<PAGE>
As filed with the Securities and Exchange Commission April 9, 1999
Registration No. 333-71157
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 2 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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)
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Copies to:
Robert J. DelPriore, Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2100
Memphis, Tennessee 38103
(901) 577-2194
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Approximate date of commencement of proposed sale of securities to public: As
soon as practicable after the effective date of this Registration Statement.
If the securities 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. [_]
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(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 APRIL 9 , 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, May 7, 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 12 for a discussion of 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.................................................................. 42
Management................................................................ 54
Certain Transactions...................................................... 61
Description of Other Indebtedness......................................... 65
Description of Notes...................................................... 67
Book-Entry Procedures for the Global Notes................................ 108
Federal Income Tax Consideration.......................................... 111
Plan of Distribution...................................................... 116
Legal Matters............................................................. 117
Experts................................................................... 117
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 12 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 May 7, 1999. You may withdraw
old notes you tender at any time prior to
5:00 p.m., New York City time on May 6,
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.
With respect to the exchange of the old
Federal Tax Considerations ... 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 (800) 548-
6565 and its facsimile number is (212)
780-0592.
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 68 and 69.
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 69.
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 69
through 72, 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 as of and
for the year ended December 31, 1998. The summary financial information
includes the results of Harperprints, Inc., which was merged into Premier
Graphics in March 1999. 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 34, and the consolidated
financial statements of Master Graphics and the notes thereto starting on page
F-3 to more fully understand the income statement data and balance sheet data
presented below.
<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
<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>
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(1) Cash interest expense represents total interest expense less amortization
of deferred financing costs.
10
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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 34, 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
<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>
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(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 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 important credit statistics as of and for the year ended December
31, 1998:
<TABLE>
<CAPTION>
(Dollars in thousands)
<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, Premier Graphics 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 other indebtedness, thereby reducing our
cash flow available to make required payments on the notes. Currently,
we owe approximately $26.0 million in debt, excluding the $130.0 million
we owe on the notes. We must pay approximately $5.2 million per year to
service the $26.0 million of debt;
. 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 we borrowed the full amount available under our credit facility
and such amounts bore interest at 8% per year, which we believe is a reasonable
assumption at this time, we would be required to pay approximately $14.8
million per year to service our credit facility debt. 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. If we are unable to generate sufficient cash flow,
we may not be able to make required payments on the notes.
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.
If we do not satisfy the restrictive covenants contained in our credit
facility, we will be in default under our credit facility, which also triggers
a default under the notes. If we default on our credit facility and our
creditors take possession of the assets which secure the credit facility, we
will not have sufficient assets to repay 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
13
<PAGE>
. 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 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.
Since you have no collateral, you cannot use our assets to seek repayment of
the notes.
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 69 and 70 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, 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.
14
<PAGE>
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 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 some cases up to 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.
We cannot assure you that an active trading market for the exchange notes will
ever develop. You may not be able to resell the exchange notes or may be forced
to resell them at a discount.
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;
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. 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.
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 Premier Graphics' predecessor,
B&M Printing, 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--If our acquisition strategy is not successful, our cash flow
growth will slow and we may not be able to make payments on the exchange 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.
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The success of our acquisition strategy will be dependent upon a number of
factors, including
. our ability to locate general commercial printing companies we want to
acquire; and
. our ability to finance acquisitions on satisfactory terms.
The 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, some grades of paper
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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We have agreed to pay substantial additional consideration to the former owners
of some of the companies we have acquired. The payment of this consideration is
contingent upon the acquired companies surpassing EBITDA-based targets. If the
contingent consideration is earned, we may not have sufficient funds to make
required payments on the exchange 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
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 pages 38 and 39.
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 some of our divisions. 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 May 6, 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 April 14, 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 "--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 May 7, 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 "--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.
