<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
--------------------
GRAPHIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1101633
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
(404) 874-3327
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARK C. POPE III
Chairman of the Board
Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
(404) 874-3327
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------
Copies of Communications to:
SHAWN MARTIN, Esq.
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 572-6600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
--------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(1) PRICE(1) FEE(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value 366,029 shares $12.875 $4,712,623.30 $1,428.07
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 457(c), the proposed offering price and registration fee
are based upon the average of the high and low prices of the Common Stock on
July 16, 1997 as reported by the New York Stock Exchange.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
P R O S P E C T U S
-------------------
366,029 SHARES
GRAPHIC INDUSTRIES, INC.
COMMON STOCK
____________________
This Prospectus relates to 366,029 shares (the "Shares") of common stock,
$.10 par value ("Common Stock"), of Graphic Industries, Inc. (the "Company").
The Shares may be offered by certain shareholders of the Company from time to
time in transactions in the open market, in negotiated transactions or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholder may
effect such transactions by selling the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholder and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions). See "Sale of Shares."
The Selling Shareholders acquired the Shares from the Company on July 1,
1997 in connection with the Company's acquisition of a company owned by the
Selling Shareholders (as defined herein). See "Recent Development." The
Selling Shareholders may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). See "Selling
Shareholders" and "Sale of the Shares."
None of the proceeds from the sale of the Shares by the Selling Shareholder
will be received by the Company. The Company has agreed to bear all expenses
(other than selling commissions) in connection with the registration and sale
of the Shares being offered by the Selling Shareholders and to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act.
The Common Stock is listed on the New York Stock Exchange. On July 16,
1997, the last reported sale price of the Common Stock of the Company reported
on the New York Stock Exchange was $12.8125 per share.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
The date of this Prospectus is ________________, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement"), of which this Prospectus forms a part, covering the Shares to be
sold pursuant to this offering.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. Such additional information, exhibits and undertakings
can be inspected at and obtained from the Commission as set forth below. For
additional information regarding the Company, the Common Stock and related
matters and documents, reference is made to the Registration Statement and
exhibits thereto.
CERTAIN DOCUMENTS PREVIOUSLY FILED BY THE COMPANY WITH THE COMMISSION
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"), ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS. SEE "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." COPIES OF ANY DOCUMENTS INCORPORATED
HEREIN BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THEY ARE
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE
TO ANY PERSON TO WHOM A PROSPECTUS IS DELIVERED UPON REQUEST TO THE SECRETARY,
GRAPHIC INDUSTRIES, INC., 2155 MONROE DRIVE, N.E., ATLANTA, GEORGIA 30324
(TELEPHONE: (404) 874-3327).
The Company is subject to the informational and reporting requirements of
the Exchange Act, and accordingly files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission, as well as the Registration Statement,
are available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed
rates.
-2-
<PAGE>
THE COMPANY
The Company engages in all aspects of financial and corporate printing,
reprographic services, commercial printing, direct mail printing and other
graphic communications. It ranks approximately 17th in sales among commercial
printing firms in North America. The Company's competitive position has been
strengthened in recent years by its substantial capital investments in
advanced equipment, including computerized multicolor presses, prepress
equipment and laser scanners for color separations.
The Company has expanded its printing and graphic arts services and its
markets through a continuing program of acquisitions of established companies
in its industry and through internal growth and development. Since its
incorporation in 1970, the Company has grown from a regionally based business
with six operating companies to a network of 18 commercial printing companies
and a reprographics division with operations in the major U.S. market regions
of the Southeast, Northeast, Midwest and Southwest.
The Company's principal executive offices are located at 2155 Monroe Drive,
N.E., Atlanta, Georgia 30324. Its telephone number is (404) 874-3327.
RECENT DEVELOPMENT
On July 1, 1997, the Company acquired the assets of The Lithoprint Company,
a Texas corporation ("Lithoprint") and Lithoimage, Inc., a Texas corporation
("Lithoimage") by means of a merger of each of Lithoprint and Lithoimage with
and into a wholly-owned subsidiary of the Company pursuant to an Agreement and
Plan of Merger (the "Merger Agreement") dated July 1, 1997 among the Company,
Litho Acquisition Company, Lithoprint, Lithoimage, Dennis Eckholm and Robert
R. Vallilee. Pursuant to the Merger Agreement, the Company issued the Shares
to Dennis Eckholm and Robert R. Vallilee (the "Selling Shareholders") as
merger consideration. Under the terms of the Merger Agreement, the Company
agreed to register the Shares for resale by the Selling Shareholders and to
indemnify the Selling Shareholders against certain liabilities, including
liabilities under the Securities Act. The Registration Statement of which
this Prospectus is a part was filed with the Commission pursuant to the
registration provisions of the Merger Agreement.
SELLING SHAREHOLDER
Dennis Eckholm beneficially owns 354,590 shares of Common Stock, which are
being offered hereby (89,219 of which are being held in escrow, pursuant to
the terms of the Merger Agreement), and Robert R. Vallilee beneficially owns
11,439 shares of Common Stock which are being offered hereby (2,288 of which
are being held in escrow pursuant to the terms of the Merger Agreement).
Prior to the offering, each Selling Shareholder beneficially owned less than
one percent of the number of shares of Common Stock of the Company outstanding
on the date of this Prospectus (calculated without regard to the shares of
Common Stock issuable upon conversion of shares of Class B Common Stock or any
of the Company's convertible debentures.) Upon the sale by the Selling
Shareholders of all of the Shares and completion of the offering, assuming all
of the Shares being offered hereby are sold and that no other changes in the
Selling Shareholders' beneficial ownership occur prior to completion of this
offering, none of the Selling Shareholders will beneficially own any shares of
Common Stock of the Company.
-3-
<PAGE>
SALE OF THE SHARES
The sale of the Shares by the Selling Shareholders may be effected from time
to time in transactions in the open market, in negotiated transactions or
through a combination of such methods of sale, at fixed prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of the Shares for which such broker-dealers may act as agents
or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer may be in excess of customary compensation).
The Selling Shareholders and any broker-dealers who act in connection with
the sale of the Shares hereunder may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received
by them and profit on any resale of the Shares as principals might be deemed
to be underwriting discounts and commissions under the Securities Act. The
Company agreed to indemnify the Selling Shareholders against certain
liabilities, including liabilities under Securities Act.
LEGAL MATTERS
A legal opinion to the effect that the Shares are legally issued, fully paid
and nonassessable has been rendered by Powell, Goldstein, Frazer & Murphy,
LLP, Sixteenth Floor, 191 Peachtree Street, N.E., Atlanta, Georgia 30303.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
or incorporated by reference in the Company's Annual Report on Form 10-K for
the year ended January 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements
and schedule are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by this
reference:
(1) The Company's Annual Report on Form 10-K for the year ended
January 31, 1997 (Commission File No. 0-12204);
(2) The Company's Quarterly Report on Form 10-Q for the period ended
April 30, 1997 (Commission File No. 0-12204);
(3) The description of the Company's Common Stock contained in the
Company's Registration Statement filed pursuant to Section 12 of the
Exchange Act on Form 8-A, as amended (Commission File No. 0-12204).
-4-
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date
upon which this offering is terminated shall be deemed to be incorporated by
reference herein and to be part hereof from the date any such document is
filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded. All information appearing in this Prospectus is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference, except to the
extent set forth in this paragraph.
-5-
<PAGE>
-----------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------------------------------
-6-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration fee to the Securities
and Exchange Commission....................... $1,428.07
New York Stock Exchange Additional Listing Fee.. 1,500.00
Accounting fees and expenses.................... 2,500.00
Legal fees and expenses......................... 3,000.00
Miscellaneous expenses.......................... 200.00
Total.................................. $8,628.07
=========
The foregoing items, except for the SEC registration fee and the New York
Stock Exchange additional listing fee, are estimated. The Registrant has
agreed to bear all expenses (other than selling commissions) in connection
with the registration and sale of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-850 et seq. of the Georgia Business Corporation Code and
Article IX of the Registrant's Bylaws set forth the extent to which the
Registrant's directors and officers may be indemnified by the Registrant
against liability that they may incur while serving in such capacity. These
provisions generally provide that the directors and officers of the Registrant
will be indemnified by the Registrant against any losses incurred in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Registrant) by reason of the fact
that he is or was a director or officer of the Registrant or served with
another corporation, partnership, joint venture, trust or other enterprise at
the request of the Registrant if such director or officer acted in a manner he
reasonably believed to be in or not opposed to the best interest of the
Registrant, and with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. Under these provisions, the
Registrant may provide advances for expenses incurred in defending any such
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such officer or director to repay such advances unless it is ultimately
determined that he is entitled to indemnification by the Registrant.
The Registrant maintains an insurance policy insuring the Registrant and its
directors and officers against certain liabilities, including liabilities
under the Securities Act of 1933.
ITEM 16. EXHIBITS.
3(a) Amended and Restated Articles of Incorporation. (1)
3(b) Bylaws. (2)
4(a) See Articles V and VI of the Amended and Restated Articles of
Incorporation contained in Exhibit 3(a) and Articles II and VII of the
Bylaws contained in Exhibit 3(b).
II-1
<PAGE>
4(b) Form of Indenture, including Form of Debenture, between the Registrant
and the First National Bank of Atlanta. (3)
5 Opinion of Powell, Goldstein, Frazer & Murphy LLP, as to the legality of
the securities being registered.
23(a) Consent of Ernst & Young LLP (see page immediately preceding signature
page to this Registration Statement).
23(b) Consent of Powell, Goldstein, Frazer & Murphy LLP, is contained in its
opinion filed as Exhibit 5 hereto.
24 Power of Attorney (see signature page to this Registration Statement).
99 Merger Agreement dated July 1, 1997 among Graphic Industries, Inc.,
Litho Acquisition Company, The Lithoprint Company, Lithoimage, Inc.,
Dennis Eckholm and Robert R. Vallilee.
--------------------------------
(1) Incorporated by reference to Exhibit 3(a) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1991 (File
No. 0-12204).
(2) Incorporated by reference to Exhibit 3(b) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1992 (File
No. 0-12204).
(3) Incorporated by reference to Exhibit 4(b) of the Registrant's
Registration Statement on Form S-1 filed on April 30, 1986 (Reg.
No. 33-5277).
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not
-----------------
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction to the questions whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on July 11, 1997.
GRAPHIC INDUSTRIES, INC.
By: /s/ Mark C. Pope III
----------------------
Mark C. Pope III
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints MARK C. POPE III as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mark C. Pope III Chairman of the Board and July 11, 1997
- ----------------------------- Chief Executive Officer
Mark C. Pope III (Principal Executive Officer)
/s/ Alvan A. Herring, Jr. Director and Principal July 11, 1997
- ----------------------------- Financial Officer
Alvan A. Herring, Jr.
/s/ William A. Wood, Jr. Director July 11, 1997
- -----------------------------
William A. Wood, Jr.
/s/ John R. Pope Director July 11, 1997
- -----------------------------
John R. Pope
/s/ James A. Hatcher Director July 13, 1997
- -----------------------------
James A. Hatcher
/s/ Ralph N. Strayhorn, Jr. Director July 11, 1997
- -----------------------------
Ralph N. Strayhorn, Jr.
/s/ Warren E. Andrews Director July 11, 1997
- -----------------------------
Warren E. Andrews
/s/ Carter D. Pope Director July 11, 1997
- -----------------------------
Carter D. Pope
/s/ Leo Benatar Director July 11, 1997
- -----------------------------
Leo Benatar
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
3(a) Amended and Restated Articles of Incorporation. (1)
3(b) Bylaws. (2)
4(a) See Articles V and VI of the Amended and Restated Articles of
Incorporation contained in Exhibit 3(a) and Articles II and VII of
the Bylaws contained in Exhibit 3(b).
4(b) Form of Indenture, including Form of Debenture, between the
Registrant and First National Bank of Atlanta. (3)
5 Opinion of Powell, Goldstein, Frazer & Murphy LLP as to the legality
of the securities being registered.
23(a) Consent of Ernst & Young LLP (see page immediately preceding
signature page to this Registration Statement).
23(b) Consent of Powell, Goldstein, Frazer & Murphy LLP is contained in its
opinion filed as Exhibit 5 hereto.
24 Power of Attorney (see signature page to this Registration
Statement).
99 Merger Agreement dated July 1, 1997 among Graphic Industries, Inc.,
Litho Acquisition Company, The Lithprint Company, Lithoimage, Inc.,
Dennis Eckholm and Robert R. Vallilee.
- -------------------------------
(1) Incorporated by reference to Exhibit 3(a) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1991 (File
No. 0-12204).
(2) Incorporated by reference to Exhibit 3(b) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1992 (File
No. 0-12204).
(3) Incorporated by reference to Exhibit 4(b) of the Registrant's
Registration Statement on Form S-1 filed on April 30, 1986 (Reg.
No. 33-5277).
<PAGE>
EXHIBIT 5
---------
July 18, 1997
Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have served as counsel for Graphic Industries, Inc., a Georgia corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-3 (the
"Registration Statement"), of an aggregate of 366,029 shares (the "Shares") of
common stock, $.10 par value per share, of the Company to be sold by the Selling
Shareholders named in the Registration Statement.
We have examined and are familiar with originals or copies (certified,
photostatic or otherwise identified to our satisfaction) of such documents,
corporate records and other instruments relating to the incorporation of the
Company and to the authorization for issuance of the Shares as we have deemed it
necessary and advisable.
In all such examinations, we have assumed the genuineness of all signatures on
all originals and copies of documents we have examined, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all certified, conformed or photostatic copies. As to questions of fact
material and relevant to our opinion, we have relied upon certificates or
representations of Company officials and of appropriate state, local and federal
officials.
We express no opinion as to matters under or involving laws other than the
laws of the State of Georgia.
Based upon and subject to the foregoing and having regard for such legal
considerations as we have deemed relevant, it is our opinion that the Shares
have been duly authorized and, when issued as described in the Registration
Statement and upon receipt of consideration therefor as contemplated therein
will be, validly issued, fully paid and non-assessable.
<PAGE>
Graphic Industries, Inc.
July 18, 1997
Page 2
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement and to the
filing of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Graphic
Industries, Inc. for the registration of 366,029 shares of its common stock
and to the incorporation by reference therein of our report dated March 12,
1997, with respect to the consolidated financial statements and schedule of
Graphic Industries, Inc. included or incorporated by reference in its Annual
Report (Form 10-K) for the year ended January 31, 1997, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
July 18, 1997
<PAGE>
EXHIBIT 99
AGREEMENT AND
PLAN OF MERGER
by and among
GRAPHIC INDUSTRIES, INC.,
THE LITHOPRINT COMPANY,
LITHOIMAGE, INC.,
LITHO ACQUISITION COMPANY,
THE STOCKHOLDERS OF
THE LITHOPRINT COMPANY
and
THE STOCKHOLDERS OF LITHOIMAGE, INC.
