company pays premiums on split dollar life insurance policies of seven
executives. These policies are with The New England.
(C) The Company pays premiums on a policy for one of the executives through
American General. The Company owns the policy which has a face value of
$25,000.
(D) The Company pays premiums on a split dollar life insurance policy for one
of the executives through National Life of Vermont. The Company owns the
policy which has a face value of $500,000.
Total premiums paid on all above policies for the year ended June 30,
1995, 1996 and 1997, respectively, were $110,601, $116,026 and $116,026.
Total premiums paid on all the above policies for the nine months ended
March 31, 1997 and 1998, respectively, were $96,206 and $84,106.
(10) CONTINGENCIES
The Company is a defendant in a lawsuit filed by a former employee. On April
2, 1998 the Company, the former employee and Master Graphics, Inc. have entered
into an agreement to settle the litigation in the amount of $228,120. The
settlement is contingent upon Master Graphics, Inc. completing its acquisition
of the Company.
F-32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Premier Graphics is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who is, or
is threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys, fees), judgments,
fines and amount paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred. Premier's
Certificate of Incorporation provides for the indemnification of directors and
officers of the Company to the fullest extent permitted by Section 145.
Master Graphics is incorporated under the laws of the State of Tennessee. The
Tennessee Business Corporation Act ("TBCA") provides that a corporation may
indemnify any director or officer against liability incurred in connection with
a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interests, and, in all other cases, that his or her conduct
was not opposed to the best interests of the corporation, and (iii) the
director or officer in connection with any criminal proceeding had no
reasonable cause to believe that his or her conduct was unlawful. In actions
brought by or in the right of the corporation, however, the TBCA provides that
no indemnification may be made if the director or officer is adjudged liable to
the corporation. Similarly, the TBCA prohibits indemnification in connection
with any proceeding charging improper personal benefit to a director or
officer, if such director or officer is adjudged liable on the basis that a
personal benefit was improperly received. In cases where the director or
officer is wholly successful, on the merits or otherwise, in the defense of any
proceeding instigated because of his or her status as an director or officer of
a corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. Notwithstanding
the foregoing, the TBCA provides that a court of competent jurisdiction, upon
application, may order that a director or officer be indemnified for reasonable
expense if, in consideration of all relevant circumstances, the court
determines that such individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was
met. The Charter (the "Charter") and Bylaws of the Company provide that the
Company will indemnify from liability, and advance expenses to, any present or
former director or officer of the Company to the fullest extent allowed by the
TBCA, as amended from time to time, or any subsequent law, rule, or regulation
adopted in lieu thereof. Additionally, the Charter provides that no director of
the Company will be personally liable to the Company or any of its shareholders
for monetary damages for breach of any fiduciary duty except for liability
arising from (i) any breach of a director's duty of loyalty to the Company or
II-1
<PAGE>
its shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any unlawful
distributions, or (iv) receiving any improper personal benefit. The Company has
entered into indemnification agreements with each of the Company's directors
and executive officers.
Master Graphics has purchased a standard liability policy, which, subject to
any limitations set forth in the policy, indemnifies the directors and officers
of Master Graphics, Premier and Harperprints for damages that they become
legally obligated to pay as a result of any negligent act, error or omission
committed while serving in their official capacity.
Item 21. Exhibits and Financial Statement Schedules
(a) A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
(b) Financial Statement Schedules--not included as the information is
inapplicable, immaterial or otherwise disclosed in the notes to the
consolidated financial statements.
(c) Not Applicable
Item 22. Undertakings
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant for expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales of the securities
are being made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect any facts or events arising after the effective date (or
most recent post-effective amendment) which, individually, or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed or any material change to such
information set forth in the Registration Statement.
II-2
<PAGE>
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8, and the information
required [or] to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to section 13 or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement-
Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Memphis, Tennessee on March 23,
1999.
Premier Graphics, Inc.a Delaware
corporation
/s/ John P. Miller
By: _________________________________
John P. Miller,
President and Director
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John P. Miller President and Director March 23, 1999
______________________________________ (Principal Executive
John P. Miller Officer)
/s/ Lance T. Fair Secretary March 23, 1999
______________________________________ (Principal Financial
Lance T. Fair Officer)
* Director, President Hederman March 23, 1999
______________________________________ Brothers Division
H. Henry (Hap) Hederman
* Director, President Phoenix March 23, 1999
______________________________________ Division
Cary Rosenthal
* Director March 23, 1999
______________________________________
Frederick F. Avery
* Director March 23, 1999
______________________________________
Donald L. Hutson
/s/ Lance T. Fair
*By: _________________________________
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Memphis, Tennessee on March 23,
1999.
Master Graphics, Inc. a Tennessee
corporation
/s/ John P. Miller
By: _________________________________
John P. Miller,
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John P. Miller Chief Executive Officer, March 23, 1999
______________________________________ President and Chairman of
John P. Miller the Board of Directors
(Principal Executive
Officer)
/s/ Lance T. Fair Senior Vice President-- March 23, 1999
______________________________________ Acquisitions; Chief
Lance T. Fair Financial Officer
(Principal Financial
Officer)
* Director, President Hederman March 23, 1999
______________________________________ Brothers Division
H. Henry (Hap) Hederman
* Director, President Phoenix March 23, 1999
______________________________________ Division
Cary Rosenthal
* Director March 23, 1999
______________________________________
Frederick F. Avery
* Director March 23, 1999
______________________________________
Donald L. Hutson
/s/ Lance T. Fair
*By: _________________________________
Attorney-in-fact
</TABLE>
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Purchase Agreement dated December 11, 1998 by and among Premier
Graphics, Inc., Master Graphics, Inc., Harperprints, Inc., Donaldson
Lufkin & Jenrette Securities Corporation and Morgan Keegan & Company,
Inc.
3.1 Certificate of Incorporation of Premier Graphics, Inc.
3.2 Bylaws of Premier Graphics, Inc.
3.3+ Charter of Master Graphics, Inc.
3.4+ Bylaws of Master Graphics, Inc.
4.1* Indenture, dated December 11, 1998, among Premier Graphics, Inc., as
issuer, the Guarantors party thereto and United States Trust Company
of New York, as trustee relating to the 11 1/2% Senior Notes due 2005
(the "Indenture")
4.2* Form of 11 1/2% Senior Note due 2005 of Premier Graphics, Inc. (the
"Old Note") (included as Exhibit A to the Indenture filed as Exhibit
4.1)
4.3 Form of 11 1/2% Senior Note due 2005 of Premier Graphics, Inc. (the
"Exchange Note")
4.4* Form of Guarantee of Master Graphics, Inc. and Harperprints (included
as a part of Exhibit A to the Indenture filed as Exhibit 4.1)
4.5* Registration Rights Agreement, dated as of December 11, 1998, by and
among Premier Graphics, Inc., Master Graphics, Inc., Harperprints,
Inc and the Initial Purchasers relating to $130,000,000 aggregate
principal amount of Old Notes.
4.6 Form of First Supplemental Indenture between Premier Graphics, Master
Graphics and United States Trust Company of New York, as trustee
Opinion of Baker, Donelson, Bearman & Caldwell regarding the legality
5.1 of the New Notes
8.1 Opinion of Baker, Donelson, Bearman & Caldwell regarding tax matters
10.1 Third Amended and Restated Loan and Security Agreement dated as of
March 15, 1999 between Premier Graphics, Inc., a Delaware corporation
and General Electric Capital Corporation, a New York corporation, as
a Lender and as Agent to Lenders, Deutsche Financial Services
Corporation, a Nevada corporation, as a Lender and as Revolving
Credit Agent for Lenders and Transamerica Equipment Financial
Services Corporation, a Delaware corporation, as Lender
11.1 Computation of Per Share Earnings
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of KPMG LLP
23.2 Consent of Marlin & Edmondson, P.C.
23.3 Consent of Baker, Donelson, Bearman & Caldwell (included in its
opinions filed as Exhibit 5.1 and Exhibit 8.1)
25.1 Form T-1 with respect to the eligibility of United States Trust
Company of New York with respect to the Indenture
27.1 Financial Data Schedule
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
99.3* and other Nominees
99.4* Form of Letter to Clients
</TABLE>
- ---------------------
*previously filed
+ Incorporated by reference to Master Graphics' Registration Statement on Form
S-1 (Registration No. 333-49861)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
EXHIBITS
to
FORM S-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
PREMIER GRAPHICS INC.
(Exact name of registrant as specified in the charter)
VOLUME I OF I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
CERTIFICATE OF INCORPORATION
A STOCK CORPORATION
FIRST: The name of this Corporation is Premier Graphics, Inc.
SECOND: Its Registered Office in the State of Delaware is to be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, Zip Code 19801. The Registered Agent in charge thereof is
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is Ten Dollars ($10.00) divided into 1000 shares of .01 Dolllars
($.01) each. All such shares are to be common stock of one class.
FIFTH: The name and mailing address of the incorporator is as follows:
Michael P. Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
SIXTH: Unless and except to the extent that the by-laws of the
corporation shall so require the election of directors of the corporation need
not be by written ballot.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the corporation is
expressly authorized to make, alter and repeal the by-laws of the corporation,
subject to the power of the stockholders of the corportion to alter or repeal
any by-law whether adopted by them or otherwise.
EIGHTH: A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of any
act or omission occurring prior to the time such amendment, modification or
repeal.
NINTH: The corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
TENTH: The powers of the incorporator are to terminate upon the filing of
this Certificate of Incorporation. The name and mailing address of the person
who is to serve as the initial director of the corporation until the first
annual meeting of stockholders of the corporation, or until his successor is
elected and qualifies, is John P. Miller. The undersigned incorporator hereby
acknowledges that the foregoing certificate of incorporation is his act and
deed on this 2nd day of June, 1997.
I, THE UNDERSIGNED, for purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly
hereunto set my hand this 2nd day of June, A.D. 1997.
/s/ Michael P. Morgan
--------------------------------
Michael P. Morgan, Incorporator
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PREMIER GRAPHICS, INC.
ARTICLE I. OFFICES AND REGISTERED AGENTS
Section 1.1 Principal Office. The principal office of this Corporation is
----------------
at 2500 Lamar Avenue, Memphis, Shelby County, Tennessee, as provided in the
Certificate of Incorporation. The Board of Directors may, by Resolution, amend
the Certificate of Incorporation to change the address of the principal office
in the State of Tennessee.
Section 1.2 Registered Agent. The Corporation has designated and shall
----------------
continue to have a registered agent in the State of Tennessee. If the
registered agent resigns or is for any reason unable to perform his duties, the
Corporation shall promptly designate another registered agent. The Corporation
may, by Resolution of the Board of Directors, appoint such other agents for the
service of process in such other jurisdictions as the Board of Directors may
determine.
ARTICLE II. STOCKHOLDERS
Section 2.1 Annual Meeting. An annual meeting of stockholders shall be
--------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2.2 Special Meetings. Special meetings of stockholders for any
----------------
purpose or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors that has been duly designated by the Board
of Directors and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
Section 2.3 Notice of Meetings. Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
<PAGE>
these bylaws, the written notice of any meeting shall be given not less than ten
nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stock holder at his address as it appears on the records of the corporation.
Section 2.4 Adjournments. Any meeting of stockholders, annual or special,
------------
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjournment meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder or record entitled to vote at the meeting.
Section 2.5 Quorum. Except as otherwise provided by law, the certificate
------
of incorporation or these bylaws, at each meeting of stockholders the presence
in person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 2.4 of these bylaws until a quorum shall attend. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election or directors of such other
corporation is held, directly or indirectly, by the corporation , shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 2.6 Organization. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in his absence of the forgoing persons by a chairman
designated by the Board of Directors, or in the absence of such designated by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting shall announce at the
meeting of stockholders the date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote.
-2-
<PAGE>
Section 2.7 Voting; Proxies. Except as otherwise provided by the
---------------
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation. Voting
at meetings of stockholders need not be by written ballot and, unless otherwise
required by law, need not be conducted by inspectors of election unless so
determined by the holders of shares of stock having a majority of the votes
which could be cast by the holders of all outstanding shares of stock entitled
to vote thereon which are present in person or by proxy at such meeting. At all
meetings of stockholders for the election of directors a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by law, the certificate of incorporation or these
bylaws, be decided by the vote which could be cast by the holders of all shares
of stock outstanding and entitled to vote thereon.
Section 2.8 Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stock holders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date
-3-
<PAGE>
is fixed; (1) the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 2.9 List of Stockholders Entitled to Vote. The Secretary shall
-------------------------------------
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be opened
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 2.10 Action By Consent of Stockholders. Unless otherwise
---------------------------------
restricted by the certificate of incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum
-4-
<PAGE>
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered (by hand or by certified or registered mail, return receipt
requested) to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the books in which proceedings of minutes of
stockholders are recorded. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 2.11 Conduct of Meetings. The Board of Directors of the
-------------------
corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitations, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
ARTICLE III. BOARD OF DIRECTORS
Section 3.1 Number; Qualifications. The Board of Directors shall consist
----------------------
of one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
Section 3.2 Election: Resignation: Removal: Vacancies. The Board of
-----------------------------------------
Directors shall initially consist of the persons named as directors by the
incorporator, and each director shall hold office until the first annual meeting
of stockholders or until his successor is elected and qualified. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term of
one year or until his successor is elected and qualified. Any director may
resign any time upon written notice to the corporation. Any newly created
directorship or any vacancy
-5-
<PAGE>
occurring in the Board of Directors for any cause may be filed by a majority of
the remaining members of the Board of Directors, although such majority is less
than a quorum, or by a plurality of the votes cast at a meeting of stockholders,
and each director so elected shall hold office until the expiration of the term
of office of the director whom he has replaced or until his successor is elected
and qualified.
Section 3.3 Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 3.4 Special Meetings. Special meetings of the board of directors
----------------
may be held at such time or place within or without the State of Delaware
whenever called by the President, any Vice President, the Secretary, or by any
member of the Board of Directors. Notice of a special meeting of the Board of
Directors shall be given by the person or persons calling the meeting at least
twenty-four hours before the special meeting.
Section 3.5 Telephonic Meetings Permitted. Members of the Board of
-----------------------------
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this by-
law shall constitute presence in person at such meeting.
Section 3.6 Quorum: Vote Required for Action. At all meetings of the
--------------------------------
Board of Directors, a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
certificate of incorporation or these bylaws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. If less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice until a quorum shall be
present.
Section 3.7 Organization. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
-6-
<PAGE>
Section 3.8 Informal Action by Directors. Unless otherwise restricted by
----------------------------
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
ARTICLE IV. COMMITTEES
Section 4.1 Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, or may unanimously appoint another member of the Board of Directors to
act at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation.
Section 4.2 Committee Rules. Unless the Board of Directors otherwise
---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE V. OFFICERS
Section 5.1 Executive Officers; Election; Qualifications; Term of Office;
-------------------------------------------------------------
Resignation; Removal; Vacancies. The Board of Directors shall elect a President
- -------------------------------
and Secretary, and it may, if it so determines, choose a Chairman of the Board
and a Vice Chairman of the Board from among its members. The Board of Directors
may also choose one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be
-7-
<PAGE>
without prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
Section 5.2 Powers and Duties of Executive Officers. The officers of the
---------------------------------------
Corporation shall have such powers and duties in the management of the
corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
ARTICLE VI. STOCK
Section 6.1 Certificates. Every holder of stock shall be entitled to have
------------
a certificate signed by or in the name of the corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation certifying the number of shares owned
by him in the corporation. Any of or all the signatures on the certificate may
be a facsimile.
Section 6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
-------------------------------------------------------------
Certificates. The corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
-8-
<PAGE>
ARTICLE VII. INDEMNIFICATION
Section 7.1 Right to Indemnification. The corporation shall indemnify and
------------------------
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director of officer of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding (or part thereof) initiated by such person only if the proceeding (or
part thereof) was authorized by the Board of Directors of the corporation.
Section 7.2 Prepayment of Expenses. The corporation may, in its
----------------------
discretion, pay the expenses (including attorneys' fees) incurred in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
indemnified under this Article or otherwise.
Section 7.3 Claims. If a claim for indemnification or payment of expenses
------
under this Article is not paid in full within sixty days after a written claim
therefor has been received by the corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 7.4 Non-Exclusivity of Rights. The rights conferred on any person
-------------------------
by this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the certificate of
incorporation, these bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 7.5 Other Indemnification. The corporation's obligation, if any,
---------------------
to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another
-9-
<PAGE>
corporation, partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
Section 7.6 Amendment or Repeal. Any repeal or modification of the
-------------------
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 Fiscal Year. The fiscal year of the corporation shall end
-----------
December 31 of each year unless otherwise determined by resolution of the Board
of Directors.
Section 8.2 Seal. The corporation shall not have a corporate seal.
----
Section 8.3 Waiver of Notice of Meetings of Stockholders, Directors and
-----------------------------------------------------------
Committees. Any written waiver of notice, signed by the person entitled to
- ----------
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders, directors, or members of a committee
of directors need be specified in any written waiver of notice.
ADOPTED as of June 3, 1997.
---------------------------
Nancy Miller, Secretary
-10-
<PAGE>
EXHIBIT 4.3
11 1/2% Senior Notes due 2005
PREMIER GRAPHICS, INC.
No.
CUSIP No.
$130,000,000
PREMIER GRAPHICS, INC. promises to pay to Cede & Co. or registered assigns,
the principal sum of One Hundred Thirty Million United States Dollars, or such
greater or lesser amount as may from time to time be endorsed on Schedule A
hereto on December 1, 2005.
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit of this Indenture or be valid or obligatory
for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed as of the date written below.
PREMIER GRAPHICS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Dated:_____________________ Name:__________________________________
Title:_________________________________
Certificate of Authentication:
This is one of the Notes
referred to in the within-mentioned
Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
By:_________________________________
Authorized Signatory
<PAGE>
THIS GLOBAL NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE REFERRED
TO ON THE REVERSE THEREOF.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO PREMIER
GRAPHICS, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THIS GLOBAL NOTE IS EXCHANGEABLE FOR A NOTE IN DEFINITIVE, FULLY REGISTERED
FORM, WITHOUT INTEREST COUPONS, IF (A) DTC NOTIFIES THE COMPANY THAT IT IS
UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL NOTE OR IF AT ANY
TIME DTC CEASES TO BE A "CLEARING AGENCY" REGISTERED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND A SUCCESSOR DEPOSITORY IS NOT APPOINTED BY
THE COMPANY WITHIN 90 DAYS OF SUCH NOTICE, (B) THE COMPANY EXECUTES AND DELIVERS
TO THE TRUSTEE A NOTICE THAT THIS GLOBAL NOTE SHALL BE SO TRANSFERABLE,
REGISTRABLE, AND EXCHANGEABLE, AND SUCH TRANSFER SHALL BE SO REGISTRABLE, OR (C)
AN EVENT OF DEFAULT (AS HEREINAFTER DEFINED) HAS OCCURRED AND IS CONTINUING WITH
RESPECT TO THE NOTES.
<PAGE>
11 1/2% Senior Note due 2005
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Premier Graphics, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being called the "Company"), promises to pay interest on the
principal amount of this Note at 11 1/2% per annum until Maturity and shall pay
Special Interest, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest, if any, and
Special Interest, if any, semi-annually in arrears on June 1 and December 1 of
each year (each, an "Interest Payment Date"), or if any such day is not a
Business Day, on the next succeeding Business Day. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a Record Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 1, 1999. The Company shall pay interest (including post-petition interest
in any proceeding under any applicable Federal, State or foreign bankruptcy law)
on overdue installments of interest ("Defaulted Interest"), and Special
Interest, if any, if any, (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
Defaulted Interest) and Special Interest, if any, to the Persons who are
registered Holders of Notes at the close of business on May 15 or November 15
immediately preceding the Interest Payment Date (each, a "Record Date"), even if
such Notes are canceled after such Record Date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to Defaulted Interest. The Notes will be payable as to principal, premium,
interest and Special Interest at the office or agency of the Company maintained
for such purpose within the City and State of New York, or, at the option of the
Company, payment of interest and Special Interest may be made by check mailed to
the Holders at their addresses set forth in the register of Holders, provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium, if any, and Special
Interest, if any, on, all Global Notes and all other Notes the Holders of which
shall have provided wire transfer instructions to the Company and the Paying
Agent prior to the applicable Record Date for such payment. Such payment shall
be in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee under the Indenture
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to any Holder. In certain situations, the Company or
any of its Subsidiaries may act in any such capacity.
<PAGE>
4. Indenture. The Company issued the Notes under an Indenture dated as of
December 11, 1998 ("Indenture") between the Company, the Persons acting as
guarantors and named therein (the "Guarantors") and United States Trust Company
of New York, as trustee (the "Trustee," which term includes any successor
trustee under the Indenture). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the U.S. Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) as in
effect on the date of the Indenture. The Notes are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are unsecured obligations of the Company limited to
$130,000,000 in aggregate principal amount (subject to Section 2.7 of the
Indenture). This Note is one of the Notes referred to in the Indenture.
5. Optional Redemption. (a) Except as set forth in clause 5(b) of this
Note, the Notes shall not be redeemable at the Company's option prior to
December 1, 2002. On or after such date, the Notes shall be redeemable at the
option of the Company, in whole at any time or in part from time to time, at the
following prices (expressed in percentages of principal amount thereof) if
redeemed during the twelve-month period beginning December 1 of each of the
years indicated below, in each case together with interest (and Special
Interest, if any) accrued to Redemption Date (subject to the right of Holders of
record on the relevant Record Date to receive interest (and Special Interest, if
any), due on the relevant Interest Payment Date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................... 105.750 %
2003...................................... 102.875 %
2004 and thereafter....................... 100.000 %
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this clause 5, at any
time during the first 36 months after the Issue Date, the Company may at its
option redeem up to a maximum of 35% of the original aggregate principal amount
of the Notes with the net cash proceeds of one or more Public Equity Offerings
at a Redemption Price equal to 111.5% of the principal amount thereof, plus
accrued and unpaid interest (and Special Interest, if any), thereon to the
Redemption Date; provided that at least 65% of the aggregate principal amount of
the Notes originally issued shall remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 90 days of the date of the closing of such Public Equity Offering.
(c) Notices of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. Unless the
Company defaults in making such redemption payment, on and after the Redemption
Date interest (including Special Interest, if any) ceases to accrue on Notes or
portions thereof called for redemption.
6. Mandatory Redemption. Except as contemplated by clause 7 below, the
Company shall not be required to make any mandatory redemption, purchase or
sinking fund payments with
<PAGE>
respect to the Notes prior to the maturity date.
7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change
of Control, each Holder will have the right to require the Company to repurchase
such Holder's Notes in whole or in part (the "Change of Control Offer") at a
purchase price (the "Change of Control Purchase Price") in cash equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, and Special Interest, if any, to the Change of Control Payment
Date on the terms described in the Indenture.
Within 30 days following any Change of Control, the Company shall send, or
cause to be sent, by first class mail, postage prepaid, a notice regarding the
Change of Control Offer to each Holder of Notes. The Holder of this Note may
elect to have this Note or a portion hereof in an authorized denomination
purchased by completing the form entitled "Option of Holder to Require Purchase"
appearing below and tendering this Note pursuant to the Change of Control Offer.
Unless the Company defaults in the payment of the Change of Control Payment with
respect thereto, all Notes or portions thereof accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest (and Special Interest,
if any) from and after the Change of Control Purchase Date.
(b) If at any time the Company or any Subsidiary engages in an Asset Sale
as result of which the aggregate amount of Excess Proceeds exceeds $5,000,000,
the Company shall within 30 days thereafter, or at any time after receipt of
Excess Proceeds but prior to there being $5,000,000 of Excess Proceeds, the
Company may, at its option, make a pro rata offer (an "Asset Sale Offer") to all
Holders of Notes and holders of Senior Debt, if and to the extent the Company is
required by the instruments governing such Senior Debt to make such an offer, to
purchase Notes and such Senior Debt in an aggregate amount equal to the Excess
Proceeds, at a price in cash (the "Asset Sale Offer Purchase Price") equal to
100% of the outstanding principal amount of the Notes plus accrued interest and
Special Interest, if any, to the date of purchase and, in the case of such other
Senior Debt, 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of purchase. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset to zero and the Company
may use any remaining amount for general corporate purposes.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company shall send, or cause to be sent, by first class mail,
postage prepaid, a notice regarding the Asset Sale Offer to each Holder of
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Offer Purchase Price with respect thereto, all Notes or portions thereof
selected for payment pursuant to the Asset Sale Offer will cease to accrue
interest from and after the Asset Sale Offer Purchase Date.
8. Denominations; Transfer and Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents (including in
certain cases, opinions of counsel) and the Company may require a Holder
<PAGE>
to pay any taxes and fees required by law or permitted by the Indenture. The
Company need not exchange or register the transfer of any Note or portion of a
Note selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, it need not exchange or register the transfer of
any Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a Record Date and the corresponding Interest Payment
Date.
9. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
10. Amendment, Supplement and Waiver. With the consent of the holders of
not less than a majority in aggregate principal amount at Stated Maturity of the
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes), the Company, the Guarantors and the Trustee
may enter into one or more indentures supplemental to the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Indenture or of modifying in any manner the rights of
the holders; provided that no such supplemental indenture will, without the
consent of the Holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, or reduce the principal amount thereof (or premium, if any), or the
interest thereon that would be due and payable thereon, or change the place of
payment where, or the coin or currency in which, any Note or any premium or
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof, (b)
reduce the percentage in principal amount at Stated Maturity of the outstanding
Notes, the consent of whose Holders is necessary for any such supplemental
indenture or required for any waiver of compliance with certain provisions of
the Indenture, or certain Defaults thereunder, (c) modify the Obligations of the
Company to make offers to purchase Notes upon a Change of Control or from the
proceeds of Asset Sales, (d) subordinate in right of payment the Notes or the
Guarantees to any other Indebtedness, (e) amend, supplement or otherwise modify
the provisions of the Indenture relating to Guarantees or (f) make any changes
in Sections 6.4 or 6.7 of the Indenture or modify any of the provisions of this
clause (except to increase any percentage set forth therein or herein).
11. Defaults and Remedies. Events of Default include in summary form: (i)
default for 30 days in the payment when due of interest on, or Special Interest
with respect to, the Notes; (ii) default in payment when due of the principal of
or premium, if any, on the Notes; (iii) failure by the Company to comply with
Sections 4.9, 4.11, 4.12, 4.13, 4.15, 4.16, 4.21(c) or 5.1 of the Indenture;
(iv) failure by the Company for 30 days after notice to comply with any of its
other agreements in the Indenture or the Notes; (v) Indebtedness of the Company
or any Subsidiary is not paid when due within the applicable grace period, if
any, or is accelerated by the holders thereof and, in either case, the aggregate
principal amount of such unpaid or accelerated Indebtedness exceeds $10,000,000
or more; (vi) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments are not
paid, discharged or stayed for a period of 60 days; (viii) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; and (ix) any Guarantee shall for any reason cease to be, or be
asserted by the Company or any Guarantor, as applicable, not to be, in full
force as effect (except pursuant to the release of any Guarantee in accordance
with the Indenture).
<PAGE>
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, if any, interest or Special Interest, if any) if it determines that
withholding notice is in their interest. Subject to certain limitations, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes then outstanding waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, premium, if any, on,
interest on, and, if any, on, the Notes. The Company is required to deliver to
the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
12. Defeasance Prior to Maturity or Redemption. The Company, at its
election, shall (a) be deemed to have paid and discharged its debt on the Notes
and the Indenture and Guarantees shall cease to be of further effect as to all
outstanding Notes (except as to (i) rights of registration of transfer,
substitution and exchange of Notes, (ii) the Company's right of optional
redemption, (iii) rights of Holders to receive payments of principal of,
premium, if any, and interest on the Notes (but not the Change of Control
Purchase Price or the Asset Sale Offer Purchase Price) and any rights of the
Holders with respect to such amounts, (iv) the rights, obligations and
immunities of the Trustee under the Indenture, and (v) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants that are described in the Indenture, after
the irrevocable deposit by the Company with the Trustee, in trust for the
benefit of the Holders, at any time prior to the Stated Maturity of the Notes,
of (i) money in an amount, (ii) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one Business Day
before the due date of payment in respect of such Notes, money in an amount, or
(C) a combination thereof sufficient to pay and discharge the principal of,
premium, if any on, and interest (including Special Interest, if any) on, such
Notes then outstanding on the dates on which any such payments are due in
accordance with the terms of the Indenture and of such Notes.
13. Trustee Dealings with the Company. Subject to certain limitations
imposed by the Trust Indenture Act, the Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder of the Company or a Guarantor, as such, shall not
have any liability for any obligations of the Company or the Guarantors under
the Notes, the Indenture, the Guarantees or for any claim based on, in respect
of, or by reason of, such Obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
<PAGE>
15. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THIS NOTE, WITHOUT REGARD TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
16. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. Additional Rights of Holders of Transfer Restricted Notes. In addition
to the rights provided to Holders of Notes under the Indenture, Holders of
Transferred Restricted Notes (as defined in the Registration Rights Agreement)
shall have all the rights set forth in the Registration Rights Agreement dated
as of the date of the Indenture, between the Company and the parties named on
the signature pages thereof (the "Registration Rights Agreement").
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Additional Documents. The Company will furnish to any Holder upon
written request and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:
Premier Graphics, Inc.
6075 Poplar, Suite 401
Memphis, Tennessee 38119
Telephone No.: (901) 685-2020
Attention: Lance T. Fair
Telephone No.: (901) 685-2020
Telecopier No.: (901) 685-3600
<PAGE>
GUARANTEE
Subject to the limitations set forth in the Indenture, the Guarantor (as
defined in the Indenture referred to in this Note, which term includes any
successor or additional Guarantor under the Indenture) has irrevocably and
unconditionally guaranteed (a) the due and punctual payment of the principal
(and premium, if any) of and interest (and Special Interest, if any), on the
Notes, whether at Maturity, by acceleration, call for redemption, upon a Change
of Control Offer, Asset Sale Offer, purchase or otherwise, (b) the due and
punctual payment of interest on the overdue principal of and interest (and
Special Interest, if any), on the Notes to the extent lawful, (c) the due and
punctual performance of all other Obligations of the Company and the Guarantor
to the Holders under the Indenture and the Notes and (d) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Maturity, by
acceleration, call for redemption, upon a Change of Control Offer, Asset Sale
Offer, purchase or otherwise. Capitalized terms used herein shall have the same
meanings assigned to them in the Indenture unless otherwise indicated.
Payment on each Note is guaranteed by the Guarantor pursuant to Article 12
of the Indenture and reference is made to such Indenture for the precise terms
of the Guarantee.
The Obligations of the Guarantors are limited to the maximum amount as
will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of the Guarantors, and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, result in the Obligations of such
Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under any applicable Federal, State or foreign bankruptcy
law or not otherwise being void, voidable or unenforceable under any such
applicable bankruptcy law. Each Guarantor that makes a payment or distribution
under a Guarantee shall be entitled to a contribution from each other Guarantor
in a pro rata amount based on the Adjusted Net Assets of each Guarantor.
Certain of the Guarantors may be released from their Guarantees upon the
terms and subject to the conditions provided in the Indenture.
The Guarantee shall be binding upon each Guarantor listed below and its
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions in the Indenture.
[Remainder of page intentionally left blank.]
<PAGE>
MASTER GRAPHICS, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
_______________________________________________________________________________
(Insert assignee's Social Security or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company or the agent appointed by the
Company to maintain such books. The agent appointed hereby may substitute
another to act for him.
_______________________________________________________________________________
Date: ________________________
Your signature: __________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.9 or 4.15 of the Indenture, check the box below:
_______ Section 4.9 _______ Section 4.15
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.9 or Section 4.15 of the Indenture, state the amount you
elect to have purchased (must be an integral multiple of $1,000):
$__________________
Your Signature:______________________________
(Sign exactly as your name appears
on the Note)
Signature Guarantee: Social Security or Tax Identification No.:________
<PAGE>
SCHEDULE A
CHANGES IN PRINCIPAL AMOUNT OF NOTE
The following changes in the principal amount of this Global Note have been
recorded:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF THIS
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN GLOBAL NOTE SIGNATURE OF
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF FOLLOWING SUCH DECREASE AUTHORIZED OFFICER
DATE OF TRANSACTION THIS GLOBAL NOTE THIS GLOBAL NOTE (OR INCREASE) OF TRUSTEE
- --------------------- --------------------- --------------------- ------------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Premier Graphics, Inc.
as Issuer
The Guarantors named herein
as Guarantors
and
United States Trust Company of New York
as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of March 19, 1999
to
INDENTURE
Dated as of December 11, 1998
between
PREMIER GRAPHICS, INC., as Issuer
THE GUARANTORS NAMED THEREIN, as Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
$130,000,000
11 1/2% SENIOR NOTES DUE 2005
<PAGE>
This FIRST SUPPLEMENTAL INDENTURE, dated as of March 19, 1999, is entered
into by and among Premier Graphics, Inc., a Delaware corporation (the
"Company"), Master Graphics, Inc., a Tennessee corporation ("Master Graphics"),
and United States Trust Company of New York, as Trustee (the "Trustee).
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an Indenture dated as of December 11, 1998 (the "Indenture"), providing for the
issuance of its 11 1/2% Senior Notes due 2005 (the "Initial Notes") and, when
and if issued as provided in the Exchange and Registration Rights Agreement,
11 1/2% Senior Notes due 2005 (the "Exchange Notes" and, together with the
Initial Notes, the "Securities");
WHEREAS, Master Graphics and Harperprints are currently Guarantors under
such Indenture;
WHEREAS, the Company intends to merge Harperprints with and into the
Company effective upon the close of business on March 19, 1999 (the "Merger"),
whereupon the Company will be the surviving corporation following the Merger
pursuant to Section 5.1 of the Indenture;
WHEREAS, pursuant to Section 12.4 of the Indenture, the Merger is permitted
under the Indenture;
WHEREAS, Harperprints is currently a Subsidiary and a Guarantor under the
Indenture;
WHEREAS, as a result of the Merger, the separate legal existence of
Harperprints will cease, and thus, will its designation as a Guarantor under the
Indenture; and
WHEREAS, pursuant to Section 12.7 of the Indenture, the release of
Harperprints as a Guarantor is permitted under the Indenture;
NOW, THEREFORE, for and in consideration of the premises and covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, Master
Graphics, Harperprints and the Trustee agree as follows:
SECTION 1. The Trustee hereby consents to the Merger and the release of
Harperprints as a Guarantor. The Company hereby acknowledges that the
obligations of Harperprints under the Guarantee previously made by shall now be
treated as the obligations of the Company under the Indenture, as the surviving
entity pursuant to the Merger.
