<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 317,911
<SECURITIES> 0
<RECEIVABLES> 7,212,366
<ALLOWANCES> 316,000
<INVENTORY> 19,358,374
<CURRENT-ASSETS> 28,114,615
<PP&E> 8,940,975
<DEPRECIATION> 2,448,860
<TOTAL-ASSETS> 41,320,239
<CURRENT-LIABILITIES> 24,179,978
<BONDS> 1,328,986
0
0
<COMMON> 64,973
<OTHER-SE> 12,810,676
<TOTAL-LIABILITY-AND-EQUITY> 41,320,239
<SALES> 29,886,897
<TOTAL-REVENUES> 29,886,897
<CGS> 17,645,575
<TOTAL-COSTS> 17,645,575
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 998,794
<INCOME-PRETAX> 617,215
<INCOME-TAX> 0
<INCOME-CONTINUING> 617,215
<DISCONTINUED> 911,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,528,698
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10475
Pages, Inc.
----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 34-1297143
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 94th Avenue North, St. Petersburg, Florida 33702
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 578-3300
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
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 [ ] .
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 13, 1997, was $8,325,184 (computed by reference to the
average bid and asked prices of such stock on such date).
Number of Common Shares, each with $0.01 par value, of the Registrant
outstanding as of March 13, 1997: 6,198,555 Common Shares.
Exhibit index on page ___
Page 1 of ___ Pages.
PART I
ITEM 1. BUSINESS.
- ------------------
BUSINESS
General
Pages, Inc. (the "Company") was originally formed as an Ohio corporation,
but on October 14, 1994, it reincorporated under the laws of the State of
Delaware. The Company operates principally through its wholly-owned
subsidiaries, Pages Book Fairs, Inc. and its affiliates ("PBF"). The Company
engages in the children's literature business. PBF, which the Company acquired
in 1992, publishes and distributes children's literature throughout the United
States. The Company's United Kingdom subsidiary was sold and its Canadian
distribution channel closed in March 1996. A spin-off of CA Short Company,
("CAS") formerly a wholly-owned subsidiary of the Company, was completed on
December 31, 1996. The spin-off of this discontinued operation represents the
entire incentive/awards segment of the Company's business. A description of
the business of CAS during 1996 is included in its Form 10-K and certain
information regarding CAS's operations during 1996 is included in Note 8 to the
Company's financial statements.
Children's Literature (Pages Book Fairs)
Publishing. The Company, through PBF, publishes and markets reasonably
priced, leisure-based children's printed literature and media products. Since
the spin-off of CAS in 1996, the children's literature business constitutes the
Company's only business segment. The Company's books generally have a retail
price ranging from $0.99 to $19.99 depending, largely, on whether the books are
soft or hardcover. Most of the books sold are softcover having a retail price
of less than $5.95. In 1996, approximately 70% of the titles offered by the
Company were purchased from other publishers or were reprints licensed from
other publishers. The remaining titles offered by the Company were proprietary
titles produced and published by the Company's Pages Publishing Group division
under its Willowisp Press (R), Hamburger Press (R), Worthington Press (R),
and Riverbank Press(R) imprints. In 1996, the Company's book fairs included
over 110 fiction and non-fiction books and related products published under its
proprietary imprints. The Company's proprietary titles consistently rank at the
top of the best selling books in the Company's book fairs. All of the
Company's proprietary books are manufactured by independent printers, which are
generally selected on the basis of price and quality. The Company has no
agreements or contractual arrangements with any printer other than purchase
order commitments issued in the normal course of business. The Company believes
that it is not dependent on any one printer.
Market Overview. The Company markets its children's leisure-based
literature primarily through book fairs held at pre-schools, elementary
schools, and middle schools. There are approximately 79,600 pre-schools and day
care centers, 64,000 elementary schools, and 13,000 middle schools in the
United States.
Total student enrollment in United States elementary schools is
approximately 27 million and in middle schools is approximately 9 million. A
relatively high number of births in the late 1980's and early 1990's is
expected to result in continued growth in pre-school and elementary school
enrollment and an increase in middle school enrollment through the year 2000.
The Company also markets children's literature directly to elementary and
middle school librarians and teachers. There are over 1,800,000 elementary and
middle school teachers in the United States. In addition, the Company markets
directly to librarians at public libraries. There are over 16,000 public
libraries in the United States.
Pages Book Fairs. The principal distribution channel for the Company's
children's literature is through its school book fairs. The Company currently
markets its book fairs under its "Pages Book Fairs, the Original School Book
Fair Company(SM)" trade name. The Company sold more than 14 million children's
books and related items in 1996 through its book fairs. The Company's
concentration in school-based distribution distinguishes it from other
children's book publishers. Based on information obtained through the conduct
of its business, the Company believes that it currently operates the second
largest book fair business in the United States.
The Company's typical book fair is generally one week in duration, is
conducted at a central location on school premises, and is sponsored as a fund-
raising event by parent groups, librarians, or media specialists. A school
typically conducts one or two book fairs during the school year. Book fairs
give students the opportunity to browse and purchase quality, reasonably-
priced, leisure-based paperback books, hardcover books, and related products
such as posters, pencils, erasers, and bookmarks. The Company provides to the
schools child friendly display cases which are fully stocked with books and
related products. The sponsor conducts the book fair, retains a percentage of
the sales receipts, and remits the balance to the Company.
Distribution. Approximately 95% of the Company's elementary and middle
school book fairs are "case fairs," in which fully stocked book cases are
delivered to and retrieved from the schools by the Company's independent
distributors. The balance of the Company's book fairs are "box fairs," in which
the books and merchandise are delivered and retrieved through the mail. Box
fairs are utilized for elementary and middle schools located in sparsely
populated areas with a small number of schools where a case fair would not be
cost-effective and for pre-schools because fewer titles are offered. Books and
related merchandise for case fairs are distributed by the Company to its
distributors from its warehouse in Worthington, Ohio. Books and merchandise
for box fairs are distributed directly to the schools from the Company's
warehouses.
As of March 13, 1997, the Company had approximately 7 company and 65
independent distributors located in territories throughout the United States.
Relationships with 34 independent distributors were severed in early March of
1996 when the Company sold its United Kingdom subsidiary and discontinued its
Canadian distribution channel. The Company's independent distributors are
independent contractors who are compensated by the Company on a commission
basis. All distributors are responsible for the custody and care of an
inventory of the Company's products and for delivery, setup, and retrieval of
the products at book fairs. The Company believes its distribution structure is
superior to others in the book fair business because it allows the distributor
to customize the fairs to the needs of the customer and because it provides
extraordinary service. The distributors are exclusive as it relates to the
distribution of book fairs and related products and non exclusive as it relates
to other business endeavors.
Marketing and Customer Service. Currently, the Company markets its book
fairs through approximately 44 trained telephone sales representatives located
in its offices in Worthington, Ohio, Anaheim, California, Oklahoma City,
Oklahoma, Silver Spring, Maryland and Atlanta, Georgia, as well as through its
network of distributors. The telephone sales representatives undergo extensive
training, monitoring, and supervision to ensure quality control and
consistency. The Company's computer system allows telephone sales
representatives to sequence solicitations according to account profitability.
In elementary and middle schools, decisions relating to book fairs are
usually made by school librarians, media specialists or coordinators, or parent-
teacher organizations, which also sponsor, organize, and conduct the fairs.
Surveys conducted by the Company indicate that product quality, quantity,
and customer service are the three most important factors considered by
sponsors of book fairs in selecting one book fair company over another. The
Company has established an on-line system which can be accessed by each of its
distributors and customer service representatives to retrieve messages and
special requests from customers and monitor and order inventory. Additionally,
the Company maintains a customer service department with a national toll-free
number. The customer service department collects a representative number of
book fair customer evaluations and incorporates information derived from such
evaluations into a database, which enables the Company to measure the
effectiveness of its marketing programs and monitor the performance of its
distributors.
The Company currently offers between 375 and 1,200 book titles and other
items in its book fairs. The Company's product development & acquisition
department selects book titles and other items for sale at its book fairs based
upon such factors as sales potential, literary quality, and educational and
entertainment value. The Company determines the sales potential for a
particular book title or other item, in part, from historical sales data and
from qualitative and quantitative readership surveys it conducts.
Library Sales. The Company markets directly to school and public libraries
through Pages Library Services Inc. The Junior Library Guild (JLG) division,
which was founded in 1929, offers high quality, award-winning children's
literature in seven reading levels through a 12-month subscription program. A
JLG subscription provides libraries with some of the best current children's
literature in first edition hardcover books at up to 50% off of publishers'
cover prices. The National Library Services (NLS) division markets high
quality, hardcover books at prices up to 60% off of publishers' cover prices.
Quality books preselected by grade level and fiction or nonfiction categories
are offered on a preview basis to libraries. Both JLG and NLS market to the
libraries primarily through telemarketing.
Growth opportunities. In 1996, the Company's 22,000 book fairs gave it
direct access to approximately 12 million students and teachers. This access
affords the Company an opportunity to cross-market other products and to
increase sales of its products directly to teachers and librarians.
The Company believes that its existing book fair sales organization and its
marketing system are capable of absorbing additional volume and can be utilized
to increase its share of the existing elementary school and middle school book
fair markets.
Except for its operations in Canada, the United Kingdom, and Ireland, which
were sold or closed in March 1996, the Company did not operate in any foreign
countries in 1996. Countries in Western Europe and South America could offer
longer-range opportunities for sales of non-English language products.
However, the Company is subject to a Non-competition Agreement with Scholastic
which was entered into in conjunction with the sale of its United Kingdom
operations which until after March 6, 2001, precludes it from competing in
Cananda, the United Kingdom, Ireland, Germany, Italy, Greece and Eastern
Europe. There is a demand in the United States for Spanish language products
which could be easily integrated into the Company's current marketing and
distribution systems.
Employees
As of March, 1997, the Company employed a total of approximately 161
permanent and 100 seasonal persons in the United States. The number of
seasonal employees fluctuated during 1996 from a high of 402 to a low of 29
due to the cyclical nature of the Company's business. None of the Company's
employees are represented by a labor union. The Company considers its
relationship with its employees to be excellent. As of March 13, 1997, the
Company's health care plan covered 118 of its employees.
Trademarks, Copyrights, and Licenses
The Company owns or licenses the rights to the principal trademarks used in
its business. The Company's principal trademarks are registered and the Company
considers protection of such trademarks to be important to its business. U.S.
trademarks expire ten years after they are granted, but are renewable. It is
the Company's policy to renew all of its active trademarks. The names
"Willowisp Press(R)," "Hamburger Press(R)," "Rainbow Book Fairs (R),"
"Worthington Press(R)," "Reading Resources(R)," "Riverbank Press (R)" and
others are registered trademarks or have trademark registration pending in the
United States. The Company is not aware of any other pending claims of
infringement or challenges to the Company's right to use its trademarks.
The Company sometimes acquires license rights to reproduce characters or
images such as cartoon characters or pictures of sports figures, but such
licensing is not critical to its children's literature business.
Competition
The distribution of children's leisure-based literature is a highly
competitive business. The Company's major competitors are Scholastic
Corporation and Troll Associates, which are significantly larger and better
capitalized than the Company, and numerous small independent companies. The
Company competes on the basis of customer service, product quality, and
competitive pricing.
Seasonality and Working Capital
The children's literature business is highly seasonal and correlates
closely to the school year. As a result, most of the income of PBF is
generated between the months of September and May. Due to the seasonality, the
Company experiences negative cash flow during the summer months. Further, in
order to build its inventory for its Fall sales, the Company's borrowings
increase over the summer and generally peak during late Fall. Inventory and
receivables reach peak levels during the months of October through December.
ITEM 2. PROPERTIES.
- ---------------------
<TABLE> Owned Principally Used
<CAPTION>
Location Use Size Leased By
- ----------------------- ------------------ ------------- -------- ----------------
<S> <C> <C> <C> <C>
St. Petersburg, Florida Office 48,760 sq. ft. Leased Pages, Inc.
Pages Book Fairs
Worthington, Ohio Office & Warehouse 61,530 sq. ft. Owned Pages Book Fairs
Dublin, Ohio Office 4,700 sq. ft. Leased Pages, Inc.
Silver Spring, Maryland Office & Warehouse 5,200 sq. ft. Leased Pages Book Fairs
Anaheim, California Office & Warehouse 11,600 sq. ft. Leased Pages Book Fairs
St. Louis, Missouri Office & Warehouse 25,000 sq. ft. Leased Pages Book Fairs
Orlando, Florida Office & Warehouse 1,700 sq. ft. Leased Pages Book Fairs
Tampa, Florida Warehouse 3,500 sq. ft. Leased Pages Book Fairs
New York, New York Office 750 sq. ft. Leased Pages Book Fairs
Marietta, Georgia Office & Warehouse 13,000 sq. ft. Leased Pages Book Fairs
Oklahoma City, Oklahoma Office & Warehouse 8,900 sq. ft. Leased Pages Book Fairs
Nashville, Tennessee Office & Warehouse 2,500 sq. ft. Leased Pages Book Fairs
Worthington, Ohio Warehouse 20,000 sq. ft. Leased Pages Book Fairs
</TABLE>
The leases (including renewals) on the properties set forth above expire as
follows: St. Petersburg, Florida - December 31, 2002; Dublin, Ohio - month to
month term; Silver Spring, Maryland - December 31, 1997; Anaheim, California
- - August 31, 1997; St. Louis, Missouri - February 27, 1998; Orlando,
Florida - March 31, 1998; Tampa, Florida - January 31, 2002; New York, New
York - February 28, 1998; Marietta, Georgia - May 31, 1998; Oklahoma City,
Oklahoma - June 30, 1997; Nashville, Tennessee - October 20, 2000;
Worthington, Ohio - month-to-month. These facilities are all located in
appropriately designed buildings which are kept in good repair. The property
owned by the Company in Worthington, Ohio, is pledged to The Huntington
National Bank.
ITEM 3. LEGAL PROCEEDINGS.
- ------------------------------
Gruner + Jahr Litigation
During 1995, Gruner + Jahr Printing and Publishing Company ("G&J") filed an
action against the Company seeking in excess of $900,000 in damages which had
been stayed by the court pending the resolution of an action filed by the
Company in federal court against G&J seeking compensation arising out the
Company's purchase from G&J of the Read Aloud Book Club. In March 1997, the
Company reached a settlement with G&J on both actions. As a result of the
settlement, the Company made a payment to G&J of $300,000. A provision for
this loss contingency was included in the Company's 1995 financial statements.
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection with
the examination of the tax returns of Pages Book Fairs ("PBF", formerly School
Book Fairs), and its affiliates for the fiscal years ending July 31, 1988,
1989, 1990 and 1991. In June 1993, the Company recorded a $2 million
adjustment to its purchase price allocation of PBF assets, which increased the
cost in excess of assets acquired (i.e. - goodwill), and recorded a
corresponding increase in accrued tax liabilities and related costs.
In October of 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988
(before PBF was acquired by the Company), in which, along with other events,
certain assets were transferred between related companies. The IRS had
challenged, among other things, the values assigned to those assets by the
parties to the transaction, contending that the assets were undervalued and
that PBF recognized a substantial taxable gain in the transaction. In January
1996, the Company filed petitions with the Tax Court disputing the IRS
valuation of the assets transferred, and other points in the IRS assessment.
On October 28, 1996, the Company entered into a settlement with the IRS
regarding the four Notices of Deficiencies received assessing additional taxes
for the fiscal years 1988, 1989, 1990 and 1991. The settlement includes income
taxes of $750,000, plus interest of approximately $750,000, for a total of
approximately $1,500,000. The Company has negotiated a payment plan with the
IRS that spreads the payments including interest over twelve months starting
in March 1997.
On December 27, 1996, the Company filed an action in U.S. District Court
for the Northern District of Ohio against Arthur Andersen & Co. LLP seeking in
excess of $16,000,000 in damages. The complaint is a result of the final
outcome of the IRS assessment and representations made by Arthur Andersen & Co.
during the Company's purchase of School Book Fairs, Inc. in 1992.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -----------------------------------------------------------------
None.
PART II
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
---------------------------------------------------------------------------
MATTERS.
--------
The Common Stock is traded on the Nasdaq National Market under the
symbol "PAGZ." The following table sets forth for the periods indicated
the high and low sale prices for shares of the Common Stock, as reported on
the Nasdaq National Market.
Trade Price
----------------------
High Low
-------- ---------
Calendar Year Ended December, 1996
Fourth Quarter 3 2
Third Quarter 2 1/4 1 1/2
Second Quarter 2 7/8 1 3/4
First Quarter 2 3/8 1 1/2
Calendar Year Ended December, 1995
Fourth Quarter 3 1 5/8
Third Quarter 3 5/8 2 1/2
Second Quarter 7 1/4 3
First Quarter 8 3 1/4
As of March 13, 1997, the Company had approximately 446 holders of
record of its Common Stock.
The Company has not paid dividends since December 27, 1985. The Company
anticipates that for the foreseeable future it will retain earnings in
order to finance the expansion and development of its business, and no cash
dividends will be paid on its common stock. The Loan Agreement between the
Company and The Huntington National Bank (the "Loan Agreement") does not
allow the Company to pay cash dividends which total in excess of $100,000
on its common stock and only then when the Company is not in default under
the Loan Agreement.
In August, 1996, the Company issued a subordinated Note in the principal
amount of $250,000, which was accompanied by a Warrant to purchase five
thousand shares of Company Common Stock at a purchase price of $2.00 per
share. The warrant is exercisable in installments over a five year period
and expires on August 14, 2001. The subordinated note and warrant were
issued pursuant to Section 4(2) of the Securities Act of 1933, Regulation D
of the Securities and Exchange Commission and similar exemptions under
state securities laws.
ITEM 6. SELECTED FINANCIAL DATA.
- ---------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Ten Months
Year Ended Year Ended Year Ended Year Ended Ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992(1)
-------------------------------------------------------------------------
Consolidated Statements of Operations
Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 29,887 $ 50,201 $ 51,178 $ 47,622 $ 26,618
Costs and expenses 32,525 54,299 51,738 47,477 27,229
Gain on sale of distribution channel (3,255) -- -- -- --
-------- -------- --------- -------- --------
Income from continuing operations before
income taxes 617 (4,098) (560) 145 (611)
(Provision) benefit for income taxes -- (2,119)(5) 169 (568) 700(2)
-------- -------- --------- -------- --------
Income (loss) from continuing operations 617 (6,217) (391) (423) 89
net of cumulative effect of accounting
change of $995 in 1996 912 (3,002) (81) 1,434 909
-------- -------- --------- -------- --------
Net income (loss) $ 1,529 $ (9,219) $ (472) $ 1,011 $ 998
========= ========= ========= ======== ========
Per Share Data(3):
Income (loss) from continuing operations $ 0.10 $ (1.26) $ (0.10) $ (0.07) $ 0.19
Discontinued operations, net of cumulative
effect of accounting change of $0.17 in 1996 0.16 (0.61) (0.02) 0.25 --
-------- -------- --------- -------- --------
Net income (loss) per common share(4) $ 0.26 $ (1.87) $ (0.12) $ 0.18 $ 0.19
========= ========= ========= ======== ========
Cash dividends per common share -- - - - -
Weighted average common and common equivalent
shares 5,857 4,930 4,055 5,757 5,546
At At At At At
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
-------- -------- --------- -------- --------
Consolidated Balance Sheets Data:
Working capital $ 3,935 $ 15,719 $ 13,527 $ 10,054 $ 8,456
Total assets 41,320 54,849 68,005 53,761 44,634
Long-term obligations 4,265 19,360 8,927 10,362 10,533
Stockholders' equity 12,876 10,674 19,593 12,814 8,734
</TABLE>
NOTE 1: On May 19, 1992, Pages, in a transaction accounted for as a purchase,
acquired the outstanding stock of School Book Fairs, Inc. and affiliated
entities. The aggregate cost of this transaction, including major debt
refinancing, approximated $8,841,000. Additionally, during 1992, the Company
changed its year end from February 28 to December 31.
NOTE 2: For the ten months ended December 31, 1992, the tax provision included
an $812,400 tax benefit attributable to the Company's reassessment of the
future realizability of deferred tax assets.
NOTE 3: Adjusted to give effect to five-for-four stock split in each of April
1990 and October 1993.
NOTE 4: Represents earnings per common and common equivalent share both on a
primary and a fully diluted basis. On a fully diluted basis, dilution is less
than 3%.
NOTE 5: The tax provision was an allowance against previously recorded
deferred tax assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS.
- -----------------------
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes contained
elsewhere herein. The Company's results of operations have been, and in
certain cases are expected to continue to be, affected by certain general
factors.
Acquisitions and Changes in Fiscal Years
On May 19, 1992, the Company acquired all of the outstanding capital stock
of Pages Book Fairs. The transaction was accounted for as a purchase and, as a
result, operations of Pages Book Fairs are reflected in the Company's
Consolidated Financial Statements from May 20, 1992, forward. As part of the
transaction, the Company acquired certain Pages Book Fairs bank indebtedness
directly from Pages Book Fairs' primary lending institution, at a substantial
discount, and issued to such lender warrants to purchase Common Shares of the
Company. The Company also issued, to key management personnel of Pages Book
Fairs, stock options to purchase Common Shares of the Company.
During December 1992 as a consequence of the Pages Book Fairs acquisition,
the Company changed its fiscal year end from the last day of February back to
December 31 so that future reporting years would more closely approximate the
annual business cycle for the combined businesses.
The Company acquired several businesses involved in the distribution and
publishing of children's literature, including the Junior Library Guild,
National Library Service and Cornerstone Books from Bantam Doubleday Dell
Publishing Group, Inc. in 1994 and Parents Magazine Read Aloud Book Club from
the publisher of Parents Magazine in 1993. The aggregate cost of these
acquisitions approximated $2.9 million and $1.7 million in 1994 and 1993,
respectively, and was paid with a combination of cash, common shares, and
notes. The transactions were accounted for as purchases and, as a result, the
operations of the acquired entities are included in the Company's consolidated
financial statements commencing with the respective dates of acquisition. In
1995 the Company decided to exit the Read Aloud Book Club business and,
accordingly, it is reflected as a discontinued operation in the accompanying
consolidated financial statements.
Discontinued Operations
Effective on the close of business on December 31, 1996, the Company
completed a tax-free spin-off of the common stock of the Company's wholly-owned
subsidiary, CA Short Company ("CAS") through a distribution to the stockholders
of Pages, Inc. of one and one-half shares of CAS common stock for every ten
shares of Pages common stock outstanding on the record date. Effective
January 1, 1997, CAS issued a subordinated debenture to Pages in the
principal amount of $5 million bearing interest at 7% per annum payable
quarterly, with principal payments of $100,000 each due at the end of the
first four years, and a final payment of $4,600,000 due at the end of the fifth
year.
The spin-off of this discontinued operation represents the entire
incentive/awards segment of the Company's business. The statements of
operations for all years presented have been restated to reflect the results of
CAS as a discontinued operation.
Additionally, in 1995, the Company adopted a plan to discontinue the
operations of its Read Aloud Book Club division (the "Club"). The operations
of the Club ceased during the second quarter of 1996. Losses incurred between
the measurement date (December 31, 1995) and the date on which operating
ceased, as well as close out costs on the Club, were provided for in the
December 31, 1995 consolidated financial statements. The statements of
operations for all years presented have been restated to reflect the results of
the Club as a discontinued operation.
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection with
the examination of the tax returns of Pages Book Fairs ("PBF", formerly School
Book Fairs), and its affiliates for the fiscal years ending July 31, 1988,
1989, 1990 and 1991. In June 1993, the Company recorded a $2 million
adjustment to its purchase price allocation of PBF assets, which increased the
cost in excess of assets acquired (i.e. - goodwill), and recorded a
corresponding increase in accrued tax liabilities and related costs.
In October of 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988, in
which, along with other events, certain assets were transferred between related
companies. The IRS had challenged, among other things, the values assigned to
those assets by the parties to the transaction, contending that the assets were
undervalued and that PBF recognized a substantial taxable gain in the
transaction. In January 1996, the Company filed petitions with the Tax Court
disputing the IRS valuation of the assets transferred, and other points in the
IRS assessment.
On October 28, 1996, the Company entered into a settlement with the IRS
regarding the four Notices of Deficiencies received assessing additional taxes
for the fiscal years 1988, 1989, 1990 and 1991. The settlement includes income
taxes of $750,000, plus interest of approximately $750,000, for a total of
approximately $1,500,000. The Company has negotiated a payment plan with the
IRS that spreads the payments including interest over twelve months starting in
March 1997.
Disposal and Phase Out of Certain Children's Literature Business Segment
Distribution Channels
During 1995, the Company disposed of or phased out the operations of
several acquisitions made in 1993 and 1994 and curtailed the distribution of
early childhood products through the mail to pre-schools and daycare centers.
Combined revenues, included in the accompanying consolidated financial
statements, of the aforementioned operations for 1996, 1995 and 1994
approximated $0, $2,300,000 and $3,400,000, respectively. The combined costs
and expenses associated with the aforementioned operations including loss on
disposition or phase out included in cost of goods sold and selling, general
and administrative expenses in the accompanying consolidated financial
statements for 1996, 1995 and 1994 approximated $0, $2,700,000, and $3,300,000,
respectively.
Disposition of United Kingdom and Discontinuance of Canadian Distribution
Channel
On March 6, 1996, the Company sold its United Kingdom subsidiary. Revenues
in US dollars for the United Kingdom subsidiary for the years ended December
31, 1996, 1995, and 1994 approximated $1,414,000, $11,264,000, and $12,173,000,
respectively, with loss before income taxes of approximately $(117,000),
$(1,197,000), and $(276,000), for the same years.
On March 13, 1996, the Company discontinued its Canadian distribution
channel. Revenues in U.S. dollars for the Canadian distribution channel for
the years ended December 31, 1996, 1995, and 1994 approximated $370,000,
$3,322,000, and $3,406,000, respectively, with loss before income taxes of
approximately $(56,000), $(386,000), $(367,000), for the same years.
Notes Receivable from Stock Sales
In the Third and Fourth Quarters of 1996, the Company made loans to certain
of its officers and employees to provide them with funds to pay the exercise
price of options granted by the Company to purchase Company common stock..
These notes are full recourse promissory notes bearing interest at 7%. The
principal sum is due in September, 1999. The interest is payable only in the
event and only to the extent that the fair market value of the shares of common
stock at the close of business in September 1999 exceeds the exercise price.
No provision has been included in the 1996 financial statements for such
interest.
Trends
The Company believes that the public's interest in education and general
demographic conditions will continue for the foreseeable future to have a
favorable impact on the Company's domestic operations, particularly with regard
to the sale of children's literature products. Additionally, public elementary
and secondary enrollment is projected to continue to grow through the year
2000. As the population of school children increases, the number of schools and
teachers will likely increase.
For the Spring 1997 book fair season, the number of book fairs held as of
March 13, 1997 was approximately 12% less than the same season in 1996.
Additionally, the remaining scheduled events for the Spring 1997 season are 9%
above the same time in the previous year. The Company anticipates this trend
to continue through the Spring 1997 season and that the final number of events
for the Spring 1997 season should end up 1% to 3% below below the same season in
1996.
Seasonality
The children's literature business is highly seasonal and correlates
closely to the school year. As a result, most of the income of PBF is
generated between the months of September and May. Due to the seasonality, the
Company experiences negative cash flow during the summer months. Further, in
order to build its inventory for its Fall sales, the Company's borrowings
increase over the summer and generally peak during late Fall. Inventory and
receivables reach peak levels during the months of October through December.
Special Note Regarding Forward Looking Statements
Certain statements contained in this Form 10-K under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other statements contained elsewhere in this Form 10-K regarding matters that
are not historical facts are "forward looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and because
such statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward looking statements.
Those statements appear in a number of places in this Form 10-K and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) expected
growth in school enrollments; (ii) ability of the Company to absorb additional
volume; (iii) the Company's financing plans; (iv) the Company's growth strategy
including the introduction of new book fair concepts; and (v) trends affecting
the Company's financial condition or results of operations. Prospective
investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward
looking statements as a result of various factors. The accompanying
information contained in this Form 10-K, including without limitation the
information set forth under the headings "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business," identifies
important factors that could cause such differences.
Results of Operations
The table below sets forth certain financial data expressed as a percentage
of revenues:
Percentage of Revenues
-------------------------------------------
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
1996 1995 1994
-------------------------------------------
Total revenue 100.0% 100.0% 100.0%
Cost of goods sold 59.0 62.1 59.4
----- ----- -----
Gross profit 41.0 37.9 40.6
Selling, general, and administration 44.1 40.1 37.1
Interest 3.3 3.6 2.5
Depreciation and amortization 2.3 2.4 2.2
Foreign exchange -- -- (0.1)
Gain on sale of distribution channel (10.8) -- -
------ ----- -----
Income (loss) from continuing
operations before income taxes 2.1% (8.2)% (1.1)%
====== ====== =======
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 approximated $29.9 million
compared to approximately $50.2 million for the year ended December 31, 1995, a
decrease of 40.4% or approximately $20.3 million. The decrease in revenues is
principally attributable to the following: the sale of the United Kingdom
operations in early March 1996; the discontinuance of the Canadian distribution
channel in early March 1996; the disposal and phase out of certain other
children's literature distribution channels in the third and fourth quarters of
1995, and a reduction in the number of domestic book fair events held in 1996
compared to 1995.
