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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 1-683
Multigraphics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 34-0054940
(State of Incorporation) (I.R.S. Employer Identification No.)
431 Lakeview Court
Mt. Prospect, Illinois 60056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 375-1700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $0.025 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates of
the Registrant as of October 1, 1999 was:
Common Stock, $0.025 par value: $2,063,359
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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Indicate the number of outstanding shares of the Registrant's classes
of common stock as of October 1, 1999:
2,848,346 shares of Registrant's common stock, par value $0.025 per
share.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS AND RECENT EVENTS.
GENERAL
We are a sales and service organization operating in the graphic arts
industry offering our customers an extensive range of equipment, supplies and
service. The products we sell are manufactured by a variety of suppliers and
are sold under brand names belonging to Multigraphics as well as some brand
names owned by the manufacturers. We compete with national and regional graphic
arts dealers selling similar equipment and supplies products and offering
similar service. We offer national service on an array of equipment used in
printing and finishing and compete with other national and regional graphic arts
dealers. Our service organization is one of the nation's largest in the graphic
arts industry and we service hundreds of electro-mechanical systems that were
manufactured by Multigraphics in the past, when we manufactured printing
equipment, as well as equipment manufactured by others.
MERGER AGREEMENT WITH PARAGON CORPORATE HOLDINGS
During our fourth fiscal quarter ended July 31, 1999, we continued to
experience difficulty in meeting our liquidity requirements due to lower than
expected sales, the timing of demands to settle non-operating obligations and
decreases in our borrowing base. This liquidity difficulty forced us to reduce
inventory and delay payments to vendors and suppliers, which led some vendors to
delay or cancel shipment of product, resulting in lower sales levels and
profitability. As of July 31, 1999 over 50% of our trade accounts payable were
past their due date. In light of these events, our primary lender in August
1999 advised us that it needed to protect its collateral base and, absent an
immediate plan or transaction which would infuse significant additional
liquidity into Multigraphics, it would commence reducing the lending advance
rates as well as increasing the interest rate on borrowings and might invoke a
material adverse change clause. This action by the lender would have worsened
our already tenuous liquidity situation and possibly force Multigraphics into
bankruptcy.
On October 1, 1999, we announced that we had entered into an Agreement
and Plan of Merger with Paragon Corporate Holdings, Inc. providing for Paragon
to acquire Multigraphics for $1.25 in cash per share of common stock. Paragon
will also assume all of our outstanding debt. Concurrently with executing the
merger agreement, we entered into a credit facility with Paragon pursuant to
which Paragon advanced to us $2 million on a secured basis. Paragon's loan to
us is subordinated to our primary lender as discussed in Note 4 to the Notes to
the Consolidated Financial Statements included herein. Paragon is the parent
company of AB Dick Company, a manufacturer and worldwide supplier to the graphic
arts industry.
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The merger transaction will be accounted for as a purchase and is
anticipated to close by the end of calendar 1999. The merger is subject to
approval of the holders of at least a majority of our outstanding shares,
expiration of the Hart-Scott-Rodino antitrust review period and other customary
conditions. Under the merger agreement, Paragon may receive a termination fee
under certain circumstances. There can be no assurance that the merger
agreement will result in a transaction.
Lion Advisors, L.P. and AIF II, L.P., which beneficially own
approximately 35% of our outstanding shares, have agreed with Paragon to support
the merger and to vote to approve the merger agreement and have granted an
option to Paragon to purchase their shares under certain circumstances.
Our current financial condition and uncertainties as described above
raise substantial doubt about our ability to continue as a going concern absent
the merger transaction.
BANKRUPTCY PROCEEDINGS
On May 17, 1993, Multigraphics and our subsidiary,
Addressograph-Multigraph Corporation, filed for protection under Chapter 11
of the United States Bankruptcy Code, in the United States Bankruptcy Court
for the District of Delaware case numbers 93-582 through 93-583. We also
filed on that date a proposed plan of reorganization. The Chapter 11 filing
related to our domestic operations and did not include our foreign
subsidiaries.
On August 26, 1993, a hearing was held by the bankruptcy court to
consider approval of a disclosure statement to be distributed to our creditors
and stockholders. After that hearing, and by order of the bankruptcy court
dated August 26, 1993, the second amended disclosure statement was approved.
Further information on the first amended plan of reorganization as amended by
Amendment No. 1 thereto and the disclosures made in connection therewith are
available in the disclosure statement and the reorganization plan incorporated
herein by reference to Exhibits 28 and 10(A), respectively, to our Annual Report
on Form 10-K for the fiscal year ended July 31, 1993, File No. 1-683.
EVENTS LEADING TO BANKRUPTCY PROCEEDINGS
Reference is made to Section D of Part III of the disclosure statement
(pages 22 to 29), incorporated herein by reference to Exhibit 28 to our Annual
Report on Form 10-K for the fiscal year ended July 31, 1993, File No. 1-683, for
information on the general development of our business and events which led to
commencement of our bankruptcy proceedings on May 17, 1993.
CORPORATE STRUCTURE OF MULTIGRAPHICS
Multigraphics was originally incorporated in Delaware in 1924 as
Addressograph Securities Corporation. We have had several name changes, one of
which was Addressograph-
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Multigraph Corporation for the period May 6, 1931 to January 2, 1979. We
changed our name from "AM International, Inc." to "Multigraphics, Inc." on
May 28, 1997. We have one active subsidiary, Publishing Solutions Inc. As
used herein "Multigraphics," "we" or "our" means Multigraphics, Inc., and, if
the context requires, our subsidiaries.
(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS.
The information in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in Note 13 to the
Notes to Consolidated Financial Statements under the section entitled "Operating
Segments" included elsewhere in this annual report are incorporated herein by
reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
We distribute equipment and supplies and provide services to the
graphic arts industry. We exited the engineering and manufacturing of offset
duplicating equipment and supplies to focus exclusively on two business
segments, distribution and service. We primarily serve in-plant printers and
small to medium sized commercial printers. Our strategy has been to achieve
growth within the graphic arts market by expanding our product offerings,
enhancing our digital support capabilities, taking advantage of our unique
national service capabilities and increasing market penetration and coverage
through a program of acquisitions of regional dealers that compete in the
fragmented graphic arts market. Our marketing program also focuses on obtaining
national service accounts with manufacturers and national retail outlets.
Achievement of our strategic objectives has been hindered by our inability to
raise capital necessary to complete acquisitions. As of October 1, 1999 we had
614 employees in the United States and are headquartered in Mount Prospect,
Illinois.
As discussed above, due to the liquidity crisis experienced by
Multigraphics and the pressure put on us by our primary lender to seek
additional liquidity, on October 1, 1999, we announced that we had entered into
a Merger Agreement with Paragon providing for Paragon to acquire Multigraphics
for $1.25 in cash per share of common stock and the assumption of our
outstanding debt.
ACQUISITIONS
Between December 1997 and September 1998, we acquired four regional
graphic arts dealers which serve the same general customer base as
Multigraphics. In December 1997, we acquired certain assets of Hanley Graphic
Products Company, a graphic arts dealer operating in northern Illinois with
annual revenues of over $18 million. In December 1997, we also acquired the
stock of Publishing Solutions Inc., a privately held Akron, Ohio based systems
integrator with annual revenues of approximately $9 million. In June 1998, we
acquired certain assets of Chicago based Progressive Lithoplate and Supply
Company, which had annual revenues of approximately
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$5 million. In September of 1998, we acquired certain assets of Texas
PrePress Systems, Inc., an Austin, Texas based pre-press systems integrator
with revenues of approximately $2 million.
The results to date of the acquisitions have been mixed. Although the
acquisitions have complemented our internal efforts to expand our product
offerings, and bring enhanced digital sales and support capabilities, as well as
an expanded customer base in our key markets, difficulties with retaining brand
contracts, sales representatives and suppliers in one acquired business led to a
shortfall in expected sales. In another acquired unit, the lack of a supplies
product line and presence in its territory in the face of intense competition
made obtaining new customers difficult and led to shortfalls against expected
sales and profitability. During fiscal 1999, we evaluated other potential
acquisition candidates, but did not complete any dealer acquisitions since
September 1998 due, in part, to liquidity constraints.
PRODUCTS AND SUPPLIERS
Our supplies and equipment offerings consist of consumable products
used in the production of printed materials such as films, inks, plates, rubber
rollers, cleaning solutions and cotton pads, as well as equipment products such
as digital imagesetters, platesetters, presses, folders and cutters. We track
various categories of these products, none of which accounts for more than 10%
of our revenues. Other than one vendor, which supplies various categories of
products which accounted for approximately 12% of our revenues for fiscal 1999,
no single supplier accounts for more than 10% of our revenues.
Our service and parts offerings include service on over 250 models of
printing equipment installed in in-plant and small to medium sized commercial
print shops, governmental and educational institutions, as well as national
retail outlets. We have approximately 325 service representatives, and offer
service capabilities in all 50 states.
We also distribute products through approximately 50 independent
dealers selling in approximately 45 countries.
Our principal distribution and service customers include in-plant
print shops, franchised and independent quick print shops, small to medium sized
commercial printers and governmental and educational institutions, and our
service customers also include manufacturers and national retail accounts. We
have approximately 20,000 customers. No customer accounts for more than 10% of
our revenues.
COMPETITION AND COMPETITIVE CONDITIONS
We operate in a highly competitive market in which price, delivery and
customer service are key factors. Historically, we developed our customer base
of in-plant, quick print and small to medium size commercial printers, and
governmental and educational institutions through the sale of our proprietary
small offset duplicator presses manufactured by us. Because the market for such
presses is mature and continues to face competition from alternative
technologies,
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we have had to refocus our marketing approach to emphasize our distribution
and service capabilities in continuing to serve our market segments.
Our exit from the manufacture of offset duplicators which commenced in
fiscal 1997 and divestiture of certain unprofitable businesses and product lines
reduced our costs, and we developed strategies for achieving growth in our
traditional markets by expanding our product offerings, enhancing our digital
support capabilities, taking advantage of our unique national service
organization, and by acquiring regional dealers that serve the same general
customer base. We initiated internal sales and marketing programs which have
offset the decline in our supplies distribution operations, and acquired between
December 1997 and September 1998 four regional dealers to expand our product
offerings, digital capabilities and customer base. We also undertook a
marketing program to reverse the long-term decline in our service operations by
focusing on manufacturers, franchise accounts and national retail operations
which prefer national service capabilities.
Gross margins decreased when we ceased our manufacturing operations
and switched to product lines obtained through distribution agreements, joint
ventures and affiliations with third parties, and acquisitions. To offset the
lower margins, we invested in information systems and undertook other
reorganization measures to increase efficiency and lower expenses. These cost
reduction efforts continue. We also implemented marketing efforts to increase
both our distribution customer base and our higher margin service revenues.
The competitive market is also one of heavy regional competition, with
hundreds of regional dealers. A consolidation of dealers, distributors and
suppliers is occurring, resulting in a consolidation of buying power and
distribution cost efficiencies. Our investments in information systems,
distribution outlets and other capabilities, our marketing efforts to expand our
business opportunities with existing customers, our leveraging of our national
service capabilities, and the addition of new customers and capabilities through
acquisitions, were intended to increase our profitability by increasing revenues
without incurring proportionate increases in expense levels. If we had adequate
liquidity to implement our strategy, we believe that a renewed focus on our
traditional customer base, the expansion of our product lines, and an
acquisition strategy in the graphic arts industry would provide a sound basis
for growth.
CYCLICAL NATURE OF BUSINESS AND LIQUIDITY
Our revenues are dependent upon trends in the printing industry, which
are a function of (among other factors) overall economic factors and advertising
expenditures. Our backlog is less than 5% of annual revenues and is not a
material factor in the conduct of our business. We believe that substantially
all of this backlog will be shipped during the 2000 fiscal year provided that
the liquidity conditions we experienced during the fourth fiscal quarter of 1999
do not recur or worsen.
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RESEARCH AND DEVELOPMENT
Although we actively seek new marketing opportunities, our research,
development and engineering expenditures ceased when we exited manufacturing of
products.
PATENTS AND TRADEMARKS
We own or license various patents and trademarks. We do not believe
that our business as a whole is materially dependent on any one patent or
trademark or group of patents or trademarks.
ITEM 2. PROPERTIES
Our principal executive offices are located in Mt. Prospect, Illinois
in a 64,400 square foot facility. Our principal distribution center is a 79,700
square foot complex in nearby Arlington Heights, Illinois. The Mt. Prospect and
Arlington Heights facilities are leased until 2005.
We also lease 17 distribution, sales and service facilities
throughout the United States with total square footage of approximately 110,000
square feet. We believe that the properties and equipment included therein are
well maintained, in good operating condition and adequate for the current needs
of our operations.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Item 1, Section (a) under the caption "Bankruptcy
Proceedings" for information on our bankruptcy proceedings. The commencement of
the bankruptcy proceedings resulted in an automatic stay of certain litigation
against us pursuant to Section 362 of the Bankruptcy Code as of May 17, 1993.
Therefore, with certain exceptions, all legal proceedings against us pending as
of May 17, 1993, will be resolved through the bankruptcy process. Although the
vast majority of the claims filed in our bankruptcy proceedings have been
expunged or resolved within our reserves, a few significant disputed claims
remain pending in the bankruptcy proceeding. We believe the resolution of these
legal proceedings and claims will not have a material adverse effect on our
business, results of operations or financial position.
We have been notified of various environmental matters in connection
with certain current or former locations in Illinois and Ohio. We believe that
the legal liability relating to such matters, if any, will either be resolved
consensually between us and the relevant governmental authorities or will be
subject to resolution through the bankruptcy process as with other disputed
claims. We believe the resolution of these matters will not have a material
adverse effect on our business, results of operations or financial position.
In October, 1995, a wholly owned subsidiary in the United Kingdom
(currently in liquidation) repaid an intercompany loan of approximately $1
million. The liquidator of this subsidiary has asserted that the loan repayment
was a preference and should be repaid, together
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with interest for the benefit of other creditors. Multigraphics has
vigorously resisted the liquidator's claim on the basis that the subsidiary
was solvent at the time of the loan repayment, it was anticipated that it
would remain solvent in the future, and there was no intent to prefer.
We are involved in various other administrative and legal proceedings
incidental to our business, including product liability, employment
discrimination and general liability lawsuits against which we are partially
insured. The resolution of these other proceedings is not expected to have a
material adverse effect on our business, results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET AND OTHER INFORMATION.
Our common stock trades on the American Stock Exchange under the
ticker symbol "MTI." The following table shows, for the fiscal periods
indicated, the high and low sales prices per share as reported on the American
Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1999
First Quarter . . . . . . . . . . $ 6.688 $ 4.000
Second Quarter. . . . . . . . . . 4.625 2.625
Third Quarter . . . . . . . . . . 3.125 2.375
Fourth Quarter. . . . . . . . . . 2.500 1.875
FISCAL YEAR ENDED JULY 31, 1998
First Quarter . . . . . . . . . . $ 2.750 $ 1.625
Second Quarter. . . . . . . . . . 4.688 2.500
Third Quarter . . . . . . . . . . 6.375 3.750
Fourth Quarter. . . . . . . . . . 8.938 4.750
</TABLE>
(b) HOLDERS.
At October 1, 1999, we had approximately 1,000 stockholders of record.
(c) DIVIDENDS.
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On May 27, 1997, we paid a special dividend of $2.00 per share to
holders of record on May 13, 1997. Prior to that time, we had not paid cash
dividends on our common stock since August 15, 1981 and we have not paid cash
dividends since such date. Our current Loan and Security Agreement with
Foothill Capital Corporation restricts the payment of dividends. See Note 4 to
the Notes to Consolidated Financial Statements included herein.
ITEM 6. SELECTED FINANCIAL DATA
See Note 15 to the Notes to Consolidated Financial Statements
included herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain items
from the Condensed Consolidated Statements of Operations (expressed in millions
of dollars). The operating results for the year ended July 31, 1997 include the
results of two foreign subsidiaries which have been divested. We sold our
interest in AM Japan Co., Ltd. in September, 1996, and on October 17, 1996, our
Canadian subsidiary filed a voluntary assignment in bankruptcy.
During the fiscal year ended July 31, 1998, we acquired certain assets
of Hanley Graphic Products Company and Progressive Lithoplate and Supply
Company, both graphic arts dealers competing in Northern Illinois, and purchased
all of the outstanding shares of capital stock of Akron, Ohio based Publishing
Solutions Inc., a systems integrator. During the first quarter of fiscal 1999,
we acquired the business and certain assets of Austin, Texas based Texas
Prepress Systems, Inc., a regional prepress systems integrator. All
acquisitions have been accounted for as purchases and, accordingly, our
consolidated financial statements include the post-acquisition results of these
operations since their respective acquisition dates. All per share data is
presented on a diluted basis.
OPERATING RESULTS
<TABLE>
<CAPTION>
($ IN MILLIONS)
YEARS ENDED JULY 31,
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1999 1998 1997
<S> <C> <C> <C>
Revenues $ 107.3 $ 95.3 $ 88.7
Gross Margin 25.7 25.2 24.8
Gross Margin % 24.0% 26.4% 28.0%
Operating Expenses 23.9 21.9 23.5
Operating Income 1.8 3.3 1.3
Non-operating expenses 2.0 1.6 1.2
Income (loss) before taxes ($0.1) $ 1.7 $ 0.1
Net income (loss) ($0.1) $ 1.1 $ 0.1
</TABLE>
COMPARISON OF 1999 TO 1998
The net loss in 1999 of $0.1 million ($0.05 per common share)
represented a $1.2 million deterioration in earnings over the prior year net
income of $1.1 million. The lower result in 1999 was primarily due to lower
gross margin rates, higher selling expenses brought on by the
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acquisitions relative to lower than anticipated incremental sales
attributable to those acquisitions, and higher interest costs resulting from
increased borrowings to finance the acquisitions.
Revenues in 1999 of $107.3 million increased by $12.0 million over the
prior year. The 13% growth in revenues was primarily due to higher machines and
supplies sales, which are largely attributable to the acquisitions mentioned
above, offset by a decline in revenues of our traditional service business. The
acquired businesses serve the same customer base as we do. The acquisitions
complement our internal efforts to expand its product offerings, and bring
enhanced digital sales and support capabilities as well as an expanded customer
base in our traditional markets. In addition, we continue our marketing
programs focusing on obtaining national service accounts with manufacturers and
national retail outlets to offset the decline in our traditional service
business.
Gross margin of $25.7 million increased by $0.5 million over the prior
year, largely as a result of the increased revenue volume in the current year.
The overall margin rate declined 2.4 percentage points to 24.0% due to a sales
mix more heavily weighted with machines which carry rates relatively lower than
our supply and service product offerings. In addition, our supplies margin rate
declined 2.2 percentage points from the prior year rate due to a higher sales
level of manufacturers branded products brought on by the acquisitions which
have lower rates than our traditional private label supplies product offering.
Gross margin rates may continue to decrease as we seek to add product lines
through distribution agreements, joint ventures, and affiliations with third
parties. To offset the lower margins we continually seek to increase
operational efficiency and lower expenses.
Operating expenses of $23.9 million increased by $2.0 million over the
prior year, but decreased as a percent of sales by 0.7 percentage points. The
increased expense levels were largely due to the addition of sales personnel
from the acquired entities and higher commission expense from the increased
revenue volume in the current year.
Non-operating expenses of $2.0 million increased $0.4 million over the
prior year primarily due to higher net interest expense on debt resulting from
acquisition financing.
Due to the factors cited above, we reported a net loss of $0.1 million
in 1999 compared to net income of $1.1 million in 1998.
COMPARISON OF 1998 TO 1997
Net income in 1998 of $1.1 million ($0.37 per common share) improved
by $1.0 million over the prior year net income of $0.1 million ($0.04 per common
share). In the prior year, we had a gain of $2.6 million on the divestiture of
our interest in AM Japan Co., Ltd. Excluding the gain on the divestiture, net
income improved by $3.6 million from the prior year. The improved result in 1998
was primarily due to a reduction in operating expense levels which resulted from
our elimination of unprofitable product lines, our exit from machine
manufacturing, efficiency improvements in distribution and service activities,
and increased gross margins on higher revenue levels attributable to the
acquisitions made in 1998.
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Revenues in 1998 of $95.3 million increased by $6.6 million over the
prior year. The 7% growth in revenues was largely attributable to the
acquisitions of the three regional graphic arts dealers over the last eight
months of the fiscal year. The acquired businesses serve the same customer base
as we do. The acquisitions complement our internal efforts to expand our
product offerings, and bring enhanced digital sales and support capabilities as
well as an expanded customer base in our traditional markets. In addition, we
have undertaken marketing programs focusing on obtaining national service
accounts with manufacturers and national retail outlets. Market demand for our
manufactured duplicator press products, particularly in the in-plant market
segment, has experienced long term decline due in part to inroads from competing
printing technologies. As a result, the installed base of our duplicator press
equipment has declined which has led to decreased sales of duplicator supplies
and services. Revenues from acquisitions, new products and increased service
offerings collectively were more than sufficient to offset the decline in
revenues from the prior year divestitures of operations in Japan and Canada, the
discontinuance of unprofitable product lines, and the exit from manufacturing
duplicator presses which, collectively, had contributed revenues of $7.5 million
to the prior year.
Gross margin of $25.2 million was $0.4 million higher than the prior
year largely as a result of increased revenue volume. The overall gross margin
rate declined 1.6 percentage points to 26.4%. The lower margin rate largely
resulted from the shift in revenue mix from our traditional higher margin
manufactured products and service offerings, the demand for which has been in
long term decline, to revenues derived from product lines added through
distribution agreements, affiliations with third parties, and acquisitions of
graphic arts dealers. In anticipation of the decline in margins, we invested in
information systems and instituted various reorganization measures which
increased operational efficiency and lowered expense levels.
Operating expenses decreased by $4.2 million in 1998 from 1997, after
adjusting 1997 to exclude the $2.6 million gain from the divestiture of AM Japan
Co. Ltd. The decrease in expenses was largely due to the divestiture of foreign
operations, discontinued product lines and elimination of costs associated with
our exited manufacturing operation which collectively added $2.4 million in the
prior year. The remainder of the decrease in expenses resulted from reductions
in selling, general and administrative expenses as we transitioned to a
distribution and service organization.
Non-operating expenses increased $0.4 million in 1998, largely due to
a $1.1 million reduction in interest income due to lower investment balances in
1998 following the $14.1 million dividend in May 1997, offset by a $0.7 million
reduction in other non-operating expenses. The decrease in interest expense was
primarily due to lower prepetition debt obligations, which have been reduced by
scheduled payments, and lower interest costs on post retirement benefit
obligations.
We recorded income tax expense of $0.6 million during 1998. Fresh
start reporting rules require recognition of tax expense although we had no
requirement to pay U.S. Federal taxes due to utilization of net operating loss
carry forwards available to us. Net income from continuing operations improved
by $1.0 million over 1997 due to the factors cited above.
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LIQUIDITY AND CAPITAL RESOURCES (THREE YEARS ENDED JULY 31, 1999)
During our fourth fiscal quarter ended July 31, 1999, we continued to
experience difficulty in meeting our liquidity requirements due to lower than
expected sales, the timing of demands to settle non-operating obligations and
decreases in our borrowing base. This liquidity difficulty forced us to reduce
inventory and delay payments to vendors and suppliers, which led some vendors to
delay or cancel shipment of product, resulting in lower sales levels and
profitability. As of July 31, 1999, over 50% of our trade accounts payable
were past their due date. In light of these events, our primary lender in
August 1999 advised us that it needed to protect its collateral base and, absent
an immediate plan or transaction which would infuse significant additional
liquidity into Multigraphics, it would commence reducing the lending advance
rates as well as increasing the interest rate on borrowings and might invoke a
material adverse change clause. This action by the lender would have worsened
our already tenuous liquidity situation and possibly force us into bankruptcy.
On October 1, 1999, we announced that we had entered into an Agreement
and Plan of Merger with Paragon Corporate Holdings, Inc. providing for Paragon
to acquire Multigraphics for $1.25 in cash per share of common stock. Paragon
will also assume our outstanding debt. Concurrently with executing the merger
agreement, we entered into a credit agreement with Paragon pursuant to which
Paragon advanced us $2 million on a secured basis and subordinated to our
primary lender as discussed in Note 4 to the Notes to Consolidated Financial
Statements included herein. The board of directors of each company have
approved the transaction. Paragon is the parent company of AB Dick Company, a
manufacturer and worldwide supplier to the graphic arts industry.
On October 1, 1999 our credit agreement with our primary lender was
further amended to, among other things, (1) permit us to obtain a $2 million
secured subordinated loan from Paragon Corporate Holdings, Inc. and, (2) reset
our covenant requirements in light of the impending merger transaction with
Paragon Corporate Holdings, Inc. as described in Note 2 to the Consolidated
Financial Statements, "Plan of Merger." As of July 31, 1999, we were in
compliance with the covenants, as amended, of the credit agreement. On October
1, 1999, we borrowed $2 million on a secured subordinate basis from Paragon
Corporate Holdings, Inc. These borrowings are subordinate to the borrowings
under the credit agreement with our primary lender, will incur interest at 10%
per annum, and are to be repaid no later than September 30, 2000.
The $2 million loan from Paragon was used by us to pay down a large
portion of the past due trade accounts payable and to pay merger transaction
costs. It is anticipated that the reduction of the past due accounts payable
will induce vendors to release product which will reduce backorders and
facilitate increased sales levels. Our ability to meet our liquidity
requirements through the completion date of the merger transaction is largely
dependent on sustained levels of billings to customers which generate borrowing
base liquidity. Variations in market demand, competitive pressures or purchase
mix and the timing of revenues and costs could have a negative impact on our
liquidity and credit facilities. In light of this, we are continuing to
implement cost reduction programs to minimize the uses of cash. We believe that
the liquidity provided by the $2 million loan from Paragon, our current
projections of
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future billings, the continued positive results of identified cost reduction
programs, and the continuation of our credit facilities will provide us with
capital resources and liquidity sufficient to finance our current operations
and fund non-operating obligations as they come due through the date of
merger, however, there can be no assurance that such will be the case.
The merger transaction will be accounted for as a purchase and is
anticipated to close by the end of calendar 1999. The merger is subject to
approval of the holders of at least a majority of our outstanding shares of
common stock, expiration of the Hart-Scott-Rodino antitrust review period and
other customary conditions. Under the merger agreement, Paragon may receive a
termination fee under certain circumstances. There can be no assurance that the
merger agreement will result in a transaction.
Lion Advisors, L.P. and AIF II, L.P., which beneficially own
approximately 35% of the issued and outstanding shares of Multigraphics, have
agreed with Paragon to support the transaction and to vote for approval of
the merger agreement and have granted an option to Paragon to purchase their
shares under certain circumstances.
Our current financial condition and uncertainties as described
above raise substantial doubt about our ability to continue as a going
concern absent the merger transaction. Our consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
Our cash and cash equivalents of $1.5 million decreased by $1.3
million during the current fiscal year compared to a decrease of $7.5 million in
the prior year and a cash increase of $7.8 million in 1997.
OPERATING ACTIVITIES
We had a cash inflow from operating activities of $1.4 million during
the current fiscal year. The cash inflow was comprised primarily of a reduction
in inventory of $2.2 million due to improved turnover rates and lower stocking
levels of machines, supplies and parts, plus an increase in accounts payable of
$3.6 million due primarily to extending payment terms with vendors in light of
liquidity difficulties as discussed above. These cash inflows were partially
offset by higher accounts receivable of $1.3 million primarily due to higher
sales levels, a reduction in the deferred service obligation of $1.3 million
primarily due to a 9% decrease in contract revenues along with a shift from
customers to shorter duration contracts and payment of $3.0 million in other
liabilities largely related to paydown of payroll related liabilities and
product liability.
In 1998, we had a cash outflow from operating activities of $2.8
million. The 1998 cash outflow was primarily due to a $5.1 million reduction in
accrued liabilities largely from payments for severance, accrued vacation and
the settlement of a lease recourse obligation from a discontinued business, and
a $1.8 million reduction in trade payables primarily due to lower inventory
purchases. A $1.8 million reduction in inventories partially offset other
outflows and was due to lower stocking levels of machines resulting from an
increase in drop shipment sales, and improved supplies and parts turnover rates
reflective of the transition from a manufacturing to a distribution and service
operation.
14
<PAGE>
In 1997, we had a cash outflow from operating activities of $15.6
million. The 1997 cash outflow was primarily due to a $10.2 million reduction in
trade payables as extended credit terms were reduced with vendors, and a $14.7
million reduction in accrued liabilities primarily due to restructuring payments
for severance, accrued vacation and the settlement of a lease obligation. A
$9.0 million reduction in accounts receivable partially offset other outflows
and was due to improved collection rates, the collection of receivables from the
phased out manufactured machine product line, and a lower revenue level.
Inventories increased $0.3 million in supplies and parts to improve product
availability.
Depreciation remained flat for the last three years at approximately
$1.9 million per year. Our fixed assets consist primarily of leasehold
improvements and computer systems.
INVESTING ACTIVITIES:
In 1999, the cash outflow from investing activities of $1.1 million
was largely due to $0.8 million in capital expenditures to upgrade systems and
equipment and $0.5 million in acquisition related activities. In 1998, we
invested $6.9 million in the acquisitions of three regional graphic arts
equipment and supply dealers. In 1997, we received net proceeds of $50.6
million from the divestitures of Sheridan Systems and AM Japan Co., Ltd.
Capital expenditures of $0.6 million in 1998 and $1.9 million in 1997 were made
to upgrade information systems and customer service capabilities, and to
maintain facilities.
FINANCING ACTIVITIES:
In 1999 we had a net outflow from financing activities of $1.6 million
compared to a net inflow of $2.8 million in 1998 and a $25.5 million outflow in
1997. During the past two years we have borrowed $2.1 million and $7.8 million
respectively, to finance our current operating and investing activities
discussed above. In 1997, we repaid our outstanding balance under our revolving
credit agreement of $5.4 million with the proceeds from divestitures. We have
made payments of $3.1 million, $4.3 million and $5.3 million in 1999, 1998 and
1997 respectively, to resolve unsecured claims and priority tax claims in
accordance with the Reorganization Plan of 1993. The final scheduled quarterly
payment of approximately $1.0 million to unsecured creditors was distributed in
September 1998. In 1997, we paid a $14.1 million (or $2.00 per share) special
dividend to shareholders. We have reduced our capital lease obligations by an
average of $0.6 million per year over the last three years.