JULY 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.............................................. 1
Section 1.1 "AAA".................................................... 1
Section 1.2 "Acquisition Corp."...................................... 1
Section 1.3 "Act".................................................... 1
Section 1.4 "Agreement".............................................. 1
Section 1.5 "Area"................................................... 1
Section 1.6 "Articles of Merger"..................................... 2
Section 1.7 "Audited Balance Sheet".................................. 2
Section 1.8 "Audited Net Book Value.................................. 2
Section 1.9 "Authorizations"......................................... 2
Section 1.10 "Cash Consideration"..................................... 2
Section 1.11 "Claim Notice"........................................... 2
Section 1.12 "Closing"................................................ 2
Section 1.13 "Closing Date"........................................... 2
Section 1.14 "Code"................................................... 2
Section 1.15 "Commission"............................................. 2
Section 1.16 "Competing Business"..................................... 2
Section 1.17 "Contracts".............................................. 2
Section 1.18 "Damages"................................................ 2
Section 1.19 "Deliverable Consideration".............................. 2
Section 1.20 "Deliverable Stock Consideration"........................ 2
Section 1.21 "Eckholm Employment Agreement............................ 3
Section 1.22 "Effective Period"....................................... 3
Section 1.23 "Effective Time"......................................... 3
Section 1.24 "Environmental Laws"..................................... 3
Section 1.25 "Environmental Permits".................................. 3
Section 1.26 "ERISA".................................................. 3
Section 1.27 "Escrow Agent"........................................... 3
Section 1.28 "Escrow Agreement"....................................... 3
Section 1.29 "Escrow Period".......................................... 3
Section 1.30 "Escrow Consideration"................................... 3
Section 1.31 "Estimated Net Book Value"............................... 3
Section 1.32 "Financial Schedule"..................................... 3
Section 1.33 "Financial Statements"................................... 3
Section 1.34 "Graphic................................................. 3
Section 1.35 "Graphic Common Stock"................................... 4
Section 1.36 "Guaranty"............................................... 4
Section 1.37 "Hazardous Substance".................................... 4
Section 1.38 "Indemnified Party"...................................... 4
Section 1.39 "Indemnifying Party"..................................... 4
Section 1.40 "Intellectual Property".................................. 4
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<PAGE>
Section 1.41 "Interim Balance Sheet"................................... 4
Section 1.42 "Interim Net Book Value".................................. 4
Section 1.44 "Lithoimage Shares........................................ 4
Section 1.45 "Lithoimage Stockholders.................................. 4
Section 1.46 "Lithoprint............................................... 4
Section 1.47 "Lithoprint Shares........................................ 4
Section 1.48 "Lithoprint Stockholders.................................. 4
Section 1.49 "Litho Companies.......................................... 4
Section 1.50 "Litho Shares............................................. 4
Section 1.51 "Litho Stockholders....................................... 4
Section 1.52 "Merger Consideration".................................... 5
Section 1.53 "Mergers.................................................. 5
Section 1.54 "Net Book Value".......................................... 5
Section 1.55 "Non Third Party Claim"................................... 5
Section 1.56 "Personal Property........................................ 5
Section 1.57 "Personal Property Leases................................. 5
Section 1.58 "Plans"................................................... 5
Section 1.59 "Preliminary Closing Balance Sheet"....................... 5
Section 1.60 "Proprietary Information"................................. 5
Section 1.61 "Real Property"........................................... 5
Section 1.62 "Real Property Leases..................................... 5
Section 1.63 "Registration Statement".................................. 5
Section 1.64 "Response Notice Period".................................. 5
Section 1.65 "Restricted Period"....................................... 6
Section 1.66 "Stock Consideration"..................................... 6
Section 1.67 "Stock Price"............................................. 6
Section 1.68 "Surviving Corporation"................................... 6
Section 1.69 "Tax Returns"............................................. 6
Section 1.70 "Taxes"................................................... 6
Section 1.71 "Texas Corporate Law"..................................... 6
Section 1.72 "Transaction Documents"................................... 6
Section 1.73 "Third Party Claim"....................................... 6
Section 1.74 "Undisclosed Liabilities"................................. 6
Section 1.75 "Vallilee Employment Agreement............................ 6
ARTICLE 2 THE MERGER...................................................... 6
Section 2.1 The Merger................................................ 6
Section 2.2 Effective Time............................................ 7
Section 2.3 Tax Consequences.......................................... 7
Section 2.4 Articles of Incorporation; Bylaws; Directors and Officers. 7
Section 2.5 Allocation of Deliverable Merger Consideration............ 7
Section 2.6 Payment of the Merger Consideration....................... 7
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<PAGE>
Section 2.7 Adjustment of Merger Consideration...................... 8
Section 2.8 Assignment of Unlisted Accounts Receivable.............. 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF LITHO
STOCKHOLDERS................................................... 10
Section 3.1 Organization; Power; Qualification...................... 10
Section 3.2 Authority............................................... 11
Section 3.3 Capital Structure....................................... 11
Section 3.4 Title to Litho Shares................................... 12
Section 3.5 No Third Party Options.................................. 12
Section 3.6 Compliance with Laws and Validity of Contemplated
Transactions............................................ 12
Section 3.7 Financial Statements.................................... 12
Section 3.8 Tax and Other Returns and Reports....................... 14
Section 3.9 Personal Property....................................... 14
Section 3.10 Real Property........................................... 15
Section 3.11 Intellectual Property................................... 15
Section 3.12 Insurance............................................... 15
Section 3.13 Litigation.............................................. 16
Section 3.14 Compliance with Laws.................................... 16
Section 3.15 Environmental Matters................................... 16
Section 3.16 Absence of Changes...................................... 18
Section 3.17 Absence of Undisclosed Liabilities...................... 18
Section 3.18 Assets.................................................. 18
Section 3.19 Employees............................................... 18
Section 3.20 Employee Benefit Plans.................................. 19
Section 3.21 Labor Matters........................................... 19
Section 3.22 Contracts and Commitments............................... 20
Section 3.23 Banks................................................... 21
Section 3.24 Transactions with Affiliates............................ 21
Section 3.25 Corporate Names......................................... 21
Section 3.26 Customer Relations...................................... 21
Section 3.27 Consents................................................ 21
Section 3.28 Broker's or Finder's Fees............................... 22
Section 3.29 Securities Representations.............................. 22
Section 3.30 Correctness of Representations.......................... 23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUISITION CORP.
AND GRAPHIC................................................... 23
Section 4.1 Organization; Power; Qualification...................... 23
Section 4.2 Authority............................................... 24
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<PAGE>
Section 4.3 Compliance with Laws and Validity of Contemplated
Transactions................................................ 24
Section 4.4 Stock Consideration......................................... 24
Section 4.5 Broker's or Finders Fees.................................... 24
Section 4.6 Graphic Reports............................................. 24
Section 4.7 Corrections of Representations.............................. 25
ARTICLE 5 OBLIGATIONS AND COVENANTS........................................ 25
Section 5.1 Conduct of the Litho Companies' Business Prior to Closing.... 25
Section 5.2 No Solicitation............................................. 26
Section 5.3 Access and Information...................................... 26
Section 5.4 Notification of Changes..................................... 26
Section 5.5 No Default.................................................. 27
Section 5.6 Tax Returns................................................. 27
Section 5.7 Allocation of Taxable Income to Short Period................ 27
Section 5.8 Other Pre-Closing Returns................................... 27
Section 5.9 Compliance with Laws........................................ 27
Section 5.10 Consent of Others........................................... 27
Section 5.11 Release of Personal Guaranties.............................. 28
Section 5.12 Filing of Notice............................................ 28
Section 5.13 Post-Closing Returns........................................ 28
Section 5.14 General Cooperation in Tax Matters.......................... 28
ARTICLE 6 CONDITIONS TO CONSUMMATION OF MERGER............................ 29
Section 6.1 Conditions to Obligations of Acquisition Corp. and Graphic.. 29
Section 6.2 Conditions to Obligations of the Litho Stockholders
and the Litho Companies..................................... 30
ARTICLE 7 REGISTRATION OF STOCK CONSIDERATION.............................. 31
Section 7.1 Registration of Stock Consideration......................... 31
Section 7.2 Furnishing Information...................................... 31
Section 7.3 Prospectus Requirements..................................... 31
Section 7.4 Registration Rights, Etc.................................... 32
Section 7.5 Indemnification............................................. 33
Section 7.6 Fees and Expenses of Registration........................... 34
ARTICLE 8 INDEMNIFICATION................................................. 34
Section 8.1 Indemnification of Acquisition Corp. and Graphic by the
Litho Stockholders......................................... 34
Section 8.2 Method of Asserting Claims.................................. 35
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<PAGE>
Section 8.3 Payment..................................................... 37
Section 8.4 Arbitration................................................. 37
ARTICLE 9 COVENANT NOT TO COMPETE......................................... 37
Section 9.1 Agreement Not to Compete.................................... 37
Section 9.2 Agreement Not to Solicit Employees.......................... 38
Section 9.3 Confidentiality............................................. 38
Section 9.4 Remedies.................................................... 38
ARTICLE 10 TERMINATION; AMENDMENTS; WAIVER................................ 38
Section 10.1 Termination................................................. 38
Section 10.2 Effect of Termination....................................... 39
ARTICLE 11 MISCELLANEOUS.................................................. 39
Section 11.1 Entire Agreement; Assignment................................ 39
Section 11.2 Validity.................................................... 39
Section 11.3 Notices..................................................... 39
Section 11.4 Governing Law............................................... 41
Section 11.5 Descriptive Headings........................................ 41
Section 11.6 Counterparts................................................ 41
Section 11.7 Expenses.................................................... 41
Section 11.8 Parties in Interest......................................... 41
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<PAGE>
Exhibits
--------
A Eckholm Employment Agreement
B Escrow Agreement
C Guaranty
D Vallilee Employment Agreement
E Opinion of Blazier, Rutland & Lerner, P.C.
F Opinion of Powell, Goldstein, Frazer & Murphy LLP
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<PAGE>
Schedules
---------
2.5 Allocation Schedule
3.1(a) Lithoprint Qualifications
3.1(b) Lithoimage Qualifications
3.3(a) Shares of Capital Stock Reacquired by Lithoprint
3.3(b) Shares of Capital Stock Reacquired by Lithoimage
3.4 Title to Litho Shares
3.7(a) Financial Statements
3.7(d) Inventories
3.9(a) Owned Personal Property
3.9(b) Leased Personal Property
3.10(a) Owned Real Property
3.10(b) Leased Real Property
3.11 Intellectual Property
3.12 Insurance
3.14 Authorizations
3.15(a) Environmental Matters
3.16 Absence of Changes
3.19 Employees
3.20(a) Employee Benefit Plans
3.21 Labor Claims
3.22 Contracts
3.23 Banks
3.25 Corporate Names
3.27 Consents
6.1(f) Required Consents
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), made and entered into
this 1st day of July, 1997, by and among Graphic Industries, Inc., a Georgia
corporation ("Graphic"), Litho Acquisition Company, a Texas corporation and
wholly-owned subsidiary of Graphic ("Acquisition Corp."), The Lithoprint
Company, a Texas corporation ("Lithoprint"); Lithoimage, Inc., a Texas
corporation ("Lithoimage" and, together with Lithoprint, the "Litho Companies");
the stockholders of Lithoprint (the "Lithoprint Stockholders"); and the
stockholders of Lithoimage (the "Lithoimage Stockholders," and, together with
the Lithoprint Stockholders, the "Litho Stockholders").
WITNESSETH:
----------
WHEREAS, the Lithoprint Stockholders own 100% of the outstanding shares of
the common stock of Lithoprint, One Dollar ($1.00) par value per share (the
"Lithoprint Shares");
WHEREAS, the Lithoimage Stockholders own 100% of the outstanding shares of
common stock of Lithoimage, One Dollar ($1.00) par value per share (the
"Lithoimage Shares"); and
WHEREAS, the Litho Stockholders, Graphic and Acquisition Corp. wish to
enter into a transaction pursuant to which each of the Litho Companies shall be
merged with and into Acquisition Corp. on the terms and conditions set forth
herein (the "Mergers");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth below and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
The following terms used in this Agreement shall have the meaning set forth
below:
Section 1.1 "AAA" shall have that meaning set forth in Section 8.4 hereof.
Section 1.2 "Acquisition Corp." shall have that meaning set forth in the
Preamble.
Section 1.3 "Act" shall mean the Securities Act of 1933, as amended.
Section 1.4 "Agreement" shall have the meaning set forth in the Preamble.
Section 1.5 "Area" shall mean a two hundred mile radius of the city limits
of Austin, Texas.
<PAGE>
Section 1.6 "Articles of Merger" shall have that meaning set forth in
Section 2.2 hereof.
Section 1.7 "Audited Balance Sheet" shall have that meaning set forth in
Section 2.7(b) hereof.
Section 1.8 "Audited Net Book Value" shall have the meaning set forth in
Section 2.7(b).
Section 1.9 "Authorizations" shall have that meaning set forth in Section
3.14 hereof.
Section 1.10 "Cash Consideration" shall mean $500,000.
Section 1.11 "Claim Notice" shall have that meaning set forth in Section
8.2(a) hereof.
Section 1.12 "Closing" shall have that meaning set forth in Section 2.2
hereof.
Section 1.13 "Closing Date" shall mean the date upon which the Closing (as
defined herein) shall occur.
Section 1.14 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.15 "Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Act.
Section 1.16 "Competing Business" shall mean graphic print communications,
including pre-press operations, printing on paper and other substrates and
binding and finishing of printed products.
Section 1.17 "Contracts" shall mean the contracts, leases, licenses,
warranties, commitments, agreements, arrangements, credit guaranties, purchase
and sale orders and contracts for the provision of services, whether oral or
written, to which either Litho Company is a party, or pursuant to which either
Litho Company has any right, benefit or obligation.
Section 1.18 "Damages" shall mean actual losses, liabilities, damages,
deficiency costs or expenses (including reasonable attorneys fees and
disbursements), less the amount of any actual tax or insurance benefits then
available to or received by the Indemnified Party with respect thereto.
Section 1.19 "Deliverable Consideration" shall mean (i) the Cash
Consideration and (ii) the Deliverable Stock Consideration.
Section 1.20 "Deliverable Stock Consideration" shall mean that number of
shares of Graphic Common Stock determined by subtracting the Escrow
Consideration from the Stock Consideration.
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<PAGE>
Section 1.21 "Eckholm Employment Agreement" shall mean the Employment
Agreement to be entered into between Dennis Eckholm and the Surviving
Corporation, substantially in the form of Exhibit A hereto.
---------
Section 1.22 "Effective Period" shall have that meaning set forth in
Section 7.4(a) hereof.
Section 1.23 "Effective Time" shall mean such time as the Mergers shall
become effective pursuant to the Texas Corporate Law.
Section 1.24 "Environmental Laws" shall have that meaning set forth in
Section 3.15(a) hereof.
Section 1.25 "Environmental Permits" shall have that meaning set forth in
Section 3.15(c) hereof.
Section 1.26 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
Section 1.27 "Escrow Agent" shall mean SunTrust Bank, Atlanta, and its
successors and assigns.
Section 1.28 "Escrow Agreement" shall mean that certain Escrow Agreement
to be entered into by and among Graphic, Acquisition Corp., the Litho
Stockholders and the Escrow Agent, substantially in the form of Exhibit B
---------
hereto.
Section 1.29 "Escrow Period" shall mean the period beginning on the
Closing Date, and ending twelve (12) months thereafter, except as such period
may be extended pursuant to the terms of the Escrow Agreement.
Section 1.30 "Escrow Consideration" shall mean that number of shares of
Graphic Common Stock representing 20% of the Merger Consideration, valued at the
Stock Price, rounded to the nearest whole number.
Section 1.31 "Estimated Net Book Value" shall have that meaning set forth
in Section 2.7(a) hereof.
Section 1.32 "Financial Schedule" shall have that meaning set forth in
Section 2.7(a) hereof.