Cost of goods sold was approximately $17.6 million for the year ended
December 31, 1996, compared to approximately $31.2 million for the year ended
December 31, 1995, a decrease of 43.6% or approximately $13.6 million. The
decrease in cost of goods sold is due to the reduction in revenues discussed
above and improvements in the cost of book fair products. Cost of goods sold
as a percentage of revenues was 59.0% for 1996 compared to 62.1% for 1995.
Selling, general and administrative expense was approximately $11.7 million
for the years ended December 31, 1996, compared to approximately $19.0 million
for the year ended December 31, 1995, a decrease of 38.4% or approximately $7.3
million. The decrease in selling, general and administrative expense is
attributable to the sale of the United Kingdom operations in early March 1996;
the discontinuance of the Canadian distribution channel in early March 1996;
and the disposal and phase out of certain other children's literature
distribution channels in the third and fourth quarters of 1995.
General corporate and administrative expense was approximately $1.5 million
for the year ended December 31, 1996, compared to $1.1 million for the year
ended December 31, 1995, an increase of 36.4% or $400,000. The increase is
principally attributable to the issuance of stock appreciation rights under the
executive incentive compensation plan in October 1996 approximating $431,000.
Interest expense was approximately $1.0 million for the year ended December
31, 1996, compared to $1.8 million for the year ended December 31, 1995, a
decrease of 44.4% or $800,000. In connection with the sale of the United
Kingdom distribution channel in March 1996, a portion of the proceeds was used
to pay down outstanding debt. The average outstanding debt by quarter in 1996
approximated $13.7 million compared to $23.9 million for 1995. Additionally,
the average interest rate for 1996 approximated 8.4% compared to approximately
9.3% for 1995.
Depreciation and amortization expense was approximately $701,000 for the
year ended December 31, 1996, compared to $1.2 million for the year ended
December 31, 1995, a decrease of 41.6% or approximately $499,000. The decrease
is principally attributable to the disposal of the United Kingdom distribution
channel in early March 1996 and its related fixed assets.
There was no income tax provision for 1996 due to the Company's net
operating loss position, and the full valuation of any resulting deferred tax
benefit.
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Revenues for the year ended December 31, 1995 approximated $50.2 million
compared to approximately $51.2 million for the year ended December 31, 1994, a
decrease of 2.0% or approximately $1.0 million. The decrease is attributable to
an approximate $2 million decrease in book fair sales ($1.1 million in the
domestic market and $900,000 in the foreign market) with an offset of an
approximate $1 million increase in school and library sales.
Cost of goods sold was approximately $31.2 million for the year ended
December 31, 1995, compared to approximately $30.4 million for the year ended
December 31, 1994, an increase of 2.6% or approximately $800,000. As a
percentage of revenues from the children's literature business segment, cost of
goods sold increased to 62.1% in 1995 from 59.4% in 1994. The increase in
cost of goods sold is principally due to erosion in margin, change in product
mix and the related channel of product distribution.
Selling, general, and administrative expense was approximately $19.0
million for the year ended December 31, 1995, compared to approximately $18.0
million for the year ended December 31, 1994, an increase of 5.6% or
approximately $1.0 million. The increase in selling, general and administrative
expenses was due to reflecting a full year of expense relating to 1994 business
acquisitions as well as additional expenses relating to the operations of the
1995 business acquisitions and expenditures to further develop historical and
acquired channels of distribution. Additionally, the 1995 expense includes
approximately $400,000 of costs associated with the disposal and phasing out of
operations.
General corporate and administrative expense was approximately $1.1 million
for the year ended December 31, 1995, compared to $1.0 million for the year
ended December 31, 1994, an increase of 10% or $100,000.
Interest expense was approximately $1.8 million for the year ended December
31, 1995, compared to $1.3 million for the year ended December 31, 1994, an
increase of 38.5% or $500,000. During 1995, borrowings were at higher levels
than in 1994 and at higher interest rates. The average outstanding debt by
quarter in 1995 approximated $23.9 million compared to $23.3 million for 1994.
Additionally, the average interest rate for 1995 approximated 9.3% compared to
approximately 7.9% for 1994. The higher levels of borrowings resulted from
seasonal needs, business acquisitions and business expansion.
Depreciation and amortization expense was approximately $1.2 million for
the year ended December 31, 1995, compared to $1.1 million for the year ended
December 31, 1994, an increase of 9.1% or approximately $100,000. The increase
in depreciation and amortization expense in 1995 was primarily due to the
inclusion of a full year of expense in 1995 for acquisitions made in 1994,
which increased depreciable and amortizable assets. The increase is due also
to the addition of depreciable and amortizable assets associated with the 1995
business acquisitions.
The provision for income taxes reflects a reserve for previously recorded
deferred tax assets, as required by SFAS No 109.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash generated from
operating activities, amounts available under its existing credit facilities,
and cash generated from the disposal of the United Kingdom distribution
channel. The Company's primary uses of funds consist of financing inventory
and receivables with the funding of acquisitions as a secondary use. See
"Seasonality".
The following table presents a historical summary of the Company's cash
flows (in thousands):
1996 1995 1994
----------------------------------------
Cash provided by (used) in
operating activities $ (2,406) $ 3,269 $ (6,737)
Capital expenditures (733) (586) (854)
Net (payments) borrowings on
debt obligations (8,669) (2,420) 3,336
Payment for Company acquisitions -- (779) (2,720)
Proceeds from issuance of
Common Shares 299 275 7,206
Proceeds from sale of
distribution channel 11,288 -- --
Other 6 102 141
________ _________ _________
Increase(decrease) in cash $ (215) $ ( 139) $ 372
======== ======== ========
During early March 1996, the Company disposed of its foreign operations.
The $11,287,500 of proceeds were used to pay off the debt due Lloyds Bank, pay
down the revolving lines, and for working capital. Prior to December 31, 1996,
the Company had one credit facility in the amount of $16 million, $11.5 million
($2,049,185 unused at December 31, 1996) of which was earmarked for the use by
Pages Book Fairs, and $4.5 million ($830,254 unused at December 31, 1996) of
which was earmarked for the use of CA Short Company. On December 31, 1996, in
conjunction with the spin-off of CA Short Company, Pages Book Fairs entered
into a new credit facility (guaranteed by the Company) in the aggregate amount
of $11.5 million and CA Short Company entered into a separate credit facility
in the aggregate amount of $4.5 million. The Pages Book Fairs credit facility
bears interest at the lenders prime rate plus 1% and is due on June 30, 1997.
Due to the seasonality of the Company's book fairs, cash flow from the
Spring season fairs does not become significant until mid-March. This,
combined with the payment of the Gruner + Jahr settlement in March, has
required the Company to extend payments to some of its vendors beyond normal
terms. The Company anticipates vendor payments will be back within normal
terms by late April 1997.
The Company anticipates that operating cash flows during the next twelve
months, coupled with the revolving credit facility, will cover operating
expenditures and meet the current maturities on long-term obligations. The
Company does not anticipate any material expenditures for property, plant and
equipment during the next twelve months.
During the second half of 1997 and early 1998, the Company plans to
increase sales of several of its product lines, and introduce a new book fair
concept. To do so will require the Company to increase its inventory
investment to support the sales increases. The Company anticipates raising
additional capital during the second and third quarters of 1997 to fund this
growth. The exact form of this has not been decided, however, the Company
anticipates that it will conduct a private placement of equity, or subordinated
debentures, which may have warrants attached. If additional funds are not
raised, the Company will delay the sales increases and new concept
introduction, and will control its growth and expenses at a level funded by
internal cash flows and the revolving credit facility. The Company's credit
facility is due and payable in full on June 30, 1997. Although the lender has
not issued a commitment to do so, the Company believes that its relationship
with its lender is favorable and that the credit facility will be renewed when
due.
During 1995, Gruner + Jahr Printing and Publishing Company ("G&J") filed an
action against the Company seeking in excess of $900,000 in damages which had
been stayed by the court pending the resolution of an action filed by the
Company in federal court against G&J seeking compensation arising out the
Company's purchase from G&J of the Read Aloud Book Club. In March 1997, the
Company reached a settlement with G&J on both actions. As a result of the
settlement, the Company made a payment to G&J of $300,000. A provision for
this loss contingency was included in the 1995 financial statements.
Seasonality
The children's literature business is highly seasonal and correlated
closely to the school year. As a result, most of the income of PBF is
generated between the months of September and May. Due to the seasonality, the
Company experiences negative cash flow during the summer months. Further, in
order to build its inventory for its Fall sales, the Company's borrowings
increase over the summer and generally peak during late Fall. Inventory and
receivables reach peak levels during the months of October through December.
Inflation
Although the Company cannot determine the precise effects of inflation,
inflation has an influence on the cost of the Company's products and services,
supplies, salaries, and benefits. The Company attempts to minimize or offset
the effects of inflation through increased sales volumes and sales prices,
improved productivity, alternative sourcing of products and supplies, and
reduction of other costs. The Company generally has been able to offset the
impact of price increases from suppliers by increases in the selling prices of
the Company's products and services.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------------------------------------------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
- ----------------------------------------------------------
Directors and Executive Officers
The following table sets forth certain information concerning the directors
and executive officers of the Company.
Director or
Executive
Name Age Position (1) Officer Since
- ------------------- ------- ------------------------ -------------
S. Robert Davis (2) 58 Chairman of the Board, 1990
President, Assistant
Secretary, and Director
Charles R. Davis (2) 35 Executive Vice President, 1983
Secretary, and Director
Randall J. Asmo 32 Vice President 1992
Juan F. Sotos, M.D. 69 Director 1992
Robert J. Tierney 49 Director 1992
William L. Clarke 60 Senior Vice President; 1996
Chief Executive Officer
and President of Pages
Book Fairs
Steven L. Canan 49 Chief Financial Officer 1997
and Treasurer
(1) All positions are those held with the Company, except as otherwise
indicated.
(2) S. Robert Davis is the father of Charles R. Davis.
Executive officers are elected by the Board of Directors and serve until their
successors are duly elected and qualify, subject to earlier removal by the
shareholders. Directors are elected at the annual meeting of shareholders to
serve for one year and until their respective successors are duly elected and
qualify, or until their earlier resignation, removal from office, or death.
The remaining directors may fill any vacancy in the Board of Directors for an
unexpired term.
Business Experience of Directors and Executive Officers
S. Robert Davis was elected a director and Chairman of the Board in March,
1990, and Assistant Secretary in May, 1992. Prior to his election to the Board
of Directors, he served as Assistant to the President from January, 1988, to
March, 1990, on a part-time basis. Additionally, during the past five years,
Mr. Davis has operated several private businesses involving the developing,
sale and/or leasing of real estate but devotes substantially all of his
business time to the Company. Mr. Davis is also a director of CA Short
Company, a company with a class of securities registered pursuant to section 12
of the Securities Exchange Act of 1934.
Charles R. Davis became a director of the Company in December, 1983. He was
elected as Vice President of the Company in April, 1986, and served as
Secretary and Assistant Treasurer of the Company from January, 1984, until
April, 1986. In September, 1989, Mr. Davis was again elected Secretary of the
Company and, in July, 1991, he was elected Executive Vice President of the
Company. In September, 1992, Mr. Davis was elected President of CA Short
Company, a subsidiary of the Company that was spun-off to shareholders on
December 31, 1996. Additionally, during the past five years, Mr. Davis has
operated several private businesses involving the developing, sale and/or
leasing of real estate but devotes substantially all of his business time to
the Company. Mr. Davis is also a director of CA Short Company, a company with
a class of securities registered pursuant to section 12 of the Securities
Exchange Act of 1934.
William L. Clarke was elected Senior Vice President in May, 1996. Shortly
before this election, he joined Pages Book Fairs, Inc. as President and Chief
Executive Officer. Prior to that time, he was president of Clarke &
Associates, a management consulting firm. Mr. Clarke's background also
includes twelve years as a partner of Deloitte & Touche LLP and Ernst & Young
LLP in their national retail practices.
Steven L. Canan was elected Chief Financial Officer and Treasurer in
February, 1997. Previously, Mr. Canan served as Vice President of
Administration for Pages Book Fairs, Inc. Mr. Canan joined Pages Book Fairs in
1988 as its Controller and has held several positions within Pages Book Fairs
since that time. Prior to joining Pages Book Fairs, Mr. Canan served in
financial positions with Xerox Education Publications, manufacturing companies
and Arthur Andersen & Co.
Randall J. Asmo was elected Vice President in September, 1992. Prior to
that time, he served as Assistant to the President from February, 1990 to
September, 1992. Additionally, since October, 1987, Mr. Asmo has served as Vice
President of Mid-States Development Corp., a privately-held real estate
development and leasing company, as Vice President of American Home Building
Corp., a privately-held real estate development company, and an officer of
several other small business enterprises.
Juan F. Sotos, M.D. was elected as a director on December 22, 1992. Dr.
Sotos has been a Professor of Pediatrics at The Ohio State University College
of Medicine since 1962 and also serves as Chief of Endocrinology and Metabolism
at Children's Hospital in Columbus, Ohio.
Robert J. Tierney was elected as a director on October 21, 1992. Dr.
Tierney currently serves as the Acting Chairperson of the Ohio State University
Department of Education Theory and Practice. Dr. Tierney is also active in
education research and has served as a Professor at The Ohio State University
since 1984.
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than 10% of the
Company's Common Stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers, Inc. Executive officers,
directors and greater than 10% beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors, and greater than 10% beneficial owners were
complied with.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
Each director who is not an officer of the Company receives a fee of $1,100
for attendance at each Board meeting, a fee of $550 for attendance at each
telephonic Board meeting, and a fee of $500 for attendance at each meeting of a
Board committee of which he is a member. Directors who are also officers of the
Company receive no additional compensation for their services as directors.
The following table shows, for the fiscal years ended December 31, 1996,
1995, and 1994, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid or accrued for those years, to the
Company's President and each of its four other most highly paid executive
officers (the "Named Executive Officers") in the principal capacity in which
they served:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-term Compensation
------------------------------------------------------- -------------------------
Number of Number
Name and Other Annual Options of SAR's
Principal Position Year Salary Bonus Compensation Awarded(1) Awarded(7)
- ----------------------------- -------- -------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
S. Robert Davis, 12/31/96 $167,704 $0 $138,086(2) 0 244,078
Chairman and President 12/31/95 $183,180 $0 $209,368(2) 0 0
12/31/94 $185,000 $0 $0 0 0
Richard A. Stimmel,(3) 12/31/96 $ 41,985 $0 $225,000(3) 0 0
President 12/31/95 $158,180 $0 $349,719(2) 0 0
12/31/94 $160,000 $0 $0 0 0
Charles R. Davis, 12/31/96 $132,315 $0 $134,040(2) 0 122,039
Executive Vice President 12/31/95 $147,896 $0 $103,389(2) 0 0
12/31/94 $140,000 $0 $0 0 0
William L. Clarke(4) 12/31/96 $88,346 $0 $166(6) 100,000 51,867
Senior Vice President
Tamara Zeph(5) 12/31/96 $69,908 $0 $198(6) 25,000 0
Chief Financial Officer 12/31/95 $66,780 $0 $160(6) 6,300 0
12/31/94 $57,493 $0 $63(6) 0 0
Steven L. Canan 12/31/96 $87,903 $0 $216(6) 40,000 15,255
Vice President 12/31/95 $77,235 $0 $198(6) 2,500 0
12/31/94 $77,214 $0 $95(6) 0 0
Randall J. Amso 12/31/96 $59,090 $0 $7,891(2) 35,000 30,510
Vice President 12/31/95 $59,090 $0 $0 10,500 0
12/31/94 $27,185 $0 $0 0 0
</TABLE>
(1) Stock options previously granted to the Named Executive Officers, by their
terms, automatically adjust to reflect certain changes in the outstanding
Common Shares of the Company, including stock dividends.
(2) Represents the difference between the fair market value of the Common
Shares received and the stock option exercise price on the date of exercise.
(3) Mr. Stimmel left the Company in April of 1996. Other annual compensation
is cash paid per a severance agreement dated April 17, 1996.
(4) Mr. Clarke was elected Senior Vice President of the Company in May of 1996.
(5) Ms. Zeph left the Company in November of 1996.
(6) Represents life insurance premiums paid for term life insurance provided as
part of the health insurance plan provided to employees of PBF generally.
(7) Stock Appreciation Rights awarded under executive incentive compensation
plan dated November 8, 1996.
Compensation Committee Interlocks and Insider Participation
Juan F. Sotos, M.D. and Robert J. Tierney served as the Executive
Compensation Committee during the last fiscal year. Neither Dr. Tierney nor Dr.
Sotos serve or have served as an employee of the Company or any of its
subsidiaries. Richard A. Stimmel, previously the Company's President, served
until his resignation on the Executive Compensation Committee along with Drs.
Tierney and Sotos during the last fiscal year. None of such persons serves on
the Board of Directors of any other public company.
Executive Compensation Committee's Report on Executive Compensation
The Executive Compensation Committee (the "Committee") has designed its
executive compensation policies to provide incentives to its executives to
focus on both current and long-term Company goals, with an overriding emphasis
on the ultimate objective of enhancing stockholder value. The Committee has
followed an executive compensation program, comprised of cash and equity-based
incentives, which recognizes individual achievement and encourages executive
loyalty and initiative. The Committee considers equity ownership to be an
important factor in providing executives with a closer orientation to the
Company and its stockholders. Accordingly, the Committee encourages equity
ownership by its executives through the grant of options to purchase Common
Stock. Similarly, the Committee believes the Company's Employee Stock Purchase
Plan encourages employees to build a meaningful stake in the Company, further
aligning their interests with those of the stockholders.
The Company believes that providing attractive compensation opportunities
is necessary to assist the Company in attracting and retaining competent and
experienced executives. Base salaries for the Company's executives, and the
executives employed by the Company's subsidiaries, have historically been
established on a case-by-case basis by the Board of Directors, based upon
current market practices and the executive's level of responsibility, prior
experience, breadth of knowledge, and salary requirements. Since its
appointment in March, 1993, the Committee has carried forward those policies.
The base salaries of executive officers have historically been reviewed
annually by the Board of Directors and are now reviewed annually by the
Committee. Adjustments to such base salaries have been made considering: (a)
historical compensation levels; (b) the overall competitive environment for
executives; and (c) the level of compensation necessary to attract and retain
executive talent. Stock options have historically been awarded upon hiring,
promotion, or based upon merit considerations. As the value of a stock option
is directly related to the market price of the Company's Common Stock, the
Board of Directors believes the grant of stock options to executives encourages
executives to take a view toward the long-term performance of the Company.
Other benefits offered to executives are generally the same as those offered to
the Company's other employees.
The Committee utilizes the same policies and considerations enumerated
above with respect to compensation decisions regarding the Chairman and
President, S. Robert Davis. Mr. Davis' 1996 base salary was determined
primarily by reference to historical compensation, scope of responsibility,
and the Company's desire to retain his services. The Committee believes its
compensation policies with respect to its executive officers promote the
interests of the Company and its Stockholders through current motivation of the
executive officers coupled with an emphasis on the Company's long-term success.
Executive Compensation Committee
Juan F. Sotos, M.D.
Robert J. Tierney
Option/SAR Grants in Past Fiscal Year
The following table sets forth information with respect to options and
stock appreciation rights granted to the Named Executive Officers during the
last fiscal year:
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/SARs
Underlying Granted to
Name and Principal Options/SARs Employees in Exercise or Expiration Grant Date
Position Granted Fiscal Year Base Price Date Present Value
- ------------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
S. Robert Davis 244,078 30.3% $2.13 November 1999 $226,993
Chairman and
President
Charles R. Davis 122,039 15.2% $2.13 November 1999 $113,496
Executive Vice
President
Tamara Zeph 25,000 3.1% $2.38 May 2002 $ 17,000
Chief Financial
Officer
Randall J. Asmo 30,510 3.8% $2.13 November 1999 $ 28,375
Vice President 20,000 2.5% $1.75 July 2002 $ 26,200
15,000 1.9% $2.38 May 2002 $ 10,200
William L. Clarke 51,867 6.4% $2.13 November 1999 $ 48,236
Senior Vice President 25,000 3.1% $1.75 July 2002 $ 32,750
75,000 9.3% $2.38 May 2002 $ 51,000
Steven Canan 15,255 1.9% $2.13 November 1999 $ 14,187
Vice President 15,000 1.9% $2.38 May 2002 $ 10,200
25,000 3.1% $2.125 November 2002 $ 23,375
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Option/SAR Values
The following table sets forth certain information with respect to options
exercised during fiscal 1996 by the Named Executive Officers and with respect
to unexercised options and SARs held by such person at the end of fiscal 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money Options/
Acquired Options/SARs at Year End SARs at Year End(1)
on Value ----------------------------- ---------------------------
Name Exercise(#) Realized Exersizable Unexersizable Exercisable Unexersizable
- ---------------------- --------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William L. Clarke - - 151,867 - $131,986 -
S. Robert Davis 419,122 $138,086 287,828 - $226,993 -
Charles R. Davis 491,365 $134,040 165,789 - $113,496 -
Randall J. Asmo 15,625 $ 7,891 88,510 - $ 69,560 -
Steven L. Canan - - 64,005 - $ 48,807 -
</TABLE>
(1) The value of unexercised in-the-money options at year end represents the
difference between the closing sale price on the NASDAQ National Market of the
Common Stock on December 31, 1996, and the exercise price of each option
multiplied by the number of shares covered by the option.
Performance Graph
The following line graph compares the yearly change in the Company's total
return to its Stockholders as compared to total return of the Center for
Research in Securities Prices Total Return Index for the NASDAQ Stock Market
(U.S.) and the Standard & Poors Publishing Group, assuming a common starting
point of 100 for the five-year period from December 31, 1991 to December 31,
1996. Total stockholder return for the Company, as well as for the Indexes,
was determined by adding (a) the cumulative amount of dividends for a given
year (assuming dividend reinvestment), and (b) the difference between the share
price at the beginning and at the end of the year, the sum of which is then
divided by the share price at the beginning of such year.
<TABLE>
<CAPTION>
Year Ending Pages, Inc. S&P Publishing NASDAQ
500 Index Composite
- ---------------- ------------ ------------- ------------
<S> <C> <C> <C>
Dec 31, 1990 100 100 100
Dec 31, 1991 147.37 123.14 157.26
Dec 31, 1992 326.32 143.80 181.97
Dec 31, 1993 565.79 182.57 208.03
Dec 31, 1994 236.84 175.89 202.97
Dec 31, 1995 85.53 226.67 285.26
Dec 31, 1996 171.05 229.64 349.88
</TABLE>
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ----------------------------------------------------------------------
The following table sets forth certain information as of March 13, 1997,
with respect to the beneficial ownership of shares of the Company's common
stock by each person known to the Company to be the beneficial owner of more
than 5% of the Company's outstanding common stock, by each director, by the
President and each of the Company's four other most highly paid executive
officers serving as of December 31, 1996, and by all directors and executive
officers of the Company as a group:
Amount and Nature
of Beneficial Percent
Name and Address Ownership(1) of Class(2)
- ------------------------------ ------------ -----------
S. Robert Davis 1,352,262(3) 20.61%
801 94th Avenue North
St. Petersburg, Florida 33702
William L. Clarke 118,180(4) 1.80%
801 94th Avenue North
St. Petersburg, Florida 33702
Charles R. Davis 698,906(5) 10.65%
801 94th Avenue North
St. Petersburg, Florida 33702
Randall J. Asmo 90,276(6) 1.38%
5720 Avery Road
Dublin, Ohio 43016
Juan F. Sotos, M.D. 69,390(7) 1.06%
4400 Squirrel Bend
Columbus, Ohio 43220
Robert J. Tierney 14,338(8) 0.22%
4805 Olentangy Blvd.
Columbus, Ohio 43214
Steven L. Canan 56,445(9) 0.85%
801 94th Avenue North
St. Petersburg, Florida 33702
------------ ---------
All executive officers and
directors as a group (7 persons) 2,399,797(10) 36.57%
============ =========
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on 6,562,389 shares of common stock outstanding as of March 13,
1997, plus, as to each person listed, that portion of the 606,498 unissued
shares of common stock subject to outstanding options and warrants which may be
exercised by such person, and as to all officers and directors as a group,
unissued shares of common stock as to which the members of such group have the
right to acquire beneficial ownership upon the exercise of stock options.
(3) Includes 25,100 shares owned by Mr. Davis' wife as to which Mr. Davis
disclaims beneficial ownership and includes 50,653 unissued Common Shares as to
which Mr. Davis has the right to acquire beneficial ownership upon the exercise
of stock options within the next 60 days.
(4) Includes 115,780 unissued Common Shares as to which Mr. Clarke has the
right to acquire beneficial ownership upon the exercise of stock options within
the next 60 days.
(5) Includes 5,781 shares owned by Mr. Davis' wife and 4,474 shares owned by
Mr. Davis' children as to which Mr. Davis disclaims beneficial ownership and
includes 50,653 unissued Common Shares as to which Mr. Davis has the right to
acquire beneficial ownership upon the exercise of stock options within the next
60 days.
(6) Includes 67,151 unissued common shares as to which Mr. Asmo has the right
to acquire beneficial ownership upon the exercise of stock options within the
next 60 days.
(7) Includes 11,578 unissued common shares as to which Dr. Sotos, a Director of
the Company, has the right to acquire beneficial ownership upon the exercise of
stock options within the next 60 days.
(8) Includes 11,578 unissued common shares as to which Dr. Tierney, a Director
of the Company, has the right to acquire beneficial ownership upon the exercise
of stock options within the next 60 days.
(9) Includes 56,441 unissued common shares as to which Mr. Canan has the right
to acquire beneficial ownership upon the exercise of stock options within the
next 60 days.
(10) The number of shares of common stock beneficially owned by all officers
and directors as a group includes 363,834 unissued shares of common stock as to
which they have the right to acquire beneficial ownership upon the exercise of
stock options within the next 60 days, 10,255 shares of common stock owned by
Mr. Charles Davis' wife and children as to which Mr. Davis disclaims any
beneficial ownership, and 25,100 shares of common stock owned by Mrs. S. Robert
Davis as to which Mr. Davis disclaims any beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
Effective on the close of business on December 31, 1996, the Company
completed a tax-free spin-off of the common stock of the Company's wholly-owned
subsidiary, CA Short Company ("CAS") through a distribution to the stockholders
of Pages, Inc. of one and one-half shares of CAS common stock for every
ten shares of Pages common stock outstanding on the record date. S. Robert
Davis and Charles R. Davis are officers and Directors of CAS. For purposes of
governing certain of the ongoing relationships between the Company and CAS
after the spin-off and to provide for an orderly transition to the status of
the two separate companies, the Company and CAS entered into a Distribution
Agreement, a copy of which is included as an Exhibit to this annual report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. Financial Statements:
See Index to Consolidated Financial Statements and
Financial Statement Schedule following "Signatures."
2. Financial Statement Schedule:
See Index to Consolidated Financial Statements and
Financial Statement Schedule following "Signatures."
3. Exhibits:
See the Exhibit Index
(b) Reports on Form 8-K filed by the Registrant during the quarter ended
December 31, 1996.
The Company filed a report on Form 8-K dated October 31, 1996 under Item 5
describing the settlement of the Internal Revenue Service Notices of
Deficiencies for $750,000 plus interest of approximately $750,000, the
resignation of Tamara L. Zeph, Treasurer and CFO and the appointment of Randall
J. Asmo, VP of the Company, as interim CFO effective immediately while
searching for a new Treasurer and CFO.
The Company filed a report on Form 8-K dated November 20, 1996 under Item
5 describing the filing of Form 10 under section 12(g) of Securities Exchange
Act of 1934 for the spin-off of CA Short Company, a wholly-owned subsidiary, to
the Company's stockholders and the financial results for the Third Quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Pages, INC.
(Registrant)
Dated: March 27, 1997 By:/s/ Steven L. Canan
------------------------------------ -----------------------------
Steven L. Canan
Principal Accounting and
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Dated: March 27, 1997 By:/s/ S. Robert Davis
------------------------------------- --------------------------
S. Robert Davis
Chairman of the Board, and
Director
Dated: March 27, 1997 By: /s/ Charles R. Davis
------------------------------------- -----------------------------
Charles R. Davis
Executive Vice President, and
Director
Pages, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report
Consolidated statements of operations
Consolidated balance sheets
Consolidated statements of cash flows
Consolidated statements of stockholders' equity
Notes to the consolidated financial statements
Schedule 11--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Pages, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheets of Pages, Inc. and
subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period then ended. Our audits also
include the information in the consolidated financial statement schedule for
the years ended December 31, 1996, 1995 and 1994, listed in the index at Item
14(d). These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and consolidated financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the consolidated
financial statement schedule as of and for the years ended December 31, 1996,
1995 and 1994, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 8 to the financial statements, effective January 1, 1996,
the Company changed its method of accounting for the recognition of deferred
revenue for prepaid safety award programs.