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
28
<PAGE>
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:
Confirm by Telephone: (212) 780-0592
(800) 548-6565
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:
(A) 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;
(B) 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;
(C) 43,000 shares of Common Stock issuable at $10 per share upon the
exercise of rights granted to former B&M Printing shareholders;
(D) 1,828,848 shares of common stock issuable at $10 per share upon the
exercise of warrants issued in connection with some of Master Graphics'
acquisitions;
(E) 713,429 shares of common stock issuable at $10 per share upon the
exercise of outstanding stock options held by directors and employees;
(F) 100,000 shares of common stock issuable at $10 per share pursuant to
Master Graphics' deferred compensation plan; and
(G) 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.
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<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
on an historical basis for Master Graphics and its predecessor. 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
ended December
Year ended June 30, (1) 31, Year ended
---------------------------------- --------------- December 31,
1994 1995 1996 1996 1996 1997 1998
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................. $10,804 $11,426 $13,244 $13,433 $6,357 $32,394 $163,277
Gross profit............ 2,706 2,498 3,288 2,121 977 5,866 41,937
Depreciation and
amortization........... 867 747 605 623 329 1,413 6,660
Operating income
(loss)................. 119 (72) 597 (900) (274) (222) 14,054
Net income (loss) before
extraordinary
loss (2)............... (92) (209) 172 (1,273) (415) (3,819) 3,973
Net income.............. (92) (209) 172 (1,273) (415) (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 $207,876
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, or $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 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 some 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 reductions in
their compensation and benefits following the acquisition by Master Graphics.
Results of Operations
The following table sets forth financial data for the periods indicated 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
------------ ------------ ------------ ------------ -------------
(dollars in millions)
<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) Master Graphics 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 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.
Income Tax Expense. The provision decreased from $25,000 for the year ended
June 30, 1997 to a net benefit of $830,000 for the year ended December 31,
1998. Income taxes in 1998 were comprised of $628,000 of expense related to
income before extraordinary item and an approximate $1.5 million credit related
to the extraordinary loss on extinguishment of debt. The net tax credit
reflects the recognition of benefits related to loss and credit carryforwards.
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 indebtedness in connection with Master
Graphics' 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
35
<PAGE>
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 $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.
Income Tax Expense. The provision decreased from June 30, 1996 to June 30,
1997 due to operating losses generated for which no tax benefit was recorded
for unrealized net operating losses and alternative minimum tax credit
carryforwards.
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.
Income Tax Expense. The provision decreased from the six months June 30,
1996 to the six months ended December 31, 1997 due to operating losses
generated for which no tax benefit was recorded for unrealized net operating
losses and alternative minimum tax credit carryforwards.
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
36
<PAGE>
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, cash flows from operating
activities have generated approximately $6 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 for 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
37
<PAGE>
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 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 financial 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 some of
the acquired companies by issuing unsecured subordinated seller notes to the
former owners of these companies. The total principal amount of those seller
notes issued was approximately $14.9 million. Master Graphics also issued
unsecured subordinated replacement notes to the former owners of Hederman and
Phoenix which replaced notes between such companies and their owners. The
aggregate principal amount of those 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 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:
. balloon maturity date of June 30, 2006;
. 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;
. no restrictive covenants; and
. 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
notes issued to the former B&M Printing owners and some of the seller notes and
replacement notes. The remaining $4.0 million of seller notes and replacement
notes generally:
. bear interest at 12% per annum which is payable quarterly;
. are subject to prepayment at the option of Master Graphics only upon
payment of a penalty which equals 20% of the amount prepaid; and
. 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 EBITDA-based targets, which generally
exceed the pre-acquisition performance levels of those companies. Reaching
these targets will result in additional cash
38
<PAGE>
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 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 Graphics, its 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: (A) some systems' programming assigns special meaning to some dates,
such as 9/9/99, and (B) 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
39
<PAGE>
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 primarily limited to
the purchase of computer hardware, and to a lesser extent software, at some of
our divisions. We have conducted 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 consisted of both information technology and
non-information technology systems. We have completed our review program and
begun corrective actions. We expect our corrective action 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 expect 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 Master Graphics 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 our ability
to operate due to (A) equipment malfunction or (B) customer inability to
forward electronic images due to its own Year 2000 malfunctions. Should our
information technology systems fail, in spite of our efforts to meet Year 2000
compliance standards, the failure could have a material effect on our ability
to manage our business including billing, collecting, disbursing and creating
timely financial reports. If a substantial portion of our equipment contains
computer chips which are not Year 2000 compliant, the equipment may not
function after December 31, 1999, and, therefore, we would not be able to
produce and deliver our product. 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 because we could not provide printed
products to our customers. This would cause a decline in revenue. 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 scenario 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.