SECTION 2. Except as expressly supplemented by this First Supplemental
Indenture, the Indenture and the Securities issued thereunder are in all
respects ratified and confirmed and all of the rights, remedies, terms,
conditions, covenants and agreements of the Indenture and Securities
1
<PAGE>
issued thereunder shall remain in full force and effect. Capitalized terms used
herein but not defined herein shall have the meaning provided in the Indenture.
SECTION 3. This First Supplemental Indenture is executed and shall
constitute an indenture supplemental to the Indenture and shall be construed in
connection with and as part of the Indenture. This First Supplemental Indenture
shall be governed by and construed in accordance with the laws of the
jurisdiction that governs the Indenture and its construction.
SECTION 4. This First Supplemental Indenture may be executed in any number
of counterparts, each of which shall be deemed to be an original for all
purposes; but such counterparts shall together be deemed to constitute but one
and the same instrument.
SECTION 5. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
First Supplemental Indenture may refer to the Indenture without making specific
reference to this First Supplemental Indenture, but nevertheless all such
references shall include this First Supplemental Indenture unless the context
otherwise requires.
SECTION 6. This First Supplemental Indenture shall be deemed to have become
effective upon the date first above written.
SECTION 7. In the event of a conflict between the terms of this First
Supplemental Indenture and the Indenture, this First Supplemental Indenture
shall control.
SECTION 8. The Trustee shall not be responsible in any manner whatsoever
for or in respect of the validity or sufficiency of this First Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company, Master Graphics and Harperprints.
[The remainder of this page is intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
PREMIER GRAPHICS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
MASTER GRAPHICS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
UNITED STATES TRUST
COMPANY OF NEW YORK
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
3
<PAGE>
EXHIBIT 5.1
[BAKER, DONELSON, BEARMAN & CALDWELL LETTERHEAD]
March , 1999
Premier Graphics, Inc.
Master Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Re: Premier Graphics, Inc. -- Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as your counsel in connection with the above-referenced
Registration Statement on Form S-4 (the "Registration Statement") filed today
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act"), in respect of the 11 1/2% Senior Notes due 2005
(the "Exchange Notes"), to be offered in exchange for all outstanding 11 1/2%
Senior Notes due 2005 (the "Initial Notes"). The Exchange Notes will be issued
by Premier Graphics, Inc. (the "Company") pursuant to an indenture dated as of
December 11, 1998 (the "Indenture") among the Company, Master Graphics, Inc.,
Harperprints, Inc., and United States Trust Company of New York as trustee. The
Exchange Notes are to be fully and unconditionally guaranteed on a senior
unsecured basis pursuant to a guarantee (the "Guarantee") by Master Graphics,
Inc. (the "Guarantor").
We have participated in the Registration Statement and have reviewed
originals or copies certified or otherwise identified to our satisfaction of
such documents and records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, and subject to the further assumptions and
qualifications set forth below, it is our opinion that when (I) the Exchange
Notes, in the form filed as an exhibit to the Registration Statement, have been
duly executed and authenticated in accordance with the Indenture, and duly
issued and delivered by the Company in exchange for an equal principal amount of
Initial Notes pursuant to the terms of the Registration Rights Agreement in the
form filed as an exhibit to the Registration Statement; and (ii) the Guarantee,
in the form filed as an exhibit to the Registration Statement, has been duly
executed and delivered by the Guarantor upon consummation of the exchange of the
Exchange Notes for an equal principal amount of the Initial Notes pursuant to
the terms of the Registration Rights Agreement in the form filed as an exhibit
to the Registration Statement, the Exchange Notes and the Guarantee will be
legal, valid, binding and enforceable obligations of the Company and the
Guarantor, respectively, entitled to the benefits of the Indenture,
<PAGE>
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity.
The foregoing opinion is limited to the law of the States of Tennessee,
Delaware and New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement. In
giving such consent, we do not thereby admit that we are "experts" within the
meaning of the Act or the rules and regulations of the Securities and Exchange
Commission issued thereunder with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
BAKER, DONELSON, BEARMAN & CALDWELL,
a professional corporation
By:
-------------------------------
John A. Good, a shareholder
<PAGE>
EXHIBIT 8.1
[BAKER, DONELSON, BEARMAN & CALDWELL LETTERHEAD]
March 19, 1999
Premier Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38138
RE: Premier Graphics, Inc.
$130,000,000 11 1/2% Senior Notes Due 2005
Dear Sir or Madam:
We have acted as special United States federal tax counsel for Premier
Graphics, Inc. (the "Company") in connection with the offer to exchange
$130,000,000 aggregate principal amount of the Company's 11 1/2% Senior Notes
due 2005 (the "Exchange Notes"), which have been registered under the United
States Securities Act of 1933, as amended (the "Securities Act"), for a like
aggregate principal amount of outstanding 11 1/2% Senior Notes due 2005 (the
"Exchange Offer").
We are giving this opinion in connection with the Registration Statement on
Form S-4, as amended (the "Registration Statement"), relating to the
registration by the Company of the Exchange Notes to be offered in the Exchange
Offer, filed by the Company with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act and the rules and regulations of
the Commission promulgated thereunder. Capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed to such terms in
the Registration Statement.
In rendering our opinion, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such agreements and other
documents as we have deemed relevant and necessary and we have made such
investigations of law as we have deemed appropriate as a basis for the opinion
expressed below. In our examination, we have assumed the authenticity of
original documents, the accuracy of copies and the genuineness of signatures.
We understand and assume that each such agreement represents the valid and
binding obligation of the respective parties thereto, enforceable in accordance
with its respective terms and the entire agreement between the parties with
respect to the subject matter thereof, the parties to each agreement have
complied, and will comply, with all of their respective covenants, agreements
and undertakings contained therein
<PAGE>
Premier Graphics, Inc
March 19, 1999
Page 2
and the transactions provided for by each agreement were and will be carried out
in accordance with their terms.
Our opinion is based upon existing United States federal income and estate
tax laws, regulations administrative pronouncements and judicial decisions. All
such authorities are subject to change, either prospectively or retroactively,
and any such change could affect our opinion.
The opinion set forth herein has no binding effect on the United States
Internal Revenue Service or the courts of the United States. No assurance can
be given that, if the matter were contested, a court would agree with the
opinion set forth herein.
We hereby confirm the opinion set forth under the caption "Certain United
States Federal Tax Considerations" in the Registration Statement. While such
description discusses the material anticipated United States federal income tax
consequences applicable to certain holders of Notes, it does not purport to
discuss all United States federal income tax considerations and our opinion is
limited to those United States federal income tax considerations specifically
discussed therein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax laws of the United States of America.
We are furnishing this letter in our capacity as special United States tax
counsel to the Company. This letter is not to be used, circulated, quoted or
otherwise referred to for any other purpose, except as set forth below.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and we further consent to the use of our name under the
caption "Certain United States Federal Tax Considerations" in the Registration
Statement. The issuance of such a consent does not concede that we are an
"expert" for purposes of the Securities Act.
Very truly yours,
Baker, Donelson, Bearman & Caldwell, a
professional corporation
By: /s/ John A. Good
--------------------------------------
John A. Good
<PAGE>
================================================================================
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of March 15, 1999
between
PREMIER GRAPHICS, INC.,
as Borrower
THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,
as Lenders,
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
and
DEUTSCHE FINANCIAL SERVICES CORPORATION,
as Revolving Credit Agent and Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. AMOUNT AND TERMS OF CREDIT FACILITIES...................................................................... 2
1.1 Revolving Credit Facility..................................................................... 2
1.2 Term Loan A Facility.......................................................................... 5
1.3 Term Loan B Facility.......................................................................... 6
1.4 Letters of Credit............................................................................. 7
1.5 Prepayments................................................................................... 7
1.6 Interest...................................................................................... 9
1.7 Eligible Accounts............................................................................. 12
1.8 Eligible Inventory............................................................................ 14
1.9 Cash Management Systems....................................................................... 15
1.10 Fees.......................................................................................... 15
1.11 Receipt of Payments........................................................................... 16
1.12 Application and Allocation of Payments........................................................ 17
1.13 Loan Account and Accounting................................................................... 17
1.14 Indemnity..................................................................................... 18
1.15 Access........................................................................................ 19
1.16 Taxes......................................................................................... 20
1.17 Additional Provisions......................................................................... 21
1.18 Security Interest in the Collateral........................................................... 23
1.19 Rights of Lender, Limitations on Obligations of Lender........................................ 24
1.20 Single Loan................................................................................... 25
2. CONDITIONS PRECEDENT....................................................................................... 25
2.1 Conditions to the Initial Advance............................................................. 25
2.2 Further Conditions to Each Advance............................................................ 29
3. REPRESENTATIONS AND WARRANTIES............................................................................... 30
3.1 Corporate Existence; Compliance with Law...................................................... 30
3.2 Executive Offices; Corporate or Other Names; FEIN............................................. 30
3.3 Corporate Power; Authorization; Enforceable Obligations....................................... 31
3.4 Financial Statements and Projections.......................................................... 31
3.5 Material Adverse Change....................................................................... 31
3.6 Ownership of Property; Liens.................................................................. 31
3.7 Restrictions; No Default; Material Contracts.................................................. 32
3.8 Labor Matters................................................................................. 32
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness..................... 33
3.10 Government Regulation......................................................................... 33
3.11 Margin Regulations............................................................................ 33
3.12 Taxes......................................................................................... 33
3.13 ERISA......................................................................................... 34
3.14 No Litigation................................................................................. 35
</TABLE>
Third Amended and Restated Loan and Security Agreement
i
<PAGE>
<TABLE>
<S> <C>
3.15 Brokers....................................................................................... 35
3.16 Patents, Trademarks, Copyrights and Licenses.................................................. 36
3.17 Full Disclosure............................................................................... 36
3.18 Hazardous Materials........................................................................... 36
3.19 Insurance Policies............................................................................ 37
3.20 Deposit and Disbursement Accounts............................................................. 37
3.21 Subordinated Notes and Senior Notes........................................................... 37
3.22 Representations and Warranties Regarding the Collateral....................................... 37
3.23 Solvency...................................................................................... 39
3.24 Year 2000 Problems............................................................................ 39
4. FINANCIAL STATEMENTS AND INFORMATION....................................................................... 39
4.1 Reports and Notices........................................................................... 39
4.2 Communication with Accountants................................................................ 39
5. AFFIRMATIVE COVENANTS...................................................................................... 40
5.1 Maintenance of Existence and Conduct of Business.............................................. 40
5.2 Payment of Charges and Claims................................................................. 40
5.3 Books and Records............................................................................. 40
5.4 Litigation.................................................................................... 40
5.5 Insurance..................................................................................... 41
5.6 Compliance with Laws.......................................................................... 41
5.7 Agreements.................................................................................... 42
5.8 Supplemental Disclosure....................................................................... 42
5.9 Environmental Matters......................................................................... 43
5.10 Landlord's and Mortgagee's Agreements......................................................... 43
5.11 Certain Obligations Respecting Subsidiaries................................................... 44
5.12 Application of Proceeds....................................................................... 44
5.13 Fiscal Year................................................................................... 44
5.14 Casualty and Condemnation..................................................................... 44
5.15 Covenants Regarding the Collateral............................................................ 45
5.16 Agent's and Revolving Credit Agent's Appointment as Attorneys-in-Fact......................... 48
5.17 Maintenance Covenant.......................................................................... 50
5.18 Year 2000 Problems............................................................................ 51
6. NEGATIVE COVENANTS......................................................................................... 51
6.1 Mergers, Subsidiaries, Etc.................................................................... 51
6.2 Investments................................................................................... 51
6.3 Indebtedness.................................................................................. 51
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements.......................... 52
6.5 Capital Structure and Business................................................................ 52
6.6 Guaranteed Indebtedness....................................................................... 52
6.7 Liens......................................................................................... 52
6.8 Sale of Assets................................................................................ 53
6.9 Material Contracts............................................................................ 53
</TABLE>
Third Amended and Restated Loan and Security Agreement
ii
<PAGE>
<TABLE>
<S> <C>
6.10 ERISA......................................................................................... 53
6.11 Financial Covenants........................................................................... 54
6.12 Hazardous Materials........................................................................... 55
6.13 Sale-Leasebacks............................................................................... 55
6.14 Cancellation of Indebtedness.................................................................. 55
6.15 Restricted Payments........................................................................... 55
6.16 Real Property Leases.......................................................................... 55
6.17 Bank Accounts................................................................................. 56
6.18 Subordinated Notes............................................................................ 56
6.19 No Speculative Transactions................................................................... 56
6.20 Margin Regulations............................................................................ 56
6.21 Limitation on Negative Pledge Clauses......................................................... 56
6.22 Accounting Changes............................................................................ 56
6.23 Senior Notes.................................................................................. 57
7. TERM....................................................................................................... 57
7.1 Duration...................................................................................... 57
7.2 Survival of Obligations....................................................................... 57
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..................................................................... 57
8.1 Events of Default............................................................................. 57
8.2 Remedies...................................................................................... 60
8.3 Grant of License to Use Patent and Trademark Collateral....................................... 63
8.4 Waivers by Borrower........................................................................... 63
8.5 Revolving Credit Agent as Sub-Agent in Connection with Current Collateral..................... 64
9. SUCCESSORS AND ASSIGNS..................................................................................... 64
9.1 Successors and Assigns........................................................................ 64
10. ASSIGNMENTS AND PARTICIPATIONS; APPOINTMENT OF AGENT....................................................... 65
10.1 Assignment and Participations................................................................. 65
10.2 Appointment of Agent and Revolving Credit Agent............................................... 67
10.3 Agent's and Revolving Credit Agent's Reliance, Etc............................................ 68
10.4 GE Capital, Deutsche and Affiliates........................................................... 68
10.5 Indemnification............................................................................... 69
10.6 Successor Agent............................................................................... 69
10.7 Setoff and Sharing of Payments................................................................ 70
10.8 Fundings; Payments; Non-Funding Lenders; Information; Actions in Concert...................... 71
10.9 Due Diligence and Non-Reliance................................................................ 75
10.10 Out-of-Formula Loans.......................................................................... 76
11. MISCELLANEOUS.............................................................................................. 76
11.1 Complete Agreement; Modification of Agreement................................................. 76
11.2 Amendments and Waivers........................................................................ 76
11.3 Fees and Expenses............................................................................. 79
</TABLE>
Third Amended and Restated Loan and Security Agreement
iii
<PAGE>
<TABLE>
<S> <C>
11.4 No Waiver..................................................................................... 80
11.5 Remedies...................................................................................... 80
11.6 Severability.................................................................................. 80
11.7 Conflict of Terms............................................................................. 80
11.8 Right of Set-off.............................................................................. 80
11.9 Authorized Signature.......................................................................... 81
11.10 GOVERNING LAW................................................................................. 81
11.11 Notices....................................................................................... 82
11.12 Section Titles................................................................................ 82
11.13 Counterparts.................................................................................. 82
11.14 Time of the Essence........................................................................... 82
11.15 WAIVER OF JURY TRIAL.......................................................................... 82
11.16 NO ORAL AGREEMENTS............................................................................ 83
11.17 RELEASE....................................................................................... 83
11.18 Amendment and Restatement..................................................................... 83
11.19 References.................................................................................... 84
</TABLE>
Third Amended and Restated Loan and Security Agreement
iv
<PAGE>
INDEX OF ANNEXES, SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Annex A - Definitions
Annex B - Schedule of Closing Documents
Annex C - Financial Statements, Projections and Notices
Annex D - Insurance Requirements
Annex E - Cash Management Systems
Annex F - Revolving Credit and Term Loan Commitments
Annex G - Letters of Credit
Annex H - Collateral Reports
Annex I - Lenders' Wire Transfer Information
Annex J - Notice, Addresses
Schedule A-1 - Employment Agreements
Schedule A-2 - Subordinated Notes
Schedule B-(h) - Leases not subject to Collateral Assignment
Schedule 3.2 - Executive Offices; Trade Names
Schedule 3.4 - Financial Statements and Projections
Schedule 3.5 - Dividends
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Material Contracts
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures, Subsidiaries and Affiliates; Outstanding Stock
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Disbursement and Deposit Accounts
Schedule 3.22(c) - Schedule of Offices, Locations of Collateral and Records Concerning Collateral
Schedule 5.10 - Locations without Landlord's Consents or Mortgagee's Consents
Schedule 3.22(d) - Schedule of Instruments
Schedule 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4 - Loans to and Transactions with Employees
Schedule 6.7 - Liens
Schedule 8.1(m) - Key Employees
Schedule 11.9 - Authorized Signatures
Exhibit A-1 - Form of Note A
Exhibit A-2 - Form of Note B
Exhibit A-3 - Form of Revolving Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Notice of Term Loan Borrowing
Exhibit C - Form of Borrowing Base Certificate
</TABLE>
Third Amended and Restated Loan and Security Agreement
v
<PAGE>
<TABLE>
<S> <C>
Exhibit D - Form of Assignment Agreement
Exhibit E - Form of Affiliate Guaranty
Exhibit F - Form of Affiliate Security Agreement
Exhibit G - Form of Certificate Regarding Senior Notes
Exhibit H-1 - Form of Notice of Conversion/Continuation for Revolving Credit Advances
Exhibit H-2 - Form of Notice of Conversion/Continuation for Term Loan Advances
</TABLE>
Third Amended and Restated Loan and Security Agreement
vi
<PAGE>
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of
March 15, 1999, between PREMIER GRAPHICS, INC., a Delaware corporation (the
"Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
--------
(in its individual capacity, "GE Capital"), as a Lender, and as Agent for
----------
Lenders (in such capacity, the "Agent"), DEUTSCHE FINANCIAL SERVICES
-----
CORPORATION, a Nevada corporation, as a Lender, and as Revolving Credit Agent
for Lenders (in such capacity the "Revolving Credit Agent"), and TRANSAMERICA
----------------------
EQUIPMENT FINANCIAL SERVICES CORPORATION, a Delaware corporation (formerly known
as Transamerica Business Credit Corporation), as a Lender, and the other Lenders
signatory hereto from time to time.
RECITALS
A. Borrower and GE Capital, for itself and as agent for certain
participants (in such capacities, "Original Lender") entered into that certain
---------------
Term and CAPEX Loan and Security Agreement dated as of June 19, 1997, as
thereafter amended from time to time, including, without limitation, as amended
by that certain First Amendment to Term and CAPEX Loan and Security Agreement
dated as of September 26, 1997 (as amended, the "Original Agreement").
------------------
B. Borrower and Original Lender amended, restated and modified (but did
not extinguish) the Original Loan Agreement by entering into that certain
Amended and Restated Loan and Security Agreement, dated as of December 16, 1997,
as thereafter amended from time to time, including without limitation, as
amended by (i) that certain First Amendment to Loan and Security Agreement dated
as of March 4, 1998, (ii) that certain Second Amendment to Loan and Security
Agreement dated as of March 31, 1998, (iii) that certain Third Amendment to Loan
and Security Agreement dated as of May 8, 1998, and (iv) that certain Fourth
Amendment to Loan and Security Agreement dated as of June 15, 1998 (as amended,
the "First Restated Agreement").
------------------------
C. Borrower, GE Capital as a lender and as agent for the lenders and the
other lenders party thereto (the "August 1998 Lenders") amended, restated and
-------------------
modified the First Restated Agreement by entering into that certain Second
Amended and Restated Loan and Security Agreement, dated as of August 21, 1998,
as thereafter amended from time to time, including without limitation as amended
by (i) that certain First Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of August 31, 1998, (ii) that certain Second
Amendment to Second Amended and Restated Loan and Security Agreement, dated as
of September 16, 1998, (iii) that certain Third Amendment to Second Amended and
Restated Loan and Security Agreement, dated as of September 25, 1998, (iv) that
certain Fourth Amendment to Second Amended and Restated Loan and Security
Agreement, dated as of December 11, 1998 (v) that certain Fifth Amendment to
Second Amended and Restated Loan and Security Agreement, dated as of March ___,
1999, and (vi) that certain Sixth Amendment to Second
<PAGE>
Amended and Restated Loan and Security Agreement, dated as of March ___, 1999
(as amended, the "Second Restated Agreement").
-------------------------
D. Borrower and Deutsche Financial Services Corporation, a Nevada
corporation ("Deutsche"), entered into that certain Loan and Security Agreement,
--------
dated August 21, 1998 (the "Deutsche Loan Agreement").
-----------------------
E. Borrower has requested that (i) the August 1998 Lenders modify the
credit facilities under the Second Restated Loan Agreement and extend their
relationship with Borrower, and the August 1998 Lenders are willing to do so
upon the terms and conditions set forth herein; (ii) Deutsche modify the credit
facilities under the Deutsche Loan Agreement and extend its relationship with
Borrower, and Deutsche is willing to do so upon the terms and conditions set
forth herein; and (iii).the August 1998 Lenders and Deutsche combine together
the credit facilities under the Second Restated Loan Agreement and the credit
facilities under the Deutsche Loan Agreement, and the August 1998 Lenders and
Deutsche are willing to do so upon the terms and conditions set forth herein.
F. In connection with the respective increase and extension of the
relationship between Borrower and the August 1998 Lenders and between Borrower
and Deutsche and the formation of the relationship between Borrower and the
other Lenders, the parties hereto wish to respectively and completely amend,
consolidate, restate and modify (but not extinguish) each of the Second Restated
Loan Agreement and the Deutsche Loan Agreement through the execution of this
Agreement, which will supersede all prior agreements among the parties hereto.
G. Capitalized terms used herein shall have the meanings ascribed to
them on Annex A. All Schedules, Annexes, Attachments and Exhibits hereto, or
-------
expressly identified to this Agreement, are incorporated herein by reference,
and taken together, shall constitute but a single agreement. Unless otherwise
expressly set forth herein, or in a written amendment referring to such
Schedules and Annexes, all Schedules and Annexes referred to herein shall mean
the Schedules as in effect at the Closing Date. As used herein, the plural
shall include the singular, the singular includes the plural, and pronouns in
any gender (masculine, feminine or neuter) shall all apply to all genders.
These Recitals shall be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto intending to
be legally bound agree as follows:
1. AMOUNT AND TERMS OF CREDIT FACILITIES
1.1 Revolving Credit Facility.
-------------------------
(a) Subject to the terms and conditions hereof, each Revolving Lender
agrees to make available from time to time until the Revolving Loan Commitment
Termination Date its Pro Rata Share of advances (each, a "Revolving Credit
----------------
Advance"). The Pro Rata Share of the
- -------
2
<PAGE>
Revolving Loan of any Revolving Lender shall not at any time exceed its separate
Revolving Loan Commitment. The obligations of each Revolving Lender hereunder
shall be several and not joint. Each Revolving Credit Advance shall be
Obligations secured by all the Collateral. The aggregate amount of Revolving
Credit Advances outstanding shall not exceed at any time the lesser of (i) the
Maximum Amount and (ii) the Borrowing Base ("Borrowing Availability").
----------------------
Notwithstanding the foregoing, if the aggregate unpaid balance of Revolving
Credit Advances outstanding at any time should exceed the Borrowing Availability
at such time (an "Out-of-Formula Condition"), such Revolving Credit Advances
------------------------
shall nonetheless constitute Obligations that are secured by the Collateral and
be entitled to all of the benefits of the Loan Documents. In the event that
Revolving Credit Agent or any Revolving Lender is willing in its sole and
absolute discretion to make Out-of-Formula Loans, such Out-of-Formula Loans
shall be payable ON DEMAND and shall bear interest provided in this Agreement
for Revolving Credit Advances generally or at such higher rate of interest as
Revolving Credit Agent or such Revolving Lender may require as a condition to
making any such Out-of-Formula Loans. Until the Revolving Loan Commitment
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1.
-----------
(b) Advances under the Revolving Loan Commitment established pursuant
to Section 1.1 hereof shall be made and funded as follows:
-----------
(i) Whenever Borrower desires to receive a Revolving Credit
Advance under Section 1.1 of this Agreement (other than a Revolving Credit
-----------
Advance resulting from a conversion or continuation pursuant to Section 1.6(g)),
--------------
Borrower shall give Revolving Credit Agent prior written notice (or telephonic
notice promptly confirmed in writing) of such request for a Revolving Credit
Advance (a "Notice of Borrowing"), which shall be in the form of Exhibit B-1
------------------- -----------
annexed hereto and signed by an authorized officer of Borrower. Such Notice of
Borrowing shall be given by Borrower no later than 11:00 a.m. (New York time) at
the office of Revolving Credit Agent designated by Revolving Credit Agent from
time to time (A) on the Business Day of the requested funding date of such
Revolving Credit Advance, in the case of Base Rate Loans, and (B) at least 4
Business Days prior to the requested funding date of such Revolving Credit
Advance, in the case of LIBOR Loans. Notices received after 11:00 a.m. (New
York time) shall be deemed received on the next Business Day. Each Notice of
Borrowing (or telephonic notice thereof) shall be irrevocable and shall specify
(A) the principal amount of the Revolving Credit Advance, (B) the date of the
Revolving Credit Advance (which shall be a Business Day), (C) whether the
Revolving Credit Advance is to consist of Base Rate Loans or LIBOR Loans, (D) in
the case of LIBOR Loans, the duration of the Interest Period to be applicable
thereto, and (E) the account of Borrower to which the proceeds of such Revolving
Credit Advance are to be disbursed. Borrower may not request any LIBOR Loans if
a Default or Event of Default exists. In addition to the foregoing, if Borrower
desires to have a Revolving Credit Advance constitute a LIBOR Loan, Borrower
must comply with the provisions of Section 1.6(g) hereof.
--------------
(ii) Unless payment is otherwise timely made by Borrower, the
becoming due of any amount required to be paid under this Agreement or any of
the other Loan Documents with respect to the Obligations (whether as principal,
accrued interest, fees or other
3
<PAGE>
charges, including the repayment of any Revolving Loan Letter of Credit
Obligations and including the repayment of any interest payment made on the
White Arts Bonds pursuant to the White Arts Letter of Credit, but specifically
not including the repayment of any principal payment made on the White Arts
- --- ---------
Bonds pursuant to the White Arts Letter of Credit) shall be deemed irrevocably
to be a request (without any requirement for the submission of a Notice of
Borrowing) for Revolving Credit Advances on the due date of, and in an aggregate
amount required to pay, such Obligations, and the proceeds of such Revolving
Credit Advances may be disbursed by way of direct payment of the relevant
Obligation and shall bear interest as Base Rate Loans. Neither Revolving Credit
Agent nor any Revolving Lender shall have any obligation to Borrower to honor
any deemed request for a Revolving Credit Advance, but may do so in their
discretion and without regard to the existence of, and without being deemed to
have waived, any Default or Event of Default and regardless of whether such
Revolving Credit Advance is funded after the Revolving Loan Commitment
Termination Date.
(iii) As an accommodation to Borrower, Revolving Credit Agent and
Revolving Lenders may permit telephonic requests for Revolving Credit Advances
and electronic transmittal of instructions, authorizations, agreements or
reports to Revolving Credit Agent by Borrower; provided, however, that Borrower
-------- -------
shall confirm each such telephonic request for a Revolving Credit Advance by
delivery of the required Notice of Borrowing to Revolving Credit Agent by
facsimile transmission promptly, but in no event later than 5:00 p.m. (New York
time) on the same day. Unless Borrower specifically directs Revolving Credit
Agent and Revolving Lenders in writing not to accept or act upon telephonic or
electronic communications from Borrower, neither Revolving Credit Agent nor any
Revolving Lender shall have any liability to Borrower for any loss or damage
suffered by Borrower as a result of Revolving Credit Agent's or any Revolving
Lender's honoring or any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Revolving Credit Agent or
Revolving Lenders by Borrower and neither Revolving Credit Agent nor any
Revolving Lender shall have any duty to verify the origin of any such
communication or the identity or authority of the Person sending it.
(iv) Borrower hereby irrevocably authorizes Revolving Credit
Agent to disburse the proceeds of each Revolving Credit Advance requested, or
deemed to be requested under this Agreement as follows: (A) the proceeds of each
Revolving Credit Advance requested under Section 1.1(b)(i) shall be disbursed by
-----------------
Revolving Credit Agent by wire transfer to such bank account as may be agreed
upon by Borrower and Revolving Credit Agent from time to time or elsewhere if
pursuant to a written direction from Borrower, and (B) the proceeds of each
Revolving Credit Advance requested under Section 1.1(b)(ii) shall be disbursed
------------------
by Revolving Credit Agent by way of direct payment of the relevant interest or
other Obligation.
(c) Borrower shall utilize the proceeds of the Revolving Loan solely
for Borrower's ordinary working capital and general corporate needs (but
excluding in any event the making of any Restricted Payment not specifically
permitted by Section 6.15) and, if the full amount of each of the Term Loan A
------------
Commitment and Term Loan B Commitment has been advanced hereunder, the proceeds
of a Revolving Credit Advance may also be used in connection
4
<PAGE>
with the financing of an Eligible Acquisition, provided that after the making of
such Revolving Credit Advance and for a period of 60 days thereafter (and the
incurrence of any Revolving Loan Letter of Credit Obligations relating thereto)
Borrower shall have a Net Borrowing Availability of at least $5,000,000.
(d) Borrower shall execute and deliver to each Revolving Lender a
note to evidence the Revolving Loan Commitment of that Revolving Lender. Each
note shall be in the principal amount of the Revolving Loan Commitment of the
applicable Revolving Lender, dated the Closing Date and substantially in the
form of Exhibit A-3 (each a "Revolving Note" and, collectively, the "Revolving
----------- -------------- ---------
Notes"). Each Revolving Note shall represent the obligation of Borrower to pay
- -----
the amount of each Revolving Lender's Revolving Loan Commitment or, if less, the
applicable Revolving Lender's Pro Rata Share of the aggregate unpaid principal
amount of all Revolving Credit Advances to Borrower together with interest
thereon as prescribed in Section 1.6. The entire unpaid balance of the
-----------
Revolving Loan and all other non-contingent Obligations shall be immediately due
and payable in full in immediately available funds on the Revolving Loan
Commitment Termination Date.
1.2 Term Loan A Facility.
---------------------
(a) Upon and subject to the terms and conditions hereof, each Term
Lender agrees to make available, from time to time, until the applicable Term
Loan Commitment Termination Date, for Borrower's use and upon the request of
Borrower therefor to Agent, its Pro Rata Share of advances (each, a "Term Loan A
-----------
Advance") to finance Eligible Acquisitions. The amount of Term Loan A Advances
- -------
made to finance any Eligible Acquisition shall equal fifty percent (50%) of the
amount of the purchase price being financed hereunder, provided, however, that
-------- -------
if the full amount of Term Loan B has been advanced hereunder, the amount of
Term Loan A Advances made to finance any Eligible Acquisition may equal up to
one hundred percent (100%) of the purchase price being financed hereunder. The
aggregate amount of each Lender's Term Loan A Advances shall not at any time
exceed its separate Term Loan A Commitment. The obligations of each Lender
hereunder shall be several and not joint. Each Term Loan A Advance shall be
secured by all of the Collateral. Each Lender's Term Loan A Commitment shall be
permanently reduced by the amount of each Term Loan A Advance made by it
hereunder, and Borrower may not reborrow any amount repaid with respect to any
Term Loan A Advance; provided, however, that for the purposes of this sentence,
-------- -------
the incurrence by a Term Lender of a Term Loan Letter of Credit Obligation shall
constitute a Term Loan A Advance only to the extent such Lender actually funds
any amounts pursuant to such Term Loan Letter of Credit Obligation that are not
in due course repaid in accordance with the terms and conditions generally
applicable to Revolving Credit Advances. Reference is hereby made to Annex G
-------
for a description of the limits on the Term Loan Letter of Credit Obligations.
(b) Borrower shall give Agent notice of each borrowing, which notice
shall be in the form of Exhibit B-2 ("Notice of Term Loan Borrowing"). On the
---------- -----------------------------
dates specified for such borrowing, pursuant to Section 10.8, each Lender shall
------------
make available to Agent such Lender's Pro Rata Share of the Term Loan A Advance
or Advances to be made on such date to the
5
<PAGE>
Borrower, in immediately available funds. Agent shall notify each other Lender
of the consummation of each Eligible Acquisition financed hereby.
(c) Borrower shall execute and deliver to each Lender a note in the
principal amount of the Term Loan A Commitment of such Lender, dated the Closing
Date and substantially in the form of Exhibit A-1 (each, a "Note A" and,
----------- ------
collectively, the "Note A"). Each Note A shall represent the obligation of
------
Borrower to pay the amount of the applicable Lender's Term Loan A Commitment or,
if less, the aggregate amount of the Term Loan A Advances made by such Lender,
together with interest thereon as prescribed in Section 1.6. The date, amount
-----------
and interest rate of each Term Loan A Advance made by each Lender and each
payment of principal and interest with respect thereto shall be recorded on the
books and records of Agent which books and records shall constitute prima facie
----- -----
evidence of the accuracy of the information therein recorded.
(d) The principal of each Term Loan A Advance actually funded by a
Term Lender shall be payable in equal consecutive quarterly installments in an
amount equal to one-twentieth (1/20) of the principal amount of such Term Loan A
Advance each which shall be due commencing on the first day of the calendar
quarter immediately following the date of such Term Loan A Advance (provided
that the initial quarterly principal installment payment date for the initial
Term Loan A Advance hereunder shall be July 1, 1999), and shall continue to be
due on the first day of each calendar quarter thereafter, together with a final
installment which shall be due on the Term Loan Commitment Termination Date in
an amount equal to the entire remaining unpaid principal balance of such Term
Loan A Advance.