/s/ Deloitte & Touche LLP
Tampa, Florida
March 21, 1997
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues $29,886,897 $50,200,870 $51,178,389
----------- ----------- -----------
Costs and Expenses:
Cost of goods sold 17,645,575 31,196,346 30,398,127
Selling, general and
administrative 13,179,673 20,106,041 19,010,016
Interest 998,794 1,801,391 1,274,521
Depreciation and amortization 700,977 1,182,804 1,125,451
Foreign exchange -- 12,245 (69,804)
Gain on sale of distribution
channel (3,255,337) -- --
----------- ----------- -----------
29,269,682 54,298,827 51,738,311
----------- ----------- -----------
Income(loss) from continuing
operations before income taxes 617,215 (4,097,957) (559,922)
(Provision) benefit for income
taxes -- (2,119,400) 168,700
----------- ----------- -----------
Income(loss) from continuing
operations 617,215 (6,217,357) (391,222)
Discontinued operations:
Loss from operations (83,181) (2,352,362) (81,210)
Loss on disposal -- (650,000) --
Cumulative effect of change in
accounting principle 994,664 -- --
----------- ----------- -----------
NET INCOME (LOSS) $ 1,528,698 $(9,219,719) $ (472,432)
=========== =========== ===========
Income(loss) per common share:
Income(loss) from continuing
operations $ 0.10 $ (1.26) $ (0.10)
Discontinued operations before
cumulative effect of change
in accounting principle (0.01) (0.61) (0.02)
Cumulative effect of change in
accounting principle 0.17 0.00 0.00
----------- ----------- -----------
Income(loss) per common share $ 0.26 $ (1.87) $ (0.12)
=========== =========== ===========
Weighted average common and
common equivalent shares 5,857,000 4,930,000 4,055,000
=========== =========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
----------- ----------
Current Assets:
Cash $ 317,911 $ 532,855
Accounts receivable, net of allowance for
doubtful accounts of $316,000 and
$457,000, respectively 6,896,366 9,931,548
Inventory 19,358,374 27,840,561
Prepaid expenses 1,541,964 2,229,829
----------- ----------
Total current assets 28,114,615 40,534,793
----------- ----------
Buildings and equipment:
Buildings 4,264,259 4,256,881
Equipment 4,045,248 5,810,714
----------- ----------
8,309,507 10,067,595
Less accumulated depreciation (2,448,860) (3,442,661)
----------- ----------
5,860,647 6,624,934
Land 631,468 631,468
----------- ----------
Total property and equipment, net 6,492,115 7,256,402
Other assets:
Cost in excess of net assets acquired, net
of accumulated amortization of $644,897
and $479,075, respectively 5,828,757 5,994,579
Other 884,752 1,063,701
----------- ----------
6,713,509 7,058,280
----------- ----------
TOTAL ASSETS $41,320,239 $54,849,475
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- ----------
Current Liabilities:
Accounts payable $ 3,388,341 $ 8,394,054
Short-term debt obligations 13,120,561 5,478,407
Accrued liabilities 1,560,637 2,417,940
Accrued tax liabilities 2,783,836 3,216,088
Deferred revenue 3,068,320 4,983,304
Current portion of on long-term debt
obligations 158,160 157,145
Current installments capitalized lease
obligations 100,123 168,619
----------- ----------
Total current liabilities 24,179,978 24,815,557
----------- ----------
Long-term debt and capital lease obligations 1,328,986 17,373,403
Deferred revenue 2,935,626 1,986,916
----------- ----------
Total liabilities 28,444,590 44,175,876
Commitments and contingencies
Stockholders' Equity
Preferred shares:$.01 par value; authorized
300,000 shares; none issued and outstanding
Common shares: $.01 par value; authorized
20,000,000 shares; issued 6,497,268 shares
and 5,474,556 shares, respectively 64,973 54,746
Capital in excess of stated value 23,951,788 22,760,194
Notes receivable from stock sales (903,123) --
Foreign currency translation, net of tax -- (374,654)
Accumulated deficit (9,996,866) (11,525,564)
----------- ----------
13,116,772 10,914,722
Less 298,713 shares of common stock in
treasury, at cost (241,123) (241,123)
----------- ----------
Total stockholders' equity 12,875,649 10,673,599
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,320,239 $54,849,475
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
<TABLE>
<CAPTION>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,528,698 $(9,219,719) $ (472,432)
----------- ----------- -----------
Adjustments to reconcile net income(loss) to cash
provided by (used in) operating activities:
Depreciation and amortization 700,977 1,182,804 1,125,451
Deferred income taxes -- 2,119,400 (168,700)
Gain on sale of distribution channel (3,255,337) -- --
Foreign exchange -- 12,245 (69,804)
Loss on sale of property and equipment -- 15,909 194
Bad debt expense -- 146,000 148,230
Write-off of intangible assets -- 349,753 --
Changes in assets and liabilities net of effects of
disposition and acquisitions by children's literature
segment:
(Increase) decrease in assets:
Accounts receivable 2,308,035 4,238,330 (1,941,902)
Inventory 2,261,047 5,258,045 (6,846,635)
Prepaid expenses and other assets 573,470 1,572,778 (727,944)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (5,556,433) (2,887,614) 686,620
Deferred revenue (966,274) 480,734 1,530,046
----------- ----------- -----------
Total adjustments (3,934,515) 12,488,384 (6,264,444)
----------- ----------- -----------
Net cash provided by (used in) operating activities (2,405,817) 3,268,665 (6,736,876)
----------- ----------- -----------
Cash flows from investing activities:
Payments for purchases of property and equipment (732,786) (585,678) (854,396)
Proceeds from sale of property and equipment 17,403 102,129 266,282
Proceeds from disposition of distribution channel 11,287,500 -- --
Payments for acquisitions by children's literature -- (779,346) (2,720,000)
segment, net of cash and debt acquired and stock
issued
----------- ----------- -----------
Cash provided by (used in) investing activities 10,572,117 (1,262,895) (3,308,114)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net of expense 298,698 275,013 7,205,539
Proceeds from debt and lease obligations 55,942,408 55,890,001 58,282,852
Principal payments on debt and lease obligations (64,611,080) (58,310,350) (54,946,414)
----------- ----------- -----------
Cash provided by (used in) financing activities (8,369,974) (2,145,336) 10,541,977
----------- ----------- -----------
Effect of exchange rate changes on cash (11,270) 819 (125,102)
----------- ----------- -----------
Increase (decrease) in cash (214,944) (138,747) 371,885
Cash, beginning of year 532,855 671,602 299,717
----------- ----------- -----------
Cash, end of year $ 317,911 $ 532,855 $ 671,602
=========== =========== ============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<TABLE>
<CAPTION>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
Notes
Capital In Receivable Foreign
Common Excess of from Currency Accumulated Treasury
Shares Stock Par Value Stock Translation Deficit Stock Total
Sales
--------- ------- ----------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 3,829,546 $38,295 $15,296,093 $ -- $ (445,540) $(1,833,413) $(241,123) $12,814,312
Year ended December 31, 1994:
Exercise of stock options 375 4 296 300
Issuance of common stock through 1,258,000 12,580 7,192,659 7,205,239
public offering, net of expenses
of $671,099
--------- ------- ----------- ---------- ---------- ----------- --------- -----------
Foreign currency translation 45,245 45,245
Net loss (472,432) (472,432)
--------- ------- ----------- ---------- ---------- ----------- --------- -----------
Balance December 31, 1994 5,087,921 50,879 22,489,048 -- (400,295) (2,305,845) (241,123) 19,592,664
Year ended December 31, 1995:
Exercise of stock options 313,923 3,140 271,873 275,013
Other 72,712 727 (727) --
Foreign currency translation 25,641 25,641
Net loss (9,219,719) (9,219,719)
--------- ------- ----------- ---------- ---------- ----------- --------- -----------
Balance December 31, 1995 5,474,556 54,746 22,760,194 -- (374,654) (11,525,564) (241,123) 10,673,599
Year ended December 31, 1996:
Exercise of stock options 1,022,712 10,227 1,191,594 (903,123) 298,698
Foreign currency translation 374,654 374,654
Net income 1,528,698 1,528,698
--------- ------- ----------- ---------- ---------- ----------- --------- -----------
Balance December 31, 1996 6,497,268 $64,973 $23,951,788 $(903,123) $ -- $(9,996,866) $(241,123) $12,875,649
========= ====== ========== ======== ========= =========== ========= ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
PAGES, INC. AND SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Pages, Inc.
and its wholly-owned subsidiaries after elimination of all material
intercompany accounts and transactions, collectively referred to as "the
Company." The Company's children's literature business segment is operated
principally through Pages Book Fairs, Inc. and related entities ("PBF") and the
Company's discontinued incentive/recognition awards business segment was
operated through CA Short Company ("CAS"). The Company changed its
children's literature business name from School Book Fairs, Inc. to Pages Book
Fairs, Inc. in May 1996. The Company changed its discontinued
incentive/recognition awards business name from Clyde A. Short Company to
CA Short Company in November 1996.
Use of Management Estimates
- ---------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain 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. The reported amounts of revenues and expenses during the reporting
period may be affected by the estimates and assumptions management is required
to make. Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Revenues from the sale of children's literature and incentive awards are
recognized upon shipment and delivery of the related merchandise. Revenues
from services are insignificant. The Company provides for estimated returns
from the sale of children's literature when those products are shipped.
Returns from the sales of incentive awards and from services are insignificant.
Effective January 1, 1996, CAS adopted a change in accounting principle
relating to deferred revenues and prepaid expenses (See Note 8).
Accounts Receivable
- -------------------
The Company mainly sells its products to schools, organizations, public
libraries, commercial and industrial customers across the United States. The
accounts receivable are well diversified and are expected to be repaid in the
normal course of business.
Inventory
- ---------
Inventory consists of finished goods which are comprised of books and
general retail merchandise. Inventory is valued at the lower of cost or market
using the first-in, first-out (FIFO) method. Internal and external production
costs (which include costs for design, art, editorial services and color
separations in the publishing of finished goods inventory) are capitalized and
expensed over the respective lives of the titles published by the Company.
Prepaid Expenses
- ----------------
Prepaid expenses at December 31, 1996 and 1995, include approximately
$1,500,000 and $1,600,000, respectively, of prepaid selling costs that include
employee costs and incentive payments to distributors and salespeople for the
scheduling of future sales events and sales of incentive and recognition awards
programs. Such costs are directly attributable to obtaining specific future
commitments to hold a selling event and are expensed in the year the related
sales occur. Effective January 1, 1996, CAS adopted a change in accounting
principle relating to deferred revenues and prepaid expenses (See Note 8).
Buildings and Equipment
- ------------------------
Buildings and equipment are recorded at cost and depreciated over their
estimated useful life on the straight-line method. Estimated useful lives
range from three to thirty-one years. Major repairs and betterments are
capitalized; minor repairs are expensed as incurred. Depreciation expense for
the years ended December 31, 1996, 1995, and 1994, totaled $491,087, $958,160,
and $936,400, respectively.
Cost In Excess of Net Assets Acquired and Other Assets
- ------------------------------------------------------
Cost in excess of net assets acquired are amortized on a straight line
basis over 40 years. Management periodically evaluates its accounting for cost
in excess of net assets acquired by considering such factors as historical
performance, current operating results and future operating income. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectation of nondiscounted cash flows and operating income for each
subsidiary having a material goodwill balance. Based upon its most recent
analysis, the Company believes that no material impairment of goodwill exists
at December 31, 1996. Based on this periodic review, management believes that
the carrying value of cost in excess of net assets acquired is reasonable and
the amortization period is appropriate. Amortization expense on cost in excess
of net assets acquired for the years ended December 31, 1996, 1995 and 1994 and
totaled $131,658, $132,566, and $89,037, respectively.
Other assets include payments for covenants not to compete, cash surrender
value of life insurance and deferred loan costs. The covenants not to compete
and deferred loan costs are amortized using the straight line method over the
terms of the related contracts. Amortization expense totaled $78,232, $92,078,
and $100,014, for the years ended December 31, 1996, 1995, and 1994,
respectively.
Deferred Revenue
- ----------------
Deferred revenue represents customer prepayments for goods and services
that the Company will deliver in the future. Upon delivery of such goods and
services, deferred revenues are recognized as revenues. Effective January 1,
1996, CAS adopted a change in accounting principle relating to deferred
revenues and prepaid expenses (See Note 8).
Stock-Based Compensation
- ------------------------
The Company has stock option plans (the "Plans") which reserves shares of
common stock for issuance to executives, key employees, and Directors. The
Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date for
awards in 1996 been consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the
proforma amounts indicated below:
Net earnings - as reported $ 1,528,698
Net earnings - proforma $ 1,058,000
Earnings per share - as reported $ .26
Earnings per share - proforma $ .18
The effect on compensation expense, if determined under the provisions of
SFAS No. 123, based on the fair value at the grant date consistent with those
provisions is not material to the net loss, or net loss per common share for
1995.
The assumption regarding all outstanding stock options issued to executives and
key employees as of December 31, 1996 was that 100% of such options vested in
1996, which occurred by Board resolution on October 8, 1996 as a result of the
planned spin-off of CAS (See Note 8).
Normal vesting of options under the Plans is 20% per year over five years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1996: expected volatility of 6.62%, risk-
free interest rate ranging from 6.38% to 6.46%, and expected lives of 5 years.
Long-Lived Assets
- -----------------
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets. There was no material effect on the
financial statements from the adoption because the Company's prior impairment
recognition practice was consistent with the major provisions of the Statement.
Under provisions of the Statement, impairment losses are recognized when
expected future cash flows are less than the assets' carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of property and equipment and intangibles in relation to the
operating performance and future discounted cash flows of the underlying
business. The Company adjusts the net book value of the underlying assets if
the sum of expected future cash flows is less than book value.
Per Share Data
- --------------
Per share amounts have been computed based on the weighted average number
of common and common share equivalents outstanding during the period. Common
stock equivalents are not included in the computation for 1995 and 1994 since
the effect of their inclusion would be antidilutive.
Reclassifications
- -----------------
Certain reclassifications to the 1995 and 1994 consolidated financial
statements have been made to conform with the current year's presentation.
2. STOCK OPTIONS, WARRANTS, AND STOCK APPRECIATION RIGHTS
- ----------------------------------------------------------
At December 31, 1996, 360,745 common shares of the Company were reserved
for issuance under the incentive stock option plan, 158,125 shares were
reserved under non-statutory stock options, and 5,000 shares were reserved
under outstanding warrants.
Information for the stock options, warrants, and Stock Appreciation Rights
is summarized as follows:
December 31, December 31, December 31,
1996 1995 1994
--------- --------- ---------
Incentive Stock Option Plans
- ----------------------------
Outstanding, beginning of year 58,125 122,450 139,825
Granted 459,500 55,625 None
Canceled (60,280) (119,950) (17,000)
Exercised (96,600) -- (375)
--------- --------- ---------
Outstanding, end of year 360,745 58,125 122,450
========= ========= =========
Exercise price range of
options outstanding $1.75 $2.57 $10.88
to to
$10.88 $10.88
Exercise price range of
options exercised during
the year $1.875 - $0.80
to
$2.69
Non-Statutory Stock Options
- ----------------------------
Outstanding, beginning of year 2,045,016 2,666,821 2,639,132
Granted 20,000 92,308 66,064
Canceled (980,779) (400,190) (38,375)
Exercised (926,112) (313,923) --
--------- --------- ---------
Outstanding, end of year 158,125 2,045,016 2,666,821
========= ========= =========
Exercise price range of
options outstanding $2.125 $0.80 $0.80
to to to
$7.20 $11.75 $11.75
Exercise price range of
options exercised during
the year $0.80 $0.80 None
to to
$1.20 $0.88
The Incentive Stock Options are exercisable at the fair market value on
the date of grant, and were granted from shares available for issuance from the
Company's 1993 Incentive Stock Option Plan. The options outstanding at
December 31, 1996 are all presently exercisable and expire six years from
grant date at various dates through November, 2002. The options vest at a rate
of 20% per year over five years from grant date.
The non-statutory options are exercisable at the fair market value on the
date of grant. The non-statutory options outstanding at December 31, 1996, are
all presently exercisable and expire five years from grant date at various
dates through November 2001.
Warrants to purchase 5,000 shares of Pages, Inc. common stock were issued
in August, 1996 as part of subordinated debenture issued to an investor. The
warrants are exercisable at 20% per year over five years from date of issuance
at $2.00 per share, the market value of the common stock at date of issuance of
the warrants.
Stock Appreciation Rights (SAR) were awarded to certain executive
officers. The SAR's were awarded at fair market value as of the date of the
award. The rights outstanding at December 31, 1996 are all presently vested
and expire November, 1999.
A summary of options, warrants, and SARs outstanding at December 31, 1996
is as follows.
Date Proceeds
Granted or Shares Shares Exercise To Company
Issued Reserved Exercisable Price Upon Exercise
------ ------- ------- ------ -----------
Incentive
Stock Options:
November 18, 1993 1,500 1,500 $10.880 $16,320.00
September 29, 1995 15,945 15,945 2.690 42,892.05
November 13, 1995 22,000 22,000 2.570 56,540.00
May 8, 1996 251,300 251,300 2.380 598,094.00
July 24, 1996 45,000 45,000 1.750 78,750.00
November 8, 1996 25,000 25,000 2.125 53,125.00
------- ------- ------ -----------
360,745 360,745 845,721.05
------- ------- ------ -----------
Non-Statutory
Stock Options:
May 19, 1992 16,250 16,250 3.900 63,375.00
June 2, 1992 87,500 87,500 4.200 367,500.00
June 15, 1992 18,750 18,750 4.500 84,375.00
August 15, 1992 12,500 12,500 5.300 66,250.00
April 30, 1993 3,125 3,125 7.200 22,500.00
November 1, 1996 20,000 20,000 2.125 42,500.00
------- ------- ------ -----------
158,125 158,125 646,500.00
------- ------- ------ -----------
Warrants:
August 14, 1996 5,000 0 2.000 10,000.00
------- ------- ------ -----------
Total Options and Warrants 523,870 518,870 $1,502,221.05
======= ======= ====== =============
Stock Appreciation Rights:
November 1, 1996 463,749 $2.130 --
======= ======= ====== =============
3. NOTES RECEIVABLE FROM STOCK SALES
---------------------------------
In the Third and Fourth Quarters of 1996, certain officers and employees
exercised stock options for notes. These notes are full recourse promissory
notes bearing interest at 7%. The principal sum is due in September, 1999.
The interest is payable only in the event and only to the extent that the fair
market value of the shares of common stock at the close of business in
September, 1999 exceeds the exercise price. No provision has been made in the
1996 financial statements for such interest.
4. DEBT OBLIGATIONS
----------------
Debt obligations consisted of the following:
1996 1995
----------- -----------
Line of credit with interest at prime plus 1
percent; interest payable monthly, maturing on
June 30, 1997, collateralized by substantially all
assets of the Company ($830,254 unused at December
31, 1996) $ 3,669,746 $ 4,416,154
Line of credit with interest at prime plus 1
percent; interest payable monthly, maturing on
June 30, 1997, collateralized by substantially all
assets of the Company ($2,049,185 unused at
December 31, 1996) 9,450,815 3,544,400
United Kingdom - Lloyds Bank $2,174,200 line of
credit with interest at base plus 2 percent (8
1/4% at December 31, 1995), payable on demand,
colateralized by substantially all assets of the
United Kingdom operations ($452,622 available at
December 31, 1995) -- 1,721,578
Note with interest of prime plus 1 percent;
interest payable monthly, maturing June 7, 1996 -- 2,500,000
Revolving loan payable with interest at prime plus
1/2 percent; interest payable monthly, maturing on
June 3, 1997; collateralized by substantially all
assets of the Company ($203,725 available at
December 31, 1995) -- 9,296,275
Mortgage payable with interest at prime plus 1 1/4
percent; principal and interest payable in monthly
installments of $11,280, maturing on March 1,
2008, collateralized by office and warehouse
facility 657,238 719,549
Second mortgage note payable with interest at
12.825 percent; principal and interest payable in
monthly installments of $5,313, maturing on
November 1, 2008, collateralized by office and
warehouse facility 400,867 415,063
Subordinated note payable with interest at 10
percent, payable quarterly through 2005 250,000 --
Promissory note payable with interest at 10
percent, payable in five annual installments
through April 29, 1998 53,038 76,647
Promissory note payable with interest at 7
percent, payable quarterly through August 16, 1997 40,476 91,270
----------- -----------
Total debt obligations 14,522,180 22,780,936
Less short-term obligations 13,278,721 5,635,552
----------- -----------
Total long-term obligations $ 1,243,459 $17,145,384
=========== =============
The prime interest rate at December 31, 1996 and 1995, was 8 1/4 and 8 1/2
percent, respectively.
Future maturities on debt as of December 31, 1996 and during the next five years
and thereafter are as follows:
1997 $13,278,721
1998 128,848
1999 112,115
2000 124,084
2001 137,342
Thereafter 741,070
-----------
$14,522,180
===========
On December 31, 1996, Pages, Inc. and CA Short Company entered into two
separate revolving credit facilities which consist of the following: a $4.5
million line of credit for use by CA Short Company and a $11.5 million line of
credit for use by Pages Book Fairs. The interest rate for the facilities is
prime + 1. The lines are due in full by June 30, 1997 subject to annual
renewals. Effective with the spin-off of CA Short Company on January 1, 1997,
the Pages Book Fairs line of $11.5 million will remain and the CA Short Company
line of $4.5 million will be carried by CA Short Company on a stand alone basis
(see Note 8). To the extent of unused availability on the CA Short line, Pages
Book Fairs may borrow against the $5 million subordinated debenture due the
Company from CA Short Company effective January 1, 1997, subject to the total
credit limit of $11.5 million.
The maximum line amount on the line of credit is calculated, in part,
based on the Company's eligible borrowing base that includes inventory and
other eligible accounts. The facility contains certain restrictive
provisions including, among others, maintaining a minimum tangible net
worth, limitation on dividends paid on common stock to $100,000 annually
and certain other restrictions on actions which require lender pre-
approval.
5. LEASE OBLIGATIONS
-----------------
The Company is obligated under various noncancelable operating and capital
leases. Operating leases are principally for office and warehouse facilities,
equipment and vehicles. Rent expense under operating leases amounted to
$1,327,840, $1,523,935, and $1,372,742 for the years ended December 31, 1996,
1995, and 1994, respectively. Future minimum lease payments under leases are
as follows:
Year Ended
December 31, Capital Operating
------------- ----------- -----------
1997 $ 100,123 $ 614,978
1998 55,186 133,286
1999 30,341 80,594
2000 0 35,704
2001 0 13,668
Thereafter 0 0
----------- -----------
$ 185,650 $ 878,230
----------- -----------
Less - amounts representing interest and
executory costs (21,649)
Less - current installments, capital lease
obligations (100,123)
-----------
Long-term lease obligations $ 63,878
-----------
The property and equipment under capital leases consisting of office equipment
are recorded at December 31, 1996 as follows:
Property and equipment $ 275,815
Less - accumulated depreciation (74,839)
-----------
$ 200,976
-----------
6. INCOME TAXES
------------
The Company is required to use SFAS No. 109 " Accounting for Income
Taxes". Under SFAS 109, the liability method is used in accounting for income
taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Under SFAS No. 109, if on the basis
of available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Based on available evidence, a valuation allowance has
been established for an amount of the asset that more likely than not, will not
be recognized.
Temporary differences between income for financial reporting purposes and
tax reporting purposes relate primarily to accounting methods for doubtful
accounts, inventory costs, accrued and prepaid expenses and reserves, and
depreciation and amortization expense.
For the years presented, the provision (benefit) for income taxes consisted of
the following:
December 31, December 31, December 31,
1996 1995 1994
------------ ----------- -----------
Current
Federal $ -- $ - $ -
State and local -- - -
------------ ----------- -----------
Net current $ -- $ - $ -
------------ ----------- -----------
Deferred
Federal -- $ 1,966,200 $ (76,300)
State and local -- 153,200 (92,400)
------------ ----------- -----------
Net deferred provision(benefit) -- 2,119,400 (168,700)
------------ ----------- -----------
Net provision (benefit) for taxes $ -- $ 2,119,400 $ (168,700)
============ =========== ===========
A reconciliation of income taxes based upon the application of the federal
statutory tax rate is as follows:
December 31, December 31, December 31,
1996 1995 1994
------------ ----------- -----------
Provision (benefit) for taxes
at statutory rate $ 542,700 $ (2,414,100) $ (218,000)
United Kingdom operations (437,500) 406,900 95,300
Goodwill amortization (88,500) 29,000 29,000
State taxes net of federal benefit -- ( 86,100) (92,400)
Interest (227,400) -- --
Establishment of valuation allowance 367,700 4,385,600 --
Stock options exercised (99,400) (225,200) --
Other (57,600) 23,300 17,400
------------ ----------- -----------
Total provision (benefit) for $ -- $ 2,119,400 $ (168,700)
income taxes
============ ============= ===========
The components of net deferred tax assets as of December 31, 1996 and 1995, are
as follows:
December 31, December 31,
1996 1995
----------- -----------
Assets
Provision for doubtful accounts $ 116,000 $ 275,100
Inventory costs capitalized for tax
purposes 576,600 657,500
Accruals and reserves to be expensed as
paid for tax purposes 708,200 743,800
Other 24,100 21,700
Net operating loss carryforwards 5,163,400 3,968,400
Investment tax credit carryforwards 122,000 122,000
Stock appreciation rights 153,100 --
Losses on foreign currency translation -- 203,600
----------- -----------
6,863,400 5,992,100
Less valuation allowance (5,170,000) (4,802,300)
----------- -----------
Deferred tax asset, net of valuation
allowance 1,693,400 1,189,800
----------- -----------
Liabilities:
Costs deducted as paid for tax purposes (761,400) (332,000)
Excess of tax over financial accounting (932,000) (857,800)
depreciation and amortization
----------- -----------
(1,693,400) (1,189,800)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
At December 31, 1996, operating loss carryforwards of approximately
$12,900,000 are available to offset future taxable income and will expire
during the years 1997 through 2010.
7. CHILDREN'S LITERATURE ACQUISITIONS AND DISPOSALS
------------------------------------------------
During 1995 and 1994, the children's literature business acquired several
small operations involved in the publishing and distribution of children's
literature. These acquisitions were accounted for using the purchase method of
accounting. The aggregate cost of these acquisitions approximated $779,000 and
$2,870,000 in 1995 and 1994, respectively, and was allocated to the net assets
acquired based upon their fair values. The Company paid cash of $779,000 for
the 1995 acquisition. The Company paid cash of $2,720,000 and $150,000 in a
promissory note for the 1994 acquisitions. In connection with the
acquisitions, costs assigned to cost in excess of net assets acquired
approximated $471,000 and $2,185,000 in 1995 and 1994, respectively.
During 1995, the Company disposed of or phased out the operations of
several acquisitions made in 1993 and 1994 and curtailed the distribution of
early childhood product through the mail to pre-schools and daycare centers.
Combined revenues, included in the accompanying consolidated financial
statements, of the aforementioned operations for 1995 and 1994 approximated
$2,300,000 and $3,400,000, respectively. The combined costs and expenses
associated with the aforementioned operations including loss on disposition or
phase out included in cost of goods sold and selling, general, and
administrative expense in the accompanying consolidated financial statements
for 1995 and 1994 approximated $2,700,000 and $3,300,000, respectively.
On March 6, 1996, the Company sold to Scholastic Limited, a United Kingdom
subsidiary of Scholastic, Inc. and its affiliates ("Scholastic") all the
capital stock of Pages Book Fairs, Limited ("Limited") , the Company's United
Kingdom subsidiary for $4,764,781 cash. Additionally, as part of the
transaction, (i) Scholastic paid in full (1) the outstanding balance of
$2,129,846 due by Limited to Lloyds Bank and (2) an intercompany payable due
from Limited to the Company in the amount of $2,317,873 and (ii) the Company
signed a Non-Competition Agreement pursuant to which, in return for the payment
of $1,500,000 in cash, the Company agreed for a five-year period not to compete
with the book fair business of Scholastic and its affiliates in the following
countries: Canada, the United Kingdom, Ireland, Germany, Italy, Greece,
Eastern Europe, including without limitation, the Commonwealth of Independent
States, Turkey, the countries of the Middle East and Africa.
On March 6, 1996, the Company closed its distribution channel in
Canada and on March 13, 1996, the Company sold a portion of its inventory in
Canada to Scholastic Canada, Ltd., a corporation organized under the laws of
Canada for $575,000 cash.
The net proceeds of the above-described transactions of $8,950,000
after the repayment of the Lloyds Bank debt and estimated transaction costs
were used to reduce the Company's domestic bank indebtedness. Included in the
accompanying 1996 financial statements is a $3,255,337 gain on the transaction.