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If in the worst case that Year 2000 issues of our equipment and systems, our
vendors, and/or our customers are not addressed satisfactorily, we could
experience a disruption in business that would cause a decline in earnings and
our cash flows.
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.
Market Risks
Market risks were not material to us at December 31, 1998. As of that date,
substantially all of our interest bearing indebtedness bore interest on a fixed
rate basis. We do not currently deal in any derivative instruments nor are we
exposed to any currency translation fluctuations. We do not have any commodity
derivative instruments because we generally pass any paper price fluctuations
through to our customers using the product pricing.
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<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 P. 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 general
commercial printing companies. 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 printing services or the customer, but because of the
decreased cost of and technological
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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 in sheet fed presses or
on continuous rolls in 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 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 pages of letter-sized finished product with 16
pages on each side 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 primarily based on service, quality and responsiveness, and not
based solely on price.
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. 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, 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. Please refer to the discussion under the
caption "--Master Central" for a more detailed explanation of the Master
Central concept and its intended effects.
. 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 are
currently discussing with 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 focused on
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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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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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 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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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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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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computer disk reviews, reviews of color and other proofs and 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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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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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>
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<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 results 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 by independent environment
consultants. A Phase I environmental site assessment does not involve invasive
procedures, such as soil sampling or ground water analysis. 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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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.
53
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth 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 Master Graphics, 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 Master Graphics, 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.
54
<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 Master Graphics 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 Master Graphics 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.
55
<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.
56
<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.
57
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth 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
58
<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 confidentiality and
non-competition covenants.
59
<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 14.0% $10.00 June 2008 $ 628,895 $ 1,593,742
Robert J. Diehl......... 30,000 4.2 $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 713,429 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
60
<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 for issuance. The number of shares is subject to
customary antidilution adjustments. 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.
61
<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, members of his immediate family, and 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 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 some of the acquired companies and
approximately $2.3 million in loan origination fees. In addition, General
Electric Capital Corporation is a lender under, and administrative agent for,
Premier Graphics' credit facility.
62
<PAGE>
Master Graphics Stock Ownership
Five Percent 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................................ 2,250(4) *
Donald L. Hutson.................................. 7,841(5) *
Lance T. Fair..................................... 86,500(6) *
Robert J. Diehl................................... 38,000(7) *
James B. Duncan................................... 11,300(8) *
All executive officers and directors as a group (8
persons)......................................... 4,759,241 57.0
</TABLE>
63
<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 250 shares of common stock issuable upon exercise of options held
by Mr. Avery.
(5) Includes 250 shares of common stock issuable upon exercise of options held
by Mr. Hutson.
(6) Includes 60,000 shares of common stock issuable to Mr. Fair in connection
with Master Graphics deferred compensation plan; and 25,000 shares of
common stock issuable upon exercise of options held by Mr. Fair.
(7) Includes 30,000 shares of common stock issuable to Mr. Diehl in connection
with Master Graphics deferred compensation plan; and 7,500 shares of common
stock issuable upon exercise of options held by Mr. Diehl.
(8) Includes 5,000 shares of common stock issuable to Mr. Duncan in connection
with Master Graphics deferred compensation plan; and 2,500 shares of common
stock issuable upon exercise of options held by Mr. Duncan.
64
<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
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.
65
<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 of notes generally:
.bear interest at 12% per annum which is payable quarterly;
. are subject to prepayment at the option of Master Graphics only upon
payment of penalty which equals 20% of the amount prepaid; and
.mature seven years from the date of issuance.
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DESCRIPTION OF NOTES
You can find the definition of some of the terms used in this description
under the subheading "Definitions" beginning on page 91.
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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. 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 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, if Premier Graphics applies the Net
Proceeds of that sale or other disposition, in accordance with the
applicable provisions of the indenture; or
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(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, 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 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 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 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 Premier
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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 some 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.