(e) Each payment of principal with respect to the Term Loan A
Advances shall be paid to Agent for the ratable benefit of each Lender making a
Term Loan A Advance(s), ratably in proportion to each such Lender's respective
Term Loan A Advances.
1.3 Term Loan B Facility.
---------------------
(a) Upon and subject to the terms and conditions hereof, each Lender
agrees to make available, from time to time, until the applicable Term Loan
Commitment Termination Date, for Borrower's use and upon the request of Borrower
therefor to Agent, its Pro Rata Share of advances (each, a "Term Loan B
-----------
Advance") to finance Eligible Acquisitions. The amount of Term Loan B Advances
made to finance any Eligible Acquisition shall equal fifty percent (50%) of the
amount of the purchase price financed hereunder; provided, however, that if the
-------- -------
full amount of Term Loan A has been advanced hereunder or there is at such time
no further availability for funding under the Term Loan A Commitment, the amount
of Term Loan B Advances made to finance any Eligible Acquisition may equal up to
one hundred percent (100%) of the purchase price being financed hereunder. The
aggregate amount of each Lender's Term Loan B Advances shall not at any time
exceed its separate Term Loan B Commitment. The obligations of each Lender
hereunder shall be several and not joint. Each Term Loan B Advance shall be
secured by all of the Collateral. Each Lender's Term Loan B Commitment shall be
permanently reduced by the amount of each Term Loan B Advance made by it
hereunder, and Borrower may not reborrow any amount repaid with respect to any
Term Loan B Advance.
6
<PAGE>
(b) Borrower shall give Agent notice of each borrowing, which notice
shall be in the form of the Notice of Term Loan Borrowing. On the dates
specified for such borrowing, pursuant to Section 10.8, each Lender shall make
------------
available to Agent such Lender's Pro Rata Share of the Term Loan B Advance or
Advances to be made on such date to the Borrower, in immediately available
funds. Agent shall notify each other Lender of the consummation of each
Eligible Acquisition financed hereby.
(c) Borrower shall execute and deliver to each Lender a note in the
principal amount of the Term Loan B Commitment of such Lender, dated the Closing
Date and substantially in the form of Exhibit A-2 (each, a "Note B" and,
----------- ------
collectively, the "Note B"). Each Note B shall represent the obligation of
------
Borrower to pay the amount of each Lender's Term Loan B Commitment or, if less,
the aggregate amount of the Term Loan B Advances made by such Lender, together
with interest thereon as prescribed in Section 1.6. The date, amount and
-----------
interest rate of each Term Loan B Advance made by each Lender and each payment
of principal and interest with respect thereto shall be recorded on the books
and records of Agent which books and records shall constitute prima facie
----- -----
evidence of the accuracy of the information therein recorded.
(d) The principal of each Term Loan B Advance actually funded by a
Term Lender shall be payable in equal consecutive quarterly installments in an
amount equal to two percent (2%) of the principal amount of such Term Loan B
Advance, each which shall be due commencing on the first day of the calendar
quarter immediately following the date of such Term Loan B Advance (provided
that the initial quarterly principal installment payment date for the initial
Term Loan B Advance hereunder shall be July 1, 1999), and shall continue to be
due on the first day of each calendar quarter thereafter, together with a final
installment which shall be due on the Term Loan Commitment Termination Date in
an amount equal to the entire remaining unpaid principal balance of such Term
Loan B Advance.
(e) Each payment of principal with respect to the Term Loan B
Advances shall be paid to the Agent for the ratable benefit of each Lender
making a Term Loan B Advance(s), ratably in proportion to each such Lender's
respective Term Loan B Advances.
1.4 Letters of Credit. Subject to and in accordance with the conditions
-----------------
contained in Annex G, (a) Borrower shall have the right to request, and
-------
Revolving Lenders agree to incur, or purchase participations in, Revolving Loan
Letter of Credit Obligations in respect of Borrower, and (b) Borrower shall have
the right of request, and Term Lenders with a Term Loan A Commitment agree to
incur, or purchase participations in, Term Loan Letter of Credit Obligations in
respect of Borrower.
1.5 Prepayments.
-----------
(a) Voluntary Prepayments of Term Loans. Borrower may, at any time on
-----------------------------------
at least ten (10) days' prior written notice to Agent, voluntarily prepay all or
part of the Term Loan, provided that any such prepayment shall be in a minimum
amount of $500,000 and integral
7
<PAGE>
multiples of $250,000 in excess of such amount. Notwithstanding anything in this
Agreement to the contrary, a permanent termination of the Revolving Loan
Commitment shall not result in the Term Loan becoming at such time immediately
due and payable, if simultaneously with such termination Borrower establishes a
replacement revolving credit facility of at least $10,000,000 with another
Person pursuant to loan documentation, collateral documentation and
intercreditor agreements satisfactory to Agent and the Term Lenders. Any such
voluntary prepayment in whole or in part made prior to the third anniversary of
the Closing Date will obligate Borrower to pay the appropriate Prepayment Fee
and/or Breakage Cost if applicable as provided in Section 1.10. A prepayment of
------------
all or any part of any Advance which constitutes a LIBOR Loan may be made only
on the last day of the Interest Period applicable thereto and if any such
prepayment is made on a day that is not the last day of the applicable Interest
Period, Borrower shall be obligated to pay to the Lenders any additional amounts
due under Section 1.17 hereof. Each notice of partial prepayment shall designate
------------
the Advance(s) or other Obligations to which such prepayment is to be applied,
provided that unless otherwise provided herein, any partial prepayment of the
Term Loans (whether voluntary or mandatory) shall be applied to installments of
principal due thereon among Note A and Note B in proportion to the relative
principal amounts of Loans outstanding under each in their inverse order of
maturity.
(b) Voluntary Reduction in Revolving Loan Commitment. Borrower shall
------------------------------------------------
have the right to permanently reduce the amount of the Revolving Loan
Commitment, at any time and from time to time upon written notice to Revolving
Credit Agent of such reduction, which notice shall specify the amount of such
reduction, shall be irrevocable once given, shall be given at least 5 Business
Days prior to the end of the month, shall be applied ratably to the Revolving
Loan Commitment of each Revolving Lender and shall be effective only upon
Revolving Credit Agent's receipt thereof. The effective date of any voluntary
reduction of the amount of the Revolving Loan Commitment shall be the first day
of a month following the month in which such notice is received by Revolving
Credit Agent. In connection with any such reduction, Revolving Lenders shall be
entitled to the Prepayment Fee set forth in Section 1.10(e) hereof. If the
---------------
Revolving Loan Commitment is reduced to zero, then such reduction shall be
deemed a termination of the Revolving Loan Commitment by Borrower and shall
entitle the Revolving Lenders to the Prepayment Fee set forth in Section 1.10(e)
---------------
hereof. The Revolving Loan Commitment Amount, once reduced, may not be
reinstated without the consent of Revolving Credit Agent.
(c) Mandatory Repayments.
--------------------
(i) Borrower shall prepay the Term Loans in amounts equal to
fifty percent (50%) of Borrower's Excess Cash Flow with respect to each Fiscal
Year of Borrower during the term hereof, such prepayments to be made within five
(5) Business Days following the due date for delivery by Borrower to Agent of
the annual financial statements required by Section 4.1 hereof.
-----------
(ii) Except as set forth in Section 8.2(E), immediately upon
--------------
receipt by any Loan Party of Net Proceeds of any disposition of Fixed Collateral
(which shall include, without limitation, any sale of assets or properties or
any loss, destruction or condemnation
8
<PAGE>
thereof, except as otherwise provided in Section 5.5) or any sale of Stock or
-----------
debt securities of any Subsidiary or Loan Party which exceed, in the aggregate,
$250,000 per year, Borrower shall prepay the Loans as and when received by
Borrower as a mandatory prepayment of the Loans an amount equal to the greater
of (x) the Net Proceeds received by such Loan Party from such sale or
disposition or (y) the depreciated value of such assets or properties according
to Agent's internal analysis.
(iii) If at any time the outstanding balance of the Revolving
Loan exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing Base,
Borrower shall immediately repay the aggregate outstanding Revolving Credit
Advances to the extent required to eliminate such excess. If any such excess
remains after repayment in full of the aggregate outstanding Revolving Credit
Advances, Borrower shall provide cash collateral for the Revolving Loan Letter
of Credit Obligations in the manner set forth in Annex G to the extent required
-------
to eliminate such excess.
(d) Application of Certain Mandatory Prepayments. Any prepayments
--------------------------------------------
made by Borrower pursuant to clauses (c)(i) or (c)(ii) above shall be applied as
-------------- -------
follows (regardless of whether such prepayment is directed to Agent or Revolving
Credit Agent, each of whom hereby agree to transfer any such prepayment, or the
appropriate balance thereof, to the other for application in accordance with
this sentence): first, to Fees and reimbursable expenses of Agent then due and
-----
payable pursuant to any of the Loan Documents; second, to interest then due and
------
payable on the Term Loans (allocated between Note A and Note B in proportion to
the relative principal amounts outstanding under each); third, to prepay the
-----
scheduled installments of the Term Loans in inverse order of maturity (allocated
between Note A and Note B in proportion to the relative principal amounts
outstanding under each), until such Loans shall have been prepaid in full;
fourth, to interest then due and payable on the Revolving Credit Advances;
- ------
fifth, to the outstanding principal balance of Revolving Credit Advances until
- -----
the same shall have been paid in full; and, sixth, to any Letter of Credit
-----
Obligations, to provide cash collateral therefor in the manner set forth in
Annex G, until all such Letter of Credit Obligations have been fully cash
- -------
collateralized in the manner set forth in Annex G. The Revolving Loan Commitment
-------
shall not be reduced by the amount of any such prepayments.
(e) Nothing in this Section 1.5 shall be construed to constitute
-----------
Agent's, Revolving Credit Agent's or any Lender's consent to any transaction
referred to in clause (c)(ii) above which is not permitted by other provisions
--------------
of this Agreement or the other Loan Documents.
1.6 Interest.
--------
(a) (i) Borrower shall pay interest on the Term Loan to Agent, for
the ratable benefit of Lenders in accordance with the various Term Loan Advances
made by each such Lender, in arrears, commencing on the first (1st) day of the
calendar month following the Closing Date, and continuing on the first (1st) day
of each calendar month thereafter; provided, however, that (A) accrued interest
-------- -------
on any Term Loan Advance that is a LIBOR Loan shall be payable by Borrower to
Agent, for the ratable benefit of Lenders in accordance with the various
9
<PAGE>
Term Loan Advances made by each such Lender, in arrears on the last day of the
Interest Period applicable thereto, and (B) in all cases on the Term Loan
Commitment Termination Date, Borrower shall pay to Agent, for the ratable
benefit of Lenders in accordance with the various Term Loan Advances made by
each such Lender, all accrued and unpaid interest on the Term Loan. If any
interest on the Term Loan accrues or remains payable after the applicable Term
Loan Commitment Termination Date, such interest shall be payable by Borrower
upon demand.
(ii) Borrower shall pay interest on the Revolving Loans to
Revolving Credit Agent, for the ratable benefit of Revolving Lenders in
accordance with the various Revolving Loans being made by each Revolving Lender,
in arrears on the first (1st) day of each calendar month, commencing with the
calendar month following the calendar month in which the Closing Date occurs,
and continuing to be due on the first (1st) day of each succeeding calendar
month thereafter; provided, however, that (i) accrued interest on any LIBOR Loan
--------
shall be payable by Borrower to Revolving Credit Agent, for the ratable benefit
of Revolving Lenders in accordance with the various Revolving Loans being made
by each Revolving Lender, in arrears on the last day of the Interest Period
applicable thereto and (ii) in all cases accrued and unpaid interest on the
Revolving Loans shall be payable by Borrower to Revolving Credit Agent, for the
ratable benefit of Revolving Lenders in accordance with the various Revolving
Loans being made by each Revolving Lender, on the Revolving Loan Commitment
Termination Date. If any interest on the Revolving Loans accrues or remains
payable after the Revolving Loan Commitment Termination Date, such interest
shall be payable by Borrower upon demand.
(b) Borrower shall be obligated to pay interest to Agent or Revolving
Credit Agent (as appropriate in accordance with Section 1.6), for the ratable
-----------
benefit of Lenders in accordance with the Advances made by each Lender, on the
outstanding principal balance of each Advance from the date such Advance is made
until such Advance is indefeasibly repaid in full, with respect to each Advance,
at a floating rate equal to the sum of the Adjusted LIBOR for the applicable
Interest Period or the Base Rate (as appropriate), plus the Applicable Margin
----
(each Advance bearing interest based upon the Adjusted LIBOR is hereinafter
referred to as a "LIBOR Loan"). Upon determining the Adjusted LIBOR for an
----------
Interest Period requested by Borrower, the Agent or Revolving Credit Agent, as
appropriate, shall promptly notify Borrower of such determination, and such
determination shall, in the absence of manifest error, be final, conclusive and
binding for all purposes hereunder.
(c) If any payment on any Loan becomes due and payable on a day other
than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of Interest
Period) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
(d) All computations of Fees calculated on a per annum basis and
interest hereunder or under the other Loan Documents shall be made by Agent or
Revolving Credit Agent, as appropriate, on the basis of a three hundred and
sixty (360) day year, in each case for the actual number of days occurring in
the period for which such interest and Fees are payable. The Base Rate shall be
determined each day based upon the Base Rate as in effect each day.
10
<PAGE>
Each determination by Agent or Revolving Credit Agent of an interest rate and
Fees hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(e) So long as any Event of Default shall have occurred and be
continuing, the Agent may (and, at the request of Requisite Lenders, Agent
shall) without notice increase the interest rate applicable to the Loans or
other Obligations by two percentage points (2%) per annum above the then highest
rate otherwise applicable hereunder (the "Default Rate"), payable on demand
------------
of Agent.
(f) Notwithstanding anything to the contrary set forth in this
Section 1.6, if, at any time until payment in full of all of the Obligations,
- -----------
the rate of interest payable hereunder by Borrower exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "Maximum Lawful
--------------
Rate"), then in such event and so long as the Maximum Lawful Rate would be so
- ----
exceeded, the rate of interest payable hereunder by Borrower shall be equal to
the Maximum Lawful Rate; provided, however, that if at any time thereafter the
--------
rate of interest payable by Borrower hereunder is less than the Maximum Lawful
Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful
Rate until such time as the total interest received by Agent, on behalf of
Lenders, from the making of advances hereunder to Borrower is equal to the total
interest which would have been received had the interest rate payable hereunder
by Borrower been (but for the operation of this paragraph) the interest rate
payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, the interest rate payable by Borrower hereunder shall be the rate of
interest otherwise provided in this Section 1.6, unless and until the rate of
-----------
interest again exceeds the Maximum Lawful Rate, in which event this paragraph
shall again apply. In no event shall the total interest received by any Lender
pursuant to the terms of this Agreement or any other Loan Document exceed the
amount which such Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof or thereof at the Maximum
Lawful Rate. All interest paid by, charged to or collected from Borrower
hereunder or under any other Loan Document shall, to the maximum extent
permitted by applicable law, be amortized, allocated and spread throughout the
full term of the Obligation on which it accrued. In the event the Maximum Lawful
Rate is calculated pursuant to this paragraph, such interest shall be calculated
at a daily rate equal to the Maximum Lawful Rate divided by the number of days
in the year in which such calculation is made. In the event that a court of
competent jurisdiction, notwithstanding the provisions of this Section 1.6(f),
--------------
shall make a final determination that a Lender has received interest hereunder
or under any of the Loan Documents from Borrower in excess of the Maximum Lawful
Rate, Agent shall (and/or shall direct Revolving Credit Agent to), to the extent
permitted by applicable law, promptly apply such excess first to any interest
due from Borrower and not yet paid hereunder, then to the outstanding principal
of the Obligations of Borrower, then to Fees and any other unpaid Obligations
owed by Borrower and thereafter shall refund any excess to Borrower or as a
court of competent jurisdiction may otherwise order.
(g) So long as no Default or Event of Default shall have occurred and
be continuing and subject to the additional conditions precedent set forth in
Section 2.2, Borrower shall have the option to (i) request that any Advance be
- -----------
made as a LIBOR Loan, (ii) convert at
11
<PAGE>
any time all or any part of outstanding Loans from Base Rate Loans to LIBOR
Loans, (iii) convert any LIBOR Loan to a Base Rate Loan, subject to payment of
Breakage Cost in accordance with Section 1.10 if such conversion is made prior
------------
to the expiration of the Interest Period, or (iv) continue all or any portion of
any Loan as a LIBOR Loan upon the expiration of the applicable Interest Period
and the succeeding Interest Period of that continued Loan shall commence on the
last day of the Interest Period of the Loan to be continued. Any Loan to be made
or continued as, or converted into, a LIBOR Loan, must be in a minimum amount of
$1,000,000 and integral multiples of $100,000 in excess of such amount. Any such
election must be made by 11:00 a.m. (New York time) on the fourth (4th) Business
Day prior to (1) the date of any proposed Advance which is to bear interest at
the LIBOR Rate, (2) the end of each Interest Period with respect to any LIBOR
Loans to be continued as such, or (3) the date on which Borrower wishes to
convert any Base Rate Loan to a LIBOR Loan. If no election to continue a LIBOR
Loan is received with respect to a LIBOR Loan by 11:00 a.m. (New York time) on
the fourth (4th) Business Day prior to the end of the Interest Period with
respect thereto (or if a Default or an Event of Default shall have occurred and
be continuing or the additional conditions set forth in Section 2.2 shall not
-----------
have been satisfied), such LIBOR Loan shall be converted to a Base Rate Loan at
the end of its Interest Period. Borrower must make any such election by notice
to Revolving Credit Agent, in the case of Revolving Credit Advances, and to
Agent, in the case of Term Loan Advances, by telecopy or overnight courier. In
the case of any conversion or continuation for Revolving Credit Advances, such
election must be made pursuant to a written notice (a "Notice of
---------
Conversion/Continuation for Revolving Credit Advances") in the form of Exhibit
- -----------------------------------------------------
H-1, and in the case of any conversion or continuation for Term Loan Advances,
such election must be made pursuant to a written notice (a "Notice of
---------
Conversion/Continuation for Term Loan Advances") in the form of Exhibit H-2. If
- ---------------------------------------------- -----------
Revolving Credit Agent shall determine, in the case of Revolving Credit
Advances, or Agent shall determine, in the case of Term Loan Advances (which
determination shall, absent manifest error, be final, conclusive and binding
upon all parties), that on any date for determining the Adjusted LIBOR Rate for
any Interest Period, by reason of any changes arising after the date of this
Agreement affecting the London interbank market or any Lender's or Bank's
position in such market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Adjusted LIBOR Rate, then, and in any such event, Revolving Credit Agent, in the
case of Revolving Credit Advances, and Agent, in the case of Term Loan Advances,
shall forthwith give notice (by telephone confirmed in writing) to Borrower of
such determination. Until Revolving Credit Agent or Agent, as the case may be,
notifies Borrower that the circumstances giving rise to the suspension described
herein no longer exist, the obligation of Lenders to make LIBOR Loans shall be
suspended, and such affected Loans then outstanding shall, at the end of the
then applicable Interest Period or at such earlier time as may be required by
Applicable Law, bear the same interest as Base Rate Loans.
1.7 Eligible Accounts. Based on the most recent Borrowing Base Certificate
-----------------
delivered by Borrower to Revolving Credit Agent and on other information
available to Revolving Credit Agent, Revolving Credit Agent shall in its sole
discretion determine which Accounts of Borrower shall be "Eligible Accounts" for
-----------------
purposes of this Agreement. Revolving Credit Agent reserves the right, at any
time and from time to time after the Closing Date, to adjust any such criteria,
to establish new criteria and to adjust advance rates with respect to Eligible
Accounts, in
12
<PAGE>
its sole discretion, subject to the approval of Requisite Lenders in the case of
adjustments, new criteria or changes in advance rates which have the effect of
making more credit available. Without limiting the generality of the foregoing,
no Account shall be an Eligible Account if:
(a) it arises in the ordinary course of Borrower's business from the
sale of goods or rendition of services, and is payable in Dollars;
(b) it arises out of a sale made by Borrower to a Subsidiary or an
Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower;
(c) it is due or unpaid more than 90 days after the original invoice
date;
(d) 50% or more of the Accounts from the Account Debtor are not
deemed Eligible Accounts hereunder;
(e) the total unpaid Accounts of the Account Debtor exceed 20% of the
net amount of all Eligible Accounts or exceeds a credit limit established by
Revolving Credit Agent for such Account Debtor, in each case, to the extent of
such excess;
(f) any covenant, representation or warranty contained in this
Agreement with respect to such Account has been breached;
(g) the Account Debtor is also Borrower's creditor or supplier, or
the Account Debtor has disputed liability with respect to such Account or the
Account otherwise is subject to any right of setoff, counterclaim, reserve or
chargeback, to the extent of such offset, counterclaim, disputed amount, reserve
or chargeback;
(h) it arises from a sale to an Account Debtor with its principal
office, assets or place of business outside the United States;
(i) it arises from a sale to the Account Debtor on a bill-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or any other
repurchase or return basis;
(j) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower assigns its right
to payment of such Account to Agent, in a manner satisfactory to Revolving
Credit Agent, so as to comply with the Assignment of Claims Act of 2940 (32
U.S.C. (S)3727 and 42 U.S.C. (S)25), or is a state, county or municipality, or a
political subdivision or agency thereof and Applicable Law disallows or
restricts an assignment of Accounts on which it is the Account Debtor;
(k) the Account is evidenced by chattel paper or an instrument that
has not been endorsed and delivered to Revolving Credit Agent (the parties
hereto agreeing that any such endorsement and delivery to Revolving Credit Agent
shall be for the purposes of perfection in such Collateral and shall be
delivered to Revolving Credit Agent as agent for and on behalf of Agent);
13
<PAGE>
(l) it is not owned by Borrower or is subject to any right, claim,
security interest or other interest of any other Person, other than Liens in
favor of Agent, on behalf of itself and Lenders;
(m) Agent, on behalf of itself and Lenders, does not have a first
priority perfected Lien therein;
(n) it arises from a sale in which the Account Debtor has not
received an invoice; or
(o) it represents a progress billing consisting of an invoice for
goods sold or used or services rendered pursuant to a contract under which the
Account Debtor's obligation to pay that invoice is subject to Borrower's
completion of further performance under such contract or is subject to the
equitable lien of a surety bond issuer.
1.8 Eligible Inventory. Based on the most recent Borrowing Base
------------------
Certificate delivered by Borrower to Revolving Credit Agent and on other
information available to Revolving Credit Agent, Revolving Credit Agent shall in
its sole discretion determine which Inventory of Borrower shall be "Eligible
--------
Inventory" for purposes of this Agreement. Revolving Credit Agent reserves the
- ---------
right, at any time and from time to time after the Closing Date, to adjust any
such criteria, to establish new criteria and to adjust advance rates with to
Eligible Inventory in its sole discretion, subject to the approval of Requisite
Lenders in the case of adjustments, or new criteria or changes in advance rates
which have the effect of making more credit available. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory unless:
(a) it is raw materials or finished goods;
(b) it is in good, new and saleable condition;
(c) it is not slow-moving, obsolete or unmerchantable;
(d) it meets all standards imposed by any Governmental Authority;
(e) it conforms in all respects to the warranties and representations
set forth in this Agreement;
(f) it is owned by Borrower and is at all times subject to Agent's
duly perfected, first priority security interest and no other Lien except a
Permitted Lien;
(g) it is in Borrower's possession and control, situated at a
location in compliance with the Agreement and is not in transit or outside the
continental United States;
14
<PAGE>
(h) it is not covered by a negotiable document of title, unless such
document has been delivered to Agent with all necessary endorsements, free and
clear of all Liens except those in favor of Agent and Lenders;
(i) it does not consist of goods which have been returned by the
buyer;
(j) it consists of goods held for sale or utilized in the ordinary
course of Borrower's business; and
(k) it is covered by casualty insurance acceptable to Agent and to
Revolving Credit Agent.
1.9 Cash Management Systems. On or prior to the Closing Date, Borrower
-----------------------
will establish and will maintain until the Termination Date, the cash management
systems described on Annex E (the "Cash Management Systems").
------- -----------------------
1.10 Fees.
----
(a) Borrower shall pay to GE Capital, individually, the Fees
specified in the Fee Letter, at the times specified for payment therein.
(b) If Borrower prepays all or any portion of a LIBOR Loan, Borrower
shall pay a breakage fee (the "Breakage Cost") payable to Agent or the Revolving
-------------
Credit Agent, as appropriate, for the benefit of the affected Lenders, in an
amount equal to the present value of all remaining scheduled interest payments
on the Loan prepaid. For purposes of this paragraph, the present value of each
scheduled interest payment shall be determined by discounting such scheduled
interest payment to the date the prepayment is made at the Prepayment Treasury
Rate (hereinafter defined) in effect on the date such prepayment is made plus
fifty (50) basis points. The term "Prepayment Treasury Rate", as used in this
paragraph, means with respect to each scheduled interest payment, the yield
which shall be imputed, by linear interpolation, from the current weekly yields
of those United States Treasury Notes having maturities as close as practicable
to the date of the prepayment of the Term Loan, as published in the most recent
Federal Reserve Statistical Release H.15 (519) or any successor publication
thereto. The Breakage Cost for any partial prepayments shall be determined in
the same manner as provided above, but such principal so prepaid shall,
notwithstanding anything to the contrary contained herein, be deemed (for
purposes of calculating the Breakage Cost) applied to the principal payments in
inverse order of maturity.
(c) As additional compensation for the Revolving Lenders, Borrower
agrees to pay to Revolving Credit Agent, for the ratable benefit of the
Revolving Lenders, in arrears, on the first Business Day of each month prior to
the Revolving Loan Commitment Termination Date and on the Revolving Loan
Commitment Termination Date, a fee for Borrower's non-use of available funds in
an amount equal to (i) prior to the first anniversary of the Closing Date,
three-quarters of one percent (.75%) per annum (calculated on the basis of a 360
day year for actual days elapsed) of the difference between (x) the Maximum
Amount (as it may be reduced from
15
<PAGE>
time to time) and (y) the average for the period of the daily closing balances
of the Revolving Loans and the Revolving Loan Letter of Credit Obligations
outstanding during the period for which the such fee is due.
(d) As additional compensation for the Lenders making Term Loan
Commitments hereunder, Borrower agrees to pay Agent, for the ratable benefit of
such Lenders, in arrears on the first Business Day of each month prior to the
Term Loan Commitment Termination Date and on the Term Loan Commitment
Termination Date, a fee for Borrower's non-use of available funds in an amount
equal to (i) prior to the first anniversary of the Closing Date, one percent
(1%) per annum, and (ii) thereafter, one-half of one percent (0.5%) per annum
(in each case, calculated on the basis of a 360 day year for actual days
elapsed) of the average for the period of the daily closing amounts of the
aggregate Term Loan Commitment (as it may be reduced from time to time) and the
Term Loan Letter of Credit Obligations during the period for which such fee is
due.
(e) If Borrower prepays all or any portion of any Term Loan or prepays the
Revolving Loan and terminates the Revolving Loan Commitment prior to the third
anniversary of the Closing Date, whether voluntarily or involuntarily and
whether before or after acceleration of the Obligations, Borrower shall pay to
Agent or Revolving Credit Agent, as applicable, for the benefit of Lenders as
liquidated damages and compensation for the costs of being prepared to make
funds available hereunder an amount (the "Prepayment Fee") equal to one percent
--------------
(1%) of (i) in the case of a prepayment of all of the outstanding Term Loan A
Advances or all of the Term Loan B Advances, the amount of the original
applicable Term Loan Commitment (less the amount of any previous partial
----
prepayment with respect to which a Prepayment Fee had been paid pursuant to
clause (ii) of this Section 1.10(e)), (ii) in the case of a partial prepayment
- ----------- ---------------
of the Term Loan A Advances or the Term Loan B Advances, the amount of such
prepayment, (iii) in the case of a voluntary reduction of the Revolving Credit
Commitment by Borrower pursuant to Section 1.5(b), the amount of such voluntary
--------------
reduction, or (iv) in the case of the termination of the Revolving Credit
Commitment, the amount of the original Revolving Loan Commitment.
Notwithstanding the foregoing, no prepayment fee shall be payable by Borrower
upon a mandatory prepayment made pursuant to Section 1.5(b); provided that the
-------------- --------
transaction giving rise to the applicable prepayment is expressly permitted
under Section 6.
---------
(f) On the Closing Date, Borrower shall pay to Agent, for the ratable
benefit of the Lenders, a documentation and amendment fee equal to $200,000.
(g) Borrower shall pay to Revolving Credit Agent an annual collateral
monitoring fee of $10,000, such annual fee to be due and payable on each
anniversary of the Closing Date.
1.11 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 11:00 a.m. (New York time) on the day when due in
lawful money of the United States of America in immediately available funds to
the appropriate Collection Account. For purposes of computing interest and Fees
and determining Borrowing Availability or Net Borrowing Availability as of any
date (a) all payments (including cash sweeps) consisting of
16
<PAGE>
cash, wire, or electronic transfers in immediately available funds shall be
deemed received on the day of deposit in the appropriate Collection Account
prior to 11:00 a.m. (New York time) and notice to Agent or Revolving Credit
Agent, as applicable, of such deposit and (b) all payments consisting of checks,
drafts, or similar non-cash items shall be deemed received upon receipt of good
funds therefor following deposit in the appropriate Collection Account (together
with notice to Agent or Revolving Credit Agent, as applicable, of such deposit)
prior to 11:00 a.m. (New York time). Payments received after 11:00 a.m. New York
time on any Business Day shall be deemed to have been received on the following
Business Day.
1.12 Application and Allocation of Payments. (a) So long as no Default or
--------------------------------------
Event of Default shall have occurred and be continuing, and regardless of
whether Agent or Revolving Credit Agent receives such payment (each of whom
hereby agree to transfer any such payment or the appropriate balance thereof, to
the other for application in accordance with this Section), (i) payments
consisting of proceeds of Accounts received in the ordinary course of business
shall be applied to the Revolving Loan; (ii) payments matching specific
scheduled payments then due shall be applied to those scheduled payments; (iii)
voluntary prepayments shall be applied as determined by Borrower, subject to the
provisions of Section 1.5(a); and (iv) mandatory prepayments shall be applied as
--------------
set forth in Section 1.5(c). All payments and prepayments applied to the
---------------
Revolving Loan, the Term Loan A Advances or the Term Loan B Advances shall be
applied ratably to the portion thereof held by each Lender. As to each other
payment, and as to all payments made when a Default or Event of Default shall
have occurred and be continuing, or following the Revolving Loan Commitment
Termination Date or Term Loan Commitment Termination Date, Borrower irrevocably
waives the right to direct the application of any and all payments at any time
or times hereafter received from or on behalf of Borrower, and Borrower
irrevocably agrees that Agent shall have the continuing exclusive right to apply
(or to direct Revolving Credit Agent to apply) any and all such payments against
the then due and payable Obligations of Borrower and (to the extent there are no
then due and payable Obligations) in repayment of the Loans as Agent may deem
advisable notwithstanding any previous entry by Agent or Revolving Credit Agent
in any Loan Account or any other books and records. In the absence of a
specific determination by Agent, with respect thereto, the same shall be applied
in the following order: (i) then due and payable Fees and expenses owing to the
Agent; (ii) then due and payable Fees and expenses of the Lenders; (iii) then
due and payable interest payments on the Loan, ratably in proportion to the
principal owed to each Lender; (iv) Obligations to the Lenders other than Fees,
expenses, interest and principal payments; and (v) then due and payable
principal payments on the Loan, ratably in proportion to the principal balance
owed to each Lender.
(b) Revolving Credit Agent is authorized to, and at its sole
election, may, or at the direction of Agent, shall, charge to the Revolving Loan
balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges,
costs (including insurance premiums in accordance with Section 5.5(a)) and
--------------
interest and principal, other than principal of the Revolving Loan, owing by
Borrower under this Agreement or any of the other Loan Documents if and to the
extent Borrower fails to promptly pay any such amounts as and when due, even if
such charges would cause the aggregate balance of the Revolving Loan to exceed
Borrowing Availability. At
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Revolving Credit Agent's option and to the extent permitted by law, any charges
so made shall constitute part of the Revolving Loan hereunder.
1.13 Loan Account and Accounting. Each of Agent and Revolving Credit Agent
---------------------------
shall maintain a loan account (each, a "Loan Account") on its books to record:
------------
all Revolving Credit Advances (in the case of the Revolving Credit Agent) and
all Term Loan Advances (in the case of the Agent), all payments made to it by
Borrower, and all other debits and credits as provided in this Agreement with
respect to the Loans or any other Obligations. All entries in a Loan Account
shall be made in accordance with Agent's or Revolving Credit Agent's, as the
case may be, customary accounting practices as in effect from time to time. The
balance in the Loan Accounts, as recorded on Agent's and Revolving Credit
Agent's most recent printout or other written statement, shall, absent manifest
error, be presumptive evidence of the amounts due and owing to Agent, Revolving
Credit Agent and Lenders by Borrower; provided that any failure to so record or
--------
any error in so recording shall not limit or otherwise affect Borrower's duty to
pay the Obligations. Each of Agent and Revolving Credit Agent shall render to
Borrower, and to each other, a monthly accounting of transactions with respect
to the Loans setting forth the balance of the applicable Loan Account. Unless
Borrower notifies Agent or Revolving Credit Agent, as applicable, in writing of
any objection to any such accounting (specifically describing the basis for such
objection), within thirty (30) days after the date thereof, each and every such
accounting shall (absent manifest error) be deemed final, binding and conclusive
upon Borrower in all respects as to all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrower. Agent's or Revolving Credit Agent's, as applicable, determination,
based upon the facts available, of any disputed item shall (absent manifest
error) be final, binding and conclusive on Borrower. Notwithstanding any
provision herein contained to the contrary, any Lender may elect (which election
may be revoked) to dispense with the issuance of Notes to that Lender and may
rely on the Loan Accounts as evidence of the amount of Obligations from time to
time owing to it.