8. DISCONTINUED OPERATIONS
-----------------------
Effective on the close of business on December 31, 1996, the Company
completed a tax-free spin- off of the common stock of the Company's wholly-
owned subsidiary CA Short Company ("CAS") through a distribution to the
stockholders of Pages, Inc. of one and one-half shares of CAS common stock
for every ten shares of Pages common stock outstanding on the record date.
Effective January 1, 1997, CAS issued a subordinated debenture to Pages in
the principal amount of $5 million bearing interest at 7% per annum
payable quarterly, with principal payments of $100,000 each due at the end
of the first four years, and a final payment of $4,600,000 due at the end of
the fifth year.
Revenues for CAS were $22.0, $22.6 and $25.2 million for 1996, 1995 and
1994, respectively. Net income or (losses) were $911,000, $(126,274) and
$152,546 for 1996, 1995 and 1994, respectively. Included in the 1996 CAS
income is the cumulative effect of an accounting change adopted by CAS as of
January 1, 1996. CAS changed its method of accounting for the recognition of
revenues relating to advance deposits. Previously, CAS recognized such
deferred revenue at the conclusion of the respective safety award programs.
Effective with the change, revenues are recognized over the course of the
programs based on CAS's historical and expected redemption percentages. The
corresponding deferred commission costs (included in prepaid expenses on the
accompanying financial statements) have also been recognized in association
with this change in the same direct proportion as the revenue recognition. The
effect of this accounting change in 1996 was to decrease the loss before
cumulative effect of change in accounting principle by $209,190, net of
associated commission expense of $32,704. The cumulative effect of the
accounting change of $995,000 has not been tax effected based on the absence of
any applicable tax to the Company on a consolidated basis (see Note 6). The
proforma income (loss) amounts for CAS assuming the new accounting method is
applied retroactively are $(83,181), $303,512 and $417,332 in 1996, 1995 and
1994, respectively.
The components of net assets of the CAS discontinued operations included
in the consolidated balance sheets at December 31, 1996 and 1995, follow:
December 31, December 31,
1996 1995
--------------------------
Cash $ 130,972 $ 226,678
Accounts receivable, net 4,644,027 6,101,629
Inventory 7,163,153 6,890,629
Prepaid expenses 803,321 894,967
Property, plant and equipment, net 3,931,800 3,812,894
Costs in excess of net assets acquired, net 1,133,023 1,167,187
Other assets 622,257 598,256
Accounts payable (1,572,022) (1,687,705)
Accrued liabilities (4,342,225) (4,394,924)
Short-term debt obligations (3,669,746) (4,416,154)
Deferred revenue (4,887,943) (5,648,107)
Additionally, in 1995, the Company adopted a plan to discontinue the
operations of its Read Aloud Book Club division (the "Club"). The operations
of the Club ceased during the second quarter of 1996. The Club is accounted
for as a discontinued operations, and accordingly, its operations are
segregated in the accompanying consolidated statements of operations. Losses
incurred between the measurement date (December 31, 1995) and the date on which
operations ceased as well as phase out costs on the Club, were provided for in
the December 31, 1995 consolidated financial statements. Revenues associated
with the discontinued club operation for 1995 and 1994 were $2,451,965 and
$2,732,036, respectively. Net losses were $(2,876,000) and $(233,756)
for 1995 and 1994, respectively.
The components of net assets of the Club discontinued operations included
in the consolidated balance sheets at December 31, 1996 and 1995, follow:
December 31, December 31,
1996 1995
----------------------------
Accounts receivable, net $ -- $ 338,977
Inventory -- 195,015
Other assets -- --
Accounts payable (191,224) (595,180)
Accrued liabilities (204,367) (839,255)
9. SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION
-------------------------------------------------
Cash paid for interest during the years ended December 31, 1996, 1995, and
1994 aggregated $1,151,025, $2,189,859 and $1,654,755 and cash paid for taxes
was $18,100, $0, and $18,000, respectively.
During the years ended December 31, 1996 and 1995, the Company acquired
$75,000 and $434,882, respectively, in office furniture and equipment through
capital financing leases. In 1996, the Company acquired $250,000 of inventory
through the issuance of a long term note. Additionally, in 1995, the Company
sold $21,800 of net fixed assets in return for a promissory note.
10. INTERIM FINANCIAL INFORMATION (UNAUDITED):
-----------------------------------------
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1996
--------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 9,457,068 $ 6,646,418 $ 3,366,483 $10,416,928
Gross Profit 3,757,355 2,671,851 1,564,849 4,247,267
Income (loss) from continuing operations
before income taxes 2,191,495(1) (741,680) (1,401,681) 569,081(3)
Income (loss) from discontinued 1,323,132(2) (354,538) (708,164) 651,053
operations
Net income (loss) $ 3,514,627 $(1,096,218) $(2,109,845) $ 1,220,134
=========== =========== =========== ===========
Income/(loss) per common share:
Discontinued operations $ 0.23 $ (0.07) $ (0.13) $ 0.11
Net income (loss) $ 0.61 $ (0.20) $ (0.38) $ 0.20
Weighted average common shares and
equivalents 5,721,000 5,436,000 5,483,000 6,138,000
=========== =========== =========== ===========
Twelve Months Ended December 31, 1995
-------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
Revenues $14,093,143 $12,233,947 $ 6,086,229 $17,787,551
Gross Profit 5,719,090 4,967,284 2,064,178 6,253,972
Income (loss) from continuing operations
before income taxes (654,663) (669,812) (3,030,015) 256,533
Income (loss) from discontinued (416,904) (179,321) (1,026,528) (1,379,609)
operations
Net income (loss) $ (721,567) $ (699,133) $(2,859,543) $ (4,939,476)
=========== =========== =========== ===========
Income/(loss) per common share:
Discontinued operations (0.09) (0.04) (0.20) (0.27)
Net income (loss) (0.15) (0.15) (0.56) (0.97)
=========== =========== =========== ===========
Weighted average common shares and 4,789,000 4,806,000 5,105,000 5,109,000
equivalents
=========== =========== =========== ===========
</TABLE>
Per share calculations are based on the average number of shares and dilutive
share equivalents outstanding for each quarter using the treasury stock method.
Thus, the sum of the quarters may not necessarily be equal to the full year's
earnings per share amounts.
(1) Includes gain on sale of the Company's United Kingdom subsidiary of
$3,255,337 (See Note 7).
(2) Includes cumulative effect of a change in accounting principle of $994,664
(See Note 8).
(3) Include effect of $431,287 of compensation expense associated with the
Company's Stock Appreciation Rights.
11. COMMITMENTS AND CONTINGENCIES
-----------------------------
Gruner + Jahr Litigation
During 1995, Gruner + Jahr Printing and Publishing Company ("G&J") filed an
action against the Company seeking in excess of $900,000 in damages which had
been stayed by the court pending the resolution of an action filed by the
Company in federal court against G&J seeking compensation arising out the
Company's purchase from G&J of the Read Aloud Book Club. In March 1997, the
Company reached a settlement with G&J on both actions. As a result of the
settlement, the Company made a payment to G&J of $300,000. Provision for this
loss contingency was included in the 1995 financial statements.
Internal Revenue Service Assessment
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") might assess additional income taxes in connection with
the examination of the tax returns of Pages Book Fairs ("PBF", formerly School
Book Fairs), and its affiliates for the fiscal years ending July 31, 1988,
1989, 1990 and 1991. In June 1993, the Company recorded a $2 million
adjustment to its purchase price allocation of PBF assets, which increased the
cost in excess of assets acquired (i.e. - goodwill), and recorded a
corresponding increase in accrued tax liabilities and related costs.
In October of 1995, the Company received four Notices of Deficiency from
the IRS relating to this examination. The Notices of Deficiency assessed
additional income taxes of $4,693,681 and penalties of $1,358,630, plus
interest. The asserted deficiencies were attributable primarily to a
restructuring of PBF and related entities that occurred on August 1, 1988, in
which, along with other events, certain assets were transferred between related
companies. The IRS had challenged, among other things, the values assigned to
those assets by the parties to the transaction, contending that the assets were
undervalued and that PBF recognized a substantial taxable gain in the
transaction. In January 1996, the Company filed petitions with the Tax Court
disputing the IRS valuation of the assets transferred, and other points in the
IRS assessment.
On October 28, 1996, the Company entered into a settlement with the IRS
regarding the four Notices of Deficiency received assessing additional taxes
for the fiscal years 1988, 1989, 1990 and 1991. The settlement includes income
taxes of $750,000, plus interest of approximately $750,000, for a total of
approximately $1,500,000. The Company has negotiated a payment plan with the
IRS that spreads the payments including interest over twelve months starting in
March 1997.
On December 27, 1996, the Company filed an action in U.S. District Court
for the Northern District of Ohio against Arthur Andersen & Co. LLP seeking in
excess of $16,000,000 in damages. The complaint is a result of the final
outcome of the IRS assessment and representations made by Arthur Andersen & Co
during Pages, Inc.'s purchase of School Book Fairs, Inc. at May 19, 1992.
Other
Additionally, the Company is the subject of a state sales tax audit for
one of its subsidiaries. Management believes the outcome of this audit will
not result in any significant adjustments that would be material to the
Company's consolidated financial statements. Additionally, the Company is
subject to litigation which is incidental to its business and is not considered
material individually or in the aggregate to the Company's consolidated
financial statements.
<TABLE>
<CAPTION>
SCHEDULE 11 - VALUATION AND QUALIFYING ACCOUNTS
PAGES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D. COL. E. COL. F
- --------------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance Charged Charged Balance
at Beginning to Costs to Other at End
Description of Period and Expenses Accounts Deductions of Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 457,000 $ -- $ -- $ 141,000(a)$ 316,000
----------- ----------- ----------- ------------ ------------
Allowance for valuation on deferred tax assets $4,802,300 $ 367,700(b) $ 5,170,000
----------- ----------- ----------- ------------ ------------
Year ended December 31, 1995:
Allowance for doubtful accounts $ 168,000 $ 146,000 $ 885,000(d) $ 742,000(a) $ 457,000
----------- ----------- ----------- ------------ ------------
Allowance for valuation on deferred tax assets $ 416,650 $ 4,385,650(b) $ 4,802,300
----------- ----------- ----------- ------------ ------------
Year ended December 31, 1994:
Allowance for doubtful accounts $ 45,028 $ 148,230 $ $ 25,258 $ 168,000
----------- ----------- ----------- ------------ ------------
Allowance for valuation on deferred tax assets $ $ 416,650 (c) $ 416,650
</TABLE>
(a) Doubtful accounts written off against reserve.
(b) Change in valuation allowance relating to change in assessment as to
future realizability of deferred tax asset.
(c) Principally relates to a reclass of amounts previously netted against
the asset.
(d) Amounts charged through discontinued operations.
EXHIBIT INDEX
PAGES, INC. FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
(a) 1. Financial Statements. See Index to Consolidated Financial
Statements and Financial Schedule on page 31.
2. Financial Statement Schedule. See Index to Consolidated
Financial Statements and Financial Statement Schedule on page
31.
3. Exhibits. The following exhibits are required to be filed as
part of this report:
3(a)1 Certificate of Incorporation dated October 5, 1994
3(b)1 Bylaws of the Company
3(c)2 Agreement of merger
10(a)3 Lease Dated January 1, 1993, for St. Petersburg, Florida, Office and
Warehouse
10(b)4 Unconditional Guaranty of Lease Effective January 1, 1993, for Lease
of St. Petersburg, Florida, Office and Warehouse
*10(c)3 Non-Statutory Stock Option Agreement Dated May 19, 1992, between the
Company and Randall J. Asmo
*10(d)3 Non-Statutory Stock Option Agreement Dated June 3, 1992, between the
Company and S. Robert Davis
*10(e)3 Non-Statutory Stock Option Agreement Dated June 3, 1992, between the
Company and Charles R. Davis
*10(f)3 Pages, Inc. 1993 Incentive Stock Option Plan
10(g)5 Stock Purchase Agreement dated as of March 6, 1996 P - (with respect
to certain schedules)
10(h)5 Non-Competition Agreement dated as of March 6, 1996
10(i) Amended and Restated Loan Agreement dated December 31, 1996
10(j) Promissory Note from S. Robert Davis for exercise of stock options
10(k) Promissory Note from Charles R. Davis for exercise of stock options
10(l) Promissory Note from Randall J. Asmo for exercise of stock options
10(m)6 Promissory Note from employees for exercise of stock options
11 Statement Regarding Computation of Per Share Earnings
13 5 Annual Report to Stockholders for Last Fiscal Year. Letter to
Stockholders and List of Officers, Directors and Locations. The
remainder of the report is a reproduction of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
18 Letter Regarding Change in Accounting Principle
21 Subsidiaries of Pages, Inc.
23c Consent of Independent Auditors - Deloitte & Touche LLP
24 Distribution Agreement between Pages, Inc. and CA Short Company dated
December 31, 1996
*25 Executive Incentive Compensation Plan dated November 8, 1996
- -------------------------------------------------------------------------------
1 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File Number 0-10475, filed in
Washington, D.C.
2 Incorporated by reference to the Company's Proxy Statement dated August 4,
1994, File Number 0-10475, Filed in Washington, D.C.
3 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, File Number 0-10475, filed in
Washington, D.C.
4 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File Number 0-10475, filed in
Washington, D.C.
5 Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File Number 0-10475, filed in Washington,
D.C.
6 Promissory Notes from employees for exercising stock options.
EMPLOYEE NAME DATE # OPTIONS TOTAL NOTE
EXERCISED
Robert V. Boylan 12/31/96 23,000 $43,125
Jim Barr 12/30/96 6,500 $15,470
Paul Weinstein 12/30/96 6,500 $15,470
Joel Worth Vess 12/31/96 12,500 $29,750
Harry W. Boltz 12/30/96 12,500 $29,750
Lania Kent 12/31/96 7,500 $17,850
Jeff Ross 12/31/96 11,500 $27,370
Scott Lankford 12/31/96 1,000 $2,380
Steve Whiting 12/31/96 1,500 $3.665
Michael S. Greene 12/31/96 5,000 $11,900
Donald R. Costner 12/31/96 1,000 $2,380
* Indicates a management contract or compensatory plan or arrangement required
to be filed herewith. No other exhibits required by Form 10-K are listed as
they are not applicable.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 31, 1996 under Item 5
describing the settlement of the Internal Revenue Service Notices of
Deficiencies for $750,000 plus interest of approximately $750,000, the
resignation of Tamara L. Zeph, Treasurer and CFO and the appointment of Randall
J. Asmo, VP of the Company, as interim CFO effective immediately while
searching for a new Treasurer and CFO.
The Company filed a report on Form 8-K dated November 20, 1996 under Item
5 describing the filing of Form 10 under section 12(g) of Securities Exchange
Act of 1934 for the spin-off of CA Short Company, a wholly-owned subsidiary, to
the Company's stockholders and the financial results for the Third Quarter.
AVAILABILITY OF EXHIBITS TO FORM 10-K
- -------------------------------------
Exhibits to Form 10-K Report are on file with the Securities and Exchange
Commission and are referenced on the Exhibit Index contained hereinabove.
Exhibits are available upon request, at $0.25 per page, representing the
Registrants reasonable expenses in furnishing such exhibit(s). Exhibits may be
obtained by writing to Randall J. Asmo, Vice President , Pages, Inc.
<PAGE>
EXHIBIT 10(i)
SECOND AMENDED AND RESTATED LOAN AGREEMENT
dated as of
December 31, 1996
BETWEEN
PAGES BOOK FAIRS, INC., and
PAGES LIBRARY SERVICES, INC.,
jointly and severally, as Borrowers,
PAGES, INC., as Guarantor
and
THE HUNTINGTON NATIONAL BANK, as Lender
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
TABLE OF CONTENTS
SECTION HEADING PAGE #
1 The Loan and Lending Formula. 1
1.1 Amendment and Restatement. 1
1.2 The Loan. 2
1.3 Lending Formula. 2
1.4 Pending Default. 2
2 Eligibility. 2
2.1 Eligible Accounts. 2
2.2 Eligible Inventory. 3
2.3 Eligible Notes Receivable. 3
3 Terms and Uses of Loan. 3
3.1 Interest Rate. 3
3.2 Increased Capital. 4
3.3 Interest Rate After Default. 4
3.4 Fees. 4
3.5 Evidence of the Loans, Advance Requests, and Costs and
Expenses. 4
3.6 Use of Proceeds. 5
3.7 Maturity. 5
3.8 The Parent Guaranty and Collateral. 5
3.9 Maximum Charges. 5
3.10 Transaction Validity Agreement. 5
4 The Collateral and Cash Management. 5
4.1 Security. 6
4.2 Lockbox and Collection of Accounts. 6
4.3 Preservation and Disposition of Collateral. 6
5 Warranties and Representations. 6
5.1 Organization and Authority. 6
5.2 Borrowing is Legal and Authorized. 7
5.3 Taxes. 7
5.4 Compliance with Law. 7
5.5 Financial Statements; Disclosure. 7
5.6 Litigation: Adverse Effects. 8
5.7 No Insolvency. 8
5.8 Government Consent. 8
5.9 Title to Properties; Litigation. 9
5.10 No Defaults. 9
5.11 Environmental Protection. 9
5.13 Warranties and Representations. 10
6 Closing Conditions. 10
6.1 Resolutions and Incumbency Certificate. 10
6.2 Opinion of Counsel. 10
6.3 Compliance with this Agreement. 11
6.4 Existing Indebtedness. 11
6.5 Closing Documents. 11
7 Company Business Covenants. 11
7.1 Payment of Taxes and Claims 11
7.2 Maintenance of Properties and Corporate Existence ...11
7.3 Sale of Assets; Merger; Subsidiaries; Tradenames. 12
7.4 Negative Pledge. 12
7.5 Other Borrowings and Contingent Liabilities. 13
7.6 Sale of Accounts; No Consignment. 13
7.7 Minimum Security. 13
7.8 Ownership and Management. 13
7.9 Acquisition of Capital 13
7.10 Cash Dividends and Other Distributions. 13
7.11 Transactions With Affiliates. 13
7.12 Consolidated Tangible Net Worth. 14
7.13 Capital Expenditures. 14
7.14 Loans and Advances. 14
7.15 Operating Lease Rentals. 14
7.16 Environmental Compliance and Indemnification. 14
7.17 Maintenance of Accounts. 15
7.18 Other Covenants. 15
7.19 Minimum Pretax Operating Profit or Maximum Pretax
OperatingLoss. 15
8 Financial Information and Reporting. 16
9 Default. 17
9.1 Events of Default. 17
9.2 Default Remedies. 18
10 Miscellaneous. 18
10.1 Notices. 18
10.2 Reproduction of Documents. 19
10.3 Survival, Successors and Assigns. 19
10.4 Amendment and Waiver, Duplicate Originals. 19
10.5 Uniform Commercial Code and Generally Accepted
Accounting Principles. 19
10.6 Enforceability and Governing Law. 20
10.7 Waiver of Right to Trial by Jury. 20
10.8 Conditions Precedent to Subsequent Money Advances. 20
11 Definitions. 21
Exhibits
Exhibit A - Revolving Note
Exhibit B - Schedule of Permitted Encumbrances
Exhibit C - Schedule of Business Locations
Exhibit D - Taxes
Exhibit E - Litigation
Exhibit F - Closing Conditions
Exhibit G - Indebtedness and Contingent Obligations
SECOND AMENDED AND RESTATED LOAN AGREEMENT
This agreement (this "Agreement") is entered into at
Columbus, Ohio, between The Huntington National Bank (the
"Bank"), as lender, Pages Book Fairs, Inc., and Pages Library
Services, Inc., jointly and severally as borrowers (the
"Borrowers"), and Pages, Inc. (the "Parent") as guarantor (the
Borrowers and the Parent shall be individually referred to as a
"Company" and collectively as the "Companies"), as of the 31st
day of December, 1996.
1 The Loan and Lending Formula.
1.1 Amendment and Restatement.
The obligations, indebtedness, and security evidenced by or
referenced in this Agreement and all the instruments, agreements,
documents, certificates, and financing statements executed in
connection herewith constitute, in part, an amendment,
modification, and restatement of the obligations, indebtedness of
the Companies evidenced by (a) a certain Loan Agreement dated
June 12, 1992, as amended by a First Amendment to Loan Agreement
dated July 21, 1994 (collectively the "1992 Loan Agreement"),
between the Companies, then existing affiliates of the Companies,
and the Bank, and by certain promissory notes, security
agreements, documents, certificates, an intercorporate funding
agreement, assignments, modification agreements, a lockbox
agreement, and other documents executed in connection with or
incidental to the 1992 Loan Agreement, and (b) a certain Amended
and Restated Loan Agreement dated as of August 2, 1994, as
amended by a First Amendment to Amended and Restated Loan
Agreement dated as of June 28, 1995, and a Second Amendment to
Amended and Restated Loan Agreement dated as of March 27, 1996
(collectively the "1994 Loan Agreement"), between the Companies,
then existing affiliates of the Companies, and the Bank, and by
certain promissory notes, security agreements, documents,
certificates, and intercorporate funding agreements, assignments,
modification agreements, the lockbox agreement, and other
documents executed in connection with or incidental to the 1994
loan agreement. The 1992 Loan Agreement and the 1994 Loan
Agreement shall be collectively referred to as the "Existing Loan
Agreement." All Uniform Commercial Code financing statements,
security agreements, assignments, deeds of trust, letter of
credit reimbursement agreements, lockbox agreements, cash
management agreements, assignments, and other documents executed
by any of the Companies in connection with the Existing Loan
Agreement (collectively the "Existing Loan Documents") shall
remain in full force and effect in all respects as if the
obligations, indebtedness, and security evidenced by or
referenced in the Existing Loan Documents had been payable and
effective originally as provided by this Agreement and all the
instruments, agreements, documents, certificates, and financing
statements executed in connection herewith. To the extent that
the terms and provisions of this Agreement conflict with the
terms of the Existing Loan Agreement, the terms and provisions of
this Agreement shall be controlling. Each reference to the
Existing Loan Agreement, whether by the use of the phrase "Loan
and Security Agreement," "Loan Agreement," or the prefix "here"
or otherwise contained in the Existing Loan Agreement itself or
any of the Existing Loan Documents or hereafter made in any loan
document shall be construed hereafter as a reference to this
Agreement.
1.2 The Loan
The Bank, subject to the terms and conditions hereof, will make
loans and advances on a revolving basis to the Borrowers, jointly
and severally, up to the aggregate sum of $11,500,000.00 (the
"Loan"). The principal sum of the Loan shall not exceed the
lesser of (a) $11,500,000.00 or (b) the Borrowing Base.
1.3 Lending Formula
"Borrowing Base" shall mean the sum of (a) Eligible Inventory,
multiplied by the applicable Inventory Advance Rate, up to the
Maximum Inventory Advance, plus (b) 75% of Eligible Accounts,
plus (c) 75% of Eligible Notes Receivable. "Inventory Advance
Rate" shall mean up to 50% beginning June 1, and continuing
through January 31 of the immediately succeeding calendar year,
and up to 30% beginning February 1 and continuing through May 31
of each calendar year. "Maximum Inventory Advance" shall mean up
to $9,000,000.00 beginning June 1, and continuing through January
31 of the immediately succeeding calendar year and $6,500,000.00
beginning February 1, and continuing through May 31 of each
calendar year.
1.4 Pending Default
The Bank, in its sole discretion, reserves the right upon 30 days
written notice to the Parent to increase or decrease the
foregoing percentages or the Maximum Inventory Advance
attributable to inventory. The Bank shall have no obligation to
advance or re-advance any sums pursuant to the Loan at any time
when a set of facts or circumstances exists that, by itself, upon
the giving of notice, the lapse of time, or any one or more of
the foregoing, would constitute an Event of Default under this
Agreement (a "Pending Default").
2 Eligibility.
2.1 Eligible Accounts
"Eligible Accounts" means the portion of either Borrower's
accounts that the Bank determines from time to time, based on
credit policies, market conditions, such Borrower's business and
other matters, is eligible for use in calculating the Borrowing
Base. Without limiting the Bank's right to determine which
accounts are Eligible Accounts, no account will be an Eligible
Account unless, at a minimum, such account arises in the ordinary
course of such Borrower's business, is due and owing to such
Borrower exclusive of sales or other taxes from a party (the
"Account Debtor") that meets the qualifications stated herein,
and meets all the following requirements until it is collected in
full: (a) the account is due and payable and not more than 90
days have elapsed from the date of the original invoice therefor,
or if a special dating program has been approved in writing by
the Bank, the account is due and payable on a date permitted by
the terms of such dating program and is not past-due; (b) the
account arises from such Borrower's completed performance of a
sale of goods and/or related services, all such goods having been
lawfully shipped and invoiced to the Account Debtor, and upon the
Bank's request, copies of all invoices, together with all
shipping documents and delivery receipts evidencing such shipment
having been delivered to the Bank; (c) except for accounts
arising from contracts with schools or libraries, the account
does not arise from a contract with any government or agency
thereof, or does not constitute a progress billing; (d) the
account does not, when added to all other accounts of the
Borrowers arising from consumer transactions, produce an
aggregate indebtedness to the Borrowers from all Account Debtors
in connection (i) with consumer transactions, and indebtedness
that is reflected on its books and records as unpaid fair
accrual, in excess of the aggregate sum of $5,000,000.00; (e) the
account is not subject to any prior assignment, claim, lien,
security interest, or setoff; (f) the account is not subject to
any credit, contra account, allowance, adjustment, levy, return
of goods, or discount (collectively a "Contra"), provided,
however, that unless the Account Debtor has asserted a Contra, if
the amount of the account exceeds the amount of the Contra, such
excess shall be deemed to be an Eligible Account if such excess
meets all other requirements of this Section; (g) the account
does not arise from a transaction with a person, corporation or
entity affiliated with the Companies; (h) the account does not,
when added to all other accounts of the Account Debtor with the
Borrowers, produce an aggregate indebtedness from the Account
Debtor of more than 20% of the total of all the Borrowers'
Eligible Accounts; (i) neither of the Borrowers has received
notice of bankruptcy or insolvency of the Account Debtor; (j) the
account is not evidenced by any chattel paper, promissory note,
payment instrument or written agreement; (k) the account does not
arise from an Account Debtor whose mailing address or executive
office is located outside the United States or Canada; (l) the
account does arise from an Account Debtor to whom either Borrower
has determined to ship goods on a "cash on delivery" or C.O.D.
basis; (m) the account does not arise from an Account Debtor who
has more than 50% of its accounts with either Borrower unpaid
more than 90 days from the original invoice therefor; and (n) the
Bank has not notified the Parent that the account or the Account
Debtor is unsatisfactory or unacceptable (although the Bank
reserves the right to do so in its sole discretion at any time).
2.2 Eligible Inventory
"Eligible Inventory" means that portion of either Borrower's
inventory that the Bank determines from time to time, based on
credit policies, market conditions, such Borrower's business and
other matters, is eligible for use in calculating the Borrowing
Base. Eligible Inventory (unless the Bank agrees otherwise in
writing) shall not include work in process and all inventory
shall be valued at the lesser of cost (on a FIFO basis) or fair
market value.
2.3 Eligible Notes Receivable
"Eligible Notes Receivable" means that portion of notes
receivable or subordinated debentures owned by the Parent or by
either of the Borrowers that the Bank, in its sole and absolute
discretion, determines from time to time, based upon the
creditworthiness of the obligor, the collateral held for such
obligation, the income stream attributable to such obligation,
and other factors, is eligible for use in calculating the
Borrowing Base. Eligible Notes Receivable shall be valued at
such value as the Bank shall determine, based upon the foregoing,
in its sole and absolute discretion.
3 Terms and Uses of Loan.
3.1 Interest Rate
The Borrowers agree jointly and severally to pay to the Bank
monthly interest on the unpaid balance of the Loan at a variable
rate of interest per annum (the "Prime Interest Rate") equal to
(a) one percentage point (1%) in excess of the Prime Commercial
Rate of the Bank, from time to time in effect, with each change
in the Prime Commercial Rate automatically and immediately
changing the interest rate on the Loan without notice to the
Company. "Prime Commercial Rate" as used herein shall mean the
rate established by the Bank from time to time based on its
consideration of economic, money market, business and competitive
factors, and it is not necessarily the Bank's most favored rate.
Interest shall be calculated on a 360 day year basis and shall be
based on the actual number of days which elapse during the
interest calculation period.
3.2 Increased Capital
If after the date hereof the Bank determines that (i) the
adoption or implementation of or any change in or in the
interpretation or administration of any law or regulation or any
guideline or request from any central bank or other governmental
authority or quasi-governmental authority exercising
jurisdiction, power or control over the Bank or banks or
financial institutions generally (whether or not having the force
of law), compliance with which affects or would affect the amount
of capital required or expected to be maintained by the Bank or
any corporation controlling the Bank and (ii) the amount of such
capital is increased by or based upon the making or maintenance
by the Bank of the Loan, any participation in or obligation to
participate in the Loan or other advances made hereunder or the
existence of any obligation to make the Loan, then, in any such
case, upon written demand by the Bank, the Borrowers jointly and
severally shall immediately pay to the Bank, from time to time
as specified by the Bank, additional amounts sufficient to
compensate the Bank or such corporation therefor. Such demand
shall be accompanied by a statement as to the amount of such
compensation and include a summary of the basis for such demand
with detailed calculations. Such statement shall be conclusive
and binding for all purposes, absent manifest error.
