FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-7513
ARTISTIC GREETINGS INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 16-0909929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
(607) 737-5235
(Address of principal executive offices, including telephone number)
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates was approximately
$8,197,000 on March 4, 1996.
As of March 4, 1996, the Registrant had 6,323,075 shares of its common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for its fiscal
year ended December 31, 1995 are incorporated by reference in Parts II and IV
of this report and portions of the Registrant's Proxy Statement for its 1996
Annual Meeting are incorporated by reference in Part III of this report.
<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company is engaged primarily in the mail-order sales and marketing of
a broad range of personalized products such as personalized bank checks,
address labels, personalized stationery and gift items.
The Company markets its personalized products through advertising in mass
circulation print media, such as Sunday newspaper free standing inserts
("FSI's") purchased from Valassis Communications, Inc. ("Valassis") and
NewsAmerica Publications, cooperative insert mailings ("Co-op Mailings"),
package insert program advertising ("PI Programs") and through its mail order
catalog PERSONAL TOUCH. The Company has also initiated an advertising and
sales campaign over the Internet and is actively testing other media.
A substantial majority of the Company's orders are received through the
mail, with the remainder being received by the Company's telemarketing
department. All orders are shipped through the U.S. mail and via private
courier services.
GENERAL DESCRIPTION OF BUSINESS
The Company traces its roots to 1925. It was incorporated as Artistic
Greetings in the State of New York in 1965 and reincorporated in the State of
Delaware in 1987. Since 1980, the Company has evolved from being a
manufacturer and marketer of private label greeting cards and a provider of
limited order fulfillment services into primarily a manufacturer and direct-
mail marketer of personalized products. Sales of its personalized products
accounted for a substantial portion of the Company's revenues during the last
three years. Other revenue has been realized through the rental of the
Company's proprietary list of customer names ("List Rentals") and through its
PI Programs, in which it sells space in its outgoing packages to third-party
advertisers.
Through the expansion and diversification of its product lines, the
Company is less subject to seasonal swings in its business than it formerly
was. However, since a large number of the Company's catalog items are
purchased as gifts, the fourth quarter remains the strongest sales quarter of
the Company's fiscal year, due to Christmas season sales. Additionally, sales
in the first quarter tend to be higher than the second and third quarters.
Management believes that this is partially a result of an increase in the
payment of bills with personalized checks and an increase in mailings during
the Christmas season which causes a depletion in its customers' supply of
checks and labels, and the concomitant need for replenishment. Additionally,
FSI advertising is generally more limited during Christmas and New Years
which, management believes, creates pent-up demand.
<PAGE>
PERSONALIZED CHECKS
The Company began advertising Artistic Checks{<reg-trade-mark>}, its own
personalized bank checks, in August 1993. After its initial advertising
campaign, Artistic Checks{<reg-trade-mark>} sales grew to more than $2.2
million by the end of 1993, $17.7 million by the end of 1994 and to $37
million by the end of 1995.
On May 30, 1995 (the "Closing Date"), the Company purchased various assets
(the "Valcheck Acquisition") from Valcheck Company ("Valcheck"), a subsidiary
of Valassis, related to Valcheck's manufacture, direct-mail marketing and sale
of checks. Under the terms of the Purchase Agreement among the Company,
Valassis and Valcheck, the Company purchased Valcheck's customer lists,
machinery and equipment, inventory and artwork related to Valcheck's mail-
order check business and assumed the obligation to fulfill Valcheck's then-
current check orders, as well as any check orders received from Valcheck
customers after the Closing Date. In consideration of the assets purchased,
the Company: (i) issued to Valcheck 500,000 shares of the Company's Common
Stock (the "Valcheck Stock"), pursuant to the terms of a related Investment
Agreement between the Company and Valcheck (the "Investment Agreement"); and
(ii) agreed to pay Valcheck 20% of the revenues it would receive within one
year following the Closing Date, less certain adjustments for both the
existing check orders the Company assumed the obligation to fulfill and for
first-time check orders during this period that the Company would receive as a
result of prior Valcheck solicitations.
Under the terms of the Investment Agreement, the Company granted Valcheck
a put option exercisable on the second anniversary of the Closing Date, which
requires the Company to purchase up to all of the Valcheck Stock at a price of
$5.00 per share. The closing price of the Company's Common Stock on the
Closing Date was $3.75 per share. The Investment Agreement also provides
that, so long as Valcheck controls at least 300,000 of the shares, Valcheck
may designate one representative as a member of the Company's Board of
Directors (the "Board"), and that so long as Valcheck controls any of the
shares, it will vote all such shares in accordance with the recommendations
made by the Board with respect to any matters put before the Company's
stockholders for action. The shares of Valcheck Stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933,
as amended (the "Act") and can only be disposed of in an offering registered
under that Act or in a transaction exempt from registration thereunder.
Valcheck has no registration rights in respect of the Valcheck Stock.