1.14 Indemnity.
---------
(a) BORROWER SHALL INDEMNIFY AND HOLD EACH OF AGENT, REVOLVING
CREDIT AGENT, LENDERS AND THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS AND AGENTS (EACH, AN "INDEMNIFIED PERSON"), HARMLESS FROM
------------------
AND AGAINST ANY AND ALL SUITS, ACTIONS, COSTS, FINES, DEFICIENCIES, PENALTIES,
PROCEEDINGS, CLAIMS, DAMAGES, LOSSES, LIABILITIES AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS AND OTHER COSTS OF INVESTIGATIONS
OR DEFENSE, INCLUDING THOSE INCURRED UPON ANY APPEAL) (EACH, A "CLAIM") WHICH
-----
MAY BE INSTITUTED OR ASSERTED AGAINST OR INCURRED BY SUCH INDEMNIFIED PERSON AS
THE RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THEREUNDER, INCLUDING ANY AND ALL
ENVIRONMENTAL LIABILITIES AND COSTS, PROVIDED, THAT BORROWER SHALL NOT BE LIABLE
--------
FOR ANY INDEMNIFICATION TO SUCH
18
<PAGE>
INDEMNIFIED PERSON WITH RESPECT TO ANY PORTION OF ANY SUCH CLAIM WHICH RESULTS
SOLELY FROM SUCH INDEMNIFIED PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
DETERMINED BY A FINAL JUDGMENT OF A COURT OF COMPETENT JURISDICTION. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THE LOAN DOCUMENTS OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) In any suit proceeding or action brought by Agent, Revolving
Credit Agent or a Lender relating to any Account, Chattel Paper, Contract,
General Intangible, Instrument, Equipment or Document for any sum owing
thereunder, or to enforce any provision of any Account, Chattel Paper, Contract,
General Intangible, Instrument or Document, Borrower shall save, indemnify and
keep Agent, Revolving Credit Agent and Lenders harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder
arising out of a breach by Borrower of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to, or in
favor of, such obligor or its successors from Borrower, all such obligations of
Borrower shall be and remain enforceable against, and only against, Borrower and
shall not be enforceable against Agent, Revolving Credit Agent or any Lender.
(c) Borrower hereby acknowledges and agrees that neither Agent,
Revolving Credit Agent nor any Lender (as of the date hereof) (i) is now or ever
has been in control of any of the Subject Property or the affairs of any Loan
Party, or (ii) has the capacity through the provisions of the Loan Documents to
influence conduct with respect to the ownership, operation or management of any
of the Subject Property.
1.15 Access. Borrower shall, and shall cause each of its Subsidiaries to:
------
(i) provide access during normal business hours to Agent and to Revolving Credit
Agent and any of its officers, employees and agents, as frequently as Agent and
Revolving Credit Agent determine to be appropriate, upon reasonable advance
notice (unless a Default shall have occurred and be continuing, in which event
no notice shall be required and Agent and Revolving Credit Agent shall have
access at any and all times), to the properties, facilities and managers (whom
Borrower shall instruct and authorize to cooperate with and provide requested
information to Agent and Revolving Credit Agent) of Borrower or any of its
Subsidiaries; (ii) permit Agent and Revolving Credit Agent and any of its
officers, employees and agents to inspect, audit and make extracts from all of
Borrower's records, files and books of account; and (iii) permit Agent and
Revolving Credit Agent, to conduct audits to inspect, review and evaluate the
Collateral, and Borrower agrees to render to Agent and to Revolving Credit Agent
at Borrower's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. If a Default or Event of Default
shall have occurred and be continuing or if access is necessary to preserve or
protect the Collateral as determined by Agent and Revolving Credit Agent,
Borrower shall
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<PAGE>
provide such access to Agent and Revolving Credit Agent and to each Lender at
all times and without advance notice. Furthermore, so long as any Event of
Default shall have occurred and be continuing, Borrower shall provide Agent and
Revolving Credit Agent and each Lender with access to their suppliers and
customers. Borrower shall, and shall cause each of its Subsidiaries to, make
available to Agent and to Revolving Credit Agent and its counsel, as quickly as
practicable under the circumstances, originals or copies of all books, records,
board minutes, contracts, insurance policies, environmental audits, business
plans, files, financial statements (actual and pro forma), filings with federal,
state and local regulatory agencies, and other instruments and documents which
Agent and Revolving Credit Agent may request. Borrower shall deliver any
document or instrument reasonably necessary for Agent and Revolving Credit
Agent, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for Borrower, and shall maintain
duplicate records or supporting documentation on media, including, without
limitation, computer tapes and discs owned by Borrower. Borrower shall instruct
its certified public accountants and its banking and other financial
institutions to make available to Agent and Revolving Credit Agent such
information and records as Agent may reasonably request. Agent and Revolving
Credit Agent will give Lenders at least ten (10) days' prior written notice of
regularly scheduled audits. Representatives of other Lenders may accompany
Agent's and Revolving Credit Agent's representatives on regularly scheduled
audits at no charge to Borrower.
1.16 Taxes.
-----
(a) Any and all payments by or on behalf of Borrower hereunder or
under the Notes, or any other Loan Document, shall be made, in accordance with
this Section 1.16, free and clear of and without deduction for any and all
------------
present or future Taxes. If Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note or any
other Loan Document to the Lender, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 1.16) Agent, Revolving
-------------
Credit Agent or Lenders, as applicable, receive an amount equal to the sum they
would have received had no such deductions been made, (ii) Borrower shall make
such deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
-----------
(c) Borrower shall indemnify and pay, within ten (10) days of demand
therefor, Agent, Revolving Credit Agent and each Lender for the full amount of
Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 1.16) paid by
-------------
Agent, Revolving Credit Agent or such Lender, as appropriate, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted.
20
<PAGE>
(d) Within thirty (30) days after the date of any such payment of
Taxes or Other Taxes, Borrower shall furnish to Agent, at its address referred
to in Section 11.11 the original or a certified copy of a receipt evidencing
-------------
payment thereof.
(e) If Agent, Revolving Credit Agent or any Lender subsequently
receives from a taxing authority a refund of any Tax or Other Tax previously
paid by Borrower and for which Borrower has indemnified Agent, Revolving Credit
Agent or any Lender pursuant to this Section 1.16, Agent, Revolving Credit
------------
Agent or such Lender, as applicable, shall within thirty (30) days after receipt
of such refund, and to the extent permitted by applicable law, pay to Borrower
the net amount of any such refund after deducting taxes and expenses
attributable thereto.
(f) Each Lender organized under the laws of a jurisdiction outside
the United States (a "Foreign Lender") as to which payments to be made under
--------------
this Agreement or under the Notes are exempt from United States withholding tax
under an applicable statute or tax treaty shall provide to Borrower and Agent a
properly completed and executed IRS Form 4224 or Form 1001 or other applicable
form, certificate or document prescribed by the IRS or the United States
certifying as to such Foreign Lender's entitlement to such exemption (a
"Certificate of Exemption"). Any foreign Person that seeks to become a Lender
------------------------
under this Agreement shall provide a Certificate of Exemption to Borrower and
Agent prior to becoming a Lender hereunder. No foreign Person may become a
Lender hereunder if such Person is unable to deliver a Certificate of Exemption.
1.17 Additional Provisions.
---------------------
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
requirement that reduces the rate of return, the amount of that reduction and
showing in reasonable detail the basis of the computation thereof submitted by
such Lender to Borrower and to Agent shall, absent manifest error, be final,
conclusive and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force or law), in each case
adopted after the Closing Date, there shall be any increase in the cost
21
<PAGE>
to any Lender of agreeing to make or making, funding or maintaining any Loan,
then Borrower shall from time to time, upon demand by such Lender (with a copy
of such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the law, regulation or request that results in such increased
cost, the amount of such increased cost and showing in reasonable detail the
basis of the computation thereof, submitted to Borrower and to Agent by such
Lender, shall be conclusive and binding on Borrower for all purposes, absent
manifest error. Each Lender agrees that, as promptly as practicable after it
becomes aware of any circumstances referred to above which would result in any
such increased cost, the affected Lender shall, to the extent not inconsistent
with such Lender's internal policies of general application, use reasonable
commercial efforts to minimize costs and expenses incurred by it and payable to
it by Borrower pursuant to this Section 1.17(b).
---------------
(c) Notwithstanding anything to contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing by Borrower to such Lender,
together with interest accrued thereon, unless Borrower, within five (5)
------
Business Days after the delivery of such notice and demand, converts all such
Loans into a Loan bearing interest based on the Base Rate.
(d) In order to induce each Lender to fund and maintain its share of
any LIBOR Loan on the terms provided herein, and in consideration of each
Lender's entering into funding arrangements from time to time in contemplation
thereof, Borrower agrees that if any LIBOR Loan is repaid or prepaid in full or
in part on any day other than the last day of the Interest Period therefor (if
such repayment or prepayment is voluntarily made by Borrower), Borrower shall
pay to any Lender, upon the request of such Lender, such amount or amounts as
shall compensate such Lender for any loss, cost or expense incurred by such
Lender (as determined by such Lender in its sole judgment) by reason of the
liquidation or re-employment of funds acquired or committed to be acquired by
such Lender to fund or maintain its share of such LIBOR Loan, pursuant to such
Lender's customary funding arrangements. The amount of any such loss or expense
shall include the excess, if any, of (i) such Lender's cost or deemed cost of
obtaining funding for the amount necessary to fund or maintain its share of such
LIBOR Loan for the Interest Period applicable thereto over (ii) the return such
Lender will receive on its re-employment of such funds, each as determined by
such Lender in its sole judgment. Without limiting the generality of the
foregoing, such Lender may compute such loss or expense on the basis of such
funds having been borrowed by such Lender at a rate equal to the interest rate
on United States Treasury bills or notes with a maturity that most closely
approximates the end of the relevant Interest Period as quoted by Telerate News
Service (page 5) at the close of business
22
<PAGE>
on the first (1st) day of the Interest Period in respect of such LIBOR Loan, and
on the reinvestment by such Lender of such funds in United States Treasury bills
or notes with a maturity that most closely approximates the end of the relevant
Interest Period as quoted by Telerate News Service (page 5) at the close of
business on the date of repayment or prepayment of such LIBOR Loan (or as such
United States Treasury bill or note rates are quoted by such other nationally-
recognized quote service as may be specified by Agent to the Borrower from time
to time). Each such request shall be accompanied by a certificate of the
requesting Lender setting forth in reasonable detail the basis for computing the
amount of such loss or expense, and each such certificate shall, in the absence
of manifest error, be conclusive.
(e) The calculation of all amounts payable under this Agreement with
respect to any LIBOR Loan shall be made as though each Lender had actually
funded its share of such LIBOR Loan through the purchase of deposits in the
relevant market and in an amount equal to the amount of its share of such LIBOR
Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such loan from an offshore office of such Lender to a
domestic office of such Lender in the United States of America; provided,
--------
however, that each Lender may fund its share of each of the LIBOR Loans in any
- -------
manner it sees fit and the foregoing assumptions shall be used only for
calculation of amounts which may be payable by Borrower under this Agreement
with respect thereto.
1.18 Security Interest in the Collateral.
-----------------------------------
(a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, and to induce Agent, Revolving Credit
Agent and Lenders to enter into this Agreement and to make the Term Loan
(including, without limitation, all Advances made with respect to Term Loan
Letter of Credit Obligations) and the Revolving Credit Advances available to the
Borrower, Borrower hereby grants to Agent, for itself, and for Lenders, and for
Duetsche, in its capacity as Revolving Credit Agent, a security interest in all
of Borrower's right, title and interest in, to and under the following, whether
now owned by or owing to, or hereafter acquired by or arising in favor of
Borrower (including, without limitation, under any trade names, styles or
divisions thereof), and whether owned, leased or consigned by or to Borrower,
and regardless of where located:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all General Intangibles;
(vi) all Instruments;
23
<PAGE>
(vii) all Inventory;
(viii) all Equipment;
(ix) all Intellectual Property;
(x) all Investment Property;
(xi) all money, cash or any Cash Equivalents of Borrower;
(xii) all other Goods and interests in property of any kind,
nature or description whatsoever, whether tangible or intangible, whether real
or personal, and whether now or hereafter owned or existing, leased, consigned
by or to, or acquired by, Borrower and wherever located; and
(xiii) to the extent not otherwise included, all Proceeds of
any of the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of, each of the foregoing.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Lenders as
aforesaid, Borrower hereby grants to Agent, for itself and Lenders, a security
interest in all property of Borrower held by Agent including, without
limitation, all property of every description now or hereafter in the possession
or custody of, or in transit to Agent for any purpose, including safekeeping,
collection or pledge, for the account of Borrower, or as to which Borrower may
have any right or power.
(c) The security interests in the Collateral described above are
given in renewal, extension and modification of the security interests
previously granted in the Collateral to Agent, for the benefit of Lenders, by
Borrower and to Deutsche by Borrower (including, without limitation, the
security interests granted pursuant to the Original Agreement, the First
Restated Agreement, the Second Restated Agreement and the Deutsche Loan
Agreement); such existing security interests in the Collateral described above
are not extinguished hereby; and the making, perfection and priority of such
existing security interests in the Collateral described above shall continue in
full force and effect.
(d) Borrower agrees that sums owing to Revolving Credit Agent
pursuant to this Agreement or any other Loan Document are secured by the
Collateral and that Revolving Credit Lender shall be deemed to be a "Lender" for
purposes of financing statements of record in favor of Agent regarding the
Collateral.
1.19. Rights of Lender, Limitations on Obligations of Lender.
------------------------------------------------------
(a) It is expressly agreed by Borrower that, anything herein to the
contrary notwithstanding, Borrower shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed
24
<PAGE>
by it thereunder and Agent shall have no obligation or liability under any
Contract or License by reason of or arising out of this Agreement or the
granting herein of a security interest herein or the receipt by Agent of any
payment relating to any Contract or License pursuant hereto, nor shall Agent be
required or obligated in any manner to perform or fulfill any of the obligations
of Borrower under or pursuant to any Contract or License, or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any Contract or License, or to present or file any claim, or to take any action
to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
(b) Upon direction by Requisite Lenders, Revolving Credit Agent may,
after the occurrence and during the continuation of any Event of Default and
without prior notice to Borrower, notify Account Debtors, parties to the
Contracts, and obligors in respect of Instruments that the Accounts and the
right, title and interest of Borrower in and under such Contracts and
Instruments have been assigned to Agent, for itself, and Lenders, and that
payments shall be made directly to Revolving Credit Agent for the benefit of the
Lenders. Upon the request of Revolving Credit Agent, Borrower shall so notify
such Account Debtors, parties to Contracts, and obligors in respect of
Instruments. Upon direction by the Requisite Lenders, Revolving Credit Agent may
notify Account Debtors in respect of Chattel Paper that the right, title and
interest of Borrower in and under such Chattel Paper have been assigned to
Agent, for itself and Lenders, and that payments shall be made directly to
Agent.
(c) Revolving Credit Agent shall have the right from time to time to
make test verifications of the Accounts and physical verifications, appraisals
and examinations of the Inventory and other Collateral in any manner and through
any medium that it considers advisable, and Borrower agrees to furnish all such
assistance and information as Revolving Credit Agent may require in connection
therewith. Revolving Credit Agent may at any time in Revolving Credit Agent's
own name or in the name of Borrower communicate with Account Debtors, parties to
Contracts and obligors in respect of Instruments to verify with such Persons, to
Revolving Credit Agent's satisfaction, the existence, amount and terms of any
Accounts, Contracts, Instruments or Chattel Paper. Upon the occurrence and
continuation of any Event of Default, Borrower, at its own expense, shall cause
the certified independent public accountant then engaged by Borrower, to prepare
and deliver to Revolving Credit Agent at any time and from time to time promptly
upon Revolving Credit Agent's request the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) a test verification of such Accounts as Revolving Credit
Agent may request. Borrower, at its own expense, shall cause its certified
independent public accountants to deliver to Revolving Credit Agent the results
of any physical verification of all or any portion of its Inventory made or
observed by such accountants when and if such verification is conducted.
1.20 Single Loan. All Advances to Borrower and all of the other
-----------
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of that Borrower secured by
all of the Collateral until all Obligations have been indefeasibly paid in full
and the Lenders have no further obligation to make any further Advances.
25
<PAGE>
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Advance. Notwithstanding any other provision
---------------------------------
of this Agreement and without affecting in any manner the rights of Agent,
Revolving Credit Agent and Lenders hereunder, Borrower shall have no rights
under this Agreement (but shall have all applicable obligations hereunder), and
Lenders shall not be obligated to make any Loan or incur any Letter of Credit
Obligations or to take, fulfill, or perform any other action hereunder, until
the following conditions have been fulfilled to the satisfaction of Agent and
Revolving Credit Agent.
(a) This Agreement or counterparts hereof shall have been duly
executed by, and delivered to, Borrower, Agent, Revolving Credit Agent and
Lenders;
(b) Revolving Credit Agent and Agent shall have received all the Loan
Documents and such other documents, instruments, certificates, opinions and
agreements as Agent shall request in connection with the transactions
contemplated by this Agreement, including without limitation all documents,
instruments, agreements and other materials listed in the Schedule of Documents
each in form and substance satisfactory to Agent and Revolving Credit Agent.
(c) Revolving Credit Agent and Agent shall have received evidence
satisfactory to Agent and Revolving Credit Agent that Borrower has obtained
consents and acknowledgments of all Persons whose consents and acknowledgments
may be required, including, but not limited to, all requisite Governmental
Authorities, to the terms and to the execution and delivery, of this Agreement
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby;
(d) Agent shall have received evidence satisfactory to it that the
insurance policies provided for in Section 5.5 and Annex D are in full force and
----------- -------
effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements, as appropriate, in favor of Agent,
for itself and Lenders, and in form and substance satisfactory to Agent;
(e) Borrower shall have paid all Fees, costs, and expenses of closing
(including fees and expenses of consultants and counsel to Agent, Revolving
Credit Agent and Lenders presented as of the Closing Date);
(f) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or any of the other Loan Documents or the consummation of the
transactions contemplated hereby and thereby and which, in Agent's sole
judgment, would make it inadvisable to consummate the transactions contemplated
by this Agreement or any of the other Loan Documents;
26
<PAGE>
(g) Revolving Credit Agent and Agent, in their sole judgment, shall
not have determined that (i) Borrower shall have made any Restricted Payment;
(ii) any material increase in liabilities, liquidated or contingent, of Borrower
or Holdings, or material decrease in the assets of Borrower or Holdings, shall
have occurred since their respective last audited financial statements; (iii)
any Material Adverse Effect shall have occurred since Borrower's last certified
and audited financial statements; (iv) any material adverse effect on the
industry of Borrower shall have occurred; or (v) any change in loan syndication,
financial or capital markets conditions generally that would materially impair
the ability of Agent to syndicate the Loans;
(h) There exists no default or event of default under any of the
Subordinated Notes or the Senior Notes (or the Indenture pursuant to which they
were issued);
(i) Revolving Credit Agent and Agent shall be satisfied, in their
sole judgment, with the corporate, capital, tax, legal and management structure
of each Loan Party, and shall be satisfied, in its sole judgment exercised
reasonably, with the nature and status of all contractual obligations,
securities, labor, tax, ERISA, employee benefit, environmental, health and
safety matters, in each case, involving or affecting any Loan Party;
(j) Revolving Credit Agent and Agent shall have received a copy of
the Stock Purchase Agreement by and among Borrower and David P. Bornhoeft (the
"Columbia Stock Purchase Agreement") duly executed by the parties thereto and in
---------------------------------
form and substance satisfactory to Agent and Revolving Credit Agent;
(k) Revolving Credit Agent and Agent shall have received a copy of
documents evidencing the consummation on the date hereof of the merger of
Columbia Graphics Corporation into Borrower (the "Merger"), duly executed and in
------
form and substance satisfactory to Agent and Revolving Credit Agent;
(l) Revolving Credit Agent and Agent shall have received all
documents, instruments and other materials as Agent or Revolving Credit Agent
may require to evidence, perfect and establish the priority of its Liens on all
Collateral acquired by Borrower in connection with the Columbia Acquisition,
including without limitation UCC-1 Financing Statements, lien searches, and a
Collateral Assignment of Lease, all in form, scope and substance satisfactory to
Agent and Revolving Credit Agent;
(m) Revolving Credit Agent and Agent shall have received all
necessary landlord consents for each leased location to be acquired by Borrower
in connection with the acquisition of Columbia Graphics Corporation ("Columbia
--------
Acquisition"), in form and substance satisfactory to Agent and Revolving Credit
- -----------
Agent;
(n) Revolving Credit Agent and Agent shall have received a letter, in
form and substance satisfactory to Agent and Revolving Credit Agent, authorizing
reliance by Agent, Revolving Credit Agent, and Lenders on the legal opinion of
counsel to the sellers in the Columbia Acquisition;
27
<PAGE>
(o) Revolving Credit Agent and Agent shall have received a duly
executed Collateral Assignment of Stock Purchase Agreement dated the date hereof
by and between Agent, Revolving Credit Agent, and Borrower, and the consent of
the sellers thereto, in form and substance satisfactory to Agent and Revolving
Credit Agent;
(p) Revolving Credit Agent and Agent shall have received such duly
executed consents to the Columbia Acquisition and the other transactions
contemplated hereby as Agent and Revolving Credit Agent shall deem necessary,
all in form and substance satisfactory to Agent and Revolving Credit Agent;
(q) Revolving Credit Agent and Agent shall have received duly
executed payoff letters and UCC-3 Termination Statements from such other Persons
as Agent and Revolving Credit Agent shall deem necessary, all in form and
substance satisfactory to Agent and Revolving Credit Agent;
(r) Revolving Credit Agent and Agent shall have received evidence
that the assets acquired pursuant to the Columbia Acquisition are insured as
required by the Agreement, and additional insured and loss payee endorsements
corresponding to such policies in favor of Agent and in form and substance
satisfactory to Agent and Revolving Credit Agent;
(s) after giving effect to the Columbia Acquisition, the aggregate
amount of the Obligations and the Liens securing such Obligations shall
constitute "Permitted Indebtedness" and "Permitted Liens" (as such terms are
defined in the Senior Notes or the Indenture, pursuant to which they were
issued), and Borrower shall have delivered to Agent and Revolving Credit Agent a
duly executed certificate, in form and substance satisfactory to Agent and
Revolving Credit Agent, demonstrating same;
(t) Revolving Credit Agent and Agent shall have received such
documents, instruments and information relating to the financing of the Columbia
Acquisition as Agent or Revolving Credit Agent may request;
(u) Revolving Credit Agent and Agent shall have received such
additional documents, instruments and information as Agent or Revolving Credit
Agent or their respective legal counsel may request;
(v) Agent and Revolving Credit Agent shall be satisfied, in their
sole judgment, that each of (i) the Columbia Stock Purchase, and (ii) the Merger
shall have been consummated on the date hereof pursuant to documents in form and
substance satisfactory to Agent and Revolving Credit Agent;
(w) Agent and Revolving Credit Agent shall have received all
documents, instruments, certificates and agreements, and evidence of all such
matters as Agent and Revolving Credit Agent shall request in connection with the
Columbia Acquisition; and Agent and Revolving Credit Agent and their respective
counsel shall have conducted all such due
28
<PAGE>
diligence reviews, audits and investigations as they shall deem necessary and
appropriate in connection therewith and Agent and Revolving Credit Agent shall
be satisfied, in their sole discretion, with all the foregoing; and
(x) Agent and Revolving Credit Agent shall be satisfied, in their
sole judgment, that all environmental issues and matters related to the Columbia
Acquisition have been resolved.
2.2 Further Conditions to each Advance. It shall be a further condition to
----------------------------------
the funding of the initial Advance and each subsequent Advance, to the
incurrence of any Letter of Credit Obligation and to the continuation of any
Loan as a LIBOR Loan or the conversion of a Base Rate Loan to a LIBOR Loan, that
the following statements shall be true on the date of each such funding or
continuation or conversion, as the case may be:
(a) Each Loan Party's representations and warranties contained herein
or in any of the Loan Documents shall be true and correct on and as of such date
and the Closing Date as though made on or incurred on and as of such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date and except for changes therein permitted or contemplated by
this Agreement.
(b) No event shall have occurred and be continuing, or would result
from such funding, incurrence or continuation, which constitutes a Default.
(c) No event or circumstance having a Material Adverse Effect shall
have occurred since the date hereof.
(d) After giving effect to any Advance (or the incurrence of any
Letter of Credit Obligations), the aggregate amount of the Obligations, and the
Liens securing such Obligations, shall constitute "Permitted Indebtedness" (or
shall not otherwise violate the prohibition on Indebtedness as provided in the
Senior Note) and "Permitted Liens" (as such terms are defined in the Senior
Notes or the Indenture pursuant to which they were issued), respectively, and
Borrower shall have delivered to Agent a duly executed, completed certificate
substantially in the form of Exhibit C demonstrating same.
---------
(e) With respect to each Term Loan Advance or any Revolving Credit
Advance financing an Eligible Acquisition, Agent (in each event) and Revolving
Credit Agent (in the event a Revolving Credit Advance is involved in the
financing), in its respective sole discretion, shall have determined that the
proposed acquisition constitutes an Eligible Acquisition and Agent (in each
event) and Revolving Credit Agent (in the event a Revolving Credit Advance is
involved in the financing) shall have received all documents, instruments,
certificates and agreements, and evidence of all such matters, as Agent (in each
event) and Revolving Credit Agent (in the event a Revolving Credit Advance is
involved in the financing) or any Lender shall request in connection with the
applicable Eligible Acquisition (including, without limitation, those provided
to Agent and Revolving Credit Agent in connection with the Columbia
Acquisition); and Agent and Agent's counsel (and Revolving Credit Agent and
29
<PAGE>
Revolving Credit Agent's counsel, in the event a Revolving Credit Advance is
involved in the financing) shall have conducted all such due diligence reviews,
audits and investigations as they shall deem necessary or appropriate in
connection therewith and Agent and if applicable, Revolving Credit Agent, shall
be satisfied, in its sole discretion, with all of the foregoing; Agent (in all
events) and Revolving Credit Agent (in the event a Revolving Credit Advance is
involved in the financing) shall have received and approved such documentation
relevant to an Eligible Acquisition as shall be required by Agent (in all
events) and Revolving Credit Agent (in the event a Revolving Credit Advance is
involved in the financing of the Eligible Acquisition) including, without
limitation, documentation similar to the documentation described above in
Section 2.1(j) - (r).
- --------------------
(f) After giving effect to any Revolving Credit Advance (or the
incurrence of any Revolving Loan Letter of Credit Obligations), the outstanding
principal amount of the Revolving Loan shall not exceed the lesser of the
Borrowing Base and the Maximum Amount.
The request and acceptance by Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as a LIBOR Loan, as the case may be, shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by Borrower that the conditions in this Section 2.2 have been
-----------
satisfied and (ii) a confirmation by Borrower of the granting and continuance of
the Agent's Liens pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Agent, Revolving Credit Agent and Lenders to enter into this
Agreement and to make the Loans, Borrower represents and warrants to Agent,
Revolving Credit Agent and each Lender (each and all of which representations
and warranties shall survive the execution and delivery of this Agreement) that:
3.1 Corporate Existence; Compliance with Law. Each Loan Party (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business
and is in good standing in each other jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification; (ii) has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted; (iii) has all licenses, permits, consents or approvals
from or by, and has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (iv) is in compliance with its certificate or
articles of incorporation and by-laws; and (v) is in compliance in all material
respects with all applicable provisions of law.
3.2 Executive Offices; Corporate or Other Names; FEIN. The current
-------------------------------------------------
locations of each Loan Party's executive offices and principal place of business
is set forth in Schedule 3.2, and, except as set forth on Schedule 3.2, such
------------ ------------
location has not changed during the preceding
30
<PAGE>
twelve months. During the prior five (5) years, except as set forth on Schedule
--------
3.2, no Loan Party has been known as or used any corporate, fictitious or trade
- ---
name other than the names of the Loan Parties set forth on Schedule 3.2. In
------------
addition, Schedule 3.2 lists the federal employer identification number of each
------------
Loan Party.
3.3 Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Loan Party of the Loan Documents and
all other instruments and documents to be delivered by such Loan Party hereunder
and thereunder to the extent it is a party thereto and the creation of all Liens
provided for herein and therein: (i) are within such Loan Party's corporate
power; (ii) have been duly authorized by all necessary corporate and shareholder
action; (iii) are not in contravention of any provision of such Loan Party's
certificates or articles of incorporation or by-laws or other organizational
documents; (iv) will not violate any law or regulation, or any order or decree
of any court or governmental instrumentality; (v) will not conflict with or
result in the breach or termination of, constitute a default under or accelerate
any performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any Loan Party is a party or by which any
Loan Party or any of its property is bound; (vi) will not result in the creation
or imposition of any Lien upon any of the property of any Loan Party other than
those in favor of Agent, on behalf of itself and Lenders, all pursuant to the
Loan Documents; and (vii) do not require the consent or approval of any
Governmental Authority or any other Person, except those referred to in Section
-------
2.1(c), all of which will have been duly obtained, made or complied with prior
- ------
to the Closing Date and which are in full force and effect. At or prior to the
Closing Date, each of the Loan Documents shall have been duly executed and
delivered for the benefit of or on behalf of each Loan Party which is a party
thereto and each shall then constitute a legal, valid and binding obligation of
such Loan Party to the extent it is a party thereto, enforceable against such
Loan Party in accordance with its terms.
3.4 Financial Statements and Projections. Borrower has delivered the
------------------------------------
financial statements and Projections identified on Schedule 3.4, and each such
------------
financial statement and Projection complies with the description thereof
contained on Schedule 3.4.
------------
3.5 Material Adverse Change. As of the date hereof, no Loan Party has any
-----------------------
material obligations, contingent liabilities, or liabilities for Charges, long-
term leases or unusual forward or long-term commitments which are not reflected
in the audited consolidated December 31, 1997 balance sheet of Holdings. As of
the date hereof, there has been no material deviation from the Projections
provided to Agent. Except as otherwise permitted hereunder or as set forth on
Schedule 3.5, no dividends, advances or other distributions have been declared,
- ------------
paid or made upon any Stock of Borrower and, since December 31, 1997, no shares
of Stock of Borrower have been, or are now required to be, redeemed, retired,
purchased or otherwise acquired for value by Borrower. Since December 31, 1997,
no event has occurred which would result in a Material Adverse Effect.
3.6 Ownership of Property; Liens. Except as described on Schedule 3.6, the
---------------------------- ------------
real estate listed on Schedule 3.6 constitutes all of the real property owned,
------------
leased, or used in its business by the Loan Parties. Each Loan Party holds (i)
good and marketable fee simple title to
31
<PAGE>
all of its real estate described on Schedule 3.6, (ii) valid and marketable
------------
leasehold interests in all of such Loan Party's Leases (both as lessor and
lessee, sublessee or assignee) described on Schedule 3.6 and (iii) good and
------------
marketable title to, or valid leasehold interests in, all of its other
properties and assets. None of the properties and assets of any Loan Party are
subject to any Liens, except (x) Permitted Encumbrances and Liens set forth on
Schedule 6.7 and (y) from and after the Closing Date, the Lien in favor of
- ------------
Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents.
Each Loan Party has received all deeds, assignments, waivers, consents, non-
disturbance and recognition or similar agreements, bills of sale and other
documents, and duly effected all recordings, filings and other actions necessary
to establish, protect and perfect such Loan Party's right, title and interest in
and to all such real estate and other assets or property. Except as described on
Schedule 3.6, (i) no Loan Party or, to Borrower's Knowledge, any other party to
- ------------
any such Lease described on Schedule 3.6 is in default of its obligations
------------
thereunder or has delivered or received any notice of default under any such
Lease, and no event has occurred which, with the giving of notice, the passage
of time, or both, would constitute a default under any such Lease; no Loan Party
owns or holds, or is obligated under or a party to, any option, right of first
refusal or any other contractual right to purchase, acquire, sell, assign or
dispose of any real property owned or leased by such Loan Party except as set
forth on Schedule 3.6; and (iii) no portion of any real property owned or leased
------------
by any Loan Party has suffered any material damage by fire or other casualty
loss which has not heretofore been completely repaired and restored to its
original condition. All material permits required to have been issued or
appropriate to enable the real property owned or leased by any Loan Party to be
lawfully occupied and used for all of the purposes for which they are currently
occupied and used, have been lawfully issued and are, as of the date hereof, in
full force and effect.
3.7 Restrictions; No Default; Material Contracts. No contract, lease,
--------------------------------------------
agreement or other instrument to which any Loan Party is a party or by which it
or any of its properties or assets is bound or affected and no provision of any
charter, corporate restriction, applicable law or governmental regulation has
resulted in or will result in a Material Adverse Effect. No Loan Party is in
default and, to Borrower's Knowledge, no third party is in default, under or
with respect to any material contract, agreement, lease or other instrument to
which any Loan Party is a party. No Default has occurred and is continuing.
Schedule 3.7, as supplemented from time to time by written disclosures to Agent,
- ------------
sets forth a complete and accurate list of all Material Contracts of the
Borrower and each of its Subsidiaries.
3.8 Labor Matters. Except as set forth on Schedule 3.8, there are no
------------- ------------
strikes or other labor disputes against any Loan Party that are pending or, to
Borrower's Knowledge, threatened. Hours worked by and payment made to employees
of each Loan Party have not been in violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters which would have a Material
Adverse Effect. All material payments due from any Loan Party on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of such Loan Party. Except as set forth on Schedule 3.8, no Loan
------------
Party has any obligation under any collective bargaining agreement, management
agreement, or any employment agreement, and a correct and complete copy of each
agreement listed on Schedule 3.8 has been provided to Agent. There is no
------------
organizing activity involving any Loan Party pending or, to Borrower's
Knowledge, threatened by any labor union or group of employees. Except as set
32
<PAGE>
forth on Schedule 3.14, there are no representation proceedings pending or, to
-------------
Borrower's Knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of employees of any Loan Party has made a pending
demand for recognition, and, there are no complaints or charges against any Loan
Party pending or threatened to be filed with any federal, state, local or
foreign court, governmental agency or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by any Loan Party of any individual.