YEAR 2000 DISCLOSURE
Our information systems have required certain modifications to enable
them to be able to process information without regard to whether the date occurs
prior to or after the year 2000. Currently, all systems will properly identify
a year that begins with "20" instead of the familiar "19". Our information
systems are relatively new, and our recent systems implementation in the Fall of
1997 achieved near compliance in our operating systems and full compliance in
its host hardware. As of March 1999, we attained full compliance in both the
ERP systems and host hardware. We expended approximately $0.3 million to attain
compliance and do not anticipate any further expenditures on any "Year 2000"
issues.
15
<PAGE>
We also completed a comprehensive review of our other equipment and
operating systems, and contacted our significant vendors and service providers
to assess the possible impact on us of such third parties' failure to address
Year 2000 issues. Although we cannot verify the results of our inquiries of
third parties, we have not received any information to date that would lead us
to believe that there will be material problems in obtaining products, supplies
and services from our third party service providers and vendors. Nevertheless,
any significant or prolonged interruption in the supply of essential services or
products could adversely affect our revenues and financial results. Similarly,
problems with any significant portion of our 20,000 customers in processing and
paying invoices from us could result in cash flow shortages and liquidity
problems.
We have undertaken a number of steps to address potential Year 2000
problems. The systems issues and supplier surveys described above are a part of
those efforts. If at any time we identify potential problems with a service
provider or other vendor, we will attempt to obtain services and products from
other sources. We have available to us a broad range of products, however, and
do not believe serious shortages will materialize. Although we have completed
and tested our systems capabilities in advance of the Year 2000, we are prepared
to operate without significant portions of our information systems, just as we
currently operate when portions of our systems are out of service for repairs or
upgrades. Customer service representatives are trained to take orders without
access to the information systems, purchasing representatives are trained to
purchase parts without access to the information systems, and our finance
department is preparing to invoice and bill customers without access to the
information systems, if necessary. We are unable to anticipate whether
significant customers or significant numbers of our customers will have
difficulty processing and paying our invoices. Moreover, we cannot predict or
address all possible problems which may be associated with Year 2000 issues.
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements and other
statements that are not historical facts concerning, among other things, market
conditions and our merger agreement with Paragon. These statements are highly
dependent upon a variety of important factors that could cause such results or
events to differ materially from those expressed or implied in these statements.
These factors include, but are not limited to, changing market conditions, our
ability to complete the proposed merger with Paragon, the availability and cost
of products, maintenance of principal vendor relations, the impact of
competitive products and pricing, the continued availability of sources of
financing and other risks referred to herein and from time-to-time in our
Securities and Exchange Commission filings. There can be no assurance that we
have accurately identified and properly weighed all of the factors that affect
market conditions and demand for our products and services, that the public
information on which we have relied is accurate or complete or that our analysis
of the market and demand for our products and services is correct and, as a
result, that the strategies based on such analysis will be successful.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to change in interest rates. At
July 31, 1999, we had approximately $9.8 million of debt outstanding on a
revolving credit facility with floating interest
16
<PAGE>
rates tied to the prime rate. If this rate was to increase 10 percent, the
increase in interest payments would not have a material impact on our net
income or cash flows. In addition, we have fixed rate financing arrangements
under capital lease obligations in the amount of $1.2 million. A 10 percent
change in interest rates would not have a material impact on the fair market
value of this debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MULTIGRAPHICS
DIRECTORS
The following is a list of the names and ages, as of October 1, 1999,
of each of our directors and all positions and offices held by each person and
each such person's occupation or employment on such date and during the
preceding five years.
Jeffrey D. Benjamin, 38
Director of Multigraphics since October 13, 1993. Mr. Benjamin is currently the
Co-Chief Executive Officer of U.S. Bancorp Libra, a division of U.S. Bancorp
Investments Inc., an investment banking company. From May 1996 to April 1998,
Mr. Benjamin was a Managing Director at UBS Securities LLC, a securities
investment firm. From January 1996 to May 1996, Mr. Benjamin was a Managing
Director at Bankers Trust Company, a financial services company. From 1992 to
May 1996, Mr. Benjamin was an officer of Apollo Capital Management, Inc. and
Lion Capital Management, Inc., which act as general partners of Apollo Advisors,
L.P. and Lion Advisors, L.P., respectively. From 1992 to May 1996, Mr. Benjamin
was a limited partner of Apollo Advisors, L.P., which acts as managing general
partner of Apollo Investment Fund, L.P. and AIF II, L.P., securities investment
funds, and was a limited partner of Lion Advisors, L.P., which acts as financial
advisor to and representative for Altus Finance and certain other institutional
investors with respect to securities investments. Mr. Benjamin is also a
director of EXCO Resources Inc., an independent oil and gas company.
Robert N. Dangremond, 56
Director of Multigraphics since February 8, 1993. From January to August 1998,
Mr. Dangremond served as the Chief Financial Officer of Zenith Electronics, a
Glenview, Illinois based manufacturer of consumer electronics, and since August
1998 he has served as its Chief Restructuring Officer. From
17
<PAGE>
August 1995 to January 1998, Mr. Dangremond acted as interim Chief Executive
Officer and President of Forstmann & Company, Inc., a producer of clothing
fabrics. From February 1993 to September 1994, Mr. Dangremond acted as
interim Chairman of the Board, Chief Executive Officer, and President of
Multigraphics. Since August 1989 Mr. Dangremond has been a Principal with
Jay Alix & Associates, a consulting firm specializing in the restructuring of
major corporations. From 1982 to 1989 he was the CFO and Treasurer of Leach
& Garner Company, a diversified manufacturing and trading company. Prior
thereto, he served as a Vice President and Manager for Chase Manhattan Bank
and a Sales and Marketing Manager for Scott Paper Company. Mr. Dangremond is
also a director of Viskase Companies Inc. (formerly Envirodyne Industries,
Inc.).
Mr. Dangremond's appointments with Zenith Electronics, Forstmann & Company, Inc.
and, prior thereto, as interim Chairman of the Board, President and Chief
Executive Officer of Multigraphics, were each made in connection with turnaround
consulting services provided by Jay Alix & Associates, of which Mr. Dangremond
is a principal. On May 17, 1993, Multigraphics filed a petition under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"), and on
September 29, 1993, a plan of reorganization was confirmed. On September 22,
1995, Forstmann filed a petition under Chapter 11 of the Bankruptcy Code, and on
July 23, 1997, a plan of reorganization was confirmed.
Jeff M. Moore, 40
Chairman of the Board since May 28, 1997 and director of Multigraphics since
February 14, 1996. Mr. Moore has been a limited partner of Apollo advisors,
L.P. and Lion Advisors, L.P., which act as managing general partners of Apollo
Investment Fund, L.P. and AIF II, L.P. respectively, securities investment
funds, and a financial advisor to and representative for certain institutional
investors with respect to securities investments since 1992. From 1990 until
joining Apollo, Mr. Moore was Vice President - Investment Management at First
Executive Corporation where he was responsible for the management of a
diversified fixed income portfolio. Prior to 1990, Mr. Moore was a Certified
Public Accountant at Deloitte & Touche LLP where he specialized in financial
instruments and credit analysis. Mr. Moore is also a director of EXCO Resources
Inc., an independent oil and gas company.
We are not aware of any family relationship between any director or
person nominated or chosen by the board to become a director or an executive
officer of Multigraphics, our subsidiaries or our affiliates.
EXECUTIVE OFFICERS
The following is a list of the names and ages, as of October 1, 1999,
of all of our executive officers and all positions and offices held by each
person and each such person's occupation or employment on such date and during
the preceding five years. All such persons have been elected to serve until
their successors are elected or until their earlier resignation or retirement.
Mark F. Duchesne, 42
President and Chief Executive Officer of Multigraphics since May 5, 1999. Mr.
Duchesne served in various capacities since joining Multigraphics in January
1995, including Chief Operating Officer, Vice
18
<PAGE>
President of Distribution Operations and Vice President of Marketing and
Business Development. From January 1994 to January 1995 he served as Vice
President of Engineering and Customer Service for Sheridan Systems, Dayton,
Ohio, formerly a sister company of Multigraphics serving the high end
newspaper and publications market. From 1987 to 1994 Mr. Duchesne served as
Director of Engineering and Customer Satisfaction for the Advanced Imaging
Products Business Unit of AM Graphics in Dayton, OH.
Gregory T. Knipp, 44
Vice President and Chief Financial Officer since May 27, 1997. Mr. Knipp was
Treasurer of Multigraphics from September, 1995 to May 1997. From 1987 to 1995,
Mr. Knipp held several treasury-related management positions of Multigraphics,
including that of Assistant Treasurer from 1994 to 1995. From 1981 to 1987, Mr.
Knipp was the Cash Manager of Woodland Services Co., a spin-off company of
Masonite Corporation. Prior to 1981, Mr. Knipp was an auditor with Peat Marwick
Mitchell & Co.
Raymond T. Leach, 33
Vice President since December 18, 1997 and President, Publishing Solutions Inc.
since July 1988, when Mr. Leach and Mr. Stewart founded Publishing Solutions.
Mr. Leach is primarily responsible for Publishing Solutions' national electronic
sales and since March 1999 has served as Acting Vice President of Sales for
Multigraphics.
Charles T. Richards, 55
Executive Vice President, Service Operations since May 5, 1999. Mr. Richards
served as Vice President of Manufacturing from September 1994 to April 1996, and
then as Vice President, Service Business until May 1997, at which time he became
Vice President, Service Operations. Prior to 1994, Mr. Richards held a number
of technical and commercial positions with Multigraphics. He joined
Multigraphics in 1960.
Keith E. Stewart, 33
Vice President since December 18, 1997 and CEO, Publishing Solutions Inc. since
July 1988, when Mr. Stewart and Mr. Leach founded Publishing Solutions. Mr.
Stewart is primarily responsible for management of Publishing Solutions' general
operations and its national electronic services.
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, our directors,
executive officers and any persons holding ten percent or more of our common
stock are required to report their ownership of our common stock and any changes
in that ownership to the Securities and Exchange Commission and the American
Stock Exchange. Specific due dates for these reports have been established, and
we are required to report any known failure to file by these dates during fiscal
1999. All of these filing requirements were satisfied by our directors and
officers. In making this statement, we have relied on the written
representations of our incumbent directors and officers and copies of the
reports filed with the SEC and sent to us.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table reflects information with respect to the annual
compensation for services in all capacities to Multigraphics for the fiscal
years ended July 31, 1999, July 31, 1998 and July 31, 1997, of the following
persons: our Chief Executive Officer as of July 31, 1999, our former Chief
Executive Officer, our former acting Chief Executive Officer and the other four
most highly compensated executive officers of Multigraphics for the fiscal year
ended July 31, 1999.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Restricted
Name Other Annual Stock All Other
Principal Position (1) Year Salary Bonus Compensation(2) Awards Compensation(3)(4)
- ---------------------- ---- ------ ----- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Mark F. Duchesne 1999 166,935 10,367 20,566 - 8,339
President and Chief 1998 155,000 50,337 25,029 - 18,629
Executive Officer 1997 153,130 37,576 5,801 2,349 9,932
Gregory T. Knipp 1999 142,500 9,979 22,092 - 7,382
Vice President, Chief Financial 1998 140,000 45,303 - - 7,194
Officer and Treasurer 1997 135,000 25,814 - - 4,388
Raymond T. Leach 1999 150,000 - 18,934 - 6,396
Vice President 1998 93,500 - - - 3,786
1997 N/A - - -
Charles T. Richards 1999 130,000 38,972 23,624 - 8,043
Executive Vice President, 1998 128,000 41,612 - - 7,240
Service Operations 1997 122,000 30,970 - - 7,324
Keith Stewart 1999 150,000 - 20,748 - 6,396
Vice President 1998 93,500 - - - 3,786
1997 N/A - - - -
Thomas D. Rooney 1999 163,461 - 33,085 - 358,149
Former President 1998 250,000 100,674 22,967 - 9,303
Chief Executive Officer 1997 208,114 71,364 24,505 8,484 1,003,748
Steven R. Andrews 1999 157,231 - 22,724 - 6,878
Former Vice President, 1998 192,000 67,736 9,955 - 7,214
Secretary and Acting Chief 1997 193,076 - 17,289 7,473 639,898
Executive Officer
</TABLE>
21
<PAGE>
(1) Except as noted, the titles shown are the capacities in which each
executive officer served at the end of fiscal 1999.
(2) The amounts required to be disclosed include taxes reimbursed during fiscal
1999 of $10,620 for Mr. Duchesne, $9,051 for Mr. Knipp, $8,092 for
Mr. Leach, $12,488 for Mr. Richards, $11,896 for Mr. Stewart, $27,383 for
Mr. Rooney and $11,808 for Mr. Andrews, and, for fiscal 1998, $11,658 for
Mr. Duchesne. Also included are amounts attributable to executive medical
plan expenses, disability insurance and car allowances ($7,200 per officer
(other than Messrs. Rooney and Andrews) in fiscal 1999).
(3) The amounts in this column for fiscal 1999 include: (i) premiums paid by
Multigraphics for executive life insurance of $1,896 for Mr. Duchesne,
$1,279 for Mr. Knipp, $996 for Mr. Leach, $1,960 for Mr. Richards, $996 for
Mr. Stewart, $2,315 for Mr. Rooney and $1,454 for Mr. Andrews; (ii)
matching contributions under our 401(k) plan of $6,443 for Mr. Duchesne,
$6,104 for Mr. Knipp, $5,400 for Mr. Leach, $6,083 for Mr. Richards, $5,400
for Mr. Stewart, $4,410 for Mr. Rooney and $4,755 for Mr. Andrews; and
(iii) $2,000 and $625 for tax preparation and financial planning for Mr.
Rooney and Mr. Andrews, respectively.
(4) Amounts shown for fiscal 1999 include a payment of $349,125 to Mr. Rooney
in satisfaction of severance obligations pursuant to Mr. Rooney's
employment agreement.
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<PAGE>
OPTION VALUES
The following table shows the number and value of unexercised stock options held
by the persons identified in the summary compensation table as of July 31, 1999.
No stock options were exercised in fiscal 1999 by the persons identified in the
summary compensation table.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END(1) AT FISCAL YEAR-END(1)(2)
--------------------- ------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Mark F. Duchesne 22,400 7,200 - -
Gregory T. Knipp 17,900 7,700 - -
Raymond T. Leach 6,667 13,333 - -
Charles T. Richards 14,800 7,200 - -
Keith E. Stewart 6,667 13,333 - -
Steven R. Andrews 30,667 - - -
</TABLE>
(1) No SARs were outstanding, as of July 31, 1999.
(2) Based on the closing market price of our common stock of $2.1875
on July 31, 1999.
EMPLOYMENT AND OTHER AGREEMENTS
In August 1999, we entered into change in control and termination
benefit agreements with Messrs. Duchesne, Richards and Knipp to secure their
continued service and to ensure dedication and objectivity in the event of a
change in control or threatened change in control. Each of the agreements
provides that, upon termination by the employee for good reason after a change
in control or by Multigraphics for any reason other than for cause or the
employee's incapacity after a change in control or prior to a contemplated
change in control, we would be required to pay the employee a lump sum cash
payment consisting of (i) any unpaid base salary through the date of
termination, and any unpaid bonus, and (ii) one and one-half times the
employee's base salary plus a pro rated bonus for the current fiscal year. We
would also be required to maintain insurance and provide other benefits for 18
months. The acquisition by Paragon of Multigraphics would constitute a change
in control for purposes of these agreements.
In connection with our acquisition of Publishing Solutions in December
1997, we entered into employment agreements with Messrs. Stewart and Leach.
Each of these agreements provides for an annual salary of $150,000, and
incentive compensation beginning January 1, 2000 pursuant to which such
executive may receive between 30% and 60% of base salary as a bonus. Both
Messrs. Stewart and Leach were granted 10 year options to purchase 20,000
shares, one-third of which were to become
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<PAGE>
exercisable on each of the first three anniversaries of the agreement. The
term of the employment agreements is from December 1997 through December 31,
2002.
Each of the agreements provides that the executive may be terminated
at any time for cause, or by either the executive or the Company for any reason
after January 1, 2000. If the executive is terminated for cause, or elects to
leave on or prior to December 31, 1999 for any reason, then such executive would
forfeit his right to receive certain earn-out payments under the acquisition
agreement for Publishing Solutions. If either of the employment agreements is
terminated by either party without cause on or following January 1, 2000, then
the terminated executive would be entitled to receive earned, but unpaid salary
as of the date of termination, and any earn-out payments which become payable
under the Publishing Solutions acquisition agreement.
REMUNERATION OF DIRECTORS
Directors are reimbursed for travel and expenses related to attendance at
meetings of the Board of Directors or Board committees. The cash compensation
for non-employee directors consists of a quarterly retainer of $2,500 plus a
grant of shares of our common stock equal in value to the quarterly cash
retainer, valued at the closing price as of the end of each fiscal quarter,
along with a fee of $750 for attendance at meetings which are in addition to
regular meetings, whether in person or by telephone. The stock portion of the
compensation for non-employee directors is intended to base a more significant
portion of the directors' compensation on the performance of our stock.
Directors who are officers of Multigraphics receive no additional compensation
for their services as directors.
On October 20, 1998, our Board of Directors approved the Multigraphics,
Inc. 1998 Stock Incentive Plan for Directors. The plan is designed to retain
qualified outside directors and to attract qualified new directors, if
necessary, and to align the interests of our stockholders and our non-employee
directors by increasing the proprietary interests of the non-employee directors.
Under the plan, each non-employee director received an option for 10,000 shares
on October 20, 1998 and will receive an additional 5,000 share option grant on
the date of each annual meeting of stockholders, commencing in 1999, at an
option exercise price per share equal to the fair market value of a share of
common stock on the date of grant. Such options are exercisable in part or in
full on the date of grant and will expire ten years after the date of grant. If
a non-employee director ceases to be a director of Multigraphics for any reason,
each option held by such holder is exercisable for a period of six months after
the date such holder ceases to be a director or until the expiration of the term
of such option, whichever is shorter. In addition, the stock portion of the
outside directors' quarterly retainer will come from the plan reserves. A total
of 140,000 shares of our common stock are included in the plan.
Prior to the adoption of the Directors Option Plan, pursuant to the terms
of our 1994 Long Term Incentive Plan, non-employee directors were automatically
granted, on the date of each annual meeting of stockholders, non-qualified
options to purchase 400 shares of common stock. Options to our outside
directors will no longer be issued from our 1994 Long-Term Incentive Plan.
24
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert N. Dangremond is a member of the Compensation and Management
Committee. By Letter Agreement dated January 27, 1993 we entered into an
agreement with J. Alix & Associates pursuant to which J. Alix & Associates
provided financial consulting services for the completion of the development and
implementation of programs to improve our business strategies, operating plans,
financial condition and performance. Pursuant to the terms of the Letter
Agreement, Robert N. Dangremond, principal in J. Alix & Associates, acted as
interim Chairman of the Board, President and CEO of Multigraphics from February
8, 1993 through September 14, 1994. In addition to his responsibilities as
interim Chairman, President and Chief Executive Officer, Mr. Dangremond also
assumed operational responsibilities for AM Multigraphics from August 1994
through December 1994.
25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
At October 1, 1999 to our knowledge based on statements filed with the
Securities and Exchange Commission pursuant to Sections 13(d) and 13(g) of the
Securities Exchange Act of 1934 or upon information furnished in writing to us
by the persons or entities involved, the following were the only persons,
entities or groups owning beneficially 5% or more of the outstanding Common
Stock entitled to vote at the Meeting:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS (2)
- ------------------------------- ------------ -------------
<S> <C> <C>
Lion Advisors, L.P.(3). . . . . . . . . . . 750,000 26.4%
Two Manhattanville Road
Purchase, NY
AIF II, L.P.(3) . . . . . . . . . . . . . . 240,164 8.4%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, NY
Credit Suisse Asset Management(4) . . . . . 516,046 18.1%
153 East 53rd Street
One Citicorp Center
New York, New York 10022
State of Wisconsin Investment Board . . . . 267,785 9.4%
P.O. Box 7842
Madison, Wisconsin 53707
Fidelity Bankers Life Insurance
Company Trust. . . . . . . . . . . . . . 258,023 9.1%
c/o Interco Associates L.C.
1111 Congress Avenue, Suite 1850
Austin, Texas 78701
Belgrave Investment Trust N.V.(5) . . . . . 235,390 8.3%
100 Piccadilly, Suite 10
London, England W1V 9FN
</TABLE>
- -------------------
(1) Unless otherwise indicated in a note to the table, to our knowledge,
ownership includes sole voting power and sole investment power.
(2) Based on shares of common stock outstanding, as of October 1, 1999 plus
shares deemed outstanding pursuant to Rule 13d-3(d)(1) of the Securities
Exchange Act of 1934.
(3) The shares shown for Lion Advisors, L.P. are beneficially held for Apollo
Advisors, L.P., the managing general partner of AIF II, L.P. Lion
Advisors, L.P. is an affiliate of Apollo Advisors, L.P., the managing
general partner of AIF II, L.P. Mr. Moore, a director of Multigraphics, is
an officer of the general partner of each of (i) Lion Advisors, L.P. and
(ii) Apollo Advisors, L.P., the managing general partner of AIF II, L.P.
and may be deemed to beneficially own these shares. Mr. Moore disclaims
beneficial ownership of all of such shares. Mr. Benjamin is a limited
partner of each of Lion Advisors, L.P., Apollo Advisors, L.P. and AIF II,
L.P. Mr. Benjamin disclaims beneficial ownership of all of such shares.
See "Security Ownership of Directors and Executive Officers."
26
<PAGE>
(4) Based on its Amendment No. 1 to Schedule 13G filed February 24, 1999,
Credit Suisse Asset Management, formerly known as BEA Associates, is an
investment advisor with sole voting and dispositive power.
(5) Based on information included in Belgrave Investment Trust N.V.'s Schedule
13D dated November 27, 1997, Duke Street Trust is the ultimate parent of
Belgrave Investment Trust N.V. Cartrust and B.A. Jensen are
co-administrators of the Duke Street Trust.
27
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the number of shares
of common stock that are beneficially owned, directly or indirectly, as of
October 1, 1999, by each director, by each person named in the summary
compensation table, and by all directors and all executive officers as a group.
Unless otherwise indicated in a note to the table, to our knowledge,
ownership includes sole voting power and sole investment power.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name of Beneficial Owner Position Ownership(1)(2) Percent of Class
------------------------ -------- --------------- ----------------
<S> <C> <C> <C>
Steven R. Andrews Former Acting 1,196 *
CEO
Jeffrey D. Benjamin Director 19,484 *
Robert N. Dangremond Director 19,604 *
Mark F. Duchesne President/CEO 22,713 *
Gregory T. Knipp Vice President/ 18,400 *
CFO
Raymond T. Leach Vice President 6,667 *
Charles T. Richards Executive Vice 14,800 *
President
Keith Stewart Vice President 6,667 *
Jeff M. Moore(3) Director 1,009,181 35.5%
Thomas D. Rooney Former CEO - *
All directors and executives
officers as a group
(8 persons)(1)(2)(3) 1,117,516 39.3%
</TABLE>
- -------------------
* Less than one percent
(1) Amounts include shares acquirable within 60 days of October 1, 1999 under
the Multigraphics, Inc. 1998 Stock Incentive Plan for Directors, pursuant
to currently outstanding options for 10,000 shares each for Messrs.
Anderson, Benjamin, Dangremond and Moore.
(2) Amounts include shares acquirable within 60 days of October 1, 1999
pursuant to the exercise of currently outstanding options granted pursuant
to our 1994 Long-Term Incentive Plan (the "1994 Long Term Incentive Plan")
as follows: Mr. Duchesne, 22,400 shares, Mr. Knipp, 18,400 shares, Mr.
Leach, 6,667 shares, Mr. Richards, 14,800 shares, Mr. Stewart 6,667 shares,
Mr. Moore, 1,133 shares, and 1,600 shares for each of Messrs. Benjamin and
Dangremond.
(3) Includes 990,164 shares beneficially owned by Lion Advisors, L.P., Apollo
Advisors, L.P. and AIF II, L.P. Mr. Moore is an officer of the general
partner of each of (i) Lion Advisors, L.P. and (ii) Apollo Advisors, L.P.,
the managing general partner of AIF II, L.P. Mr. Moore disclaims
beneficial ownership of the indicated shares. Mr. Benjamin is a limited
partner of each of Lion Advisors, L.P.,
28
<PAGE>
Apollo Advisors L.P. and AIF II, L.P. Mr. Benjamin disclaims beneficial
ownership of all such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
See Index to Financial Statements on page F-1.
(a)(2) FINANCIAL STATEMENT SCHEDULE.
Schedules have been omitted because they are not applicable, or they
are immaterial or the required information is included in our
"Consolidated Financial Statements" including the Notes thereto.
(a)(3) EXHIBITS.
Reference is made to the separate exhibit index contained on page 32
hereof.
(b) REPORTS ON FORM 8-K.
None.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Multigraphics has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 19, 1999
MULTIGRAPHICS, INC.
(Registrant)
By:/s/ Mark Duchesne
-----------------------------------------
Mark Duchesne
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on October 19, 1999 by the following persons on behalf of
the Multigraphics and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Jeff M. Moore Chairman of the Board and Director
- -----------------------------
Jeff M. Moore
/s/ Mark Duchesne President and Chief Executive Officer
- -----------------------------
Mark Duchesne
/s/ Gregory T. Knipp Chief Financial Officer (principal
- ----------------------------- accounting & financial officer)
Gregory T. Knipp
Director
- -----------------------------
Jeffrey D. Benjamin
/s/ Robert N. Dangremond Director
- -----------------------------
Robert N. Dangremond
</TABLE>
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
<C> <S>
2 Agreement and Plan of Merger dated September 29, 1999, among Multigraphics,
Inc., Paragon Corporation Holdings, Inc. and Multi Acquisition Corp.
3 Certificate of Incorporation and By-laws
(i)(A) Second Restated Certificate of Incorporation of Multigraphics.*
(i)(B) Certificate of Amendment to the Second Restated Certificate of
Incorporation of Multigraphics (incorporated by reference to
Exhibit 3(B) to our Quarterly Report on Form 10-Q filed with the
Commission on May 3, 1997).
(ii)(A) By-laws of Multigraphics, effective as of October 13, 1993.*
(ii)(B) Amendment to Bylaws of Multigraphics, effective as of May 27,
1997 (incorporated by reference to Exhibit 3(D) to our Annual
Report on Form 10-K for the year ended July 31, 1997, filed with
the Commission on October 22, 1997).
10 Material Contracts
(A) AM International, Inc. Executive Incentive Compensation Plan Fiscal
Year 1999.**
(B) Letter Agreement, dated December 8, 1994, between Multigraphics and
Steven R. Andrews (incorporated by reference to Exhibit 10(B) to our
Quarterly Report on Form 10-Q filed with the Commission on March 13,
1995).**
(C) Form of Change-In-Control and Termination Benefits Agreements, dated
July 7, 1995, between Multigraphics and Messrs. Andrews and Rooney
(incorporated by reference to Exhibit 10(H) to our Annual Report on
Form 10-K for the year ended July 31, 1995, filed with the Commission
on October 26, 1995).**
(D) 1994 Long-Term Incentive Plan (incorporated by reference to Exhibit
10(A) to our Annual Report on Form 10-K for the year ended July 31,
1994, filed with the Commission on October 27, 1994).**
(E) First Amended Plan of Reorganization, as amended September 29, 1993
(incorporated by reference to Exhibit 10(A) to our Annual Report on
Form 10-K for the year ended July 31, 1993, filed with the Commission
on October 29, 1993).*
(F) Amendment 1991-1 to the AM International, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10(M) to our
Annual Report on Form 10-K for the year ended July 31, 1991, filed
with the Commission on October 29, 1991).**
(G) AM International, Inc. Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10(N) to our Annual Report on
Form 10-K for the year ended July 31, 1987, filed with the Commission
on October 28, 1987).**
(H) Retirement Plan for Outside Directors of AM International, Inc.
(incorporated by reference to Exhibit 10(Q) to our Annual Report on
Form 10-K for the year ended July 31, 1987, filed with the Commission
on October 28, 1987).**
(I) Amendment to Retirement Plan for Outside Directors of AM
International, Inc. (incorporated by reference to Exhibit 10(M) to our
Annual Report on Form 10-K for the year ended July 31, 1988, filed
with the Commission on October 25, 1988).**
</TABLE>
31
<PAGE>
<TABLE>
<C> <S>
(J) Letter Agreement dated as of March 3, 1997 between Multigraphics and
Steven R. Andrews, filed as Exhibit 10(T) to our Annual Report on Form
10-K for the year ended July 31, 1997, filed with the Commission on
October 22, 1997.**
(K) Letter Agreement dated April 10, 1997 between Multigraphics and Thomas
D. Rooney, filed as Exhibit 10(T) to our Annual Report on Form 10-K
for the year ended July 31, 1997, filed with the Commission on October
22, 1997.**
(L) Letter Agreement dated October 29, 1996 between Multigraphics and
Thomas D. Rooney (incorporated by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q, filed with the Commission on December
17, 1996).**
(M) Amended and Restated Loan and Security Agreement, dated as of February
19, 1998, between Multigraphics, Publishing Solutions Inc. and
Foothill Capital Corporation (incorporated by reference to Exhibit
10(A) to our Quarterly Report on Form 10-Q, filed with the Commission
on March 17, 1998).
(N) Amendment to 1994 Long Term Incentive Plan, dated May 1, 1997
(incorporated by reference to Exhibit 10(X) to our Annual Report on
Form 10-K for the year ended July 31, 1997).**
(O) Employment Agreements between Multigraphics, Donald W. Hanigan, Keith
E. Stewart and Raymond T. Leach, respectively (incorporated by
reference to Exhibit 10.2 to Our Quarterly Report on Form 10-Q, filed
with the Commission on March 17, 1998).**
(P) First Amendment to Amended and Restated Loan Agreement between
Multigraphics, Publishing Solutions Inc. and Foothill Capital
Corporation, dated as of July 30, 1998 (incorporated by reference to
Exhibit 10(T) to our Annual Report on Form 10-K for the year ended
July 31, 1998).
(Q) Credit Facility and Security Agreement between Multigraphics, Inc. and
Paragon Corporate Holdings Inc. dated as of September 29, 1999.
(R) Second Amendment to Amended and Restated Loan Agreement between
Multigraphics, Publishing Solutions Inc. and Foothill Capital
Corporation dated as of April 21, 1999.
(S) Third Amendment to Amended and Restated Loan Agreement between
Multigraphics, Publishing Solutions Inc. and Foothill Capital
Corporation dated as of June 23, 1999.