In connection with the Valcheck Acquisition, the Company more than
doubled its production capacity of personalized checks. Concurrent with the
Valcheck Acquisition, the Company began a consolidation of its check
production and other operations into a new 130,000 square foot facility. This
facility is in the process of being completed and is further described below
under
"- Manufacturing" and "Properties." In addition to the capacity increase, the
Valcheck Acquisition added well over 900,000 names to the existing Artistic
Checks{<reg-trade-mark>} customer name list. These names provide the Company
with a potential low cost revenue stream resulting from reorders which have
minimal advertising expense. The sale of personalized checks accounted for
approximately 39.0% of the Company's total sales in 1995 as compared to 19.4%
in 1994.
Artistic Checks{<reg-trade-mark> }offered 57 designs at the close of 1995
and is in the process of reducing that number by the end of the first quarter
of 1996. This strategy is intended to assist the Company in managing its
inventory levels and base stock procurement processes, as well as to improve
its press run efficiencies.
Although management believes that the check business has matured to a
stable growth level, the portion of that market represented by the sale of
checks directly to consumers within the check business as a whole, is growing
rapidly. The Company plans to grow its direct mail check business in 1996 by
managing profitably the ratio between first-time orders and reorders, however,
there can be no assurance that such strategy will necessarily result in
profitable growth. This strategy was implemented with vigor in the third
quarter of 1995 when the Company began to withdraw from certain unprofitable
portions of media distribution.
In September of 1995, Joseph Calabro, an experienced check-printing
professional with thirty years in the business joined the Company as a
consultant to oversee and manage the check production. Mr. Calabro became
Senior Vice President of Manufacturing in January of 1996.
PERSONALIZED NAME AND ADDRESS PRODUCTS
The Company shipped millions of personalized name and address labels,
Mini-Printers<reg-trade-mark> and re-inkable stampers from its mechanized
production line in 1995 to help grow its general merchandise customer lists to
over 9 million names. This segment of the Company's business has been a
staple for many years and management believes that the Company's proprietary
processes for the production of these items have matured to provide a low-cost
means to support high volume production while maintaining the high quality
standards its customers have come to expect. The cost structure and
efficiencies of the label operation in 1995 were somewhat less favorable than
the Company has experienced in the past, primarily as a result of the
temporary transfer of highly skilled employees from the name and address
product manufacturing operation to assist in the production of personalized
checks following the Valcheck Acquisition. The sale of personalized name and
address products accounted for approximately 45.5% of the Company's total
sales in 1995 as compared to 58.0% in 1994.
PERSONALIZED GENERAL MERCHANDISE
More than ten years ago, the Company began a catalog solicitation program
as a tool to market the Company's personalized products and broaden the number
of products sold, as well as to attract a more upscale market with higher
margin products and to increase its mail-order customer base. The Company
distributes its catalog through mailings to its own customers, to customers
whose names are rented from mailing lists and by inclusion of its catalog in
each of the millions of boxes shipped in the Company's PI Programs each year,
as well as in orders shipped by other catalog and merchandise mailers. The
Company currently distributes one catalog called PERSONAL TOUCH. The sales
from catalog operations accounted for approximately 10.1% of the Company's
total sales in 1995 compared to 16.0% in 1994.
In 1995, the Company distributed approximately 12 million catalogs in the
U.S., compared with 26 million in 1994 and 31 million in 1993. The share of
the Company's total revenues contributed by its catalog sales has declined
year-to-year over the past several years for several reasons. First, during
this time, the Company has been intensively reviewing its catalog product
offerings and its catalog customer base to determine whether its catalogs are
offering the product selections desired by its catalog customers, while at the
same time working toward maximizing the margins on the products offered. As a
result of such reviews, at the beginning of 1995, the Company terminated its
"Initials" catalog and sold its accompanying rights and name list to a third
party. At the same time, the Company also terminated its AMY ALLISON catalog.
Secondly, all efforts were concentrated on downsizing and returning to
profitability the remaining catalog, PERSONAL TOUCH. This included in-depth
analysis of product mix to meet customer demand and maintain lower cost of
goods, product designs, trends in the marketplace and segmentation of both in-
house and rented customer lists. Top-selling products were then included in
the PERSONAL TOUCH catalog if they matched the product mix and cost factors.
Upon completion of the analysis, the PERSONAL TOUCH catalog was restructured as
a more paper-goods-oriented catalog, targeting a lower cost of goods and an
increased page count.
DIRECT MAIL ADVERTISING
The Company's direct mail-order advertising efforts are focused primarily
on FSI and Co-op Mailings.
For many years, the Company has advertised its products through FSI
advertising in Sunday newspapers nationwide in the United States and to a
lesser extent in Canada. Since 1993, the Company has also advertised its
personalized checks through its FSI and other direct mail programs. The
Company has obtained the right of first refusal to purchase from Valassis
extensive FSI circulation in newspapers throughout the United States each week.
The Company believes that such access to its customers is crucial to manage its
sales volumes profitably and targets its advertising to potential customers in
regions which have historically produced the best response rates.
Since 1988, the Company has been participating in nationwide Co-op Mailing
programs to further its market penetration. Under these programs, printed
inserts advertising the Company's products are distributed nationally along
with the inserts of other participating advertisers on a regular basis through
the mail. Additionally, the Company has been advertising in Co-op Mailing
programs in Canada since 1993. Partially as a result of the Company's
increased access to the FSI market, it has determined to reduce its
participation in the less profitable Co-op Mailing programs to a minimum in
1996.