3.3 Interest Rate After Default
Upon the occurrence of any Pending Default or Event of Default,
interest shall thereafter accrue on the outstanding principal
balance of the Loan at a rate equal to (a) four percentage points
per annum in excess of the Prime Interest Rate.
3.4 Fees
The Borrowers jointly and severally agree to pay a fee in respect
of the Loan equal to one-half of one percent per annum (1/2%) of
the difference, if any, between $11,500,000.00 and the average
daily principal balance of the Loan during any full or partial
calendar quarter the Loan is in effect, payable quarterly in
arrears, beginning on the first day of April, 1997, and
continuing on the first day of each July, October, January and
April thereafter during the period the Loan is in effect. In
addition, the Borrowers agree to pay to the Bank an arrangement
fee of $5,000 on or before the date of this Agreement.
3.5 Evidence of the Loans, Advance Requests, and Costs and
Expenses
The Loan shall be evidenced by note or by one or more notes
subsequently executed in substitution therefor, each in
substantially the form set forth in Exhibit A hereto. Each
advance request of either Borrower shall be accompanied by a
borrowing certificate or such other documents or communications
as may be acceptable to the Bank in its sole and absolute
discretion (a "Borrowing Certificate"). Repayment of the Loan
shall be made in accordance with the terms of the notes or
agreements then outstanding pursuant to this Agreement. The
Borrowers jointly and severally further agree to pay analysis
fees, audit fees in the amount of $500.00 per auditor per day,
plus out-of-pocket expenses of such auditors, and all costs and
expenses incidental to or in connection with (i) the Loan, (ii)
the enforcement of the Bank's rights in connection therewith,
(iii) any amendment or modification of this Agreement or any
other loan documents, (iv) any litigation, contest, dispute,
proceeding or action in any way relating to the Collateral or to
this Agreement, whether the same are incurred prior to or after
maturity, an Event of Default, or judgment. In the absence of
extraordinary circumstances, an Event of Default, or a Pending
Default, the audits referenced above will not exceed four audits
per year. Such costs shall include, but not be limited to, fees
and out-of-pocket expenses of the Bank's counsel, recording fees,
inspection fees, revenue stamps and note and mortgage taxes.
3.6 Use of Proceeds
The net proceeds of the Loan will be used for working capital
needs, the purchase by the Borrowers of inventory, and the
refinance of existing indebtedness to the Bank. None of the
transactions contemplated in the Agreement will violate or result
in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto,
including, without limitation, Regulation U of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II.
None of the Companies owns or intends to carry or purchase any
"margin security" within the meaning of said Regulation U. None
of the proceeds of the Loan will be used to purchase or refinance
any borrowing, the proceeds of which were used to purchase any
"security" within the meaning of the Securities Exchange Act of
1934, as amended.
3.7 Maturity
The Loan shall be due and payable on June 30, 1997, and as
extended from time to time in the sole discretion of the Bank.
3.8 The Parent Guaranty and Collateral
The Parent shall unconditionally guarantee the full and prompt
payment of the Loan and shall grant to the Bank a first security
interest in all of the tangible and intangible personal property
of the Parent, subject only to the liens and encumbrances set
forth and disclosed on Exhibit B attached to this Agreement.
Without limiting the generality of the foregoing, the Parent
shall collaterally assign to the Bank a security interest in a
certain Subordinated Debenture dated December 31, 1996, in the
original principal amount of $5,000,000.00, executed and
delivered to the Parent by CA Short Company, together with all
collateral security therefor.
3.9 Maximum Charges
In no event whatsoever shall the interest rate and other charges
hereunder exceed the highest rate permission under law which a
court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event the court determines that
the Bank has received interest or other charges hereunder in
excess of the highest rate applicable hereto, the Bank shall
promptly refund such excess amount to the Borrowers, and the
provisions hereof shall be deemed amended to provide for such
permissible rate.
3.10 Transaction Validity Agreement
S. Robert Davis shall execute and deliver to the Bank a
Transaction Validity Agreement in form acceptable to the Bank
dated of even date herewith in connection with the Parent's
distribution of the outstanding shares of common stock of its
formerly wholly owned subsidiary CA Short Company to the
shareholders of the Parent's common stock.
4 The Collateral and Cash Management
4.1 Security
The Companies, and each of them, shall grant, pledge and assign
to the Bank a security interest, assignment, deed of trust or
other collateral interest in the following property, whether such
Company's interest therein be now owned or existing or hereafter
arising or acquired, and wherever located, together with all
substitutions, replacements, additions and accessions therefor or
thereto, all products thereof and all cash and non-cash proceeds
thereof: (a) all of such Company's inventory (herein the
"Inventory"); (b) all of such Company's accounts, chattel paper,
general intangibles, income tax refunds, preference recoveries or
other claims in respect of any transfers of any kind,
instruments, negotiable documents, all books, records, ledger
cards, computer programs, and other documents or property at any
time evidencing or relating to such Company's accounts (herein
the "Accounts"); (c) all of such Company's fixtures and equipment
(herein the "Equipment"); (d) all of such Company's copyrights,
royalties, literary rights, licenses, trade names, trademarks,
trade secrets, service marks, databases, software and software
systems, information systems, discs, tapes, goodwill, patents,
patent applications, and franchises (herein the "Intellectual
Property"); (e) all of such Company's deposit accounts (herein
the "Deposits"); and (f) all of such Company's life insurance
policies and the proceeds therefrom (herein the "Life Insurance")
(all of the Accounts, the Inventory, the Equipment, the
Intellectual Property, the Deposits, and the Life Insurance
herein are collectively termed the "Collateral"). Each of the
Companies shall execute and deliver to the Bank such security
agreements, instruments and financing statements as the Bank may
be request to effect any of the foregoing. In addition, each of
the Companies agrees to grant a security interest and pledge of
all stock and securities owned by any of the Companies pursuant
to stock pledge agreements or other instruments satisfactory to
the Bank, including without limitation the stock of the
Borrowers.
4.2 Lockbox and Collection of Accounts
The Borrowers shall adopt and maintain procedures to cause all or
substantially all of their accounts to be collected through a
cash management system at the Bank, which shall include, without
limitation, a lockbox arrangement with the Bank and the transfer
of all funds to a depository account with the Bank in form and
substance satisfactory to the Bank. The Bank at any time may
notify Account Debtors on any Collateral that the Collateral has
been assigned to the Bank and shall be paid to the Bank through
the lockbox or otherwise. Upon request of the Bank at any time,
the Borrowers agree to notify such Account Debtors and indicate
on all billings that the accounts are payable to the Bank.
4.3 Preservation and Disposition of Collateral
(a) Prior to the placement of any Collateral in or upon any real
property which any of the Companies has leased or mortgaged, such
Company shall have obtained a waiver from the lessor and/or the
mortgagee, as the case may be, with respect to the rights
(whether present or future) of the lessor or mortgagee with
respect to that Collateral.
5 Warranties and Representations
Each of the Companies warrants and represents to the Bank:
5.1 Organization and Authority
Such Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
set forth below:
Pages, Inc. -- Delaware
Pages Book Fairs, Inc. -- Florida
Pages Library Services, Inc. -- Florida
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to
carry on its business as now conducted and as presently proposed
to be conducted in the locations set forth in Exhibit C to this
Agreement; and (c) to the best of such Company's knowledge, by
reason of ownership or lease of real property, has qualified to
do business in each jurisdiction in which it owns or leases such
real property.
5.2 Borrowing is Legal and Authorized
(a) The Board of Directors of such Company has duly authorized
the execution and delivery of this Agreement and of the notes and
documents contemplated herein; this Agreement, the notes, the
reimbursement agreement and other documents executed in
connection with this Agreement will constitute valid and binding
obligations of such Company enforceable in accordance with their
respective terms; (b) the execution of this Agreement and related
notes and documents and the compliance by such Company with all
the provisions of this Agreement (i) are within the corporate
powers of such Company; and (ii) are legal and will not conflict
with, result in any breach in any of the provisions of,
constitute a default under, or result in the creation of any lien
or encumbrance upon any property of such Company under the
provisions of, any agreement, charter instrument, bylaw, or other
instrument to which such Company is a party or by which it may be
bound; (c) there are no limitations in any indenture, contract,
agreement, mortgage, deed of trust or other agreement or
instrument to which such Company is now a party or by which such
Company may be bound with respect to the payment of principal or
interest on any indebtedness, or such Company's ability to incur
indebtedness, including the notes to be executed in connection
with this Agreement.
5.3 Taxes
All tax returns required to be filed by such Company in any
jurisdiction have in fact been filed, and all taxes, assessments,
fees and other governmental charges upon such Company, or upon
any of its properties, which are due and payable have been paid,
except as set forth in Exhibit D to this Agreement. Such Company
does not know of any proposed additional tax assessment against
it. The provisions for taxes on the books of such Company for
its current fiscal period are adequate.
5.4 Compliance with Law
Such Company (a) is not in violation of any laws, ordinances,
governmental rules or regulations to which it is subject,
including without limitation any laws, rulings or regulations
relating to the Employee Retirement Income Security Act of 1974
or Section 4975 of the Internal Revenue Code and (b) has not
failed to obtain any licenses, permits, franchises or other
governmental or environmental authorizations necessary to the
ownership of its properties or to the conduct of its business,
which violation or failure might materially and adversely affect
the business, prospects, profits, properties or condition
(financial or otherwise) of such Company.
5.5 Financial Statements; Disclosure
The financial statements of the Parent for the fiscal year ending
December 31, 1995, and for the fiscal quarter ending September
30, 1996, which have been supplied to the Bank have been prepared
in accordance with generally accepted accounting principles
consistently applied and fairly represent such Company's
consolidated financial condition as of such date. No material
adverse change in either of the Companies' financial condition
has occurred since that date. The financial statements referred
to in this paragraph do not, nor does this Agreement or any
written statement furnished by such Company to the Bank in
connection with obtaining the Loan, contain any untrue statement
of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading. Such
Company has disclosed to the Bank in writing all facts which
materially affect the properties, business, prospects, profits or
condition (financial or otherwise) of such Company or the ability
of such Company to perform this Agreement.
5.6 Litigation: Adverse Effects
Except as set forth in Exhibit E attached hereto, there is no
action, suit, audit, proceeding, investigation or arbitration (or
series of related actions, suits, proceedings, investigations or
arbitrations) before or by any governmental authority or private
arbitrator pending or, to the knowledge any of the Companies,
threatened against any of the Companies or any property of any of
the Companies (i) challenging the validity or the enforceability
of any of this Agreement, or any loan document, agreement, or
instrument executed in connection herewith, or (ii) which has
had, shall have or is reasonably likely to have a Material
Adverse Effect. Any of the Companies is not (A) in violation of
any applicable requirements of law which violation shall have or
is likely to result in a Material Adverse Effect, or (B) subject
to or in default with respect to any final judgment, writ,
injunction, restraining order or order of any nature, decree,
rule or regulation of any court or governmental authority, in
each case which shall have or is likely to have a Material
Adverse Effect. "Material Adverse Effect" means a material
adverse effect upon (a) the business, condition (financial or
otherwise), operations, performance, properties or prospects of
any of the Companies, (b) the ability of any of the Companies to
perform its obligations under this Agreement or any document,
agreement, guaranty, or instrument executed in connection
herewith, or (c) the ability of the Bank to enforce the terms of
this Agreement, or any document, agreement, guaranty, or
instrument executed in connection herewith.
5.7 No Insolvency
On the date of such Company's entering into the Loan and after
giving effect to all indebtedness of such Company (including the
Loan), (a) such Company will be able to pay its obligations as
they become due and payable; (b) the present fair saleable value
of such Company's assets exceeds the amount that will be required
to pay its probable liability on its obligations as the same
become absolute and matured; (c) the sum of such Company's
property at a fair valuation exceeds such Company's indebtedness;
and (d) such Company will have sufficient capital to engage in
Company's business. Such Company's grant of collateral for the
Loan constitutes fair consideration and reasonably equivalent
value because of the receipt of the proceeds of the Loan.
5.8 Government Consent
Neither the nature of such Company or of its business or
properties, nor any relationship between such Company and any
other entity or person, nor any circumstance in connection with
the execution of this Agreement, is such as to require a consent,
approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of
such Company as a condition to the execution and delivery of this
Agreement and the notes and documents contemplated herein.
5.9 Title to Properties; Litigation
Such Company has good and marketable title to all the property in
which it has a property interest, free from any liens and
encumbrances, except as set forth on Exhibit B attached to this
Agreement. Such Company has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or
otherwise) any of its property whether now owned or hereafter
acquired to be subject to a lien or encumbrance except as
provided in this paragraph.
5.10 No Defaults
No event has occurred and no condition exists which would
constitute an Event of Default pursuant to this Agreement. Such
Company is not in violation in any material respect of any term
of any agreement, charter instrument, bylaw or other instrument
to which it is a party or by which it may be bound.
5.11 Environmental Protection
Such Company (a) has no actual knowledge of the permanent
placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned, leased, or used
by such Company (the "Premises"), of any spills, releases,
discharges, leaks, or disposal of Hazardous Substances that have
occurred or are presently occurring on, under, or onto the
Premises, or of any spills, releases, discharges, leaks or
disposal of Hazardous Substances that have occurred or are
occurring off the Premises as a result of such Company's
improvement, operation, or use of the Premises which would result
in non-compliance with any of the Environmental Laws (as
hereinafter defined); (b) is and has been in compliance with all
applicable Environmental Laws; (c) knows of no pending or
threatened environmental civil, criminal or administrative
proceedings against such Company relating to Hazardous
Substances; (d) knows of no facts or circumstances that would
give rise to any future civil, criminal or administrative
proceeding against such Company relating to Hazardous Substances;
and (e) will not permit any of its employees, agents,
contractors, subcontractors, or any other person occupying or
present on the Premises to generate, manufacture, store, dispose
or release on, about or under the Premises any Hazardous
Substances which would result in the Premises not complying with
the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and
include all hazardous and toxic substances, wastes, materials,
compounds, pollutants and contaminants (including, without
limitation, asbestos, polychlorinated biphenyls, and petroleum
products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. 9601, et seq., the Toxic Substances
Control Act, 15 U.S.C. 2601, et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. 6901, et seq., the Water Quality Act
of 1987, 33 U.S.C. 1251, et seq., and the Clean Air Act, 42
U.S.C. 7401, et seq., and any state or local statute ordinance,
law, code, rule, regulation or order regulating or imposing
liability (including strict liability) or standards of conduct
regarding Hazardous Substances (hereinafter the "Environmental
Laws"), but does not include such substances as are permanently
incorporated into a structure or any part thereof in such a way
as to preclude their subsequent release into the environment, or
the permanent or temporary storage or disposal of household
hazardous substances by tenants, and which are thereby exempt
from or do not give rise to any violation of the forementioned
Environmental Laws.
5.12 Regarding the Accounts and Inventory
(a) Each of the accounts is based on an actual bona fide, and
genuine (i) sale and delivery of goods or (ii) rendering or
performance of services in the ordinary course of business, the
Account Debtors have accepted such goods or services and
unconditionally owe and are obligated to pay the full amounts
reflected in the invoices according to the terms thereof without
any defense, offset or counterclaim; (b) all of the shipping and
delivery receipts and other documents to be given to the Bank
with respect to the accounts are genuine; (c) to the best of each
Borrower's knowledge, pursuant to its customary credit
investigation in the ordinary course of business as of the date
each account is created, each of the Account Parties is solvent
and able to pay such account when due, or with respect to any
Account Parties who are not solvent, each Borrower has set up on
it books and in its financial records bad debt reserves adequate
to cover such accounts; (d) each of the accounts referenced on
each Borrower's most recent Loan and Collateral Report or other
Borrowing Base certificate against which such Borrower has
requested an advance under the Revolving Loan is an Eligible
Account; and (e) all of the inventory referenced on such
Borrower's most recent Loan and Collateral Report or other
Borrowing Base certificate against which such Borrower has
requested an advance under the Revolving Loan is Eligible
Inventory.
5.13 Warranties and Representations
On the date of each advance pursuant to the Loan, the warranties
and representations set forth in Section 5 hereof shall be true
and correct on and as of such date with the same effect as though
such warranties and representations had been made on and as of
such date, except to the extent that such warranties and
representations expressly relate to an earlier date.
6 Closing Conditions
The obligation of the Bank to extend credit evidenced by the Loan
shall be subject to the following conditions precedent:
6.1 Resolutions and Incumbency Certificate
The Bank shall have received a certificate signed by the
secretary or assistant secretary of each Company and dated as of
the date of this Agreement certifying the adoption of resolutions
by such Company's Board of Directors, in form and substance
satisfactory to the Bank, authorizing the execution of this
Agreement and the notes, and other documents and instruments
provided for herein and the performance of all the acts
contemplated hereby, together with a certificate signed by one of
such Company's officers certifying the names and offices of each
of the executive officers of such Company as of the date of this
Agreement, in form and substance satisfactory to the Bank, and
containing the signature of each officer authorized to sign this
Agreement and any documents and instruments to be executed in
connection therewith.
6.2 Opinion of Counsel
The Bank shall have received from counsel for each Company a
closing opinion in form and content satisfactory to the Bank and
its counsel.
6.3 Compliance with this Agreement
Each Company shall have performed and complied with all
agreements and conditions contained herein which are required to
be performed or complied with by such Company before or at
closing.
6.4 Existing Indebtedness
Contemporaneously with the initial advance under the Loan, the
Companies, and the Bank shall agree to terminate the rights of
the Companies and any other parties to the Existing Loan
Agreement to obtain extensions of credit under the Existing Loan
Agreement.
6.5 Closing Documents
The Companies shall have executed and delivered to the Bank or
shall have performed and complied with all of the agreements and
conditions contained on Exhibit F to this Agreement
7 Company Business Covenants
Each of the Companies covenants that on and after the date of
this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the indebtedness provided for
herein remains unpaid:
7.1 Payment of Taxes and Claims
Each of the Companies will pay (a) all taxes, estimated payments,
assessments and governmental charges or levies imposed upon it or
its property or assets or in respect of any of its franchises,
businesses, income or property before any penalty or interest
accrues thereon (except as set forth in Exhibit D attached
hereto); and (b) all claims of materialmen, mechanics, carriers,
warehousemen, landlords, bailees and other like persons,
(including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and
payable and which by law have or may become a lien or encumbrance
upon any of such Company's property or assets, prior to the time
when any penalty or fine shall be incurred with respect thereto ;
provided, however, that no such taxes, assessments and
governmental charges referred to in clause (a) above or claims
referred to in clause (b) above are required to be paid if being
contested in good faith by the Parent, by appropriate proceedings
diligently instituted and conducted, without danger of any
material risk to the Collateral or the Bank's interest therein,
without any of the same becoming a lien upon the Collateral, and
if such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP, shall have been made
therefor.
7.2 Maintenance of Properties and Corporate Existence
Such Company shall (a) maintain its property in good condition
and make all renewals, replacements, additions, betterments and
improvements thereto which it deems necessary; (b) maintain, with
financially sound and reputable insurers, insurance with respect
to its properties and business against such casualties and
contingencies, of such types (including but not limited to fire
and casualty, public liability, products liability, larceny,
embezzlement or other criminal misappropriation insurance) in
such amounts as is customary in the case of entities of
established reputations engaged in the same or a similar business
and similarly situated, (c) keep true books of records and
accounts in which full and correct entries will be made of all
its business transactions, and reflect in its financial
statements adequate accruals and appropriations to reserves; (d)
do or cause to be done all things necessary (i) to preserve and
keep in full force and effect its existence, rights and
franchises, and (ii) to maintain its status as a corporation duly
organized and existing and in good standing under the laws of the
state of its incorporation; and (e) not be in violation of any
laws, ordinances, or governmental rules and regulations or fail
to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its properties or to
the conduct of its business, which violation or failure to obtain
might materially and adversely affect the business, prospects,
profits, properties or condition (financial or otherwise) of such
Company.
7.3 Sale of Assets; Merger; Subsidiaries; Tradenames
Such Company will not, except in the ordinary course of business,
sell, lease, transfer or otherwise dispose of, any of its assets,
except that (i) such Company may sell or otherwise dispose of its
inventory in the ordinary course of its business, and (ii) such
Company may sell or trade-in specific items of obsolete equipment
each year up to an annual aggregate amount of $250,000.00,
provided that no individual item being traded is in excess of
$100,000.00 in value. Such Company will not, without the prior
written consent of the Bank and the execution of such documents
deemed necessary by the Bank, which consent of the Bank shall not
be unreasonably withheld, and will not permit any of its
affiliates to, consolidate with, merge into, or make investments
in any other entity, or permit any other entity to consolidate
with or merge into it. Without the prior written consent of the
Bank, the Parent shall not acquire all or substantially all of
the assets or business of any other company, person or entity
make investments in any other company, person or entity, or
transfer any assets to any other company, person or entity. With
respect to any acquisition of or investment in all or
substantially all of the assets or business of any other company,
person or entity for which the written consent of the Bank is
provided, the Parent shall execute and deliver to the Bank such
documents deemed necessary by the Bank. In addition, the
Borrowers shall not acquire all or substantially all of the
assets or business of any other company, person or entity or make
investments in any other company, person or entity. Such Company
has no subsidiaries except that the Borrowers and RABC, Inc. are
wholly-owned subsidiaries of the Parent. Each Company conducts
business only in the name of such Company. Such Company will not
create or acquire any subsidiaries without the prior written
consent of the Bank, which consent will not be withheld
unreasonably. If such Company conducts business under tradenames
other than the names of such Company, such Company shall provide
to the Bank notice of such tradename or tradenames within 30 days
after beginning the use of the same and shall execute such
documents deemed necessary by the Bank in connection therewith.
7.4 Negative Pledge
Such Company will not cause or permit or agree or consent to
cause or permit in the future (upon the happening of a
contingency or otherwise), any of its real or personal property,
whether now owned or hereafter acquired, to become subject to a
lien or encumbrance, except: (i) liens in connection with
deposits required by workers' compensation, unemployment
insurance, social security and other like laws; (ii) taxes,
assessments, reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and
other similar title exceptions or encumbrances affecting real
property, provided they do not in the aggregate materially
detract from the value of said property or materially interfere
with its use in the ordinary conduct of business; (iii) inchoate
liens arising under ERISA to secure the contingent liability of
such Company; and (iv) liens as set forth in Exhibit B attached
to this Agreement. In addition, such Company has not agreed and
will not agree (upon the happening of a contingency or otherwise)
to enter into an agreement or grant a "negative pledge" or other
covenant similar to this Section 7.4 in favor of any other
lender, creditor or third party.
7.5 Other Borrowings and Contingent Liabilities
Except for the Loan and for the indebtedness or contingent
obligations set forth on Exhibit G to the Agreement including,
without limitation, indemnifications contained in a Distribution
Agreement dated December 31, 1996, between the Parent and CA
Short Company, such Company will not, (a) create or incur any
extensions of credit or indebtedness, including without
limitation any indebtedness for borrowed money or advances or
through the execution of capitalized lease agreements or (b)
guarantee, indorse or otherwise become surety for or upon the
obligations of others, except by indorsement of negotiable
instruments for deposit or collection in the ordinary course of
business.
7.6 Sale of Accounts; No Consignment
Such Company shall not sell, assign, or encumber, except to the
Bank, any of its accounts or notes receivable. Such Company
shall not permit any of its inventory to be sold or transferred
on consignment or acquire or possess any of its inventory on
consignment, provided, however, that such Company may send
inventory on preview to its customers or potential customers.
7.7 Minimum Security
The Borrowers shall maintain as minimum security for the Loan,
Eligible Inventory, Eligible Accounts, and Eligible Notes
Receivable having an aggregate value such that the Borrowing Base
will equal or exceed the aggregate principal balance of the Loan,
and if the Borrowers fail to do so, the Borrowers jointly and
severally shall immediately pay to the Bank the difference.
7.8 Ownership and Management
Such Company shall not permit any material change in its
management. Except for the Parent, such Company shall not permit
any material change in its ownership.
7.9 Acquisition of Capital
Such Company shall not redeem or acquire any of its own capital
stock through the use of cash, cash equivalents, or from the
proceeds of the Collateral.
7.10 Cash Dividends and Other Distributions
The Parent, in any fiscal year, shall not declare or pay any cash
dividends which total in excess of $100,000.00, which shall be
paid only out of net earnings of the Parent for such year;
provided, however, that no dividends shall be paid if an Event of
Default has occurred and is continuing under this Agreement. The
Parent shall make no other distributions of any kind to
shareholders.
7.11 Transactions With Affiliates
None of the Companies shall directly or indirectly enter into or
permit to exist any transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the
rendering of any service) with any of its affiliates,
shareholders, directors or any affiliates of the same, on terms
that are less favorable to such Company than those which might be
obtained at the time from persons or entities who are not
affiliated with the Company or its shareholders
7.12 Consolidated Tangible Net Worth
The Parent, on a combined and consolidated basis, shall achieve a
Consolidated Tangible Net Worth of not less than the amounts
specified below as of the dates also specified below:
As of December 31, 1996 - not less than $4,000,000.00
As of March 31, 1997 - not less than $3,200,000.00
As of June 30, 1997, and at all times thereafter - not
less than $3,350,000.00
In addition to the foregoing requirements, the Parent, on a
combined and consolidated basis, shall maintain at all times a
Consolidated Tangible Net Worth of not less than $3,200,000.00.
"Consolidated Tangible Net Worth" shall mean the Companies'
consolidated equity, minus (i) the excess of cost over the value
of net assets of purchased businesses, rights, and other similar
intangibles, (ii) organizational expenses, (iii) intangible
assets, (iv) goodwill, (v) deferred charges or deferred financing
costs, (vi) loans or advances to shareholders, officers, or
directors or affiliates and/or accounts or notes receivable from
affiliates, shareholders, officers, or directors (except that the
obligations from CA Short Company to the Parent evidenced by that
Subordinated Debenture dated December 31, 1996, the original
principal amount of $5,000,000.00 shall not be excluded); (vii)
leasehold improvements, (viii) non-compete agreements, and (ix)
any asset not directly related to the operation of the Parent or
the Borrowers.
7.13 Capital Expenditures
The Companies in the aggregate will not make any expenditure for
fixed or capital assets, including by way of the incurrence of
capitalized lease obligations, expenditures for maintenance and
repairs which should be capitalized in accordance with generally
accepted accounting principles or otherwise in excess of
$250,000.00.
7.14 Loans and Advances
Except for (a) draws to distributors of one or more of the
Borrowers which in the aggregate do not exceed the sum of
$300,000.00 of advances outstanding at any one time, (b) existing
unsecured loans to officers not to exceed the aggregate principal
sum of $705,000.00, (c) existing secured loans to employees or
former employees of one of the Companies not to exceed the
principal sum of $200,000.00 in the aggregate outstanding at any
one time, and (d) intercompany advances between entities
comprising the Companies, the Companies in the aggregate will not
make any loans or advances to any person, corporation or entity
if such loans or advances will exceed an aggregate total
outstanding at any one time of $20,000.00.
7.15 Operating Lease Rentals
The Companies in the aggregate will not without the prior written
approval of the Bank enter into operating leases providing in the
aggregate for annual rentals which exceed $1,000,000.00.
7.16 Environmental Compliance and Indemnification
Such Company hereby indemnifies the Bank and holds the Bank
harmless from and against any loss, damage, cost, expense or
liability (including strict liability) directly or indirectly
arising from or attributable to the generation, storage, release,
threatened release, discharge, disposal or presence (whether
prior to or during the term of the Loan) of Hazardous Substances
on, under or about the Premises (whether by such Company or any
employees, agents, contractor or subcontractors of such Company
or any predecessor in title or any third persons occupying or
present on the Premises), or the breach of any of the
representations and warranties regarding the Premises, including,
without limitation: (a) those damages or expenses arising under
the Environmental Laws; (b) the costs of any repair, cleanup or
detoxification of the Premises, including the soil and ground
water thereof, and the preparation and implementation of any
closure, remedial or other required plans; (c) damage to any
natural resources; and (d) all reasonable costs and expenses
incurred by the Bank in connection with clauses (a), (b) and (c)
including, but not limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to
any losses, liabilities, damages, injuries, expenses or costs
which: (i) arise from the gross negligence or willful misconduct
of the Bank, or (ii) relate to Hazardous Substances placed or
disposed of on the Premises after the Bank acquires title to the
Premises through foreclosure or otherwise.
7.17 Maintenance of Accounts
The Companies shall maintain all of their primary operating and
deposit accounts at the Bank, and shall utilize Bank's cash
management services.
7.18 Other Covenants
Such Company will perform, observe and comply with such other
covenants as Bank may from time to time reasonably require of
such Company to assure the repayment in full of the Loan and the
complete and timely performance by such Company of all the
covenants of such Company hereunder.