(T) Fourth Amendment to Amended and Restated Loan Agreement between
Multigraphics, Publishing Solutions Inc. and Foothill Capital
Corporation dated as of September 29, 1999.
(U) Form of Change in Control and Termination Agreements between
Multigraphics and Mark Duchesne, Greg Knipp and Charlie Richards.**
23 Consent of Arthur Andersen LLP
</TABLE>
32
<PAGE>
<TABLE>
<C> <S>
99 Additional exhibits
Second Amended Disclosure Statement, dated August 26, 1993
(incorporated by reference to our Annual Report on Form 10-K for the
year ended July 31, 1993, filed as Exhibit 28 with the Commission on
October 29, 1993).
</TABLE>
** Management contract or compensatory plan, contract or arrangement.
33
<PAGE>
MULTIGRAPHICS, INC.
INDEX OF FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Multigraphics, Inc. and Subsidiaries:
Consolidated Financial Statements:
Report of Arthur Andersen LLP Independent Public Accountants.............. F-2
Consolidated Statements of Operations for the Years Ended July 31, 1999,
1998 and 1997............................................................. F-3
Consolidated Balance Sheets at July 31, 1999 and 1998..................... F-4
Consolidated Statements of Cash Flows for the Years Ended July 31, 1999,
1998 and 1997............................................................. F-5
Consolidated Statements of Shareholders' Equity for the Years Ended
July 31, 1999, 1998 and 1997.............................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
All other schedules for Multigraphics and subsidiaries have been omitted
since the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information
required is included in the respective financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the
Board of Directors of
Multigraphics, Inc.
We have audited the accompanying consolidated balance sheets of
Multigraphics, Inc. as of July 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended July 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Multigraphics, Inc. as of
July 31, 1999 and 1998, and the results of its operations and cash flows for
each of the three years in the period ended July 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has experienced difficulty in meeting its
obligations which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Chicago, Illinois Arthur Andersen LLP
October 19, 1999
F-2
<PAGE>
MULTIGRAPHICS, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------
JULY 31, JULY 31, JULY 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Machines and Supplies.................................. $ 67,940 $ 54,990 $ 45,274
Services............................................... 39,370 40,261 43,387
---------- ---------- ----------
TOTAL REVENUES..................................... 107,310 95,251 88,661
---------- ---------- ----------
COST OF SALES
Machines and Supplies.................................. 55,326 42,724 37,335
Services............................................... 26,265 27,346 26,536
---------- ---------- ----------
TOTAL COST OF SALES................................ 81,591 70,070 63,871
---------- ---------- ----------
GROSS MARGIN............................................. 25,719 25,181 24,790
OPERATING EXPENSES
Selling, general and administrative.................... 23,870 21,910 25,616
Unusual items, net (income) expense.................... -- -- (2,095)
---------- ---------- ----------
TOTAL OPERATING EXPENSES........................... 23,870 21,910 23,521
OPERATING INCOME......................................... 1,849 3,271 1,269
Non-operating income (expense):
Interest income........................................ 52 211 1,288
Interest (expense)..................................... (1,873) (1,723) (2,574)
Other, net............................................. (154) (42) 120
---------- ---------- ----------
Income (loss)............................................ (126) 1,717 103
Income tax expense....................................... 12 646 --
---------- ---------- ----------
NET INCOME (LOSS)........................................ $ (138) $ 1,071 $ 103
========== ========== ==========
PER SHARE OF COMMON STOCK:
BASIC:
Net income (loss).................................... $ (0.05) $ 0.38 $ 0.04
========== ========== ==========
DILUTED:
Net income (loss).................................... $ (0.05) $ 0.37 $ 0.04
========== ========== ==========
Weighted average shares of common stock and
common stock equivalents outstanding (in thousands)
Basic............................................ 2,833 2,823 2,807
========== ========== ==========
Diluted.......................................... 2,833 2,895 2,811
========== ========== ==========
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
F-3
<PAGE>
MULTIGRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 1,538 $ 2,869
Accounts receivable, net.............................................. 15,890 14,629
Inventories, net...................................................... 10,947 13,188
Prepaid expenses and other assets..................................... 582 726
---------- ----------
TOTAL CURRENT ASSETS.................................................... 28,957 31,412
Property, plant and equipment, net...................................... 8,353 9,554
Goodwill, net........................................................... 3,939 3,681
Other assets, net....................................................... 961 992
---------- ----------
TOTAL ASSETS........................................................ $ 42,210 $ 45,639
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings and current maturities of long-term debt........ $ 11,294 $ 10,745
Accounts payable...................................................... 10,947 7,312
Service contract deferred income...................................... 10,725 12,013
Payroll related expenses.............................................. 4,077 5,504
Other current liabilities............................................. 2,792 5,248
---------- ----------
TOTAL CURRENT LIABILITIES............................................... 39,835 40,822
Post-retirement benefit obligations..................................... 7,886 8,626
Long-term debt.......................................................... 591 1,048
Other long-term liabilities............................................. 4,141 5,287
---------- ----------
TOTAL LIABILITIES................................................... 52,453 55,783
SHAREHOLDERS' EQUITY:
Preferred stock, 0.5 million shares authorized; no shares issued
Common stock, $.025 par value; 9.5 million shares authorized;
2,833,322 issued as of July 31, 1999 and 2,829,526 issued
as of July 31, 1998................................................. 70 70
Capital in excess of par value.......................................... 22,886 22,847
Accumulated earnings (deficit).......................................... (33,199) (33,061)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.......................................... (10,243) (10,144)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 42,210 $ 45,639
========== ==========
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
F-4
<PAGE>
MULTIGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
---------------------------------------------
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)...................................... $ (138) $ 1,071 $ 103
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOW
FROM OPERATING ACTIVITIES:
---------- ---------- ----------
Depreciation of property, plant and equipment.......... 1,870 1,859 1,836
Amortization of goodwill............................... 154 42 -
Benefit from operating loss carryforwards.............. - 646 -
Change in assets and liabilities:
Accounts receivables, net.............................. (1,261) 27 9,028
Inventory, net......................................... 2,241 1,750 (291)
Prepaid expenses and other assets...................... 144 193 858
Accounts payable....................................... 3,635 (1,802) (10,218)
Deferred service revenue............................... (1,288) 232 (1,186)
Other current liabilities.............................. (3,049) (5,064) (14,728)
Other, net............................................. (924) (1,718) (1,041)
---------- ---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES.................... 1,384 (2,764) (15,639)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition Activities................................ (462) (6,873) -
Capital expenditures.................................. (757) (638) (1,862)
Proceeds from Divested Operations..................... - - 50,638
Proceeds from disposition of PP&E..................... 88 - 149
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES.................... (1,131) (7,511) 48,925
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
credit facilities..................................... 2,056 7,768 (5,430)
Payment of Bankruptcy Claims........................... (3,060) (4,285) (5,318)
Payments under capital lease arrangements.............. (580) (715) (642)
Payment of special dividend............................ - - (14,080)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES.................... (1,584) 2,768 (25,470)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (1,331) (7,507) 7,816
Cash and cash equivalents at beginning of period....... 2,869 10,376 2,560
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $ 1,538 $ 2,869 $ 10,376
========== ========== ==========
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
F-5
<PAGE>
MULTIGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Common Stock Treasury Stock Warranty
----------------------------------------------------------------------
Number Number Number
of of of
Shares (a) Amount Shares (a) Amount Shares (a) Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1996............... 2,804,000 $ 70 632 $ (6) 438,000 $ 383
Net income...........................
Aggregate effect of current year
translation adjustments............
Issuance of new common stock......... 11,969
Retirement of Treasury Stock......... (632) (632) 6
Expiration of Warrants............... (438,000) (383)
Payment of special dividend..........
Other, net.........................
--------- -------- ------- -------- -------- --------
Balance at July 31, 1997............... 2,815,337 70 -- -- -- --
Net Income...........................
Benefit from operating loss
carryforwards......................
Issuance of new common stock........... 13,523
Stock option exercises................. 666
--------- -------- ------- -------- -------- --------
Balance at July 31, 1998............... 2,829,526 70 -- -- -- --
Net Income...........................
Issuance of new common stock......... 3,796
--------- -------- ------- -------- -------- --------
Balance at July 31, 1999............... 2,833,322 $ 70 -- $ -- -- $ --
--------- -------- ------- -------- -------- --------
<CAPTION>
Capital in Accumulated Translation Total
Excess of Earnings/ Cumulative Shareholders'
Par Value (Deficit) Adjustment Equity
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at July 31, 1996............... $ 35,865 $(34,234) $ 218 $ 2,296
Net income........................... 103 103
Aggregate effect of current year
translation adjustments............ (218) (218)
Issuance of new common stock.........
Retirement of Treasury Stock......... (6)
Expiration of Warrants............... 383
Payment of special dividend.......... (14,080) (14,080)
Other, net......................... (1) (1)
-------- -------- ------- ---------
Balance at July 31, 1997............... 22,162 (34,132) -- (11,900)
Net Income........................... 1,071 1,071
Benefit from operating loss
carryforwards......................
Issuance of new common stock........... 646 646
Stock option exercises................. 39 39
Balance at July 31, 1998............... -------- -------- ------- ---------
Net Income........................... 22,847 (33,061) -- (10,144)
Issuance of new common stock......... (138) (138)
39 39
Balance at July 31, 1999............... -------- -------- ------- ---------
$ 22,886 $(33,199) $ -- $ 10,243
-------- -------- ------- ---------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Multigraphics, Inc. (the "Company"), a Delaware
corporation, distributes an extensive range of equipment, supplies, and
services to the graphic arts industry. The Company has approximately 20,000
customers, including small and mid-size commercial printers, quick print
franchises, in-plant print shops, governmental agencies, and educational
institutions. No individual customer accounts for more than 10% of net revenue.
The Company's headquarters and primary operations are located in Mt. Prospect,
Illinois. Products are distributed throughout the United States utilizing seven
distribution facilities. To a lesser extent, products are distributed
internationally through independent dealers. The Company employs approximately
325 service technicians throughout the United States to provide technical
service and training.
BASIS OF PRESENTATION: The Consolidated Financial Statements include the
accounts of Multigraphics, Inc. and its subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated. The Company's
fiscal year end is July 31. All references to years, unless otherwise
indicated, refer to the fiscal year. Certain prior year amounts have been
reclassified to be consistent with current year presentation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. It is
the Company's policy to invest its excess cash in interest bearing deposits
with major banks and institutional money market funds.
INVENTORIES: Inventories are valued at the lower of cost determined by the
first-in, first out (FIFO) method, or market.
PROPERTIES, EQUIPMENT AND DEPRECIATION: Properties and Equipment are stated at
cost and are depreciated over estimated useful lives, ranging from 3 to 10
years, primarily on a straight-line basis. The Company adjusts the net book
value to recognize impairments in accordance with "SFAS 121: Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
GOODWILL: Multigraphics amortizes goodwill over periods from ten to forty
years. Periodically, the Company reviews and, if necessary, adjusts the
carrying value for goodwill based upon current facts and circumstances and its
best estimate of undiscounted future cash flows of the related business.
Amortization of goodwill amounted to $154 and $42 in 1999 and 1998.
SEGMENT REPORTING: In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information", which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. The
statement also establishes standards for related disclosure about products and
services, geographic areas and major customers.
DERIVATIVE INSTRUMENTS: In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either
F-7
<PAGE>
- --------------------------------------------------------------------------------
an asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. Management believes that the
implementation of SFAS No. 133 will not have a material impact on the
Company's earnings.
REVENUE RECOGNITION: Revenue is recognized from sales when a product is
shipped. The Company recognizes warranty and equipment installation expenses at
the time a product is shipped, if applicable. The expense is estimated
considering current warranty policies and historical experience. Amounts billed
for service contracts are credited to Service contract deferred income and
recognized as revenues over the term of the contracts.
INCOME TAXES: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." Deferred income taxes are recorded to
reflect the future tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year end.
INCOME PER COMMON SHARE: "Basic earnings per share" have been calculated based
upon the weighted average number of shares actually outstanding, and "diluted
earnings per share" have been calculated based upon the weighted average number
of common shares outstanding and other potential common shares if they were
dilutive.
F-8
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2--PLAN OF MERGER AND BUSINESS RISKS
PLAN OF MERGER
On October 1, 1999, the Company announced that it entered into an Agreement and
Plan of Merger with Paragon Corporate Holdings, Inc. ("Paragon") providing for
Paragon to acquire the Company for $1.25 in cash per share of common stock.
Paragon will also assume the outstanding debt of the Company. Concurrently with
executing the merger agreement, the Company entered into a credit facility with
Paragon pursuant to which Paragon advanced the Company $2,000 on a secured
basis and subordinated to the Company's primary lender as discussed in Note 4.
The board of directors of each company have approved the transaction. Paragon
is the parent company of AB Dick Company, a manufacturer and worldwide supplier
to the graphic arts industry.
The merger transaction will be accounted for as a purchase and is anticipated
to close by the end of calendar 1999. The merger is subject to approval of the
holders of at least a majority of our outstanding shares of common stock,
expiration of the Hart-Scott-Rodino antitrust review period and other customary
conditions. Under the merger agreement, Paragon may receive a termination fee
under certain circumstances. There can be no assurance that the merger
agreement will result in a transaction.
Lion Advisors, L.P. and AIF II, L.P., which beneficially own approximately 35
percent of the issued and outstanding shares of Multigraphics, have agreed with
Paragon to support the transaction and to vote for approval of the merger
agreement and have granted an option to Paragon to purchase their shares under
certain circumstances.
BUSINESS RISKS
During the Company's fourth fiscal quarter ended July 31, 1999, the Company
continued to experience difficulty in meeting its liquidity requirements due to
lower than expected sales, the timing of demands to settle non-operating
obligations and decreases in its borrowing base. This liquidity difficulty
forced the Company to reduce inventory and delay payments to vendors and
suppliers, which led some vendors to delay or cancel shipment of product,
resulting in lower sales levels and profitability for the Company. As of July
31, 1999 over 50% of the Company's trade accounts payable were past their due
date. In light of these events, the Company's primary lender in August 1999
advised the Company that it needed to protect its collateral base and, absent
an immediate plan or transaction which would infuse significant additional
liquidity into the Company, it would commence reducing the lending advance
rates as well as increasing the interest rate on borrowings and might invoke a
material adverse change clause. This action by the lender would have worsened
the Company's already tenuous liquidity situation and possibly force the
Company into bankruptcy.
The $2,000 loan from Paragon has been used by the Company to pay down a large
portion of the past due trade accounts payable and to pay merger transaction
costs. It is anticipated that the reduction of the past due accounts payable
will induce vendors to release product which will reduce backorders and
facilitate increased sales levels. The Company's ability to meet its liquidity
requirements through the completion date of the merger transaction is largely
dependent on sustained levels of billings to customers which generate borrowing
base liquidity. Variations in market demand, competitive pressures or purchase
mix and the timing of revenues and costs could have a negative impact on the
Company's liquidity and credit facilities. In light of this the Company is
continuing to implement cost reduction programs to minimize the uses of cash.
The Company believes that the liquidity provided by the $2,000 loan from
Paragon, its current projections of future billings, the continued positive
results of identified cost reduction programs, and the continuation of the
Company's credit facilities will provide the Company with capital resources and
liquidity sufficient to finance its current operations and fund non-operating
obligations as they come due through the date of merger, however, there can be
no assurance that such will be the case.
The Company's current financial condition and uncertainties as described above
raise substantial doubt about the Company's ability to continue as a going
concern absent the merger transaction. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
F-9
<PAGE>
- --------------------------------------------------------------------------------
NOTE 3--ACQUISITIONS
In December, 1997 the Company purchased all of the outstanding shares of
Publishing Solutions Inc., and acquired the operating assets of Hanley Graphic
Products Company. Publishing Solutions provides its customers in northeast and
central Ohio with equipment and systems integration solutions utilizing digital
technologies for design, pre-press, imaging, and interactive media
applications. Hanley Graphic Products Company is a regional dealer of graphic
arts equipment and supplies serving customers in Northern Illinois. In June
1998, the Company acquired the business and certain assets of Progressive
Lithoplate and Supply Company, a regional graphic arts dealer serving customers
in Northern Illinois. In September 1998, the Company acquired the business and
certain assets of Austin, Texas based Texas Prepress Systems, Inc., a regional
prepress systems integrator.
The aggregate purchase price for the four acquired companies was $7,213
including expenses of the transactions, and could increase by a maximum of
$875, contingent upon the attainment of certain operating targets by the
acquired companies over the two years following their acquisition. The excess
purchase price over the fair market value of net assets acquired amounts to a
preliminary value of $4,135, which will be amortized over periods from 10 to 40
years.
The acquisitions have been accounted for as purchases and, accordingly, the
consolidated financial statements include results of operations from the date
of acquisition. The following pro forma summary presents the results of
operations for the current and prior periods as though the acquisitions had
taken place at the beginning of the prior period. The pro forma amounts give
effect to certain adjustments including increased interest expense, goodwill
amortization, estimated income tax expense as well as other factors, and do not
necessarily reflect the results which would have occurred had the businesses
operated as a single entity during such periods, nor are they necessarily
indicative of results which may be obtained in the future.
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
July 31, July 31, July 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues........................ $ 107,520 $ 106,763 $ 120,385
Net Income (Loss)............... $ (135) $ 856 $ 335
Earnings per share:
Basic........................ $ (0.05) $ 0.30 $ 0.12
Diluted...................... $ (0.05) $ 0.30 $ 0.12
</TABLE>
F-10
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4--BORROWING ARRANGEMENTS
The Company's short and long-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Revolving Credit Facility............................. $ 9,823 $ 7,768
General Unsecured Claims & Priority Tax Claims........ 881 2,265
Capital Leases........................................ 1,181 1,760
---------- ----------
Total............................................... $ 11,885 $ 11,793
========== ==========
Classified in the Consolidated Balance Sheet as follows:
Short-term............................................ $ 11,294 $ 10,745
Long-term............................................. 591 1,048
---------- ----------
Total............................................... $ 11,885 $ 11,793
========== ==========
</TABLE>
In May, 1997 the Company entered into a $10,000 three year secured Revolving
Credit Facility (subject to borrowing base limitations) with Foothill Capital
Corporation ("Foothill"). The Revolving Credit Facility includes a $5,000
sub-facility for the issuance of letters of credit. As security for utilization
of the Revolving Credit Facility, the Company granted a security interest and
general lien upon all of its assets. On February 19, 1998 the Revolving Credit
Facility was amended and restated ("the Amendment") to add the Company's wholly
owned subsidiary, Publishing Solutions Inc., as a co-borrower under the
Facility. The Amendment was made, among other things, to allow the eligible
assets of Publishing Solutions Inc. to be included in the Company's borrowings
base and to reset the Company's covenant requirements in light of the
acquisitions made by the Company during the quarter ended January 31, 1998. On
July 30, 1998 the Revolving Credit Facility was amended further to, among other
things, (1) grant the Company the ability to increase the Revolving Credit
Facility limit in increments of $1,000 up to a maximum limit of $15,000 and,
(2) extend the expiration date an additional two years to May 30, 2002 plus an
automatic one year extension unless terminated pursuant to the terms of the
Revolving Credit Facility. The Revolving Credit Facility limit was increased to
$11,000 on July 31, 1998, $12,000 on November 6, 1998 and $13,000 on February
12, 1999. On July 31, 1999, the calculated borrowing base was approximately
$11,000. As of July 31, 1999, the Company had borrowings of $9,823 under the
Revolving Credit Facility and was utilizing approximately $1,330 of the
facility to secure outstanding letters of credit. Interest generally will be
charged at a spread of 1% above the reference (i.e. prime) rate of Foothill. As
of July 31, 1999 the reference rate was 8.0%. Letter of credit fees are 0.75%
per annum plus issuance costs and processing fees. The agreement contains
restrictive covenants limiting capital expenditures, restricting the payment of
dividends and other payments and providing for quarterly measures of working
capital and net worth, among other things. In addition, the agreement limits
the Company's ability to borrow or to request letters of credit following a
material adverse change as determined by Foothill. As of July 31, 1999, the
Company was in compliance with the covenants (as amended and discussed below)
of the Revolving Credit Facility.
On October 1, 1999, the Revolving Credit Facility was further amended to, among
other things, (1) permit the Company to obtain a $2,000 secured subordinated
loan from Paragon Corporate Holdings, Inc. and, (2) reset the Company's
covenant requirements in light of the Company's impending merger transaction
with Paragon Corporate Holdings, Inc. as described in Note 2 "Plan of Merger".
On October 1, 1999, the Company borrowed $2,000 on a secured subordinated basis
from Paragon Corporate Holdings, Inc. These borrowings are subordinate to the
borrowings under the Revolving Credit Facility, will incur interest at 10% per
annum, and are to be repaid no later than September 30, 2000.
F-11
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4--BORROWING ARRANGEMENTS (CONTINUED)
On October 13, 1993 the Company concluded a reorganization when the United
States Bankruptcy Court for the District of Delaware confirmed the Company's
Plan of Reorganization ("Plan"). The Plan provides that holders of allowed
general unsecured claims receive cash payments toward satisfaction of the full
amount of their claims in equal quarterly payments payable on the last business
day of each calendar quarter ending after October 13, 1993 over a five-year
period, together with interest at 5% per annum. The final scheduled quarterly
payment was made during September 1998. Holders of priority tax claims are paid
10% of the allowed claim together with accrued and unpaid interest at 8% per
annum on the then outstanding amount on each anniversary of October 13, 1993
which occurs prior to the sixth anniversary of the date of assessment, and the
balances of such claims along with accrued and unpaid interest on the sixth
anniversary. For financial reporting purposes interest on general unsecured
claims has been imputed at 9% per annum. At July 31, 1999 the Company had $745
of restricted cash which pertains to the settlement of disputed claims in
accordance with the Plan.
As of July 31, 1999, aggregate maturities of total debt and capitalized leases,
are as follows:
Due fiscal year ending:
<TABLE>
<S> <C>
2000................... $1,370
2001................... 247
2002................... 9,992
2003................... 60
2004................... 216
2005 and thereafter.... --
</TABLE>
The Revolving Credit Facility is classified as a current liability on the
balance sheet to comply with the accounting requirements. However, for the
aggregate debt maturities above, the Revolving Credit Facility amount of $9,823
is reflected in 2002, the year the Revolving Credit Facility expires.
Cash paid for interest was $1,680 during 1999, $1,523 during 1998 and $2,498
during fiscal 1997.
F-12
<PAGE>
- --------------------------------------------------------------------------------
NOTE 5--COMMITMENTS AND CONTINGENCIES
The Company received creditor claims during its bankruptcy proceedings which
the Company believes are duplicative, erroneous or exaggerated and to which the
Company believes it has valid defenses. The Company has filed objections to
these disputed claims in the United States Bankruptcy Court in Delaware. As of
July 31, 1999 and July 31, 1998, disputed claims amounted to $5,105 and $5,205,
respectively. The disputed claims are primarily comprised of environmental and
product liability claims. Although the vast majority of the claims filed in the
bankruptcy proceedings have been expunged or resolved within the Company's
reserves, a few significant disputed claims remain pending in the bankruptcy
proceeding.
In October, 1995, a wholly owned subsidiary in the United Kingdom (currently in
liquidation) repaid an intercompany loan of approximately $1,000. The
liquidator of this subsidiary has asserted that the loan repayment was a
preference and should be repaid, together with interest for the benefit of
other creditors. The Company has vigorously resisted the liquidator's claim on
the basis that the subsidiary was solvent at the time of the loan repayment, it
was anticipated that it would remain solvent in the future, and there was no
intent to prefer.
The Company has been notified of various environmental matters in connection
with certain current or former Company locations in Illinois and Ohio. The
Company is also involved in various other administrative and legal proceedings
incidental to its business, including product liability and general liability
lawsuits against which the Company is partially insured.
The disputed claims in the bankruptcy proceedings and the other legal
proceedings are in many cases in excess of recorded reserves. At the present
time, it is management's opinion, based on information available to the Company
and management's experience in such matters, that the resolution of these legal
proceedings is not expected to have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
The Company has sold certain receivables related to machine sales, subject to
recourse provisions and repurchase provisions. Management believes unreserved
exposures pertaining to these contingencies will not materially impact the
Company's financial condition, results of operations or liquidity.
F-13
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6--INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
July 31, 1999 July 31, 1998 July 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
The domestic and foreign components of
income (loss) are as follows:
Domestic............................................... $ (126) $ 1,717 $ 366
Foreign................................................ -- -- (263)
--------- --------- ---------
$ (126) $ 1,717 $ 103
========= ========= =========
Provision for income taxes is as follows:
Domestic............................................... $ 12 $ 646 $ --
Foreign................................................ -- -- --
--------- --------- ---------
$ 12 $ 646 $ --
========= ========= =========
A reconciliation of the income tax expense
(benefit) on income (loss) per the U.S.
federal statutory rate to the reported
income tax expense (benefit) follows:
US Federal statutory rate applied to pretax
income (loss)....................................... $ (43) $ 584 $ 35
Operating loss with no current tax benefit
and varying tax rates of other national
governments......................................... 41 -- 89
Permanent tax differences.............................. 2 19 (124)
State taxes, net of federal benefit.................... 12 43 --
--------- --------- ---------
Income tax expense.................................. $ 12 $ 646 $ --
========= ========= =========
</TABLE>
F-14
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6--INCOME TAXES (CONTINUED)
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standard (SFAS) No. 109. At July 31, 1999 and July 31, 1998 the
approximate amounts of deferred tax assets and deferred tax liabilities
resulting from temporary differences and carryforwards were as follows:
The plans' funded status at July 31, was as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Deferred Tax Assets
Inventory valuation................................... $ 500 $ 1,200
Insurance reserves.................................... 3,400 4,400
Other................................................. 3,400 3,800
---------- ---------
Subtotal................................................ 7,300 9,400
Domestic tax operating loss carryforwards
limited by Sec 382.................................... 21,000 21,000
Domestic tax operating loss carryforwards............... 64,000 60,000
AMT credit carryforward................................. 1,800 1,800
---------- ---------
Deferred Tax assets..................................... 94,100 92,200
Valuation allowance................................... (94,100) (92,200)
---------- ---------
Net deferred tax asset.................................. $ -- $ --
========== =========
</TABLE>
The Internal Revenue Code ("IRC") Sec. 382 ownership change which resulted from
the 1993 bankruptcy reorganization imposed a limitation on the usage of
pre-reorganization domestic tax operating loss carryforwards. Usage of this
loss carryforward is limited to $3,689 per year or $55,335 for a period of 15
years following the ownership change. In addition, as of July 31, 1999, the
Company had domestic tax loss carryforwards of approximately $169,000
attributable to post-reorganization periods and therefore not subject to
limitation. However, the Plan of Merger (see Note 2) would result in IRC
section 382 limitations on the utilization of the post-reorganization tax
operating loss carryforwards and further limit the pre-reorganization tax
operating loss carryforwards. The domestic tax loss carryforwards will expire
from 2000 to 2020. The AMT credit, although subject to the IRC Sec. 382
limitation, has no expiration date.
During 1999, the deferred tax asset and related valuation allowance increased
by $1,900 primarily due to generation of taxable losses. Due to the uncertainty
as to the realizability of the deferred tax assets, the Company has established
valuation allowances in accordance with SFAS No. 109 to offset the asset.
To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of
pre-reorganization deferred tax assets, fresh start accounting rules provide
for the reporting of such benefit by increasing Capital in excess of par value.
Although the future recognition of this benefit will have no impact on net
earnings, the Company will realize a cash benefit from utilization of the
"Pre-Reorganization Benefits" against any future tax liabilities.
F-15
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7--DEFERRED COMPENSATION
As of July 31, 1998, the Company's 1994 Long Term Incentive Plan provides for
the issuance of 560,000 shares of $.025 par value Common Stock. Options to
purchase the Common Stock are awarded at a price not less than 100% of the
market price on the date of grant, become exercisable at various dates
generally from one to four years after the date of grant, and expire ten years
after the date of grant. In the event a holder of options is no longer employed
by the Company, the unvested shares are canceled upon the employee's
termination and any vested shares must be exercised within 90 days or they are
also canceled.
On October 20, 1998, the Company's Board of Directors approved the
Multigraphics, Inc. 1998 Stock Incentive Plan for Directors. Options to
purchase a total of 140,000 shares of the Company's Common Stock are included
in the plan. Under the plan, each non-employee director received an option for
10,000 shares on October 20, 1998 and will receive and additional 5,000 share
option grant on the date of each annual meeting of stockholders, commencing in
1999, at an option exercise price per share equal to the fair market value of a
share of Common Stock on the date of the grant. Such options are exercisable in
part or in full on the date of the grant and will expire ten years after the
date of grant.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
Exercise Exercise Exercise
Number Price Number Price Number Price
of Range of Range of Range
Shares Per Share Shares Per Share Shares Per Share
-------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the Beginning of the Year... 350,383 $2.1875-8.2139 293,649 $2.1875-8.2139 202,460 $ 6.250-8.2139
Granted.................................... 40,000 $ 4.500 129,000 $ 2.500-4.875 179,150 $2.1875-2.4375
Exercised.................................. -- $ -- (666) $ 2.4375 (11,969) $ 3.0000
Canceled................................... (98,667) $ 2.4375-6.875 (71,600) $ 2.1875-8.660 (75,992) $ 4.6426-6.875
-------- -------------- -------- -------------- -------- --------------
Outstanding at the End of the Period....... 291,716 $2.1875-8.2139 350,383 $2.1875-8.2139 293,649 $2.1875-8.2139
======== ============== ======= ============== ======== ==============
Exercisable at the End of the Period....... 175,575 $2.1875-8.2139 104,416 $2.1875-8.2139 87,039 $2.1875-8.2139
-------- -------------- -------- -------------- -------- --------------
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), in accounting for stock-based awards to employees.
Under APB No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized in the Company's financial statements for
all periods presented.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123. This information is required to be determined as if the
Company had accounted for its employee stock options granted subsequent to July
31, 1995 under the fair value method of that statement. The fair value of
options granted has been estimated at the date of grant using the following
weighted average assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Risk-free rate (%)............. 4.57 5.90 5.85
Volatility (%)................. 25.0 33.0 25.0
Expected Life (in years)....... 5 5 5
Dividend Yield................. --- --- ---
</TABLE>
Option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single measure of the fair value of its options.
The weighted average estimated fair value of stock options granted through July
31, 1999, 1998, and 1997 was $2.01, $1.55 and $1.17 per share, respectively.