Section 1.33 "Financial Statements" shall mean the consolidated financial
statements of the Litho Companies for the years ended December 31, 1994,
December 31, 1995, and December 31, 1996 all of which are attached hereto as
Schedule 3.7(a).
Section 1.34 "Graphic" shall have the meaning set forth in the Preamble.
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<PAGE>
Section 1.35 "Graphic Common Stock" shall mean shares of Common Stock,
$0.10 par value per share, of Graphic.
Section 1.36 "Guaranty" shall mean the Guaranty of Graphic substantially
in the form of Exhibit C hereto, which shall be issued to financial institutions
---------
or other entities or individuals at the Closing to secure those certain personal
guaranties of the Litho Stockholders for obligations of the Litho Companies
which are not released prior to or at the Closing.
Section 1.37 "Hazardous Substance" shall have the meaning set forth in
Section 3.15(a) hereof.
Section 1.38 "Indemnified Party" means the party seeking indemnification
under Section 8.2 hereof.
Section 1.39 "Indemnifying Party" means the Litho Stockholders, jointly
and severally.
Section 1.40 "Intellectual Property" shall mean all trade names,
trademarks, trade styles, service marks, patents, patent applications,
copyrights, copyright applications, trademark registrations and trademark
applications.
Section 1.41 "Interim Balance Sheet" shall mean the December 31, 1996
Balance Sheet of the Litho Companies.
Section 1.42 "Interim Net Book Value" shall mean $1,922,206; which is the
net book value as shown on the Interim Balance Sheet.
Section 1.43 "Lithoimage" shall have the meaning set forth in the
Preamble.
Section 1.44 "Lithoimage Shares" shall have the meaning set forth in the
Preamble.
Section 1.45 "Lithoimage Stockholders" shall have the meaning set forth in
the Preamble.
Section 1.46 "Lithoprint" shall have the meaning set forth in the
Preamble.
Section 1.47 "Lithoprint Shares" shall have the meaning set forth in the
Preamble.
Section 1.48 "Lithoprint Stockholders" shall have the meaning set forth in
the Preamble.
Section 1.49 "Litho Companies" shall have the meaning set forth in the
Preamble.
Section 1.50 "Litho Shares" shall mean the Lithoprint Shares and the
Lithoimage Shares.
Section 1.51 "Litho Stockholders" shall have the meaning set forth in the
Preamble.
-4-
<PAGE>
Section 1.52 "Merger Consideration" shall mean the Cash Consideration and
the Stock Consideration.
Section 1.53 "Mergers" shall have the meaning set forth in the Preamble.
Section 1.54 "Net Book Value" shall mean the total assets of the Litho
Companies minus the total liabilities (contingent or otherwise) of the Litho
Companies as of a particular date, as determined in accordance with Generally
Accepted Accounting Principles consistently applied and following the Litho
Companies' usual and customary accounting procedures.
Section 1.55 "Non Third Party Claim" shall have the meaning set forth in
Section 8.2(a) hereof.
Section 1.56 "Personal Property" shall have the meaning set forth in
Section 3.9(a).
Section 1.57 "Personal Property Leases" shall have the meaning set forth
in Section 3.9(b).
Section 1.58 "Plans" shall have that meaning set forth in Section 3.20(a)
hereof.
Section 1.59 "Preliminary Closing Balance Sheet" shall have that meaning
set forth in Section 2.7(a) hereof.
Section 1.60 "Proprietary Information" shall mean information related to
either Litho Company or the businesses of the Litho Companies (i) which derives
economic value, actual or potential, from not being generally known to, or
readily ascertainable by, other persons who can obtain economic value from its
disclosure or use and, (ii) which is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy. Assuming the foregoing
criteria are met, Proprietary Information includes, but is not limited to,
techniques or methods used in the financial affairs, processes, services,
customer lists, customer information, employees, employees' compensation,
research, development, existing and future products and services, product and
service plans and designs, purchasing, accounting, distribution systems,
marketing, formulae, compilations, programs, methods, techniques, drawings, and
suppliers of the Litho Companies.
Section 1.61 "Real Property" shall have the meaning set forth in Section
3.10(a).
Section 1.62 "Real Property Leases" shall have the meaning set forth in
Section 3.10(b).
Section 1.63 "Registration Statement" shall mean the Registration
Statement on Form S-3, including any prospectus, supplements, amendments or
post-effective amendments and exhibits to be filed by Graphic with the
Commission relating to the resale of the Stock Consideration by the Litho
Stockholders.
Section 1.64 "Response Notice Period" shall have that meaning set forth in
Section 8.2(a) hereof.
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<PAGE>
Section 1.65 "Restricted Period" shall mean the period commencing with the
Closing Date and ending on the three (3) year anniversary thereof.
Section 1.66 "Stock Consideration" shall mean that number of shares of
Graphic Common Stock determined by dividing $4,000,000 by the Stock Price and
rounding such number up to the nearest whole number.
Section 1.67 "Stock Price" means the average closing price per share of
Graphic Common Stock as reported in The Wall Street Journal for each of the
-----------------------
sixty (60) consecutive trading days ending on the sixth trading day prior to the
Closing.
Section 1.68 "Surviving Corporation" shall mean the corporation that
survives the Mergers as set forth in the Articles of Merger.
Section 1.69 "Tax Returns" shall have that meaning set forth in Section
3.8(a) hereof.
Section 1.70 "Taxes" shall have that meaning set forth in Section 3.8(a)
hereof.
Section 1.71 "Texas Corporate Law" shall mean the Texas Business
Corporation Act.
Section 1.72 "Transaction Documents" shall mean the Escrow Agreement, the
Eckholm Employment Agreement, the Vallilee Employment Agreement and the
Guaranty.
Section 1.73 "Third Party Claim" shall have that meaning set forth in
Section 8.2(a) hereof.
Section 1.74 "Undisclosed Liabilities" shall mean any other liability or
obligation of either Litho Company of any nature, direct or indirect, matured or
unmatured, absolute or contingent or otherwise, whether accrued, due, to become
due or otherwise, whether or not incurred in respect of or measured by the
income of the Litho Companies and whether or not normally shown in a financial
statement prepared in accordance with generally accepted accounting principles,
not disclosed or reflected, or specifically reserved against, in any financial
statement, including, without limitation, the Financial Statements, delivered by
the Litho Companies in accordance with this Agreement.
Section 1.75 "Vallilee Employment Agreement" shall mean the Employment
Agreement to be entered into between Robert R. Vallilee and the Surviving
Corporation substantially in the form of Exhibit D hereto.
---------
ARTICLE 2
THE MERGERS
Section 2.1 The Mergers. At the Effective Time, Lithoprint and Lithoimage
-----------
each shall be merged with and into Acquisition Corp. upon the terms and subject
to the conditions hereof and in accordance with Texas Corporate Law. Following
the Mergers, Acquisition Corp. shall continue
-6-
<PAGE>
as the Surviving Corporation and be a wholly-owned subsidiary of Graphic, and
the separate corporate existence of each Litho Company shall cease.
Notwithstanding this Section 2.1, Graphic may elect to merge either or both of
-----------
the Litho Companies into another direct subsidiary of Graphic. In such event,
the parties agree to execute an appropriate amendment to this Agreement in order
to reflect the foregoing.
Section 2.2 Effective Time. As soon as practicable after satisfaction or
--------------
waiver of all conditions to the Mergers, the parties shall cause articles of
merger (the "Articles of Merger") with respect to the Mergers to be filed and
recorded with the Secretary of the State of Texas in accordance with Section
5.04 of the Texas Corporate Law and shall take all such further actions as may
be required by law to make the Mergers effective. The Mergers shall be
effective at the Effective Time. Immediately prior to the filing of the
Articles of Merger, a closing (the "Closing") will be held on July 1, 1997 at
the offices of Blazier, Rutland & Lerner, P.C., 1500 Bank One Tower, Austin,
Texas, or such other time and place as the parties agree, provided that in no
event shall the Closing be held later than August 1, 1997.
Section 2.3 Tax Consequences. It is intended that each of the Mergers
----------------
shall constitute a reorganization within the meaning of Section 368(a)(1)(A) and
(a)(2)(D) of the Code and that this Agreement shall constitute a "plan of
reorganization" for purposes of Section 368 of the Code.
Section 2.4 Articles of Incorporation; Bylaws; Directors and Officers.
---------------------------------------------------------
The Articles of Incorporation of Acquisition Corp. and the Bylaws of Acquisition
Corp. as in effect at the Effective Time shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation following the Mergers, except that the
name of the Surviving Corporation shall be "Lithoprint Company, Inc." The Board
of Directors and officers of Acquisition Corp. at the Effective Time shall be
the Board of Directors and officers of the Surviving Corporation following the
Mergers.
Section 2.5 Allocation of Deliverable Merger Consideration. In exchange
----------------------------------------------
for the Litho Shares, each of the Litho Stockholders shall be entitled to
receive (i) an amount of cash and (ii) a number of shares of Graphic Common
Stock, constituting the Deliverable Merger Consideration to be determined in
accordance with the allocation schedule attached hereto as Schedule 2.5, subject
------------
to adjustment as set forth in Section 2.7 below.
Section 2.6 Payment of the Merger Consideration. At the Closing, upon
-----------------------------------
surrender by each of the Litho Stockholders of the stock certificates
representing the Lithoprint Shares and the Lithoimage Shares, respectively, to
be conveyed to Acquisition Corp. by each such Litho Stockholder, each such
certificate being duly endorsed or accompanied by a stock power duly executed by
the Litho Stockholder conveying such certificate, the Merger Consideration shall
be paid and distributed by Acquisition Corp. as follows:
(a) Each Litho Stockholder shall receive that portion of the Cash
Consideration as set forth in Schedule 2.5 hereto; and
------------
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<PAGE>
(b) Each Litho Stockholder shall receive a stock certificate
representing that portion of the Deliverable Stock Consideration as is set
forth in Schedule 2.5 hereto, with any fractional share being rounded to
------------
the nearest whole number; and
(c) The Escrow Agent shall receive stock certificates representing the
Escrow Consideration, which it shall hold for the Escrow Period, as set
forth in the Escrow Agreement.
Section 2.7 Adjustment of Merger Consideration.
----------------------------------
(a) Within 30 days following the Closing Date, the Litho Stockholders
shall cause to be prepared and delivered to Acquisition Corp. (i) an
unaudited combining balance sheet of the Litho Companies dated as of the
Closing Date (the "Preliminary Closing Balance Sheet"), including a
statement of income for the period beginning December 31, 1996 and ending
on the Closing Date, which shall be prepared in accordance with Generally
Accepted Accounting Principles consistently applied, except that it shall
omit, cash flows, retained earnings and all footnotes, and which shall
include the Net Book Value of the Litho Companies as of the Closing Date
(the "Estimated Net Book Value") and (ii) a schedule (the "Financial
Schedule") setting forth any proposed adjustment to the Merger
Consideration based upon the difference between the Interim Net Book Value
and the Estimated Net Book Value; provided, however, that accounts
receivable may subsequently be valued in the manner described in Section
2.7(d)(ii) hereof. Acquisition Corp. shall provide the Litho Stockholders,
and any representative of the Litho Stockholders, full access to the books
and records of the Litho Companies for purposes of preparing the
Preliminary Closing Balance Sheet and the Financial Schedule. All outside
services utilized to create the Preliminary Closing Balance Sheet and the
Financial Schedule shall be at the sole cost and expense of the Litho
Stockholders.
(b) Upon receipt of the Preliminary Closing Balance Sheet and
Financial Schedule, Graphic shall, at its expense, cause its certified
public accountants, Kanes Benator & Company L.L.C., to conduct an audit of
the Preliminary Closing Balance Sheet of the Litho Companies (the "Closing
Audit") and prepare an audited closing balance sheet (the "Audited Balance
Sheet") reflecting the audited Net Book Value as of the Closing Date (the
"Audited Net Book Value") and setting forth any proposed adjustment in the
Merger Consideration based on the difference between the Audited Net Book
Value and the Interim Net Book Value. The Closing Audit shall be completed
within sixty (60) days following receipt by Graphic of the Preliminary
Closing Balance Sheet and Financial Schedule, and shall be conducted in
accordance with Generally Accepted Auditing Standards as promulgated by the
American Institute of Certified Public Accountants and the Audited Balance
Sheet shall be prepared in accordance with Generally Accepted Accounting
Principles, consistently applied, and in the same manner as the Interim
Balance Sheet, except that it shall omit statements of income, cash flows,
retained earnings and all footnotes.
(c) The Litho Stockholders shall have fifteen (15) days following
receipt of the Audited Balance Sheet to agree or disagree with the
calculation of the Audited Net Book
-8-
<PAGE>
Value as set forth therein. If the Litho Stockholders agree within such
fifteen (15) day period, payment of any difference between the Interim Net
Book Value and the Audited Net Book Value shall be made as provided in
Section 2.7(e) hereof. Failure of the Litho Stockholders to notify Graphic
and Acquisition Corp. of a disagreement, together with a reason or reasons
therefor, shall be deemed agreement with the calculation of Merger
Consideration in the Audited Balance Sheet. If the parties do not agree,
notice of the same shall be delivered to Graphic and Acquisition Corp.
within such fifteen (15) day period, which notice shall specify the item or
items of disagreement and the reasons therefor. Such dispute shall be
resolved by arbitration, as set forth in Section 8.4 hereof.
(d) Subject to Section 8.2 hereof, the Merger Consideration to be paid
to the Litho Stockholders in the Mergers shall be adjusted, dollar for
dollar, in the aggregate as follows: (i) upward or downward, by the amount
by which the Audited Net Book Value is more or less than (whichever is the
case) the Interim Net Book Value; (ii) downward, by the face value of any
accounts or notes receivable in favor of either Litho Company which are (A)
shown on the Audited Balance Sheet, (B) in excess of any bad debt reserve
provided for in the Audited Balance Sheet, and (C) remain uncollected one
hundred and twenty (120) days after the date of the Audited Balance Sheet;
(iii) downward, by an amount equal to any loss, damage, cost or expense
(including, but not limited to, reasonable attorney's fees and court costs)
incurred by Graphic or Acquisition Corp. as a result of the breach of any
representation, warranty or covenant of the Litho Stockholders contained
herein or in the Schedules attached hereto; (iv) downward, by the face
value of any work in process of either Litho Company which is (A) shown on
the Audited Balance Sheet (following the resolution of any disputes
regarding such balance sheet) and (B) is not paid in full within 120 days
of delivery of such completed work; and (v) upward, by an amount equal to
any loss, damage, cost or expense (including, but not limited to,
reasonable attorney's fees and court costs) incurred by either Litho
Stockholder as a result of the breach of any representation, warranty or
covenant of Graphic of Acquisition Corp. contained herein.
(e) If the adjustment set forth in Section 2.7(d) hereof results in an
upward adjustment in the Merger Consideration, Graphic and the Surviving
Corporation shall pay the amount of such adjustment to the Litho
Stockholders in Graphic Common Stock valued at the Stock Price and
allocated among the Litho Stockholders as provided in Schedule 2.5 hereof.