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth on Schedule 3.9, Borrower has no
------------
Subsidiaries, is not engaged in any joint venture or partnership with any other
Person, and is not an Affiliate of any other Person. The Stock of each Loan
Party owned by each of the stockholders thereof named on Schedule 3.9
------------
constitutes all of the issued and outstanding Stock of such Loan Party. Except
as set forth on Schedule 3.9, there are no outstanding rights to purchase
------------
options, warrants or similar rights or agreements pursuant to which any Loan
Party may be required to issue, sell or purchase any Stock or other equity
security. Schedule 3.9 lists all outstanding Stock of each Loan Party as of the
------------
Closing Date. Schedule 6.3 lists all Indebtedness of each Loan Party as of the
------------
Closing Date.
3.10 Government Regulation. No Loan Party is (i) an "investment company"
---------------------
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940 as amended; (ii) is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any
other federal or state statute that restricts or limits such Loan Party's
ability to incur Indebtedness, pledge its assets, or to perform its obligations
hereunder, or under any other Loan Document, and the making of the Loans by
Lenders, the application of the proceeds and repayment thereof by each Loan
Party, and the consummation of the transactions contemplated by this Agreement
and the other Loan Documents, will not violate any provision of any such statute
or any rule, regulation or order issued by the Securities and Exchange
Commission.
3.11 Margin Regulations. No Loan Party is engaged in the business of
------------------
extending credit for the purpose of purchasing or carrying Margin Stock and no
proceeds of the Loans or any other extensions of credit under this Agreement
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock. Following
application of the proceeds of each Loan, none of the assets (either of Borrower
only or of Borrower and its Subsidiaries on a consolidated basis) subject to the
provisions of Section 6.3, 6.7 or 6.22 will be Margin Stock. Borrower will not
------------------------
take or permit to be taken any action which might cause any Loan Document or any
document or instrument delivered pursuant hereto or thereto violate any
regulation of the Board of Governors of the Federal Reserve Board.
3.12 Taxes. All federal, state, local and foreign tax returns, reports and
-----
statements, including, but not limited to, information returns (Form 1120-S)
required to be filed by each Loan Party, have been filed with the appropriate
Governmental Authority and all Charges and other impositions shown thereon to be
due and payable have been paid prior to the date on which any fine, penalty,
interest or late charge may be added thereto for nonpayment thereof, or any
33
<PAGE>
such fine, penalty, interest, late charge or loss has been paid. Each Loan Party
has paid when due and payable all material Charges required to be paid by it.
Proper and accurate amounts have been withheld by each Loan Party from their
respective employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. Schedule 3.12 sets forth those
-------------
taxable years for which any of the tax returns of each Loan Party are currently
being audited by the IRS or any other applicable Governmental Authority; and any
assessments or threatened assessments in connection with such audit or otherwise
currently outstanding. Except as described in Schedule 3.12, no Loan Party has
-------------
executed or filed with the IRS or any other Governmental Authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. No Loan Party has filed a consent
pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f) (2) apply to
any dispositions of subsection (f) assets (as such term is defined in IRC
Section 341(f)(4)). None of the property owned by any Loan Party is property
which is required to treat as being owned by any other Person pursuant to the
provisions of IRC Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of IRC Section
168(h). No Loan Party has agreed or been requested to make any adjustment under
IRC Section 481 (a) by reason of a change in accounting method or otherwise. No
Loan Party has any obligation under any written tax sharing agreement except as
described on Schedule 3.12.
-------------
3.13 ERISA. Schedule 3.13 lists all Plans maintained or contributed to by
----- -------------
any Loan Party and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. IRS determination letters
regarding the qualified status under Section 401 of the IRC of each Qualified
Plan have been received as of the dates listed on Schedule 3.13. Each of the
-------------
Qualified Plans has subsequently been amended to comply with the Tax Reform Act
of 1986 and to make other necessary or desirable changes. To the Knowledge of
Borrower, the Qualified Plans as amended continue to qualify under Section 401
of the IRC, the trusts created thereunder continue to be exempt from tax under
the provisions of Section 501(a) of the IRC, and nothing has occurred which
would cause the loss of such qualification or tax-exempt status. Each Qualified
Plan so amended will be submitted to the IRS for a determination letter as to
the ongoing qualified status of the Plan under the IRC within the applicable IRC
401(b) remedial amendment period for the Tax Reform Act of 1986; and each such
Plan shall be amended, including retroactive amendments, as required during such
determination letter process to maintain the qualified status of such Plans. To
the Knowledge of Borrower, each Plan is in compliance in all material respects
with the applicable provisions of ERISA and the IRC, including the filing of all
reports required under the IRC or ERISA which are true and correct as of the
date filed, and all required contributions and benefits have been paid in
accordance with the provisions of each such Plan. No Loan Party or other ERISA
Affiliate, with respect to any Qualified Plan, has failed to make any
contribution or pay any amount due as required by Section 412 of the IRC or
Section 302 of ERISA. With respect to all Retiree Welfare Plans, the present
value of future anticipated expenses pursuant to the latest actuarial
projections of liabilities does
34
<PAGE>
not exceed $100,000.00, and copies of such latest projections have been provided
to Agent; with respect to Pension Plans, other than Qualified Plans and the
unfunded Pension Plans listed in Schedule 3.13, the present value of the
-------------
liabilities for current participants thereunder using interest assumptions
described in IRC 411(a)(ii) does not exceed $100,000.00. No Loan Party has
engaged in a prohibited transaction, as defined in Section 4975 of the IRC or
Section 406 of ERISA, in connection with any Plan which would subject any such
Person (after giving effect to any exemption) to a material tax on prohibited
transactions imposed by Section 4975 of the IRC or any other material liability.
Except as set forth on Schedule 3.13: (i) no Title IV Plan has any
-------------
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section
4062 (e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the Knowledge of
Borrower, threatened claims, actions or lawsuits (other than claims for benefits
in the normal course), asserted or instituted against (x) any Plan or its
assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party or any
ERISA Affiliate with respect to any Plan; (iv) no Loan Party or any ERISA
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (v) within
the last five years no Loan Party or other ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a
Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment (except as may be required by Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant); (vii) each Loan Party or other ERISA Affiliate have complied with
the notice and continuation coverage requirements of Section 4980B of the IRC
and the proposed or final regulations thereunder; and (viii) no liability under
any Plan has been funded, nor has such obligation been satisfied with, the
purchase of a contract from an insurance company that is not rated AAA by
Standard & Poor's Corporation and the equivalent by each other nationally
recognized rating agency.
3.14 No Litigation. Except as set forth on Schedule 3.14, no action, claim
------------- -------------
or proceeding is now pending or, to the Knowledge of Borrower, threatened
against any Loan Party, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, (i) which challenges any such Person's right, power, or competence
to enter into or perform any of its obligations under the Loan Documents, or the
validity or enforceability of any Loan Document or any action taken thereunder
or (ii) which if determined adversely, could have or result in a Material
Adverse Effect. To the Knowledge of Borrower, there does not exist a state of
facts which is reasonably likely to give rise to such proceedings.
3.15 Brokers. Except as set forth on Schedule 3.15, no broker or finder
------- -------------
acting on behalf of any Loan Party brought about the obtaining, making or
closing of the credit extended
35
<PAGE>
pursuant to this Agreement or the transactions contemplated by the Loan
Documents and no Loan Party has any obligation to any Person in respect of any
finder's or brokerage fees in connection therewith.
3.16 Patents, Trademarks, Copyrights and Licenses. Except as otherwise set
--------------------------------------------
forth on Schedule 3.16, each Loan Party owns all licenses, patents, patent
-------------
applications, copyrights, service marks, trademarks, trademark applications and
trade names which are necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to be conducted by
it, each of which is listed, together with Patent and Trademark Office
application or registration numbers, where applicable, on Schedule 3.16. Each
-------------
Loan Party conducts business without infringement or claim of infringement of
any license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of others, except where such
infringement or claim of infringement could not have or result in a Material
Adverse Effect. Except as set forth on Schedule 3.16, to Borrower's Knowledge,
-------------
there is no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of any Loan Party.
3.17 Full Disclosure. No information contained in this Agreement, the
---------------
other Loan Documents, the Financials or any written statement furnished by or on
behalf of any Loan Party or any Affiliate thereof pursuant to the terms of this
Agreement or any other Loan Document, which has previously been delivered to
Agent, Revolving Credit Agent or any Lender, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. With respect to all business plans and other forecasts
and projections (including, without limitation, the Projections) furnished by or
on behalf of Borrower and made available to Agent, Revolving Credit Agent or any
Lender relating to the financial condition, operations, business, properties or
prospects of Borrower or any Subsidiary thereof (i) all facts stated as such
therein are true and complete in all material respects, (ii) all facts upon
which the forecasts or projections therein contained are based are true and
complete in all material respects and no material fact was omitted therefrom,
(iii) all assumptions made on that basis are reasonable under the circumstances
and are disclosed therein, and (iv) the forecasts or projections are reasonably
based on those facts and assumptions. With respect to any such forecasts or
projections made available to Agent, Revolving Credit Agent or any Lender after
the Closing Date, the foregoing clauses (i) through (iv) shall be true and
correct in all respects as of the date of such projections or forecasts.
3.18 Hazardous Materials. Except as set forth on Schedule 3.18 or routine
------------------- -------------
operations in the ordinary course of business in compliance with applicable
permits issued by a Governmental Authority, the Subject Property is free of any
Hazardous Material. In addition, Schedule 3.18 discloses existing or potential
-------------
environmental liabilities of each Loan Party of which Borrower, after due
inquiry, has Knowledge, which could constitute or result in a Material Adverse
Effect or Environmental Liabilities and Costs. Except as set forth on Schedule
--------
3.18, no Loan Party has caused or suffered to occur any Release at, under, above
- ----
or within any Subject Property. No Loan Party is involved in operations which
could lead to the imposition of any
36
<PAGE>
liability or Lien on it, or any owner of any premises which it occupies, under
the Environmental Laws, and no Loan Party has permitted any tenant or occupant
of such premises to engage in any such activity.
3.19 Insurance Policies. Schedule 3.19 lists all insurance of any nature
------------------ -------------
maintained for current occurrences by each Loan Party, as well as a summary of
the terms of such insurance. Borrower covenants that such insurance complies
with and shall at all times comply with the standards set forth on Annex D.
-------
3.20 Deposit and Disbursement Accounts. Schedule 3.20 lists all banks and
--------------------------------- -------------
other financial institutions at which Borrower or any Subsidiary thereof
maintains deposits and/or other accounts and/or post office lock boxes, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number.
3.21 Subordinated Notes and Senior Notes. None of the Subordinated Notes
-----------------------------------
or the Senior Notes has been amended or modified in any respect and no provision
therein has been waived, and no default or event of default under the
Subordinated Notes or the Senior Notes (or the Indenture pursuant to which they
were issued) has occurred and is continuing. Neither the execution and delivery
by Borrower and each of the other Loan Parties of the Loan Documents to which it
is a party nor the consummation by each of the Borrower and the other Loan
Parties of the transactions contemplated thereby violates or results in the
breach of, or constitutes a default under, or requires any consent under the
Subordinated Notes or the Senior Notes (or the Indenture pursuant to which they
were issued).
3.22 Representations and Warranties Regarding the Collateral.
-------------------------------------------------------
(a) Borrower is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder, having good and
marketable title thereto free and clear of any and all Liens except (i) the
security interest granted to Agent, for itself and Lenders under this Agreement
and (ii) Permitted Encumbrances. Borrower will warrant and defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest thereon.
(b) No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as have been filed in favor of Agent, for itself and for Lenders, pursuant to
this Agreement or (ii) such as relate to Permitted Encumbrances.
(c) As a result of the filing of appropriate financing statements in
the jurisdictions listed on Schedule 3.22(c) hereto, this Agreement is effective
----------------
to create a valid and continuing Lien on and perfected security interest in
favor of Agent, for itself and for Lenders, in the Collateral with respect to
which a security interest may be perfected by filing pursuant to the Code, which
Lien and security interest is prior to all other Liens except those Liens
specifically designated on Schedule 6.7 as being prior to the Lien of this
------------
Agreement as a matter of law, and is
37
<PAGE>
enforceable as such as against creditors of and purchasers from Borrower (other
than purchasers of Inventory in the ordinary course of business). All action
(including, without limitation, all filings, registrations and recordings)
necessary or desirable to create, protect and perfect the security interest
granted to Agent, for itself and for Lenders, hereby in respect of each item of
the Collateral has been duly accomplished.
(d) Schedule 3.22(d) hereto lists all Instruments of Borrower. All
----------------
action necessary or desirable to protect and perfect the security interest of
Agent, for itself and for Lenders, granted hereby in each item set forth on
Schedule 3.22(d), including the delivery of all originals thereof to Agent, for
- ----------------
itself and for Lenders, has been duly taken. The security interest of Agent, for
itself and for Lenders, in the Collateral listed on Schedule 3.22(d) hereto is
----------------
prior to all other Liens and is enforceable as such against creditors of and
(except as provided by the Code) purchasers from Borrower.
(e) Borrower's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
or located, and the locations of all of its records concerning the Collateral
are set forth on Schedule 3.22(c). Such Schedule 3.22(c) correctly identifies
---------------- ----------------
any of such facilities or locations that are not owned by Borrower and sets
forth the names of the owners and lessors or collateral of, and the holders of
any mortgages on, such facilities and locations. Borrower shall not change its
chief executive office, principal place of business, corporate offices, or
warehouses or Collateral premises, or the location of its records concerning the
Collateral without giving thirty (30) days prior written notice thereof to Agent
and taking all actions deemed by Agent necessary or appropriate to protect and
perfect Agent's interest in the Collateral.
(f) (i) Each Account represents a bona fide sale of Inventory to
---- ----
customers in the ordinary course of Borrower's business completed in accordance
with the terms and provisions contained in the documents available to Agent with
respect thereto and is not evidenced by either a Document, Instrument or Chattel
Paper; (ii) the amounts shown on any aged receivable trial balance delivered by
Borrower to Revolving Credit Agent and on Borrower's books and records and all
invoices and statements which may be delivered to Revolving Credit Agent with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent; (iii) there are no setoffs, claims or disputes existing or
asserted with respect to any Account and Borrower has not made any agreement
with any Account Debtor for any deduction therefrom except a discount or
allowance allowed by Borrower in the ordinary course of its business for prompt
payment; (iv) to the best of Borrower's Knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforcement of any Account
or tend to reduce the amount payable thereunder as shown on the respective aged
receivable trial balances, Borrower's books and records and all invoices and
statements delivered to Revolving Credit Agent with respect thereto; (v) to the
best of Borrower's Knowledge, all Account Debtors have the capacity to contract;
(vi) Borrower has received no notice of proceedings or actions which are
threatened or pending against any Account Debtor which might result in any
material adverse change in such Account Debtor's financial condition; and (vii)
Borrower has no Knowledge that any Account Debtor is unable generally to pay its
debts as they become due.
38
<PAGE>
(g) With respect to any Inventory, (i) such property is located at
one of the locations set forth on Schedule 3.22(c), (ii) Borrower has good,
----------------
indefeasible and marketable title to such property and such property is not
subject to any Lien whatsoever, except for Permitted Encumbrances, (iii) such
property is of good and merchantable quality, free from any defects, (iv) except
as noted on Schedule 3.16, such property is not subject to any licensing,
-------------
patent, royalty, trademark, tradename or copyright agreements with any third
parties, and (v) the completion of manufacture, sale or other disposition of
such property by Agent following a Default shall not require the consent of any
person and shall not constitute a breach or default under any contract or
agreement to which Borrower is a party or to which such property is subject.
3.23 Solvency. Both before and after giving effect to (a) the Loans to be
--------
made or extended on the Closing Date or such other date as Loans requested
hereunder are made or extended, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower, (c) any Acquisition and the
consummation of the other transactions contemplated hereby and (d) the payment
and accrual of all transaction costs in connection with the foregoing, each Loan
Party is Solvent.
3.24 Year 2000 Problems. Each Loan Party has completed and delivered to
------------------
Agent a Year 2000 Assessment and each Loan Party will complete and deliver a
Year 2000 Corrective Plan by April 30, 1999. On or prior to August 31, 1999, no
Loan Party shall have any Year 2000 Problems, except where the existence of such
Year 2000 Problems could not reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Borrower covenants and agrees that from and
-------------------
after the Closing Date and until the Termination Date, it shall deliver to the
Agent, Revolving Credit Agent and Lenders, the Financial Statements, Projections
and notices at the times and in the manner set forth on Annex C.
-------
(b) Borrower hereby agrees that from time to time after the Closing
Date and until the Termination Date, it shall deliver to Agent, Revolving Credit
Agent and/or Lenders, as required, the various Collateral Reports (including
borrowing Base Certificates in the form of Exhibit 4.1(b) at the times, to the
--------------
Persons and in the manner set forth in Annex H.
-------
4.2 Communication with Accountants. Borrower (for itself and each
------------------------------
Subsidiary thereof) authorizes to Agent, Revolving Credit Agent and, so long as
a Default or Event of Default shall have occurred and be continuing, each Lender
to communicate directly with its and its Subsidiaries' independent certified
public accountants and tax advisors and authorizes those accountants to disclose
to Agent, Revolving Credit Agent and each Lender any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of Borrower and each Subsidiary thereof. At or
before the Closing Date, Borrower shall deliver a letter
39
<PAGE>
addressed to such accountants and tax advisors instructing them to comply with
the provisions of this Section 4.
---------
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and its Subsidiaries) that,
unless Agent shall otherwise consent in writing, from and after the date hereof
and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Borrower shall (and
------------------------------------------------
shall cause each of its Subsidiaries to) (a) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and its rights and franchises; (b) continue to conduct its business
substantially as now conducted or as otherwise permitted hereunder; (c) at all
times maintain, preserve and protect all of its Intellectual Property, and
preserve all the remainder of its property, in use or useful in the conduct of
its business and keep the same in good repair, working order and condition
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices, so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; and (d) transact business only under the names set forth on
Schedule 3.2.
- ------------
5.2 Payment of Charges and Claims. Borrower shall pay and discharge, or
-----------------------------
cause to be paid and discharged in accordance with the terms thereof, (A) all
Charges imposed upon it or any Subsidiary or its or their income and profits, or
any of its property (real, personal or mixed), and (B) lawful claims for labor,
materials, supplies and services or otherwise, which if unpaid might by law
become a Lien on its property; provided, that Borrower or any Subsidiary shall
--------
not be required to pay any such Charge or claim which is being contested in good
faith by proper legal actions or proceedings, so long as at the time of
commencement of any such action or proceeding and during the pendency thereof
(i) no Default shall have occurred and be continuing, (ii) adequate reserves
with respect thereto are established and are maintained in accordance with GAAP,
(iii) such contest operates to suspend collection of the contested Charges or
claims and is maintained and prosecuted continuously with diligence, (iv) none
of the Collateral would be subject to forfeiture or loss or any Lien by reason
of the institution or prosecution of such contest, (v) no Lien shall exist, be
imposed or be attempted to be imposed for such Charges or claims during such
action or proceeding unless the full amount of such Charge or claim is covered
by insurance satisfactory in all respects to Agent, and (vi) Borrower shall
promptly pay or discharge such contested Charges and all additional charges,
interest penalties and expenses, if any, and shall deliver to Agent evidence
acceptable to Agent of such compliance, payment or discharge, if such contest is
terminated or discontinued adversely to Borrower.
5.3 Books and Records. Borrower shall (and shall cause each Subsidiary to)
-----------------
keep adequate records and books of account with respect to its business
activities, in which proper entries, reflecting all of its consolidated and
consolidating financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financials referred to in paragraph I of Schedule 3.4.
------------
40
<PAGE>
5.4 Litigation. Borrower shall notify Agent in writing, promptly upon
----------
learning thereof, of any litigation, Claim or other action commenced or
threatened against Borrower or any Subsidiary, and of the institution against
any such Person of any suit or administrative proceeding which (i) may involve
an amount in excess of $250,000.00 individually or in the aggregate or (ii)
could have or result in a Material Adverse Effect if adversely determined.
5.5 Insurance.
---------
(a) Borrower shall, at its (or its Subsidiary's) sole cost and
expense maintain or cause to be maintained, the policies of insurance in such
amounts and as otherwise described in Annex D and Section 2.1(d). Borrower shall
------- --------------
notify Agent promptly of any occurrence causing a material loss or decline in
value of any real or personal property and the estimated (or actual, if
available) amount of such loss or decline, except as specified otherwise on
Annex D. Borrower hereby directs all present and future insurers under its "All
- -------
Risk" policies of insurance to pay all proceeds payable thereunder directly to
Agent for the benefit of Lenders (provided, however, that if the amount of the
-------- -------
proceeds of any such loss or decline are less than $500,000, then upon
Borrower's request, Agent shall deliver such proceeds to Borrower to be used
solely to repair or replace the affected property). Borrower irrevocably makes,
constitutes and appoints Agent (and all officers, employees or agents designated
by Agent) as Borrower's true and lawful agent and attorney in-fact for the
purpose of making, settling and adjusting claims under the "All Risk" policies
of insurance, endorsing the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such "All Risk" policies of insurance,
and for making all determinations and decisions with respect to such "All Risk"
policies of insurance. In the event Borrower at any time or times hereafter
shall fail to obtain or maintain (or fail to cause to be obtained or maintained)
any of the policies of insurance required above or to pay any premium in whole
or in part relating thereto, Agent, without waiving or releasing any Obligations
or Default hereunder, may at any time or times thereafter (but shall not be
obligated to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which Agent deems
advisable. All sums so disbursed, including attorneys' fees, court costs and
other charges related thereto, shall be payable, on demand, by Borrower to Agent
and shall be additional Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time, upon review of Borrower's
risk profile, to require additional forms and limits of insurance to, in the
Lender's sole opinion, adequately protect interests of Agent and the Lenders.
Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent
may request, a report of a reputable insurance broker satisfactory to Agent with
respect to its insurance policies.
(c) Borrower shall deliver to Agent endorsements to all of its and
its Subsidiaries' (i) "All Risk" and business interruption insurance naming
Agent, on behalf of itself and the Lenders, as loss payee, and (ii) general
liability and other liability policies naming Agent, on behalf of itself and the
Lenders, as additional insureds.
5.6 Compliance with Laws. Borrower shall (and shall cause each of its
--------------------
Subsidiaries to) comply in all material respects with all federal, state and
local laws, permits and regulations
41
<PAGE>
applicable to it, including, without limitation, those relating to licensing,
environmental, ERISA and labor matters.
5.7 Agreements. Borrower shall (and shall cause each of its Subsidiaries
----------
to) perform, within all required time periods (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under each agreement, contract, instrument or other document to which it is a
party, including, without limitation, any leases and customer contracts to which
it is a party where the failure to so perform and enforce could have or result
in a Material Adverse Effect. Borrower shall not (and shall not permit any of
its Subsidiaries to) terminate or modify any provision of any agreement,
contract, instrument or other document to which it is a party which termination
or modification could have or result in a Material Adverse Effect. Borrower
shall (and shall cause each of its Subsidiaries to) perform and comply with all
obligations in respect of Accounts, Chattel Paper, Contracts, Licenses,
Instruments, Documents and all other agreements constituting or giving rise to
Collateral. Borrower shall not, without Agent's prior written consent, with
respect to any of the Accounts, Chattel Paper, Instruments or amounts due under
any Contract (i) grant any extension of the time of payment of any thereof,
other than those granted in the ordinary course of business; (ii) compromise or
settle the same for less than the full amount thereof (other than the compromise
or settlement, for adequate consideration, of Accounts in the ordinary course of
business consistent with past practices the aggregate amount of which Accounts
does not exceed $500,000.00 in any Fiscal Year); (iii) release, in whole or in
part, any Person liable for the payment thereof; or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Borrower.
5.8 Supplemental Disclosure. At the request of Agent (in the event that
-----------------------
such information is not otherwise delivered by Borrower to Agent pursuant to
this Agreement) but not more frequently than every three months, Borrower will
supplement (or cause to be supplemented) each Schedule hereto, or representation
herein or in any other Loan Document with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such Schedule or as an
exception to such representation or which is necessary to correct any
information in such Schedule or representation which has been rendered
inaccurate thereby; provided however, that such supplement to such Schedule or
-------- -------
representation shall not be deemed an amendment thereof unless expressly
consented to in writing by Agent, and no such amendments, except as the same may
be consented to in a writing which expressly includes a waiver, shall be or be
deemed a waiver by Agent of any Default disclosed therein. Borrower shall, if
so requested by Agent or Revolving Credit Agent, furnish to Agent and Revolving
Credit Agent, as often as either of them reasonably requests, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Agent or Revolving Credit Agent may
reasonably request, all in reasonable detail, and, Borrower shall advise Agent
promptly, in reasonable detail, of (i) any Lien, other than as permitted
pursuant to Section 6.7, attaching to or asserted against any of the Collateral,
-----------
(ii) any material change in the composition of the Collateral and (iii) the
occurrence of any other event which would have a Material Adverse Effect upon
the Collateral and/or the Lien of the Agent, for the benefit of itself and
Lenders, thereon.
42
<PAGE>
5.9 Environmental Matters. Borrower shall
---------------------
(i) except as has been otherwise disclosed to Agent in connection
with the Site (as defined below), comply with the Environmental Laws and permits
applicable to it,
(ii) notify Agent promptly after Borrower becomes aware of any
Release upon any Subject Property,
(iii) promptly forward to Agent a copy of any order, notice, permit,
application, or any communication or report received by any Loan Party in
connection with any such Release or any other matter relating to the
Environmental Laws that may affect any Subject Property or any Loan Party. The
provisions of this Section 5.9 shall apply whether or not the Environmental
-----------
Protection Agency, any other federal agency or any state or local environmental
agency has taken or threatened any action in connection with any Release or the
presence of any Hazardous Materials,
(iv) within fourteen (14) days following the date hereof, conduct an
asbestos survey of the property located at 2600, 2640, and 2654 North Paulina
Street, Chicago, Illinois (collectively, the "Site") by an environmental
----
consultant acceptable to Agent, in accordance with the conclusions and
recommendations set forth in that certain Phase I Environmental Assessment
prepared by ENVIRON International Corporation ("ENVIRON") for GE Capital, dated
February, 1999 (the "Phase I Assessment") and promptly thereafter take such
------------------
appropriate action as such consultant shall deem reasonably necessary in order
to abate all friable asbestos, if any, located on the Site, including, but not
limited to engaging a contractor acceptable to Agent to perform such abatement,
all of which actions, including, without limitation, such abatement, shall be in
accordance with all Environmental Laws and all procedures adopted by appropriate
Governmental Authorities, and
(v) within thirty (30) days following the date hereof, engage an
environmental consultant, acceptable to Agent, to evaluate the environmental
practices which were addressed in the conclusions of the Phase I Assessment and
promptly thereafter take such action as such consultant shall deem reasonably
necessary with respect to the operation of Borrower's business at the Site and,
following such evaluation, filing all appropriate permit applications related to
such business operation (to the extent such permit applications have not been
filed or permits granted).
5.10 Landlord's and Mortgagee's Agreements. Except as disclosed in Schedule
--------
5.10, Borrower shall obtain a landlord's agreement in form and substance
- ----
acceptable to Agent from the lessor of any present or future leased premises of
Borrower and mortgagee's agreement in form and substance acceptable to Agent
from each mortgagee of a Loan Party or a Loan Party's lessor, agreeing (among
other things) to waive any lien any of said entities may have upon the
Collateral.
43
<PAGE>
5.11 Certain Obligations Respecting Subsidiaries. Borrower will, and will
-------------------------------------------
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that each of its Subsidiaries is a wholly owned
Subsidiary. Borrower will not permit any of its Subsidiaries to enter into,
after the date of this Agreement, any indenture, agreement, instrument or other
arrangement that, directly or indirectly, prohibits or restrains, or has the
effect of prohibiting or restraining, or imposes materially adverse conditions
upon, the incurrence or payment of Indebtedness, the granting of Liens, the
declaration or payment of dividends or other Restricted Payments, the making of
loans, advances or Investments or the sale, assignment, transfer or other
disposition of any property or assets.
5.12 Application of Proceeds. Borrower shall use the proceeds of (i) the
-----------------------
Term Loan Advances as provided in Sections 1.2(a) and 1.3(a); and (ii) the
--------------- ------
Revolving Credit Advances as provided in Section 1.1(a).
--------------
5.13 Fiscal Year. Borrower shall, and shall cause each Subsidiary to,
-----------
maintain as its Fiscal Year the twelve month period ending on December 31 of
each year.
5.14 Casualty and Condemnation.
-------------------------
(a) Borrower shall promptly notify Agent of any loss, damage, or
destruction to any Collateral or any real property owned by Borrower whether or
not constituting Collateral (collectively, "Property") or arising from its use,
--------
whether or not covered by insurance. Agent is hereby authorized to adjust losses
and collect all insurance proceeds (related to the Collateral) directly. If,
notwithstanding the provisions hereof which require that Agent, on behalf of
itself and the Lenders, be the sole loss payee, a check or other instrument from
an insurer is made payable to Borrower or Borrower and Agent jointly, Agent may
endorse Borrower's name thereon and take such other action as Agent may elect to
obtain the proceeds thereof. After deducting from such proceeds the expenses, if
any, incurred by Agent in the collection or handling thereof, Agent may apply
such proceeds to the reduction of the Obligations in the manner set forth in
Section 1.12 or, at Agent's option in its sole discretion, may permit or require
- ------------
Borrower to use such proceeds, or any part thereof, to replace, repair or
restore such Collateral as provided in paragraph (c) below.
(b) Borrower shall promptly upon learning of the institution of any
proceeding for the condemnation or other taking of any of its Property, notify
Agent of the pendency of such proceeding, and agrees that Agent may participate
in any such proceeding and Borrower from time to time will deliver to Agent all
instruments reasonably requested by Agent to permit such participation. Agent
shall (and is hereby authorized to) collect any and all awards, payments or
other proceeds of any such condemnation or taking and apply such proceeds to the
reduction of the Obligations in the manner set forth in Section 1.12 or, at
------------
Agent's option in its sole discretion, may permit or require Borrower to use
such proceeds, or any part thereof, to replace, repair or restore such
Collateral as provided in paragraph (c) below.
(c) Any Collateral which is to be replaced, repaired or restored
pursuant to paragraph (a) or (b) above shall be replaced, repaired or restored
pursuant to such terms and
44
<PAGE>
conditions as Agent may require and with materials and workmanship of
substantially as good a quality as existed before such loss or taking, and
Borrower shall commence such replacement, repair or restoration as soon as
practicable and proceed diligently with it until completion to Agent's
satisfaction. Borrower shall provide to Agent written progress reports, other
information and evidence of its compliance with the foregoing.
5.15 Covenants Regarding the Collateral.
----------------------------------
(a) Further Assurances; Pledge of Instruments. At any time and from
-----------------------------------------
time to time, upon the written request of Agent or, in the case of Current
Collateral, Revolving Credit Agent, and at the sole expense of Borrower,
Borrower shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Agent or, if
applicable, Revolving Credit Agent, may reasonably deem desirable to obtain the
full benefits of this Agreement and of the rights and powers herein granted,
including (i) using its best efforts to secure all consents and approvals
necessary or appropriate for the assignment to or for the benefit of Agent of
any License (including, but not limited to software licenses) or Contract held
by Borrower or in which Borrower has any rights not heretofore assigned, (ii)
filing any financing or continuation statements under the Code with respect to
the liens and security interests granted hereunder or under any other Loan
Document, (iii) transferring Collateral to Agent's or Revolving Credit Agent's
possession (if such Collateral consists of Documents, Instruments or Chattel
Paper or if a security interest in such Collateral can be perfected only by
possession, or if requested by Agent or Revolving Credit Agent though the
parties hereto agree and understand that for perfection purposes in such
Collateral, any possession of such Collateral by Revolving Credit Agent shall be
as agent for and on behalf of Agent) and (iv) using its best efforts to obtain
waivers of liens from landlords and mortgagees (it being understood that Agent
or Revolving Credit Agent in their discretion may establish reasonable reserves
against availability under this Agreement until the same have been obtained).
Borrower also hereby authorizes each of Agent and Revolving Credit Agent to file
any such financing or continuation statement without the signature of Borrower
to the extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory to
Agent and immediately upon Borrower's receipt thereof.
(b) Maintenance of Records. Borrower shall keep and maintain, at its
----------------------
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Borrower shall mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.
All Chattel Paper shall be marked with the following legend: "This writing and
the obligations evidenced or secured hereby are subject to the security interest
of General Electric Capital Corporation, for itself and as agent for itself and
certain other Lenders." As further security, Borrower agrees that Agent shall
have a special property right and security interest in all of Borrower's books
and records pertaining to the Collateral and, upon the occurrence and during the
continuation of a Default, Borrower shall deliver and turn over any such books
and records to Agent or Revolving
45
<PAGE>
Credit Agent or to its representatives at any time on demand of Agent or
Revolving Credit Agent. Prior to the occurrence of a Default and upon reasonable
notice from Agent or Revolving Credit Agent or the Lenders, Borrower shall
permit any representative of Agent or Revolving Credit Agent to inspect such
books and records and shall provide photocopies thereof to Agent and Revolving
Credit Agent as more specifically set forth in Section 1.15 of this Agreement.
------------
(c) Continuous Perfection. Borrower shall not change its name,
---------------------
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code unless (except in the case of the merger of Harperprints
into Borrower) Borrower shall have given Agent at least thirty (30) days' prior
written notice thereof and shall have taken all action (or made arrangements to
take such action substantially simultaneously with such change if it is
impossible to take such action in advance) necessary or reasonably requested by
Agent to amend such financing statement or continuation statement so that it is
not seriously misleading.
(d) Provisions Regarding Accounts.
-----------------------------
(i) Borrower shall not re-date any invoice or sale or make
sales on extended dating beyond that customary in Borrower's business or extend
or modify any Account (other than corrections of errors in the ordinary course
of business). If Borrower becomes aware of any matter materially affecting any
Account, including information regarding the Account Debtor's creditworthiness,
and such Account could have a Material Adverse Effect, Borrower will promptly so
advise Agent and Revolving Credit Agent.