F-16
<PAGE>
- -------------------------------------------------------------------------------
NOTE 7--DEFERRED COMPENSATION (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income and per share data from continuing operations is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro Forma Net Income (loss): $(235) $1,029 $94
Pro Forma Per Share Data:
Basic.......................... $(.08) $.36 $.03
Diluted........................ $(.08) $.36 $.03
</TABLE>
Because the Company anticipates making additional grants and options vest
over several years, the effects on pro forma disclosures of applying SFAS
No. 123 are not likely to be representative of the effects on pro forma
disclosures of future years. SFAS No. 123 is applicable only to options
granted subsequent to July 31, 1995.
NOTE 8--UNUSUAL ITEMS
On September 20, 1996, the Company completed the sale of its 2,148,000 shares
of AM Japan Co., Ltd. ("AM Japan") and received proceeds of approximately
$10,600, net of certain costs. A gain of approximately $2,600 was recorded by
the Company in the quarter ended November 2, 1996, after providing for
expenses related to the sale.
On October 17, 1996, the Company's Canadian subsidiary filed for voluntary
assignment in bankruptcy. Reserves for the cost to exit Canada, which had been
established in the fiscal year ended July 31, 1996, were adequate and no
additional costs were recognized.
On December 2, 1996, the Company and Xeikon, N.V. entered into an
agreement under which the parties agreed not to renew the distribution
agreement. The distribution agreement provided for the Company to sell and
service Xeikon digital color presses in North America. As part of this
agreement, Xeikon America, Inc. has acquired certain assets from the Company
and assumed certain responsibilities of the Company. The divestiture of the
assets resulted in a net loss of approximately $500 which the Company recorded
in the quarter ending November 2, 1996.
F-17
<PAGE>
- -------------------------------------------------------------------------------
NOTE 9--BALANCE SHEET ACCOUNTS
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
July 31, July 31,
1999 1998
------------ ------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable.................................. $ 16,230 $ 14,929
Allowance for doubtful accounts...................... (340) (300)
---------- ----------
Accounts receivable, net........................... $ 15,890 $ 14,629
========== ==========
PROPERTY, PLANT AND EQUIPMENT:
Machinery and equipment.............................. $ 12,574 $ 11,985
Leasehold improvements............................... 3,339 3,338
---------- ----------
15,913 15,323
Less accumulated depreciation and amortization....... (7,560) (5,769)
---------- ----------
Property, plant and equipment, net................. $ 8,353 $ 9,554
========== ==========
GOODWILL:
Goodwill............................................. $ 4,135 $ 3,723
Amortization......................................... (196) (42)
---------- ----------
Goodwill, net...................................... $ 3,939 $ 3,681
========== ==========
</TABLE>
F-18
<PAGE>
NOTE 10--VALUATION AND QUALIFYING ACCOUNTS
The activity in the allowance for uncollectible accounts for the years
ended July 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Accounts
Receivable
-----------
<S> <C>
Balance July 31, 1996............................. $ 822
Additions Charged to Cost & Expenses............ 150
Deductions from Reserves........................ (637)
---------
Balance July 31, 1997............................. 335
Additions Charged to Cost & Expenses............ 175
Deductions from Reserves........................ (210)
---------
Balance July 31, 1998............................. 300
Additions Charged to Cost & Expenses............ 237
Deductions from Reserves........................ (197)
---------
Balance July 31, 1999............................. $ 340
=========
</TABLE>
NOTE 11--RETIREMENT BENEFIT PLANS
The Company maintains defined contribution retirement plans for domestic
employees comprised of a savings plan (401(k)) and a profit sharing plan
(Retirement Accumulation Plan). Contributions to these plans take the form of
(i) Company contributions to match a portion of employee contribution and
(ii) contributions made at the discretion of the Board of Directors. The
Company's contributions to the domestic defined contribution plans were $770,
$800 and $911 in 1999, 1998 and 1997, respectively.
In addition, the Company provides limited life insurance and health care
benefits to certain domestic retired employees and provides for certain medical
and life insurance benefits for retirees of previously closed manufacturing
locations.
F-19
<PAGE>
- -------------------------------------------------------------------------------
NOTE 11--RETIREMENT BENEFIT PLANS (CONTINUED)
Net post-retirement life and health care cost includes the following
components:
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------
July 31, July 31, July 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service Cost--benefits earned during the period..................... $ 3 $ 3 $ 3
Interest cost on accumulated post-retirement benefit obligation..... 609 622 622
Amortization of unrecognized actuarial gain......................... -- (50) (304)
--------- --------- ---------
Total life and health care costs.................................... $ 612 $ 575 $ 321
========= ========= =========
</TABLE>
The plans' funded status at July 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Retirees............................................................ $ 8,210 $ 8,010 $ 8,348
Fully eligible active participants.................................. 148 161 224
Other Active Participants............................................. 52 82 --
--------- --------- ---------
Accumulated post-retirement benefit obligation........................ 8,410 8,253 8,572
Cumulative unrecognized actuarial gain/(loss)......................... (524) 373 1,157
--------- --------- ---------
Accrued post-retirement life and health care costs.................... $ 7,886 $ 8,626 $ 9,729
========= ========= =========
</TABLE>
Assumptions used for the Company's retiree life and health care plans as of
July 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Discount rate for determining obligations............................. 7.50% 7.25% 7.25%
Discount rate for determining net periodic
post-retirement benefit costs....................................... 7.00% 7.25% 7.25%
</TABLE>
If the health care cost trend rates were increased 1% for all future years,
the accumulated post-retirement benefit obligation would have increased 3.7% at
July 31, 1999. The effect of this change on the aggregate of service and
interest costs would have been an increase of 3.5% for 1999. If the health care
cost trend rate were decreased 1% for all future years, the accumulated
post-retirement benefit obligation would have decreased 3.5% at July 31, 1999.
The effect of this change on the aggregate of service and interest costs would
have decreased 3.3% for 1999. A 9.5% increase in the health care cost trend rate
was assumed for retirees under age 65 and an 8.0% increase for those over the
age of 65. These rates are assumed to decrease gradually to 5.5% in the year
2001.
F-20
<PAGE>
- --------------------------------------------------------------------------------
NOTE 12--LEASE TRANSACTIONS
The Company leases certain real and personal property and is responsible for
most maintenance, insurance and tax expenses related to leased facilities. At
July 31, 1999, the future lease payments for continuing operating leases are as
follows:
<TABLE>
<S> <C>
2000........................................ $1,526
2001........................................ 1,218
2002........................................ 1,167
2003........................................ 1,136
2004........................................ 1,109
2005 and thereafter......................... 1,020
------------
Total future operating lease payments $7,176
============
</TABLE>
Rental expenses for all operating leases were $1,738, $2,026 and $2,741 in
1999, 1998 and 1997, respectively.
F-21
<PAGE>
- -------------------------------------------------------------------------------
NOTE 13--OPERATING SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
"Disclosure about Segments of an Enterprise and Related Information," effective
July 31, 1999. Adoption of this Statement required the Company to change the
disclosure of operating segment information, but did not require significant
changes in the way geographic information was disclosed.
The Company is a distributor of an extensive range of equipment and supplies
and a service provider to the U.S. graphic arts industry. The Company manages
two operating segments: Distribution and Service.
The Company's distribution segment serves in-plant printers and small to
medium sized commercial printers. Its supplies and equipment offerings consist
of consumable products used in the production of printed materials such as
films, inks, plates, rubber rollers, cleaning solutions and cotton pads, as well
as equipment products such as digital imagesetters, platesetters, presses,
folders and cutters. The Company tracks various categories of these products,
none of which account for more than 10% of its revenues.
The Company's service segment provides service and parts offerings on over
250 models of printing equipment installed in in-plant and small to medium sized
commercial print shops, governmental and educational institutions, as well as
national retail outlets. The Company has approximately 325 service
representatives, and offers service capabilities in all 50 states.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on revenues and direct operating income of the segments and
does not include general and administrative costs. The Company accounts for
intersegment sales as transfers of inventory.
The Company's reportable segments are strategic business units. The business
segments have been separated based on specifically identifiable revenues and the
direct costs that are attributable to each of the segments.
F-22
<PAGE>
- -------------------------------------------------------------------------------
NOTE 13--OPERATING SEGMENTS (CONTINUED)
Information as to the operations of the Company's two operating segments is as
follows:
<TABLE>
<CAPTION>
Corporate/
Distribution Service Other Total
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
1999:
Revenue....................................... $ 67,940 $ 39,370 $ -- $ 107,310
Earnings/(loss) from operations............... 3,622 8,450 (10,223) 1,849
Earnings/(loss) before taxes.................. 3,622 8,450 (12,198) (126)
1998:
Revenue....................................... 54,990 40,261 -- 95,251
Earnings/(loss) from operations............... 3,594 9,920 (10,243) 3,271
Earnings/(loss) before taxes.................. 3,594 9,920 (11,797) 1,717
1997:
Revenue....................................... 42,770 42,288 3,603 88,661
Earnings/(loss) from operations............... (200) 11,752 (10,283) 1,269
Earnings/(loss) before taxes.................. $ (200) $ 11,752 $ (11,449) $ 103
</TABLE>
Corporate/Other represents general and administrative costs or revenues (in
1997 only) that are not directly attributable to one of the operating segments.
The Company does not allocate assets, capital expenditures, depreciation and
interest expense between operating segments.
In 1999 and 1998 the majority of the Company's revenues were generated in
the United States. The Company has some sales outside of the United States
through foreign dealers that do not have a material effect on the total revenues
from each segment. In 1997, subsidiaries in Canada and Japan contributed to the
total revenues but did not have a material effect.
F-23
<PAGE>
- -------------------------------------------------------------------------------
NOTE 14--QUARTERLY FINANCIAL INFORMATION--(UNAUDITED)
A summary of quarterly financial information for fiscal 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 Quarter
- ---------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Total Year
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 25,669 $ 24,955 $ 31,099 $ 25,587 $ 107,310
Gross Profit............................... 6,867 5,805 7,537 5,510 25,719
--------- --------- --------- --------- ----------
Net Income................................. $ 162 $ (449) $ 433 $ (284) $ (138)
========= ========= ========= ========= ==========
Per Common Share (1):
Basic...................................... $ 0.06 $ (0.16) $ 0.15 $ (0.10) $ (0.05)
Diluted.................................... $ 0.06 $ (0.16) $ 0.15 $ (0.10) $ (0.05)
Closing Market Price (2)
High....................................... $ 6.688 $ 4.625 $ 3.125 $ 2.500 $ 6.688
Low........................................ $ 4.000 $ 2.625 $ 2.375 $ 1.875 $ 1.875
</TABLE>
<TABLE>
<CAPTION>
1998 Quarter
- ---------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Total Year
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 20,700 $ 22,199 $ 27,431 $ 24,921 $ 95,251
Gross Profit............................... 5,546 5,364 7,165 7,106 25,181
--------- --------- --------- --------- ----------
Net Income................................. $ 158 $ 164 $ 555 $ 194 $ 1,071
========= ========= ========= ========= ==========
Per Common Share (1):
Basic...................................... $ 0.06 $ 0.06 $ 0.20 $ 0.07 $ 0.38
Diluted.................................... $ 0.06 $ 0.06 $ 0.19 $ 0.07 $ 0.37
Closing Market Price (2)
High....................................... $ 2.750 $ 4.688 $ 6.375 $ 8.938 $ 8.938
Low........................................ $ 1.625 $ 2.500 $ 3.750 $ 4.750 $ 1.625
</TABLE>
- ------------------------
(1) Sum of quarters may not equal the total for the year due to changes in the
number of shares outstanding during the year.
(2) The Company's common stock is traded on the American Stock Exchange under
the ticker symbol "MTI".
F-24
<PAGE>
- -------------------------------------------------------------------------------
NOTE 15--FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years Ended ($Millions)
July 31, 1999 July 31, 1998 July 31, 1997 July 31, 1996 July 31, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operations:
Revenues................................ $ 107.3 $ 95.3 $ 88.7 $ 168.1 $ 191.5
Gross profits........................... 25.7 25.2 24.8 37.6 52.7
as a percent of revenues.............. 24.0% 26.4% 28.0% 22.4% 27.5%
Unusual items (inc..) exp............... -- -- (2.1) 7.0 --
Operating income (loss)................. 1.8 3.3 1.3 (16.4) (2.5)
as a percent of revenues.............. 1.8% 3.5% 1.5% -9.8% -1.3%
Net income (loss) from
continuing operations................. (0.1) 1.1 0.1 (20.2) (4.2)
Income (loss) from
discontinued operations............... -- -- -- (25.3) 8.8
Net income (loss)....................... $ (0.1) $ 1.1 $ 0.1 $ (45.5) $ 4.6
Capital Employed..........................
Working Capital......................... (10.9) (11.2) (5.9) (38.9) 61.5
Total Assets............................ 42.2 45.6 44.9 98.0 163.1
Long-Term Debt.......................... 0.6 1.0 3.4 8.5 14.9
Shareholder's Equity.................... (10.2) (10.1) (11.9) 2.3 48.3
Per Common Share
Net income (loss) from
continuing operations
Basic........................... $ (0.05) $ 0.38 $ 0.04 $ (7.19) $ (1.48)
Diluted......................... $ (0.05) $ 0.37 $ 0.04 $ (7.19) $ (1.48)
Market Price - High..................... $ 6.688 $ 8.938 $ 2.500 $ 20.938 $ 30.625
Low............................... $ 1.875 $ 1.625 $ 0.550 $ 4.688 $ 20.313
Average number of common shares
and equivalents (in thousands) (1)
Basic........................... 2,833 2,823 2,807 2.803 2,808
Diluted......................... 2,833 2,895 2,811 2,803 2,808
Number of Employees at Year End 630 671 651 1,121 1,378
---------- --------- --------- ---------- ----------
</TABLE>
(1) the weighted average number of common shares and net income per common share
have been restated to reflect the effect of the 1 for 2 1/2 share revenue
stock split which was approved by the Company's shareholders on May 28,
1997.
F-25
<PAGE>
EXHIBIT 2
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
DATED AS OF
SEPTEMBER 29, 1999
AMONG
PARAGON CORPORATE HOLDINGS INC.,
MULTI ACQUISITION CORP.
AND
MULTIGRAPHICS, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of
September 29, 1999 among Multigraphics, Inc., a Delaware corporation (the
"COMPANY"), Paragon Corporate Holdings Inc., a Delaware corporation or its
designated affiliate ("BUYER"), and Multi Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer (the "MERGER SUBSIDIARY").
The parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. On and subject to the terms and
conditions of this Agreement and in accordance with Delaware Law, the Merger
Subsidiary will merge with and into the Company (the "MERGER") at the Effective
Time (as hereinafter defined). The Company shall be the corporation surviving
the Merger (the "SURVIVING CORPORATION").
Section 1.2 EFFECT OF THE MERGER.
(a) GENERAL. The Merger shall become effective at the time
(the "EFFECTIVE TIME") the Secretary of State of the State of Delaware certifies
that the Certificate of Merger has been filed following ratification and
approval of the Merger by stockholders of the Company in accordance with the
Delaware General Corporation Law ("DELAWARE LAW"). The Merger shall have the
effect set forth in the Delaware Law. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and delivering
any document) in the name and on behalf of either the Company or the Merger
Subsidiary in order to carry out and effectuate the transactions contemplated by
this Agreement.
(b) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time, until amended in accordance with applicable law.
(c) BYLAWS. The Bylaws of the Surviving Corporation shall be
the Bylaws of the Company immediately prior to the Effective Time.
1
<PAGE>
(d) DIRECTORS AND OFFICERS. The directors and officers of the
Surviving Corporation as of the Effective Time shall be as set forth on EXHIBIT
A.
(e) CONVERSION OF COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the Buyer, the Merger
Subsidiary, the Company, or the holder of any of the following securities:
(i) each share (a "SHARE") of common stock of the
Company, $0.025 par value per share (the "COMMON STOCK"),
other than Common Stock owned of record by the Buyer or the
Merger Subsidiary, issued and outstanding immediately prior to
the Effective Time shall cease to be an issued and outstanding
Share of Common Stock and shall become and shall be converted
into a right to receive $1.25 per Share in cash, without
interest as provided in Section 1.3, subject to adjustment
pursuant to Section 1.5;
(ii) each option and warrant to purchase Common Stock
from the Company outstanding at the Effective Time ("COMPANY
OPTION") shall cease to be an issued and existing Company
Option and shall become and be converted into a right to
receive, upon demand and without regard to whether such
Company Options would then be exercisable at the Effective
Time in the absence of consummation of the Merger, an amount
of cash equal to the difference, if positive, between $1.25
per share issuable upon exercise less the applicable exercise
price per share of such Company Option multiplied by the
number of shares of Common Stock which the holder of such
Company Option would have received had such Company Option
been fully exercised on the Effective Date;
(iii) each treasury share and each Share of Common
Stock held of record by the Merger Subsidiary shall be
cancelled and retired and no portion of the Merger
Consideration shall be allocable thereto; and
(iv) each Share of Common Stock held of record by the
Buyer shall be cancelled and retired and no portion of the
Merger Consideration shall be allocable thereto.
The amounts to be paid pursuant to paragraphs (i) and (ii) above are referred to
herein as the "MERGER CONSIDERATION."
(f) CONVERSION OF CAPITAL STOCK OF THE MERGER SUBSIDIARY. At
and as of the Effective Time, each share of common stock, no par value per
share, of the Merger
2
<PAGE>
Subsidiary shall be converted into one share of common stock of the Surviving
Corporation.
(g) SHARES OF DISSENTING STOCKHOLDERS. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding Shares
held by a person (a "DISSENTING STOCKHOLDER") who objects to the Merger and
complies with all the provisions of Delaware Law concerning the right of holders
of Shares to dissent from the Merger and require appraisal of their Shares
("DISSENTING SHARES") shall not be converted as described in Section 1.2(e)(i),
but shall be converted into the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the Delaware
Law. If, after the Effective Time, such Dissenting Stockholder withdraws his
demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to Delaware Law, his Shares shall be deemed to
be converted as of the Effective Time into the right to receive $1.25 per Share
as provided in Section 1.2(e)(i). The Company shall give Buyer (i) prompt notice
of any demands for appraisal of Shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of Buyer, make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands.
Section 1.3 PROCEDURE FOR PAYMENT.
(a) Prior to the Effective Time, Buyer shall appoint an agent
(the "PAYING AGENT") for the purpose of receiving certificates representing
Shares and paying the Merger Consideration. Buyer will make available to the
Paying Agent, in such amounts as may be needed from time to time, the Merger
Consideration to be paid in respect of the Shares. Promptly after the Effective
Time, Buyer will send, or will cause the Paying Agent to send, to each holder of
Shares at the Effective Time a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the certificates representing
Shares to the Paying Agent) and instructions for use in effecting the surrender
of certificate in exchange for the Merger Consideration.
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the Paying Agent
of a certificate or certificates representing such Shares, together with a
properly completed letter of transmittal covering such Shares, will be
entitled to receive the Merger Consideration payable in respect of such
Shares. From and after the Effective Time, all Shares which have been so
converted shall no longer be outstanding and shall automatically be canceled
and retired, and each such certificate shall, after the Effective Time,
represent for all purposes, only the right to receive such Merger
Consideration.
3
<PAGE>
(c) If any portion of the Merger Consideration is to be paid
to a Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Paying Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Shares or establish to the satisfaction of the Paying
Agent that such tax has been paid or is not payable. For purposes of this
Agreement, "PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) Promptly after the Effective Time, the Surviving
Corporation shall mail a confirmation of the Merger and an additional Letter of
Transmittal to each record holder of outstanding Common Stock or Company Options
who has not previously submitted a Letter of Transmittal.
Section 1.4 CLOSING OF TRANSFER RECORDS. At the Effective
Time, the stock transfer book of the Company shall be closed and no further
transfers of Common Stock shall be made on such stock transfer book or the stock
transfer book of the Surviving Corporation.
Section 1.5 EQUITABLE PRICE ADJUSTMENT. If there shall be any
option exercise, stock split, reverse stock split, stock dividend, merger or
similar reorganization, recapitalization, reclassification or other transaction
affecting generally the Common Stock of the Company, or any extraordinary or
stock dividend paid on or with respect to the capital stock of the Company, then
appropriate and equitable adjustments shall be made hereunder with respect to
the Merger Consideration so that the aggregate relative rights and obligations
of the parties hereto shall not be adversely affected by any such action.
Section 1.6 NECESSARY FURTHER ACTION. The Buyer, the Merger
Subsidiary, and the Company each shall use all reasonable efforts to take all
actions as may be necessary or appropriate in order to effectuate the Merger in
accordance with the terms hereof as promptly as possible. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
immunities and franchises of either or both of the Merger Subsidiary and the
Surviving Corporation, then the officers and directors of the Surviving
Corporation are fully authorized in the name of either or both of the Merger
Subsidiary and the Surviving Corporation to take all such actions.
4
<PAGE>
ARTICLE II
THE CLOSING
Section 2.1 THE CLOSING. The closing of the Merger (the
"CLOSING") shall take place at the offices of Squire, Sanders & Dempsey L.L.P.,
Cleveland, Ohio, commencing at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
parties to consummate the Merger or such other date, time or place as the
parties may mutually determine (the "CLOSING DATE"). The parties intend that the
Closing shall occur on or before December 31, 1999.
Section 2.2 ACTIONS AT THE CLOSING. At the Closing the Company
and the Merger Subsidiary shall deliver to the Secretary of State of the State
of Delaware a Certificate of Merger (the "CERTIFICATE OF MERGER") in accordance
with the Delaware Law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Merger Subsidiary
and the Buyer as of the date hereof and as of the Effective Time as follows:
Section 3.1 AUTHORITY. The Company has all requisite corporate
power and authority, without the consent of any other Person, to execute and
deliver this Agreement and the agreements and instruments to be delivered,
subject to approval of the Merger by the requisite vote of the Company
stockholders, immediately prior to the Effective Time, and to carry out the
transactions contemplated hereby. All acts or proceedings required to be taken
by the Company to authorize the execution and delivery of this Agreement by the
Company and the performance by the Company in accordance with its obligations
under this Agreement have been duly and properly taken (other than, with respect
to the Merger, approval of the Merger by the requisite vote of the Company
stockholders). The action of the Board of Directors of the Company in approving
the Merger and this Agreement is sufficient to render the provisions of Section
203 of Delaware Law inapplicable to the Merger, this Agreement and the
transactions contemplated by this Agreement.
Section 3.2 VALIDITY. This Agreement has been duly executed
and delivered and (assuming the valid authorization, execution and delivery of
this
5
<PAGE>
Agreement by the Buyer and the Merger Subsidiary) constitutes a lawful, valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors' rights generally and
by general equitable principles. Except for the items listed on Schedule 3.2,
assuming all consents, approvals, authorizations and other actions described in
this Section 3.2 have been obtained and all filings and obligations described in
this Section 3.2 have been made, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not result in
the creation of any lien, charge or encumbrance of any kind or the acceleration
of any indebtedness or other obligation of the Company or any Subsidiary (as
defined in Section 3.4) and are not prohibited by, do not violate or conflict
with any provision of, and do not constitute a default under or a breach of (a)
the charter or by-laws of the Company or any Subsidiary, (b) any note, bond,
indenture, contract, agreement, permit, license or other instrument to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their assets is bound, (c) any order, writ, injunction, decree or
judgment of any court or government agency, or (d) any law, rule or regulation
applicable to the Company or any Subsidiary other than, in the case of clauses
(b), (c) or (d), any such liens, charges, encumbrances, accelerations,
violations, conflicts, defaults or breaches that, individually or in the
aggregate, would not have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Merger. No approval, authorization,
registration, consent, order or other action of or filing with any court,
administrative agency or other government authority, is required for the
execution and delivery by the Company of this Agreement or the consummation by
the Company of the transactions contemplated hereby or the performance by the
Company of its obligations hereunder, except for (i) in connection, or in
compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR ACT"), and the Securities Exchange Act of
1934, as amended (together with the rules and regulations promulgated
thereunder, the "EXCHANGE ACT"), (ii) the filing of a Certificate of Merger with
the Secretary of State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company or any of its Subsidiaries is
qualified to do business, (iii) such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
other transactions contemplated by this Agreement, (iv) filings with and
approvals of the American Stock Exchange, Inc. and the Securities and Exchange
Commission ("SEC") with respect to the delisting and deregistration of the
Common Stock, and (v) such other approvals, authorizations, registrations,
consents, orders, or other actions and filings the failure of which to be
obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect on the Company or prevent or materially delay the consummation of
the Merger.
6
<PAGE>
Section 3.3 DUE ORGANIZATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority and all requisite
rights, licenses, permits and franchises to own, lease and operate its assets
and to carry out the business in which it is engaged (the "BUSINESS"), except
where the failure to have such rights, franchises and permits would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company is duly licensed and qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the nature of
its business and the ownership, leasing or operation of its assets or the
conduct of its business requires such qualification, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have a material adverse effect on the financial condition,
business, assets, results of operations, or future prospects of the Company and
the Subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company has
heretofore delivered to Buyer or its counsel true and complete copies of the
Company's Articles of Incorporation and bylaws as currently in effect.
Section 3.4 SUBSIDIARIES. Except for the entities set forth on
Schedule 3.4 (the "SUBSIDIARIES"), the Company does not own stock or have any
equity investment or other interest in, does not have the right or obligation to
acquire any such interest, and does not control, directly or indirectly, any
corporation, association, partnership, joint venture or other entity and has not
had such an ownership or control relationship with any such entity. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has full corporate
power and authority and all requisite rights, licenses, permits and franchises
to own, lease and operate its assets and to carry out the business in which it
is engaged, except where the failure to be so organized, validly existing or in
good standing or the failure to have such rights, franchises and permits would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. Each Subsidiary is duly licensed and qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
nature of its business and the ownership, leasing or operation of its assets or
the conduct of its business requires such qualification except where the effect
of the failure to so qualify would not, individually or in the aggregate, have a
Material Adverse Effect. The authorized, issued and outstanding capital stock of
each Subsidiary is set forth on Schedule 3.4. The Company owns all of the issued
and outstanding capital stock or other equity of each Subsidiary and all such
outstanding shares are fully paid and nonassessable.
Section 3.5 CAPITALIZATION. The entire authorized capital
stock of the Company consists of 9,500,000 shares of Common Stock and 500,000
shares of preferred stock ("PREFERRED STOCK"). As of the date hereof, there are
(and as of the Closing Date, there shall be) 2,845,691 shares of Common Stock
issued and outstanding and no shares of the Company's Preferred Stock have been
issued. All of the issued and outstanding
7
<PAGE>
shares of Common Stock are duly authorized, validly issued, fully paid and
nonassessable, were not issued in violation of any preemptive, subscription or
other right of any person to acquire securities of the Company and constitute in
the aggregate all of the issued and outstanding capital stock of all classes of
the Company. Except as set forth in Schedule 3.5, there is no outstanding
subscription, option, convertible or exchangeable security, preemptive right,
warrant, call, agreement, arrangement or other right (other than this Agreement)
relating to the Company's capital stock or the capital stock of any Subsidiary
or other obligation or commitment of the Company or any Subsidiary to issue or
transfer any shares of capital stock to which the Company or any of its
Subsidiaries is a party or by which any of them is bound. There are no voting
trusts or other agreements, arrangements or understandings applicable to the
exercise of voting or any other rights with respect to the Company's capital
stock or the capital stock of any Subsidiary to which the Company or any of its
Subsidiaries is a party or by which any of them is bound. Except as set forth in
Schedule 3.5 hereto, there are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company, the Common Stock or
the capital stock of any Subsidiary.
Section 3.6 TRANSACTIONS WITH AFFILIATES. Since July 31, 1998,
there has not been any dividend declared or paid or other distribution of assets
by the Company to its Stockholders or Affiliates except for intercompany
transactions among the Company and wholly-owned Subsidiaries. Except as set
forth in Schedule 3.6, no affiliate of the Company, directly or indirectly:
(a) owes any material debt to, or has any material equity or
other interest or investment in any corporation, association or other entity
which is a competitor, lessor, lessee, customer or supplier of the Company or
any Subsidiary;
(b) has asserted any cause of action or other claim whatsoever
against or owes any material amount to, or is owed any material amount by, the
Company or any Subsidiary (other than amounts due to be paid in the ordinary
course);
(c) has any material interest in or owns any property or right
used in any material respect in the conduct of the Business; or
(d) is a party to any contract, lease, agreement, arrangement
or commitment entered into with the Company or any Subsidiary or in connection
with the Business except as contemplated by this Agreement.
Section 3.7 FINANCIAL STATEMENTS; PUBLIC REPORTS
(a) The audited financial statements of the Company for the
fiscal years ended July 31, 1995, 1996, 1997 and 1998 and the unaudited
financial statements of
8
<PAGE>
the Company for the quarterly periods ending October 31, 1998 and January 31,
and April 30, 1999 set forth in Public Reports (as defined below) consisting of
the Company's Annual Reports on Form 10-K for those years (the "AUDITED
FINANCIAL STATEMENTS") and the Company's Quarterly Reports on Form 10-Q for
those quarterly periods (the "UNAUDITED FINANCIAL STATEMENTS") (a) comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, (b) fairly
present the consolidated financial position of the Company and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and their consolidated cash flows for the periods then ended
(subject, in the case of Unaudited Financial Statements, to the lack of
footnotes thereto, to normal year-end audit adjustments and to any other
adjustments described therein), and (c) were prepared in accordance with U.S.
generally accepted accounting principles ("GAAP") (except as may be indicated in
the notes thereto or, in the case of the Unaudited Financial Statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis throughout the
periods indicated, except for changes made in response to FASB bulletins as
described in footnotes to the Audited Financial Statements. For purposes of this
Agreement, "BALANCE SHEET" means the consolidated balance sheet of the Company
as of April 30, 1999 set forth in Unaudited Financial Statements and "BALANCE
SHEET DATE" means April 30, 1999.
(b) The Company has made all filings with the SEC that it has
been required to make under the Securities Act of 1933, as amended (together
with the rules and regulations promulgated thereunder, the "Securities Act") and
the Exchange Act (collectively the "PUBLIC REPORTS"). Each of the Public Reports
at the time the same was filed with the SEC complied with the Securities Act and
the Exchange Act in all material respects. None of the Public Reports, as of
their respective dates, contained, and the Company Proxy Statement (as defined
in Section 3.8) will not contain or, omit, as applicable, any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. The Company has delivered to the Merger Subsidiary or its
counsel a correct and complete copy of each Public Report (together with all
material exhibits and schedules thereto and as amended to date) for the year
ended July 31, 1998 and the interim periods through the date hereof.