7.19 Minimum Pretax Operating Profit or Maximum Pretax Operating
Loss
Beginning with the fiscal quarter ending December 31, 1996, and
continuing as of the end of each fiscal quarter thereafter, the
Parent, on a consolidated and combined basis, shall, as the case
may be, either (a) achieve an Accumulated Operating Profit during
any fiscal year on a year-to-date basis of not less than the
amount set forth below, or (b) not incur an Accumulated Operating
Loss during any fiscal year on a year-to-date basis in excess of
the amounts set forth below:
As of December 31, 1996, the sum of (i) the
Accumulated Operating Profit, plus (ii) the
net "Gain on Sale" related to the Parent's
disposition of its former UK and Canadian
subsidiaries and divisions of not less than
$600,000.00
As of March 31, 1997, Accumulated Operating
Loss not to exceed $800,000.00
As of June 30, 1997, Accumulated Operating
Loss not to exceed $650,000.00
Accumulated Operating Loss and Accumulated Operating Profit shall
be determined on a fiscal year-to-date basis, beginning on the
first day of each fiscal year and shall be calculated through the
date of determination. "Accumulated Operating Loss" shall mean,
with respect to the period of determination, the following
calculation, provided that such calculation results in a number
less than zero: (a) the sum of the Parent's consolidated net
income (or loss) after taxes as determined in accordance with
GAAP, plus, the sum of all extraordinary losses (and any unusual
losses arising outside the ordinary course of business not
included in extraordinary losses determined in accordance with
GAAP), minus (b) the sum of all extraordinary gains (and any
unusual gains arising outside the ordinary course of business not
included in extraordinary gains determined in accordance with
GAAP). "Accumulated Operating Profit" shall mean, with respect
to the period of determination, the following calculation,
provided that such calculation results in a number greater than
zero: (a) the sum of the Parent's consolidated net income (or
loss) after taxes as determined in accordance with GAAP, plus,
the sum of all extraordinary losses (and any unusual losses
arising outside the ordinary course of business not included in
extraordinary losses determined in accordance with GAAP), minus
(b) the sum of all extraordinary gains (and any unusual gains
arising outside the ordinary course of business not included in
extraordinary gains determined in accordance with GAAP).
8 Financial Information and Reporting
The Parent shall deliver the following to the Bank on a
consolidated and consolidating basis:
(a) within 30 days after the end of each month, financial
statements, including a balance sheet and statements of income
and surplus, of each of the Companies, certified by the president
or chief financial officer of the Parent (a "Financial Officer")
as fairly representing each Company's financial condition as of
the end of such period, and within 45 days after the end of each
quarter, financial statements, including a balance sheet and
statements of income and surplus, and a statement of cash flows
of the Companies, on a combined and consolidated basis, certified
by a Financial Officer as fairly representing the Companies'
financial condition as of the end of such period;
(b) within 45 days after the end of each quarter,
statements signed by a Financial Officer certifying the
compliance of each of the Companies with the terms of this
Agreement and the calculation of the financial covenants
contained in Section 7 above;
(c) a current loan and collateral report, borrowing
certificate, or other writings satisfactory to the Bank for the
calculation of, or setting forth the calculation of the Borrowing
Base with each advance request pursuant to the Loan if the
Borrowing Base does not reflect sufficient availability for such
advance, but, in any event, no less frequently than once every
month within 30 days after the end of such month;
(d) within 30 days after the end of each month, an accounts
reconciliation report and an inventory reconciliation report,
signed by a Financial Officer, in detail satisfactory to the
Bank;
(e) within 30 days after the end of each month, a report
signed by a Financial Officer setting forth the number and dollar
total of each Borrower's accounts receivable past due for not
more than 30 days, the number and dollar total past due for not
more than 60 days, the number and dollar total past due for not
more than 90 days, and the number and dollar total past due for
more than 90 days;
(f) within 30 days after the end of each month, a report
signed by a Financial Officer setting forth the number, dollar
amount and party of each Borrower's accounts payable remaining
due and payable less than 31 days from the date of the original
invoice therefor, less than 6l days from the date of the original
invoice therefor, less than 9l days from the date of the original
invoice therefor, and more than 90 days from the date of the
original invoice therefor;
(g) within 90 days after the end of each fiscal year,
audited unqualified financial statements with consolidating
schedules, prepared in accordance with generally accepted
accounting principles consistently applied and certified by
independent public accountants satisfactory to the Bank,
containing a balance sheet, statements of income and surplus,
statements of cash flows and reconciliation of capital accounts,
along with any management letters written by such accountants;
(h) within 90 days after the end of each fiscal year, a
statement signed by the Parent's independent public accountants
certifying that during the course of their examination, nothing
has come to their attention that would leave them to believe that
the Companies are in violation of the terms of this Agreement;
(i) within 60 days after the end of each fiscal year,
financial projections with respect to each of the Companies'
projected financial conditions for the current fiscal year;
(j) immediately upon the filing or release, as the case may
be, copies of any Securities and Exchange Commission or State
Securities Law disclosures, filings, documents or any press
releases; and
(k) at the request of the Bank, such other information as
the Bank may from time to time reasonably require.
9 Default
9.1 Events of Default
An "Event of Default" shall exist if any of the following occurs
and is continuing: (a) any of the Companies fail to make any
payment on any note executed in connection with this Agreement on
or before the date such payment is due; (b) any of the Companies
fail to perform or observe any covenant contained in Sections
3.2, 4, 7.1 through and including 7.11, or 8 of this Agreement;
(c) any of the Companies fail to comply with any other provision
of this Agreement, and such failure continues for more than 30
days after such failure shall first become known to any officer
of the Companies; (d) any warranty, representation or other
statement by or on behalf of the Companies contained in this
Agreement or in any instrument furnished in compliance with or in
reference to this Agreement is false or misleading in any
material respect, or any of the Companies fail to perform or
observe any covenant contained in any mortgage, security
agreement or other agreement in favor of the Bank; (e) any of the
Companies become insolvent or make an assignment for the benefit
of creditors, or consent to the appointment of a trustee,
receiver or liquidator; (f) bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings are instituted
by or against any of the Companies; (g) a final judgment or
judgments for the payment of money aggregating in excess of
$100,000.00 is or are outstanding against any of the Companies
and any such judgment or judgments have not been discharged in
full or stayed; (h) the occurrence of any event which allows the
acceleration of the maturity of any indebtedness in excess of
$100,000.00, if any, of the Companies to the Bank, any of the
Bank's affiliates, or any other person, corporation or entity
under any indenture, agreement or undertaking; (i) the default
by, dissolution of, or death of any guarantor, insurer or other
surety for any of the Companies with respect to any obligation or
liability to the Bank; (j) the collateral furnished as security
declines in value, and the Companies do not immediately, upon
demand, furnish additional security satisfactory to the Bank; or
(k) the Bank for any reason in good faith deems itself insecure
with respect to the repayment of the indebtedness provided for
herein.
9.2 Default Remedies
If an Event of Default exists, the Bank may immediately exercise
any right, power or remedy permitted to the Bank by law or any
provision of this Agreement, and shall have, in particular,
without limiting the generality of the foregoing, the right to
declare the entire principal and all interest accrued on all
notes then outstanding pursuant to this Agreement to be forthwith
due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are hereby expressly
waived by each of the Companies.
10 Miscellaneous
10.1 Notices
(a) All communications under this Agreement or under the notes
executed pursuant hereto shall be in writing and shall be sent by
facsimile or mailed by first class mail, postage prepaid, (1) if
to the Bank, at the following address, or at such other address
as may have been furnished in writing to such Company by the
Bank:
The Huntington National Bank
41 South High Street
Columbus, Ohio 43215
Attn: Thomas Myers, Vice President
614-480-4814 (fax), confirmation by telephone 614-480-
4893
(2) if to any of the Companies, at the following address, or at
such other address as may have been furnished in writing to the
Bank by the Parent:
Pages, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
Attn: S. Robert Davis, Chairman, and Steven L. Canan
813-578-3101 (fax), confirmation by telephone 813-578-
3200
(b) any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so mailed and any
notice sent by facsimile shall be deemed to be given when
confirmed.
10.2 Reproduction of Documents
This Agreement and all documents relating hereto, including,
without limitation, (a) consents, waivers and modifications which
may hereafter be executed, (b) documents received by the Bank at
the closing or otherwise, and (c) financial statements,
certificates and other information previously or hereafter
furnished to the Bank, may be reproduced by the Bank by any
photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process and the Bank may destroy
any original document so reproduced. Each of the Companies
agrees and stipulates that any such reproduction shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the
Bank in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
10.3 Survival, Successors and Assigns
All warranties, representations, and covenants made by any of the
Companies herein or on any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the Bank and shall survive
the closing of the Loan regardless of any investigation made by
the Bank on its behalf. All statements in any such certificate
or other instrument shall constitute warranties and
representations by each of the Companies. This Agreement shall
inure to the benefit of and be binding upon the heirs, successors
and assigns of each of the parties.
10.4 Amendment and Waiver, Duplicate Originals
This Agreement may be amended, and the observance of any term of
this Agreement may be waived, with (and only with) the written
consent of the Companies and the Bank; provided however that
nothing herein shall change the Bank's sole discretion (as set
forth elsewhere in this Agreement) to make advances,
determinations, decisions or to take or refrain from taking other
actions. No delay or failure or other course of conduct by the
Bank in the exercise of any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of the
same preclude any other or further exercise thereof, or the
exercise of any other power or right. Two or more duplicate
originals of this Agreement may be signed by the parties, each of
which shall be an original but all of which together shall
constitute one and the same instrument.
10.5 Uniform Commercial Code and Generally Accepted Accounting
Principles
Unless the context otherwise requires, all terms used herein
which are defined in the Uniform Commercial Code as enacted in
Ohio shall have the meaning stated therein, and all accounting
terms shall be determined in accordance with generally accepted
accounting principles, consistently applied. The Parent's fiscal
year begins on January 1, and ends on the last day of December,
and the Parent will not change its fiscal year without the prior
written consent of the Bank.
10.6 Enforceability and Governing Law
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction, as to such jurisdiction, shall
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. No delay or omission on the
part of the Bank in exercising any right shall operate as a
waiver of such right or any other right. All of the Bank's
rights and remedies, whether evidenced hereby or by any other
agreement or instrument, shall be cumulative and may be exercised
singularly or concurrently. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio.
Each of the Companies agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement may be
instituted in a state or federal court of appropriate subject
matter jurisdiction in the State of Ohio; waives any objection
which it may have now or hereafter to the venue of any suit,
action or proceeding; and irrevocably submits to the jurisdiction
of any such court in any such suit, action or proceeding.
10.7 Waiver of Right to Trial by Jury
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE:
AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.8 Conditions Precedent to Subsequent Money Advances
The obligation of Bank to make any disbursement or advance
subsequent to the initial disbursement or initial advance, of any
portion of the Loan is subject to all the conditions and
requirements of this Agreement and delivery of the following
required documents, or other action, all of which are conditions
precedent:
(a) Compliance. Each of the Companies shall have complied
and shall then be in compliance with all the terms, covenants and
conditions of the Agreement which are binding upon it.
(b) Continuation of Representations and Warranties: The
representations and warranties herein contained shall be true,
with the same effect as though such representations and
warranties had been made at the time of the making of such
advance, and any request for an advance shall be deemed a
representation and warranty of same.
(c) Confirmation of Conditions Precedent: Each of the
Companies shall then be in compliance with and able to confirm
all the foregoing conditions precedent with the same effect as
though such conditions precedent were requirements to the making
of any advance contemplated herein.
11 Definitions
"Account Debtor" is defined in Section 2.1.
"Accounts" is defined in Section 4.1.
"Accumulated Operating Loss is defined in Section 7.19.
"Accumulated Operating Profit is defined in Section 7.19.
"Agreements" is defined in the preamble.
"Bank" is defined in the preamble.
"Borrowers" is defined in the preamble.
"Borrowing Base" is defined in Section 1.3.
"Borrowing Certificate" is defined in Section 3.5.
"Collateral" is defined in Section 4.1.
"Company" is defined in the preamble.
"Companies" is defined in the preamble.
"Consolidated Tangible Net Worth" is defined in Section
7.12.
"Contra" is defined in Section 2.1.
"Deposits" is defined in Section 4.1.
"Eligible Accounts" is defined in Section 2.1.
"Eligible Inventory" is defined in Section 2.2.
"Eligible Notes Receivable" is defined in Section 2.3.
"Environmental Laws" is defined in Section 5.11.
"Equipment" is defined in Section 4.1.
"Existing Loan Agreement" is defined in Section 1.1.
"Existing Loan Documents" is defined in Section 1.1.
"Event of Default" is defined in Section 9.1.
"Financial Officer" is defined in Section 8.
"Hazardous Substances" is defined in Section 5.11.
"Intellectual Property" is defined in Section 4.1.
"Inventory" is defined in Section 4.1.
"Inventory Advance Rate" is defined in 1.3.
"Life Insurance" is defined in Section 4.1.
"Loan" is defined in Section 1.2.
"Loan Agreement" is defined in Section 1.1.
"Loan and Security Agreement is defined in Section 1.1.
"Material Adverse Effect" is defined in Section 5.6.
"Maximum Inventory Advance" is defined in Section 1.3.
"1992 Loan Agreement" is defined in Section 1.1.
"1994 Loan Agreement is defined in Section 1.1.
"Parent" is defined in the Preamble.
"Pending Default" is defined in Section 1.4.
"Premises" is defined in Section 5.11.
"Prime Commercial Rate" is defined in Section 3.1.
"Prime Interest Rate" is defined in Section 3.1.
Each of the parties have signed this Agreement as of the
date set forth in the Preamble above.
PAGES, INC.
By
---------------------------
S. Robert Davis
Its Chairman of the Board
PAGES BOOK FAIRS, INC.
By
Its
PAGES LIBRARY SERVICES, INC.
By_________________________________
Its________________________________
THE HUNTINGTON NATIONAL BANK
By
Its
EXHIBIT G
NOTES PAYABLE
- - Standard Printing - $250,000 Convertible Subordinated Note
given in trade for printing of product; no cash transfer.
- - Sharon Hearn/Children's Book World, Inc. - $50,713 balance;
remainder of purchase of CBW.
- - Jimmy Sparks - $53,037; remainder of purchase of Oklahoma
Book Fairs
- - Indemnification to S. Robert Davis in connection with a
certain Transaction Validity Agreement dated December 31,
1996.
<PAGE>
Exhibit 10(j)
PROMISSORY NOTE
$ 306,249.44
Date: Sept. 26, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally, promises to pay to
the order of PAGES, INC., a Delaware corporation ("Pages"), the principal sum
of Three Hundred Six Thousand Two Hundred Forty-Nine & 44/100-DOLLARS, together
with interest thereon from the above date at the rate of seven percent (7%) per
annum, both principal and interest being payable in lawful money of the United
States. The principal sum shall be due and payable three years after the date
hereof. Interest shall be payable only in the event that and only to the
extent that the fair market value of the shares of common stock of Pages
together with any shares of common stock issued as a stock dividend or
distribution thereon ("Distributed Stock") at the close of business on the date
three years after the date hereof exceeds $_1.12_ per share (the "Strike
Price"). For purposes of this Promissory Note, the fair market value of the
common stock of Pages and any Distributed Stock shall be determined by the
average between the closing bid and asked prices of such common stock on the
Nasdaq National Market. In the event that such common stock is not then listed
on the Nasdaq National Market, the fair market value shall be determined by the
method most comparable to the method described above.
All payments made hereunder shall first be applied to any outstanding
fees, costs, or expenses to which the holder of this Note may be entitled to
hereunder, then to interest, and then to principal. The principal of this Note
may be prepaid in whole or in part at any time without penalty. Time is of the
essence of this Note.
This Note is payable at 801 94th Street North, St. Petersburg, FL 33702.
The holder of this Note may from time to time designate in writing to the
undersigned such other place at which payment shall be due.
The undersigned agrees to pay all costs of collection of this Note,
including reasonable attorneys' fees. Reasonable attorneys' fees are defined
to include, but not be limited to, all fees and costs incurred in all maters of
collection and enforcement, construction and interpretation before, during, and
after suit, trial, proceedings, court-ordered mediation or arbitration, and
appeals, as well as appearances in and connected with any bankruptcy
proceedings or creditors' reorganization or similar proceedings.
In addition to any other rights of a holder of this Note, any payment of
principal or costs, fees, and expenses which is not made when due, as herein
provided, shall bear interest at the maximum contract rate of interest
permitted by law, until paid, which is presently eighteen percent (18%) per
annum.
The undersigned hereby expressly waives presentment, demand for payment,
notice of dishonor, protest, notice of nonpayment or protest, and diligence in
collection.
This Note is governed and construed by the laws of the State of Florida.
This Note is not assumable without the express, prior, written consent of
the holder of this Note. Assumption of this Note shall not release the
undersigned from his or her obligations under this Note.
Signature
S. ROBERT DAVIS
Print Name
<PAGE>
Exhibit 10(k)
PROMISSORY NOTE
$ 380,263.20
Date: Sept. 26, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally, promises to pay to
the order of PAGES, INC., a Delaware corporation ("Pages"), the principal sum
of Three Hundred Eighty Thousand Two Hundred Sixty-Three & 20/100----DOLLARS,
together with interest thereon from the above date at the rate of seven percent
(7%) per annum, both principal and interest being payable in lawful money of
the United States. The principal sum shall be due and payable three years
after the date hereof. Interest shall be payable only in the event that and
only to the extent that the fair market value of the shares of common stock of
Pages together with any shares of common stock issued as a stock dividend or
distribution thereon ("Distributed Stock") at the close of business on the date
three years after the date hereof exceeds $_1.08_ per share (the "Strike
Price"). For purposes of this Promissory Note, the fair market value of the
common stock of Pages and any Distributed Stock shall be determined by the
average between the closing bid and asked prices of such common stock on the
Nasdaq National Market. In the event that such common stock is not then listed
on the Nasdaq National Market, the fair market value shall be determined by the
method most comparable to the method described above.
All payments made hereunder shall first be applied to any outstanding
fees, costs, or expenses to which the holder of this Note may be entitled to
hereunder, then to interest, and then to principal. The principal of this Note
may be prepaid in whole or in part at any time without penalty. Time is of the
essence of this Note.
This Note is payable at 801 94th Street North, St. Petersburg, FL 33702.
The holder of this Note may from time to time designate in writing to the
undersigned such other place at which payment shall be due.
The undersigned agrees to pay all costs of collection of this Note,
including reasonable attorneys' fees. Reasonable attorneys' fees are defined
to include, but not be limited to, all fees and costs incurred in all maters of
collection and enforcement, construction and interpretation before, during, and
after suit, trial, proceedings, court-ordered mediation or arbitration, and
appeals, as well as appearances in and connected with any bankruptcy
proceedings or creditors' reorganization or similar proceedings.
In addition to any other rights of a holder of this Note, any payment of
principal or costs, fees, and expenses which is not made when due, as herein
provided, shall bear interest at the maximum contract rate of interest
permitted by law, until paid, which is presently eighteen percent (18%) per
annum.
The undersigned hereby expressly waives presentment, demand for payment,
notice of dishonor, protest, notice of nonpayment or protest, and diligence in
collection.
This Note is governed and construed by the laws of the State of Florida.
This Note is not assumable without the express, prior, written consent of
the holder of this Note. Assumption of this Note shall not release the
undersigned from his or her obligations under this Note.
Signature
CHARLES R. DAVIS
Print Name
<PAGE>
Exhibit 10(l)
PROMISSORY NOTE
$ 17,500.00
Date: Sept. 26, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally, promises to pay to
the order of PAGES, INC., a Delaware corporation ("Pages"), the principal sum
of Seventeen Thousand Five Hundred & 00/100--DOLLARS, together with interest
thereon from the above date at the rate of seven percent (7%) per annum, both
principal and interest being payable in lawful money of the United States. The
principal sum shall be due and payable three years after the date hereof.
Interest shall be payable only in the event that and only to the extent that
the fair market value of the shares of common stock of Pages together with any
shares of common stock issued as a stock dividend or distribution thereon
("Distributed Stock") at the close of business on the date three years after
the date hereof exceeds $_1.12_ per share (the "Strike Price"). For purposes
of this Promissory Note, the fair market value of the common stock of Pages and
any Distributed Stock shall be determined by the average between the closing
bid and asked prices of such common stock on the Nasdaq National Market. In
the event that such common stock is not then listed on the Nasdaq National
Market, the fair market value shall be determined by the method most comparable
to the method described above.
All payments made hereunder shall first be applied to any outstanding
fees, costs, or expenses to which the holder of this Note may be entitled to
hereunder, then to interest, and then to principal. The principal of this Note
may be prepaid in whole or in part at any time without penalty. Time is of the
essence of this Note.
This Note is payable at 801 94th Street North, St. Petersburg, FL 33702.
The holder of this Note may from time to time designate in writing to the
undersigned such other place at which payment shall be due.
The undersigned agrees to pay all costs of collection of this Note,
including reasonable attorneys' fees. Reasonable attorneys' fees are defined
to include, but not be limited to, all fees and costs incurred in all maters of
collection and enforcement, construction and interpretation before, during, and
after suit, trial, proceedings, court-ordered mediation or arbitration, and
appeals, as well as appearances in and connected with any bankruptcy
proceedings or creditors' reorganization or similar proceedings.
In addition to any other rights of a holder of this Note, any payment of
principal or costs, fees, and expenses which is not made when due, as herein
provided, shall bear interest at the maximum contract rate of interest
permitted by law, until paid, which is presently eighteen percent (18%) per
annum.
The undersigned hereby expressly waives presentment, demand for payment,
notice of dishonor, protest, notice of nonpayment or protest, and diligence in
collection.
This Note is governed and construed by the laws of the State of Florida.
This Note is not assumable without the express, prior, written consent of
the holder of this Note. Assumption of this Note shall not release the
undersigned from his or her obligations under this Note.
Signature
RANDALL J. AMSO
Print Name
<PAGE>
EXHIBIT 10(m)
SECURED PROMISSORY NOTE
$___________
Date:______________, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally,
promises to pay to the order of PAGES, INC., a Delaware
corporation ("Pages"), the principal sum of
___________________________________________ DOLLARS, together
with interest thereon from the above date at the rate of seven
percent (7%) per annum, both principal and interest being payable
in lawful money of the United States. The principal sum shall be
due and payable three years after the date hereof. Interest
shall be payable only in the event that and only to the extent
that the fair market value of the shares of common stock of Pages
together with any shares of common stock issued as a stock
dividend or distribution thereon ("Distributed Stock") at the
close of business on the date three years after the date hereof
exceeds $______ per share (the "Strike Price"). For purposes of
this Promissory Note, the fair market value of the common stock
of Pages and any Distributed Stock shall be determined by the
average between the closing bid and asked prices of such common
stock on the Nasdaq National Market. In the event that such
common stock is not then listed on the Nasdaq National Market,
the fair market value shall be determined by the method most
comparable to the method described above.
All payments made hereunder shall first be applied to any
outstanding fees, costs, or expenses to which the holder of this
Note may be entitled to hereunder, then to interest, and then to
principal. The principal of this Note may be prepaid in whole or
in part at any time without penalty. Time is of the essence of
this Note.
This Note is payable at 801 94th Street North, St.
Petersburg, FL 33702. The holder of this Note may from time to
time designate in writing to the undersigned such other place at
which payment shall be due.
The undersigned agrees to pay all costs of collection of
this Note, including reasonable attorneys' fees. Reasonable
attorneys' fees are defined to include, but not be limited to,
all fees and costs incurred in all maters of collection and
enforcement, construction and interpretation before, during, and
after suit, trial, proceedings, court-ordered mediation or
arbitration, and appeals, as well as appearances in and connected
with any bankruptcy proceedings or creditors' reorganization or
similar proceedings.
In addition to any other rights of a holder of this Note,
any payment of principal or costs, fees, and expenses which is
not made when due, as herein provided, shall bear interest at the
maximum contract rate of interest permitted by law, until paid,
which is presently eighteen percent (18%) per annum.
This Note is secured by a Stock Pledge Agreement of even
date herewith. The remedies of the holder, as provided herein
and in the Stock Pledge Agreement, shall be cumulative and
concurrent, and may be pursued singularly, successively, or
together, at the sole discretion of the holder, and may be
exercised as often as occasion therefor may arise. No act of
omission or commission of the holder, including but not limited
to any failure to exercise any right, remedy, or recourse, shall
be deemed to be a waiver or release of the holder's rights; such
a waiver or release may be effected only through a written
document signed by the holder and then only to the extent
specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar
to, or as a waiver or release of any subsequent right, remedy, or
recourse as to a subsequent event.
The undersigned hereby expressly waives presentment, demand
for payment, notice of dishonor, protest, notice of nonpayment or
protest, and diligence in collection.
This Note is payable in, and its terms and provisions are to
be governed and construed by, the laws of the State of Florida.
This Note is not assumable without the express, prior,
written consent of the holder of this Note. Assumption of this
Note shall not release the undersigned from his or her
obligations under this Note.
Signature
Print Name
<PAGE>
Pages, Inc.
801 94th Street North
St. Petersburg, FL 33702
ATTN: __________________
STOCK PLEDGE AGREEMENT
Dear Sirs:
Reference is made to the Secured Promissory Note, dated as
of the _____ day of ____________, 1996 (hereinafter, as the same
may be amended, extended, modified, or renewed from time to time,
being called the "Note"), by and between the Borrower
(hereinafter called "Borrower"), and PAGES, INC., a Delaware
corporation (hereinafter called "Lender"), pursuant to which a
loan of ______________________________ Dollars ($___________) is,
subject to the provisions thereof, simultaneously being made to
the Borrower. The Borrower hereby agrees with you as follows:
1. As security for the due and punctual payment by the
Borrower of the principal of, and interest on, and costs of
collection, including reasonable attorney's fees due under the
Note, the Borrower hereby pledges and assigns to you all his or
her right, title and interest in and to _________ shares of the
capital stock of Borrower together with any shares of common
stock issued as a stock dividend or distribution thereon
("Pledged Shares"). The Borrower hereby directs Lender to cause
the certificates evidencing such shares to be delivered to Lender
to be held until the Note is paid in full.
2. Subject to the provisions of paragraph 3 hereof, the
Borrower shall be entitled to vote the Pledged Shares and to give
consents, waivers and ratifications with respect thereto and
otherwise act with respect thereto as though he or she were the
outright owner thereof.
3. In the event of any default in the punctual payment of
the Note or in the terms of this Agreement, Lender may, upon
giving notice of intention so to do to the Borrower, in
connection therewith:
(a) exercise any one or more or all of the rights or
remedies under the Note or this Agreement, or otherwise granted
by law; and/or
(b) vote all or any of the Pledged Shares and give all
consents, waivers and ratifications with respect thereto and
otherwise act with respect thereto as though the Lender were the
outright owner thereof (the Borrower hereby irrevocably
constituting and appointing Lender its proxy and attorney-in-fact
with full power of substitution so to do whether or not the
Pledged Shares are registered in the name of Lender); and/or
(c) receive all dividends and all other distributions of
any kind on all or any of the Pledged Shares; and/or
(d) exercise any and all rights of collection, conversion
or exchange, and any and all other rights, privileges, options or
powers of the Borrower pertaining or relating to the Pledged
Shares (the Borrower hereby irrevocably constituting and
appointing Lender its proxy and attorney-in-fact with full power
of substitution so to do), although Lender shall not have any
duty to exercise any such rights, privileges, options or powers
or to sell or to otherwise realize upon any of the Pledged
Shares, as hereinafter authorized, or to preserve the same, and
Lender shall not be responsible for any failure to do so or delay
in so doing; and/or
(e) upon the expiration of ten (10) days after the
occurrence of such default and twenty (20) days after giving
written notice of intention so to do to the Borrower, sell,
assign, and deliver the whole, or, from time to time, any part of
the Pledged Shares on any exchange or trading service or at any
private sale or at public auction, with or without demand or
advertisement of the time or place of sale or adjournment thereof
or otherwise, for cash, for credit or for other property, for
immediate or future delivery, and for such price or prices and on
such terms as Lender in its uncontrolled discretion may
determine, and Lender may bid for any purchase the whole or any
part of the Pledged Shares so sold free from any right or equity
of redemption of the Borrower.
Any requirement of the Uniform Commercial Code, as enacted in
the State of Florida, for reasonable notice, shall be met if such
notice is mailed, postage prepaid, to the Borrower as provided
for herein at least twenty (20) days prior to the time of the
sale, disposition or other event or thing giving rise to the
requirement of notice.
4. Lender shall apply the proceeds of any sale of the whole
or any part of the Pledged Shares, after first deducting all
costs and expenses of collection, sale and delivery (including,
without limitation, reasonable attorney's fees and expenses)
incurred by Lender in connection with such sale, to the payment
of all or any amounts due and payable on the Note, to be applied
first to expenses, next to interest and finally to principal,
and, upon payment in full of all such amounts, shall pay over any
balance of such proceeds and other monies as according to law or
unless otherwise legally obligated to the Borrower.