------------
If the adjustment set forth in Section 2.7(d) hereof results in a downward
adjustment in the Merger Consideration, the Litho Stockholders shall pay
Graphic and Surviving Corporation the amount of such adjustment in Graphic
Common Stock valued at the Stock Price or in cash. In the event there is a
reduction in the Merger Consideration pursuant to this Section 2.7, the
amount of such reduction shall first be sought by Graphic and the Surviving
Corporation from the Escrow Stock Consideration in accordance with the
Escrow Agreement, and if the available Escrow Stock Consideration is not
sufficient to pay such deficiency, the Litho Stockholders shall remain
liable therefor; provided, however, that payment from the Escrow Stock
Consideration shall not be Acquisition Corp.'s exclusive source for payment
of such reduction. Any payment in Graphic Common Stock under this Section
2.7(e) shall be made by rounding the number of shares to the nearest whole
number and no fractional shares shall be paid or payable. Any payments due
under this Section
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2.7(e) shall be made within ten (10) business days following the final
determination and agreement by the parties of the Merger Consideration
adjustment under Section 2.7(d) hereof. If there is a disagreement
regarding the total amount of the adjustment, any undisputed amounts shall
be paid within ten (10) days of the notice of dispute.
(f) The following accounts receivable shall be assigned back to the
Litho Stockholders upon final settlement of the Merger Consideration: (1)
any accounts receivable which remain uncollected one hundred twenty (120)
days after the date of the Audited Balance Sheet and which result in a
downward adjustment in the Merger Consideration pursuant to Section
2.7(d)(ii) hereof; and (2) any uncollected accounts receivable pertaining
to any work in progress as of the Closing that result in a downward
adjustment in the Merger Consideration pursuant to Section 2.7(d)(iv)
hereof. Following such assignment, Acquisition Corp. and/or the Surviving
Corporation shall reasonably cooperate with the Litho Stockholders in the
collection of such accounts, and will promptly remit any payments received
on such accounts.
(g) Nothing in this Section 2.7 shall in any way limit or decrease the
-----------
liability of any party for any default or breach of this Agreement or any
of the Transaction Documents.
Section 2.8 Assignment of Unlisted Accounts Receivable. At or before the
------------------------------------------
Closing, the Litho Stockholders shall cause the Litho Companies to transfer and
assign to the Litho Stockholders all accounts receivable, if any, which have
previously been written off as bad debts and which are no longer reflected on
the books and records of the Litho Companies.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LITHO STOCKHOLDERS
The Litho Stockholders, represent and warrant to Acquisition Corp. and
Graphic as follows (except that Robert Vallilee shall not be deemed to have made
any representations and warranties with regard to Lithoprint):
Section 3.1 Organization; Power; Qualification.
----------------------------------
(a) Lithoprint is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas. Lithoprint has no
subsidiaries and is not a party to any joint venture nor a partner of any
partnership. Lithoprint has the corporate power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing and authorized to do
business as a foreign corporation in each jurisdiction set forth on
Schedule 3.1(a), which constitutes each jurisdiction in which the character
---------------
of its properties or the nature of its business requires such qualification
and authorization.
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(b) Lithoimage is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas. Lithoimage has no
subsidiaries and is not a party to any joint venture nor a partner of any
partnership. Lithoimage has the corporate power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing and authorized to do
business as a foreign corporation in each jurisdiction set forth on
Schedule 3.1(b), which constitutes each jurisdiction in which the character
---------------
of its properties or the nature of its business requires such qualification
and authorization.
Section 3.2 Authority. Each of the Litho Companies has the corporate
---------
power and has taken all necessary corporate action to authorize such Litho
Company to execute, deliver and perform this Agreement and such of the
Transaction Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Litho
Companies and the Litho Stockholders of this Agreement and the Transactions
Documents to which each is a party constitutes the valid and legally binding
obligations of the Litho Stockholders and the Litho Companies, respectively,
enforceable in accordance with their respective terms.
Section 3.3 Capital Structure.
-----------------
(a) The authorized capital stock of Lithoprint consists of 10,000,000
shares of Common Stock, One Dollar ($1.00) par value per share, of which
351,000 shares are issued and outstanding on the date of this Agreement.
Lithoprint does not hold any shares of its authorized capital stock in its
treasury. All of the shares of Lithoprint's stock issued and outstanding
as of the date hereof are duly authorized, validly issued and fully paid
and nonassessable under Texas Corporate Law and all predecessor statutes.
There are no warrants, rights, options, subscriptions or agreements to
issue shares of any class of capital stock, securities convertible into
capital stock or property of Lithoprint or other securities of Lithoprint.
As of the date hereof, there is not any liability or dividends declared or
accumulated but unpaid with respect to Lithoprint's capital stock. Between
the date of Lithoprint's incorporation and the date hereof, Lithoprint has
not directly or indirectly redeemed, purchased or otherwise acquired any
shares of its capital stock except as listed in Schedule 3.3(a). All
---------------
shares of Lithoprint's capital stock have been issued in compliance with
applicable and available exemptions from the registration requirements of
the Act and applicable state securities laws.
(b) The authorized capital stock of Lithoimage consists of 1,000,000
shares of Common Stock, One Dollar ($1.00) par value per share, of which
100,000 shares are issued and outstanding on the date of this Agreement.
Lithoimage does not hold any shares of its authorized capital stock in its
treasury. All of the shares of Lithoimage's stock issued and outstanding
as of the date hereof are duly authorized, validly issued and fully paid
and nonassessable under Texas Corporate Law and all predecessor statutes.
There are no warrants, rights, options, subscriptions or agreements to
issue shares of any class of capital stock, securities convertible into
capital stock or property of Lithoimage or other securities of Lithoimage.
As of the date hereof, there is not any liability or dividends declared or
accumulated but unpaid with respect to Lithoimage's capital stock. Between
the date of
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<PAGE>
Lithoimage's incorporation and the date hereof, Lithoimage has not directly
or indirectly redeemed, purchased or otherwise acquired any shares of its
capital stock except as listed in Schedule 3.3(b). All shares of
---------------
Lithoimage's capital stock have been issued in compliance with applicable
and available exemptions from the registration requirements of the Act and
applicable state securities laws.
Section 3.4 Title to Litho Shares. Each of the Litho Stockholders owns
---------------------
the Lithoprint Shares and the Lithoimage Shares, respectively, set forth
opposite such Litho Stockholder's name on Schedule 3.4 hereto and, except as
------------
disclosed on Schedule 3.4 hereto, each Litho Stockholder has good, valid and
------------
marketable title to such Lithoprint Shares and Lithoimage Shares, free and clear
of any and all liens, options, contracts, calls, commitments, demands,
encumbrances, equities, pledges or claims whatsoever. The Lithoprint Shares
represent all of the issued and outstanding shares of the capital stock of
Lithoprint and the Lithoprint Shares are duly authorized, validly issued, fully
paid and nonassessable. The Lithoimage Shares represent all of the issued and
outstanding shares of the capital stock of Lithoimage, and the Lithoimage Shares
are duly authorized, validly issued, fully paid and nonassessable. Upon
consummation of the Mergers, Graphic will obtain good and valid title to the
Lithoprint Shares and the Lithoimage Shares, respectively, free and clear of any
and all liens, encumbrances, equities and claims whatsoever.
Section 3.5 No Third Party Options. There are no existing agreements,
----------------------
options, commitments or rights with, of or to any person to acquire any
securities of either Litho Company, or any of either Litho Company's assets,
properties, or rights.
Section 3.6 Compliance with Laws and Validity of Contemplated
-------------------------------------------------
Transactions. The execution, delivery and performance of this Agreement by the
Litho Companies and the Litho Stockholders in accordance with its terms and the
consummation of the transactions contemplated hereby does not and will not (a)
violate any law applicable to the Litho Companies or the Litho Stockholders; (b)
conflict with, result in a breach of, or constitute a default under the Articles
of Incorporation or Bylaws of either Litho Company or under any indenture,
agreement, or other instrument to which either Litho Company or either Litho
Stockholder is a party or by which they or any portion of their respective
properties may be bound, or (c) result in or require the creation or imposition
of any lien upon or with respect to any property now owned or hereafter acquired
by either Litho Company or by either Litho Stockholder. No authorization,
approval, or consent of, and no registration or filing with, any governmental or
regulatory official body or authority is required in connection with the
execution, delivery or performance by the Litho Stockholders and the Litho
Companies of this Agreement.
Section 3.7 Financial Statements.
--------------------
(a) The Financial Statements attached hereto as Schedule 3.7(a) and
---------------
the Interim Balance Sheet (i) are in accordance with the books and records
of the Litho Companies; (ii) are complete and correct and present fairly
the financial condition of the Litho Companies as of the respective dates
indicated and the results of operations for the respective periods
indicated; and (iii) reflect adequate reserves for all known liabilities
and reasonably anticipated losses.
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<PAGE>
(b) The Financial Statements and the Interim Balance Sheet have been
prepared in accordance with Generally Accepted Accounting Principles,
consistently applied, except that (i) with respect to the Interim Balance
Sheet, the statements of income, cash flows, retained earnings and
accompanying footnotes have been omitted, and (ii) the statements do not
show the amount of either Litho Company's liability, if any, for any
accrued vacation pay due any of their respective employees.
(c) The accounts receivable shown on Financial Statements or acquired
by either Litho Company after the date thereof and prior to the date hereof
have been, and all accounts receivable acquired after the date hereof and
prior to the Closing Date will be, acquired or created only in the ordinary
course of business and represent or will represent bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto. All accounts receivable shown on the Financial
Statements or acquired by either Litho Company after the date thereof and
prior to the date hereof are free and clear of any and all liens, claims,
charges, encumbrances, security interests or other rights against such
accounts receivable in favor of others. There are no setoffs,
counterclaims or disputes asserted or conditions precedent to payment
therefor with respect to any such account receivable, no discount or
allowance from any such account receivable has been made or agreed to and
no account receivable represents billings prior to actual shipment of
goods, including "bill and hold" accounts. Both Litho Companies have
established bad debt reserves, as shown on the Financial Statements, and
there is no fact or circumstance which would impair the validity or
collectibility of the Litho Companies' accounts receivable in an amount in
excess of such bad debt reserve.
(d) Except as set forth on Schedule 3.7(d), all inventories reflected
---------------
on the Financial Statements or acquired or to be acquired by either Litho
Company thereafter and prior to the Closing Date, (i) are and will on the
Closing Date be in good condition, consist and will consist of materials
and supplies, of a quality and quantity which are usable or salable in the
ordinary course of its business, (ii) are now and will on the Closing Date
be located on the regular business premises of the Litho Companies, (iii)
are now and will on the Closing Date be owned by the Litho Companies free
of any liens, claims, charges, encumbrances, security interests or other
rights to or against such inventories in favor of others, and (iv) have
been or will be acquired by the Litho Companies only in bona fide
transactions entered into in the ordinary course of business. None of such
inventory is now, or on the Closing Date will be, held by either Litho
Company on consignment. All work in process is being prepared for sale in
the ordinary course of business and all amounts due to either Company with
respect to such work in process are required to be paid in full within 120
days of delivery of such completed work.
(e) The books and records of the Litho Companies have been maintained
in accordance with sound business practices.
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<PAGE>
Section 3.8 Tax and Other Returns and Reports.
---------------------------------
(a) All federal, state, local and foreign tax returns, reports,
statements and other similar filings required to be filed by the Litho
Companies or by the Litho Stockholders with respect to the business of the
Litho Companies (the "Tax Returns") in connection with any federal, state,
local or foreign taxes, assessments, interest, penalties, deficiencies,
fees and other governmental charges or impositions with respect to the
business of the Litho Companies (including without limitation all income
tax, unemployment compensation, social security, payroll, sales and use,
excise, privilege, property, ad valorem, franchise, license, school and any
other tax or similar governmental charge or imposition under laws of the
United States or any state or municipal or political subdivision thereof or
any foreign country or political subdivision thereof) (the "Taxes") have
been filed with the appropriate governmental agencies in all jurisdictions
in which such Tax Returns are required to be filed, and all such Tax
Returns properly reflect the liabilities for Taxes for the periods,
property or events covered thereby. All Taxes, including, without
limitation, those which are called for by the Tax Returns, or heretofore or
hereafter claimed to be due by any taxing authority, have been properly
paid or accrued in the Financial Statements including, without limitation,
deferred taxes accrued in accordance with Generally Accepted Accounting
Principles. Neither Litho Company has received any notice of assessment or
proposed assessment in connection with any Tax Returns and there are not
pending tax examinations of or tax claims asserted with respect to the
Litho Companies. There has been no extension or waiver of the application
of any statute of limitations of any jurisdiction regarding the assessment
or collection of any Taxes. There are no tax liens (other than any lien
for current taxes not yet due and payable) on any of the assets or
properties of the Litho Companies. Neither the Litho Stockholders nor the
Litho Companies have any knowledge of any basis for any additional
assessment of any Taxes.
(b) Each Litho Company has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
Section 3.9 Personal Property.
-----------------
(a) Schedule 3.9(a) contains an accurate and complete list of all
---------------
machinery, vehicles, furniture and equipment and other items of personal
property (including, without limitation, all phone numbers) owned by each
Litho Company (the "Personal Property") including a description of the
location of such Personal Property. Except as set forth on Schedule
--------
3.9(a), each Litho Company has good title to all such items of Personal
Property, free and clear of all liens, claims, charges, security interests
and other encumbrances of any kind or nature. All such items of Personal
Property are in good operating condition and conform to all applicable
laws, ordinances, codes, rules, regulations and authorizations relating to
their construction, use or operation.
(b) Schedule 3.9(b) contains an accurate and complete list of all
---------------
leases for machinery, vehicles, equipment or other items of personal
property leased by each Litho
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Company ("Personal Property Leases"). Each of the Personal Property Leases
is in full force and effect and there are no existing defaults or events of
default, real or claimed, or events which with notice or lapse of time or
both would constitute a default. All items of leased personal property are
in good operating condition and in a state of reasonable maintenance and
repair. The continuation, validity and effectiveness of the Personal
Property Leases will in no way be affected by the transactions contemplated
by this Agreement.
(c) The Personal Property and the property leased pursuant to the
Personal Property Leases constitute all of the personal property used in
the conduct of the business of the Litho Companies.
Section 3.10 Real Property.
-------------
(a) Schedule 3.10(a) contains an accurate and complete description of
----------------
all real property owned by the Litho Companies, including the location and
size of such real property (the "Real Property"). Except as set forth on
Schedule 3.10(a), the Litho Companies have good and marketable title to the
----------------
Real Property. Except as set forth on Schedule 3.10(a), all Real Property
----------------
is free and clear of any mortgages or liens, and is not subject to any
deeds of trust, assignments, leases, or rights of any third parties.
(b) Schedule 3.10(b) contains an accurate and complete list of all
----------------
real property leases with respect to real property leased by the Litho
Companies (the "Real Property Leases"). The Real Property Leases are, and
on the Closing Date will be, in full force and effect and there are no
existing defaults or events of default, real or claimed, or events which
with notice or lapse of time or both would constitute a default. The Real
Property Leases are free and clear of any mortgages or liens, and not
subject to any deeds of trust, assignments, subleases, or rights of any
third parties other than the lessor thereof. The Real Property Leases
shall be in full force and effect as of the Closing Date.
Section 3.11 Intellectual Property. Schedule 3.11 contains an accurate
--------------------- -------------
and complete list of all Intellectual Property used or useful in the business of
the Litho Companies and that are owned by or registered in the name of either
Litho Company or to which either Litho Company has any rights as licensee or
otherwise, giving in each case a brief description of the terms of such license
or other arrangement. Neither Litho Company has infringed or made any unlawful
use or received notice of any such claimed infringement or unlawful use of any
such Intellectual Property. Neither Litho Company has received notice that the
manufacture, use or sale by such Litho Company of its products, or any component
or part thereof, nor any manufacturing operation or machinery employed by such
Litho Company, violates or infringes upon any claims of any United States or
foreign patent or patent application owned or held by any third party. Each
Litho Company owns (or possesses adequate and enforceable rights to use without
payment of royalties) all Intellectual Property necessary for the conduct of, or
used in, its business as the same is presently being conducted.