Section 3.8 DISCLOSURE DOCUMENTS.
(a) The proxy statement of the Company (the "COMPANY PROXY
STATEMENT") to be filed with the SEC in connection with the Merger, and any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act.
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(b) At the time the Company Proxy Statement or any amendment
or supplement thereto is first mailed to stockholders of the Company and at the
time such stockholders vote on adoption of this Agreement, the Company Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing, no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference in the Company Proxy Statement based on
information supplied by Buyer or Merger Subsidiary specifically for inclusion or
incorporation by reference therein.
Section 3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Schedule 3.9, since the Balance Sheet Date, the Company and Subsidiaries have
conducted their business in the ordinary course consistent with past practice
and there has not been:
(a) any event, occurrence or development or state of
circumstances or facts that has had or could reasonably be expected to have a
Material Adverse Effect;
(b) any repurchase, redemption or other acquisition by the
Company or any Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any Subsidiary;
(c) any amendment of any material term of any outstanding
security of the Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or
any Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices;
(e) any creation or assumption by the Company or any
Subsidiary of any lien on any material asset other than in the ordinary course
of business consistent with past practices;
(f) any making of any loan, advance or capital contributions
to or investment in any Person other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries made in the
ordinary course of business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company or any
Subsidiary
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which, individually or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any Subsidiary relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other right,
in either case, material to the Company and the Subsidiaries taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practice and those contemplated by this Agreement;
(i) any change in any method of accounting or accounting
practice by the Company or any Subsidiary, except for any such change required
by reason of a concurrent change in generally accepted accounting principles or
in Regulation S-X promulgated under the Exchange Act;
(j) any tax election, other than those consistent with past
practice, not required by law or any settlement or compromise of any tax
liability in either case that is material to the Company and the Subsidiaries;
(k) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary, (ii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, (iii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any
Subsidiary or (iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any Subsidiary, other than
any such increases payable to employees other than directors or officers in the
ordinary course of business consistent with past practice or as part of a
standard employment package to any person promoted or hired; or
(l) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or representative
thereof to organize any employees of the Company or any Subsidiary, which
employees were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to such employees.
Section 3.10 NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of the Company or any Subsidiary, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a
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liability or obligation, in each case, that would be required by GAAP to be
reflected on a consolidated balance sheet of the Company and its Subsidiaries,
other than:
(a) liabilities or obligations disclosed or provided for
in the Balance Sheet;
(b) liabilities or obligations incurred in the ordinary course
of business consistent with past practice since the Balance Sheet Date, which in
the aggregate are not material to the Company and the Subsidiaries, taken as a
whole;
(c) liabilities or obligations under this Agreement or
incurred in connection with the consummation of the transactions contemplated by
this Agreement; and
(d) the item disclosed on Schedule 3.10.
Section 3.11 LITIGATION. Except as disclosed in Schedule 3.11
or as set forth in the Company's annual report on Form 10-K for the fiscal year
ended July 31, 1998 (the "MOST RECENT 10-K") or the Company's quarterly report
on Form 10-Q for the three months ended April 30, 1999 (the "MOST RECENT 10-Q"),
there is no action, suit, investigation or proceeding pending, or to the
knowledge of the Company threatened, against or affecting the Company or any
Subsidiary or any of their respective properties or any of their respective
officers or directors in their capacity as officers or directors of the Company
before any court or arbitrator or before or by any governmental body, agency or
official as of the date hereof which could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect.
Section 3.12 TAXES. Except as set forth in Schedule
3.12:
(a) Each of the Company and its Subsidiaries (i) has filed all
Tax Returns that it was required to file, except where failures to file such Tax
Returns would not, individually or in the aggregate, have a Material Adverse
Effect, and has paid all Taxes shown to be due on such Tax Returns, (ii) all Tax
Returns filed by each of the Company and its Subsidiaries are complete and
accurate and disclose all Taxes required to be paid by each of the Company and
its Subsidiaries for the periods covered thereby; except where failures to be
complete and accurate and to disclose all Taxes would not, individually or in
the aggregate, have a Material Adverse Effect, (iii) the Tax Returns referred to
in clause (i) relating to income Taxes have been examined by the appropriate
taxing authority (and the results of any such examination relating to taxable
years commencing after 1992 have been disclosed in writing to Buyer) or the
period for assessment of the Taxes in respect of such Tax Returns has expired;
(iv) there is no action, suit, investigation, audit, claim, or assessment
pending or proposed or threatened in writing with respect to Taxes of the
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Company or any Subsidiary; (v) all deficiencies asserted or assessments made as
a result of any examination of the Tax Returns referred to in clause (i) have
been paid in full; and (vi) there are no liens for Taxes upon the assets of the
Company or any Subsidiary, except relating to current taxes not yet due. No
claim has ever been made in writing by an authority in a jurisdiction where any
of the Company and its Subsidiaries does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction, except where such claim would not,
individually or in the aggregate, have a Material Adverse Effect, nor to the
knowledge of Seller is there any basis for such claim.
(b) Each of the Company and its Subsidiaries has withheld or
collected all Taxes required to have been withheld or collected, and has paid on
a timely basis all such Taxes that are due on or prior to the date hereof and,
in the case of Taxes not yet due, has accrued, reserved against and entered such
Taxes on the books of the Company, except where failures to withhold or collect
and to pay or accrue, reserve against or enter on the books of the Company would
not, individually, or in the aggregate, have a Material Adverse Effect.
(c) The Company has made available to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against, agreed to or filed by any of the
Company and its Subsidiaries since July 31, 1995.
(d) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency, which waiver or extension is
currently in effect.
(e) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. Except
for the agreements referred to in Schedule 3.9, none of the Company and its
Subsidiaries has made any payments, is obligated to make any payments, or is
a party to any agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under Code Section 280G.
None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). Each
of the Company and its Subsidiaries has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662.
None of the Company and its Subsidiaries is a party to any written Tax
allocation or sharing agreement. None of the Company and its Subsidiaries (A)
has been a member of an affiliated group (as defined in Section 1504(a) of
the Code) filing a consolidated federal income Tax Return (other than a group
the common parent of which was the Company) or (B) has any liability for the
Taxes of any Person (other than any of the Company and its Subsidiaries)
under Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or
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successor, by contract, or otherwise.
(f) For purposes of this Agreement:
"TAX" or "TAXES" means any federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
Section 3.13 COMPLIANCE WITH LAWS. Neither the Company nor any
Subsidiary is in violation of, or has violated, any applicable provisions of any
laws, statutes, ordinances or regulations, including all applicable provisions
of ERISA and all applicable Environmental Laws (each as hereinafter defined),
except for any such violation that, individually or in the aggregate, has not
had and could not reasonably be expected to have a Material Adverse Effect.
Section 3.14 PATENTS AND OTHER PROPRIETARY RIGHTS. Except as
disclosed in Schedule 3.14 and matters which, individually or in the aggregate,
would not have a Material Adverse Effect, the Company and Subsidiaries have
rights to use, whether through ownership, licensing or otherwise, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of which the Company is aware that
are necessary for its business as now conducted (collectively the "INTELLECTUAL
PROPERTY RIGHTS"). To the best of the Company's knowledge, the Company and
Subsidiaries have not and do not violate or infringe any intellectual property
right of any other person or entity, and the Company and Subsidiaries have not
received any communication alleging that it violates or infringes the
intellectual property right of any other person or entity, except as disclosed
in writing to Buyer prior to the date hereof and except for any such violations
or infringements as would not, individually or in the aggregate, have a Material
Adverse Effect. To the best of the Company's knowledge, since July 1, 1995, the
Company and Subsidiaries have not been sued for infringing any intellectual
property right of another entity or person.
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Section 3.15 ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Most Recent 10-K or the Most
Recent 10-Q, since July 1, 1995:
(i) no notice, notification, demand, request for
information, citation, summons, complaint or order has been
received by, or, to the knowledge of the Company, is pending
or threatened by any Person against, the Company or any
Subsidiary nor has any material penalty been assessed against
the Company or any Subsidiary with respect to any (A) alleged
violation of any Environmental Law or liability thereunder,
(B) alleged failure to have any permit, certificate, license,
approval, registration or authorization required under any
Environmental Law, (C) generation, treatment, storage,
recycling, transportation or disposal of any Hazardous
Substance or (D) discharge, emission or release of any
Hazardous Substance except, in each case, for such matters as
would not have a Material Adverse Effect; and
(ii) there are no Environmental Liabilities that have
had or could reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Schedule 3.15, since July 1, 1995,
there has been no material environmental investigation, study, audit, test,
review or other analysis conducted of which the Company has knowledge in
relation to the current or prior business of the Company or any property or
facility now or previously owned or leased by the Company or any Subsidiary
which has not been delivered to Buyer prior to the date hereof.
(c) For purposes of this Section 3.15, the following terms
shall have the meanings set forth below:
"COMPANY" and "SUBSIDIARY" shall include any entity that is,
in whole or in part, a predecessor of the Company or any Subsidiary;
"ENVIRONMENTAL LAWS" means any federal, state, local or
foreign law, treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit, agreement or governmental
restriction or requirement relating to human health, the environment or
pollutants, contaminants, chemicals, toxins, hazardous substances or
wastes;
"ENVIRONMENTAL LIABILITIES" means any and all liabilities of
or relating to the Company and any Subsidiary, whether contingent or
fixed, actual or potential,
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known or unknown, which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Effective Time; and
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, corrosive
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing characteristics,
which in any event is regulated under Environmental Laws.
Section 3.16 EMPLOYEE BENEFITS.
(a) Schedule 3.16 lists each employee benefit plan, as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") that any of the Company and its Subsidiaries maintains or to
which any of the Company and its Subsidiaries contributes or has any obligation
to contribute (the "COMPANY PLANS"). Each Company Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all material
respects with the applicable requirements of ERISA, the Code, and other
applicable laws. Neither the Company nor any of its Subsidiaries has any
material liability for failing to file or distribute any required reports and
descriptions (including Form 5500 Annual Reports, summary annual reports, and
summary plan descriptions) with respect to each Company Plan. The requirements
of part 6 of Title I of ERISA have been satisfied in all material respects with
respect to each Company Plan that is an employee welfare benefit plan, as
defined in Section 3(1) of ERISA. Each Company Plan intended to qualify under
Section 401(a) ET SEQ. of the Code satisfies, in all material respects, the
requirements of a "qualified plan" under Code Section 401(a), has received a
favorable determination letter from the Internal Revenue Service that it is a
"qualified plan," and the Company is not aware of any facts or circumstances
that could result in the revocation of such determination letter. The Company
has made available to the Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements, insurance contracts, and other funding
agreements which implement each Company Plan.
(b) There are no actions, suits or claims pending (other than
routine claims for benefits) with respect to any Company Plan that could result
in material liability to the Company or its Subsidiaries. No prohibited
transaction described in ERISA Section 406 or Code Section 4975 has occurred
with respect to any Company Plan that could result in material liability to the
Company or any of its Subsidiaries.
(c) None of the Company, its Subsidiaries, and the other
members of the controlled group that includes the Company and its Subsidiaries
contributes to, or has within
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the past six years contributed to or been required to contribute to any defined
benefit pension plan or any multiemployer plan, as defined under ERISA (a
"MULTIEMPLOYER PLAN") or has any liability (including withdrawal liability as
defined in ERISA Section 4201) under any Multiemployer Plan.
(d) Except as set forth on SCHEDULE 3.16, None of the Company
and its Subsidiaries maintains or ever has maintained or contributes, ever has
contributed, or ever has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with part 6 of Title I of ERISA.
Section 3.17 FINDERS' FEES. Except for U.S Bancorp Piper
Jaffray Inc., a copy of whose engagement agreement has been provided to Buyer,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf, of the Company or any
Subsidiary who might be entitled to any fee or commission from Buyer or any of
its affiliates upon consummation of the transactions contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
BUYER AND MERGER SUBSIDIARY
The Buyer and the Merger Subsidiary hereby jointly and
severally represent and warrant to the Company as of the date of this Agreement
and as of the Effective Time as follows:
Section 4.1 AUTHORITY. The Merger Subsidiary and the Buyer
each have all requisite corporate power and authority, without the consent of
any other Person, to execute and deliver this Agreement and the agreements to be
delivered at the consummation of transactions contemplated after approval of the
Merger by the requisite vote of Company stockholders and immediately prior to
the Effective Time, and to carry out the transactions contemplated hereby and
thereby. All corporate and other acts or proceedings required to be taken by the
Merger Subsidiary and the Buyer to authorize the execution, delivery and
performance of this Agreement and all transactions contemplated hereby have been
duly and properly taken. The Buyer and the Merger Subsidiary have either
sufficient cash resources or financing commitments necessary to fund the cash
payments for all of the Shares, as contemplated by the Merger, and to pay all
fees and expenses related to the transactions contemplated by this Agreement,
and upon request of
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the Company's Board, will provide written evidence of such cash resource and/or
financing commitments.
Section 4.2 VALIDITY. This Agreement has been duly executed
and delivered and (assuming the valid authorization, execution and delivery of
this Agreement by the Company) constitutes a lawful, valid and legally binding
obligations of the Merger Subsidiary and the Buyer, enforceable in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally and by general equitable principles. Assuming all consents,
approvals, authorizations and other actions described in this Section 4.2 have
been obtained and all filings and obligations described in this Section 4.2 have
been made, the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation of any
lien, charge or encumbrance of any kind or the acceleration of any indebtedness
or other obligation of the Merger Subsidiary or the Buyer and are not prohibited
by, do not violate or conflict with any provision of, and do not constitute a
default under or a breach of (a) the charter or By-laws of the Merger Subsidiary
or the Buyer, (b) any note, bond, indenture, contract, agreement, permit,
license or other instrument to which the Merger Subsidiary or the Buyer is a
party or by which the Merger Subsidiary or the Buyer or any of its assets is
bound, (c) any order, writ, injunction, decree or judgment of any court or
governmental agency, or (d) any law, rule or regulation applicable to the Merger
Subsidiary or the Buyer other than, in the case of clauses (b), (c) or (d), any
such liens, charges, encumbrances, accelerations, violations, conflicts,
defaults or breaches that, individually or in the aggregate, would not prevent
or materially delay the consummation of the Merger. No approval, authorization,
registration, consent, order or other action of or filing with any court,
administrative agency or other government authority, is required for the
execution and delivery by the Buyer and the Merger Subsidiary of this Agreement
or the consummation by Buyer and the Merger Subsidiary of the transactions
contemplated hereby or the performance by Buyer and the Merger Subsidiary of
their respective obligations hereunder, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, and the Exchange Act, (ii) the
filing of a Certificate of Merger with the Secretary of State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company or any of its Subsidiaries is qualified to do business, (iii) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the other transactions contemplated by this
Agreement, (iv) filings with and approvals of the American Stock Exchange, Inc.
and the SEC with respect to the delisting and deregistration of the Common
Stock, and (v) such other approvals, authorizations, registrations, consents,
orders, or other actions and filings the failure of which to be obtained or made
would not, individually or in the aggregate, prevent or materially delay the
consummation of the Merger.
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Section 4.3 DUE ORGANIZATION. The Merger Subsidiary is a
corporation organized and validly existing under the laws of the State of
Delaware, and has full corporate power and authority to carry on the business in
which it is engaged. The Buyer is a corporation validly existing under the laws
of the State of Delaware and has full corporate power and authority to carry on
the business in which it is engaged.
Section 4.4 DISCLOSURE DOCUMENTS. None of the information
supplied or to be supplied by Buyer or Merger Subsidiary specifically for
inclusion in the Company Proxy Statement will, at the time the Company Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Company Stockholder Meeting (as defined in Section 5.2), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
Section 4.5 INTERIM OPERATIONS OF SUB. Merger Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
Section 4.6 OWNERSHIP OF SHARES. As of the date of this
Agreement, neither Buyer nor any of its affiliates is the record owner of, or
has any beneficial interest in, any Shares.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 CONDUCT OF THE COMPANY. From the date hereof until
the Effective Time, the Company and the Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees subject to the exception provided below. Without
limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as expressly contemplated or permitted by this Agreement
or with the prior written consent of Buyer:
(a) the Company will not adopt or propose any change in its
Certificate of Incorporation or bylaws;
(b) the Company will not, and will not permit any Subsidiary
to, merge or consolidate with any other Person or acquire a material amount of
assets of any
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other Person, other than purchases of materials or products in the ordinary
course of business;
(c) the Company will not, and will not permit any Subsidiary
to, sell, lease, license or otherwise dispose of any material assets or property
except (i) pursuant to existing contracts or commitments and (ii) in the
ordinary course consistent with past practice;
(d) the Company will not, and will not permit any Subsidiary
to, settle or compromise any suit or claims or threatened suit or claim relating
to the transactions contemplated hereby;
(e) the Company will not, and will not permit any Subsidiary
to, agree or commit to do any of the foregoing;
(f) the Company will not, and will not permit any Subsidiary
to, take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any material
respect at, or as of any time prior to, the Effective Time and the Company will
promptly notify Buyer and Merger Subsidiary if it becomes aware that any
representation or warranty hereunder is or has become inaccurate in any material
respect;
(g) the Company will not enter into any agreement or
commitment, or make or commit to make any capital expenditure, involving the
payment individually in excess of $75,000 or in the aggregate in excess of
$300,000.
Section 5.2 STOCKHOLDER MEETING; PROXY OR INFORMATIONAL
MATERIAL. The Company shall cause a meeting of its stockholders (the "COMPANY
STOCKHOLDER MEETING") to be duly called and held as soon as reasonably
practicable following the date hereof for the purpose of voting on the approval
and adoption of this Agreement. The Directors of the Company shall, except as
may be required, in response to an unsolicited bona fide written Acquisition
Proposal (as defined in Section 5.4), in order to comply with the fiduciary
duties of the Board of Directors under applicable law as advised in writing by
Company counsel, recommend approval and adoption of this Agreement by the
Company's stockholders. In connection with such meeting, the Company (a) will
promptly prepare and file with the SEC, will use its best efforts to have
cleared by the SEC and will thereafter mail to its stockholders as promptly as
practicable the Company Proxy Statement and all other proxy materials for such
meeting, (b) will use its best efforts to obtain the necessary approval by its
stockholders of this Agreement and the transactions contemplated hereby and (c)
will otherwise comply with all legal requirements applicable to such meeting.
Buyer shall cooperate with the Company in the preparation of the Proxy Statement
or any amendment or supplement thereto. Buyer
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agrees to cause all Shares owned by Buyer or any subsidiary of Buyer to be voted
in favor of the Merger.
Section 5.3 ACCESS TO INFORMATION. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which the
Company is subject (from which it shall use reasonable efforts to be released),
from the date hereof until the Effective Time, the Company will give Buyer, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access to the offices, properties, books and records of the Company
and the Subsidiaries and such financial and operating data and other information
as such Persons may reasonably request and will instruct the Company's
employees, counsel and financial advisors to cooperate with Buyer in its
investigation of the business of the Company and the Subsidiaries; provided that
no investigation pursuant to this Section 5.3, shall affect any representation
or warranty given by the Company to Buyer hereunder. In no event shall the
Company be required to supply to Buyer or its officers, employees, accountants,
counsel and other representatives any information relating to indications of
interest from, or discussions with, any other potential acquirors of the Company
which were received or conducted prior to the date hereof, except to the extent
necessary for use in the Company Proxy Statement. Except as otherwise agreed to
by the Company, until the Effective Time and notwithstanding termination of this
Agreement, the terms of the Confidentiality Agreement dated as of August 26,
1999 (the "Confidentiality Agreement"), shall apply to all information about the
Company that has been furnished under this Agreement by the Company to Buyer or
Sub.
Section 5.4 OTHER OFFERS. From the date hereof until the
termination hereof, the Company and the Subsidiaries and the officers,
directors, employees or other agents of the Company and the Subsidiaries will
not, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Acquisition Proposal or (ii) except as may be required in response
to an unsolicited bona fide written Acquisition Proposal in order to comply with
the fiduciary duties of the Board of Directors under applicable law as advised
by Company counsel, engage in negotiations with, or disclose any nonpublic
information relating to the Company or any Subsidiary or afford access to the
properties, books or records of the Company or any Subsidiary to, any Person.
The Company will promptly (and in no event later than 24 hours after receipt of
the relevant Acquisition Proposal) notify (which notice shall be provided orally
and in writing and shall identify the Person making the relevant Acquisition
Proposal and set forth the material terms thereof) Buyer after (i) the Company
has received any Acquisition Proposal, (ii) the Company has actual knowledge
that any Person is considering making an Acquisition Proposal, or (iii) the
Company has received any request for nonpublic information relating to the
Company or any Subsidiary, or for access to the properties, books or records of
the Company or any Subsidiary, by any Person that the Company has actual
knowledge is considering making, or has made, an Acquisition Proposal. The
Company
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will keep Buyer fully informed of the status and details of any such Acquisition
Proposal or request. The Company shall not engage in negotiations with, or
disclose any nonpublic information to, any such Person unless it receives from
such Person an executed confidentiality agreement with terms no less favorable
to the Company than the Confidentiality Agreement. The Company shall, and shall
cause its Subsidiaries and the Company's directors, officers, employees,
financial advisors and other agents or representatives to, cease immediately and
cause to be terminated all activities, discussions or negotiations, if any, with
any Persons conducted heretofore with respect to any Acquisition Proposal. For
purposes of this Agreement, "ACQUISITION PROPOSAL" means any offer or proposal
for a merger or other business combination involving the Company or any
Subsidiary or the acquisition of any equity interest in, or a substantial
portion of the assets of, the Company or any Subsidiary, other than the
transactions contemplated by this Agreement. The Company shall not, and shall
cause its Subsidiaries not to, enter into any agreement or undertaking with
respect to any Acquisition Proposal unless, as a condition precedent thereto or
concurrently therewith, all amounts due and owing to Buyer by the Company under
that certain Credit Facility and Security Agreement between Buyer and the
Company dated of even date herewith (the "CREDIT AGREEMENT") are repaid in full
by the Company or paid by a party to such Acquisition Proposal.
ARTICLE VI
COVENANTS OF THE BUYER AND THE COMPANY
Section 6.1 CERTAIN FILINGS. The Company and Buyer shall
cooperate with one another (a) in connection with the preparation of the Company
Proxy Statement, (b) in determining whether any action by or in respect of, or
filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Company Proxy Statement and seeking timely to obtain any such actions, consents,
approvals or waivers (which actions shall include furnishing all information
required under the HSR Act and in connection with approvals of or filings with
any other governmental body, agency or official)
Section 6.2 PUBLIC ANNOUNCEMENTS. Buyer and the Company will
mutually agree before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities
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exchange or automated quotation system, will not issue any such press release or
make any such public statement prior to such agreement.
Section 6.3 NOTICES OF CERTAIN EVENTS. The Company shall
promptly notify Buyer, and Buyer shall promptly notify the Company, of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(c) with respect only to the Company, any actions, suits,
claims, investigations or proceedings commenced or, to the best of its knowledge
threatened which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.11 or which relate to the
consummation of the transactions contemplated by this Agreement; and
(d) any circumstance or condition that the Buyer or the
Company, respectively, shall become aware of that makes any representation or
warranty hereunder inaccurate in any material respect.
Section 6.4 BEST EFFORTS. Subject to the terms and conditions
of this Agreement, each party will use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
Section 6.5 FURTHER ASSURANCES. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be authorized
to execute and deliver, in the name and on behalf of the Company or the Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or the Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
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Section 6.6 INDEMNIFICATION; DIRECTORS AND OFFICERS
INSURANCE.
(a) From and after the Effective Time, Buyer shall cause the
Surviving Corporation to indemnify and hold harmless all past and present
officers and directors of the Company (the "INDEMNIFIED PARTIES") to the same
extent and in the same manner and subject to the same limits as such persons are
indemnified as of the date of this Agreement by the Company pursuant to Delaware
Law, the Company's Certificate of Incorporation or the Company's By-Laws for
acts or omissions occurring at or prior to the Effective Time.
(b) Buyer shall cause the Surviving Corporation to provide,
for an aggregate period of not less than three years from the Effective Time,
the Company's current directors and officers an insurance and indemnification
policy that provides coverage for events occurring prior to the Effective Time
(the "D&O INSURANCE") that is substantially similar to the Company's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Surviving Corporation shall
not be required to pay an annual premium for the D&O Insurance in excess of 120%
of the last annual premium paid prior to the date hereof but in such case shall
purchase as much coverage as possible for such amount.
(c) Buyer hereby agrees that, effective at the Effective Time,
Buyer will guarantee the obligations of the Surviving Corporation under Section
6.6(a) and (b).
(d) This Section 6.6 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Buyer, the
Surviving Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Buyer and the Surviving Corporation.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Buyer and the Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following conditions:
(a) this Agreement shall have been adopted by the
stockholders of the Company in accordance with such law;
(b) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Merger; PROVIDED, HOWEVER, that each of the parties shall have used its
reasonable best efforts to prevent the
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entry of any such temporary restraining order, injunction or other order and to
appeal as promptly as possible any injunction or other order that may be
entered; and
(c) any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
Section 7.2 CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGER
SUBSIDIARY. The conditions to the obligations of Buyer and Merger Subsidiary to
complete the Merger are as set forth on ANNEX I.
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if Merger has not been
consummated by March 31, 2000; provided, however, that the right to terminate
this Agreement pursuant to this Section 8.1(b) shall not be available to any
party whose failure to perform any of its obligations under this Agreement
results in the failure of any condition to closing of the Merger or if the
failure of such condition results from facts or circumstances that constitute a
breach of any representation or warranty under this Agreement by such party;
(c) by either the Company or Buyer, if any judgment,
injunction, order or decree enjoining Buyer or the Company from consummating the
Merger is entered and such judgment, injunction, order or decree shall become
final and nonappealable;
(d) by Buyer, upon the occurrence of any Trigger Event
described in clause (i) or (ii) of Section 9.4(b);
(e) by the Company, upon the occurrence of any Trigger Event
described in clause (i)(A) of Section 9.4(b).
The party desiring to terminate this Agreement shall give written notice of such
termination to the other party in accordance with Section 9.1.
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Section 8.2 EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to Section 8.1, this Agreement shall become void and of no
effect with no liability on the part of any party hereto, except that with
respect to the last sentence of Section 5.3, Section 9.4, and this Section 8.2;
PROVIDED, HOWEVER, that nothing herein shall relieve any party for liability for
any breach hereof.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given,
if to Buyer or Merger Subsidiary to:
Paragon Corporate Holdings Inc.
7400 Caldwell Avenue
Niles, Illinois 60714
Attention: John H. Fountain
Chairman
with copies to:
David A. Zagore, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Telephone: (216) 479-8500
Facsimile: (216) 479-8780
if to the Company to:
Multigraphics Inc.
431 Lakeview Court
Mt. Prospect, Illinois 60056
Attention: Mark Duchesne
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with copies to:
Sidley & Austin
Bank One Plaza
Chicago, Illinois 60603
Attention: Jim Kaput
Telephone: (312) 853-7000
Facsimile: (312) 853-7036
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
Section 9.2 RELIANCE; SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time; provided, however, this Section 9.2 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time of the Merger.
Section 9.3. AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, Buyer and the
Merger Subsidiary or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) A termination of this Agreement pursuant to Section 8.1 or
an amendment of this Agreement in accordance with Section 9.3(a) shall, in order
to be effective, require in the case of the Company action by its Board of
Directors or the duly authorized designee of its Board of Directors.
(c) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
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Section 9.4. FEES AND EXPENSES.
(a) Except as otherwise provided in this Section 9.4, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
(b) The Company agrees to pay Buyer a fee in immediately
available funds equal to Five Hundred Thousand Dollars ($500,000) promptly, but
in no event later than two business days, after the termination of this
Agreement as a result of the occurrence of any of the events set forth below (a
"TRIGGER EVENT"):
(i) (A) the Company shall have entered into, or shall
have publicly announced its intention to enter into, an
agreement or an agreement in principle with respect to any
Acquisition Proposal, or (B) the Board of Directors of the
Company shall have withdrawn or materially modified in a
manner adverse to Buyer the Board's approval or recommendation
of the Merger;
(ii) any person or group (as defined in Section
13(d)(3) of the Exchange Act) (other than Buyer, the Merger
Subsidiary or any affiliate thereof) shall have become the
beneficial owner (as defined in Rule 13d-3 promulgated under
the Exchange Act) of a majority of the outstanding Shares;
(iii) this Agreement shall have been terminated in
accordance with Section 8.1(b) and (x) the Company shall have
failed to observe or perform in any material respect any of
its obligations under this Agreement or (y) an Acquisition
Proposal is received prior to the Effective Time and not
publicly rejected by the Company's Board of Directors; or
(iv) in the event that a majority of the
stockholders of the Company do not vote in favor of the Merger
at the stockholders meeting called for that purpose.
(c) The Buyer agrees to pay the Company an amount in
immediately available funds equal to Two Million Dollars ($2,000,000) if this
Agreement shall have been terminated by Buyer for any reason other than as set
forth in Section 8.1. The liability of Buyer set forth in this subsection shall
be the maximum and sole and exclusive liability of Buyer hereunder for any
reason whatsoever.
(d) In addition to any amounts payable to Buyer pursuant to
and at the same time as required by Section 9.4(b), the Company agrees to
reimburse Buyer, up to
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Five Hundred Thousand Dollars ($500,000), in immediately available funds for all
costs and expenses incurred by or on behalf of Buyer in connection with the
transactions contemplated by this Agreement and the Credit Agreement.
Section 9.5 SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that Buyer may
transfer or assign, in whole or from time to time in part, to one or more of its
affiliates.
Section 9.6 GOVERNING LAW. This Agreement shall be construed
in accordance with and governed by the laws of the State of Delaware.
Section 9.7 COUNTERPARTS; EFFECTIVENESS; THIRD PARTY
BENEFICIARIES. This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto. No provision of this Agreement, except for Section
6.6, is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
Section 9.8 ENTIRE AGREEMENT. This Agreement and the
Confidentiality Agreement constitute the entire agreement among Buyer, the
Merger Subsidiary and the Company with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
Buyer, the Merger Subsidiary and the Company with respect to the subject matter
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as an instrument under seal by their respective
authorized officers as of the day and year first above written.
PARAGON CORPORATE HOLDINGS INC.
By /s/ Edward J. Suchma
---------------------
Vice President and
CFO
MULTI ACQUISITION CORP.
By /s/ Edward J. Suchma
---------------------
Secretary/
Treasurer
MULTIGRAPHICS, INC.