(ii) Borrower shall not release, in whole or in part, the
obligations of any Person liable for payment in respect of any Account nor shall
Borrower, without Revolving Credit Agent's and Agent's written consent accept
any note or other Instrument (except a check or other Instrument for the
immediate payment of money) for an amount in excess of $100,000.00, individually
or in the aggregate, with respect to any Accounts of one Account Debtor. Any
such Instrument shall be considered as evidence of the Account or Accounts and
not payment thereof and Borrower will promptly deliver such Instrument to
Revolving Credit Agent appropriately endorsed in favor of Agent, for the benefit
of Agent and the Lenders. Regardless of the form of presentment, demand, notice
of dishonor, protest, and notice of protest with respect thereto, the maker
thereof will remain liable thereon until such Instrument is paid in full.
(iii) Borrower shall not, without Revolving Credit Agent's prior
written consent, compromise, settle or adjust any Account for less than the full
amount thereof if the reduction in the amounts payable under any Accounts as a
result of any such compromise, settlement or adjustment would exceed $100,000.00
in the aggregate in any Fiscal Year.
(e) Provisions Regarding Inventory. Borrower agrees that all
------------------------------
Inventory manufactured or processed by Borrower will be manufactured and
processed in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations, and orders
46
<PAGE>
thereunder. Borrower will not, without Revolving Credit Agent's written consent,
sell any Inventory on a guaranteed sale, sale and return, sale on approval,
consignment, or other repurchase or return basis.
(f) Provisions Regarding Equipment. Borrower represents and warrants
------------------------------
to and agrees with Agent that all of the Equipment is and will be used or held
for use in Borrower's business. Borrower shall keep and maintain the Equipment
in good operating condition and repair (ordinary wear and tear excepted) and
shall make all necessary replacements thereof. Borrower shall promptly inform
Agent of any material additions to or deletions from the Equipment. Borrower
shall not permit any Equipment to become a fixture to real property or an
accession to other personal property, unless Agent has a valid, perfected, and
first priority Lien in such real or personal property. Borrower will not,
without Agent's prior written consent, alter or remove any identifying symbol or
number on the Equipment. Except as otherwise permitted pursuant to Section 6.8,
-----------
Borrower shall not, without the prior written consent of Agent, sell, lease as a
lessor, or otherwise dispose of any of the Equipment.
(g) Provisions Regarding Trademark Collateral.
-----------------------------------------
(i) Borrower shall notify Revolving Credit Agent and Agent
immediately if it knows or has reason to know that any application or
registration relating to any Trademark that is material to the conduct of
Borrower's business may become abandoned or dedicated, or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office or any court) regarding Borrower's ownership of any
Trademark which is material to the conduct of Borrower's business, its right to
register the same, or to keep and maintain the same.
(ii) In no event shall Borrower, either itself or through any
agent, employee, licensee or designee, file an application for the registration
of any Trademark with the United States Patent or Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof without giving Agent and Revolving Credit Agent prior written notice
thereof, and, upon request of Agent or Revolving Credit Agent, Borrower shall
execute and deliver any and all agreements, instruments, documents and papers as
Agent or Revolving Credit Agent may request to evidence Agent's security
interest in such Trademark and the General Intangibles, including the goodwill,
of Borrower relating thereto or represented thereby.
(iii) Borrower shall take all necessary actions to maintain and
pursue each application, to obtain the relevant registration, and to maintain
the registration of each of the Trademarks which is material to the conduct of
Borrower's business, including the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings.
(iv) In the event that any of the Collateral that is composed of
Trademarks ("Trademark Collateral") is infringed upon, or misappropriated or
--------------------
diluted by a third party, Borrower shall notify Agent and Revolving Credit Agent
promptly after Borrower learns
47
<PAGE>
thereof and shall, unless Borrower shall reasonably determine that such
Trademark Collateral is not material to the conduct of Borrower's business,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and shall
take such other actions as Borrower shall reasonably deem appropriate under the
circumstances to protect such Trademark Collateral.
(h) Provisions Regarding Patents and Copyrights.
-------------------------------------------
(i) Borrower agrees not to divest its rights under a Patent or
Copyright, without the prior written approval of Agent and Revolving Credit
Agent, and will take all action necessary or advisable to maintain each Patent
or Copyright that directly contributes to five percent (5%) of Borrower's
revenues.
(ii) Borrower agrees, promptly upon learning of the same, to
furnish Agent and Revolving Credit Agent in writing with all pertinent
information available to Borrower with respect to any infringement or other
violation of Borrower's rights in any material Patent or Copyright, or with
respect to any claim that practice of any material Patent or Copyright violates
any property right of that party. Borrower further agrees, absent direction of
Agent and Revolving Credit Agent to the contrary, to prosecute any person
infringing any significant Patent or Copyright.
5.16 Agent's and Revolving Credit Agent's Appointment as Attorneys-in-Fact.
---------------------------------------------------------------------
(a) Borrower hereby irrevocably constitutes and appoints Agent and
any officer or agent (including, if so authorized by Agent, Revolving Credit
Agent) thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Borrower and in the name of Borrower or in its own name, from time to
time in Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby grants to Agent the power and right, on behalf of
Borrower, without notice to or assent by Borrower, and at any time, to do the
following:
(i) in the name of Borrower, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other Instruments for the payment of monies due under any
Collateral;
(ii) continue any insurance existing pursuant to the terms of
the Loan Documents, and pay all or any part of the premiums therefor and the
costs thereof; and
(iii) receive payment of any and all monies, claims, and other
amounts due or to become due at any time arising out of or in respect of any
Collateral.
48
<PAGE>
(b) Borrower hereby irrevocably constitutes and appoints Agent and
any officer or agent thereof (including, if so authorized by Agent, Revolving
Credit Agent), with full power of substitution, as its true and lawful attorney-
in-fact with full irrevocable power and authority in the place and stead of
Borrower and in the name of Borrower or in its own name, from time to time in
Agent's discretion, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to Agent the power and right, on behalf of Borrower,
without notice to or assent by Borrower, upon the occurrence and during the
continuation of an Event of Default, to do the following:
(i) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any Collateral;
(ii) pay or discharge taxes, liens, security interest, or other
encumbrances levied or placed on or threatened against the Collateral;
(iii) effect any repairs or obtain any insurance called for by
the terms of this Agreement and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due or to
become due thereunder, directly to Agent or as Agent shall direct;
(v) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, and notices in connection with accounts and other
documents constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit, action, or
proceeding described above and, in connection therewith, give such discharges or
releases as Agent may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Agent for the purpose of collecting any and all such monies due under any
Collateral whenever payable;
(viii) commence and prosecute any suits, actions or proceedings
of law or equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any
Collateral;
(ix) defend any suit, action or proceeding brought against
Borrower with respect to any Collateral if Borrower does not defend such suit,
action or proceeding or if Agent believes that Borrower is not pursuing such
defense in a manner that will maximize the recovery with respect to such
Collateral;
49
<PAGE>
(x) license or, to the extent permitted by an applicable
license, sublicense whether general, specific or otherwise, and whether on an
exclusive or non-exclusive basis, any Patent or Trademark throughout the world
for such or terms on such conditions and in such manner as Agent shall, in its
sole discretion, determine; and
(xi) sell, transfer, pledge, make any agreement with respect to,
or otherwise deal with any of the Collateral as fully and completely as though
Agent were the absolute owner thereof for all purposes, and to do, at Agent's
option and Borrower's expense, at any time, or from time to time, all acts and
things which Agent reasonably deems necessary to perfect, preserve, or realize
upon the Collateral and Agent's Lien therein in order to effect the intent of
this Agreement, all as fully and effectively as Borrower might do.
(c) Borrower hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 5.16 is a power coupled with
------------
an interest and shall be irrevocable until the Termination Date.
(d) The powers conferred on Agent hereunder are solely to protect the
Lenders' security interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and none of its
officers, directors, employees, agents or representatives shall be responsible
to Borrower for any act or failure to act, except for their own gross negligence
or willful misconduct as determined by a final judgment of a court of competent
jurisdiction.
(e) Borrower also authorizes Agent, at any time and from time to
time, to (i) communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of Borrower in and
under the Contracts and other matters relating thereto and (ii) execute, in
connection with the sale provided for in Section 8.2 hereof, any endorsements,
-----------
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
5.17 Maintenance Covenant. Borrower shall duly pay and discharge in
---------------------
accordance with Borrower's customary business practices in respect thereto, all
current debts, obligations and accounts payable as they become due, except for
such debts, obligations and accounts payable the validity of which are being
contested in good faith by appropriate proceedings, diligently pursued and
available to Borrower, with respect to which adequate reserves have been set
aside on its books.
5.18 Year 2000 Problems.
------------------
On or prior to April 1, 1999, each Loan Party shall implement Year
2000 Corrective Actions. On or before May 31, 1999, each Loan Party shall
complete Year 2000 Corrective Actions and Year 2000 Implementation Testing. On
or before August 31, 1999, each Loan Party shall eliminate all Year 2000
Problems, except where the failure to correct the same
50
<PAGE>
could not reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate.
6. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and each Subsidiary) that,
without the prior written consent of the Requisite Lenders, from and after the
date hereof and until the Termination Date:
6.1 Mergers, Subsidiaries, Etc. Borrower shall not (and shall not permit
---------------------------
any of its Subsidiaries to), directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person, except as
part of an Eligible Acquisition, or form or acquire any Subsidiary, other than a
Special Purpose Subsidiary. Prior to forming any Subsidiary, Borrower shall (a)
provide not less than thirty (30) days prior written notice to Agent, (b) take
all actions requested by Agent to protect and preserve the Collateral, and (c)
receive the prior written consent of Agent.
6.2 Investments. Borrower shall not (and shall not permit any of its
-----------
Subsidiaries to), directly or indirectly, make or maintain any Investment except
(i) as otherwise permitted by Section 6.3 or 6.4; (ii) Investments outstanding
------------------
on the date hereof and listed on Schedule 6.2; (iii) advances constituting trade
------------
credit representing the purchase price of Inventory or supplies sold to any
Person (other than a Subsidiary or Affiliate of Borrower) in the ordinary course
of business and payable on terms not exceeding one hundred twenty (120) days;
(iv) securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States government is pledged in support
thereof), having maturities of not more than twelve (12) months from the date of
acquisition; (v) advances to White Arts, Inc. in an aggregate amount not to
exceed $1,700,000, secured by accounts receivable and inventory of White Arts,
Inc. pursuant to documents in form and substance satisfactory to Agent and
collaterally assigned to Agent, for the benefit of itself and the Lenders; and
(vi) Investments constituting Eligible Acquisitions.
6.3 Indebtedness. Borrower shall not (and shall not permit any of its
------------
Subsidiaries to) create, incur, assume or permit to exist any Indebtedness,
except (i) the Obligations; (ii) Deferred Taxes; (iii) the Subordinated Notes;
(iv) Capital Lease Obligations permitted under clause (iv) of Section 6.7 and
----------- -----------
Indebtedness secured by purchase money Liens permitted under clause (iv) of
-----------
Section 6.7 in a maximum aggregate amount outstanding not to exceed $2,500,000;
- -----------
(v) the McQuiddy Note; (vi) Indebtedness owing to any of its Affiliates in an
aggregate amount not to exceed $500,000; (vii) the Senior Notes; (viii)
Indebtedness incurred by a Special Purpose Subsidiary in connection with an
asset securitization; (ix) Indebtedness owing under the Bond Assumption
Documents; and (x) other Indebtedness set forth on Schedule 6.3.
------------
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements.
--------------------------------------------------------------------
Except as otherwise expressly permitted hereunder, Borrower shall not (and shall
not permit any of its Subsidiaries to) enter into any management agreements,
service agreements, lending, borrowing or other commercial transaction with any
of its Subsidiaries, Affiliates, officers,
51
<PAGE>
directors or employees, including, without limitation, payment of any
management, consulting, advisory or similar fee; provided, however, Borrower may
-------- -------
(i) on the date of any Advance financing an Eligible Acquisition, extend a loan
to Holdings to enable Holdings to pay a portion of the amount due to the
applicable Sellers, such loan to be evidenced by a promissory note executed by
Holdings and payable to Borrower, (ii) extend loans to its officers, directors
and employees in a maximum aggregate principal amount outstanding at any time
for all officers, directors and employees of $250,000.00, except as stated on
Schedule 6.4, (iii) incur Indebtedness owing to any of its Affiliates as
- ------------
described in clause (vi) of Section 6.3; (iv) extend loans to Harperprints in a
----------- -----------
maximum aggregate amount outstanding not to exceed $150,000, such loans to be
evidenced by a promissory note executed by Harperprints and payable to Borrower
and (v) transfer assets to a Special Purpose Subsidiary as described in Section
-------
6.8. Set forth on Schedule 6.4 is a list of all such management agreements,
- --- ------------
service agreements, lending, borrowing or other commercial transactions existing
or outstanding as of the Closing Date.
6.5 Capital Structure and Business. Except as permitted under Section 5.1,
------------------------------ -----------
Borrower shall not (and shall not permit any of its Subsidiaries to) (i) make
any changes in its business objectives, purposes, or operations which could in
any way adversely affect the repayment of the Obligations or have or result in a
Material Adverse Effect, (ii) make any change in its capital structure as
described on Schedule 3.9 and Schedule 6.3 (including, without limitation, the
------------ ------------
issuance or recapitalization of any shares of Stock or other securities
convertible into Stock or any revision of the terms of its outstanding Stock),
(iii) amend its articles or certificate of incorporation, charter, by-laws or
other organizational documents, or (iv) engage in any business other than the
business currently engaged in by such Person.
6.6 Guaranteed Indebtedness. Borrower shall not (and shall not permit any
-----------------------
of its Subsidiaries to) incur any Guaranteed Indebtedness except (i) by
endorsement of instruments or items of payment for deposit to the general
account of such Person or (ii) for Guaranteed Indebtedness incurred for the
benefit of Borrower if the primary obligation is permitted by this Agreement for
Borrower to incur (and such Guaranteed Indebtedness shall be treated as a
primary obligation for all purposes hereof).
6.7 Liens. Borrower shall not (and shall not permit any of its
-----
Subsidiaries to) create or permit to exist any Lien on any of its properties or
assets except for (i) presently existing or hereafter created Liens in favor of
Agent, for the benefit of itself and the Lenders, to secure the Obligations;
(ii) Liens set forth on Schedule 6.7 existing on the Closing Date; (iii)
------------
Permitted Encumbrances; (iv) purchase money liens or purchase money security
interests upon or in Equipment acquired by Borrower or any of its Subsidiaries
in the ordinary course of business to secure the purchase price of such
Equipment or to secure Indebtedness or Capital Lease Obligations permitted under
Section 6.3 incurred solely for the purpose of financing the acquisition of such
- -----------
Equipment, so long as such Equipment is not a component, part or accessory
installed on, or an accession, addition or attachment to, any other Equipment or
other property of Borrower or any Subsidiary thereof (except other Equipment on
which a security interest exists under this clause); (v) extensions, renewals
and replacements of Liens referred to in clauses (ii) and (iv) above, provided
------------ ----
that any such extension, renewal or replacement Lien is limited to the property
or assets covered by the Lien extended, renewed or replaced and does not secure
52
<PAGE>
Indebtedness in an amount greater than the amount of the outstanding
Indebtedness secured thereby immediately prior to such extension, renewal or
replacement; provided that Borrower shall not create or permit any Lien to exist
--------
on any of the Stock of Borrower's Subsidiaries or any of Borrower's Accounts
(other than Liens described in clause (i) above); (vi) Liens on the capital
----------
stock and/or assets of a Special Purpose Subsidiary in connection with an asset
securitization; and (vii) presently existing Liens in favor of Deutsche, with
Deutsche hereby agreeing to assign such Liens to Agent, for the benefit of Agent
and the Lenders, to secure the Obligations.
6.8 Sale of Assets. Borrower shall not (and shall not permit any of its
--------------
Subsidiaries to) sell, transfer, convey, assign or otherwise dispose of any of
its assets or properties, including, without limitation, any Collateral;
provided, however, that the foregoing shall not prohibit (i) the sale of
- -------- -------
Inventory in the ordinary course of business; (ii) the sale or disposition of
any assets which have become obsolete or surplus to the business of Borrower or
any of its Subsidiaries which either (x) give rise to Net Proceeds which do not
exceed $500,000 per year, in the aggregate, or (y) have a depreciated value
according to Agent's internal analysis which does not exceed $500,000 in the
aggregate; (iii) the sale or disposition of assets which either (x) give rise to
Net Proceeds which do not exceed $500,000 per year, in the aggregate, or (y)
have a depreciated value according to Agent's internal analysis which does not
exceed $500,000 per year, in the aggregate, (iv) the sale by Borrower of assets
to a Special Purpose Subsidiary for consideration greater than or equal to the
fair market value of such assets in connection with an asset securitization, or
(v) the transfer by a Special Purpose Subsidiary of assets acquired from
Borrower in connection with an asset securitization.
6.9 Material Contracts. Borrower shall not (and shall not permit any of
------------------
its Subsidiaries to) cancel or terminate any Material Contract or any other
contract pursuant to which it has acquired a division or amend or otherwise
modify any Material Contract or such other contract, or waive or fail to enforce
any provision of or breach any Material Contract or such other contract, or take
or fail to take any other action in connection with any Material Contract or
such other contract that would have a Material Adverse Effect.
6.10 ERISA. Neither Borrower nor any ERISA Affiliate shall acquire any new
-----
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an "accumulated funding deficiency," as defined in Section
302 of ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a
Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer
Plan. Additionally, neither Borrower nor any ERISA Affiliate shall permit or
suffer any condition set forth on Schedule 3.13 to cease to be met and satisfied
-------------
at any time; terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability to
Borrower; (b) permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; fail to
make any contributions or fail to pay any amounts due and owing as required by
the terms of any Plan before such contributions or amounts become delinquent;
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; at any time fail to provide the Agent with
copies of any Plan documents or governmental reports or filings, if reasonably
requested by Agent.
53
<PAGE>
6.11 Financial Covenants. Borrower shall not breach or fail to comply with
-------------------
any of the following financial covenants, each of which shall be calculated in
accordance with GAAP consistently applied (and based upon the financial
statements delivered hereunder):
(a) Capital Expenditures. Holdings shall not make aggregate non-
--------------------
financed Capital Expenditures (excluding any Capital Expenditures made by
Borrower pursuant to Section 5.14 to replace, repair or restore any Property
------------
subject to any loss or taking described therein) in any Fiscal Year in excess of
$5,000,000, determined on a consolidated basis in accordance with GAAP,
provided, however that any portion of such amount not utilized for Capital
- -------- -------
Expenditures during a Fiscal Year may be carried over for one (1) year only to
the next Fiscal Year, provided that any amount so carried over shall be deemed
--------
to have been utilized only after all otherwise permitted amounts for that Fiscal
Year have been utilized.
(b) Fixed Charge Coverage Ratio. Borrower shall not permit the Fixed
---------------------------
Charge Coverage Ratio of Holdings, determined on a consolidated basis in
accordance with GAAP, at the end of each Fiscal Quarter to be less than 1.2:1.0.
The parties hereto agree that the preceding Fixed Charge Coverage Ratio will not
be accurate in the event of an asset securitization involving a Special Purpose
Subsidiary. Therefore, in the event of the occurrence of such an asset
securitization, the parties hereto agree that the Fixed Charge Coverage Ratio
will need to be revised in a manner mutually agreed upon by Requisite Lenders,
such a revision to be a condition precedent to Borrower being able to effectuate
such an asset securitization.
(c) Senior Leverage Ratio. Borrower shall not permit the Senior
---------------------
Leverage Ratio at the end of each Fiscal Quarter set forth below to be more than
the corresponding ratio set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C>
31-Mar-99 5.00:1.0
30-June-99 5.00:1.0
30-Sep-99 5.00:1.0
31-Dec-99 5.00:1.0
31-Mar-00 4.75:1.0
30-June-00 4.75:1.0
30-Sep-00 4.75:1.0
31-Dec-00 4.75:1.0
31-Mar-01 4.50:1.0
30-June-01 4.50:1.0
30-Sep-01 4.50:1.0
31-Dec-01 4.50:1.0
31-Mar-02 4.25:1.0
30-June-02 4.25:1.0
30-Sep-02 4.25:1.0
31-Dec-02 4.25:1.0
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C>
31-Mar-03 4.00:1.0
</TABLE>
The parties hereto agree that the preceding Senior Leverage Ratio will not be
accurate in the event of an asset securitization involving a Special Purpose
Subsidiary. Therefore, in the event of the occurrence of such an asset
securitization, the parties hereto agree that the Senior Leverage Ratio will
need to be revised in a manner mutually agreed upon by Requisite Lenders, such a
revision to be a condition precedent to Borrower being able to effectuate such
an asset securitization.
6.12 Hazardous Materials. Except as set forth in Schedule 3.18, Borrower
------------------- -------------
shall not and shall not permit any of its Subsidiaries or any other Person
within the control of Borrower to (a) cause or permit a Release of Hazardous
Material on, under in or about any Subject Property; (b) use, store, generate,
treat or dispose of Hazardous Materials, except in compliance with Environmental
Laws; or (c) transport any Hazardous Materials to or from any Subject Property,
except in compliance with Environmental Laws.
6.13 Sale-Leasebacks. Borrower shall not (and shall not permit any of its
---------------
Subsidiaries to) engage in any sale-leaseback or similar transaction involving
any of its property or assets.
6.14 Cancellation of Indebtedness. Borrower shall not (and shall not
----------------------------
permit any of its Subsidiaries to) cancel any claim or Indebtedness owing to it,
except for reasonable consideration and in the ordinary course of its business,
or voluntarily prepay any Indebtedness (other than the Obligations).
6.15 Restricted Payments. Borrower shall not make any Restricted Payment
-------------------
to any Person and Borrower shall not permit any Subsidiary to make any
Restricted Payment other than to Borrower, provided, however, that Borrower may
-------- -------
pay dividends or payment of fees to Holdings made solely to enable Holdings to
pay (i) officers' salaries pursuant to applicable Employment Agreements and
operating expenses (including without limitation rental payments on leased real
property), (ii) interest on the Subordinated Indebtedness payable to the Sellers
(other than the McQuiddy Sellers) in accordance with the terms of the
Subordination Agreements, or (iii) principal and interest on the McQuiddy Note
when due pursuant to the terms thereof.
6.16 Real Property Leases. Borrower shall not (and shall not permit any of
--------------------
its Subsidiaries to) enter into or renew (by amendment, modification or
otherwise) any Lease, except that Borrower (i) may renew existing Leases upon
substantially the same terms as are in effect on the Closing Date, and (ii) may
assume Leases pursuant to Eligible Acquisitions.
6.17 Bank Accounts. Borrower shall not (and shall not permit any of its
-------------
Subsidiaries to) maintain any deposit, operating or other bank accounts except
for those accounts identified on Schedule 3.20.
-------------
55
<PAGE>
6.18 Subordinated Notes. Neither Borrower nor any of its Subsidiaries
------------------
shall purchase, redeem, retire or otherwise acquire for value, or set apart any
money for a sinking, defeasance or other analogous fund for, the purchase,
redemption, retirement or other acquisition of, or make any payment (scheduled,
voluntary or other) of principal of or interest on, or any other amount owing in
respect of, any Subordinated Notes, except that, so long as no Default shall
have occurred and be continuing (or would occur as a result of any such
payment), Borrower may, on regularly scheduled interest payment dates (which
shall be no more frequent than quarterly, unless Agent otherwise consents), make
payments of interest on the Subordinated Notes at the interest rate listed on
each Subordinated Note respectively, subject to satisfaction of the following
conditions: (i) no Default shall have occurred and be continuing (or would occur
as a result of such payment) on the date of such payment; (ii) Borrower shall
have provided Agent evidence reasonably satisfactory in the judgment of Agent
that the condition set forth in the foregoing clause (i) will be satisfied on
and as of the date of such payment; and (iii) upon Agent's request, Borrower
shall have given Agent at least five (5) Business Days prior written notice of
its intention to make any such payment. Borrower will not consent to any
amendment, modification, supplement or waiver of any of the provisions of the
Subordinated Notes or the McQuiddy Note.
6.19 No Speculative Transactions. Borrower shall not (and shall not permit
---------------------------
any of its Subsidiaries to) engage in any speculative transaction or any
transaction involving commodity options or futures contracts (other than in the
ordinary course of business consistent with past practice).
6.20 Margin Regulations. Borrower shall not use the proceeds of any Loan
------------------
to purchase or carry any Margin Stock or any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
6.21 Limitation on Negative Pledge Clauses. Borrower shall not (and shall
-------------------------------------
not permit any of its Subsidiaries to), directly or indirectly, enter into any
agreement with any Person, other than Agent and the Lenders pursuant to a Loan
Document, or the trustee for the holders of the Senior Notes pursuant to the
Indenture under which such notes were issued, which prohibits or limits the
ability of Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
6.22 Accounting Changes. Borrower shall not (and shall not permit any of
------------------
its Subsidiaries to) make, any significant change in accounting treatment and
reporting practices except for changes concurred in by Borrower's independent
public accountants and approved by Agent.
6.23 Senior Notes. Borrower shall not consent, agree to or permit any
------------
amendment or other modification of any of the provisions of the Senior Notes or
the Indenture pursuant to which they were issued.
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7. TERM
7.1 Duration. The financing arrangement contemplated hereby shall be in
--------
effect until the respective Term Loan Commitment Termination Date or Revolving
Loan Termination Date, as applicable. On the Revolving Loan Commitment
Termination Date, the Revolving Loan Commitment shall terminate and the
Revolving Loans, the Revolving Loan Letter of Credit Obligations and all other
amounts owing to the Revolving Lenders hereunder shall immediately become due
and payable in full, in cash. On the Term Loan Commitment Termination Date
applicable to Term Loan A Advances, the Term Loan A Commitment shall terminate
and any amounts outstanding under Note A shall immediately become due and
payable in full, in cash. On the Term Loan Commitment Termination Date
applicable to Term Loan B Advances, the Term Loan B Commitment shall terminate
and any amounts outstanding under Note B shall immediately become due and
payable in full, in cash. On the Termination Date, all other Obligations shall
immediately become due and payable in full, in cash.
7.2 Survival of Obligations. No termination or cancellation (regardless of
-----------------------
cause or procedure) of any financing arrangement under this Agreement shall in
any way affect or impair the Obligations, duties, indemnities, and liabilities
of any Loan Party, or the rights of Agent, Revolving Credit Agent and Lenders
relating to any Obligations, due or not due, liquidated, contingent or
unliquidated or any transaction or event occurring prior to such termination, or
any transaction or event, the performance of which is not required until after
the Termination Date. All undertakings, agreements, covenants, warranties and
representations of or binding upon any Loan Party, and all rights of Agent,
Revolving Credit Agent and each Lender, all as contained in the Loan Documents
shall not terminate or expire, but rather shall survive such termination or
cancellation and shall continue in full force and effect until such time as all
of the Obligations have been indefeasibly paid in full in accordance with the
terms of the agreements creating such Obligations.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
--------
Default" hereunder:
- -------
(a) Borrower shall fail to make any payment in respect of any
Obligations hereunder or under any of the other Loan Documents when due and
payable or declared due and payable, including, without limitation, any payment
of principal of, or interest on, the Term Loans or Revolving Credit Advances,
and the same shall remain unpaid for a period ending three (3) days after the
date such payment was due and payable or declared due and payable.
(b) Borrower shall fail or neglect to perform, keep or observe any of
the provisions of Section 1.9, Section 5.9, Section 5.5, Section 5.1 or Section
----------- ----------- ----------- ----------- -------
6 or any of the provisions set forth on Annex C or Annex H.
- - ------- -------
(c) Any Loan Party shall fail or neglect to perform, keep or observe
any term or provision of this Agreement (other than any such term or provision
referred to in paragraph
---------
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(a) or (b) above) or of any of the other Loan Documents, and the same shall
- --- ---
remain unremedied for a period ending on the first to occur of ten (10) days
after Borrower shall receive written notice of any such failure from Agent or
thirty (30) days after any Loan Party shall become aware thereof.
(d) A default shall occur under any other agreement, document or
instrument to which any Loan Party is a party or by which any such Person or its
property is bound, and such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise, and after giving effect to any
applicable grace or cure period) due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of
such Person in an aggregate amount exceeding $250,000.00 or (ii) causes (or
permits any holder of such Indebtedness or a trustee to cause) such
Indebtedness, or a portion thereof in an aggregate amount exceeding $250,000.00,
to become due prior to its stated maturity or prior to its regularly scheduled
dates of payment.
(e) Any information contained in any Borrowing Base Certificate or
any Certificate delivered pursuant to Section 2.2(d) is untrue or incorrect in
--------------
any material respect, or any representation or warranty herein or in any Loan
Document or in any written statement pursuant thereto or hereto, any report,
financial statement or certificate made or delivered to Agent or any Lender by
any Loan Party shall be untrue or incorrect in any material respect as of the
date when made or deemed made (including those made or deemed made pursuant to
Section 2.2 and Section 4).
- ----------- ---------
(f) Any of the assets of any Loan Party shall be attached, seized,
levied upon or subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors of such Loan Party and shall remain unstayed or undismissed for sixty
(60) consecutive days; or any Person other than a Loan Party shall apply for the
appointment of a receiver, trustee or custodian for any Loan Party's assets and
shall remain unstayed or undismissed for sixty (60) consecutive days; or any
Loan Party shall have concealed, removed or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against any Loan
Party in a court having competent jurisdiction seeking a decree or order (i)
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) of any Loan Party or of any
substantial part of its properties, or (iii) ordering the winding up or
liquidation of the affairs of any Loan Party and such case or proceeding shall
remain undismissed or unstayed for sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such case or
proceeding.
(h) Any Loan Party shall (i) file a petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal,
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state or foreign bankruptcy or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of any Loan Party or of
any substantial part of any Loan Party's properties, (iii) fail generally to pay
its debts as such debts become due, or (iv) take any corporate action in
furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of $500,000.00 in the
aggregate shall be rendered against any Loan Party, unless the same shall be (i)
fully covered by insurance in accordance with Section 5.5, or (ii) vacated,
-----------
stayed, bonded, paid or discharged within a period of fifteen (15) days from the
date of such judgment.
(j) There shall occur any Material Adverse Effect since the Closing
Date which shall not have been cured (or waived by the Lender) within ten days
of notice thereof from Agent to Borrower.
(k) Any provision of any Loan Document shall for any reason cease to
be valid, binding and enforceable in accordance with its terms; or any Lien
created under any Collateral Document shall cease to be a valid and perfected
Lien having the first priority in any of the Collateral purported to be covered
thereby, except for Permitted Encumbrances.
(l) John P. Miller ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of Borrower.
(m) Any of the Persons identified on Schedule 8.1(m) (as such
---------------
Schedule may be supplemented from time to time in connection with Eligible
Acquisitions or otherwise) ceases for any reason whatsoever (other than as a
result of his or her death) to be actively engaged in the management of the
division of the Borrower corresponding to such Person on said Schedule and is
not replaced by an individual acceptable to Agent within a reasonable period of
time.
(n) Holdings ceases for any reason whatsoever to employ individuals
acceptable to Agent in each of the following positions and any such position is
not filled by an individual satisfactory to Agent within sixty (60) days
thereafter: Chief Financial Officer, Senior Vice President-Marketing, Chief
Operating Officer, Chief Information Officer and Chief Accounting Officer.
(o) There shall occur a Change of Control.
(p) There shall occur any "Event of Default" under and as defined in
the Subordinated Notes or any "Event of Default" under and as defined in the
Senior Notes or the Indenture pursuant to which they were issued.
(q) An event or condition specified in Section 6.10 hereof shall
------------
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
Borrower, any Subsidiary thereof or any ERISA
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Affiliate shall incur or in the opinion of the Agent shall be reasonably likely
to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination
of the foregoing) in excess of $100,000.00 in the aggregate.
(r) The occurrence of a default under the provisions of any of the
other Loan Documents and expiration of any cure or grace period applicable
thereto.
(s) The liquidation, termination or dissolution of the Borrower or
Holdings without the prior written consent of the Lender.
(t) The repudiation of any guaranty of the Obligations by any
Guarantor.
(u) Harperprints shall not have merged with and into Borrower on
terms and pursuant to documents in form and substance satisfactory to Agent on
or before July 1, 1999.
(v) Holdings shall cancel, terminate, amend or modify any agreement
or contract to which it is a party, pursuant to which a division of Borrower is
acquired, or waive or fail to enforce any provision of or breach any such
agreement or contract, or take or fail to take any other action in connection
with any such agreement or contract that would have a Material Adverse Effect.
8.2 Remedies.
--------
(a) (i) If any Event of Default shall have occurred and be
continuing, or if a Default shall have occurred and be continuing and Requisite
Lenders (which in all events for this purpose must include Deutsche) shall have
determined that no Revolving Credit Advances shall be made and that no Revolving
Loan Letter of Credit Obligations shall be incurred so long as that specific
Default or Event of Default is continuing, Revolving Credit Agent shall, without
notice, suspend the Revolving Loan facility with respect to further Revolving
Credit Advances and/or the incurrence of further Revolving Loan Letter of Credit
Obligations whereupon any further Revolving Credit Advances and Revolving Loan
Letter of Credit Obligations shall be made or extended in the sole discretion of
the Requisite Lenders (which in all events for this purpose must include
Deutsche), so long as such Default or Event of Default is continuing.
(ii) If any Event of Default shall have occurred and be
continuing or if a Default shall have occurred and be continuing and Requisite
Lenders shall have determined that no Term Loan Advances shall be made and that
no Term Loan Letter of Credit Obligations shall be incurred so long as that
specific Default is continuing, Agent shall, without notice, suspend the Term
Loan facility with respect to further Term Loan Advances and/or the incurrence
of further Term Loan Letter of Credit Obligations whereupon any further Term
Loan Advances and Term Loan Letter of Credit Obligations shall be made or
extended in the sole discretion of the Requisite Lenders, so long as such
Default or Event of Default is continuing.