Section 3.12 Insurance. Schedule 3.12 contains a list and brief
--------- -------------
description of the policies of fire, liability and other forms of insurance
owned or held by the Litho Companies, or in which either Litho Company is named
as an insured party. The properties and business of the Litho
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<PAGE>
Companies of an insurable nature are insured to the extent and against such
risks customarily insured against by corporations of similar size and in similar
businesses. All policies listed on Schedule 3.12 will be outstanding and in
-------------
full force and effect on the Closing Date, and there does not exist, and will
not exist as of the Closing Date, any claims with respect to such policies.
Section 3.13 Litigation. Except as set forth on Schedule 3.13 hereof,
---------- -------------
There is no litigation, arbitration or other similar proceeding pending or, to
the knowledge of the Litho Stockholders, threatened against or affecting either
Litho Company, their properties or their rights or which pertains to the
transactions contemplated by this Agreement. The Litho Stockholders do not know
of any reasonably likely basis for any such litigation, arbitration or similar
proceeding, the result of which would adversely affect either Litho Company or
the transactions contemplated hereby. Neither the Litho Stockholders nor either
Litho Company is a party or subject to the provisions of any judgment, order,
writ, injunction decree or award of any court, arbitrator, or governmental or
regulatory official body or authority which may adversely affect the Litho
Companies or the transactions contemplated hereby.
Section 3.14 Compliance with Laws. Neither Litho Company is in default
--------------------
under any order of any court, governmental authority or arbitration board or
tribunal, or under any laws, ordinances, governmental rules or regulations to
which it is subject. Each Litho Company has obtained all licenses, permits,
easements, rights, applications, registrations, filings and franchises or other
governmental authorizations ("Authorizations") necessary to the ownership of its
properties or the conduct of its business. Set forth on Schedule 3.14 is a
-------------
complete list all such Authorizations. Neither Litho Company is in default nor
has either Litho Company received any notice of any claim of default with
respect to any such Authorization. All of such Authorizations are renewable in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
None of such Authorizations will be adversely affected by consummation of the
transactions contemplated hereby.
Section 3.15 Environmental Matters.
---------------------
(a) Except as set forth on Schedule 3.15(a), operations of the Litho
----------------
Companies have been in the past and are now in compliance with all federal,
state and local laws, statutes, rules, regulations, ordinances, codes, orders,
decrees, judgments and all other governmental requirements and restrictions, now
in existence or hereafter amended or promulgated, relating to pollution,
contamination, emissions, discharges, releases or threatened releases of any
substance or material that could give rise to any liability for personal injury
or damage to any land, site, location, body of water, ambient air or other
natural resource ("Hazardous Substance"); protection of the environment or
public or employee health or safety; or otherwise relate to the use,
manufacture, processing, recycling, generation, transport, treatment, storage or
disposal of any Hazardous Substance (collectively, the "Environmental Laws")
including, without limitation, those relating to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.,
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. (S) 6901 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., the Safe Water
Drinking Act, 42, U.S.C. (S) 300f-300j, the Clean Air Act, 42 U.S.C. (S) 7401 et
seq., the Occupational Safety and Health Act, and all other
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statutory and all common law (including, without limitation, nuisance, trespass,
negligence and toxic torts).
(b) Neither Litho Company nor either Litho Stockholder has been
notified or is aware of any violation of any Environmental Laws; neither Litho
Company nor either Litho Stockholder is otherwise aware that either Litho
Company may be potentially responsible or otherwise liable under the
Environmental Laws; and neither Litho Company nor either Litho Stockholder has
received any requests for information, notices, pleadings or other documents
(including, without limitation, consent orders, consent decrees, judgments,
orders, complaints or injunctions) relating to (i) the Environmental Laws, (ii)
environmental protection or health or safety matters, or (iii) any statutory or
common law theory of liability involving environmental or health or safety
matters.
(c) Each Litho Company has had in the past and presently has all
governmental permits, licenses, consents, approvals, certifications and
authorizations relating to environmental protection or health or safety matters
(collectively, "Environmental Permits") necessary to conduct its operations and
has been in the past and is presently in compliance with all the Environmental
Permits (including, without limitation, any information provided on the
applications therefor and all restrictions or limitations therein) and has made
all appropriate filings for issuance or renewal of all of the Environmental
Permits.
(d) No use, storage, treatment, generation, recycling, disposal,
releases, threatened releases, handling, burial or placement of any materials
regulated under or defined by any Environmental Laws has occurred in the past or
is presently occurring on, in, at, under, over or about any property, building,
equipment, or other structure currently or formerly owned, leased, operated or
otherwise used by the Litho Companies or the Litho Stockholders; and no
materials regulated under or defined by Environmental Laws have been in the past
or are presently on, in, at, under, over or about any property, building,
equipment or other structure currently or formerly owned, leased, operated or
otherwise used by the Litho Companies or the Litho Stockholders.
(e) No regulated or non-regulated under or above ground tanks, sumps,
leaching pools, cesspools or septic tanks have been in the past or are presently
on, in, at, under, over or about any property, building or other structure
currently or formerly owned, leased, operated or otherwise used by the Litho
Companies or the Litho Stockholders.
(f) Neither Litho Company nor either Litho Stockholder has used any
waste disposal site or otherwise disposed of, transported, brokered or arranged
for the transportation of any material regulated under or defined by any
Environmental Laws to any place or location.
(g) There are no past or present conditions, events, circumstances,
requirements, facts, activities, incidents, actions, omissions or plans (i) that
may interfere with or prevent continued compliance with Environmental Laws and
Environmental Permits; (ii) that give or may give rise to any liability or other
obligation under any Environmental Laws; or (iii) that form or may form the
basis of any claim, action, (including, without limitation, any contribution or
cost recovery action)
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<PAGE>
suit, proceeding, hearing, investigation or inquiry against or involving the
Litho Companies or the Litho Stockholders based on or related to any
Environmental Laws or Environmental Permits.
(h) No lien exists, and no condition exists which could result in
filing a lien, under any Environmental Laws against any property owned, leased,
operated or otherwise used by the Litho Companies.
Section 3.16 Absence of Changes. Since December 31, 1996, except as
------------------
described on Schedule 3.16, there has not been any transaction or occurrence in
-------------
which either Litho Company has: (a) issued or delivered any stock or other
securities or granted any options or rights to purchase any securities; (b)
borrowed any amount or incurred any liabilities (absolute or contingent), except
in the ordinary course of business; (c) made any loans or extended any credit to
any individual or entity except in the ordinary course of business; (d)
discharged or satisfied any lien or incurred or paid any obligation or liability
(absolute or contingent) other than current liabilities shown on the Interim
Balance Sheet or current liabilities incurred since such date in the ordinary
course of business; (e) declared any dividend or made any payment or
distribution to the Litho Stockholders or purchased or redeemed any shares of
its capital stock or other securities; (f) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens for current
real property taxes not yet due and payable; (g) sold, assigned or transferred
any of its tangible assets, except for sale of inventory in the ordinary course
of business, or entered into any discussions or negotiations for the sale,
assignment or transfer of any such assets, or cancelled any debts or claims; (h)
sold, assigned or transferred any patents, trademarks, trade names, copyrights,
or other Intellectual Property; (i) suffered any material adverse change in its
business or financial position; (j) made any change in its accounting policies
or practices; (k) made any change in employee compensation or declared any
bonuses; (l) entered into any transaction with a stockholder, director, officer
or employee of either Litho Company or any member of such person's immediate
family; (m) been notified of any dispute with or termination of any sales
representative; (n) been notified of the termination or threatened termination
of any account which represents, on average, over $50,000 in sales per year; or
(o) entered into any transaction involving the payment or receipt of over
$25,000, individually or in the aggregate, other than in the ordinary course of
business or as otherwise contemplated hereby.
Section 3.17 Absence of Undisclosed Liabilities. Neither Litho Company
----------------------------------
has any Undisclosed Liabilities.
Section 3.18 Assets. Each Litho Company owns or leases all equipment,
------
furniture, fixtures, and other personal property and assets necessary for the
continued operation of the business of such Litho Company as presently
conducted, where the absence of such property would materially and adversely
affect either Litho Company as a whole.
Section 3.19 Employees. Schedule 3.19 contains a true and complete list
--------- -------------
of all employees of each Litho Company, their salaries or wage rates, accrued
vacation and their location of employment as of June 26, 1997 and a description
of all pension, profit sharing, bonus, medical benefits, group insurance
programs or similar arrangements in effect for employees of each Litho
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Company. Neither Litho Company is in default with respect to any of its
obligations relating to attached salaries, wages or group insurance programs in
respect of employees of such Litho Company.
Section 3.20 Employee Benefit Plans.
----------------------
(a) Except as set forth on Schedule 3.20(a), each Litho Company has
----------------
complied, and currently is in compliance, in all material respects with the
applicable provisions of ERISA and the Code with respect to each employee
benefit plan (as defined under Section 3(3) of ERISA) and all other
pension, profit sharing, retirement, deferred compensation, stock purchase,
stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical, life insurance or other employee benefit plans,
whether written or unwritten, now or previously maintained by either Litho
Company (the "Plans") and a brief description of each such Plan now
maintained is set forth on Schedule 3.20(a) hereto and the Litho
---------------
Stockholders have delivered to Graphic true and complete copies of all
written plan documents and contracts evidencing the Plans, as they may have
been amended to the date hereof, together with (i) all documents, including
without limitation, Forms 5500, relating to any Plans required to have been
filed prior to the date hereof with governmental authorities for each of
the three most recently completed plan years for which a filing was
required; (ii) attorney's response to an auditor's request, if any, for
information for each of the four most recently completed plan years; and
(iii) financial statements and actuarial reports, if any, for each Plan for
the four most recently completed plan years;
(b) Neither Litho Company has maintained, adopted or established,
contributed to or been required to contribute to, or otherwise participated
in or been required to participate in, any employee benefit plan or other
program or arrangement subject to Title IV of ERISA;
(c) Neither Litho Company has incurred any material liability with
respect to the Plans which has not been satisfied in full or been accrued
on the Financial Statements pending full satisfaction, and no event has
occurred, and there exists no condition or set of circumstances, which
could result in the imposition of any material liability with respect to
such Plans. Each Plan could be terminated on the Closing Date without
liability to the Litho Companies or Acquisition Corp., including, without
limitation, any additional contributions, penalties, premiums, fees or
other charges.
Section 3.21 Labor Matters. Schedule 3.21 contains a complete and
------------- -------------
accurate list of all claims brought by employees against either Litho Company in
the past three (3) years, including, without limitation, (i) workers
compensation claims; (ii) claims brought by employees of either Litho Company
before the Equal Employment Opportunity Commission; (iii) claims brought by
employees under the Americans with Disabilities Act, 49 U.S.C. (S) 1201.01 et
seq.; (iv) claims brought by employees under the Age Discrimination in
Employment Act 29 U.S.C. (S) 621 et seq.; (v) charges brought by employees
before the National Labor Relations Board under the National Labor Relations
Act, 29 U.S.C. (S) 151 et seq.; (vi) charges brought against either Litho
Company by the Occupational Safety and Health Administration or complaints filed
against either Litho Company by
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employees with such administration; (vii) claims brought by employees under the
Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq.; (viii) claims
brought by employees under the Fair Labor Standards Act before the Department of
Labor, 29 U.S.C. (S) 201 et seq.; or (ix) claims brought by employees asserting
violations of state law or state common law.
Section 3.22 Contracts and Commitments.
-------------------------
(a) Schedule 3.22 sets forth an accurate and complete list of each
-------------
Contract, true and complete copies of which (for all written Contracts)
have been previously provided to Graphic and Acquisition Corp., which is a:
(i) Contract for employment, or a non-competition agreement with
any present employee of either Litho Company, or any such agreement
with any former employee under which either Litho Company or any
former employee has any continuing obligations to the other;
(ii) Contract with any labor union or other representative of
employees;
(iii) Contract for the lease or use of equipment;
(iv) Contract for the purchase, sale, production or supply of
goods or services (other than purchase orders in amounts not exceeding
$10,000);
(v) Distributor, sales agency or vendor Contract or any franchise
or license agreement;
(vi) Note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement, or other Contract for borrowing or
lending of money, or agreement or arrangement for a line of credit or
guaranty, pledge, or undertaking of the indebtedness of any other
person;
(vii) Contract under the terms of which either Litho Company is,
directly or indirectly, liable upon or with respect thereto or is
obligated in any other way to provide funds with respect of, or to
guaranty or assume, any debt or obligation of any other person or
entity, except endorsements made in the ordinary course of business in
connection with the deposit of items for collection;
(viii) Contract for the provision of services by any individual
or entity in excess of $10,000 (including, but not limited to, any
Contracts with attorneys, accountants, consultants or contractors); or
(ix) Contract upon which the business, rights or assets, or
condition, financial or otherwise, of either Litho Company depends or
is materially affected.
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(b) Each of the Contracts listed in Schedule 3.22 is in full force and
-------------
effect and there are no existing defaults or events of default, real or
claimed, or events which with notice or lapse of time or both would
constitute a default. Except as set forth on Schedule 3.22, none of the
-------------
Contracts listed in Schedule 3.22, in the reasonable opinion of the Litho
-------------
Stockholders, contain any provision with which there is a reasonable
likelihood the Litho Stockholders, the Litho Companies or any other party
thereto will be unable to comply. Except as reflected in such Schedule
--------
3.22, the continuation, validity and effectiveness of such Contracts, and
----
all other material terms thereof, will in no way be affected by the
transactions contemplated by this Agreement. Except as set forth on
Schedule 3.22, none of the Contracts listed in Schedule 3.22 requires the
------------- -------------
consent of any party to its assignment in connection with the transactions
contemplated hereby.
(c) There exists no actual or threatened termination, cancellation or
limitation of, or any modification or change in, (i) the business
relationship of the Litho Companies with any customer or group of customers
of either Litho Company whose purchases individually or in the aggregate
are material to the operations and financial condition of either Litho
Company, (ii) the business relationship of the Litho Companies with any
material supplier to either Litho Company, or (iii) the relationship
between either Litho Company and any of its employees not occurring in the
ordinary course of business.
(d) The Litho Stockholders make no representation or warranty
regarding the enforceability of any restrictive covenants in any employment
contracts with the employees of either Litho Company.
Section 3.23 Banks. Schedule 3.23 lists all banks or other financial
----- -------------
institutions with which either Litho Company has an account, line of credit or
safe deposit box and the account numbers thereof and names of persons authorized
to act in connection therewith.
Section 3.24 Transactions with Affiliates. Except as disclosed on
----------------------------
Schedule 3.16, no Litho Stockholder or any officer, director or employee of
- -------------
either Litho Company, or any member of their immediate families or any other of
their affiliates, has had, during the past three years, a relationship or an
ownership interest in any corporation or other entity that is or was during the
past three years a party to any Contract, agreement, business arrangement or
relationship with either Litho Company.
Section 3.25 Corporate Names. Neither Litho Company has, during the
---------------
preceding five years, been known as or used, directly or through any
predecessor, affiliate or any acquired entity, any other corporate or fictitious
name, except as disclosed on Schedule 3.25 hereof.