By /s/ Mark F. Duchesne
---------------------
President & CEO
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ANNEX I
Notwithstanding any other provision of this Agreement, Buyer
shall not be required to at any time on or after the date hereof and prior to
the Effective Time to consummate the Merger, if any of the following conditions
exist:
(a) there shall be threatened, instituted or pending any
action, suit, investigation or proceeding by any government or governmental
authority or agency, domestic or foreign, or before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, to delay materially or otherwise directly or indirectly to restrain or
prohibit the consummation of the Merger, seeking to obtain material damages or
otherwise directly or indirectly relating to the transactions contemplated by
the Merger, (ii) seeking to restrain or prohibit Buyer's ownership or operation
(or that of its respective subsidiaries or affiliates) of all or any material
portion of the business or assets of the Company and the Subsidiaries, taken as
a whole, or of Buyer and its subsidiaries, taken as a whole, or to compel Buyer
or any of its subsidiaries or affiliates to dispose of or hold separate all or
any material portion of the business or assets of the Company and the
Subsidiaries, taken as a whole, or of Buyer and its subsidiaries, taken as a
whole, (iii) seeking to impose or confirm material limitations on the ability of
Buyer or any of its subsidiaries or affiliates effectively to exercise full
rights of ownership of the Shares, including, without limitation, the right to
vote any Shares acquired or owned by Buyer or any of its subsidiaries or
affiliates on all matters properly presented to the Company's stockholders, (iv)
seeking to require divestiture by Buyer or any of its subsidiaries or affiliates
of any Shares, or (v) that otherwise is reasonably likely to have a Material
Adverse Effect or materially adversely affect Buyer and its subsidiaries, taken
as a whole; or there shall be pending by any other Person, domestic or foreign,
any action, suit or proceeding which is reasonably likely to have a Material
Adverse Effect or materially adversely affect Buyer and its subsidiaries, taken
as a whole; or
(b) there shall be any action taken, or any statute, rule,
regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to the Merger, by any court, government
or governmental authority or agency, domestic or foreign, that is reasonably
likely, directly or indirectly, to result in any of the consequences referred to
in clauses (i) through (v) of paragraph (a) above; or
(c) (i) there shall be initiated, threatened, instituted or
pending any action, suit, investigation or proceeding by any government or
governmental authority or agency, domestic or foreign, that would reasonably be
expected to materially adversely affect the Company and its Subsidiaries, taken
as a whole, or (ii) except as disclosed in writing to Buyer prior to the date
hereof, there has been since the Balance Sheet Date any
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event, occurrence or development or state of circumstances or facts which has
had or could reasonably be expected to have a Material Adverse Effect; or
(d) there shall have occurred and be continuing (i) any
general suspension of trading in, or limitation on prices for, securities on a
national securities exchange in the United States of America (excluding any
coordinated trading halt triggered solely as a result of a specified decrease in
a market index), (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States of America, (iii) any
limitation (whether or not mandatory) by any United States governmental entity
on, or other event that materially adversely affects, the extension of credit by
banks or other lending institutions, (iv) a commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States of America which in any case is reasonably expected
to have a Material Adverse Effect or to materially adversely affect Buyer's or
Merger Subsidiary's ability to complete the Merger or (v) in case of any of the
foregoing existing on the date of this Agreement, material acceleration or
worsening thereof which in any case is reasonably expected to have a Material
Adverse Effect or to materially adversely affect Buyer's or Merger Subsidiary's
ability to complete the Merger;
(e) the Company shall have failed to perform in any material
respect any of its material covenants or agreements under the Merger Agreement;
or any of the representations and warranties of the Company set forth in the
Merger Agreement shall not be true when made or at the Effective Time as if made
at and as of such time (except as to any representation or warranty which speaks
as of a specific date, which must be untrue as of such date), except where the
failure to perform such covenant or the breach of such representation or
warranty (i) would not have a Material Adverse Effect or (ii) are capable of
being and are cured within 20 days after written notice from Buyer to the
Company of such failure or breach; or
(f) the Company shall have entered into, or shall have
publicly announced its intention to enter into, an agreement or an agreement in
principle with respect to any Acquisition Proposal or the Board of Directors of
the Company shall have withdrawn or materially modified in a manner adverse to
Buyer the Board's approval or recommendation of the Merger; or
(g) any person or group (as defined in Section 13(d)(3) of the
Exchange Act) (other than Buyer, the Merger Subsidiary or any affiliate thereof)
shall have become the beneficial owner (as defined in Rule 13d-3 promulgated
under the Exchange Act) of a majority of the outstanding Shares; or
(h) the Merger Agreement shall have been terminated in
accordance with its terms.
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The foregoing conditions are for the sole benefit of Buyer and
the Merger Subsidiary and may, subject to the terms of the Agreement, be waived
by Buyer or the Merger Subsidiary in whole or in part at any time and from time
to time in their discretion. The failure by Buyer or the Merger Subsidiary at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, the waiver of any such right with respect to particular facts
and circumstances shall not be deemed a waiver with respect to any other facts
and circumstances, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time prior to the Effective Time.
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EXHIBIT 10(Q)
THE OBLIGATIONS HEREUNDER AND THE RIGHTS AND REMEDIES EVIDENCED HEREBY ARE
SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN
SUBORDINATION AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS OF EVEN DATE
HEREWITH BETWEEN LENDER AND FOOTHILL CAPITAL CORPORATION ("FOOTHILL"), TO THE
INDEBTEDNESS (INCLUDING INTEREST) OWED BY BORROWER TO FOOTHILL PURSUANT TO THAT
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF FEBRUARY 19, 1998,
BY AND AMONG BORROWER, PUBLISHING SOLUTIONS INC. AND FOOTHILL, AS AMENDED; AND
EACH SUCCESSOR TO THE OBLIGATIONS AND RIGHTS OF LENDER HEREUNDER SHALL BE BOUND
BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.
CREDIT FACILITY AND SECURITY AGREEMENT
ACCOUNTS RECEIVABLE, INVENTORY AND EQUIPMENT
On this 29th day of September, 1999, Borrower and Lender (as
hereinafter defined), in consideration of the premises, and the covenants and
agreements contained herein, hereby mutually agree as follows:
1. DEFINITIONS
"ACCOUNT" means (a) any account, and (b) any right to payment for Goods sold or
leased or for services rendered which is not evidenced by an Instrument or
Chattel Paper, whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the Person who is obligated on an Account Receivable.
"ACCOUNT RECEIVABLE" means, with respect to any Person:
(a) any account receivable, Account, Chattel Paper, Contract
Right, General Intangible, Document, or Instrument owned,
acquired, or received by a Person;
(b) any other indebtedness owed to or receivable owned, acquired,
or received by a Person of whatever kind and however
evidenced; and
(c) any right, title, and interest in a Person's Goods that were
sold, leased, or furnished by that Person and gave rise to
either (a) or (b) above, or both of them. This includes,
without limitation:
(l) any rights of stoppage in transit of a Person's sold,
leased, or furnished Goods;
(2) any rights to reclaim a Person's sold, leased, or
furnished Goods; and
(3) any rights a Person has in such sold, leased, or
furnished Goods that have been returned to or
repossessed by that Person.
"ADVANCE" means an advance made by Lender to Borrower, subject to the
provisions, terms, and conditions of Section 2 of this Agreement.
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"AFFILIATE" means any company that controls, is controlled by, or is under
common control with the Borrower.
"AGREEMENT" means this Credit Facility and Security Agreement between Borrower
and Lender, and includes any partial or total amendment, renewal, restatement,
extension, or substitution of or for such Agreement.
"AMERICAN NATIONAL" means American National Bank of Chicago 33 North LaSalle
Street, Chicago, Illinois 60690.
"BORROWER" means MULTIGRAPHICS, INC., a corporation incorporated under the laws
of the State of Delaware.
"BORROWER'S LOCATION" means the location of the place (1) from which Borrower
manages the main part of its business operations, and (2) where persons dealing
with Borrower would normally look for credit information.
"BANKERS TRUST" means Bankers Trust Company, One Bankers Trust Plaza, 20th
Floor, New York, New York 10006.
"CASH COLLATERAL ACCOUNT" means collectively account number 530051918 with
American National Bank of Chicago, 33 North LaSalle Street, Chicago, Illinois
60690 (related to lock box number 72008) and account number 00-193-463 with
Bankers Trust Company, One Bankers Trust Plaza, 20th Floor, New York, New York
10006.
"CASH SECURITY" means all cash, Instruments, Deposit Accounts, and other cash
equivalents, whether matured or unmatured, whether collected or in the process
of collection, upon which Borrower presently has or may hereafter have any
claim, that are presently or may hereafter be existing or maintained with,
issued by, drawn upon, or in the possession of Lender.
"CHATTEL PAPER" means (a) any chattel paper, and (b) any writing or writings
that evidence both a monetary obligation and a security interest in or a lease
of specific Goods. If a transaction is evidenced both by such an agreement for
security or a lease and by an Instrument or a series of Instruments, the group
of writings taken together constitutes Chattel Paper.
"COLLATERAL" means:
(a) all of Borrower's Accounts Receivable, whether now owned or
hereafter acquired or received by Borrower;
(b) all of Borrower's Inventory, whether now owned or hereafter acquired
by Borrower;
(c) all of Borrower's Equipment, whether now owned or hereafter acquired
by Borrower;
(d) all funds on deposit in the Cash Collateral Account;
(e) all of Borrower's Cash Security;
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(f) all of Borrower's General Intangibles
(g) all of Borrower's Investment Property; and
(h) all of the Proceeds, products, profits, and rents of Borrower's
Accounts Receivable, Inventory, Equipment, Cash Security, Cash
Collateral Account, Investment Property and General Intangibles.
"CONTRACT RIGHT" means (a) any contract right, and (b) any right to payment
under a contract not yet earned by performance and not evidenced by an
Instrument or Chattel Paper.
"DEPOSIT ACCOUNT" means (a) any deposit account, and (b) any demand, time,
savings, passbook, or a similar account maintained with a bank, savings and loan
association, credit union, or similar organization, other than an account
evidenced by a certificate of deposit.
"DOCUMENT" means (a) any document, (b) any document of title, including a bill
of lading, dock warrant, dock receipt, warehouse receipt or order for the
delivery of Goods, and any other document which in the regular course of
business or financing is treated as adequately evidencing that the Person in
possession of it is entitled to receive, hold, and dispose of the document and
the Goods it covers, and (c) any receipt covering Goods stored under a statute
requiring a bond against withdrawal or a license for the issuance of receipts in
the nature of warehouse receipts even though issued by a Person who is the owner
of the Goods and is not a warehouseman.
"ENVIRONMENTAL LAW" means any federal, state, or local statute, law, ordinance,
code, rule, regulation, order or decree regulating, relating to, or imposing
liability upon a Person in connection with the use, release or disposal of any
hazardous, toxic or dangerous substance, waste or material.
"EQUIPMENT" means:
(a) any equipment, including without limitation, machinery, office
furniture and furnishings, tools, dies, jigs, and molds;
(b) all Goods that are used or bought for use primarily in a Person's
business;
(c) all Goods that are not Consumer Goods, Farm Products, or Inventory;
and
(d) all substitutes or replacements for, and all parts, accessories,
additions, attachments, or accessions to (a) to (c) above.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"ERISA AFFILIATE" means each Person (whether or not incorporated) which together
with Borrower or any Affiliate would be treated as a single employer under
ERISA.
"EVENT OF DEFAULT" means the occurrence of any of the events set forth in
Section 9 of this Agreement.
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"FINANCIAL IMPAIRMENT" means the distressed economic condition of a Person
manifested by any one or more of the following events:
(a) adjudicated bankruptcy or insolvency or death or discontinuation of
the business of the Person;
(b) the Person admits in writing its inability, to make timely payment
upon the Person's debts, obligations, or liabilities as they mature
or come due;
(c) assignment by the Person for the benefit of creditors;
(d) voluntary institution by the Person or consent granted by the Person
to the involuntary institution whether by petition, complaint,
application, default, answer (including, without limitation, an
answer or any other permissible or required responsive pleading
admitting (1) the jurisdiction of the forum or (2) any material
allegations of the petition, complaint, application, or other
writing to which such answer serves as a responsive pleading
thereto), or otherwise of any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation, receivership, trusteeship, or similar proceeding
pursuant to or purporting to be pursuant to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation, receivership, trusteeship, or similar law
of any jurisdiction;
(e) voluntary application by the Person for or consent granted by the
Person to the involuntary appointment of any receiver, trustee, or
similar officer (1) for the Person or (2) of or for all or any
substantial part of the Person's property;
(f) entry, without the Person's application, approval, or consent, of
any order that is not dismissed, stayed, or discharged within sixty
(60) days from its entry, which is pursuant to or purporting to be
pursuant to any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation, receivership,
trusteeship or similar law of any jurisdiction (1) approving an
involuntary petition seeking an arrangement of the Person's
creditors, (2) approving an involuntary petition seeking
reorganization of the Person, or (3) appointing any receiver,
trustee, or similar officer (i) for the Person, or (ii) of or for
all or any substantial part of the Person's property;
(g) any judgment, writ, warrant of attachment, execution, or similar
process is issued or levied against all or any substantial part of
the Person's property and such judgment, writ, warrant of
attachment, execution, or similar process is not released, vacated,
or fully bonded within thirty (30) days after its issue or levy.
"FOOTHILL" means Foothill Capital Corporation.
"FOOTHILL OBLIGATIONS" mean the indebtedness (including interest) owed by
borrower to Foothill pursuant to that Amended and Restated Loan and Security
agreement dated as of February 19, 1998, by and among Borrower, Publishing
Solutions Inc. and Foothill, as amended from time to time.
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"FOREIGN ACCOUNT RECEIVABLE" means any Account Receivable that arises out of
contracts with or orders from an Account Debtor that is not a resident of the
United States.
"GENERAL INTANGIBLE" means (a) any general intangible, and (b) any personal
property (including things in action) other than Goods, Accounts, Contract
Rights, Chattel Paper, Documents, Instruments, and money.
"GOODS" means (a) any goods, and (b) all things which are movable at the time
the security interest granted Lender under this Agreement attaches or which are
fixtures but does not include money, Instruments, Documents, Accounts, Chattel
Paper, General Intangibles, and Contract Rights.
"GOVERNMENT ACCOUNT RECEIVABLE" means any Account Receivable that arises out of
contracts with or orders from the United States or any of its departments,
agencies, or instrumentalities.
"INSTRUMENT" means:
(a) any instrument;
(b) any negotiable or nonnegotiable instrument (including, without
limitation, drafts, checks, acceptances, certificates of deposit,
and notes);
(c) any security; and
(d) any other writing which:
(l) evidences a right to the payment of money,
(2) is not itself a security agreement or lease, and
(3) is of a type which in the ordinary course of business is
transferred by delivery with any necessary endorsement or
assignment.
"INVENTORY" means:
(a) any inventory;
(b) all Goods that are raw materials;
(c) all Goods that are work in process;
(d) all Goods that are materials used or consumed in the ordinary course
of a Person's business;
(e) all Goods that are, in the ordinary course of a Person's business,
held for sale or lease or furnished or to be furnished under
contracts of service; and
(f) all substitutes and replacements for, and parts, accessories,
additions, attachments, or accessions to (a) to (e) above.
"INVESTMENT PROPERTY" means a security, whether certificated or uncertificated;
a security entitlement, a securities account, a commodity contract or a
commodity account, all as defined in the Illinois Uniform Commercial Code
5
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"LENDER" means PARAGON CORPORATE HOLDINGS INC., a Delaware corporation, whose
principal office is located at 7400 Caldwell Avenue, Niles, Illinois 60714.
"LOAN ACCOUNT" means an account maintained by Lender on its books, which will
evidence all Advances, accrued interest thereon, other amounts due Lender with
respect to such Advances, and all payments thereof by Borrower.
"MULTIEMPLOYER PLAN" means a plan described in ERISA that covers employees of
the Borrower, any Affiliate, or any ERISA Affiliate.
"OBLIGATIONS" means any obligations arising under this Agreement or the Master
Promissory Note (as defined in Section 2(a)(i), whether direct or indirect,
absolute or contingent, secured or unsecured, matured or unmatured, originally
contracted with Lender or another Person and now owing to or hereafter acquired
in any manner partially or totally by Lender or in which Lender may have
acquired a participation, contracted by Borrower alone or jointly or severally
with another Person.
"ORGANIZATION" means a corporation, government or government subdivision or
agency, business trust, estate, trust, limited liability company, partnership,
association, two or more Persons having a joint or common interest, and any
other legal or commercial entity.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to
Title IV of ERISA.
"PERSON" means an individual or an Organization.
"PLAN" means any plan (other than a Multiemployer Plan) defined in ERISA in
which the Borrower or any Affiliate is, or has been at any time during the
preceding two (2) years, an "employer" or a "substantial employer" as such terms
are defined in ERISA.
"PROCEEDS" means (a) any proceeds, and (b) whatever is received upon the sale,
exchange, collection, or other disposition of Collateral or Proceeds, whether
cash or non-cash. Cash Proceeds includes, without limitation, moneys, checks,
and Deposit Accounts. Proceeds includes, without limitation, any Account arising
when the right to payment is earned under a Contract Right, any insurance
payable by reason of loss or damage to the Collateral, and any return or
unearned premium upon any cancellation of insurance. Except as expressly
authorized in this Agreement, Lender's right to Proceeds specifically set forth
herein or indicated in any financing statement shall never constitute an express
or implied authorization on the part of Lender to Borrower's sale, exchange,
collection, or other disposition of any or all of the Collateral.
"PROHIBITED TRANSACTION" means any prohibited transaction as that term is
defined for purposes of ERISA.
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<PAGE>
"RELATED EXPENSES" means any and all costs, liabilities, and expenses
(including, without limitation, losses, damages, penalties, claims, actions,
reasonable attorney's fees, legal expenses, judgments, suits, and disbursements)
reasonably incurred by, imposed upon, or asserted against, Lender in any attempt
by Lender:
(a) to obtain, preserve, perfect, or enforce any security interest
evidenced by (i) this Agreement, or (ii) any other pledge agreement,
mortgage deed, hypothecation agreement, guaranty, security
agreement, assignment, or security instrument executed or given by
Borrower to or in favor of Lender;
(b) to obtain payment, performance, and observance of any and all of the
Obligations;
(c) to maintain, insure, audit, collect, preserve, repossess, and
dispose of any of the Collateral, including, without limitation,
costs and expenses for appraisals, assessments, and audits of
Borrower or the Collateral; or
(d) incidental or related to (a) through (c) above, including, without
limitation, interest thereupon from the date incurred, imposed, or
asserted until paid at the rate payable as set forth in Section 2 of
this Agreement, but in no event greater than the highest rate
permitted by law.
"REPORTABLE EVENT" means any reportable event as that term is defined for
purposes of ERISA.
"SUBORDINATED DEBT" means Indebtedness of a Person that is subordinated, in a
manner satisfactory to the Lender, to all indebtedness owing to the Lender.
"SUBSIDIARY" means any Person of which more than fifty percent (50%) of (i) the
voting stock entitling the holders thereof to elect a majority of the Board of
Directors, manager, or trustees thereof, or (ii) the interest in the capital or
profits of such Person, which at the time is owned or controlled, directly or
indirectly, by the Borrower or one or more other Affiliate.
"TERMINATION DATE" means March 31, 2000, or such earlier date on which the
commitment of the Lender to make Advances pursuant to Section 2(a) hereof shall
have been terminated pursuant to Section 9 of this Agreement.
The foregoing definitions shall be applicable to the singulars and plurals of
the foregoing defined terms.
2. STATEMENT OF TERMS
(a) (i) Lender will, subject to the terms and conditions of
this Agreement, up to and including the Termination
Date, make Advances to or for the account of Borrower
up to Two Million Dollars ($2,000,000) plus interest
and Related Expenses. The Borrower may not repay and
reborrow such maximum amount of credit. The Lender
shall debit to the Loan Account the amount of each
Advance made under this Agreement
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<PAGE>
and all interest, other compensation, or other fees
payable on all Advances and shall credit to the Loan
Account each payment of (a) principal and interest on
account of each Advance and (b) other amounts payable
under this Agreement by the appropriate entries. The
Loan Account shall constitute prima facie evidence of
all Advances made by Lender pursuant to this
Agreement. In the event of any discrepancy between
the records of Lender and Borrower with regard to the
Loan Account, the records of Lender shall prevail
unless the Borrower notifies Lender of an error
within thirty (30) business days after having
discovered any such error or unless Borrower and
Lender mutually agree with regard to an appropriate
change in such records. The Lender's Advances
pursuant to this Section 2(a) shall be evidenced by a
properly executed master promissory note in the form
of Exhibit A ("Master Promissory Note") with all
blanks appropriately filled in.
(ii) As compensation for the Advances made by Lender,
Borrower undertakes and agrees to pay to Lender on
the first day of each calendar month interest, in
arrears, at a rate equal to ten percent (10%) per
annum, upon the actual daily balances in Borrower's
Loan Account during the preceding month (using a day
rate based upon a year of 360 days and charged for
actual number of days elapsed).
(iii) Notwithstanding the Lender's remedies as set forth in
Section 10 hereof, prior to maturity hereof, upon the
occurrence of any Event of Default under this
Agreement and until such Event of Default is cured by
Borrower, at Lender's option and upon written notice
to Borrower, the unpaid principal and accrued
interest evidenced by the Loan Account shall bear
interest at a rate per annum equal to 13% per annum.
(iv) Borrower shall repay to the Lender on September 30,
2000 the net balance in the Borrower's Loan Account.
3. SECURITY INTEREST IN COLLATERAL
In consideration of and as security for the full and complete payment,
performance, and observance of all Obligations, Borrower does hereby (a) grant
to Lender a security interest in the Collateral, whether now owned or hereafter
acquired or received by Borrower, and (b) collaterally assign to Lender all of
its right, title, and interest (including, without limitation, all rights to
payment) arising under or with respect to all of Borrower's Accounts Receivable,
whether now owned or hereafter acquired or received by Borrower, but not
including any duty, obligation, or liability of Borrower with respect thereto.
8
<PAGE>
4. WARRANTIES
Borrower represents and warrants to Lender (which representations and warranties
shall survive the execution of this Agreement and all Advances) that:
(a) Borrower is a duly organized and existing corporation
under the laws of the state of its incorporation and is duly
qualified and in good standing in every state in which the
conduct of its business requires it to be so qualified, except
where the failure to so qualify will not have a material
adverse affect on the Borrower or its business;
(b) The execution, delivery, and performance hereof are within
Borrower's corporate powers, have been duly authorized, and
are not in contravention of law or the terms of Borrower's
charter, by-laws, or regulations or of any indenture,
agreement, or undertaking to which Borrower is a party or by
which it is bound;
(c) This Agreement and the other documents executed pursuant
hereto have been duly executed and are valid and binding
obligations of Borrower fully enforceable in accordance with
their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to
the rights of creditors generally and subject to the
availability of equitable remedies and the application of
equitable principles;
(d) Except for any security interest granted to or in favor of
Lender and those liens or security interests set forth on
Schedule 4(d) hereto ("Permitted Liens"), Borrower is, and as
to Collateral to be acquired after the date hereof will be,
the owner of the Collateral free from any claim, lien,
encumbrance, or security interest of any type, and Borrower
agrees that it will defend the Collateral against all claims
and demands of all Persons (other than holders of Permitted
Liens) at any time claiming the same or any interest therein;
(e) Borrower's Location and the office where Borrower keeps
all of its records pertaining to its Accounts and Contract
Rights is located at 431 Lakeview Court, Mt. Prospect,
Illinois 60056;
(f) Subject to any limitation stated herein or in connection
herewith, all information furnished to Lender concerning
Borrower or the Collateral is, or will be at the time such
information is furnished, accurate and correct in all material
respects and complete insofar as is necessary to give Lender
true and accurate knowledge of the subject matter;
(g) Borrower is the lawful owner of and has full and
unqualified right to transfer a security interest in all of
the Collateral to Lender. Such Collateral is not and will not,
so long as Borrower has any Obligations to Lender, be subject
to any adverse financing statement, encumbrance, claim, lien,
or security
9
<PAGE>
interest of any type except for those relating to Permitted
Liens and any granted to or in favor of Lender;
(h) Borrower has places of business or maintains its Inventory
and Equipment at the locations indicated on Schedule A.
5. COVENANTS
Borrower undertakes, covenants, and agrees that, until the full and complete
payment, performance, and observance of all Obligations, Borrower:
(a) shall promptly provide Lender with prior written notification
of:
(1) any change in any location where Borrower's Inventory
is maintained, and any new locations where Borrower's
Inventory is to be maintained,
(2) any change in the location of the office where
Borrower's records pertaining to its Accounts and
Contract Rights are kept,
(3) the location of any new places of business and the
changing or closing of any of its existing places of
business,
(4) any change in Borrower's name, and
(5) any change in Borrower's Location;
(b) shall promptly notify, and shall cause each Affiliate to
promptly notify, the Lender in writing of (a) any future event
which, if it had existed on the date of this Agreement, would
have required qualification of the representations and
warranties set forth in Article 4 hereof and (b) any material
adverse change in the condition, business, or prospects,
financial or otherwise, of the Borrower or such Affiliate;
(c) shall promptly furnish to Lender upon request (1) additional
statements and information with respect to the Collateral, and
all writings and information relating to or evidencing any of
Borrower's Accounts Receivable (including, without limitation,
computer printouts or typewritten reports listing the mailing
addresses of all present Account Debtors), and (2) any other
writings and information as Lender may reasonably request;
(d) shall upon request of Lender promptly take such action and
promptly make, execute, and deliver all such additional and
further items, deeds, assurances, and instruments as Lender
may reasonably require, including, without limitation,
financing statements, so as to completely vest in and ensure
to Lender its rights hereunder and in or to the Collateral. If
certificates of title are issued or outstanding with respect
to any of Borrower's Inventory, Borrower will cause the
interest of Lender to be properly noted thereon at Borrower's
expense;
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<PAGE>
(e) hereby authorizes Lender or Lender's designated agent (but
without obligation by Lender to do so) to incur Related
Expenses (whether prior to, upon, or subsequent to any Event
of Default), and Borrower shall promptly repay, reimburse, and
indemnify Lender for any and all Related Expenses. Lender may,
at its option, debit Related Expenses directly to the Loan
Account;
(f) shall not, without the prior written consent of Lender, (1)
merge, acquire or consolidate with or into, or enter into any
merger agreement with any other Person, or (2) lease, sell, or
transfer all or substantially all its property, assets, and
business, including the stock of any Subsidiary, to any other
Person or (3) allow a "change of control"; provided, however,
this Section 5(f) shall not prohibit any transaction with
Lenders or any of its affiliates or with any Person who
satisfies in full all of Borrower's Obligations under this
Agreement and the Master Promissory Note or acquires the same
from Lender;
(g) shall not, without the prior written consent of Lender, make
any change in any location where Borrower's Inventory or
Equipment is maintained or any change in the location of the
office where Borrower's records pertaining to its Accounts and
Contract Rights are kept;
(h) shall not, and will not permit any Affiliate to, make any
payment upon its outstanding Subordinated Debt, except in such
manner and amounts as may be expressly authorized in any
subordination agreement presently or hereafter held by the
Lender.
6. COLLECTIONS AND RECEIPT OF PROCEEDS BY BORROWER
(a) Prior to exercise by Lender of its rights under
Section 7 of this Agreement, and except as provided in
Subsection 6(b) of this Agreement, both (1) the lawful
collection and enforcement of all of Borrower's Accounts
Receivable, and (2) the lawful receipt and retention by
Borrower of all Proceeds of all of Borrower's Accounts
Receivable and Inventory shall be as Lender's agent.
Subsequent to payment in full of the Foothill Obligations, all
such lawful collections of Borrower's Accounts Receivable and
such Proceeds of Borrower's Accounts Receivable and Inventory
shall be remitted daily by Borrower to the Cash Collateral
Account with American National or Bankers Trust for the
benefit of Lender in the form in which they are received by
Borrower, either by mailing or by delivering such collections
and Proceeds to American National or Bankers Trust,
appropriately endorsed for deposit in the Cash Collateral
Account. Borrower will not commingle such collections or
Proceeds with any of Borrower's other funds or property, but
will hold such collections and Proceeds separate and apart
therefrom upon an express trust for Lender as its interest may
appear. Lender may, in its sole discretion, at any time and
from time to time, subsequent to payment in full of the
Foothill Obligations, apply all or any portion of the account
balance in the Cash Collateral Account (allowing
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<PAGE>
two (2) days for collection and clearance of remittances,
however, in the event Lender applies any proceeds from the
Cash Collateral Account as a credit to any obligations due
Lender and such payment includes uncollected funds, Borrower
will incur a charge for those uncollected funds at the rate
payable for Advances) as a credit against (1) the Loan
Account, including the outstanding principal or interest of
any Advance, or (2) any other Obligation, subsequent to
payment in full of the Foothill Obligations. Borrower hereby
irrevocably authorizes American National and Bankers Trust, at
Lender's direction and in its sole discretion, at any time and
from time to time, to release funds from the Cash Collateral
Account to Borrower for use in Borrower's business. The
balance in the Cash Collateral Account may be withdrawn by
Borrower upon termination of this Agreement in accordance with
Subsection 12(e) of this Agreement. Subsequent to payment in
full of the Foothill Obligations, at Lender's request,
Borrower will cause all remittances representing collections
and Proceeds of Collateral to be mailed to a lock box in
Cleveland, Ohio, designated by Lender to which Lender shall
have access;
(b) Subsequent to payment in full of the Foothill Obligations, with respect
to Borrower's Instruments, Chattel Paper, and Documents:
(1) Borrower shall daily deliver, or cause to be
delivered, to Lender all of Borrower's Instruments,
Chattel Paper, and Documents, appropriately endorsed
either, at Lender's option, (i) to Lender's order,
without limitation or qualification, or (ii) for
deposit in the Cash Collateral Account. Lender, or
Lender's designated agent, is hereby constituted and
appointed Borrower's attorney-in-fact with authority
and power to endorse any and all Instruments,
Documents, and Chattel Paper upon Borrower's failure
to do so. Such authority and power, being coupled
with an interest, shall be (i) irrevocable until all
Obligations are paid, performed, and observed in
full, (ii) exercisable by Lender at any time and
without any request upon Borrower by Lender to so
endorse, and (iii) exercisable in Lender's name or
Borrower's name;
(2) Borrower hereby waives presentment, demand, notice of
dishonor, protest, notice of protest, and any and all
other similar notices with respect thereto,
regardless of the form of any endorsement thereof;
(3) Lender shall not be bound or obligated to take any
action to preserve any rights therein against prior
parties thereto.