(b) If any Event of Default shall have occurred and be continuing,
Agent may (and at the request of Requisite Lenders shall) without notice except
as expressly provided
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herein, increase the rate of interest applicable to the Loans and the other
Obligations, effective as of the date of the occurrence of the Default giving
rise to such Event of Default, to the Default Rate as provided in Section
-------
1.6(e). If any Event of Default shall have occurred and be continuing Agent may
- ------
(and at the request of Requisite Lenders shall), without notice, take any one or
more of the following actions: (a) terminate the Revolving Credit Commitment and
the Term Loan Commitments whereupon Lenders' obligation to make further Advances
shall terminate; or (b) declare all or any portion of the Obligations to be
forthwith due and payable whereupon such Obligations shall become and be due and
payable; or (c) exercise any rights and remedies provided to Agent under the
Loan Documents and/or at law or equity, including all remedies provided under
the Code; provided, however, that upon the occurrence of an Event of Default
-------- -------
specified in Section 8.1 (f), (g) or (h), the rate of interest applicable to all
---------------------------
Obligations shall be increased automatically to the Default Rate as provided in
Section 1.6(e), and the Revolving Credit Commitment and the Term Loan
- --------------
Commitments shall immediately terminate and the Obligations shall become
immediately due and payable, in each case, without declaration, notice or demand
by any Person.
Without limiting the generality of the foregoing, Borrower expressly
agrees that in any such event Agent without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Borrower or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), may forthwith enter upon the premises of Borrower where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Borrower notice and opportunity for a
hearing on Agent's or Lenders' claim or action, and without paying rent to
Borrower, and collect, receive, assemble, process, appropriate and realize upon
the Collateral, or any part thereof, and may forthwith sell, lease, assign, give
an option or options to purchase, or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. Agent shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase for its benefit and the benefit of Lenders the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which equity
of redemption Borrower hereby releases. Such sales may be adjourned or continued
from time to time with or without notice. Agent shall have the right to conduct
such sales on Borrower's premises or elsewhere and shall have the right to use
Borrower's premises without charge for such sales for such time or times as
Agent deems necessary or advisable.
Borrower further agrees, at Agent's request, to assemble the
Collateral and make it available to Agent at places which Agent shall reasonably
select, whether at Borrower's premises or elsewhere. Until Agent is able to
effect a sale, lease, or other disposition of the Collateral, Agent shall have
the right to use or operate the Collateral on behalf of Lenders, or any part
thereof, to the extent that it deems appropriate for the purpose of preserving
the Collateral or its value or for any other purpose deemed appropriate by
Agent. Agent shall have no obligation to Borrower to maintain or preserve the
rights of Borrower as against third parties with respect to
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the Collateral while the Collateral is in the possession of Agent. Agent may, if
it so elects, seek the appointment of a receiver or keeper to take possession of
the Collateral and to enforce any of Agent's remedies with respect to such
appointment without prior notice or hearing. Agent shall apply the net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
as provided in paragraph (d) below, Borrower remaining liable for any deficiency
remaining unpaid after such application, and only after so paying over such net
proceeds and after the payment by Agent of any other amount required by any
provision of law, including section 9-504(1)(c) of the Code (but only after
Agent has received what Agent considers reasonable proof of a subordinate
party's security interest), need Agent account for the surplus, if any, to
Borrower. To the maximum extent permitted by applicable law, Borrower waives all
claims, damages, and demands against Agent arising out of the repossession,
retention or sale of the Collateral except such which may arise out of the gross
negligence or willful misconduct of such party. Borrower agrees that five (5)
days' prior notice by Agent of the time and place of any public sale or of the
time after which a private sale may take place is reasonable notification of
such matters. Borrower shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all amounts to
which Agent, for itself and Lenders is entitled, Borrower also being liable for
any attorneys' fees incurred by Agent to collect such deficiency.
(c) Borrower agrees to pay any and all costs of Agent, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(d) Except as otherwise specifically provided herein, Borrower hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
(e) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Agent upon receipt, in
the following order of priorities:
First, to Revolving Credit Agent to pay principal and accrued interest
-----
on any portion of the Revolving Loans which Revolving Credit Agent may have
advanced on behalf of any Revolving Lender other than Deutsche and for which
Revolving Credit Agent has not been reimbursed by such Lender or Borrower;
provided, however, that the amounts received by Revolving Credit Agent pursuant
- -------- -------
to this clause shall in no event exceed twenty-five percent (25%) of the unpaid
principal and accrued interest on the outstanding Revolving Loans;
Second, to Agent and Revolving Credit Agent to pay the amount of
------
reasonable expenses of Agent and Revolving Credit Agent in connection with any
sale, disposition or other realization, including all expenses, liabilities and
advances incurred or made by Agent or Revolving Credit Agent in connection
therewith, including reasonable attorneys' fees;
Third, to Agent and Revolving Credit Agent to pay any fees due and
-----
payable to Agent and Revolving Credit Agent;
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Fourth, on a ratable basis, to (i) Lenders in payment of the unpaid
------
principal and accrued interest in respect of the Loans (including without
limitation to Deutsche in respect of Settlement Loans, to be shared with Lenders
that have acquired a participating interest in such Settlement Loans) and any
other Obligations then outstanding to be shared among Lenders on a ratable
basis, or on such other basis as may be agreed upon in writing by Lenders (which
agreement or agreements may be entered into without notice to or the consent or
approval of Borrower), (ii) Agent in payment of principal and accrued interest
on any portion of Loans which Agent may have advanced on behalf of any Term
Lender and for which Agent has not been reimbursed by such Lender, and (iii)
Revolving Credit Agent in payment of principal and accrued interest on any
portion of Loans which Revolving Credit Agent may have advanced on behalf of any
Revolving Lender and for which Revolving Credit Agent has not been reimbursed by
such Lender (except to the extent paid pursuant to clause First of this Section
------------ -------
8.2(e)); and
- -------
Finally, to the Borrower, or its successors and assigns, or as a
-------
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
The allocations set forth in this Section 8.2(e) are solely to
--------------
determine the rights and priorities of Agent, Revolving Credit Agent and Lenders
as among themselves and may be changed by Agent, Revolving Credit Agent and
Lenders without notice to or the consent or approval of Borrower or any other
Person.
8.3 Grant of License to Use Patent and Trademark Collateral. For the
-------------------------------------------------------
purpose of enabling Agent to exercise rights and remedies under Section 8.2
-----------
hereof (including, without limiting the terms of Section 8.2 hereof, in order to
-----------
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Agent shall
be lawfully entitled to exercise such rights and remedies, Borrower hereby
grants to Agent, for the benefit of itself and Lenders, an irrevocable, non-
exclusive license (exercisable without payment of royalty or other compensation
to Borrower) to use, transfer, license or sublicense any Patent, Trademark,
Copyrights or trade secret now owned or hereafter acquired by Borrower, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof.
8.4 Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement and applicable law to the full extent permitted by applicable law,
Borrower waives (i) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all Loan Documents, notes, commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Agent, Revolving Credit Agent or Lenders on which Borrower may in
any way be liable, and Borrower hereby ratifies and confirms whatever Agent,
Revolving Credit Agent or Lenders may do in this regard, (ii) all rights to
notice and a hearing prior to Agent's taking possession or control of, or to
Agent's replevin, attachment or levy upon, the Collateral or any bond or
security which might be required
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by any court prior to allowing Agent to exercise any of its remedies, and (iii)
the benefit of any right of redemption and all valuation, appraisal and
exemption laws. Borrower acknowledges that it has been advised by counsel of its
choice with respect to this Agreement, the other Loan Documents and the
transactions contemplated by this Agreement and the other Loan Documents.
8.5 Revolving Credit Agent as Sub-Agent in Connection with Current
--------------------------------------------------------------
Collateral. Notwithstanding anything herein to the contrary, the Lenders hereby
- ----------
agree that decisions in relation to the commencement of any rights and remedies
of Lenders against the Current Collateral (which rights and remedies shall
include, without limitation, initiating foreclosure action against any Current
Collateral, notifying Account Debtors of Agent's security interest in the
Accounts and directing such Account Debtors to make payment directly to Agent or
Revolving Credit Agent, enforcement of any security interest of Agent in the
Current Collateral, commencing any type of judicial or quasi-judicial action
against the Current Collateral, commencing any self-help remedies against the
Current Collateral, and commencement of any other rights or remedies available
under the Code, under the Loan Documents, or otherwise available under
Applicable Laws) shall be made by the Requisite Lenders; provided, however, that
-------- -------
once such decision is made, it is the intent of the Lenders that Revolving
Credit Agent shall be responsible for the undertaking and completion of the
procedures reasonably required to actually implement such decision.
Accordingly, upon the receipt of a written request from Revolving Credit Agent,
Agent shall appoint Revolving Credit Agent as Agent's agent for the limited
purposes necessary in order for Revolving Credit Agent to so undertake and
complete such procedures to the extent such rights and remedies are otherwise
granted to Agent in this Agreement with respect to the Current Collateral, and
shall for such limited purposes authorize Revolving Credit Agent as Borrower's
attorney-in-fact pursuant to Section 5.16 with respect to such rights and
------------
remedies as to the Current Collateral.
9. SUCCESSORS AND ASSIGNS
9.1 Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding on and shall inure to the benefit of Borrower, Agent, Revolving
Credit Agent, Lenders and their respective successors and assigns, except as
otherwise provided herein or therein. Borrower may not assign, delegate,
transfer, hypothecate or otherwise convey its rights, benefits, obligations or
duties hereunder or under any of the Loan Documents without the prior express
written consent of Agent, Revolving Credit Agent and Lenders. Any such
purported assignment, transfer, hypothecation or other conveyance by Borrower
without such prior express written consent shall be void. The terms and
provisions of this Agreement and the other Loan Documents are for the purpose of
defining the relative rights and obligations of Borrower, Agent, Revolving
Credit Agent and the Lenders with respect to the transactions contemplated
hereby and there shall be no third party beneficiaries of any of the terms and
provisions of this Agreement or any of the other Loan Documents.
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10. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
10.1 Assignment and Participations.
-----------------------------
(a) The Loan Parties signatory hereto consent to any Lender's
assignment of, and/or sale of participations in, at any time or times, the Loan
Documents, Loans and any Commitment or of any portion thereof or interest
therein, including any Lender's rights, title, interests, remedies, powers or
duties thereunder, whether evidenced by a writing or not. Any assignment by a
Lender shall (i) require the consent of Agent and, in the case of an assignment
of Revolving Loans or Revolving Credit Commitments, the Revolving Credit Agent
(neither of which consents shall be unreasonably withheld or delayed) and the
execution of an assignment agreement (an "Assignment Agreement") substantially
--------------------
in the form attached hereto as Exhibit D and otherwise in form and substance
---------
satisfactory to, and acknowledged by, Agent and, in the case of an assignment of
Revolving Loans or Revolving Credit Commitments, the Revolving Credit Agent;
(ii) be conditioned on such assignee Lender representing to the assigning Lender
and Agent that (x) it is purchasing the applicable Loans to be assigned to it
for its own account, for investment purposes and not with a view to the
distribution thereof, and (y) that it, or its parent, has assets in excess of
$100,000,000; (iii) if a partial assignment to a Person other than a Lender, be
in an amount at least equal to $5,000,000 and, after giving effect to any such
partial assignment, the assigning Lender shall have retained Commitments in an
amount at least equal to $5,000,000; and (iv) include a payment to Agent of an
assignment fee of $3,500. In the case of an assignment by a Lender under this
Section 10.1, the assignee shall have, to the extent of such assignment, the
- ------------
same rights, benefits and obligations as it would if it were a Lender hereunder.
The assigning Lender shall be relieved of its obligations hereunder with respect
to its Commitments or assigned portion thereof from and after the date of such
assignment. Borrower hereby acknowledges and agrees that any assignment will
give rise to a direct obligation of Borrower to the assignee and that the
assignee shall be considered to be a "Lender". In all instances, each Lender's
obligation to make Advances hereunder shall be several and not joint and shall
be limited to such Lender's Commitments. In the event any Agent or Lender
assigns or otherwise transfers all or any part of the Obligations, Agent or any
such Lender shall so notify Borrower and Borrower shall, upon the request of
Agent or such Lender, execute and deliver to Agent or such Lender as applicable,
new Notes A, Notes B or Revolving Notes, in exchange for such documents
evidencing the Obligations being assigned or transferred. Notwithstanding the
foregoing provisions of this Section 10.1(a), any Lender may at any time pledge
---------------
the Obligations held by it and such Lender's rights under this Agreement and the
other Loan Documents to a Federal Reserve Bank, and any Lender that is an
investment fund may assign the Obligations held by it and such Lender's rights
under this Agreement and the other Loan Documents to another investment fund
managed by the same investment advisor; provided, however, that no such pledge
-------- -------
to a Federal Reserve Bank shall release such Lender from such Lender's
obligations hereunder or under any other Loan Document. Notwithstanding anything
herein to the contrary, each Lender now or hereafter a signatory to this
Agreement hereby grants to GE Capital a right of first refusal with respect to
such Lender's right, title and interest in the Loan Documents, the Loans and any
Commitment and hereby agrees that no assignment of all or any portion of such
Lender's right, title and interest in the Loan Documents, the Loans and any
Commitment shall be valid unless such Lender complies with this right of first
refusal. Therefore, each Lender hereby
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agrees to give GE Capital prior written notice of such Lender's intent to assign
all or a portion of such Lender's right, title and interest in the Loan
Documents, the Loans and any Commitment (which notice shall include the proposed
assignee, the purchase price, and the portion of such Lender's interest to be
assigned), whereupon for the ten Business Day period beginning the day after
receipt of such notice, GE Capital shall have the right to purchase such
described interest of such Lender upon the same terms as those described in such
notice. If GE Capital purchases such an interest, such interest shall be
assigned to GE Capital pursuant to and on the terms set forth in the Assignment
Agreement and the preceding provisions of this Section 10.1(a) shall be
---------------
applicable other than that no assignment fee shall be required to be paid to
Agent. If GE Capital does not purchase such an interest within such ten Business
Day period, such Lender shall be entitled to so assign such an interest in the
manner and pursuant to the provisions specified in such notice, provided that
such assignment otherwise complies with the provisions of this Agreement.
(b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). Solely for purposes of Sections 1.14,
-------------
1.15, 1.16 and 10.7, Borrower acknowledges and agrees that a participation shall
- ---- ---- ----
give rise to a direct obligation of Borrower to the participant and the
participant shall be considered to be a "Lender". Except as set forth in the
preceding sentence neither Borrower nor any Loan Party shall have any obligation
or duty to any participant. Neither Agent, Revolving Credit Agent nor any Lender
(other than the Lender selling a participation) shall have any duty to any
participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 10.1, no Lender
------------
shall, as between Borrower and that Lender, or Agent or Revolving Credit Agent
and that Lender, be relieved of any of its obligations hereunder as a result of
any sale, assignment, transfer or negotiation of, or granting of participation
in, all or any part of the Loans, the Notes or other Obligations owed to such
Lender.
(d) Each Loan Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 10.1 as
------------
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested
(provided, however, that no such document, agreement, note or instrument shall
-------- -------
modify the economic terms of the Loans to the detriment of Borrower or increase
any Loan Party's obligations under any Loan Document) and, if requested by
Agent, the preparation of informational materials for, and the participation of
management in meetings with, potential
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assignees or participants. Each Loan Party executing this Agreement shall
certify the correctness, completeness and accuracy of all descriptions of the
Loan Parties and their affairs contained in any selling materials provided by
them and all other information provided by them and included in such materials,
except that any Projections delivered by Borrower shall only be certified by
Borrower as having been prepared by Borrower in compliance with the
representations contained in Section 3.4.
-----------
(e) A Lender may furnish any information concerning Loan Parties in
the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants).
(f) So long as no Event of Default shall have occurred and be
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant, if, as of the date of
the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements under Section 1.17(a),
---------------
increased costs under Section 1.17(b), an inability to fund LIBOR Loans under
---------------
Section 1.17(c), or withholding taxes in accordance with Section 1.16(a).
- --------------- --------------
10.2. Appointment of Agent and Revolving Credit Agent. GE Capital and
-----------------------------------------------
Deutsche are hereby appointed to act on behalf of all Lenders as Agent and
Revolving Credit Agent, respectively, under this Agreement and the other Loan
Documents. The provisions of this Section 10.2 are solely for the benefit of
------------
Agent, Revolving Credit Agent and Lenders and no Loan Party nor any other Person
shall have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement and the
other Loan Documents, each of Agent and Revolving Credit Agent shall act solely
as an agent of Lenders and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for any
Loan Party or any other Person. Neither Agent nor Revolving Credit Agent shall
have any duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. The duties of Agent and Revolving
Credit Agent shall be mechanical and administrative in nature. Neither Agent
nor Revolving Credit Agent shall have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Neither Agent nor Revolving Credit Agent nor any of
their respective Affiliates nor any of their respective officers, directors,
employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document, or in connection herewith or therewith, except for damages caused by
its or their own gross negligence or willful misconduct.
If Agent or Revolving Credit Agent shall request instructions from
Requisite Lenders or all affected Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, then Agent or Revolving Credit Agent, as the case may be, shall be
entitled to refrain from such act or taking such action unless and until Agent
or Revolving Credit Agent, as the case may be, shall have received instructions
from Requisite Lenders or all affected Lenders, as the case may be, and Agent or
Revolving Credit Agent, as the case may be, shall not incur liability to any
Person by reason of so
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refraining. Agent or Revolving Credit Agent, as the case may be, shall be fully
justified in failing or refusing to take any action hereunder or under any other
Loan Document (a) if such action would, in the opinion of Agent, or Revolving
Credit Agent, as the case may be, be contrary to law or the terms of this
Agreement or any other Loan Document, (b) if such action would, in the opinion
of Agent, or Revolving Credit Agent, as the case may be, expose it to
Environmental Liabilities and Costs or (c) if Agent or Revolving Credit Agent,
as the case may be, shall not first be indemnified to its reasonable
satisfaction against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against Agent
or Revolving Credit Agent, as the case may be, as a result of Agent or Revolving
Credit Agent, as the case may be, acting or refraining from acting hereunder or
under any other Loan Document in accordance with the instructions of Requisite
Lenders or all affected Lenders, as applicable.
Agent, at its sole discretion, may delegate any of its rights or
responsibilities hereunder to Revolving Credit Agent, and, upon receiving notice
of any such delegation, Borrower hereby agrees that it shall comply with any
instructions of and otherwise cooperate with Revolving Credit Agent, while
acting within the terms of such delegation, as if it were Agent.
10.3 Agent's and Revolving Credit Agent's Reliance, Etc. Neither Agent nor
--------------------------------------------------
Revolving Credit Agent any of their respective Affiliates nor any of their
respective directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or the other Loan Documents, except for damages caused by its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, Agent and/or Revolving Credit Agent, as applicable:
(a) may treat the payee of any Note as the holder thereof until it receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to it; (b) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of any
Loan Party or to inspect the Collateral (including the books and records) of any
Loan Party; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (f) shall incur no liability under or
in respect of this Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
10.4 GE Capital, Deutsche and Affiliates. With respect to their respective
-----------------------------------
Commitments hereunder, each of GE Capital and Deutsche shall have the same
rights and powers under this Agreement and the other Loan Documents as any other
Lender and may
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<PAGE>
exercise the same as though it were not Agent or Revolving Credit Agent,
respectively; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include GE Capital and Deutsche in their individual
capacities. GE Capital and Deutsche and their Affiliates may lend money to,
invest in, and generally engage in any kind of business with, any Loan Party,
any of their Affiliates and any Person who may do business with or own
securities of any Loan Party or any such Affiliate, all as if GE Capital were
not Agent, or Deutsche were not Revolving Credit Agent, and without any duty to
account therefor to Lenders. GE Capital and its Affiliates may accept fees and
other consideration from any Loan Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. GE
Capital has also purchased certain equity interests in Holdings and received a
warrant from Holdings, which is a corporation which currently owns one hundred
percent (100%) of the outstanding Stock of Borrower. Each Lender acknowledges
the potential conflict of interest between GE Capital as a Lender holding
disproportionate interests in the Loans, GE Capital as a stockholder, and/or
warrant holder of Holdings, and GE Capital as Agent.
10.5 Indemnification. Lenders agree to indemnify each of Agent and
---------------
Revolving Credit Agent (to the extent not reimbursed by Loan Parties and without
limiting the obligations of Borrower hereunder), ratably according to their
respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against Agent or Revolving Credit Agent, as the
case may be, in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted by Agent or Revolving Credit
Agent, as the case may be, in connection therewith; provided, however, that no
-------- -------
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's or Revolving Credit Agent's, as the case may be, gross
negligence or willful misconduct. Without limiting the foregoing, each Lender
agrees to reimburse Agent and Revolving Credit Agent promptly upon demand for
its ratable share of any reasonable out-of-pocket expenses (including counsel
fees) incurred by Agent or Revolving Credit Agent's, as the case may be, in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Loan Document, to the
extent that Agent or Revolving Credit Agent's, as the case may be, is not
reimbursed for such expenses by Loan Parties.
10.6 Successor Agent. Agent or Revolving Credit Agent may resign at any
---------------
time by giving not less than thirty (30) days' prior written notice thereof to
Lenders and Borrower (and in the case of a resignation by Revolving Credit
Agent, Agent.) Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor Agent, and Agent shall have the right to appoint a
successor Revolving Credit Agent, as the case may be. If no successor Agent
shall have been so appointed by the Requisite Lenders and shall have accepted
such appointment within 30 days after the resigning Agent's giving notice of
resignation, then the resigning Agent may, on behalf of Lenders, appoint a
successor Agent which shall be a Lender, if a Lender is willing to accept such
appointment, or otherwise shall be a commercial bank or financial institution or
a subsidiary of a commercial bank or financial institution if such commercial
bank
69
<PAGE>
or financial institution is organized under the laws of the United States of
America or of any State thereof and has a combined capital and surplus of at
least $300,000,000. If no successor Agent has been appointed pursuant to the
foregoing, by the 30th day after the date such notice of resignation was given
by the resigning Agent, such resignation shall become effective and the
Requisite Lenders shall thereafter perform all the duties of Agent hereunder,
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent or Revolving Credit Agent appointed
hereunder shall be subject to the approval of Borrower, such approval not to be
unreasonably withheld or delayed; provided that such approval shall not be
--------
required if a Default or an Event of Default shall have occurred and be
continuing. Upon the acceptance of any appointment as Agent or Revolving Credit
Agent hereunder by a successor Agent or Revolving Credit Agent, as the case may
be, such successor Agent or Revolving Credit Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the resigning Agent
or Revolving Credit Agent, as the case may be. Upon the earlier of the
acceptance of any appointment as Agent or Revolving Credit Agent hereunder by a
successor Agent or Revolving Credit Agent, as the case may be, or the effective
date of the resigning Agent's or Revolving Credit Agent's resignation, the
resigning Agent or Revolving Credit Agent, as the case may be, shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents, except that any indemnity rights or other rights in favor of
such resigning Agent or Revolving Credit Agent shall continue. After any
resigning Agent's or Revolving Credit Agent's resignation hereunder, the
provisions of this Section 10 shall inure to its benefit as to any actions taken
----------
or omitted to be taken by it while it was Agent or Revolving Credit Agent, as
the case may be, under this Agreement and the other Loan Documents.
10.7 Setoff and Sharing of Payments. In addition to any rights now or
------------------------------
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Note is hereby authorized at any time or from
time to time, without notice to any Loan Party or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all balances held by it at any of its offices for the account of
Borrower or any Guarantor (regardless of whether such balances are then due to
Borrower or such Guarantor) and any other properties or assets any time held or
owing by that Lender or that holder to or for the credit or for the account of
Borrower or any Guarantor against and on account of any of the Obligations which
are not paid when due. Any Lender or holder of any Note exercising a right to
set off or otherwise receiving any payment on account of the Obligations in
excess of its Pro Rata Share thereof shall purchase for cash (and the other
Lenders or holders shall sell) such participations in each such other Lender's
or holder's Pro Rata Share of the Obligations as would be necessary to cause
such Lender to share the amount so set off or otherwise received with each other
Lender or holder in accordance with their respective Pro Rata Shares. Borrower
and each Loan Party that is a Guarantor agrees, to the fullest extent permitted
by law, that (a) any Lender or holder may exercise its right to set off with
respect to amounts in excess of its Pro Rata Share of the Obligations and may
sell participations in such amount so set off to other Lenders and holders and
(b) any Lender or holders so purchasing a participation in the Loans made or
other Obligations held by other Lenders or holders may exercise all rights of
set-off, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as
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<PAGE>
if such Lender or holder were a direct holder of the Loans and the other
Obligations in the amount of such participation. Notwithstanding the foregoing,
if all or any portion of the set-off amount or payment otherwise received is
thereafter recovered from the Lender that has exercised the right of set-off,
the purchase of participations by that Lender shall be rescinded and the
purchase price restored without interest.
10.8 Fundings; Payments; Non-Funding Lenders; Information; Actions in
----------------------------------------------------------------
Concert.
- -------
(a) Revolving Credit Fundings; Payments. (i) Subject to its
-----------------------------------
receipt of notice from Revolving Credit Agent of a Notice of Borrowing as
provided in Section 1.1 (except in the case of a deemed request by Borrower for
-----------
a Revolving Credit Advance as provided in Section 1.1(b)(ii) hereof, in which
------------------
event no Notice of Borrowing need be submitted), each Revolving Lender shall
timely honor its Revolving Loan Commitment by funding its Pro Rata Share of each
Revolving Credit Advance that is properly requested by Borrower and that
Borrower is entitled to receive under this Agreement. Revolving Credit Agent
shall notify Revolving Lenders of each Notice of Borrowing by 12:00 noon (New
York time) on the proposed funding date (in the case of Base Rate Loans) or by
3:00 p.m. (New York time) at least 2 Business Days before the proposed funding
date (in the case of LIBOR Loans). Each Revolving Lender shall deposit with
Revolving Credit Agent an amount equal to its Pro Rata Share of the Revolving
Credit Advance requested by Borrower at Revolving Credit Agent's designated bank
in immediately available funds not later than 1:00 p.m. (New York time) on the
date of funding of such Revolving Credit Advance, unless Revolving Credit
Agent's notice to Revolving Lenders is received after 12:00 noon (New York time)
on the proposed funding date of a Base Rate Loan, in which event Revolving
Lenders shall deposit with Revolving Credit Agent their respective Pro Rata
Shares of the requested Revolving Credit Advance on or before 11:00 a.m. (New
York time) of the next Business Day. Subject to its receipt of such amounts from
Revolving Lenders, Revolving Credit Agent shall make the proceeds of the
Revolving Credit Advances received by it available to Borrower by disbursing
such proceeds in accordance with Borrower's disbursement instructions set forth
in the applicable Notice of Borrowing. Unless Revolving Credit Agent shall have
been notified in writing by a Revolving Lender prior to the proposed time of
funding that such Revolving Lender does not intend to deposit with Revolving
Credit Agent an amount equal to such Lender's Pro Rata share of the requested
Revolving Credit Advance, Revolving Credit Agent may assume that such Revolving
Lender has deposited or promptly will deposit its share with Revolving Credit
Agent and Revolving Credit Agent may in its discretion disburse a corresponding
amount to Borrower on the applicable funding date. If a Revolving Lender's Pro
Rata Share of such Revolving Credit Advance is not in fact deposited with
Revolving Credit Agent, then, if Revolving Credit Agent has disbursed to
Borrower an amount corresponding to such share, then such Revolving Lender
agrees to pay, and in addition Borrower agrees to repay, to Revolving Credit
Agent forthwith on demand such corresponding amount, together with interest
thereon, for each day from the date such amount is disbursed by Revolving Credit
Agent to or for the benefit of Borrower until the date such amount is paid or
repaid to Revolving Credit Agent, (A) in the case of Borrower, at the interest
rate applicable to such Revolving Credit Advance and (B) in the case of such
Revolving Lender, at the Federal Funds Rate. If such Revolving Lender repays to
Revolving Credit Agent such corresponding amount, such amount so repaid shall
constitute a Revolving Credit Advance, and
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<PAGE>
if both such Revolving Lender and Borrower shall have repaid such corresponding
amount, Revolving Credit Agent shall promptly return to Borrower such
corresponding amount in same day funds.
(ii) (A) In order to facilitate the administration of the
Revolving Credit Advances under this Agreement, Revolving Lenders agree (which
agreement shall not be for the benefit of or enforceable by Borrower) that
settlement among them with respect to the Revolving Loan may take place on a
periodic basis on dates determined from time to time by Revolving Credit Agent
(each a "Revolving Credit Settlement Date"), which may occur before or after the
--------------------------------
occurrence or during the continuance of a Default or Event of Default and
whether or not all of the conditions set forth in Section 2 of this Agreement
---------
have been met. On each Revolving Credit Settlement Date, payment shall be made
by or to each Revolving Lender in the manner provided herein and in accordance
with the settlement report delivered by Revolving Credit Agent to Revolving
Lenders with respect to such Revolving Credit Settlement Date so that, as of
each Revolving Credit Settlement Date and after giving effect to the transaction
to take place on such Revolving Credit Settlement Date, each Revolving Lender
shall hold its Pro Rata Share of all Revolving Loans and participations in
Revolving Loan LC Outstandings then outstanding. Revolving Credit Agent shall
request settlement with the Revolving Lenders on a basis not less frequently
than once every 5 Business Days.
(B) Between Settlement Dates, Revolving Credit Agent may
request Deutsche to advance, and Deutsche may, but shall in no event be
obligated to, advance to Borrower out of Deutsche's own funds the entire
principal amount of any Revolving Credit Advances that are Base Rate Loans
requested or deemed requested pursuant to this Agreement (any such Revolving
Credit Advance funded exclusively by Deutsche being referred to as a "Settlement
----------
Loan"). Each Settlement Loan shall constitute a Revolving Credit Advance
- ----
hereunder and shall be subject to all of the terms, conditions and security
applicable to other Revolving Credit Advances, except that all payments thereon
shall be payable to Deutsche solely for its own account. The obligation of
Borrower to repay such Settlement Loans to Deutsche shall be evidenced by the
records of Deutsche and need not be evidenced by any promissory note. Revolving
Credit Agent shall not request Deutsche to make any Settlement Loan if (x)
Revolving Credit Agent shall have received written notice from any Lender that
one or more of the applicable conditions precedent set forth in Section 2 hereof
---------
will not be satisfied on the requested funding date for the applicable Revolving
Credit Advance or (Y) the requested Revolving Credit Advance would exceed the
amount of Net Borrowing Availability on the funding date or would cause the then
outstanding principal balance of all Settlement Loans to exceed $5,000,000.
Deutsche shall not be required to determine whether the applicable conditions
precedent set forth in Section 2 hereof have been satisfied or the requested
---------
Revolving Credit Advance would exceed the amount of Net Borrowing Availability
on the funding date applicable thereto prior to making, in its sole discretion,
any Settlement Loan. On each Revolving Credit Settlement Date, or, if earlier,
upon demand by Revolving Credit Agent for payment thereof, the then outstanding
Settlement Loans shall be immediately due and payable. As provided in Section
-------
1.1(b)(ii), Borrower shall be deemed to have requested (without the necessity of
- ----------
submitting any Notice of Borrowing) Revolving Credit Advances to be made on each
Revolving Credit Settlement Date in the amount of all outstanding Settlement
Loans and to
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<PAGE>
have Revolving Credit Agent to cause the proceeds of such Revolving Credit
Advances to be applied to the repayment of such Settlement Loans and interest
accrued thereon. Revolving Credit Agent shall notify the Revolving Lenders of
the outstanding balance of Revolving Credit Advances prior to 11:00 a.m. (New
York time) on each Revolving Credit Settlement Date and each Revolving Lender
(other than Deutsche) shall deposit with Revolving Credit Agent (without setoff,
counterclaim or reduction of any kind) an amount equal to its Pro Rata Share of
the amount of Revolving Credit Advances deemed requested in immediately
available funds not later than 12:00 noon (New York time) on such Revolving
Credit Settlement Date, and without regard to whether any of the conditions
precedent set forth in Section 2 hereof are satisfied or the Revolving
---------
Commitment Termination Date has occurred. If any Settlement Loan is not repaid
on the due date thereof, then on the second Business Day after Deutsche's
request each Revolving Lender (other than Deutsche) shall purchase a
participating interest in such Settlement Loan in an amount equal to its Pro
Rata Share of such Settlement Loan by transferring to Deutsche, in immediately
available funds, the amount of such participation. The proceeds of Settlement
Loans may be used solely for purposes for which Revolving Credit Advances
generally may be used in accordance with Section 1.1(c) hereof. If any amounts
--------------
received by Deutsche in respect of any Settlement Loans are later required to be
returned or repaid by Deutsche to Borrower or any other obligor or their
respective representatives or successors-in-interest, whether by court order,
settlement or otherwise, the other Revolving Lender shall, upon demand by
Deutsche with notice to Revolving Credit Agent, pay to Revolving Credit Agent
for the account of Deutsche, an amount equal to each other Revolving Lender's
Pro Rata Share of all such amounts required to be returned by Deutsche.
(b) Term Loan Fundings; Payments. (i) Agent shall notify Lenders,
----------------------------
promptly after receipt of a Notice of Term Loan Borrowing by telecopy, telephone
or other similar form of transmission. Each Term Loan Lender shall make the
amount of such Lender's Pro Rata Share of such Term Loan Advance available to
Agent in same day funds by wire transfer to Agent's account as set forth in
Annex I not later than 11:00 a.m. (New York time) on the requested funding date.