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 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 are 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 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, which are referred to as 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 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, which
is called "Permitted Refinancing Indebtedness", 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, 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, which
is called "Permitted Subsidiary Refinancing Indebtedness," 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 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 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,
which is called 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, 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 77; 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, which
is called "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 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, which is called 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," "-- Covenants --
Limitation on Restricted Payments," "-- Covenants -- Limitation on
Asset Sales," "-- Covenants -- Limitation on Indebtedness," "--
Covenants --Limitation on Subsidiary Indebtedness and Preferred
Stock," "-- 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 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 some 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 some 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) other specified provisions in the Indenture or
(2) cease to be under any obligation to comply with 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.
Definitions
Set forth below is a summary of some 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",
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 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
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 "--
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 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 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 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 "--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 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, which is called 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 which is called 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, 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 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 "--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, 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; 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 of Property or assets
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.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien, or preference,
priority or other security or
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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 Graphics, any other Subsidiary or any Affiliate
of Premier Graphics 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 would permit 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
(3) 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;
(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;
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(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 "--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 (4)
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 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 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 Graphics or Master Graphics, under the
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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 the 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 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 except
as required by law.
"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 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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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. The
global note will be deposited with, or on behalf of, The Depository Trust
Company 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 other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies which are called "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 purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in
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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 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.
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 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
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 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 some 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
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 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 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
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 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 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 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,
115
<PAGE>
(3) a foreign person, 50% or more of whose gross income from all sources
for specified 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 specified 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 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 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.
116
<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
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.
117
<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
</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 $22,540
=======
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, 1998 was a decrease of
$951,000. This valuation allowance decrease relates to net operating loss
carryforwards and alternative minimum tax carryforwards. These tax assets were
previously fully reserved, as realization of these assets did not meet the
"more likely than not" standard for recognition of deferred tax assets. Based
on recent operating results, management now believes that it is "more likely
than not" that these assets will be realized; therefore, the valuation
allowance has been reduced. The remaining valuation allowance relates to
acquired tax attributes of certain of the acquired businesses. 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.
No sellers' warrants or rights have been exercised to date.
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 722,363
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 .............................................................. 724,363
Exercised............................................................. 0
Canceled or expired................................................... 10,934
-------
Outstanding at December 31, 1998........................................ 713,429
=======
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.
Following is summarized unaudited financial information for the six months
ended December 31, 1996: Revenue, $6,357,000; Gross profit, $977,000; Net
income, $(415,000); Earnings per share (basic and diluted), $0.00.
(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 acquired 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>
F-19
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<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>
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 19,985
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 general 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
F-20
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 LIBOR plus 2.5% and is repayable in full in
March 2004.
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>
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 April 9, 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 April 9, 1999
______________________________________ (Principal Executive
John P. Miller Officer)
/s/ Lance T. Fair Secretary April 9, 1999
______________________________________ (Principal Financial and
Lance T. Fair Accounting Officer)
* Director, President Hederman April 9, 1999
______________________________________ Brothers Division
H. Henry (Hap) Hederman
* Director, President Phoenix April 9, 1999
______________________________________ Division
Cary Rosenthal
* Director April 9, 1999
______________________________________
Frederick F. Avery
* Director April 9, 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 April 9, 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, April 9, 1999
______________________________________ President and Chairman of the
John P. Miller Board of Directors
(Principal Executive Officer)
/s/ Lance T. Fair Senior Vice President-- April 9, 1999
______________________________________ Acquisitions; Chief Financial
Lance T. Fair Officer
(Principal Financial Officer)
/s/ P. Melvin Henson, Jr. Senior Vice President-- April 9, 1999
______________________________________ Finance and Administration
P. Melvin Henson, Jr. (Principal Accounting Officer)
* Director, President Hederman April 9, 1999
______________________________________ Brothers Division
H. Henry (Hap) Hederman
* Director, President Phoenix April 9, 1999
______________________________________ Division
Cary Rosenthal
* Director April 9, 1999
______________________________________
Frederick F. Avery
* Director April 9, 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
23.3* 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>
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
April 9, 1999