7. COLLECTIONS AND RECEIPT OF PROCEEDS BY LENDER
Subsequent to payment in full of the Foothill Obligations, Borrower hereby
constitutes and appoints Lender, or Lender's designated agent, as Borrower's
attorney-in-fact to exercise, at any time, all or any of the following powers
which, being coupled with an interest, shall be
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<PAGE>
irrevocable until the complete and full payment, performance, and observance
of all Obligations:
(a) to receive, retain, acquire, take, endorse, assign, deliver,
accept, and deposit, in the Lender's name or Borrower's name,
any and all of Borrower's cash, Instruments, Chattel Paper,
Documents, Proceeds of Accounts Receivable, Proceeds of
Inventory, collection of Accounts Receivable, and any other
writings relating to any of the Collateral;
(b) to transmit to Account Debtors, on any or all of Borrower's
Accounts Receivable, notice of assignment to Lender thereof
and Lender's security interest therein and to request from
such Persons at any time, in the Lender's name or in the
Borrower's name, information concerning Borrower's Accounts
Receivable and the amounts owing thereon;
(c) to transmit to purchasers of any or all of Borrower's
Inventory, notice of Lender's security interest therein, and
to request from such Persons at any time, in Lender's name or
in Borrower's name, information concerning Borrower's
Inventory and the amounts owing thereon by such purchasers;
(d) to notify and require Account Debtors on Borrower's Accounts
Receivable and purchasers of Borrower's Inventory to make
payment of their indebtedness directly to Lender following an
Event of Default;
(e) to take or bring, in Lender's name or Borrower's name, all
steps, actions, suits, or proceedings deemed by Lender
necessary or desirable to effect the receipt, enforcement, and
collection of the Collateral;
(f) to accept all collections in any form relating to the
Collateral, including remittances which may reflect
deductions, and to deposit the same, into Borrower's Cash
Collateral Account or, at the option of Lender, to apply them
as a payment against the Loan Account.
8. INSURANCE AND USE OF INVENTORY AND EQUIPMENT
(a) Until any Event of Default:
(1) Borrower may retain possession of and use its
Inventory and Equipment in any lawful manner not
inconsistent with this Agreement or with the terms,
conditions, or provisions of any policy of insurance
thereon.
(2) Borrower may sell or lease its Inventory or Equipment
in the ordinary course of business; provided,
however, that a sale or lease in the ordinary course
of business does not include a transfer in partial or
total satisfaction of a debt, except for transfers in
satisfaction of partial or total purchase money
prepayments by a buyer in the ordinary course of
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<PAGE>
Borrower's business. Until Lender's exercise of
enforcement rights with respect to such collateral
following and during the continuation of any Event of
Default, Borrower may also use and consume any raw
materials or supplies, the use and consumption of
which are necessary in order to carry on Borrower's
business.
(b) Borrower shall obtain, and at all times maintain, insurance
upon its Inventory and Equipment in such form, written by such
companies, in such amounts, for such period, and against such
risks as may be acceptable to Lender, with provisions
satisfactory to Lender for payment of all losses thereunder to
Lender and Borrower as their interests may appear (loss
payable endorsement in favor of Lender), and, if required by
Lender, Borrower will deposit the policies with Lender. Any
such policies of insurance shall provide for no less than ten
(10) days' prior written cancellation notice to Lender.
Subsequent to payment in full of the Foothill Obligations, any
sums received by Lender in payment of insurance losses,
returns, or unearned premiums under the policies may, at the
option of Lender, be applied upon any Obligation whether or
not the same is then due and payable, or may be delivered to
Borrower for the purpose of replacing, repairing, or restoring
its Inventory and Equipment. Borrower hereby assigns to Lender
any return or unearned premium which may be due upon
cancellation of any such policies for any reason and,
subsequent to payment in full of the Foothill Obligations,
directs the insurers to pay Lender any amount so due.
Subsequent to payment in full of the Foothill Obligations,
Lender or Lender's designated agent is hereby constituted and
appointed Borrower's attorney-in-fact to (either in the name
of Borrower or in the name of the Lender), make adjustments of
all insurance losses, sign all applications, receipts,
releases, and other papers necessary for the collection of any
such loss, and any return or unearned premium, execute proof
of loss, make settlements, and endorse and collect all
Instruments payable to Borrower or issued in connection
therewith. Notwithstanding any action by Lender hereunder, any
and all risk of loss or damage to Borrower's Inventory and
Equipment to the extent of any and all deficiencies in the
effective insurance coverage thereof is hereby expressly
assumed by Borrower.
9. EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an Event of
Default under this Agreement:
(a) Failure of Borrower to promptly pay, perform, or observe on or
prior to the third day after the due date thereof when due,
whether upon demand, at maturity, by acceleration, or
otherwise, any of the Obligations;
(b) Failure of Borrower to promptly pay, perform, or observe when
due, whether upon demand, at maturity, by acceleration, or
otherwise, or any event which
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<PAGE>
either results in the acceleration of the maturity of, any
material indebtedness, obligations, liabilities, contracts,
indentures, and agreements (including, without limitation, any
and all warranties, covenants, guaranties, provisions, terms,
and conditions set forth or contained therein) of whatever
kind and however evidenced, owed, incurred, or executed by
Borrower, to, in favor of, or with any and all other Persons,
and including any partial or total extension, renewal,
amendment, restatement, and substitution thereof or therefor;
(c) Any warranty, representation, or statement made or furnished
to Lender in connection with this Agreement or any other
writing evidencing or given as security for any of the
Obligations by or on behalf of the Borrower proves to have
been false in any material respect when made, furnished, or at
any time thereafter;
(d) Any "change of control" of Borrower, meaning any transaction
or series of transactions which result in any Person (other
than Lender or the existing shareholders of Borrower)
acquiring an ownership interest (beneficial or otherwise) of
twenty percent (20%) or more of the issued and outstanding
shares of Borrower;
(e) Financial Impairment of Borrower;
If there shall occur any Event of Default set forth in (a) through (d) above,
Lender, by written notice to Borrower, may (1) declare the unpaid principal of
and accrued interest on all Obligations to be immediately due and payable and
(2) immediately terminate Lender's commitment to make further Advances under the
Agreement, whereupon all Obligations shall become and be forthwith due and
payable, and such commitment shall be terminated, without any further notice,
presentment, or demand of any kind, all of which are hereby expressly waived by
Borrower. If there shall occur any Event of Default set forth (e) above, all
Obligations shall automatically become and be immediately due and payable, and
Lender's commitment to make further advances shall automatically be terminated,
without notice, presentment, or demand of any kind, all of which are hereby
expressly waived by Borrower.
10. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT
Upon the occurrence of any such Event of Default and at all times thereafter,
Lender shall have the rights and remedies of a secured party under the Illinois
Uniform Commercial Code in addition to the rights and remedies of a secured
party provided elsewhere within this Agreement or in any other writing executed
by Borrower. Lender may require Borrower to assemble the Collateral and make it
available to Lender at a reasonably convenient place to be designated by Lender.
Unless the Collateral is perishable, threatens to decline speedily in value, or
is of a type customarily sold on a recognized market, Lender will give Borrower
reasonable notice of the time and place of any public sale of the Collateral or
of the time after which any private sale or other intended disposition thereof
is to be made. The requirement of reasonable notice shall be met if such notice
is mailed (deposited for delivery, postage prepaid,
15
<PAGE>
by U.S. mail) to either, at Lender's option (1) Borrower's Location set forth in
Subsection 12(c) of this Agreement (as modified by any change therein which
Borrower has supplied in writing to Lender), or (2) Borrower's address at which
Lender customarily communicates with Borrower, at least ten (10) business days
before the time of the public sale or the time after which any private sale or
other intended disposition thereof is to be made. At any such public or private
sale, Lender may purchase the Collateral. After deduction for Lender's Related
Expenses, the residue of any such sale or other disposition shall be applied in
satisfaction of the Obligations in such order of preference as Lender may
determine. Any excess, to the extent permitted by law, shall be paid to
Borrower, and Borrower shall remain liable for any deficiency.
In addition, upon the occurrence of any such Event of Default and at any time
thereafter, Lender shall have the right to obtain new appraisals of Borrower or
the Collateral, the cost of which shall be reimbursed by Borrower.
11. CONDITIONS PRECEDENT TO FUTURE ADVANCES
The obligation of Lender to make any Advance to Borrower shall be subject to the
conditions precedent that on or before the date of such Advance:
(a) Borrower shall reimburse all fees, costs, expenses, and taxes
then payable by Borrower and due the Lender;
(b) The representations and warranties contained in Section 4 of
this Agreement and in each document, instrument, agreement,
and certificate delivered to Lender by Borrower pursuant to
this Agreement shall be true and correct on and as of such
date as if made on and as of such date in all material
respects; no Event of Default or event or condition that, with
the serving of notice or the lapse of time or both, would
constitute an Event of Default shall have occurred and be
continuing or would result from the making of such Advance;
and Lender shall have received, if requested by Lender, a
certificate of the chief executive officer or the chief
financial officer of Borrower, dated as of the date of such
Advance, to such effect (in the absence of Lender's request
for such a certificate, Borrower's borrowing of the Advance
shall itself constitute a representation to Lender to such
effect);
(c) The making of such Advance shall not contravene any law, rule
or regulation applicable to Borrower or Lender;
(d) Not later than 2:00 p.m., Cleveland time, two Business days
prior to the date of the requested Advance, Lender shall have
received, in writing or by telephone to be promptly confirmed
in writing, a request by Borrower to Lender for an Advance in
the requested amount, and a Borrower's Certificate;
16
<PAGE>
(f) With respect to the initial advance hereunder, Lender shall
have received such other approvals, opinions, appraisals, or
documents as it may reasonably request from time to time, all
in form and substance acceptable to Lender in its sole
discretion, including, without limitation, the following:
(i) Such Uniform Commercial Code Financing Statements as
Lender may require in order to give record notice of
its security interest in the items listed as
Collateral;
(ii) Certified corporate resolutions of Borrower, and
certificate(s) of good standing for Borrower from the
state of its incorporation and such other states as
Lender shall require, together with a certified copy
of the Articles of Incorporation and Code of
Regulations of Borrower;
(iii) UCC lien searches from such recording officers as
Lender shall specify, evidencing the priority of
Lender's lien(s) over any other liens or
encumbrances;
(iv) Certificate evidencing the existence of insurance
coverage required under this Agreement, together with
loss payable endorsements thereto naming Lender as a
loss payee and additional insured in form and
substance satisfactory to Lender as its interest may
appear;
(v) Such landlord waivers, mortgagee waivers and
subordination statements as Lender may require from
any landlords, mortgagees or creditors of Borrower
who have or may claim any lien upon or security
interest in any of the Collateral;
(vi) Complete and accurate copies of any instrument or
document evidencing Subordinated Debt; provided,
however, Lender may require that the Subordinated
Note be delivered to Lender;
12. GENERAL
(a) If any provision, term, or portion, of this Agreement,
(including, without limitation, (1) any indebtedness,
obligation, liability, contract, agreement, indenture,
warranty, covenant, guaranty, representation, or condition of
this
17
<PAGE>
Agreement made, assumed, or entered into, (2) any act of
action taken under this Agreement, or (3) any application of
this Agreement) is for any reason held to be illegal or
invalid, such illegality or invalidity shall not affect any
other such provision, term, or portion of this Agreement, each
of which shall be construed and enforced as if such illegal or
invalid provision, term, or portion were not contained in this
Agreement. Any illegality or invalidity of any application of
this Agreement shall not affect any legal and valid
application of this Agreement, and each provision, term, and
portion of this Agreement shall be deemed to be effective,
operative, made, entered into, or taken in the manner and to
the full extent permitted by law.
(b) Lender shall not be deemed to have waived any of Lender's
rights of this Agreement or under any other agreement,
instrument, or document executed by Borrower, unless such
waiver is in writing and signed by Lender. No delay or
omission on part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver
on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. All
Lender's rights and remedies, whether evidenced by this
Agreement or by any other agreement, instrument, or document
shall be cumulative and may be exercised singularly or
concurrently. Any written demands, written requests, or
written notices to Borrower that Lender may elect to give
shall be effective when deposited for delivery, postage
prepaid, by U.S. mail, and addressed either, at Lender's
option, to (1) Borrower's Location set forth in Subsection
12(c) of this Agreement (as modified by any change therein
which Borrower has supplied in writing to Lender) or, (2)
Borrower's address at which Lender customarily communicates
with Borrower. If at any time or times, by assignment or
otherwise, Lender transfers any of the Obligations or any part
of the Collateral to another person, such transfer shall carry
with it Lender's powers and rights under this Agreement with
respect to the Obligation or Collateral so transferred and the
transferee shall have said powers and rights, whether or not
they are specifically referred to in the transfer. To the
extent that Lender retains any other of the Obligations or any
part of the Collateral, Lender will continue to have the
rights and powers with respect to the Obligations and the
Collateral as set forth in this Agreement. However, Lender may
not delegate its unfunded commitment without Borrower's
consent.
(c) All written notices, requests, or other communications herein
provided for must be addressed:
to Lender as follows:
Paragon Corporate Holdings Inc.
7400 Caldwell Avenue
Niles, Illinois 60714
Attention: John H. Fountain
Chairman
18
<PAGE>
with copies to:
David A. Zagore, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Telephone: (216) 479-8500
Facsimile: (216) 479-8780
if to the Borrower to:
Multigraphics Inc.
431 Lakeview Court
Mt. Prospect, Illinois 60056
Attention: Mark Duchesne
with copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Jim Kaput
Telephone: (312) 853-7000
Facsimile: (312) 853-7036
or at such other address as either party may designate to the
other in writing. Such communication will be effective (i) if
by telex, when such telex is transmitted and the appropriate
answer back is received, (ii) if given by mail, seventy-two
(72) hours after such communication is deposited in the U.S.
mail certified mail return receipt requested, or (iii) if
given by other means, when delivered at the address specified
in this Section 12(c).
(d) The laws of the State of Illinois shall govern the
construction of this Agreement (including, without limitation,
any terms not specifically defined in this Agreement that may
be so specifically defined in the Illinois Uniform Commercial
Code, and including any amendments thereof or any substitution
therefor) and the rights and duties of Borrower and Lender.
This agreement shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and
assigns.
19
<PAGE>
(e) Borrower may terminate this Agreement by giving Lender not
less than ten (10) days prior written notice of termination
and by paying, performing, and observing in full all
Obligations. Notwithstanding the termination of the line of
credit hereunder, this Agreement and the security interest in
the Collateral shall continue in full force and effect after
such termination until all Obligations of Borrower to Lender
have been paid, performed, and observed in full.
(f) In this Agreement unless the context otherwise requires, words
in the singular number include the plural, and in the plural
number include the singular.
(g) Borrower hereby releases Lender from and agrees to indemnify
and hold harmless Lender, and its officers, agents, and
employees for any and all claims of Borrower or any other
Person for damage or loss caused by any act or acts under this
Agreement or in furtherance of this Agreement whether by
omission or commission, and whether based upon any error of
judgment or mistake of law or fact (except gross negligence or
willful misconduct) on the part of Lender, or its officers,
agents, and employees.
(h) Subsequent to payment in full of the Foothill Obligations,
Lender has the right, in addition to all other rights and
remedies available to it, to set off at any time the unpaid
balance of the Loan Account and any other Obligations against
any indebtedness or obligations owing Borrower by Lender
including, without limitation, all Cash Security.
(i) This Agreement is assignable by Lender upon notice to Borrower
and shall be binding on Lender's respective successors,
assigns, and nominees; provided, however, Lender may not
delegate its commitments hereunder without Borrower consent.
(j) This Agreement and any promissory notes or other writing
executed and delivered by any Person to Lender in connection
herewith integrate all the terms and conditions mentioned
herein or incidental hereto and supersede all oral
representations and negotiations and prior writings with
respect to the subject matter hereof.
20
<PAGE>
13. JURY TRIAL WAIVER
BORROWER AND LENDER EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING
ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN LENDER AND
BORROWER ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO ANY
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY LENDER'S ABILITY TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED
IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT BETWEEN LENDER AND
BORROWER.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
BORROWER: MULTIGRAPHICS, INC.
By: /s/ Mark F. Duchesne
---------------------
Title: President & CEO
LENDER: PARAGON CORPORATE HOLDINGS INC.
By: /s/ Edward J. Suchma
---------------------
Title: Vice President
and CFO
21
<PAGE>
EXHIBIT A
MASTER PROMISSORY NOTE
$2,000,000.00 September 29, 1999
On September 30, 2000, the undersigned (herein called "Borrower") promises to
pay to the order of PARAGON CORPORATE HOLDINGS INC., Niles, Illinois (herein
called "Lender"), the sum of Two Million Dollars ($2,000,000) or such lesser
amount of Advances as shall have actually been borrowed by Borrower from Lender
and not previously repaid, pursuant to the terms of a certain "Credit Facility
and Security Agreement" by and between Borrower and Lender dated September 29,
1999, including any partial or total extension, restatement, renewal, amendment,
and substitution thereof or therefor (herein called "Agreement") with interest
payable monthly in arrears on the first day of each month, starting on the first
day of the month following the month in which this Note is signed, according to
the provisions set forth in Section 2(a) of the Agreement.
Borrower has collaterally assigned to Lender all of Borrower's "Accounts
Receivable" and has granted to Lender a security interest in all of Borrower's
"Accounts Receivable", "Inventory", "Equipment", "Cash Security", funds on
deposit in the "Cash Collateral Account", certain other assets, and all
"Proceeds", products, profits, and rents thereof, as security for the payment of
this Note and all other "Obligations", as those terms are defined in Section 1
of the Agreement (all herein called "Obligations").
Upon the occurrence of any one or more "Events of Default", any and all
Obligations shall, at the option of Lender, immediately become due and payable
without demand, presentment, protest, or notice of any kind, all as provided in
the Agreement.
Borrower expressly waives presentment, demand, notice, protest, and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note, assent to any extension or postponement of
the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other person
primarily or secondarily liable. Borrower understands and agrees that this Note
is subject to and shall be construed according to the laws of the State of
Illinois.
Reference is made to the Agreement for certain provisions concerning rights of
Lender and its successors and assigns with respect to this Note, and related
matters. This Note is the "Master Promissory Note" referred to in the Agreement.
Borrower acknowledges that this Note was signed in Cook County, Illinois.
22
<PAGE>
THE OBLIGATIONS HEREUNDER AND THE RIGHTS AND REMEDIES EVIDENCED HEREBY ARE
SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN
SUBORDINATION AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS OF EVEN DATE
HEREWITH BETWEEN LENDER AND FOOTHILL CAPITAL CORPORATION ("FOOTHILL"), TO THE
INDEBTEDNESS (INCLUDING INTEREST) OWED BY BORROWER TO FOOTHILL PURSUANT TO THAT
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF FEBRUARY 19, 1998,
BY AND AMONG BORROWER, PUBLISHING SOLUTIONS INC. AND FOOTHILL, AS AMENDED; AND
EACH SUCCESSOR TO THE OBLIGATIONS AND RIGHTS OF LENDER HEREUNDER SHALL BE BOUND
BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.
MULTIGRAPHICS, INC.
By: _________________________
Title:
23
<PAGE>
EXHIBIT 10(R)
SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is entered into as of April __,
1999, among MULTIGRAPHICS, INC. f/k/a AM INTERNATIONAL, INC., a
Delaware corporation ("Multigraphics"), PUBLISHING SOLUTIONS INC., an
Ohio corporation ("PSI") and FOOTHILL CAPITAL CORPORATION ("Lender").
WHEREAS, Multigraphics, PSI and Lender are parties to that
certain Amended and Restated Loan and Security Agreement dated as of
February 19, 1998, which has previously been amended pursuant to a
certain First Amendment to Amended and Restated Loan and Security
Agreement dated as of July 30, 1998 (as amended, the "Loan Agreement");
and
WHEREAS, Multigraphics and PSI (collectively, "Borrowers")
have requested that Lender amend various provisions of the Loan
Agreement, and Lender has agreed to do so subject to the terms and
conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. AMENDMENT TO LOAN AGREEMENT.
(a) SECTION 1.1. Clause (h) of the definition of the term "Eligible Trade
Accounts" contained in Section 1.1 of the Loan Agreement is hereby
amended and restated in its entirety, as follows:
"(h) Accounts of such Borrower with respect to an
Account Debtor whose total obligations owing to Borrowers
exceeds 10% of all Eligible Accounts, to the extent of the
obligations owing by such Account Debtor in excess of such
percentage; provided, that during the period commencing on
April 19, 1999 and ending on July 15, 1999, Accounts of [OFC
CAPITAL] shall be ineligible under this clause (h) only to the
extent that such Accounts exceed 20% of all Eligible
Accounts;"
3. RATIFICATION AND EFFECTIVENESS. This Amendment shall constitute an
amendment to the Loan Agreement and all of the Loan Documents as
appropriate to express the agreements contained herein. Upon proper
execution by Borrowers and Lender and payment by Borrowers to Lender of
an amendment fee in the amount of $5,000, this Amendment shall be
deemed to have been retroactively effective as of April 19, 1999. In
all other respects, the Loan Agreement and the Loan Documents shall
remain unchanged and in full force and effect in
1
<PAGE>
accordance with their original terms.
4. MISCELLANEOUS.
(a) WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce Lender to enter
into this Amendment, each Borrower hereby warrants to Lender, as of the
date hereof, that:
(i) The warranties of each Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the
date hereof as if made on the date hereof.
(ii) All information, reports and other papers and data heretofore
furnished to Lender by either Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete
insofar as may be necessary to give Lender true and accurate
knowledge of the subject matter thereof. Each Borrower has
disclosed to Lender every fact of which it is aware which
would reasonably be expected to materially and adversely
affect the business, operations or financial condition of
either Borrower or the ability of either Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of either Borrower
contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the
statements contained herein or therein not materially
misleading.
(iii) No Event of Default or event which, with giving of notice or
the passage of time, or both would become an Event of Default,
exists as of the date hereof.
(b) EXPENSES. Borrowers jointly and severally agree to pay on demand all
costs and expenses of Lender (including the reasonable fees and
expenses of outside counsel for Lender) in connection with the
preparation, negotiation, execution, delivery and administration of
this Amendment and all other instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. In addition, Borrowers jointly and severally agree to pay,
and save Lender harmless from all liability for, any stamp or other
taxes which may be payable in connection with the execution or delivery
of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. All obligations provided in this SECTION 4(b) shall survive
any termination of this Amendment and the Loan Agreement as amended
hereby.
(c) GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of California.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered,
shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
2
<PAGE>
(e) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference to the Loan Agreement in
any Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and
be a reference to the Loan Agreement, as amended by this Amendment.
(f) SUCCESSORS. This Amendment shall be binding upon each Borrower, Lender
and their respective successors and assigns, and shall inure to the
benefit of each Borrower, Lender and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized and delivered as of the date first above written.
MULTIGRAPHICS, INC. f/k/a
AM INTERNATIONAL, INC.
By /s/ Gregory T. Knipp
-----------------------
Its Vice President and CFO
-----------------------
PUBLISHING SOLUTIONS INC.
By /s/ Gregory T. Knipp
-----------------------
Its Vice President and CFO
-----------------------
FOOTHILL CAPITAL CORPORATION
By /s/ Peter G. Drooff
-----------------------
Its Vice President
-----------------------
3
<PAGE>
EXHIBIT 10(S)
THIRD AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of June __, 1999, among
MULTIGRAPHICS, INC. f/k/a AM INTERNATIONAL, INC., a Delaware
corporation ("Multigraphics"), PUBLISHING SOLUTIONS INC., an Ohio
corporation ("PSI") and FOOTHILL CAPITAL CORPORATION ("Lender").
WHEREAS, Multigraphics, PSI and Lender are parties to that
certain Amended and Restated Loan and Security Agreement dated as of
February 19, 1998, which has previously been amended pursuant to a
certain First Amendment to Amended and Restated Loan and Security
Agreement dated as of July 30, 1998 and a certain Second Amendment to
Amended and Restated Loan and Security Agreement dated as of April __,
1999 (as amended, the "Loan Agreement"); and
WHEREAS, Multigraphics and PSI (collectively, "Borrowers")
have requested that Lender amend various provisions of the Loan
Agreement, and Lender has agreed to do so subject to the terms and
conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. AMENDMENTS TO LOAN AGREEMENT.
(a) SECTION 2.1(a). Clause (x) of the definition of the term "Borrowing
Base" with respect to Multigraphics, contained in Section 2.1(a) of the
Loan Agreement, is hereby amended and restated in its entirety, as
follows:
"(x) the LESSER of (i) up to 85% of the sum of
Eligible Trade Accounts of Multigraphics and Eligible Service
Accounts of Multigraphics, LESS the amount, if any, of the
Dilution Reserve relating to Multigraphics, and (ii) an amount
equal to Multigraphics' Collections with respect to Accounts
for the immediately preceding 90 day period, PLUS"
(b) SECTION 2.1(a). Clause (x) of the definition of the term "Borrowing
Base" with respect to PSI, contained in Section 2.1(a) of the Loan
Agreement, is hereby amended and restated in its entirety, as follows:
"(x) the LESSER of (i) up to 85% of the sum of
Eligible Trade
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<PAGE>
Accounts of PSI and Eligible Service Accounts of PSI, LESS
the amount, if any, of the Dilution Reserve relating to PSI,
and (ii) an amount equal to PSI's Collections with respect
to Accounts for the immediately preceding 90 day period, PLUS"
3. RATIFICATION AND EFFECTIVENESS. This Amendment shall constitute an
amendment to the Loan Agreement and all of the Loan Documents as
appropriate to express the agreements contained herein. Upon proper
execution by Borrowers and Lender, this Amendment shall be deemed to be
effective. In all other respects, the Loan Agreement and the Loan
Documents shall remain unchanged and in full force and effect in
accordance with their original terms.
4. MISCELLANEOUS.
(a) WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce Lender to enter
into this Amendment, each Borrower hereby warrants to Lender, as of the
date hereof, that:
(i) The warranties of each Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the
date hereof as if made on the date hereof.
(ii) All information, reports and other papers and data heretofore
furnished to Lender by either Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete
insofar as may be necessary to give Lender true and accurate
knowledge of the subject matter thereof. Each Borrower has
disclosed to Lender every fact of which it is aware which
would reasonably be expected to materially and adversely
affect the business, operations or financial condition of
either Borrower or the ability of either Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of either Borrower
contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the
statements contained herein or therein not materially
misleading.
(iii) No Event of Default or event which, with giving of notice or
the passage of time, or both would become an Event of Default,
exists as of the date hereof.
(b) EXPENSES. Borrowers jointly and severally agree to pay on demand all
costs and expenses of Lender (including the reasonable fees and
expenses of outside counsel for Lender) in connection with the
preparation, negotiation, execution, delivery and administration of
this Amendment and all other instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. In addition, Borrowers jointly and severally agree to pay,
and save Lender harmless from all liability for, any stamp or other
taxes which may be payable in connection with the execution or delivery
of this Amendment or the Loan Agreement, as amended hereby, and the
execution and delivery of any instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. All obligations
2
<PAGE>
provided in this SECTION 4(b) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(c) GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of California.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered,
shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
(e) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference to the Loan Agreement in
any Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and
be a reference to the Loan Agreement, as amended by this Amendment.
(f) SUCCESSORS. This Amendment shall be binding upon each Borrower, Lender
and their respective successors and assigns, and shall inure to the
benefit of each Borrower, Lender and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered as of the date first above written.
MULTIGRAPHICS, INC. f/k/a
AM INTERNATIONAL, INC.
By /s/ Gregory T. Knipp
-----------------------------
Its Vice President and CFO
----------------------------
PUBLISHING SOLUTIONS INC.
By /s/ Gregory T. Knipp
-----------------------------
Its Vice President and CFO
----------------------------
FOOTHILL CAPITAL CORPORATION
By /s/ Peter G. Drooff
-----------------------------
Its Vice President
----------------------------
3
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EXHIBIT 10-T
FOURTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is entered into as of September
29, 1999, among MULTIGRAPHICS, INC. f/k/a AM INTERNATIONAL, INC., a
Delaware corporation ("Multigraphics"), PUBLISHING SOLUTIONS INC., an
Ohio corporation ("PSI") and FOOTHILL CAPITAL CORPORATION ("Lender").
WHEREAS, Multigraphics, PSI and Lender are parties to that
certain Amended and Restated Loan and Security Agreement dated as of
February 19, 1998, which has previously been amended pursuant to a
certain First Amendment to Amended and Restated Loan and Security
Agreement dated as of July 30, 1998, a certain Second Amendment to
Amended and Restated Loan and Security Agreement dated as of April 21,
1999, and a certain Third Amendment to Amended and Restated Loan and
Security Agreement dated as of June 23, 1999 (as amended, the "Loan
Agreement"); and
WHEREAS, Multigraphics and PSI (collectively, "Borrowers")
have requested that Lender amend various provisions of the Loan
Agreement, and Lender has agreed to do so subject to the terms and
conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual
agreements herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. AMENDMENTS TO LOAN AGREEMENT.
(a) The definition of the term "Net Worth" contained in Section 1.1 of the
Loan Agreement is hereby amended and restated in its entirety, as
follows:
"'Net Worth' means, as of any date of determination,
Borrowers' consolidated total shareholders' equity as
determined in accordance with GAAP plus (for any date of
determination after September 30, 1999) the outstanding
principal amount of the Subordinated Indebtedness."
(b) The second sentence of the definition of the term "Consolidated Current
Liabilities" contained in Section 1.1 of the Loan Agreement is hereby
amended and restated in its entirety, as follows:
"For purposes of this definition, all Advances outstanding
under this Agreement and the outstanding amount of the
Subordinated Indebtedness shall be deemed to be current
liabilities without regard to whether they would be deemed to
be so under GAAP."
(c) Section 1.1 of the Loan Agreement is hereby amended to add a
definition, "Subordinated Indebtedness," as follows:
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"'Subordinated Indebtedness' means indebtedness of
the Borrowers to a Person which is junior and subordinated to
the Obligations and is subject to standstill provisions in
favor of Foothill, all pursuant to a written agreement between
Foothill and such Person, in form and substance satisfactory
to Foothill."
(d) Clause (a) of Section 6.3 of the Loan Agreement is hereby amended to
delete the following parenthetical phrase:
"(other than the last quarter in any fiscal year)"
(e) Section 6.16 of the Loan Agreement is hereby amended and restated in
its entirety, as follows:
"6.16 ADDITIONAL REPORTS
(a) On or before November 15, 1999, deliver to
Lender projections of Borrower's business performance through
January 31, 2000, which projections shall be in the same
format and in the same detail as that of those projections of
Borrowers' business performance through November 30, 1999
delivered by Borrowers to Lender and dated as of September 10,
1999 (the "Original Projections").