-------------
Section 3.26 Customer Relations. To the best knowledge of the Litho
------------------
Stockholders and the Litho Companies, relations with customers or suppliers are
continuing in good order, and there are no known outstanding disputes with
customers or suppliers.
Section 3.27 Consents. Except as listed on Schedule 3.27 hereto, no
-------- -------------
consent, approval or authorization of any governmental authority or other
persons or entities is required in connection with the execution, delivery or
performance of this Agreement on the part of either Litho Company or
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<PAGE>
any of the Litho Stockholders or the consummation of the transactions
contemplated herein, other than corporate authority on behalf of each Litho
Company.
Section 3.28 Broker's or Finder's Fees. Neither Litho Company nor either
-------------------------
Litho Stockholder nor any of the Litho Companies' directors or employees has
employed any broker, agent or finder or incurred any liability for brokerage
fees, agents' commissions or finder's fees in connection with the transactions
contemplated by this Agreement.
Section 3.29 Securities Representations.
--------------------------
(a) Each Litho Stockholder either alone or with his purchaser
representative has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of obtaining
the Graphic Common Stock and making an investment in Graphic. No
assurances have been made as to the future income or success of Graphic.
Each Litho Stockholder has had an opportunity to ask questions and receive
satisfactory answers from the officers and directors of Graphic concerning
Graphic and the terms and conditions of his investment in capital stock of
Graphic.
(b) No Litho Stockholder has received any representations or
warranties, other than those set forth in this Agreement, from the
officers, directors, affiliates, agents or representatives of Graphic in
making his decision to exchange his capital stock in the Litho Company for
the Merger Consideration, and each Litho Stockholder is relying solely on
the information contained in this Agreement, in any prospectus delivered to
him, and personal investigation.
(c) Each Litho Stockholder is presently a bona fide resident of the
State of Texas and has no present intention of becoming a resident of any
other state or jurisdiction.
(d) Each Litho Stockholder has made other investments of this type
and, by reason of his business and financial experience and of the business
and financial experience of those persons he has retained to advise him
with respect to his acquisition of the Stock Consideration he has obtained
the capacity to protect his own interest in investments of this nature. In
reaching the conclusion that he desires to acquire the Stock Consideration,
each Litho Stockholder has carefully evaluated his financial resources and
investment position and the risks associated with his investment in Graphic
and acknowledges that he is familiar with and able to bear any economic
risk of such investment.
(e) Each Litho Stockholder understands and agrees that the Stock
Consideration is to be issued to him without registration under any state
or federal law relating to the registration of securities and will be
issued to him in reliance on exemptions from registration under appropriate
state and federal laws and that reliance by Graphic on such exemptions is
predicated in part on the representations set forth in this Section 3.29.
Each Litho Stockholder is acquiring the Stock Consideration for his own
account, to hold for investment, and with no present intention of dividing
his participation with others or reselling or otherwise participating,
directly or indirectly, in the distribution of the Stock Consideration
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<PAGE>
and shall not make any transfer, sale, or other disposition of the Stock
Consideration: (i) other than pursuant to an effective registration under
applicable state securities laws or in a transaction which is otherwise in
compliance with those laws; (ii) other than pursuant to an effective
registration under the Act or a transaction otherwise in compliance with
the Act; and (iii) in a manner so that the disposition of such Stock
Consideration does not cause the transactions contemplated by this
Agreement to fail to qualify as a reorganization under Section 368 of the
Code.
(f) No Litho Stockholder has received any public solicitation or
advertisement concerning an offer to sell Graphic Common Stock. Each Litho
Stockholder has received and reviewed copies of Graphic's Annual Report on
Form 10-K (including the Annual Report to Shareholders) for the fiscal year
ended January 31, 1997, all Quarterly Reports on Form 10-Q for fiscal year
ending January 31, 1998 filed with the Commission prior to the date hereof,
and Graphic's Proxy Statement for the 1997 Annual Meeting of Shareholders.
Section 3.30 Correctness of Representations. No representation or
------------------------------
warranty of the Litho Stockholders in this Agreement or in any statement,
certificate or schedule furnished by the Litho Stockholders or the Litho
Companies pursuant hereto, or in connection with the transactions contemplated
hereby, contains or, on the Closing Date will contain, any untrue statement of a
material fact or omits or, on the Closing Date will omit, to state any material
fact necessary in order to make the statements contained therein not misleading,
and all such statements, representations, warranties, certificates and schedules
will be true and complete on and as of the Closing Date as though made on that
date. True copies of all deeds, title insurance policies, mortgages,
indentures, notes, plans, Contracts and other instruments listed on or referred
to, or otherwise related to any item referred to, in the schedules delivered or
furnished to Acquisition Corp. pursuant to this Agreement have been delivered to
or have been made available to or will be made available for inspection by
Acquisition Corp. and Acquisition Corp.'s attorneys and accountants.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUISITION CORP. AND GRAPHIC
Acquisition Corp. and Graphic, jointly and severally, represent and warrant
to the Litho Stockholders as follows:
Section 4.1 Organization; Power; Qualification. Each of Acquisition Corp.
----------------------------------
and Graphic is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and Georgia, respectively. Each
of Acquisition Corp. and Graphic has the corporate power and authority to own or
lease and operate its properties to carry on its business as now being
conducted, and is duly qualified and in good standing and authorized to do
business as a foreign corporation in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification and
authorization.
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Section 4.2 Authority. Each of Acquisition Corp. and Graphic has the
---------
corporate power and has taken all necessary corporate action to authorize
Acquisition Corp. or Graphic, as the case may be, to execute, deliver and
perform this Agreement and such of the Transaction Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by each of Acquisition Corp. and Graphic of this
Agreement and each of the Transaction Documents to which it is a party
constitutes the valid and legally binding obligation of Acquisition Corp. or
Graphic, respectively, enforceable in accordance with their respective terms.
Section 4.3 Compliance with Laws and Validity of Contemplated
-------------------------------------------------
Transactions. The execution, delivery and performance of this Agreement by
Graphic or Acquisition Corp. in accordance with its terms and the consummation
of the transactions contemplated hereby does not and will not (a) violate any
law applicable to Acquisition Corp. or Graphic, (b) conflict with, result in a
breach of, or constitute a default under the Articles of Incorporation or Bylaws
of Graphic or Acquisition Corp. or under any indenture, agreement or other
instrument to which Graphic or Acquisition Corp. is a party or by which it or
any of its properties may be bound; or (c) result in or require the creation or
imposition of any lien upon or with respect to any material property now owned
or hereinafter acquired by Graphic or Acquisition Corp. No authorization,
approval, or consent of and no registration or filing with, any governmental or
regulatory official body or authority is required in connection with the
execution, delivery or performance by Graphic or Acquisition Corp. of this
Agreement.
Section 4.4 Stock Consideration. Each share of Stock Consideration, when
-------------------
issued and delivered as contemplated by this Agreement and the Escrow Agreement,
will be duly authorized, validly issued, fully paid and non-assessable. None of
the Stock Consideration is subject to any liens or other rights, and there are
no options, warrants, purchase agreements, put agreements, call agreements or
other agreements to which Acquisition Corp. or Graphic is a party which relate
to or affect the transfer of the Stock Consideration.
Section 4.5 Broker's or Finders Fees. Neither Graphic nor Acquisition
------------------------
Corp. nor any director or employee of Graphic or Acquisition Corp. has employed
any broker, agent or finder or incurred any liability for brokerage fees,
agents' commissions or finder's fees in connection with the transactions
contemplated by this Agreement.
Section 4.6 Graphic Reports. Graphic has delivered to the Litho
---------------
Stockholders copies of Graphic's Annual Report on Form 10-K (including the
Annual Report to Shareholders) for the fiscal year ended January 31, 1997, all
Quarterly Reports on Form 10-Q for fiscal year ending January 31, 1998 filed
with the Commission prior to the date hereof, and Graphic's Proxy Statement for
the 1997 Annual Meeting of Shareholders. As of their respective dates, none of
the above-mentioned reports contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. There has been no adverse change in the financial
information provided by Graphic, nor will thereby any such material adverse
change as of the Closing Date.
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<PAGE>
Section 4.7 Corrections of Representations. No representation or warranty
------------------------------
of Graphic contained in this Agreement or in any statement, certificate or
schedule furnished by Graphic pursuant hereto, or in connection with the
transactions contemplated hereby, contains or, on the Closing Date will contain,
any untrue statement of a material fact or omits or, on the Closing Date will
omit, to state any material fact necessary in order to make the statements
contained therein not misleading, and all such statements, representations,
warranties, certificates and schedules will be true and complete on and as of
the Closing Date as though made on that date.
ARTICLE 5
OBLIGATIONS AND COVENANTS
Section 5.1 Conduct of the Litho Companies' Business Prior to Closing.
---------------------------------------------------------
From the date hereof to the Closing Date, and except to the extent that Graphic
or Acquisition Corp. shall otherwise consent in writing, the Litho Stockholders
and the Litho Companies shall:
(a) operate the Litho Companies' businesses as presently operated and
only in the ordinary course, and use their best efforts to preserve intact
their good will, reputation and present business organization and to
preserve their relationships with persons having business dealings with
them;
(b) maintain all of the Litho Companies' properties in good order and
condition, reasonable wear and use excepted;
(c) take all steps reasonably necessary to maintain the Litho
Companies' intangible assets, including without limitation, its patents,
trademarks, trade names, copyrights, licenses and any pending applications
therefor;
(d) pay the liabilities or other obligations of the Litho Companies
and collect their accounts receivable in accordance with the Litho
Companies' past business practices;
(e) comply with all laws materially applicable to the conduct of the
business of the Litho Companies;
(f) not take any action that would constitute a breach of Section 3.16
hereof;
(g) not enter into any settlement regarding any claim, dispute or
other cause of action brought against either Litho Company by any third
party except for settlements of customer disputes made by such Litho
Company in the ordinary course of business;
(h) not sell, or otherwise dispose of, any assets of either Litho
Company (other than in the ordinary course of business); and
(i) submit all Contracts to which either Litho Company is to become a
party and which are outside the normal course of business or which involve
a capital expenditure in
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<PAGE>
excess of $25,000 between the date hereof and the Closing Date for approval
by Graphic and Acquisition Corp.
Section 5.2 No Solicitation. Until the earlier of (a) the Closing Date or
---------------
(b) such date on which Graphic notifies the Litho Stockholders that it has
abandoned the transaction contemplated hereby, the Litho Stockholders shall deal
exclusively with Graphic with respect to any such transaction and the Litho
Stockholders will not, and will direct the officers, directors, financial
advisors, accountants, and counsel to the Litho Companies not to: (i) solicit
the submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material part of the assets or stock of
either Litho Company, or any merger, consolidation or similar transaction with
respect to either Litho Company; (ii) participate in any discussions or
negotiations regarding, or furnish any information to any other person other
than Graphic and Acquisition Corp. with respect to any such possible
transactions; or (iii) enter into any agreement or understand, whether oral or
in writing, that would prevent the consummation of the transaction contemplated
hereby. If, notwithstanding the foregoing, either Litho Stockholder should
receive any such proposal from a third party or any inquiry regarding any such
proposals, the Litho Stockholders shall promptly inform Graphic thereof.
Section 5.3 Access and Information. From the date hereof to the Closing
----------------------
Date, the Litho Companies shall afford to Acquisition Corp., Graphic, and their
counsel, accountants and other representatives, free and full access to all the
offices, facilities, properties, equipment, inventories, books, contracts,
commitments, records and other relevant information of the Litho Companies and
to furnish or make available to such persons with all information (including
financial and operating data) concerning its affairs as they may, in their
reasonable discretion, request, including copies and extracts of pertinent
records, documents and Contracts. The Litho Companies and their employees shall
reasonably assist Acquisition Corp., Graphic, and their counsel, accountants and
representatives, in their examination of the Litho Companies' books and records.
To the extent that the Litho Companies shall have control over same, the
accountants of the Litho Companies shall furnish to Acquisition Corp. and
Graphic during such period copies of any and all of their statements, working
papers and underlying records and data as Acquisition Corp. and Graphic, in
their reasonable discretion, may request. If the Mergers fail to close for any
reason, Acquisition Corp. shall promptly return all such materials and shall
hold any information learned about the Litho Companies strictly confidential.
Section 5.4 Notification of Changes. From the date hereof to the Closing
-----------------------
Date, each Litho Company shall promptly notify Acquisition Corp. and Graphic in
writing of any material adverse change in the financial condition of such Litho
Company, the method of conducting its operations, any material damage to or loss
of any property used in the business of such Litho Company, or the institution
of or the threat of institution of legal proceedings against such Litho Company.
From the date hereof to the Closing Date, Graphic shall promptly notify each
Litho Company in writing of any material adverse change in the financial
condition of Graphic, the method of conducting its operations, any material
damage to or loss of any property used in its business, or the institution of or
the threat of institution of legal proceedings against Graphic.
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Section 5.5 No Default. From the date hereof to the Closing Date, no
----------
party shall do any act or omit to do any act, or knowingly permit any act or
omission to act, that would cause a material breach of any Contract.
Section 5.6 Tax Returns. All Tax Returns of the Litho Companies required
-----------
to be filed by the Closing Date, taking into account any extensions of the
filing deadlines granted to the Litho Companies, that have not yet been filed
prior to the date hereof (including those relating to periods after the Closing
Date) shall be prepared by the Litho Companies but shall not be filed without
prior examination by, or on behalf of, Acquisition Corp. and Graphic, which
examination will not be unreasonably withheld or delayed. The Litho Companies
shall use their best efforts to obtain all extensions of time from governmental
authorities necessary to effect this provision.
Section 5.7 Allocation of Taxable Income to Short Period. The Litho
--------------------------------------------
Stockholders shall cause the Litho Companies to close their permanent books and
records (including work papers) as of the close of business on the date
immediately preceding the Closing Date in accordance with Treasury Regulation
1.1502-76(b)(4)(1), in order to permit each Litho Company's taxable income for
the tax periods ending on the date immediately preceding the Closing Date to be
determined on the basis of income shown on their permanent books and records
(including workpapers).
Section 5.8 Other Pre-Closing Returns.
-------------------------
(a) The Litho Stockholders shall cause each Litho Company to prepare
and file all federal and state income tax returns for such Litho Company for all
tax periods ending on or before the Closing Date. Such returns will be filed on
the basis of the income allocations described in Section 5.7 above.
(b) The Litho Stockholders shall cause each Litho Company to include
the results of the respective operations of such Litho Company in any separate
state or local income tax return for any taxable year which is due on or before
the Closing Date and to file such returns on a timely basis.
(c) The Litho Stockholders shall cause or allow all tax returns
relating to the Litho Companies to be filed on the basis of treating the Mergers
as tax free mergers pursuant to Section 368(a)(1)(A) and (a)(2)(D) of the Code.
Section 5.9 Compliance with Laws. From the date hereof to the Closing
--------------------
Date all parties shall comply with all applicable laws and regulations including
without limitation, those as may be required for the consummation of the
transactions contemplated by this Agreement.
Section 5.10 Consent of Others. From the date hereof to the Closing Date,
-----------------
to the extent that the consummation of the transactions provided for herein
requires the consent or approval of a third party, whether to avoid the
occurrence of an event of default under any Contract, license, lease or
agreement to which either Litho Company or Acquisition Corp. or Graphic is a
party or by which their respective assets are bound or otherwise, or under any
governmental law or regulation, the
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<PAGE>
affected party shall use its best efforts to obtain any such consent or approval
prior to the Closing Date.