5. Upon payment in full of the principal of and interest on
the Note in accordance with its terms and the payment of all
other sums payable to the Lender under the Note, the Borrower
shall be entitled to the return, at its expense, of such of the
Pledged Shares as have not theretofore been sold pursuant to the
provisions hereof.
6. To the full extent that the Borrower may lawfully so
agree, he or she will not at any time plead, claim or take the
benefit of any appraisement, valuation, stay, extension,
moratorium or redemption law now or hereafter in force in order
to prevent or delay the enforcement of this Agreement or the
absolute sale of all or any portion of the Pledged Shares, or the
possession thereof by any purchaser at any sale under
subparagraph (e) of paragraph 3 hereof, and the Borrower and all
who may claim under him as far as he now or hereafter lawfully
may, hereby waives (a) the benefit of all such laws, and (b) all
right to have all or any portion of the Pledged Shares marshaled
upon any foreclosure hereof, and agrees that any court having
jurisdiction over this Agreement may order the sale of all or any
portion of the Pledged Shares as an entirety. Upon the
expiration of the period specified in subparagraph (e) of
paragraph 3 hereof, any sale of, or the grant of options to
purchase, or any other realization upon, all or any portion of
the Pledged Shares under subparagraph (e) of paragraph 3 hereof,
shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Borrower in and to the
Pledged Shares so sold, optioned or realized upon, and shall be a
perpetual bar both in law and in equity against the Borrower and
all persons claiming or attempting to claim the Pledged Shares so
sold, optioned or realized upon, or any part thereof, from,
through, and under the Borrower. The following shall not
constitute a waiver of, or limit Lender's right to take any
action with respect to, any power of sale, lien, option or other
right hereunder, or otherwise prejudice Lender's rights as
against the Borrower in any respect: (a) any delay on Lender's
part in exercising any such right, (b) any notice or demand which
may be given to or made upon the Borrower with respect to any
such right, (c) any single or partial exercise of any such right,
or (d) the exercise of any such right without notice or demand,
except the notice of intention to the Borrower required pursuant
to subparagraph (e) of paragraph 3 hereof. Each and every remedy
given Lender shall, to the extent permitted by law, be cumulative
and shall be in addition to any other remedy given hereunder or
now or hereafter existing at law or in equity or by statute.
7. At any sale made pursuant to subparagraph (e) of
paragraph 3 hereof, Lender may bid for or purchase free from any
right of redemption on the part of the Borrower (all said rights
being also hereby waived and released to the extent permitted by
law), any portion of or all the Pledged Shares offered for sale
and may make payment on account thereof by using any claim then
due and payable to Lender by the Borrower as a credit against the
purchase price, and Lender may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further
accountability therefor.
8. This Agreement shall bind and inure to the benefit of
Lender's successors and assigns and to any subsequent holder of
the Note.
9. No modification or waiver of any of the provisions
hereof shall be effective unless in writing and signed by an
authorized officer of Lender and then only in the specific
instance for which given.
10. All notices given hereunder must be in writing and shall
be deemed to have been properly given if: (i) personally
delivered; (ii) deposited for delivery by federal express or
other nationally recognized overnight courier services; or (iii)
sent by registered or certified mail, return receipt requested,
first class postage prepaid; in each case addressed to the party
entitled to receive the same at the address specified below:
(i) If to the Borrower:
(ii) If to Lender:
Pages, Inc.
801 94th Street North
St. Petersburg, FL 33702
ATTN:________________
Either party may alter the address to which notice is to be
sent by giving notice of such change of address in conformity
with the provisions set forth above providing for the giving of
notice.
11. This pledge shall in no way limit Lender's rights to
exercise any other right or remedy Lender may have. The rights
herein granted to Lender are in addition to any other rights
Lender may have as a matter of law or otherwise.
12. Any word, paragraph, phrase or provision hereof which is
unenforceable shall be deemed severable herefrom and shall be
deemed so severed and shall not effect the enforceability of any
other portion hereof.
DATED: ________________, 1996
Very truly yours,
Signature
Print Name
ACCEPTED BY:
PAGES, INC.
By:
As
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
PAGES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Primary
Weighted average number of
common shares outstanding 5,551,000 4,930,000 4,055,000
Adjustment for stock options
which have a dilutive effect
based upon the average market
price per common stock:
Add dilutive stock options 771,000 - -
Deduct shares that could be
repurchased from the proceeds
of dilutive options (465,000) - -
-------------- ------------- -------------
Weighted average common and
common equivalent shares 5,857,000 4,930,000 4,055,000
============= =========== =============
Income/(loss) from continuing operations $ 617,215 $(6,217,357) $(391,222)
Discontinued operations before cumulative effect of
accounting change (83,181) (3,002,362) (81,210)
Cumulative effect of accounting change
994,664 -- --
-------------- ------------- -------------
Net income/(loss) 1,528,698 (9,219,719) (472,432)
Earnings adjustment (20% rule) - - -
-------------- ------------- -------------
Net income/(loss) for computation purposes $ 1,528,698 $(9,219,719) $(472,432)
============= =========== =============
Income/(loss) per common share:
Income/(loss) from continuing operations $ 0.10 $ (1.26) $ (0.10)
Discontinued operations before cumulative effect of
change in accounting principle (0.01) (0.61) (0.02)
Cumulative effect of change in accounting principle $ 0.17 $ 0.00 $ 0.00
-------------- ------------- -------------
Earnings/(loss) per common and common equivalent share $ 0.26 $ (1.87) $ (0.12)
============= =========== =============
Fully Diluted:
Weighted average number of
common shares outstanding 5,551,000 4,930,000 4,055,000
Adjustment for stock options
which have a dilutive effect
based upon the market price
for common stock at end of period:
Add dilutive stock options 785,000 - -
Deduct shares that could be
repurchased from the proceeds
of the dilutive options (319,000) - -
-------------- ------------- -------------
Fully diluted shares 6,017,000 4,930,000 4,055,000
============= =========== =============
Income/(loss) per common share:
Income/(loss) from continuing operations $ 617,215 $(6,217,357) $ (391,222)
Discontinued operations before cumulative effect of
accounting change (83,181) (3,002,362) (81,210)
Cumulative effect of accounting change 994,664 -- --
-------------- ------------- -------------
Net income/(loss) 1,528,698 (9,219,719) (472,432)
Earnings adjustment (20% rule) -- - -
-------------- ------------- -------------
Net income/(loss) for computation purposes $ 1,528,698 $(9,219,719) $ (472,432)
============= =========== =============
Income/(loss) per common share:
Income/(loss) from continuing operations $ .10 $ (1.26) $ (0.10)
Discontinued operations before cumulative effect of
change in accounting principle (0.01) (0.61) (0.02)
Cumulative effect of change in accounting principle $ 0.17 $ 0.00 $ 0.00
-------------- ------------- -------------
Earnings/(loss) per common and common equivalent share $ .26 $ (1.87) $ (0.12)
assuming full dilution
============= =========== =============
</TABLE>
<PAGE>
Exhibit 18
March 3, 1997
CA Short Company
4205 E. Dixon Boulevard
Shelby, North Carolina 28150
Dear Sirs:
We have audited the financial statements of CA Short Company
as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996, included in
your Annual Report on Form 10-K to the Securities Exchange
Commission and have issued our report thereon dated March 3,
1997. Note 1 to such financial statements contains a
description of your adoption during the year ended December
31, 1996 of a change from recognizing deferred revenue at
the conclusion of the respective prepaid safety award
programs to one of recognizing such deferred revenue over
the course of the programs based on the Company's historical
and expected redemption percentages. In our judgment, such
change is to an alternative accounting principle that is
preferable under the circumstances.
Yours truly,
Deloitte & Touche LLP
Tampa, Florida
EXHIBIT 21
SUBSIDIARIES OF
PAGES, INC.
State of Percent of Stock
Name of Subsidiary Incorporation Owned by Registrant
CA SHORT COMPANY(1) North Carolina 100%
PAGES BOOK FAIRS, INC. Florida 100%
GREAT BRITISH BOOK FAIRS, INC. Florida 100%
SCHOOL BOOK FAIRS, LTD. (2) United Kingdom 100%
JDRV, INC. Delaware 100%
PAGES LIBRARY SERVICES, INC. Florida 100%
(1) Spun-off on December 31, 1996. See Item 7.
(2) Sold on March 6, 1996. See Item 7.
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
72294 and 33-60613 of Pages, Inc. on Form S-8 of our report dated
March 21, 1997, appearing in the Annual Report on Form 10-K of Pages, Inc.
for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Tampa, Florida
March 27, 1997
<PAGE>
EXHIBIT 24
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement"), is made as of the
31st_____ day of December________________, 1996, between PAGES, INC., a
Delaware Corporation ("Pages"), and CA SHORT COMPANYCLYDE A. SHORT COMPANY,
a Delaware Corporation ("CA ShortC.A. Short").
Background Statements:
A. Pages is the holder of all the issued and outstanding shares of
capital stock of CA ShortC.A. Short.
B. It is the intention of Pages to distribute approximately all of
the currently issued and outstanding capital stock of CA ShortC.A. Short
held by it to the stockholders of Pages.
C. Pages and CA ShortC.A. Short have determined that it is necessary
and desirable to set forth the principal corporate transactions required to
effect such distribution and to set forth other agreements that will govern
certain other matters following such distribution.
In consideration of the mutual covenants and agreements made herein,
the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 General. As used in this Agreement and the Exhibits hereto, the
following terms shall have the following meanings:
Action: any action, suit arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory
or administrative agency or commission or any arbitration tribunal.
Affiliate: a legal entity or association which, directly or
indirectly, is controlled by, is in control of, or under common control
with the legal entity or association with reference to which the term
"affiliate" is used.
Agent: Huntington Trust Company as distribution agent appointed by
Pages to assist in the distribution of copies for the Information Statement
and to distribute certificates for shares of Short Common Stock pursuant to
the Distribution.
Assumed Liabilities: all liabilities arising from the conduct or
operation of the CA ShortC.A. Short Business or the ownership, or use of
assets in connection therewith whether arising before, on or after the
Distribution Date, including without limitation, CA ShortC.A. Short
employee benefit plans and the Liabilities set forth or referred to in the
audited financial statements of CA ShortC.A. Short included within the Form
10-SB.
CA ShortC.A. Short Business: the business involving the creation,
marketing and administration of safety, sales incentive, service
recognition, and holiday gift awards programs for businesses.
Code: the Internal Revenue Code of 1986, as amended, or, as the
context may require, the Internal Revenue Code applicable to the pre-
Distribution year in question.
Commission: the Securities and Exchange Commission.
Determination: means a "determination" as defined by Section 1313(a)
of the Code.
Distribution: the distribution to holders of Pages Common Stock of
all of the shares of Short Common Stock owned by Pages.
Distribution Agent: The Huntington National Bank as distribution
agent appointed by Pages to assist in the distribution of copies for the
Information Statement and to distribute certificates for shares of Short
Common Stock pursuant to the Distribution.
Distribution Date: the date of effecting the Distribution, which is
anticipated to occur on or about _______________, 1996.shall occur on the
Record Date.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Form 10-SB: the registration statement on Form 10-SB to be filed by
CA ShortC.A. Short with the Commission to effect the registration of Short
Common Stock pursuant to the Exchange Act, as such registration statement
may be amended from time to time.
Income Taxes: means all Taxes based upon or measured by income.
Information Statement: the information statement, constituting a part
of the Form 10-SB, in the form to be distributed to the holders of Pages
Common Stock as of the Record Date in connection with the Distribution, and
as it may be amended or supplemented subsequent to such dissemination.
IRS: means the Internal Revenue Service.
Liabilities: any and all claims, debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising (unless otherwise
specified in this Agreement), including all costs and expenses relating
thereto, and those debts, liabilities and obligations arising under any
law, rule, regulation, Action, threatened Action, order or consent decree
of any governmental entity or any award of any arbitration of any kind, and
those arising under any contract, commitment or undertaking.
Pages Business: the business involving the publishing and
distribution of children's leisure-based literature.
Pages Common Stock: the shares of common stock, par value $.01 per
share, of Pages.
Pages Liabilities: all of (i) the Liabilities of Pages under this
Agreement, and (ii) the Liabilities of Pages, whether arising before, on or
after the Distribution Date.
Record Date: the close of business on or about December
31, 1996.
Return: means returns, reports and forms required to be filed with
respect to Taxes.
Short Common Stock: the shares of common stock, par value $.01 per
share, of CA ShortC.A. Short.
Short Liabilities: all of (i) the Liabilities of CA ShortC.A. Short
under this Agreement, (ii) the Assumed Liabilities, and (iii) the
Liabilities arising out of any of the documents or instruments executed and
delivered by CA ShortC.A. Short pursuant to the transactions contemplated
hereby.
Taxes: means all taxes (whether federal, state, local or foreign)
based upon or measured by income and any other tax whatsoever, including,
without limitation, gross receipts, profits, sales, use, occupation, value
added, ad valorem, transfer, franchise, capital stock, net worth,
withholding, payroll, employment, excise, or property taxes, together with
any interest or penalties imposed with respect thereto.
Taxing Authority: means governmental authority, domestic or foreign,
having jurisdiction over the assessment, determination, collection, or
other imposition of taxes.
Tax Laws: means the Code, federal, state, county, local, or foreign
laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
ARTICLE II
THE DISTRIBUTION
2.01 Cooperation Prior to the Distribution.
(a) Subject to the provisions of Section 2.02, Pages and CA
ShortC.A. Short shall prepare, and CA ShortC.A. Short shall file with the
Commission, the Form 10-SB which shall include the Information Statement.
Pages and CA ShortC.A. Short shall use reasonable efforts to cause the Form
10-SB to become effective under the Exchange Act. Pages and CA ShortC.A.
Short shall prepare, and Pages shall mail to the holders of Pages Common
Stock as of the Record Date, the Information Statement, which shall set
forth appropriate disclosure concerning CA ShortC.A. Short, the
Distribution and any other appropriate matters.
(b) CA ShortC.A. Short shall use its reasonable best efforts to
cause at least one securities broker to agree to act as a market maker for
the Short Common Stock on the NASD OTC Electronic Bulletin Board Service.
(c) In addition to the Activities specifically provided for
elsewhere herein, each of Pages and CA ShortC.A. Short will use its
reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate
and make effective the transactions contemplated by this Agreement.
2.02 Pages Board Action; Conditions Precedent to the Distribution.
Pages' Board of Directors shall, in its discretion, establish the Record
Date and the Distribution Date and any appropriate procedures in connection
with the Distribution. In no event shall the Distribution occur unless the
following conditions shall, unless waived by Pages, have been satisfied:
(a) Pages' Board of Directors shall have formally finally
approved the Distribution;
(b) the Distribution shall be payable in accordance with
applicable law and all necessary regulatory approvals shall have been
received;
(c) the Form 10-SB shall have become effective under the
Exchange Act;
(d) Pages shall have received a favorable response to its
request to the Commission for "no-action" and "interpretative" positions
with respect to the Distribution;
(e) Pages shall have received the opinion in form and substance
acceptable to it of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
(the "Tax Opinion") to the effect that there is a reasonable basis for
treating the Distribution as a transaction qualifying under Section 355 of
the Internal Revenue Code the Distribution will be a tax-free spin-off
under the Code;
(f) the inter-company receivable from C.A. Short to Pages shall
have been evidenced by) CA Short shall have executed and delivered to
Pages a sub a subordinated promissory note in the principal amount of
$5,000,000 payable to Pages bearing interest at the rate of 7% per annum,
payable as described in the Form 10-SB;
(g) Pages' lender shall have consented to the Distribution CA
ShortC.A. Short's Board of Directors, as named in the Form 10-SB, shall
have been elected;
(h) CA ShortC.A. Short shall have received a commitment for a
credit facility in the minimum amount of $4.5 million upon terms acceptable
to Pages' Board of Directors;
(i) Pages Board of Directors shall have received a fairness
opinion with respect to the Distribution from an investment banking firm;
(ijh) CA ShortC.A. Short shall have obtained insurance (or
binders therefor) providing coverage to CA ShortC.A. short and its
directors and officers for Director and Officer Liability matters
reasonably satisfactory to CA ShortC.A. Short; and
(jki) no preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental regulatory or administrative agency or commission and no
statute, rule, regulation or executive order promulgated by any
governmental authority shall be in effect which would make illegal or
otherwise prevent the Distribution.
2.03 The Distribution. The Distribution shall be effective on the
Distribution Date and Pages shall no longer be the owner of any shares of
Short Common Stock as of that date even though certificates evidencing the
ownership of Short Common Stock are not mailed until later. On the
Distribution Date, subject to the conditions set forth in this Agreement,
Pages shall deliver to the Distribution Agent a certificate or certificates
representing all of the Short Common Stock then held by Pages, endorsed in
blank, and shall instruct the Distribution Agent, except as otherwise
provided in Section 2.04, to distribute to each holder of record of Pages
Common Stock on the Record Date a certificate or certificates representing
one and one half shares of Short Common Stock for each fiveten shares of
Pages Common Stock so held. CA ShortC.A. Short agrees to provide all
certificates for shares of CA ShortC.A. Short Common Stock that the
Distribution Agent shall require in order to effect the Distribution.
2.04 Sale of Fractional Shares. The Distribution Agent shall not
distribute any fractional share of Short Common Stock ("Fractional Share")
to any holder of Pages Common Stock. The Distribution Agent shall
aggregate all such Fractional Shares and sell them in an orderly manner
after the Distribution Date in the open market and, after completion of
such sales and within twenty (20) forty-five (45) trading days after the
Distribution Date, distribute a pro rata portion of the proceeds from such
sales, based upon the average gross selling price of all such Short Common
Stock, less appropriate deductions of any amount required for tax
withholding purposes and a pro rata portion of the aggregate brokerage
charges, commissions and transfer taxes payable in connection with such
sales, to each holder of Pages Common Stock who would otherwise have
received a Fractional Share.
2.05 Fees and Expenses of Distribution Agent. The fees and expenses
of the Distribution Agent shall be paid by Pages.
2.06 Cooperation After the Distribution. CA ShortC.A. Short shall use
its reasonable best efforts to ensure that the representations of CA
ShortC.A. Short set forth in the Tax Opinion are true and correct and
continue after the Distribution to be true and correct.
ARTICLE III
TRANSITION ARRANGEMENTS
3.01 Conduct of CA ShortC.A. Short Business Pending Distribution.
Prior to the Distribution Date, CA ShortC.A. Short shall not, without the
prior consent in writing of Pages, make any public announcement or issue
any press release regarding the Distribution and each of Pages and CA
ShortC.A. Short shall use its best efforts not to take any action which may
prejudice or delay the consummation of the Distribution.
3.02 Subordinated Note. On the Distribution Date, CA Short shall
execute and deliver to Pages a Subordinated Note in the principal amount of
$5,000,000 and Security Agreement as described in the Form 10.
ARTICLE IV
INDEMNIFICATION
4.01 CA ShortC.A. Short Indemnification of Pages. On and after the
Distribution Date, CA ShortC.A. Short shall indemnify, defend and hold
harmless Pages and each of its directors, officers and Affiliates other
than CA ShortC.A. Short (the "Pages Indemnitees") from and against any and
all damage, loss, liability and expense (including, without limitation,
reasonable expenses of investigation and reasonable attorney's fees and
expenses in connection with any and all Actions or threatened Actions)
(collectively, "Indemnifiable Losses") incurred or suffered by any of the
Pages Indemnitees and arising out of, or due to the failure of CA ShortC.A.
Short to pay, perform or otherwise discharge, any of the Short Liabilities.
4.02 Pages Indemnification of CA ShortC.A. Short. On and after the
Distribution Date, Pages shall indemnify, defend and hold harmless CA
ShortC.A. Short and each of its directors, officers and Affiliates other
than Pages (the "Short Indemnitees") from and against any and all
Indemnifiable Losses incurred or suffered by any of the Short Indemnitees
and arising out of, or due to the failure of Pages to pay, perform or
otherwise discharge, any of the Pages Liabilities.
4.03 CA ShortC.A. Short Release of claims Against Pages Indemnities.
Except as otherwise provided in this Agreement, CA ShortC.A. Short hereby
releases, effective upon the Distribution Date, the Pages Indemnitees from
and against any claim that CA ShortC.A. Short may have against any such
Pages Indemnitee which relates to events, actions or omissions taken or
occurring prior to the distribution Date; provided, however, that the
foregoing release shall not apply to Pages' obligations to satisfy any of
the Pages Liabilities.
ARTICLE V
INDEMNIFICATION PROCEDURES
5.01 Notice and Payment of Claims. If any Pages Indemnitee or Short
Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification by any party (the "Indemnifying Party") under
Article IV (other than in connection with any Action or claim subject to
Section 5.02), the Indemnified Party shall deliver to the Indemnifying
Party a written notice specifying, to the extent reasonably practicable,
the basis for its claim for indemnification and the amount for which the
Indemnified Party believes it is entitled to be indemnified. After the
Indemnifying Party shall have been notified of the amount for which the
Indemnified Party seeks indemnification, the Indemnifying Party shall,
within thirty (30) days after receipt of such notice, pay the Indemnified
Party such amount in cash or other immediately available funds unless the
Indemnifying Party objects to the claim for indemnification or the amount
thereof. If the Indemnifying Party does not give the Indemnified Party
written notice objecting to such claim and setting forth the grounds
therefor within the same 30-day period, the Indemnifying Party shall be
deemed to have acknowledged its liability for such claim and the
Indemnified Party may exercise any and all of is rights under applicable
law to collect such amount.
5.02 Notice and Defense of Third-Party Claims. Promptly following the
earlier of (a) receipt of notice of the commencement by a third party of
any Action against or otherwise involving any Indemnified Party or (b)
receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written
notice thereof. The failure of the Indemnified Party to give notice as
provided in this Section 5.02 shall not relieve the Indemnifying Party of
its obligations under this Agreement, except to the extent that the
Indemnifying Party is prejudiced by such failure to give notice. Within 30
days after receipt of such notice, the Indemnifying Party may (a) by giving
written notice thereof to the Indemnified Party, acknowledge liability for
and at its option elect to assume the defense of such Third-Party Claim at
its sole cost and expense or (b) object to the claim of indemnification set
forth in the notice delivered by the Indemnified Party pursuant to the
first sentence of this Section 5.02; provided that if the Indemnifying
Party does not within the same 30 day period give the Indemnified Party
written notice objecting to such claim and setting forth the grounds
therefor, the Indemnifying Party shall be deemed to have acknowledged its
liability for such Third-Party Claim. Any contest of a Third-Party Claim
as to which the Indemnifying Party has elected to assume the defense shall
be conducted by attorneys employed by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party; provided that the Indemnified party
shall have the right to participate in such proceedings and to be
represented by attorneys of its own choosing at the Indemnified Party's
sole cost and expense. If the Indemnifying Party assumes the defense of a
Third-Party Claim, the Indemnifying Party may settle or compromise the
claim without the prior written consent of the Indemnified Party; provided
that the Indemnifying Party may not agree to any such settlement pursuant
to which any such remedy or relief, other than monetary damages for which
the Indemnifying Party shall be responsible hereunder, shall be applied to
or against the Indemnified Party, without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld.
Notwithstanding anything in this Article V to the contrary, such
Indemnifying Party shall not waive its attorney-client privilege in
connection with such Third-Party Claim without the prior written consent of
the Indemnified Party. If the Indemnifying Party does not assume the
defense of a Third-Party Claim for which it has acknowledged liability of
indemnification under Article IV, the Indemnified Party may require the
Indemnifying Party to reimburse it on a current basis for its reasonable
expenses of investigation, reasonable attorney's fees and reasonable out-of-
pocket expenses incurred in defending against such Third-Party Claim and
the Indemnifying Party shall be bound by the result obtained with respect
thereto by the Indemnified Party; provided that the Indemnifying Party
shall not be liable for any settlement effected without its consent, which
consent shall not be unreasonably withheld. The Indemnifying Party shall
pay to the Indemnified Party in cash the amount for which the Indemnified
Party is entitled to be indemnified (if any) within fifteen (15) days after
the final resolution of such third-Party Claim (whether by the final
nonappealable judgment of a court of competent jurisdiction or otherwise)
or, in the case of any Third-Party Claim as to which the Indemnifying Party
has not acknowledged liability, within fifteen (15) days after such
Indemnifying Party's objection has been resolved by settlement, compromise
or the final nonappealable judgment of a court of competent jurisdiction.
ARTICLE VI
ACCESS TO INFORMATION AND SERVICES
6.01 Provision of Corporate Records. Upon CA ShortC.A. Short's
request, Pages shall arrange as soon as practicable following the
Distribution Date for the delivery to CA ShortC.A. Short of existing CA
ShortC.A. Short corporate records in the possession of Pages, together with
all active agreements and any active litigation files relating to the CA
ShortC.A. Short Businesses, except to the extent such items are already in
the possession of CA ShortC.A. Short. Such records shall be the property
of CA ShortC.A. Short, but shall be available to Pages for review and
duplication until Pages shall notify CA ShortC.A. Short in writing that
such records are no longer of use to Pages.
6.02 Access to Information. From and after the Distribution Date,
Pages shall afford to CA ShortC.A. Short and its authorized accountants,
counsel and other designated representatives reasonable access (including
using reasonable efforts to give access to persons or firms possessing
information) and duplicating rights during normal business hours to all
records, books, contracts, instruments, computer data and other data and
information (collectively, "Information") within Pages' possession relating
to the CA ShortC.A. Short Business, insofar as such access is reasonably
required by CA ShortC.A. Short. CA ShortC.A. Short shall afford to Pages
and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to
give access to persons or firms possessing information) and duplicating
rights during normal business hours to Information within CA ShortC.A.
Short's possession relating to the Pages Business, insofar as such access
is reasonably required by Pages. Information may be requested under this
Article VI for, without limitation, audit, accounting, claims, litigation
and tax purposes, as well as for purposes of fulfilling disclosure and
reporting obligations and for performing the transactions contemplated in
this Agreement.
6.03 Securities Filings. For a period of five years following the
Distribution Date, each of Pages and CA ShortC.A. Short shall provide to
the other, promptly following such time at which such documents shall be
filed with the Commission, copies of all documents which shall be publicly
filed with the Commission pursuant to the periodic and interim reporting
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder.
6.04 Provision of Services. Following the Distribution Date, each
party upon written request, shall make available to the other party, during
normal business hours and in a manner that will not unreasonably interfere
with such party's business, its financial, tax, accounting, legal, employee
benefits and similar staff services (collectively "Services") whenever and
to the extent that they may be reasonably required in connection with the
preparation of tax return, audits, claims, litigation or administration of
employee benefit plans, and otherwise to assist in effecting an orderly
transition following the Distribution.
6.05 Production of Witnesses. At all times from and after the
Distribution Date, each of Pages and CA ShortC.A. Short shall use
reasonable efforts to make available to the other, upon written request,
its officers, directors, employees and agents as witnesses to the extent
that such persons may reasonably be required in connection with legal,
administrative or other proceedings in which the requesting party may from
time to time be involved.
6.06 Reimbursement. A party providing Information or Services to the
other party under this Article VI shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket
expenses, as may be reasonably incurred in providing such information or
services.
6.07 Retention of Records. For the period of five (5) years following
the Distribution Date, each of Pages and CA ShortC.A. Short shall retain
all information relating to the other, except as otherwise required by law
or except to the extent that such information is in the public domain or in
the possession of the other party; provided, however, after the expiration
of such retention period, such information shall not be destroyed or
otherwise disposed of at any time, unless, prior to such destruction or
disposal (a) the party proposing to destroy or otherwise dispose of such
information provide not less than ninety (90) days prior written notice to
the other, specifying in reasonable detail the information proposed to be
destroyed or disposed of and (b) if a recipient of such notice shall
request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed
of be delivered to such requesting party, the party proposing the
destruction or disposal shall promptly arrange for the delivery of such of
the information as was requested, at the expense of the party requesting
such information.
6.08 Confidentiality. Subject to any contrary requirement of law and
the right of each party to enforce its rights hereunder in any legal
action, each party shall keep strictly confidential and cause its employees
and agents to keep strictly confidential any information of or concerning
the other party which it or any of its agents or employees may acquire
pursuant to, or in the course of performing its obligations under any
provisions of this Agreement; provided, however, that such obligation to
maintain confidentiality shall not apply to information which (i) at the
time of disclosure was in the public domain, not as a result of improper
acts by the receiving party, (ii) was already independently in the
possession of the receiving party at the rtime of disclosure or (iii) is
received by the receiving party from a third party who did not receive such
information from the disclosing party under an obligation or
confidentiality.