- -------
After receipt of such wire transfers (or, in the Agent's sole discretion, before
receipt of such wire transfers), subject to the terms hereof, Agent shall make
the requested Term Loan Advance to the Borrower in the notice of Term Loan
Advance. All payments by each Term Loan Lender shall be made without setoff,
counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day after Agent has received
any payment with respect to the Term Loan (each, a "Term Loan Settlement Date"),
-------------------------
Agent will advise each Lender by telephone, or telecopy of the amount of such
Lender's Pro Rata Share of principal, interest and Fees paid for the benefit of
Lenders with respect to the Term Loan. Provided that such Lender has funded all
payments or Term Loan Advances required to be made by it and has purchased all
participations required to be purchased by it under this Agreement and the other
Loan Documents as of such Term Loan Settlement Date, Agent will pay to each
Lender such Lender's Pro Rata Share of principal, interest and Fees paid by
Borrower to Agent since the previous Term Loan Settlement Date for the benefit
of that Lender on the Term Loan Advances made by it. To the extent that any
Lender is a Non-Funding Lender with respect to the Term Loan, Agent shall be
entitled to set off the funding short-fall against that Non-Funding Lender's Pro
Rata Share of all payments received from Borrower. Such payments shall be made
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<PAGE>
by wire transfer to such Lender's account (as specified by such Lender in Annex
-----
I or the applicable Assignment Agreement) not later than 2:00 p.m. (New York
- -
time) on the next Business Day following each Term Loan Settlement Date.
(c) Availability of Lender's Pro Rata Share. Each of Agent and
---------------------------------------
Revolving Credit Agent may assume that each Lender will make its Pro Rata Share
of each Advance available to Agent or Revolving Credit Agent, as the case may
be, on each funding date. If such Pro Rata Share is not, in fact, paid to Agent
or Revolving Credit Agent, as the case may be, by such Lender when due, Agent or
Revolving Credit Agent, as the case may be, will be entitled to recover such
amount on demand from such Lender without set-off, counterclaim or deduction of
any kind. If any Lender fails to pay the amount of its Pro Rata Share forthwith
upon Agent's or Revolving Credit Agent's demand, Agent or Revolving Credit
Agent, as the case may be, shall promptly notify Borrower and Borrower shall
immediately repay such amount to Agent or Revolving Credit Agent, as the case
may be. Nothing in this Section 10.8(c) or elsewhere in this Agreement or the
---------------
other Loan Documents shall be deemed to require Agent or Revolving Credit Agent
to advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its Commitments hereunder or to prejudice any rights that
Borrower may have against any Lender as a result of any default by such Lender
hereunder. To the extent that Agent or Revolving Credit Agent advances funds to
Borrower on behalf of any Lender and is not reimbursed therefor on the same
Business Day as such advance is made, Agent or Revolving Credit Agent, as the
case may be, shall be entitled to retain for its account all interest accrued on
such advance until reimbursed by the applicable Lender.
(d) Return of Payments. (i) If Agent or Revolving Credit Agent pays
------------------
an amount to a Lender under this Agreement in the belief or expectation that a
related payment has been or will be received by Agent or Revolving Credit Agent,
as the case may be, from Borrower and such related payment is not received by
Agent or Revolving Credit Agent, as the case may be, then Agent or Revolving
Credit Agent, as the case may be, will be entitled to recover such amount from
such Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent or Revolving Credit Agent determines at any time that
any amount received by it under this Agreement must be returned to Borrower or
paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent or Revolving Credit Agent, as the case may be, will not be
required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent or Revolving Credit Agent, as the case may be, on
demand any portion of such amount that Agent or Revolving Credit Agent, as the
case may be, has distributed to such Lender, together with interest at such
rate, if any, as Agent or Revolving Credit Agent, as the case may be, is
required to pay to Borrower or such other Person, without set-off, counterclaim
or deduction of any kind.
(e) Non-Funding Lenders. The failure of any Non-Funding Lender to
-------------------
make any Advance or any payment required by it hereunder on the date specified
therefor shall not relieve any other Lender (each such other Lender, an "Other
-----
Lender") of its obligations to make such Advance on such date, but neither any
- ------
Other Lender nor Agent nor Revolving Credit Agent
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<PAGE>
shall be responsible for the failure of any Non-Funding Lender to make an
Advance or to purchase a participation required hereunder. Notwithstanding
anything set forth herein to the contrary, a Non-Funding Lender shall not have
any voting or consent rights under or with respect to any Loan Document or
constitute a "Lender" or a "Revolving Lender" (or be included in the calculation
of "Requisite Lenders" hereunder) for any voting or consent rights under or with
respect to any Loan Document.
(f) Dissemination of Information. Each of Agent and Revolving Credit
-----------------------------
Agent will use reasonable efforts to provide each other and Lenders with any
notice of Default or Event of Default received by it from, or delivered by it
to, any Loan Party, with notice of any Event of Default of which it has actually
become aware and with notice of any action taken by it following any Event of
Default; provided, however, that neither Agent nor Revolving Credit Agent shall
-----------------
be liable to any Lender for any failure to do so, except to the extent that such
failure is attributable to Agent's or Revolving Credit Agent's, as the case may
be, gross negligence or willful misconduct.
(g) Actions in Concert. Anything in this Agreement to the contrary
------------------
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
10.9 Due Diligence and Non-Reliance. Each Lender hereby acknowledges and
------------------------------
represents that it has, independently and without reliance upon Agent, Revolving
Credit Agent or the other Lenders, and based upon such documents, information
and analyses as it has deemed appropriate, made its own credit analysis of each
Loan Party and its own decision to enter into this Agreement and to fund the
loans to be made by it hereunder and to purchase participations in the Letter of
Credit Obligations pursuant hereto, and each Lender has made such inquiries
concerning the Loan Documents, the Collateral and each Loan Party as such Lender
feels necessary and appropriate, and has taken such care on its own behalf as
would have been the case had it entered into the other Loan Documents without
the intervention or participation of the other Lenders, Revolving Credit Agent
or Agent. Each Lender hereby further acknowledges and represents that the other
Lenders, Revolving Credit Agent and Agent have not made any representations or
warranties to it concerning any Loan Party, any of the Collateral or the
legality, validity, sufficiency or enforceability of any of the Loan Documents.
Each Lender also hereby acknowledges that it will, independently and without
reliance upon the other Lenders, Revolving Credit Agent or Agent, and based upon
such financial statements, documents and information as it deems appropriate at
the time, continue to make and rely upon its own credit decisions in making
Advances and in taking or refraining to take any other action under this
Agreement or any of the other Loan Documents. Except for notices, reports and
other information expressly required to be furnished to Lenders by Agent or
Revolving Credit Agent hereunder, neither Agent nor Revolving Credit Agent shall
have any duty or responsibility to provide any Lender with any notices, reports
or certificates furnished to Agent or Revolving
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Credit Agent by any Loan Party or any credit or other information concerning the
affairs, financial condition, business or property of any Loan Party (or any of
its Affiliates) which may come into possession of Agent, Revolving Credit Agent
or any of Agent's or Revolving Credit Agent's Affiliates.
10.10 Out-of-Formula Loans. Revolving Credit Agent may require Revolving
--------------------
Lenders to honor requests by Borrower for Out-of-Formula Loans (in which event,
and notwithstanding anything to the contrary set forth in Section 1.1 or
-----------
elsewhere in this Agreement, Revolving Lenders shall continue to make Revolving
Credit Advances up to their Pro Rata Share of the Revolving Loan Commitment) and
to forbear from requiring Borrower to cure an Out-of-Formula Condition, (a) when
no Event of Default exists (or if an Event of Default exists, when the existence
of such Event of Default is not known by Revolving Credit Agent), if and for so
long as (i) such Out-of-Formula Condition does not continue for a period of more
than 15 consecutive days, following which no Out-of-Formula Condition exists for
at least 15 consecutive days before another Out-of-Formula Condition exists,
(ii) the amount of the Revolving Credit Advances outstanding at any time does
not exceed the aggregate Revolving Loan Commitment at such time, and (iii) the
Out-of-Formula Condition is not known by Revolving Credit Agent at the time in
question to exceed $2,000,000; and (b) regardless of whether or not an Event of
Default exists, if Revolving Credit Agent discovers the existence of an Out-of-
Formula Condition not previously known by it to exist, but Revolving Lenders
shall be obligated to continue making such Revolving Credit Advances as directed
by Revolving Credit Agent only (A) if the amount of the Out-of-Formula Condition
is not increased by more than $500,000 above the amount determined by Revolving
Credit Agent to exist on the date of discovery thereof and (B) for a period not
to exceed 5 Business Days. In no event shall Borrower or any other Loan Party
be deemed to be a beneficiary of this Section 10.10 or authorized to enforce any
-------------
of the provisions of this Section 10.10.
-------------
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2 below. Any letter of interest, commitment letter, and/or
------------
fee letter (other than the Fee Letter) between any Loan Party on one hand and
Agent, Revolving Credit Agent or any Lender or any of their respective
affiliates on the other hand, predating this Agreement and relating to a
financing of substantially similar form, purpose or effect shall be superseded
by this Agreement.
11.2 Amendments and Waivers. (a) Except for actions expressly permitted to
----------------------
be taken by Agent or Revolving Credit Agent, no amendment, modification,
termination or waiver of any provision of this Agreement or any of the Notes, or
any consent to any departure by any Loan Party therefrom, shall in any event be
effective unless the same shall be in writing and signed by Agent and Borrower,
and by Requisite Lenders or all affected Lenders and/or Revolving Credit Agent,
as applicable. Except as set forth in clauses (b) and (c) below, all such
----------- ---
amendments, modifications, terminations or waivers requiring the consent of any
Lenders shall require the written consent of Requisite Lenders.
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(b) No amendment, modification, termination or waiver of or consent
with respect to any provision of this Agreement which increases the percentage
advance rates set forth in the definition of the Borrowing Base, or which makes
less restrictive the nondiscretionary criteria for exclusion from Eligible
Accounts and Eligible Inventory set forth in Sections 1.7 and 1.8, shall be
------------ ---
effective unless the same shall be in writing and signed by Agent, Revolving
Credit Agent, Requisite Lenders and Borrower. No amendment, modification,
termination or waiver of or consent with respect to any provision of this
Agreement which waives compliance with the conditions precedent set forth in
Section 2.2 to the making of any Loan or the incurrence of any Letter of Credit
- -----------
Obligations shall be effective unless the same shall be in writing and signed by
(i) in the case of a Term Loan Advance, Agent, Requisite Lenders and Borrower,
and (ii) in the case of Revolving Credit Advance or the incurrence of Letter of
Credit Obligations, Revolving Credit Agent, Agent, Requisite Lenders and
Borrower. Notwithstanding anything contained in this Agreement to the contrary,
no waiver or consent with respect to any Default (if in connection therewith
Requisite Lenders have exercised their right to suspend the making or incurrence
of further Advances or Letter of Credit Obligations pursuant to Section 8.2) or
-----------
any Event of Default shall be effective for purposes of the conditions precedent
to the making of Advances or the incurrence of Letter of Credit Obligations set
forth in Section 2.2 unless the same shall be in writing and signed by Requisite
-----------
Lenders and Borrower.
(c) No amendment, modification, termination or waiver shall, unless in
writing and signed by Agent, Revolving Credit Agent and each Lender directly
affected thereby, do any of the following: (i) increase the principal amount of
any Lender's Commitment (which action shall be deemed to directly affect all
Lenders); (ii) reduce the amount due on any schedule payment date or reduce the
principal of, rate of interest on or Fees payable with respect to any Loan or
Letter of Credit Obligations of any affected Lender; (iii) extend any scheduled
payment date or final maturity date of the principal amount of any Loan or
Letter of Credit Obligations of any affected Lender; (iv) waive, forgive, defer,
extend or postpone any payment of interest or Fees as to any affected Lender;
(v) release any Guaranty or, except as otherwise permitted herein or in the
other Loan Documents, release, or permit any Loan Party to sell or otherwise
dispose of, any Collateral with a value exceeding $2,500,000 in the aggregate
(which action shall be deemed to directly affect all Lenders) provided, however,
-------- -------
that Agent shall be authorized to release that certain web press currently
located at 2500 Lamar Avenue, Memphis, Tennessee and previously sold to John P.
Miller, without the consent of Revolving Credit Agent or any Lender; (vi) change
the percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans which shall be required for Lenders or any of them to take any action
hereunder; (vii) amend or waive this Section 11.2 or the definitions of the term
------------
"Requisite Lenders" insofar as such definition affects the substance of this
Section 11.2; (viii) increase the aggregate amount of all Commitments; and (ix)
- ------------
permit the payment of any Subordinated Indebtedness except in accordance with
the provisions of any subordination agreement covering such Subordinated
Indebtedness. Furthermore, no amendment, modification, termination or waiver
affecting the rights or duties of Agent or Revolving Credit Agent under this
Agreement or any other Loan Document shall be effective unless in writing and
signed by Agent or Revolving Credit Agent, as applicable, in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the
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specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on any Loan Party in any case
shall entitle such Loan Party or any other Loan Party to any other or further
notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 11.2
------------
shall be binding upon each holder of the Notes at the time outstanding and each
future holder of the Notes.
(d) If, in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change"):
---------------
(i) requiring the consent of all affected Lenders, the consent of
one Lender is obtained, but the consent of other Lenders whose consent is
required is not obtained within two (2) weeks after the request therefor (any
such Lender whose consent is not obtained as described this clause (i) and in
----------
clause (ii) below being referred to as a "Non-Consenting Lender"), or
- ---------- ---------------------
(ii) requiring the consent of Requisite Lenders, the consent of
one Lender is obtained, but the consent of Requisite Lenders is not obtained
within two (2) weeks after the request therefor,
then, so long as Agent is not a Non-Consenting Lender, Agent or a Person
acceptable to Agent shall have the right with Agent's consent and in Agent's
sole discretion (but shall have no obligation) to purchase from such Non-
Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon
Agent's request, sell and assign to Agent or such Person, all of the Commitments
of such Non-Consenting Lender for an amount equal to the principal balance of
all Loans held by the Non-Consenting Lender and all accrued interest and Fees
with respect thereto through the date of sale, such purchase and sale to be
consummated pursuant to an executed Assignment Agreement (and that no Prepayment
Fee shall be applicable to such purchase).
(e) Upon indefeasible payment in full in cash and performance of all
of the Obligations (other than indemnification Obligations under Section 1.14),
------------
termination of the Commitments and a release of all claims against Agent,
Revolving Credit Agent and Lenders, and so long as no suits, actions,
proceedings, or claims are pending or threatened against any Indemnified Person
asserting any damages, losses or liabilities that are Indemnified Liabilities,
Agent shall deliver to Borrower termination statements, mortgage releases and
other documents necessary or appropriate to evidence the termination of the
Liens securing payment of the Obligations.
11.3 Fees and Expenses.
-----------------
(a) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) of Agent and
Revolving Credit Agent in connection with the preparation, negotiation,
approval, execution, delivery, administration,
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<PAGE>
modification, amendment, waiver and enforcement (whether through negotiations,
legal proceedings or otherwise) of the Loan Documents, and commitments relating
thereto, and the other documents to be delivered hereunder or thereunder and the
transactions contemplated hereby and thereby and the fulfillment or attempted
fulfillment of conditions precedent hereunder, excluding costs and expenses
incurred in connection with any sale or assignment of any of the Loans prior to
acceleration of the Obligations and including, without limitation: (i) wire
transfer fees and other costs of forwarding to Borrower or any other Person on
behalf of Borrower by Agent, Revolving Credit Agent and the Lenders of the
proceeds of the Term Loan Advances or the Advances; (ii) any amendment,
modification or waiver of, or consent with respect to, any of the Loan Documents
or advice in connection with the administration of the advances made pursuant
hereto or its rights hereunder or thereunder; (iii) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Agent, Revolving
Credit Agent, the Lenders, Borrower or any other Person) in any way relating to
the Collateral, any of the Loan Documents or any other agreements to be executed
or delivered in connection therewith or herewith, whether as party, witness, or
otherwise, including any litigation, contest, dispute, suit, case, proceeding or
action, and any appeal or review thereof, in connection with a case commenced by
or against Borrower or any other Person that may be obligated to Agent,
Revolving Credit Agent or Lenders by virtue of the Loan Documents; (iv) any
attempt to enforce any rights of Agent against Borrower or any other Person that
may be obligated to Agent, Revolving Credit Agent or the Lenders by virtue of
any of the Loan Documents; or (v) any effort to (A) evaluate, observe, assess
Borrower or its affairs, or (B) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of the Collateral. Notwithstanding
anything herein to the contrary, as long as no Event of Default is in existence,
Borrower shall not be obligated to reimburse Revolving Credit Agent for field
exam audits of Borrower in excess of $5,000 per location per year.
(b) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable counsels' fees) of Agent, Revolving
Credit Agent and the Lenders in connection with any Default and any enforcement
or collection proceedings resulting therefrom or any amendment, modification or
waiver of, or consent with respect to, any of the Loan Documents in connection
with any Default.
(c) Without limiting the generality of clauses (a) and (b) above,
Borrower's obligation to reimburse Agent, Revolving Credit Agent and/or the
Lenders for costs and expenses shall include the reasonable fees and expenses of
counsel (and local, foreign or special counsel, advisors, consultants and
auditors retained by such counsel), accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplicating expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram charges; secretarial overtime charges; expenses for travel, lodging and
food; and all other out-of-pocket costs and expenses of every type and nature
paid or incurred in connection with the performance of such legal or other
advisory services.
11.4 No Waiver. No failure on the part of Agent, Revolving Credit Agent or
---------
the Lenders, at any time or times, to require strict performance by any Loan
Party, of any provision
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<PAGE>
of this Agreement and any of the other Loan Documents shall waive, affect or
diminish any right of Agent , Revolving Credit Agent or such Lender thereafter
to demand strict compliance and performance therewith. Any suspension or waiver
of a Default shall not suspend, waive or affect any other Default whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of any Loan Party contained in this Agreement or any of the
other Loan Documents and no Default by any Loan Party shall be deemed to have
been suspended or waived by Agent, Revolving Credit Agent or any Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer of
or other authorized employee of Agent and the applicable required Lender if
required hereunder and directed to Borrower specifying such suspension or
waiver.
11.5 Remedies. The rights and remedies of Agent, Revolving Credit Agent and
--------
the Lenders under this Agreement shall be cumulative and nonexclusive of any
other rights and remedies which Agent, Revolving Credit Agent or the Lenders may
have under any other agreement, including, without limitation, the Loan
Documents, by operation of law or otherwise. Recourse to the Collateral shall
not be required.
11.6 Severability. Wherever possible, each provision of this Agreement shall
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this Agreement or
-----------------
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provisions contained in this Agreement shall govern and control.
11.8 Right of Set-off. Subject to Section 1.5(a), upon the occurrence and
---------------- --------------
during the continuance of any Event of Default, Agent is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply in accordance with Section 1.12 any and all deposits (general or
------------
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Agent, Revolving Credit Agent and/or the
Lenders to or for the credit or the account of Borrower against any and all of
the Obligations now or hereafter existing irrespective of whether or not Agent,
Revolving Credit Agent or such Lender shall have made any demand under this
Agreement or any other Loan Document and although such Obligations may be
unmatured. Agent agrees promptly to notify the Lenders, Revolving Credit Agent
and Borrower after any such set-off and application made by Agent; provided,
--------
however, that the failure to give such notice shall not affect the validity of
- -------
such set-off and application. The rights of Agent, Revolving Credit Agent and
the Lenders under this Section are in addition to the other rights and remedies
(including, without limitation, other rights of set-off) which Agent, Revolving
Credit Agent and the Lenders may have.
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11.9 Authorized Signature. Until Agent shall be notified by Borrower to the
--------------------
contrary, to the signature upon any document or instrument delivered pursuant
hereto and believed by Agent, Revolving Credit Agent or Lenders or any of their
officers, or employees to be that of an officer or duly authorized
representative of Borrower listed on Schedule 11.9 shall bind Borrower and be
-------------
deemed to be the act of Borrower affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's Board of Directors, and Agent, Revolving
Credit Agent and the Lenders shall be entitled to assume the authority of each
signature and authority of the person whose signature it is or appears to be
unless the person acting in reliance of such signature shall have actual
knowledge of the fact that such signature is false or the person whose signature
or purported signature is presented is without authority.
11.10 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
-------------
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER, AGENT, REVOLVING
CREDIT AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL
COURTS LOCATED IN NEW YORK CITY, NEW YORK, OR CHICAGO, ILLINOIS SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT, REVOLVING CREDIT AGENT, LENDERS AND BORROWER ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF NEW YORK CITY OR CHICAGO, AS THE CASE MAY BE, AND, PROVIDED, FURTHER,
THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
----- --- ----------
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON
SCHEDULE 11.11 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
- --------------
COMPLETED
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UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
11.11 Notices. Except as otherwise provided herein, whenever it is provided
-------
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon either of the parties by
the other party, or whenever either of the parties desires to give or serve upon
the other party any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (i) upon the earlier of actual receipt and three (3) days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 11.11, (iii) one (1)
-------------
Business Day after deposit with a reputable overnight courier with all charges
prepaid or (iv) when delivered, if hand-delivered by messenger, all of which
shall be addressed to the party to be notified and sent to the address or
facsimile number indicated on Annex J or to such other address (or facsimile
-------
number) as may be substituted by notice given as herein provided. The giving of
any notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower, Agent, Revolving Credit Agent or Lenders)
designated on Annex J to receive copies shall in no way adversely affect the
-------
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
11.12 Section Titles. The Section titles and Table of Contents contained in
--------------
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of this Agreement.
11.13 Counterparts. This Agreement may be executed in any number of separate
------------
counterparts, each of which shall, collectively and separately, constitute one
agreement.
11.14 Time of the Essence. Time is of the essence of this Agreement and each
-------------------
of the other Loan Documents.
11.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
--------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT
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OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
11.16 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
------------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
11.17 RELEASE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) IT HAS NO CLAIMS,
-------
COUNTERCLAIMS, OFFSETS, CREDITS OR DEFENSES OF ANY KIND OR NATURE WHATSOEVER TO
THE ORIGINAL AGREEMENT, THE FIRST RESTATED AGREEMENT, THE SECOND RESTATED
AGREEMENT AND THE OTHER LOAN DOCUMENTS (AS SUCH TERM IS DEFINED IN EACH OF THE
ORIGINAL AGREEMENT, THE FIRST RESTATED AGREEMENT AND THE SECOND RESTATED
AGREEMENT) AND THE PERFORMANCE OF ITS OBLIGATIONS THEREUNDER, OR (B) IF IT HAS
ANY SUCH CLAIMS, COUNTERCLAIMS, OFFSETS, CREDITS OR DEFENSES TO SUCH DOCUMENTS
AND/OR ANY TRANSACTION RELATED TO SUCH DOCUMENTS, SAME ARE HEREBY WAIVED,
RELINQUISHED AND RELEASED IN CONSIDERATION OF EACH LENDER'S EXECUTION AND
DELIVERY OF THIS AGREEMENT.
11.18 Amendment and Restatement. This Agreement and the Notes are given in
-------------------------
amendment, consolidation, restatement, renewal and extension (but not in
novation, extinguishment or satisfaction) of (i) the Second Restated Agreement
and the promissory notes executed in connection therewith, which Second Restated
Agreement and such promissory notes were given in amendment, restatement,
renewal and extension (but not in novation, extinguishment or satisfaction of
(a) the First Restated Agreement and the promissory notes executed in connection
therewith, which First Restated Agreement and such promissory notes were given
in amendment, restatement, renewal and extension (but not in novation,
extinguishment or satisfaction) of the Original Agreement and the promissory
notes issued in connection therewith, and (b) the Phillips Loan Agreement, and
(ii) the Deutsche Loan Agreement and the promissory note executed in connection
therewith. All liens and security interests securing payment of the obligations
under the Original Agreement, the First Restated Agreement, the Phillips Loan
Agreement, the Second Restated Agreement and the Deutsche Loan Agreement, and
such promissory notes are hereby collectively renewed, extended, rearranged,
ratified and brought forward as security for the payment and performance of the
Obligations. With respect to matters relating to the period prior to the date
hereof, all of the provisions of the Original Agreement, the First Restated
Agreement, the Phillips Loan Agreement, the Second Restated Agreement, and the
Deutsche Loan Agreement and the promissory notes, security agreements and other
documents, instruments or agreements executed in connection therewith are hereby
ratified and confirmed and shall remain in force and effect.
11.19 References. Each of the Loan Documents, and any and all other Loan
----------
Documents, documents or instruments now or hereafter executed and delivered
pursuant to the
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<PAGE>
terms hereof are hereby amended so that (i) any reference in such other Loan
Documents to the Original Agreement, the First Restated Agreement, the Phillips
Agreements, the Second Restated Agreement (including as any thereof may have
been amended) shall mean a reference to this Agreement, or the Deutsche Loan
Agreement and (ii) any reference in such other Loan Documents to Original Lender
or August 1998 Lenders or Deutsche shall mean a reference to Agent, Revolving
Credit Agent and Lenders, as context may require.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.
BORROWER:
PREMIER GRAPHICS, INC.
By:____________________
Lance T. Fair
Secretary
AGENT, FOR THE BENEFIT OF THE LENDERS:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:____________________
John E. Hanley
Senior Risk Manager
REVOLVING CREDIT AGENT, FOR THE BENEFIT OF
LENDERS:
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By:____________________
Name:__________________
Title:_________________
<PAGE>
LENDERS:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:____________________
John E. Hanley
Senior Risk Manager
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By:____________________
Name:__________________
Title:_________________
TRANSAMERICA EQUIPMENT FINANCIAL
SERVICES CORPORATION
By:____________________
Name:__________________
Title:_________________
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
MASTER GRAPHICS, INC
COMPUTATION OF NET EARNINGS (LOSS) PER COMMON SHARE (1)(2)
(dollars in thousands, except per share amounts)
YEAR YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BASIC:
- ------
Net earnings (loss) before
extraordinary loss $ 172 $ (1,273) $ (3,819) $ 3,973
Less preferred stock
dividend requirement - - - (84)
Less accretion of
preferred stock discount - - - (87)
----------- --------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders 172 (1,273) (3,819) 3,802
Extraordinary loss, net - - - (2,098)
----------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders 172 (1,273) (3,819) 1,704
=========== ========== ========== ==========
Basic - average shares
outstanding 4,000,000 4,000,000 4,000,000 6,130,117
========== ========== ========== ==========
Basic earnings per share:
Net earnings (loss)
before extraordinary
loss $ .04 $ (0.32) $ (0.95) $ .62
========== ========== ========== ==========
Extraordinary loss, net $ - $ - $ - $ (.34)
========== ========== ========== ==========
Net earnings (loss)
available for common
shareholders $ .04 $ (0.32) $ (0.95) $ .28
========== ========== ========== ==========
DILUTED:
- --------
Net earnings (loss)
available to common
shareholders $ 172 $ (1,273) $ (3,819) $ 3,802
Plus preferred stock
dividend requirement
and discount accretion - - - 171
Plus deferred compensation
provision - - - 47
---------- ---------- ---------- ----------
Net earnings (loss) before
extraordinary loss
available for common
shareholders 172 (1,273) (3,819) 4,020
Extraordinary loss, net - - - (2,098)
---------- ---------- ---------- ----------
Net earnings (loss)
available for common
shareholders 172 (1,273) (3,819) 1,922
========== ========== ========== ==========
Basic - average shares
outstanding 4,000,000 4,000,000 4,000,000 6,130,117
Assumed conversion of
preferred stock - - - 177,776
Assumed exercise of
warrants - - 355,552 237,223
Assumed exercise of the
stock option clause in the
deferred compensation
agreements - - - 100,000
========== ---------- ---------- ----------
Diluted - average shares
outstanding 4,000,000 4,000,000 4,355,552 6,645,116
========== ========== ========== ==========
Diluted earnings per share (3)
Net earnings (loss)
before extraordinary
loss $ .04 $ (0.32) $ (0.88) $ .61
========== ========== ========== ==========
Extraordinary loss, net $ - $ - $ - $ (.32)
========== ========== ========== ==========
Net earnings (loss)
available for common
shareholders $ .04 $ (0.32) $ (0.88) $ .29
========== ========== ========== ==========
</TABLE>
- --------------
Notes:
(1) Computation of net earnings (loss) per common share for the fiscal years
1993 through 1996 is not shown as the Company's capital structure during
those periods consisted solely of 4,000,000 shares of common stock and
there were no potential equity instruments issued.
(2) Shares for all periods presented are adjusted to reflect a 40,000 to 1
stock split which occurred on May 14, 1998.
(3) Diluted earnings (loss) per share is set forth herein in accordance with
Item 601 of Regulation S-K. The resulting historical diluted earnings
(loss) per share for the six months ended December 31, 1997 were anti-
dilutive and, therefore, are not disclosed in the statement of operations.
Historical earnings per share for the year ended December 31, 1998
were anti-dilutive due to the preferred stock conversion, and, therefore,
that conversion was not assumed in the unaudited condensed consolidated
statements of operations.
<PAGE>
EXHIBIT 12.1
MASTER GRAPHICS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Master Graphics, Inc.
--------------------------------------------------------------------------------
Year Year Year Year Six Months Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, December 31, December 31,
1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 403 334 376 439 2,091 9,723
Amortization of deferred loan costs -- -- -- -- 90 548
Interest factor in rents 103 107 137 350 133 590
------ ------ ------ ------ ------- ------
Total Fixed Charges $ 506 441 513 789 2,314 10,861
====== ====== ====== ====== ======= ======
Earnings:
Income (loss) before income taxes and
extraordinary items $ (117) (296) 334 (1,248) (3,799) 4,601
Fixed charges 506 441 513 789 2,314 10,861
------ ------ ------ ------ ------- ------
Total Earnings $ 389 145 847 (459) (1,485) 15,462
====== ====== ====== ====== ======= ======
Ratio of Earnings to Fixed Charges -- -- 1.7x -- -- 1.4x
====== ====== ====== ====== ======= ======
Amount by which fixed charges
exceeded earnings $ 117 296 -- 1,248 3,799 --
====== ====== ====== ====== ======= ======
<CAPTION>
--------------------------------------------------------------------------------
Premier Graphics, Inc.
--------------------------------------------------------------------------------
Year
Ended
December 31,
1998
----
<S> <C>
Fixed Charges:
Interest expense $ 9,129
Amortization of deferred loan costs 548
Interest factor in rents 557
-------
Total Fixed Charges $10,234
=======
Earnings:
Income (loss) before income taxes and
extraordinary items $ 3,907
Fixed charges 10,234
-------
Total Earnings $14,141
=======
Ratio of Earnings to Fixed Charges 1.4x
=======
Amount by which fixed charges
exceeded earnings $ --
=======
</TABLE>
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
We consent to the use of our report with respect to the consolidated balance
sheets of Master Graphics, Inc. as of December 31, 1997 and 1998 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1997, the six-month
period ended December 31, 1997 and the year ended December 31, 1998, included
herein, and to the references to our firm under the heading of "Experts" in the
Prospectus.
KPMG LLP
Memphis, Tennessee
March , 1999
<PAGE>
[LETTERHEAD OF MARLIN & EDMONDSON, P.C. APPEARS HERE]
EXHIBIT 23.2
Premier Graphics, Inc., a wholly-owned
subsidiary of Master Graphics, Inc.
Memphis, Tennessee
We consent to the use of our report on the financial statements of McQuiddy
Printing Company included in the registration statement of Master Graphics, Inc.
on Form S-1 and to the reference to our firm under the heading "Experts" in the
Prospectus.
/s/ Marlin & Edmondson
Nashville, Tennessee
March 19, 1999
<PAGE>
EXHIBIT 25.1
FORM T-1
==============================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
===================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)__________
===================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
NEW YORK 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 WEST 47TH STREET 10036-1532
NEW YORK, NY (Zip Code)
(Address of principal
executive offices)
===================
PREMIER GRAPHICS INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 62-1694320
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
6075 POPLAR AVENUE
SUITE 401
MEMPHIS, TENNESSEE 38119
(Address of principal executive offices) (Zip Code)
________________________
11 1/2% SENIOR NOTES DUE 2005
(Title of the indenture securities)
==============================================
MASTER GRAPHICS, INC.
(Exact name of Obligor as specified in charter)
TENNESSEE 62-1694322
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
===================
HARPERPRINTS, INC.
(Exact name of Obligor as specified in charter)
NORTH CAROLINA 56-1074215
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
<PAGE>
-2-
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New
York (Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Premier Graphics Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No. 33-
97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
-3-
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference in Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No. 33-
97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of January 25, 1999, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
_____________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 25th day
of January, 1999.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Patricia Stermer
---------------------------------
Patricia Stermer
Assistant Vice President
<PAGE>
EXHIBIT T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
__________________________
By: S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1998
------------------
<TABLE>
<S> <C>
ASSETS
- ------
Cash and Due from Banks $ 339,287
Short-Term Investments 161,493
Securities, Available for Sale 563,176
Loans 1,954,456
Less: Allowance for Credit Losses 16,860
----------
Net Loans 1,937,596
Premises and Equipment 58,809
Other Assets 120,308
----------
TOTAL ASSETS $3,180,669
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 646,593
Interest Bearing 1,838,108
----------
Total Deposits 2,484,701
Short-Term Credit Facilities 375,849
Accounts Payable and Accrued Liabilities 142,513
----------
TOTAL LIABILITIES $3,003,063
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 109,648
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 3,422
----------
TOTAL STOCKHOLDER'S EQUITY 177,606
==========
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,180,669
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do
hereby declare that this Statements of Condition has been prepared in
conformance with the instruction issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, Managing Director & Comptroller
November 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,525
<SECURITIES> 0
<RECEIVABLES> 39,711
<ALLOWANCES> (1,182)
<INVENTORY> 8,095
<CURRENT-ASSETS> 65,218
<PP&E> 85,738
<DEPRECIATION> (10,487)
<TOTAL-ASSETS> 207,876
<CURRENT-LIABILITIES> 17,293
<BONDS> 130,000
1,437
0
<COMMON> 8
<OTHER-SE> 36,184
<TOTAL-LIABILITY-AND-EQUITY> 207,876
<SALES> 163,277
<TOTAL-REVENUES> 163,277
<CGS> 121,340
<TOTAL-COSTS> 121,340
<OTHER-EXPENSES> 9,453
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 10,271
<INCOME-PRETAX> 4,601
<INCOME-TAX> 628
<INCOME-CONTINUING> 3,973
<DISCONTINUED> 0
<EXTRAORDINARY> (2,098)
<CHANGES> 0
<NET-INCOME> 1,875
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