(b) On or before January 15, 2000, deliver to
Lender projections of Borrower's business performance through
July 31, 2000, which projections shall be in the same format
and in the same detail as that of the Original Projections.
(c) Not later than thirty (30) days prior to the
last day of each fiscal year of Borrowers, commencing with the
fiscal year ending July 31, 2000, deliver to Lender
projections of Borrower's business performance through the
last day of the subsequent fiscal year of Borrowers, which
projections shall be in the same format and in the same detail
as that of the Original Projections.
(d) On or before the Thursday of each week,
commencing on September 30, 1999, deliver to Lender a report
on Borrowers' actual business performance for the prior week
and for the month to date as of the Friday of the prior week,
which report shall be in the same format and in the same
detail as that of the Original Projections."
(f) Sections 7.1 and Section 7.2 are hereby amended to permit the Borrowers
to obtain $2,000,000 of Subordinated Indebtedness from Paragon
Corporate Holdings Inc. and to secure such Subordinated Indebtedness
with a junior and subordinated Lien upon the Collateral.
(g) Section 7.20 of the Loan Agreement is hereby amended and restated in
its entirety, as follows:
"7.20 FINANCIAL COVENANTS.
Fail to maintain:
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(a) NET WORTH. Net Worth of at least the
applicable amount set forth below as of each date set forth
below:
<TABLE>
<CAPTION>
DATE NET WORTH
---- ---------
<S> <C>
The last day of the fourth quarter of the 1999 (-$11,000,000)
fiscal year
The last day of the first quarter of the 2000 (-$10,500,000)
fiscal year and the last day of each fiscal
quarter thereafter
</TABLE>
(b) WORKING CAPITAL. Working Capital of at least
(i) (-$11,200,000), measured the last day of the fourth fiscal
quarter of the 1999 fiscal year, and (ii) (-$14,000,000),
measured on the last day of the first fiscal quarter of the
2000 fiscal year and the last day of each fiscal quarter
thereafter.
(c) EBITDA. EBITDA of (i) at least $1,300,000 on
the last day of the fourth quarter of the 1999 fiscal year,
for the 12 month period ending on such day, (ii) at least $1
on the last day of the first fiscal quarter of the 2000 fiscal
year, for the 3 month period ending on such day, (iii) at
least $1 on the last day of the second fiscal quarter of the
2000 fiscal year, for the 3 month period ending on such day,
and (iv) at least $1,300,000 on the last day of each fiscal
quarter commencing with the third fiscal quarter of the 2000
fiscal year, for the 12 month period ending on such day."
3. TESTING OF FINANCIAL COVENANTS AT END OF FISCAL YEAR. The financial
covenants set forth in Section 7.20 of the Loan Agreement shall be
tested for the last quarter of any fiscal year based upon the financial
statements delivered to Lender within 45 days after the end of such
fiscal quarter pursuant to the provisions of Section 6.3 of the Loan
Agreement, as amended by this Amendment, as well as based upon the
audited financial statements delivered to Lender within 90 days after
the end of such fiscal quarter pursuant to the provisions of Section
6.3 of the Loan Agreement.
4. CONDITIONS PRECEDENT TO AMENDMENT. This Amendment shall not become
effective if any of the following conditions is not satisfied within
the time specified therefore:
(i) By September 30, 1999, each Borrower shall have executed and
delivered to Lender an original of this Amendment and
Borrowers shall have delivered the Amendment Fee (as hereafter
defined) to Lender in good funds;
(ii) By September 30, 1999, Paragon Corporate Holdings Inc. (the
"Subordinated Creditor") shall have entered into a binding
agreement, in form and substance satisfactory to Lender, to
loan Borrowers not less than $2,000,000 of Subordinated
Indebtedness and shall have entered into a Subordination
Agreement with Lender in form and substance
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<PAGE>
satisfactory to Lender; and
(iii) By September 30, 1999, Borrowers, Subordinated Creditor and
Multi Acquisition Corp., a Delaware corporation, shall have
entered into a definitive written agreement for the
recapitalization and merger of Borrowers in form and substance
satisfactory to Lender; provided, however, that nothing in
this Amendment shall constitute (A) Lender's consent to the
consummation of any such recapitalization or merger, (B) a
waiver of any Event of Default hereafter occurring as a result
of the consummation of any such recapitalization or merger,
(C) a commitment by Lender to finance such merger or to
provide financing to Borrowers subsequent to such merger, or
(D) Lender's consent to Borrowers payment of, or Lender's
agreement to pay, any fees, expenses or other amounts to
Subordinated Creditor coming due upon any termination of any
agreement with respect to such merger or recapitalization.
5. AMENDMENT FEE. In consideration of Lender's agreements hereunder,
Borrowers, jointly and severally, agree to pay to Lender an amendment
fee of $25,000 (the "Amendment Fee"). The entire Amendment Fee will be
fully earned and payable on the effective date of this Amendment as
provided in Section 6 below.
6. FUNDING OF ADVANCES. Notwithstanding anything to the contrary contained
in the Loan Agreement, Lender shall have no obligation (but shall have
the right in its sole discretion) to make any Advances to Borrowers
prior to the time that (i) Subordinated Creditor has actually advanced
not less than $2,000,000 of Subordinated Indebtedness to Borrowers, and
(ii) Borrowers and Subordinated Creditor have demonstrated to Lender's
satisfaction that the entire $2,000,000 of such Subordinated
Indebtedness has actually been advanced to Borrowers.
7. Each Borrower acknowledges and agrees that any default of its
obligations under any agreement among Borrowers and Subordinated
Creditor relating to Subordinated Indebtedness or to a recapitalization
or merger of Borrowers shall constitute an Event of Default under the
Loan Agreement
8. RELEASE OF DEFENSES; REAFFIRMATION. Each Borrower hereby ratifies and
confirms the Loan Agreement and the Loan Documents (as modified by this
Amendment) in all respects. Each Borrower hereby further fully and
forever waives, releases, withdraws and discharges any and all
defenses, rights of setoff, claims, rights, demands, damages,
judgments, liabilities and causes of action that it may have against
Lender or Lender's affiliates, directors, officers, employees, agents
and representatives, existing as of the date hereof respect to, or
arising out of or related to, the Loan Agreement, the Loan Documents,
the Obligations or any transactions related thereto, and each Borrower
hereby releases Lender and Lender's affiliates, directors, officers,
employees, agents and representatives from any and all liabilities
thereunder or relating thereto. Each Borrower agrees that there are no
oral agreements or understandings among Borrowers and Lender that are
not expressly set forth in this Amendment.
9. RATIFICATION AND EFFECTIVENESS. This Amendment shall constitute an
amendment to the Loan Agreement and all of the Loan Documents as
appropriate to express the agreements contained herein. Upon the timely
satisfaction of all of the conditions precedent set forth in Section 3
4
<PAGE>
above, this Amendment shall be deemed to be effective. Any Event of
Default under Section 7.20 of the Loan Agreement existing prior to the
effective date of this Amendment will be cured if Borrowers have
provided Lender, on or before October 8, 1999, with a Compliance
Certificate for the month ending on July 31, 1999 and if Borrowers are
otherwise in full compliance with the provisions of Section 7.20 of the
Loan Agreement, as amended by this Amendment, on the effective date of
this Amendment. In all other respects, the Loan Agreement and the Loan
Documents shall remain unchanged and in full force and effect in
accordance with their original terms.
10. MISCELLANEOUS.
(a) BORROWERS' WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce
Lender to enter into this Amendment, each Borrower hereby warrants to
Lender, as of the effective date of this Amendment, that:
(i) The warranties of each Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the
date hereof as if made on the date hereof.
(ii) All information, reports and other papers and data heretofore
furnished to Lender by either Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete
insofar as may be necessary to give Lender true and accurate
knowledge of the subject matter thereof. Each Borrower has
disclosed to Lender every fact of which it is aware which
would reasonably be expected to materially and adversely
affect the business, operations or financial condition of
either Borrower or the ability of either Borrower to perform
its obligations under this Amendment, the Loan Agreement or
under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of either Borrower
contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the
statements contained herein or therein not materially
misleading.
(iii) No Event of Default or event which, with giving of notice or
the passage of time, or both would become an Event of Default,
exists as of the date hereof.
(b) LENDER'S WARRANTIES. Lender hereby warrants to Borrowers, as of the
date hereof, that assuming that this Amendment has become effective in
accordance with the provisions of Section 6 hereof, Lender (i) has no
knowledge of the existence of any Event of Default on the date hereof
and (ii) has no present intention to create new reserves or to reduce
its advance rates under Section 2.1(b) of the Loan Agreement as a
result of any matters of which Lender has actual knowledge as of the
date hereof.
(c) EXPENSES. Borrowers jointly and severally agree to pay on demand all
costs and expenses of Lender (including the reasonable fees and
expenses of outside counsel for Lender) in connection with the
preparation, negotiation, execution, delivery and administration of
this Amendment and all other instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. In addition, Borrowers jointly and severally agree to pay,
and save Lender harmless from all liability for, any stamp or other
taxes which may be payable in
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<PAGE>
connection with the execution or delivery of this Amendment or the
Loan Agreement, as amended hereby, and the execution and delivery of
any instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. All obligations
provided in this SECTION 10(C) shall survive any termination of this
Amendment and the Loan Agreement as amended hereby.
(d) GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of California.
(e) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered,
shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
(f) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference to the Loan Agreement in
any Loan Documents, or other agreements, documents or other instruments
executed and delivered pursuant to the Loan Agreement, shall mean and
be a reference to the Loan Agreement, as amended by this Amendment.
(g) SUCCESSORS. This Amendment shall be binding upon each Borrower, Lender
and their respective successors and assigns, and shall inure to the
benefit of each Borrower, Lender and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized and delivered as of the date first above written.
MULTIGRAPHICS, INC. f/k/a
AM INTERNATIONAL, INC.
By /s/ Mark F. Duchesne
-----------------------------
Its President & CEO
----------------------------
PUBLISHING SOLUTIONS INC.
By /s/ Gregory T. Knipp
-----------------------------
Its Vice President & CFO
----------------------------
FOOTHILL CAPITAL CORPORATION
By /s/ Peter G. Drooff
-----------------------------
Its Vice President
----------------------------
6
<PAGE>
EXHIBIT 10(U)
CHANGE IN CONTROL AND
TERMINATION BENEFITS AGREEMENT
THIS AGREEMENT is entered into as of the ___ day of _________, 1999 by
and between Multigraphics, Inc., a Delaware corporation (the "COMPANY"), and
________________ (the "EXECUTIVE").
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of the
Company or one of its subsidiaries and his services and knowledge are valuable
to the Company in connection with the management of the Company and its
operations; and
WHEREAS, the Board (as defined in Section 1) has determined that it is
in the best interests of the Company and its stockholders to secure the
Executive's continued services and to ensure Executive's continued dedication
and objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control (as defined in Section 1) of the Company, without concern as to whether
the Executive might be hindered or distracted by personal uncertainties and
risks created by any such possible Change in Control, and to encourage the
Executive's full attention and dedication to the Company, the Board has
authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and the Executive
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CAUSE" means (1) embezzlement or misappropriation of corporate
funds, other act of dishonesty, significant activities harmful to the reputation
of the Company, willful refusal to perform or substantial disregard of the
duties properly assigned to the Executive which do not differ in any material
respect from the duties and responsibilities of Executive on the date hereof
(other than as a result of the Executive's Incapacity), or significant violation
of any statutory or common law duty of loyalty to the Company or (2) a material
breach by Executive of this Agreement. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative
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<PAGE>
vote of not less than a majority of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable notice to
the Executive and an opportunity for the Executive, together with his counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board, the Executive engaged in the conduct set forth above in this subsection
(b) and specifying the particulars thereof in reasonable detail.
(c) "CHANGE IN CONTROL" means:
(1) the acquisition by any individual, entity or group (a "PERSON"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of 50% or more of either (i) the then outstanding shares of common stock of the
Company (the "OUTSTANDING COMMON STOCK") or (ii) the combined voting power of
the then outstanding securities of the Company entitled to vote generally in the
election of directors (the "OUTSTANDING VOTING SECURITIES"); excluding, however,
the following: (a) any acquisition directly from the Company (excluding any
acquisition resulting from the exercise of an exercise, conversion or exchange
privilege unless the security being so exercised, converted or exchanged was
acquired directly from the Company), (b) any acquisition by the Company, (c) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (d)
any acquisition by any corporation pursuant to a transaction which complies with
clause (i) or (ii) of subsection 1(c)(3); PROVIDED FURTHER, that for purposes of
clause (b), if any Person (other than the Company or any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company) shall become the beneficial owner of 50% or more of
the Outstanding Common Stock or 50% or more of the Outstanding Voting Securities
by reason of an acquisition by the Company, and such Person shall, after such
acquisition by the Company, become the beneficial owner of any additional shares
of the Outstanding Common Stock or any additional Outstanding Voting Securities
and such beneficial ownership is publicly announced, such additional beneficial
ownership shall constitute a Change in Control; or
(2) individuals who, as of the date hereof, constitute the Board (the
"INCUMBENT BOARD") cease for any reason to constitute at least a majority of
such Board; PROVIDED that any individual who becomes a director of the Company
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed to have been a
member of the Incumbent Board; and PROVIDED FURTHER, that no individual who was
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board; or
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<PAGE>
(3) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"CORPORATE TRANSACTION"); excluding, however, a Corporate Transaction pursuant
to which (i) all or substantially all of the individuals or entities who are the
beneficial owners, respectively, of the Outstanding Common Stock and the
Outstanding Voting Securities immediately prior to such Corporate Transaction
will beneficially own, directly or indirectly, more than 60% of, respectively,
the outstanding shares of common stock, and the combined voting power of the
outstanding securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or indirectly) in substantially the same proportions relative to
each other as their ownership, immediately prior to such Corporate Transaction,
of the Outstanding Common Stock and the Outstanding Voting Securities, as the
case may be, or (ii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(4) consummation of a plan of complete liquidation or dissolution of
the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "DATE OF TERMINATION" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 9 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(f) "GOOD REASON" means, without the Executive's express written
consent, the occurrence of any of the following events:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company immediately prior to a Change in
Control, (ii) an effective change in the Executive's reporting responsibilities,
titles or offices with the Company as in effect on the date hereof, (iii) any
removal or involuntary termination of the Executive from the Company otherwise
than as expressly permitted by this Agreement or any failure to re-elect the
Executive to any position with the Company held by the Executive immediately
prior to the date hereof or (iv) any material breach by the Company of this
Agreement; or
(2) a reduction by the Company in the Executive's rate of annual base
salary as in effect on the date hereof or as the same may be increased from time
to time thereafter; or
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<PAGE>
(3) any requirement of the Company that the Executive (i) relocate
from the Chicago metropolitan area or (ii) travel on Company business to an
extent substantially more burdensome than the travel obligations of the
Executive on the date hereof; PROVIDED, HOWEVER, that traveling not more than an
average of once per month to and from the offices of the person who effects a
Change in Control shall not be deemed to be Good Reason; or
(4) the failure of the Company to (i) continue in effect any employee
benefit plan or compensation plan in which the Executive is participating on the
date hereof (including, without limitation, the Company's Executive Incentive
Compensation Plan or a replacement plan thereto), unless the Executive is
permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect for the Executive on the date
hereof or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive on the date hereof or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies,
(iv) provide an office of a size and with furnishings and other appointments,
together with secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and its
affiliated companies on the date hereof or, if more favorable to the Executive,
as provided generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies, (v) provide the
Executive with paid vacation and paid time off for illness in accordance with
the most favorable plans, policies, programs and practices of the Company and
its affiliated companies as in effect for the Executive on the date hereof or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies, or (vi) reimburse the Executive promptly for all
reasonable employment expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive on the date hereof or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption agreement
from any successor or transferee as contemplated in Section 8(b); or
(6) any request by a director or executive officer of the Company
that the Executive participate in an unlawful act or take any action
constituting a breach of the Executive's professional standard of conduct.
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<PAGE>
For purposes of this Agreement, any good faith determination of Good
Reason made by the Executive shall be conclusive; PROVIDED, HOWEVER, that an
isolated, insubstantial and inadvertent action taken in good faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive shall not constitute Good Reason.
Notwithstanding anything in this Agreement to the contrary, the
Executive's right to terminate his employment for Good Reason shall not be
affected by his Incapacity.
(g) "INCAPACITY" means such physical or mental condition of the
Executive as is expected to continue indefinitely and which renders the
Executive incapable of performing any substantial portion of the Executive's
duties and responsibilities (as confirmed by competent medical evidence).
(h) "QUALIFYING TERMINATION" means a termination of the Executive's
employment (1) by the Company for any reason other than for Cause or the
Executive's Incapacity or (2) by the Executive for a Good Reason.
(i) "RETIREMENT PLANS" means the Company's 401(k) plan(s), the
Retirement Accumulation Plan or any successor plans.
(j) "TERMINATION PERIOD" means the period of time beginning on the
date a Change in Control occurs and ending on the earlier to occur of (i) the
date which is 18 months after the date of such Change in Control and (ii) the
Executive's death.
2. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If (x) during the Termination Period the employment of the
Executive shall terminate by reason of a Qualifying Termination or (y) the
employment of the Executive shall be terminated prior to a Change in Control by
the Company for any reason other than for Cause or the Executive's Incapacity at
a time when the Company is a party (or within 180 days after the effective date
of such termination of employment the Company becomes a party (the date the
Company becomes such a party being an "AGREEMENT DATE")) to a letter of intent
which contemplates effecting, or a binding written agreement (subject to
customary closing conditions) to effect, a transaction constituting a Change in
Control, then the Company shall pay to Executive (or the Executive's beneficiary
or estate), as compensation for services rendered to the Company:
(1) within 30 days after the Date of Termination (or within 30 days
after any Agreement Date), a lump sum cash amount equal to the sum of:
(i) the Executive's full annual base salary from the Company and its
affiliated companies through and including the Date of Termination, and the
Executive's annual bonus, as determined or if not yet determined, as determined
in a manner consistent with similar determinations with respect to other peer
executives of the Company and its affiliated
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<PAGE>
companies, in respect of the fiscal year immediately preceding the fiscal
year in which the Date of Termination occurs, each to the extent not
previously paid, and
(ii) any compensation previously deferred by the Executive (together
with any interest and earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid; plus
(2) within 30 days after the Date of Termination (or within 30
days after any Agreement Date), a lump sum cash amount equal to one and
one-half (1-1/2) times the Executive's highest rate of annual base salary
from the Company and its affiliated companies in effect at any time on or
after the date hereof and prior to the Date of Termination; PROVIDED,
HOWEVER, that any amount paid pursuant to this Section 2(a)(2) shall be paid
in lieu of any other amount of severance relating to salary continuation to
be received by the Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the Company; plus
(3) within 30 days after the Date of Termination (or within 30 days
after any Agreement Date), a lump sum cash amount representing the Executive's
annual bonus (which amount shall be pro rated as set forth below) in respect of
the fiscal year in which the Date of Termination occurs in an amount determined
in accordance with the Company's Executive Incentive Compensation Plan or a
replacement plan thereto; PROVIDED, HOWEVER, that if the Date of Termination
occurs on or prior to the end of the second fiscal quarter of the Company, such
bonus shall be the target bonus of the Executive for such fiscal year; PROVIDED,
FURTHER, that if the Date of Termination occurs on or prior to the end of the
third fiscal quarter of the Company, the level of performance or the
satisfaction of performance criteria applicable to determining the amount of
such bonus shall be annualized and shall be determined based upon unaudited
financial statements and/or performance as of the last day (for performance
criteria based on balance sheet or similar items), or for the six-month period
ending on the last day (for performance criteria based on statement of
operations or similar items), of the second fiscal quarter of the fiscal year in
which the Date of Termination occurs; PROVIDED, FURTHER, that if the Date of
Termination occurs during the fourth fiscal quarter of the Company, the level of
performance or the satisfaction of performance criteria applicable to
determining the amount of such bonus shall be annualized and shall be determined
based upon unaudited financial statements and/or performance as of the last day
(for performance criteria based on balance sheet or similar items), or for the
nine-month period ending on the last day (for performance criteria based on
statement of operations or similar items), of the third fiscal quarter of the
fiscal year in which the Date of Termination occurs; PROVIDED, FURTHER, that the
amount of the Executive's bonus shall be the amount, if any, determined in
accordance with one of the four immediately preceding provisos, multiplied by a
fraction, the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through and including the Date of
Termination and the denominator of which is 365 or 366, as applicable; and
PROVIDED FURTHER, that any amount paid pursuant to this Section 2(a)(3) shall be
paid in lieu of any other amount of severance relating to the Executive's annual
bonus to be
6
<PAGE>
received by the Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the Company.
(b) (1) In addition to the payments to be made pursuant to
paragraph (a) of this Section 2, if on the Date of Termination the Executive
shall not be fully vested in the employer contributions made on his behalf
under the Retirement Plans, then the Company shall pay to the Executive
within 30 days after the Date of Termination (or within 30 days after any
Agreement Date) a lump sum cash amount equal to the value of the unvested
portion of such employer contributions; PROVIDED, HOWEVER, that if any
payment pursuant to this Section 2(b)(1) may or would result in such payment
being deemed a transaction which is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Company shall make such
payment so as to meet the conditions for an exemption from such Section 16(b)
as set forth in the rules (and interpretive and no-action letters relating
thereto) under Section 16. The value of any such unvested employer
contributions shall be determined as of the Date of Termination; PROVIDED,
HOWEVER, that the value of a share of common stock of the Company shall be
the average closing price on the principal stock exchange or quotation system
for the 10 trading days ending on the Date of Termination or, if such date is
not a trading day, for the 10 trading days ending on the immediately
preceding trading day.
(2) For a period of 18 months commencing on the Date of Termination
(or any Agreement Date), the Company shall continue to keep in full force and
effect (or shall cause a successor to keep in full force and effect or shall
cause to be provided by a third-party provider) all policies of medical,
prescription, dental, accident, disability and life insurance with respect to
the Executive and the Executive's spouse and other dependents with the same
level of coverage, upon the same terms and otherwise to the same extent as such
policies shall have been in effect immediately prior to the Date of Termination
or, if more favorable to the Executive, as provided generally with respect to
other peer executives of the Company and its affiliated companies. The
obligation of the Company to continue coverage of the Executive and the
Executive's spouse and other dependents under such policies shall cease at such
time as the Executive and the Executive's spouse and other dependents obtain
substantially comparable coverage under another policy or policies, including a
policy maintained by another employer.
3. LIMITATION ON PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding, it is the intention of the Company
and the Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of the Executive under any other agreement or
plan, be deemed to be an "EXCESS PARACHUTE PAYMENT" as defined in Section 280G
of the Code, or its successors. It is agreed that the present value of and
payments to or for the benefit of the Executive in the nature of compensation,
receipt of which is contingent on occurrence of a Change in Control, and to
which Section 280G of the Code applies (in the aggregate "TOTAL PAYMENTS") shall
not exceed an amount equal to one dollar less than the maximum amount that the
Company may pay without loss of deduction under Section 280G(a) of the Code.
Present value for purposes of this Agreement shall be calculated in accordance
with Section 280G(d)(4) of the Code. Within sixty (60) days following the
earlier of (i) the giving of the notice of termination of
7
<PAGE>
employment or (ii) the giving of notice by the Company to the Executive of
its belief that there is a payment or benefit due the Executive which will
result in an Excess Parachute Payment, the Executive and the Company, at the
Company's expense, shall obtain the opinion of the Accounting Firm, which
opinion need not be unqualified, which sets forth: (i) the amount of the
"BASE PERIOD INCOME" of the Executive (as defined in Code Section 280G), (ii)
the present value of Total Payments and (iii) the amount and present value of
any Excess Parachute Payments. In the event that such opinion determines
that there would be an Excess Parachute Payment, the payment hereunder shall
be modified, reduced or eliminated as specified by the Executive in writing
delivered to the Company within thirty (30) days of his receipt of such
opinion or, if the Executive fails to so notify the Company, then as the
Company shall reasonably determine, so that under the bases of calculation
set forth in such opinion there will be no Excess Parachute Payment. In the
event that the provisions of Sections 280G and 4999 of the Code are repealed
without succession, this Section shall be of no further force or effect.
(b) In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control, the
Executive shall appoint another nationally recognized "Big Five" public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm under this Section 3).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive.
4. WITHHOLDING TAXES. The Company may withhold from all payments
due to the Executive (or the Executive's beneficiary or estate) hereunder all
taxes which, by applicable federal, state, local or other law, the Company is
required to withhold therefrom.
5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under this Agreement involving termination of the Executive's employment with
the Company or its affiliated companies or involving the failure or refusal of
the Company to perform fully in accordance with the terms hereof, the Company
shall reimburse the Executive, on a current basis, for all legal fees and
expenses, if any, incurred by the Executive in connection with such contest or
dispute, together with interest in an amount equal to the prime rate quoted in
the "Money Rates" section of THE WALL STREET JOURNAL from time to time
in effect, but in no event higher than the maximum legal rate permissible
under applicable law, such interest to accrue from and including the date the
Company receives the Executive's statement for such fees and expenses through
but excluding the date of payment thereof; PROVIDED, HOWEVER, that in the
event the resolution of any such contest or dispute includes a finding
denying, in total, the Executive's claims in such contest or dispute, the
Executive shall be required to reimburse the Company, over a period of 12
months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 5, together with interest in an amount
equal to the prime rate quoted in the "Money Rates" section of THE WALL
STREET JOURNAL from time to time in effect.
8
<PAGE>
6. TERMINATION OF AGREEMENT. (a) This Agreement shall be effective
on the date hereof and shall continue until terminated by the Company as
provided in Section 6(b); PROVIDED, HOWEVER, that this Agreement shall terminate
in any event upon the earlier to occur of (i) subject to Section 2(a)(y),
termination of the Executive's employment with the Company prior to a Change in
Control and (ii) the Executive's death.
(b) The Company shall have the right prior to a Change in Control, in
its sole discretion, pursuant to action by the Board, to approve the termination
of this Agreement, which termination shall not become effective until the date
fixed by the Board for such termination, which date shall be at least 180 days
after notice thereof is given by the Company to the Executive in accordance with
Section 9; PROVIDED, HOWEVER, that no such action shall be taken by the Board
during any period of time when the Board has knowledge that any person has taken
steps reasonably calculated to effect a Change in Control until, in the opinion
of the Board, such person has abandoned or terminated its efforts to effect a
Change in Control; and PROVIDED FURTHER, that in no event shall this Agreement
be terminated in the event of a Change in Control.
7. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to
entitle the Executive to continued employment with the Company or its
subsidiaries, and except as set forth in Section 2(a)(y), if the Executive's
employment with the Company shall terminate prior to a Change in Control, then
the Executive shall have no further rights under this Agreement; PROVIDED,
HOWEVER, that any termination of the Executive's employment following a Change
in Control shall be subject to all of the provisions of this Agreement.
8. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
8, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or the Executive's beneficiary or
estate), all of the obligations of the Company hereunder. Failure of the
Company to obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control by reason of a Qualifying Termination. For purposes of implementing the
foregoing, the date on which any such merger, consolidation or transfer becomes
effective shall be deemed the Date of Termination.
9
<PAGE>
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
9. NOTICE. (a) For purposes of this Agreement, all notices and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to his address as set forth
in the records of the Company, and if to the Company, to the Company's principal
executive offices, attention Chief Financial Officer, or (2) to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
actual receipt.
(b) A written notice of the Executive's Date of Termination by the
Company or by the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such
notice any fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or the Company hereunder or
preclude the Executive or the Company from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
10. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) Any controversy or claim arising out of this Agreement, or breach
hereof, shall be settled by arbitration in the Chicago metropolitan area in
accordance with the laws of the State of Illinois by three disinterested
arbitrators, one of whom shall be appointed by the Company, one by the
Executive, and the third of whom shall be appointed by the first two
arbitrators. If the third arbitrator cannot be agreed upon, the third
arbitrator shall be appointed by the Chief Judge of the United States Court of
Appeals for the Seventh Circuit. The arbitration shall be conducted in
accordance with the rules of the American Arbitration
10
<PAGE>
Association, except with respect to the selection of arbitrators. The
arbitrators' determination shall be final and binding upon all parties and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
(c) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final determination by the arbitrators as set forth
in the foregoing subsection (b) declaring that such termination was for Cause,
that the determination by the Executive of the existence of Good Reason was not
made in good faith, or that the Company is not otherwise obligated to pay any
amount or provide any benefit to the Executive and the Executive's spouse and
other dependents or other beneficiaries, as the case may be, under Section 2,
the Company shall pay all amounts, and provide all benefits, to the Executive
and the Executive's spouse and other dependents or other beneficiaries, as the
case may be, that the Company would be required to pay or provide pursuant to
Section 2 as though such termination were by the Company without Cause or by the
Executive with Good Reason; PROVIDED, HOWEVER, that the Company shall not be
required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
11. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
12. PARTICIPATION IN CHANGE IN CONTROL. The Executive agrees to
notify the Company promptly of the Executive's determination to participate, or
of any request, inquiry or invitation from any person that the Executive
participate, in any activity or transaction which might reasonably be expected
to result in a Change in Control.
13. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to its
conflicts of laws principles. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
11
<PAGE>
15. MISCELLANEOUS. No provision of this Agreement may be modified
or waived unless such modification or waiver is agreed to in writing and
signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict
compliance with any provision of this Agreement or to assert any right the
Executive or the Company may have hereunder, including, without limitation,
the right of the Executive to terminate employment for Good Reason, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement. Except as otherwise specifically set forth herein,
the rights of, and benefits payable to, the Executive or the Executive's
estate or beneficiaries pursuant to this Agreement are in addition to any
rights of, or benefits payable to, the Executive or the Executive's estate or
beneficiaries under any other employee benefit plan or compensation program
of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized member of the Compensation and Management
Committee of the Board and the Executive has executed this Agreement as of the
day and year first above written.
MULTIGRAPHICS, INC.
By:_____________________________________
Jeffrey D. Benjamin
Director, Chairman Compensation and
Management Committee
_____________________________________
Executive
12
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS WITH
RESPECT TO FORM S-8
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Multigraphics, Inc.'s previously
filed Registration Statements (Registration No. 33-87288 and Registration No.
333-67069) on Form S-8.
Chicago, Illinois
October 19, 1999
Arthur Andersen LLP
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