Section 5.11 Release of Personal Guaranties. From the date hereof to the
------------------------------
Closing Date, Acquisition Corp. and Graphic shall each use their best efforts to
cause the Litho Stockholders to be released from any personal guaranties, with
respect to the liabilities of either Litho Company. If any such release cannot
be obtained, Graphic shall unconditionally guaranty the performance of the Litho
Companies with respect to such guaranteed liability and shall indemnify and
defend the Litho Stockholders from and against any such liabilities.
Section 5.12 Filing of Notice. Graphic shall file an Additional Listing
----------------
Application with the New York Stock Exchange pursuant to SEC Rule 10(b)-17 as
soon as practicable after the determination of the number of shares of Graphic
Common Stock to be issued in the Mergers.
Section 5.13 Post-Closing Returns.
--------------------
(a) Graphic shall prepare and file all federal and state income tax
returns for the Surviving Corporation for all tax periods beginning on or after
the Closing Date. Such returns will be filed on the basis of the income
allocations described in Section 5.7 above.
(b) Graphic shall include the results of the respective operations of
the Surviving Corporation in any separate state or local income tax return for
any taxable year which is due after the Closing Date and to file such returns on
a timely basis. Graphic shall pay, or cause to be paid, all local income and
franchise taxes (including interest and penalties relating thereto) shown as due
on any such return with respect to the Surviving Corporation.
(c) Graphic shall cause all tax returns relating to the Surviving
Corporation to be filed on the basis of treating the Mergers as tax free mergers
pursuant to Sections 368(a)(1)(A) and (a)(2)(D) of the Code.
Section 5.14 General Cooperation in Tax Matters. After the Closing Date,
----------------------------------
all parties hereto shall cooperate fully with each other and shall make
available to each other, as reasonably requested, and to any taxing authority,
all information, records, or documents relating to liabilities or potential
liabilities for taxes of, or related to, the Litho Companies, for all periods
ending on or before the Closing Date and shall preserve all such information,
records, and documents until the expiration of any applicable statute of
limitations or extensions thereof. So long as taxable periods of, or related
to, the Litho Companies ending on or before the Closing Date remain open,
Graphic shall promptly notify the Litho Stockholders in writing of any pending
or threatened tax audits or assessments for which the Litho Stockholders have or
may have sole, joint or several liability within thirty (30) days following the
receipt by Graphic or any affiliate of notice of such pending or threatened
audit or assessment. Graphic shall keep the Litho Stockholders reasonably
informed as to all aspects of any administrative or judicial proceeding that may
result in the payments by the Litho Stockholders of any tax.
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ARTICLE 6
CONDITIONS TO CONSUMMATION OF MERGERS
Section 6.1 Conditions to Obligations of Acquisition Corp. and
--------------------------------------------------
Graphic. The obligation of Acquisition Corp. and Graphic to consummate the
- -------
Mergers is subject to the satisfaction at or prior to the Closing of each of the
following conditions:
(a) Each of the representations and warranties of the Litho
Stockholders and the Litho Companies shall be true and correct in all
material respects as of, and shall not have been violated in any material
respect at, the Closing as though made on and as of the Closing; the Litho
Stockholders and the Litho Companies shall, on or before the Closing, have
performed all of their obligations under this Agreement which by the terms
hereof are to be performed on or before the Closing, and the Litho
Stockholders shall have delivered to Acquisition Corp. and Graphic a
certificate dated as of the date of the Closing to the foregoing effect.
(b) No action or proceeding by or before any court or other
governmental body shall have been instituted by any governmental body or
other person or entity or threatened in writing which seeks to restrain,
prohibit or invalidate the Mergers or which would have a material adverse
effect on Acquisition Corp.'s ability to conduct the business of the Litho
Companies as presently conducted or which claims material damages from
Acquisition Corp. or Graphic with respect to the Mergers.
(c) Graphic shall have completed its specified procedures review with
respect to the Net Book Value of the Litho Companies at December 31, 1996,
and subsequent thereto, the results of which shall be satisfactory to
Graphic in its sole discretion.
(d) The Litho Stockholders shall have obtained all necessary third
party consents to the transactions from the parties set forth on Schedule
--------
6.1(f) hereto.
------
(e) Acquisition Corp. shall have received all regulatory approvals
required by applicable laws.
(f) The Litho Stockholders shall have delivered to Acquisition Corp.
and Graphic a certificate of the Secretary of each Litho Company certifying
as to the requisite corporate or other action authorizing the Mergers, and
the status of record ownership of the Lithoprint Shares and the Lithoimage
Shares respectively by the Litho Stockholders and the incumbency of their
respective officers and directors.
(g) The Litho Stockholders shall have submitted to Acquisition Corp.
and Graphic resignations of all current officers and directors of each
Litho Company.
(h) Dennis Eckholm shall have entered into the Eckholm Employment
Agreement (which contains certain non-compete provisions) substantially in
the form of Exhibit A hereto.
---------
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(i) Robert R. Vallilee shall have entered into the Vallilee Employment
Agreement (which contains certain non-compete provisions) substantially in
the form of Exhibit D hereto.
---------
(j) The Litho Stockholders shall have executed and delivered to
Acquisition Corp. and Graphic the Escrow Agreement, substantially in the
form of Exhibit B hereto.
---------
(k) Acquisition Corp. and Graphic shall have received the opinion of
Blazier, Rutland & Lerner, P.C., counsel to the Litho Companies and the
Litho Stockholders, substantially in the form of Exhibit E hereto.
---------
(l) The Articles of Merger shall be prepared by Graphic for filing
with the Secretary of State of Texas.
Section 6.2 Conditions to Obligations of the Litho Stockholders and the
-----------------------------------------------------------
Litho Companies. The obligation of the Litho Stockholders and the Litho
- ---------------
Companies to consummate the Mergers is subject to the satisfaction at or prior
to the Closing of each of the following conditions:
(a) Each of the representations and warranties of Acquisition Corp.
and Graphic shall be true and correct in all material respects as of, and
shall not have been violated in any material respect at, the Closing as
though made on and as of the Closing; Acquisition Corp. and Graphic shall,
on or before the Closing, have performed in all material respects all of
their obligations under this Agreement which by the terms hereof are to be
performed on or before the Closing; and each of Acquisition Corp. and
Graphic shall have delivered to the Litho Stockholders a certificate of one
of its officers dated as of the date of the Closing to the foregoing
effect.
(b) No action or proceeding by or before any court or other
governmental body shall have been instituted by any governmental body or
other person or entity or threatened in writing which seeks to restrain,
prohibit or invalidate the Mergers or which would have a material adverse
effect on the right of the Litho Stockholders to consummate the Mergers or
which claims material damages from the Litho Stockholders with respect to
the Mergers.
(c) Acquisition Corp. shall have delivered to the Litho Stockholders a
certificate of its Secretary certifying as to the requisite corporate and
other action authorizing the Mergers and the incumbency of its officers and
directors.
(d) Graphic and Acquisition Corp. shall have executed and delivered to
the Litho Stockholders the Escrow Agreement, substantially in the form of
Exhibit B hereto.
---------
(e) If any personal guaranty of either Litho Stockholder with respect
to liabilities of either Litho Company has not been released prior to
Closing, Graphic and Acquisition Corp. shall have executed and delivered to
the Litho Stockholders the Guaranty, substantially in the form of Exhibit C
---------
hereto.
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(f) The Litho Stockholders shall have received the opinion of Powell,
Goldstein, Frazer & Murphy LLP, counsel to Graphic and Acquisition Corp.,
substantially in the form of Exhibit F hereto.
---------
(g) The Articles of Merger shall be prepared for filing with the
Secretary of State of Texas.
(h) The Surviving Corporation shall have executed and delivered the
Eckholm Employment Agreement substantially in the form of Exhibit A hereto.
---------
(i) The Surviving Corporation shall have executed and delivered the
Vallilee Employment Agreement substantially in the form of Exhibit D
---------
hereto.
ARTICLE 7
REGISTRATION OF STOCK CONSIDERATION
Section 7.1 Registration of Stock Consideration. Graphic shall use its
-----------------------------------
best efforts to prepare and file with the Commission a Registration Statement on
Form S-3 as soon as practicable after the Closing, but in no event later than
fifteen (15) business days following the Closing, which shall cause the Stock
Consideration to be registered for resale by the Litho Stockholders, and Graphic
shall use reasonable best efforts to have such registration become effective and
not abandon the filing. The Litho Stockholders shall receive a copy of the
Registration Statement prior to filing for review, and the Litho Stockholders
shall represent and warrant that the information contained in the Registration
Statement concerning each of them and the intended method of distribution of the
securities covered by the Registration Statement is true, complete, and correct.
Section 7.2 Furnishing Information. The Litho Stockholders shall furnish
----------------------
to Graphic such information regarding the Litho Stockholders or the Stock
Consideration, and the intended method of disposition of such securities, as
shall be reasonably requested by Graphic in order to effect the registration of
such Stock Consideration.
Section 7.3 Prospectus Requirements. Each Litho Stockholder hereby
-----------------------
covenants with Graphic that he will promptly advise Graphic of any changes in
the information concerning such Litho Stockholder contained in the Registration
Statement and that neither Litho Stockholder will make any sale of the Stock
Consideration pursuant to the Registration Statement without complying with the
prospectus delivery requirements of the Act. Each Litho Stockholder
acknowledges that occasionally there may be times when Graphic must temporarily
suspend the use of the prospectus forming a part of the Registration Statement
until such time as an amendment to the Registration Statement has been filed by
Graphic and declared effective by the Commission, the relevant prospectus has
been supplemented by Graphic or until such time as Graphic has filed an
appropriate report with the Commission pursuant to the Securities Exchange Act
of 1934, as amended, an act which Graphic agrees to diligently pursue. During
any such period in which sales are suspended and upon reasonable prior notice of
such suspension from Graphic, each Litho Stockholder agrees not to sell any
shares of the Stock Consideration pursuant to any such prospectus; provided
however that
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Graphic shall use its reasonable best efforts to file any required amendment,
supplement, or report with the Commission within 30 days of such suspension and
to diligently pursue approval. Each Litho Stockholder covenants that they will
not sell any shares pursuant to any prospectus during the period commencing at
the time at which Graphic gives each Litho Stockholder notice of the suspension
of the use of a given prospectus and ending at the time Graphic gives notice
that each Litho Stockholder may thereafter effect sales pursuant to a given
prospectus.
Section 7.4 Registration Rights, Etc.
-------------------------
(a) Graphic agrees to (i) use its best efforts to keep the
Registration Statement continuously effective (including by filing
amendments and supplements thereto) in order to permit the disposition of
the Stock Consideration until the third anniversary of the Closing Date or
the sale by the Litho Stockholders of all of the Stock Consideration,
whichever is earlier (collectively, the "Effective Period"), and (ii)
prepare and file with the Commission, as soon as reasonably practicable,
such amendments and supplements to the Registration Statement as may be
necessary to keep the Registration Statement effective continuously during
the Effective Period.
(b) Graphic agrees to cause the Registration Statement and the related
prospectus, and any amendment or supplement thereto, as of the effective
date of the Registration Statement, amendment, or supplement during the
Effective Period, (i) to comply in all material respects with the
applicable requirements of the Act and the rules and regulations
promulgated by the Commission thereunder, and (ii) not to contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, other than information confirmed by Litho Stockholders
pursuant to Section 7.2 or statements or omissions made in reliance upon
and in conformity with information furnished to Graphic in writing by or on
behalf of any Litho Stockholder expressly for use in the Registration
Statement and the related prospectus, or any amendment or supplement
thereto.
(c) In connection with the Registration Statement, Graphic agrees, as
soon as reasonably practicable, to:
(i) furnish to each Litho Stockholder such number of copies
of the Registration Statement, each amendment and supplement
thereto, and prospectus included in the Registration Statement
and such other related documents as each Litho Stockholder may
reasonably request;
(ii) notify each Litho Stockholder promptly of any request
by the Commission for the amending or supplementing of the
Registration Statement or prospectus forming a part thereof;
(iii) advise each Litho Stockholder after Graphic receives
notice or otherwise obtains knowledge of the issuance of any
order by the Commission suspending the effectiveness of the
Registration Statement or amendment or
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supplement thereto or of the initiation or threatening of any
proceeding for that purpose, and promptly use its best efforts to
prevent the issuance of any stop order or to obtain its
withdrawal promptly if such stop order should be issued;
(iv) use its best efforts to register or qualify the Stock
Consideration under such other securities or blue sky laws of
such jurisdictions within the United States and Puerto Rico as
any of the Litho Stockholders shall reasonably request (provided
that Graphic shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in
which it is not then qualified or to file any general consent to
service of process), and do such other reasonable acts and things
as may be required of it to enable any of the Litho Stockholders
to consummate the disposition of the Stock Consideration in any
of the aforementioned jurisdictions; and
(v) notify the Litho Stockholders, at any time when a
prospectus relating to the Registration Statement is required to
be delivered under the Act, of the happening of any event as a
result of which the Registration Statement contains an untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and prepare a supplement or amendment to
the Registration Statement so that the Registration Statement
will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 7.5 Indemnification.
---------------
(a) Graphic agrees to indemnify, defend and hold harmless the Litho
Stockholders from and against all loss, damages, liabilities, expenses,
costs, fees and disbursements of counsel (including the reasonable fees and
expenses of legal counsel to the Litho Stockholders), and actions to which
they may become subject, under the Act or otherwise, insofar as such loss,
damage, liability, expense or claim (or action in respect thereof) arises
out of or is based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or prospectus
contained therein (or any amendment or supplement thereto) or arises out of
or is based upon any omission or alleged omission to state in any thereof a
material fact required to be stated therein or necessary to make the
statements in any thereof not misleading, and will reimburse the Litho
Stockholders and such other persons for any legal or any other expenses
incurred in connection with investigating or defending any such action or
claim, except insofar as the same may have been caused by any untrue
statement or omission contained in the information confirmed by any of the
Litho Stockholders pursuant to Section 7.2 or based upon information
furnished to Graphic in writing by or on behalf of any of the Litho
Stockholders expressly for use therein.
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(b) Each Litho Stockholder agrees to indemnify, defend and hold
harmless Graphic and its officers, directors, affiliates, agents, employees
and controlling persons (within the meaning of Section 15 of the Act) from
and against all loss, damages, liabilities, expenses, costs, fees and
disbursements of counsel (including the reasonable fees and expenses of
legal counsel to Graphic), and actions to which they may become subject,
under the Act or otherwise, insofar as such loss, damage, liability,
expense or claim (or action in respect thereof) arises out of or is based
upon any untrue statement of fact made by such Litho Stockholder and/or the
failure of such Litho Stockholder to make a statement of fact which would
correct any untrue statement by such Litho Stockholder, and will reimburse
Graphic and such other persons for any legal or any other expenses incurred
in connection with investigating or defending any such action or claim.
Section 7.6 Fees and Expenses of Registration. Graphic will pay all
---------------------------------
expenses and fees incident to the performance of its obligations in Sections
7.1, 7.3 and 7.4 other than selling commissions and fees and expenses of counsel
or other advisors to any of the Litho Stockholders.
ARTICLE 8
INDEMNIFICATION
Section 8.1 Indemnification of Acquisition Corp. and Graphic by the Litho
-------------------------------------------------------------
Stockholders.