ARTICLE VII
TAX MATTERS
7.01 Tax Indemnification by Pages. Pages shall indemnify and hold CA
ShortC.A. Short and any successor corporation thereto or Affiliate thereof
harmless from and against the following Taxes arising from or attributable
to the business or operations of CA ShortC.A. Short or Pages or their
respective Affiliates:
(a) any and all Taxes arising in or attributable to any taxable
period ending (or deemed, pursuant to Section 7.03, to end) on or before
the Distribution Date except for Taxes of CA ShortC.A. Short which are not
yet due and payable as of the Distribution Date and are provided for in the
financial statements of CA ShortC.A. Short; and
(b) any several liability of such Pages and CA ShortC.A. Short
under Treasury Regulations Section 1.1502 - 6 or under any comparable or
similar provisions under state, local or foreign laws or regulations for
periods ending on or prior to the Distribution Date.
7.02 Tax Indemnity by CA ShortC.A. Short. CA ShortC.A. Short shall
indemnify and hold Pages and any successor corporations thereto and any
Affiliates (other than Pages) thereof harmless from and against the
following Taxes arising from or attributable to the CA ShortC.A. Short
Business: (a) any and all Taxes arising in or attributable to any taxable
period beginning (or deemed, pursuant to Section 7.03, to begin) after the
Distribution Date, due or payable by CA ShortC.A. Short or by Pages; (b)
Taxes arising in or attributable to any taxable period ending (or deemed
pursuant to Section 7.03, to end) on or before the Distribution Date to the
extent provided for in the financial statements of CA ShortC.A. Short and
not yet due and payable as of the Distribution Date. CA Short shall not be
obligated hereunder to indemnify Pages in the event that the Distribution
does not constitute a tax-free spin-off under Section 355 of the Internal
Revenue Code.
7.03 Allocation of Certain Taxes:
(a) CA ShortC.A. Short and Pages agree that if CA ShortC.A.
Short or Pages are permitted but not required under applicable foreign,
state or local tax laws to treat the Distribution Date as the last day of a
taxable period, CA ShortC.A. Short and Pages shall treat such day as the
last day of a taxable period. CA ShortC.A. Short and Pages agree that they
will treat CA ShortC.A. Short as if such entity ceased to be part of Pages'
affiliated group, within the meaning of Section 1504 of the Code, as of the
close of business on the Distribution Date.
(b) Any Taxes for a taxable period beginning before the
Distribution Date and ending after the Distribution Date with respect to CA
ShortC.A. Short shall be paid by Pages or CA ShortC.A. Short, and the Taxes
for such period shall be apportioned for purposes of Section 7.01 and
Section 7.02 between Pages and CA ShortC.A. Short based on the portion of
such period ending on the Distribution Date and the portion of such period
beginning on the day following the Distribution Date, and for purposes of
this Agreement, each portion of such period shall be deemed to be a taxable
period (whether or not it is in fact a taxable period).
7.04 Filing Responsibility.
(a) Pages shall prepare and file or shall cause CA ShortC.A.
Short to prepare and file the following Returns with respect to CA
ShortC.A. Short:
(i) all Returns relating to Taxes for any taxable
period ending on or before the Distribution Date other
than Returns for Taxes referred to in Section 7.03(b),
and
(ii) all other Returns required to be filed
(taking into account extensions) on or before the
Distribution Date.
(b) CA ShortC.A. Short shall, subject to the provisions of
Section 7.04(c), prepare and file all other Returns with respect to CA
ShortC.A. Short required to be filed (taking into account extensions) after
the Distribution Date.
(c) With respect to any Return for taxable periods beginning
before the Distribution Date and ending after the Distribution Date, CA
ShortC.A. Short shall consult with Pages concerning each such Return and
report all items with respect to the period ending on the Distribution Date
in accordance with the instructions of Pages, unless otherwise agreed by
Pages and CA ShortC.A. Short. CA ShortC.A. Short shall provide Pages with
a copy of each proposed Return at least thirty (30) days prior to the
filing of such Return, and Pages may provide comments to CA ShortC.A.
Short, which comments shall be delivered to CA ShortC.A. Short within
fifteen (15) days after receiving such copies from CA ShortC.A. Short.
7.05 Refunds and Carrybacks.
(a) Pages shall be entitled to an amount equal to any refunds or
credits of Taxes attributable to taxable periods (or portions thereof,
determined in accordance with Section 7.03(b)) ending on or before the
Distribution Date, other than any such refunds or credits provided for in
the financial statements of CA ShortC.A. Short.
(b) CA ShortC.A. Short shall be entitled to any refunds or
credits of Taxes attributable to taxable periods (or portions thereof,
determined in accordance with Section 7.03(b)) beginning on or after the
Distribution Date or provided for in the financial statements of CA
ShortC.A. Short.
(c) CA ShortC.A. Short agrees that, with respect to any Tax, CA
ShortC.A. Short shall not carry back any item of loss, deduction or credit
which arises in any taxable period ending after the Distribution Date
("subsequent loss") into any taxable period ending on or before the
Distribution Date. If a subsequent loss with respect to any Tax is carried
back into any taxable period ending on or before the Distribution Date,
Pages shall be entitled to any refund or credit of Taxes realized as a
result thereof.
7.06 Cooperation and Exchange of Information.
(a) CA ShortC.A. Short and Pages and their respective Affiliates
shall cooperate in the preparation of all Returns relating in whole or in
part to taxable periods ending on or before or including the Distribution
Date that are required to be filed after such date. Such cooperation shall
include, but not be limited to, furnishing prior years' Returns or return
preparation packages illustrating previous reporting practices or
containing historical information relevant to the preparation of such
Returns, and furnishing such other information within such party's
possession requested by the party filing such Returns as is relevant to
their preparation. In the case of any state, local or foreign joint,
consolidated, combined, unitary or group relief system Returns, such
cooperation shall also relate to any other taxable periods in which one
party could reasonably require the assistance of the other party in
obtaining any necessary information.
(b) Pages shall have the right, at its own expense, to control
any audit or examination by any Taxing Authority ("Tax Audit"), initiate
any claim for refund, contest, resolve and defend against any assessment,
notice of deficiency, or other adjustment or proposed adjustment relating
to any and all Taxes for any taxable period ending on or before the
Distribution Date with respect to CA ShortC.A. Short. CA ShortC.A. Short
shall have the right, at its own expense, to control any other Tax Audit,
initiate any other claim for refund, and contest, resolve and defend
against any other assessment, notice of deficiency, or other adjustment or
proposed adjustment relating to Taxes with respect to CA ShortC.A. Short,
provided that, with respect to any state, local and foreign Taxes for any
taxable period beginning before the Distribution Date and ending after the
Distribution Date, CA ShortC.A. Short or Pages, as the case may be, shall
keep the other party duly informed and shall consult with each other with
respect to the resolution of any issue that would adversely affect the
other party, and not settle any such issue, without the consent of the
affected party, which consent shall not unreasonably be withheld.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Assumptions of All Assumed Liabilities. Pages agrees to obtain
consents, permits and authorizations necessary to permit CA ShortC.A. Short
to assume, and CA ShortC.A. Short agrees to assume from Pages, any Assumed
Liability which has not been assumed by CA ShortC.A. Short by the
Distribution Date.
8.02 Collection of Accounts. After the Distribution Date, Pages
agrees promptly to transfer or deliver to CA ShortC.A. Short any cash or
other property received directly or indirectly after the Distribution Date
by Pages in respect of any CA ShortC.A. Short accounts receivable.
8.03 Expenses. Except as specifically provided in this Agreement, all
internal costs and expenses incurred in connection with the preparation,
execution, delivery and implementation of this Agreement and with the
consummation of the transactions contemplated by this Agreement
(collectively, the "Distribution Costs and Expenses") shall be paid by the
party incurring such costs and expenses. Except as specifically provided
in this Agreement, all out-of-pocket Distribution Costs and Expenses
(including transfer taxes and the fees and expenses of all counsel,
accountants and financial and other advisors) shall be paid by Pages, it
being agreed such Distribution Costs and expenses are properly costs and
expenses of Pages. Without limiting the foregoing sentence, it is
understood and agreed that Pages shall pay the legal, filing, accounting,
printing and other accountable and out-of-pocket expenditures in connection
with the preparation, printing and fliiling of the Form 10-SB.
8.04 Additional Assurances. Pages and CA ShortC.A. Short agree to
cooperate with respect to the implementation of this Agreement and to
execute such further documents and instruments as may be necessary to
confirm the transactions contemplated hereby. Pages and CA ShortC.A. Short
agree that they will not take any action inconsistent with the facts and
representations set forth in the "no-action letter" request filed with the
Commission in connection with the Distribution or the conditions of the "no-
action letter" received from the Commission in connection with the
Distribution and will use their best efforts to cause the facts to remain
true and correct, to satisfy such conditions and to maintain the
effectiveness of such letter and, if either Pages or CA ShortC.A. Short
shall take any such inconsistent action, or fail to use such best efforts,
it will indemnify the other party for any expense or Liability incurred as
a consequent thereof.
ARTICLE IX
MISCELLANEOUS
9.01 Governing Law. This Agreement shall be governed by the laws of
the State of Florida.
9.02 Construction. Each provision of this Agreement shall be
interpreted in a manner to be effective and valid to the fullest extent
permissible under applicable law. The invalidity or unenforceability of
any particular provision of this Agreement shall not affect the other
provisions of this Agreement which shall remain in full force and effect.
9.03 Arbitration. Any controversy regarding, connected with or
arising from this Agreement, shall be settled by informal, speedy and
binding arbitration in Pinellas County, Florida. The conduct of the
arbitration shall be governed by Florida Arbitration Code.
9.04 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
9.05 Complete Agreement; Construction. This Agreement and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.
9.06 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in
the sole discretion of Pages without the approval of CA ShortC.A. Short.
In the event of such termination, no party shall have any liability of any
kind to any other party.
9.07 Exhibits. Exhibits to this Agreement shall be deemed to be an
integral part hereof, and schedules or exhibits to such Exhibits shall be
deemed to be an integral part thereof.
9.08 Amendments; Waivers. This Agreement may be amended or modified
only in writing executed on behalf of Pages and CA ShortC.A. Short. No
waiver shall operate to waive any further or future act and no failure to
object of forbearance shall operate as a waiver.
9.09 Notices. Notices hereunder shall be effective if given in
writing and delivered or mailed, postage prepaid, by registered or
certified mail to:
Pages, Inc.
801 94th Street North
St. Petersburg, FL 33702
Attn: S. Robert Davis
or to:
CA Short CompanyClyde A. Short Company
4205 East Dixon Boulevard
Shelby, NC 28150
Attn: Charles R. Davis
9.10 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided that this Agreement and the rights and
obligations contained herein or in any exhibit or schedule hereto shall not
be assignable, in whole or in part, without the prior written consent of
the other party and any attempt to effect any such assignment without such
consent shall be void.
<PAGE>
SIGNATURE PAGE TO
DISTRIBUTION AGREEMENT
between
PAGES, INC. and CA SHORT COMPANYCLYDE A. SHORT COMPANY
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PAGES, INC.
By:
-----------------------------
S. Robert Davis as President
CA SHORT COMPANY CLYDE A. SHORT COMPANY
By:
-------------------------------
Charles R. Davis as President
<PAGE>
EXHIBIT 25
PAGES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purpose This PAGES, Inc. Executive Incentive Compensation Plan
(the "Plan") is intended to advance the interests of PAGES, Inc., a
Delaware corporation, (the "Company") and its shareholders by providing
additional incentives to retain and reward selected executives upon whose
judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, and to provide additional motivation
for such executives to promote the Company's growth and success.
2. Definitions.
(a) "Award" means a grant of SARs under this Plan.
(b) "Beneficiary" means the person or persons last designated by
an Employee to receive amounts or rights under this Plan upon the death of
such Employee. An Employee may designate a Beneficiary, or change any
Beneficiary previously designated by him, by delivering to the Committee a
signed statement by the Employee of his or her intention that the person(s)
designated therein be the Beneficiary hereunder. In the absence of such a
designation, the Employee's estate shall be treated as his designated
Beneficiary under this Plan.
(c) "Committee" means the Compensation Committee of the Board of
Directors administering the Plan pursuant to Section 3; provided that if no
such body is appointed by the Board, the entire Board shall be the
Committee and administer this Plan.
(d) "Common Stock" means the Company's shares of common stock,
each share having a $0.01 par value.
(e) "Date of Grant" means the date on which an Award is granted
under the Plan.
(f) "Director" means a member of the Board of Directors of the
Company.
(g) "Fair Market Value" of a share of Common Stock as of a
particular date shall be the closing price of a share of Common Stock on
the NASDAQ securities exchange for such day, or if such day is not a
business day, for the next following business day.
(h) "Employee" means a person who is eligible to participate in
the Plan pursuant to Section 4 and who has been selected by the Committee
to receive an Award under this Plan.
(i) "Reorganization" means any statutory merger, statutory
consolidation, sale of all or substantially all of the assets of the
Company, or sale or exchange, pursuant to an agreement with the Company, of
securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
(j) "SAR", sometimes known as a "stock appreciation right",
means, with respect to each SAR, a right to receive financial benefits
under the terms of this Plan equal to the excess, if any, of --
(A) the sum of (i) the Fair Market Value of a share of
Common Stock as of the date of exercise of the SAR, plus (ii) the total
dividends paid (or payable) on a share of Common Stock between the Date of
Grant and the date of exercise so that the amount under this clause (ii)
will be equivalent to the amount of dividends the Employee would have
received (or been entitled to receive) had he been the owner of a share of
Common Stock from the Date of Grant to the date of exercise, over
(B) the difference between (i) the closing price of a share
of Common Stock on the NASDAQ securities exchange for the business day
immediately preceding the Date of Grant, and (ii) the Spin-Off Adjustment,
if any.
(j) "SAR Agreement" means a written agreement between the Company
and an Employee setting forth terms and conditions applicable to an SAR
granted to the Employee.
(j) "Spin-Off Adjustment" means an adjustment arising if and when
either of the Company's wholly owned subsidiaries, PAGES Book Fairs, Inc.
or Clyde A. Short Company, Inc., is spun-off to the Company's shareholders.
The "Spin-Off Adjustment" shall be the product of (i) the average closing
market price for a share of the spun-off company for the trading days
during the period beginning on the 61st day following the date such company
was spun off and ending on the 90th day following such date, multiplied by
(ii) the fraction having as its numerator the number of shares of the spun-
off company distributed to the Company's shareholders on the date of the
spin-off, and having as its denominator the number of outstanding shares of
Common Stock of the Company on such date.
For example, assume that one share of Clyde A. Short Company, Inc. is
distributed to shareholders of the Company for every two shares of the
Company owned by the shareholders and that $0.50 is the average trading
price for a share of Clyde A. Short Company, Inc. for the trading days
during the period beginning on the 61st day following the date such company
was spun off and ending on the 90th day following such date. In such a
case, the Spin-Off Adjustment would be $0.50 multiplied by 1/2, or $0.25.
3. Administration of Plan This Plan shall be administered by the
Committee. The Committee shall keep a record of all of its proceedings
and actions and shall keep all such records and other data as may be
necessary for the proper administration of this Plan. Members of the
Committee may be granted SARs only by a majority of the disinterested
members of the Committee. The Committee shall have full and final
authority in its discretion, subject to the provisions of this Plan, to
make all determinations and take all actions it deems necessary or
advisable for the proper administration of the Plan. All such actions and
determinations shall be conclusively binding for all purposes and upon all
persons.
4. Employees Awards may be granted under this Plan to any one or
more of the following persons: (i) S. Robert Davis; (ii) Charles R. Davis;
and (iii) Randall J. Asmo; (iv) William L. Clarke; and (v) Tamara L. Zeph.
5. Terms and Conditions of SARs SARs granted under this Plan shall
be evidenced by an SAR Agreement, containing such terms and in such form as
the Committee may in its discretion determine, subject to the following
limitations and conditions:
(a) Payment of Benefit Within thirty (30) days of the exercise
of an SAR by an Employee, the Company shall pay to the Employee the
financial benefit of the exercised SAR in cash, subject to applicable
withholding requirements and such other conditions set forth herein or the
applicable SAR Agreement.
(b) Period of SAR The expiration date of each SAR shall be
fixed by the Committee.
(c) Exercise of SAR The Committee shall, by the provisions
of individual SAR Agreements, specify the period or periods of time and the
extent to which each SAR is exercisable.
(d) Nontransferability of SARs No SAR shall be transferable
or assignable by an Employee other than by will or the laws of descent and
distribution, and each SAR shall be exercisable, during the Employee's
lifetime, only by the Employee. No SAR shall be subject to execution,
attachment, or similar process except with the express consent of the
Committee.
(e) Termination of Employment An Employee's unexercised SARs
shall terminate and no longer be exercisable upon the expiration of three
months after the date, if any, on which the Employee, for any reason, is
neither a Director, nor an officer nor ans employee of the Company. The
granting of an SAR to an eligible person does not alter in any way the
Company's existing rights to terminate such person's employment at any time
for any reason, nor does it confer upon such person any rights or
privileges except as specifically provided for pursuant to this Plan.
(f) Death of Employee If an Employee dies while a Director,
officer or employee of the Company, his Beneficiary's ability to exercise
the Employee's SARs shall expire unless exercised by the Beneficiary within
three months after the date of the Employee's death.
(g) Restrictions on Exercise of SARs The exercise of each SAR
shall be subject to, and shall not be effective until, the complete
satisfaction, as determined by the Committee in its discretion, of all (i)
withholding obligations, and (ii) such other conditions as may be imposed
in the SAR Agreement.
6. Adjustments
(a) Subject to the specific provisions herein providing for a
Spin-Off Adjustment in the case of certain Reorganizations, if there shall
be any other change in the Common Stock, or the stock of any spun-off
company, as a result of any merger, consolidation, reorganization,
reclassification, recapitalization, reincorporation, stock split, stock
dividend, or other like change in the capital stock of the Company,
appropriate adjustments shall be made by the Committee in the number, class
or kind of SARs theretofore granted under this Plan, in order to preserve
(but not to increase) the benefits afforded by this Plan to each Employee.
(b) In the event of the dissolution or liquidation of the
Company, or in the event of a Reorganization in which the Company is not
the surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, any SAR granted under this Plan shall terminate as of a
date to be fixed by the Committee, provided that not less than 30 days'
prior written notice of the date so fixed shall be given to each affected
Employee, and each such Employee shall have the right during such period to
exercise his SARs in whole or in part.
(c) Adjustments and determinations under this Section 6 shall be
made by the Committee, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be final,
binding, and conclusive.
7. Miscellaneous Provisions.
(a) The selection of any person to receive an Award under this
Plan shall not give such person any right to be retained in the employ of
the Company, and the right and power of the Company to discharge any such
person shall not be affected by such Award. No person shall have any right
or claim whatever, directly, indirectly or by implication, to receive an
Award, nor any expectancy thereof, unless and until an Award in fact shall
have been made to such person by the Committee as provided herein. An
Award hereunder to any person at any time shall not create any right or
implication that any other or further Award may or shall be made at another
time. Each Award hereunder shall be separate and distinct from every other
Award and shall not be construed as a part of any continuing series of
Awards or compensation.
(b) This Plan is not exclusive. The Company may have other
plans, programs and arrangements for compensation or the issuance of
shares. This Plan does not require that Employees hereunder be precluded
from participation in such other plans, programs and arrangements.
8. Effective Date of Plan; Term The effective date of this Plan is
October 8, 1996, the date of its adoption by the Board. This Plan shall
terminate no later than December 31, 1999.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as
of the 8th day of October, 1996.
PAGES, INC.
By:____________________________
Its:____________________________
<PAGE>
FIRST AMENDMENT TO
PAGES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
The PAGES, Inc. Executive Incentive Compensation Plan adopted
effective October 8, 1996 (the "Plan"), is hereby amended as of the __ day
of _________, 1996 by deleting Section 4 in its entirety and substituting
in its place the following new Section 4:
"4. Employees. Awards may be granted under this Plan to any one or
more of the following persons: (i) S. Robert Davis; (ii) Charles R. Davis;
(iii) Randall J. Asmo; (iv) William L. Clarke; (v) Steven L. Canan; and
(vi) such other persons as may from time to time and at any time be
selected by the Committee."
In all other respects the Plan is ratified and confirmed.
IN WITNESS WHEREOF, the Company has caused this Amendment to the Plan
to be executed as of the __ day of ___________, 1996.
PAGES, INC.
By:____________________________
Its:____________________________
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement (the "Agreement") is made as
of the ___ of __________, 1996, by and between PAGES, Inc., a Delaware
corporation, (the "Company") and _______________________ (the "Employee").
Preliminary Information
A. The Company has adopted the PAGES, Inc. Executive Incentive
Compensation Plan effective beginning October 8, 1996 (the "Plan"), a copy
of which is attached as Exhibit A and made a part of this Agreement.
B. In recognition of the valuable services provided by and to be
provided by the Employee, the Company has determined that its interests
will be advanced by providing to the Employee an incentive, in the form of
stock appreciation rights ("SARs"), to further promote the Company's growth
and success.
C. Where the context requires, capitalized terms not otherwise
defined in this Agreement shall have the meaning given such terms in the
attached Plan.
Agreement
In consideration of the mutual promises hereinafter set forth and for
other good and valuable consideration, the parties hereby agree as follows:
Section 1. Award of SARs.
The Company hereby grants to the Employee _______ SARs. The Employee
shall, upon exercise of each SAR, have the right and privilege to receive a
cash payment, subject to applicable withholding requirements and payable as
provided in Section 2, equal to the excess, if any, of --
(A) the sum of (i) the Fair Market Value of a share of Common
Stock as of the date of exercise of the SAR, plus (ii) the total dividends
paid (or payable) on a share of Common Stock between the date hereof and
the date of exercise so that the amount under this clause (ii) will be
equivalent to the amount of dividends the Employee would have received (or
been entitled to receive) had he been the owner of a share of Common Stock
from the date hereof to the date of exercise, over
(B) the difference between (i) $____ (the closing price of a
share of Common Stock on the NASDAQ securities exchange for the business
day immediately preceding this day), and (ii) the Spin-Off Adjustment (as
defined in Section 9(b)), if any.
For purposes of this Agreement, the "Fair Market Value" of a share of
Common Stock of the Company as of the date of exercise shall be the closing
price of a share on the NASDAQ securities exchange for such day, or if such
day is not a business day, the next following business day.
The payment to which the Employee shall be entitled under this Section
1 shall sometimes hereafter be referred to as the "SAR Benefit."
Section 2. Payment Upon Exercise.
The SAR Benefit shall be paid by the Company to the Employee in cash,
subject to applicable withholding, within 30 days of exercise of the SAR.
Section 3. Time of Exercise of SARs.
The SARs shall be exercisable at any time and from time to time on or
before ____________, 1999. All SARs shall lapse and be forfeited to the
extent not exercised on or before their termination in accordance with
Section 6 below.
Section 4. Method of Exercise of SARs.
The Employee shall exercise all or any number of SARs by written
notice to the Compensation Committee of the Company's Board of Directors in
the form attached hereto as Exhibit B. If an SAR is being exercised by the
Employee's Beneficiary, the Beneficiary's notice of exercise to the
Committee shall be accompanied by proof satisfactory to the Committee of
the right of such Beneficiary to exercise the SAR under this Agreement, the
Plan and all applicable laws and regulations.
Section 5. Conditions on Exercise.
Notwithstanding any provision to the contrary in this Agreement, the
Company's obligation to make payment upon the exercise of an SAR is further
subject to the conditions that: (i) the Employee is not, at the time of
exercise, in material breach of any of his obligations under this
Agreement, under his employment agreement with the Company, if any, or
under any other agreement with the Company; and (ii) the Employee or
Beneficiary exercising the SAR shall confirm any factual matters reasonably
requested by the Company or counsel for the Company.
Section 6. Termination of SARs.
The SARs granted hereunder, to the extent not previously exercised,
shall terminate upon the first to occur of the following dates:
(1) The expiration of three months after the first
date, if any, on which the Employee, for any reason, is
neither a Director, nor an officer nor an employee of the
Company; or
(2) ____________, 1999.
Section 7. Not an Employment Contract.
Nothing in this Agreement shall be deemed to confer on Employee any
right to continue in the employ of the Company or interfere in any way with
the right of the Company to terminate his employment at any time.
Section 8. SARs Nontransferable.
The SARs shall not be assignable or transferable, or subject to any
disposition, including hypothecation, by the Employee otherwise than by
will and the laws of descent and distribution. Any such transfer,
disposition, pledge or hypothecation shall be null and void. No SAR shall
be subject to execution, attachment or similar process except with the
express consent of the Company. During the lifetime of the Employee, the
SARs shall be exercisable only by him/her.
Section 9. Adjustments.
(a) Subject to Sections 9(b) and 9(c) below, the exercise price
or measurement of financial benefit provided for in Section 1
shall be adjusted as appropriate to reflect any recapitalizations
of the Company, including but not limited to, stock splits or
stock dividends. Any such adjustment shall be made by the
Compensation Committee of the Company's Board of Directors in
good faith and its determinations shall be binding for all
purposes.
(b) The Company is currently the parent corporation of two
wholly owned subsidiaries, PAGES Book Fairs, Inc. and Clyde A.
Short Company, Inc. If and when either of such subsidiaries is
spun-off to the Company's shareholders, a "Spin-Off Adjustment"
shall be computed. The "Spin-Off Adjustment" shall be the
product of (i) the average closing market price for a share of
the spun-off company for the trading days during the period
beginning on the 61st day following the date such company was
spun off and ending on the 90th day following such date,
multiplied by (ii) the fraction having as its numerator the
number of shares of the spun-off company distributed to the
Company's shareholders on the date of the spin-off, and having as
its denominator the number of outstanding shares of Common Stock
of the Company on such date.
For example, assume that one share of Clyde A. Short Company,
Inc. is distributed to shareholders of the Company for every two
shares of the Company owned by the shareholders and that $0.50 is
the average trading price for a share of Clyde A. Short Company,
Inc. for the trading days during the period beginning on the 61st
day following the date such company was spun off and ending on
the 90th day following such date. In such a case, the Spin-Off
Adjustment would be $0.50 multiplied by 1/2, or $0.25.
(c) In the event of the dissolution or liquidation of the
Company, or in the event of a Reorganization in which the Company
is not the surviving or acquiring company, or in which the
Company is or becomes a wholly-owned subsidiary of another
company after the effective date of the Reorganization any SAR
granted under this Plan shall terminate as of a date to be fixed
by the Committee, provided that not less than 30 days' prior
written notice of the date so fixed shall be given to each
affected Employee, and each such Employee shall have the right
during such period to exercise his SARs in whole or in part.
(d) Adjustments and determinations under this Section 9 shall be
made by the Committee, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be
final, binding, and conclusive.
Section 10. Designation of Beneficiary.
The Employee shall designate the person or persons to receive amount
or rights under this Agreement upon his death by delivering to the
Compensation Committee of the Board of Directors of the Company a signed
statement, in substantially the same form as Exhibit C. The beneficiary
designation may from time to time and at any time be amended in the same
manner. In the absence of such a designation, the Employee's estate shall
be treated as his designated Beneficiary under this Agreement.
Section 11. Miscellaneous.
(a) No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in a writing signed by the Employee and such officers
as may be specifically designated by the Company.
(b) No agreement or representations, expressed or implied, with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement or the
Plan.
(c) The Employee agrees that the Company may deduct and withhold
from any compensation otherwise payable to him/her the amounts
required to be deducted and withheld by the Company under the
provisions of any statute, law or regulations or ordinance
heretofore or hereafter enacted in connection with the grant
and/or exercise of the SARs.
(d) If shares of Company Common Stock are, at the time of
exercise of any SAR, traded on a securities exchange other than
NASDAQ, then where the context in this Agreement requires
"NASDAQ" shall be interpreted to mean such other securities
exchange.
(e) Each SAR, the manner of exercise, and the conditions placed
upon its exercise shall be subject to all the terms and
conditions of this Agreement and of the Plan, as interpreted and
administered by the Compensation Committee of the Company's Board
of Directors.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and made effective as of this _____ day of _________, 1996.
EMPLOYEE: COMPANY: PAGES, Inc.
______________________________ By:____________________________
Its:____________________________
<PAGE>
EXHIBIT B
TO: PAGES, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
NOTICE OF EXERCISE
The undersigned hereby exercises ________ SARs granted to him/her
pursuant to the PAGES, Inc. Executive Incentive Compensation Plan (the
"Plan").
The undersigned acknowledges that the exercise of SARs by this notice
is subject to the terms and provisions set forth in the Plan and the SAR
Agreement pursuant to which this exercise is made.
Signed:__________________________
Name:___________________________
(Please Type or Print)
Date:____________________________
<PAGE>
EXHIBIT C
TO: PAGES, Inc.
801 94th Avenue North
St. Petersburg, Florida 33702
BENEFICIARY DESIGNATION
The undersigned hereby designates the following person(s) as the
Beneficiary of his rights under the SAR Agreement entered into between the
Company and the undersigned on ___________, 1996:
Primary Beneficiary: ________________________________________________
If the foregoing person(s) are not living or in existence at the time
of the undersigned's death, the following person(s) shall be the
Beneficiary of such rights:
Contingent Beneficiary:_____________________________________________
Signed:__________________________
Name:___________________________
(Please Type or Print)
Date:____________________________