- ------------
(a) On the terms set forth in this Agreement, the Litho Stockholders
shall severally but not jointly, from and after the Closing Date,
indemnify, defend, and hold Acquisition Corp., the Surviving Corporation
and Graphic and their respective subsidiaries and affiliates harmless from,
against and in respect of any and all Damages incurred by any of them
arising from or in connection with (i) any breach of any representation,
warranty or covenant made by the Litho Stockholders in this Agreement, or
(ii) the operation of either Litho Company prior to the Closing; provided,
however, that the liability of each of the Litho Stockholders to indemnify
Graphic or Acquisition Corp. for any Damages incurred by them arising from
or in connection with any breach of any representation, warranty or
covenant made by a Litho Stockholder in this Agreement shall be limited to
the total amount of Merger Consideration paid to such Litho Stockholder.
Notwithstanding the foregoing, it is agreed and understood that Mr.
Vallilee shall have no indemnity obligation with regard to any
representations, warranties or covenants made with regard to Lithoprint or
to the operation of Lithoprint.
(b) Graphic, Acquisition Corp. and the Surviving Corp., jointly and
severally, shall indemnify, defend and hold the Litho Stockholders harmless
from and against and in respect to any and all Damages incurred by them
arising from or in connection with (i) any breach of any warranty,
representation or covenant made by Graphic, Acquisition Corp. or the
Surviving Corp. in this Agreement, or (ii) the operation of the Surviving
Corp. after the Closing.
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<PAGE>
(c) The Litho Stockholders' representations, warranties and covenants
set forth in this Agreement shall survive for a three (3) year period
following the Closing Date except with respect to the representations,
warranties and covenants set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5,
3.6, 3.8, 3.15 and 3.20, which shall survive for a period of ten (10) years
following the Closing Date. The representations, warranties of Graphic and
Acquisition Corp. contained in this Agreement shall survive for a ten (10)
year period following the Closing Date.
(d) Notwithstanding anything to the contrary contained in this Section
8.1, no Damages shall be recoverable hereunder by any party unless and
until the aggregate amount of all Damages exceed $25,000, and the full
amount of Damages (subject to the limit in Section 8.1(a) hereof) shall be
recoverable once this threshold is met without regard to such threshold;
provided, however that this threshold shall not apply to (i) any adjustment
in the Merger Consideration pursuant to Article 2 hereof; (ii) any
indemnification sought under Section 8.1(a)(ii) hereof, in the event such
indemnification could not be sought under Section 8.1(a)(i) hereof; (iii)
any indemnification sought under Section 8.1(b)(ii) hereof, in the event
such indemnification could not be sought under Section 8.1(b)(i) hereof.
Section 8.2 Method of Asserting Claims.
--------------------------
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against
or sought to be collected from an Indemnified Party by a third party (a
"Third Party Claim") or an Indemnified Party seeks indemnification from an
Indemnifying Party in connection with any other type of claim for which
indemnity may be sought hereunder (referred to herein as a "Non Third Party
Claim"), the Indemnified Party shall use reasonable efforts to notify the
Indemnifying Party in writing of such Third Party Claim or Non Third Party
Claim, specifying the nature of such Third Party Claim or Non Third Party
Claim arising hereunder and the amount or the estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the
final amount of such Third Party Claim or Non Third Party Claim) (the
"Claim Notice"). The Indemnifying Party shall have twenty calendar days
-------------
(or such earlier period of time as may be required for the filing of
responsive pleadings to any legal action instituted with respect to the
Third Party Claim or Non Third Party Claim or required due to contractual
deadlines imposed upon the Indemnified Party by the contract in dispute but
in any event, not less than 10 days) from the receipt of the Claim Notice
(the "Response Notice Period") to notify the Indemnified Party, (A) whether
----------------------
or not it disputes its liability to the Indemnified Party hereunder with
respect to such Third Party Claim or Non Third Party Claim and (B)
notwithstanding any such dispute, whether or not it will defend, at its
sole cost and expense, the Indemnified Party against such Third Party
Claim. No failure by an Indemnified Party to notify the Indemnifying Party
of the existence or assertion of a claim for which indemnification may be
sought shall constitute a defense to or waiver of such claim for
indemnification except to the extent the Indemnifying Party may be able to
prove that it has been materially prejudiced by such failure or delay.
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(b) If the Indemnifying Party disputes its liability with respect to
such Third Party Claim or Non Third Party Claim or the amount thereof
(whether or not the Indemnifying Party desires to defend the Indemnified
Party against such Third Party Claim as provided in paragraphs (c) and (d)
below), such dispute shall be resolved in accordance with Section 8.4
hereof. Pending the resolution of any dispute by the Indemnifying Party of
its liability with respect to any Third Party Claim, such Third Party Claim
shall not be settled without the prior written consent of the Indemnified
Party and the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed.
(c) In the event that the Indemnifying Party notifies the Indemnified
Party within the Response Notice Period that it will defend the Indemnified
Party against a Third Party Claim, then the Indemnifying Party shall assume
the defense thereof with counsel reasonably acceptable to the Indemnified
Party, and the Indemnified Party shall cooperate in all reasonable respects
in such defense, including without limitation in making any appropriate
counterclaim against the person asserting the Third Party Claim or any
appropriate cross-complaint against any person (unless such counterclaim or
cross-complaint would be against any other entity with which the
Indemnified Party has ongoing business relations and would have a
significant likelihood in the good faith judgment of the Indemnified Party
of damaging such business relationships); provided, however, the
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party which consent shall not be unreasonably withheld, consent
to the entry of any judgment against the Indemnified Party or enter into
any settlement or compromise which does not include, as an unconditional
term thereof, the giving by the claimant or plaintiff to the Indemnified
Party of a release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such Third Party Claim.
If any Indemnified Party desires to participate in, but not control, any
such defense or settlement, it may do so at its sole cost and expense. If,
in the reasonable opinion of the Indemnified Party, any such Third Party
Claim or the litigation or resolution of any such Third Party Claim
involves an issue or matter which could reasonably be expected to have a
material adverse effect on the Indemnified Party, then the Indemnified
Party shall have the right to control the defense or settlement of any such
Third Party Claim at its cost and expense, and such legal fees and expenses
shall be included as part of the indemnification obligation of the
Indemnifying Party hereunder. If the Indemnified Party should elect to
exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense or settlement of such Third
Party Claim at its sole cost and expense.
(d) If the Indemnifying Party elects not to defend the Indemnified
Party against such Third Party Claim, whether by not giving the Indemnified
Party timely notice within the Response Notice Period as provided above or
otherwise, then the Indemnified Party shall, at the expense of the
Indemnifying Party (if the Indemnified Party is entitled to indemnification
hereunder), have the right to defend, settle or compromise any such Third
Party Claim with counsel of its own choosing. In the event the Indemnified
Party proposes to settle a Third Party Claim, the Indemnified Party shall
deliver to the Indemnifying Party written notice of the proposed settlement
of the Third Party Claim, which the Indemnifying Party may reject in its
reasonable judgment within thirty days of receipt of such notice. In
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the event the Indemnified Party settles such Third Party Claim over the
objection of Indemnifying Party, dispute over such settlement shall be
resolved as provided in Section 8.4 hereof.
(e) In the event an Indemnified Party has a claim for indemnification
against the Indemnifying Party hereunder with respect to a Non Third Party
Claim, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. If the Indemnifying Party disputes its
liability with respect to such claim or demand, such dispute shall be
resolved in accordance with Section 8.4 hereof; if the Indemnifying Party
accepts or agrees with such claim or does not notify the Indemnified Party
within the Response Notice Period that it disputes such claim, the amount
of such claim shall be conclusively deemed a liability of the Indemnifying
Party hereunder.
Section 8.3 Payment. The Indemnifying Party shall pay the Indemnified
-------
Party, within ten days after the final determination of liability under this
Article 8, the amount of any indemnification to which the Indemnified Party is
entitled. Upon the payment in full of any claim, the Indemnifying Party shall
be subrogated to the rights of the Indemnified Party against any person, firm or
corporation with respect to the subject matter of such claim.
Section 8.4 Arbitration. All disputes under this Article 8 or Section
----------- -------
2.7, shall be settled by arbitration in Dallas, Texas, before a panel of three
arbitrators pursuant to the rules of the American Arbitration Association (the
"AAA"). Arbitration may be commenced at any time by any party hereto by giving
- ----
written notice to each other party to a dispute that such dispute has been
referred to arbitration under this Section 8.4. Each party shall choose one
arbitrator and the third shall be chosen by the other two, provided that if a
party does not promptly choose an arbitrator, or if the first two shall fail to
agree on a third, within 20 days after the date of the notice referred to in the
preceding sentence, the selection of the remaining arbitrator(s) shall be made
pursuant to the rules of the AAA from the panels of arbitrators maintained by
the AAA. Any award rendered by the arbitrator shall be conclusive and binding
upon the parties hereto; provided, however, that any such award shall be
accompanied by a written opinion of the arbitrator giving the reasons for the
award. This provision for arbitration shall be specifically enforceable by the
parties, and the decision of the arbitrator in accordance herewith shall be
final and binding and there shall be no right of appeal therefrom. Each party
shall pay its own expenses of arbitration and the expenses of the arbitrators
shall be equally shared.
ARTICLE 9
COVENANT NOT TO COMPETE
Section 9.1 Agreement Not to Compete. Unless otherwise consented to in
------------------------
writing by the Surviving Corporation or Graphic, each Litho Stockholder agrees
that during the Restricted Period he will not, within the Area, either directly
or indirectly, on his own behalf or in the service or on behalf of others, (1)
engage in any Competing Business or provide managerial, supervisory,
administrative, financial or consulting services or assistance to, or own a
beneficial interest in, any Competing Business except for the ownership of less
than five percent (5%) of a publicly traded
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company; or (2) solicit or attempt to solicit printing or prepress business from
any person, firm or corporation who was a customer of either Litho Company
during the one-year period immediately preceding the Closing Date (as shown on
the books and records of the Litho Companies); provided, however, that the Litho
Stockholder's interest in TLC Digital Imaging, Inc. shall not be deemed to be a
violation of this covenant.
Section 9.2 Agreement Not to Solicit Employees. Each Litho Stockholder
----------------------------------
agrees that during the Restricted Period, he will not, without the prior written
consent of the Surviving Corporation, either directly or indirectly, on his own
behalf or in the service or on behalf of others, solicit, divert, or hire away,
or attempt to solicit, divert, or hire away, from the employment of the
Surviving Corporation or Graphic, any person employed by either Litho Company on
the date of the Closing.
Section 9.3 Confidentiality. After the Closing, the Litho Stockholders
---------------
(i) will hold the Proprietary Information in confidence, and (ii) will not use,
duplicate, reproduce, distribute, disclose or otherwise disseminate the
Proprietary Information. In the event that any of the Litho Stockholders
determine that they are required by law to disclose any Proprietary Information,
such Litho Stockholder will not make such disclosure unless (and then only to
the extent that) such Litho Stockholder has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Surviving Corporation (if reasonably practical)
that such disclosure has been requested and is required by law.
Section 9.4 Remedies. The parties hereto specifically acknowledge and
--------
agree that the remedy at law for breach of this Article 9 would be inadequate
and that any party, in addition to any other relief available to it, shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving actual damages.
ARTICLE 10
TERMINATION; AMENDMENTS; WAIVER
Section 10.1 Termination. This Agreement may be terminated, and the
-----------
transaction contemplated hereby may be abandoned, at any time prior to the
Closing Date:
(a) by the written consent of Graphic and the Litho Stockholders;
(b) by Graphic or the Litho Stockholders if, without a material breach
of the terminating party, the Closing shall not have occurred on or before
August 1, 1997, which date may be extended by mutual consent of the
parties;
(c) by Graphic if there has been a material misrepresentation,
material breach of warranty, or material breach of covenant or agreement by
the Litho Stockholders or the Litho Companies in their representations,
warranties, covenants or agreements set forth herein; or
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(d) by the Litho Stockholders if there has been a material
misrepresentation, material breach of warranty or material breach of
covenant or agreement by Acquisition Corp. or Graphic in its
representations, warranties, covenants or agreements set forth herein.
Section 10.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 10.1 hereof, this Agreement
shall forthwith become void and have no effect, other than the provisions of
Section 11.7 which shall survive. Nothing contained in this Section 10.2 shall
relieve any party from liability for any breach of this Agreement occurring
before such termination.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Entire Agreement; Assignment. This Agreement, together
----------------------------
with any confidentiality agreements between the parties hereto, (a) constitutes,
with the schedules and the exhibits hereto, the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof and thereof and (b) shall not
be assigned by operation of law or otherwise, provided that Acquisition Corp.
may assign its respective rights and obligations to any direct subsidiary of
Graphic, but no such assignment shall relieve Acquisition Corp. of its
obligations hereunder.
Section 11.2 Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full force
and effect.
Section 11.3 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given, effective and received when delivered in person or by
electronic facsimile transmission, cable, telegram, telex, or a courier, or five
(5) days following the date such notice is mailed by registered or certified
mail (postage prepaid, return receipt requested), to the respective parties as
follows:
If to Acquisition Corp., to it at:
Litho Acquisition Litho Company
c/o Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Attention: Mark C. Pope III
President
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<PAGE>
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy: 404/572-6999
Attention: Thomas R. McNeill, Esq.
If to Graphic, to:
Graphic Industries, Inc.
2155 Monroe Drive, N.E.
Atlanta, Georgia 30324
Telecopy: (404) 874-7589
Attention: Mark C. Pope III
President
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy: (404) 572-6999
Attention: Thomas R. McNeill, Esq.
If to the Litho Stockholders, to each of them at the
address listed on the signature pages hereof.
If to the Litho Companies, to them at:
The Lithoprint Company
1825 S. IH 35
Austin, Texas 78741
Attn: Dennis Eckholm
Lithoimage, Inc.
1825 S. IH 35
Austin, Texas 78741
Attn: Robert Vallilee
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with a copy to:
Blazier, Rutland & Lerner, P.C.
221 West 6th Street
Suite 1500
Austin, Texas 78701
Attn: Kenneth D. Lerner
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
actual receipt thereof).
Section 11.4 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Texas, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 11.5 Descriptive Headings. The descriptive headings herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 11.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
Section 11.7 Expenses. All costs and expenses of Graphic or Acquisition
--------
Corp. incurred in connection with the Mergers shall be paid by Graphic. All
costs and expenses of the Litho Stockholders or the Litho Companies incurred in
connection with the Mergers shall be paid by the Litho Stockholders.
Section 11.8 Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
-41-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed as of the day and year first above written.
GRAPHIC INDUSTRIES, INC.
By: /s/ Mark C. Pope III
--------------------
Name: MARK C. POPE III
----------------
Title: Chairman and CEO
----------------
LITHO ACQUISITION COMPANY
By: /s/ Mark C. Pope III
--------------------
Name: MARK C. POPE III
----------------
Title: President
---------
THE LITHOPRINT COMPANY
By: /s/ Dennis Eckholm
------------------
Name: DENNIS ECKHOLM
--------------
Title: President
---------
LITHOIMAGE, INC.
By: /s/ Robert R. Vallilee
----------------------
Name: ROBERT R. VALLILEE
------------------
Title: President
---------
/s/ Dennis Eckholm
------------------
Dennis Eckholm
2605 Rollingwood
Austin, Texas 78746
Social Security No.: ###-##-####
-----------
/s/ Robert R. Vallilee
----------------------
Robert R. Vallilee
11260 Pinehurst Drive
Austin, Texas 78742
Social Security No.: ###-##-####
-----------
-42-