INTERNET AND OTHER MEDIA TESTS
The Company began experimenting with advertising its personalized checks on
the World Wide Web in August 1994, long before today's intense level of
awareness of this medium. The Web pages have the advantage of showing all
available designs (therefore, not being as limited as an ad showing only a few
designs), as well as all other information and options regarding the checks.
The site can be reached at http://www.spectra.net/mall/artistic.
The Company is also accessible by e-mail on the Internet at
[email protected].
SERVICES
The Company generates a small amount (approximately 2.5%) of its annual
revenues through order fulfillment services, its PI Programs and List Rentals
to other concerns for their use of the Company's customer names in mass
mailings and solicitations. "Order fulfillment" services consist of the
Company's filling orders placed as a result of advertising promotions by
various third parties. In the PI Programs, the Company inserts its customers'
promotional materials in the Company's own mail order solicitations and product
shipments.
DATA ENTRY/ORDER PROCESSING
Over 8 million incoming orders were handled in the Company's Order
Processing department in 1995. Approximately 80% of the Company's orders are
received through the mail, with the remainder being accepted via the
telephones. The orders received through the mail are opened, processed and
batched for data entry usually within four hours of receipt from the post
office.
Four data entry sites, located in three New York State communities, key and
verify tens of thousands of orders every day. Networked computers, utilizing
post-relational database technology, along with fully integrated scanning
devices, assist data entry clerks in the process of individually personalizing
every product on every order. The speed and accuracy consistently exhibited by
this department contributes to a high level of customer satisfaction, as well
as the continued growth of repeat customers.
TELEMARKETING
An increasing percentage of the Company's revenue is being generated
through its call center. In 1995, over 2 million telephone calls were answered
as compared to 1.2 million calls in 1994. With over 9 million customers and
their orders on-line, along with a direct link to the manufacturing floor, the
customer service/telemarketing representatives are able to recall detailed
order history instantly, facilitating customer inquiries, reorders or problem
resolution. The use of cross-selling and up-selling techniques results in the
average order being 20-30% higher when an order is placed over the telephone
versus being received through the mail.
MANUFACTURING
The Company personalizes the majority of the paper products that it sells,
while a few such items and certain non-paper products are manufactured by
outside vendors. The Company has renovated a 130,000 square foot facility,
which provides the necessary space for all present manufacturing operations of
the Company. Management believes that housing all manufacturing under one roof
will decrease the cost of material movement and increase productivity through
more efficient utilization of its personnel.
Manufacturing operations utilize some of the newest technology available
for production of the Company's products. Activities are monitored to provide
up-to-the-minute order tracking. Training programs assure a qualified group of
employees. Quality assurance is maintained to provide the Company's customers
with the highest degree of accuracy of product received.
The Company must maintain a wide variety of paper inventory to meet the
demand for its customers' orders. Based in part on past success rates with
mail solicitations, mass advertising and on the somewhat cyclical nature of its
business, the Company has traditionally been able to plan for its inventory
needs without the necessity of committing large amounts of working capital to
inventory for substantial periods of time. In spite of that fact, inventories
increased substantially during 1995, largely as the result of a decision to
focus on preventing out-of-stock conditions in the check operation and the
nearly doubling of the number of the Company's check designs as a result of the
Valcheck Acquisition, the former customers of which the Company now services.
Management has discontinued many of these designs and is actively managing the
reduction of inventory levels through various programs. The Company fulfills
the majority of the orders it receives from its facilities in Elmira, New York.
The orders not fulfilled in Elmira consist primarily of personalization of
certain check designs which is subcontracted to a third party check printer.
The Company's backlog of orders is generally small in relation to total
sales and is not material to an understanding of the Company's business.
Additionally, rapid order fulfillment is one means by which the Company can
distinguish itself from its competition. Once a product is available for
shipment, the mode of transportation can be U.S. bulk mail, priority mail or
Federal Express. Because the Company is so heavily involved in direct mail
solicitations and shipping of orders, increases in U.S. Postal Service rates
affect its cost of doing business to a degree. Each time the U.S. Postal
Service raises postage rates, the Company evaluates the classes of postage
affected, the rates of increase and the potential impact on Company profits
before it passes those increases on to its customers. The Company ships 3.5%
of its products through private shipping providers such as Federal Express
pursuant to contractual arrangements. The cost of such shipping is, generally,
passed on to the customer and the Company is therefore not detrimentally
affected by these changes in price structure.
RAW MATERIALS
The raw materials necessary for its business are principally paper, paper
products and printing supplies. While increases in the prices of these
commodities affect the Company's cost of goods sold, such increases likewise
affect the Company's competition; thus, it is not uniquely vulnerable to such
changes. However, the Company's cash flow was detrimentally affected in 1995
as a result of substantial increases in the price of paper early in the year.
Management believes that the availability of paper products in 1996 will expand
with a concomitant stabilization in prices, although there can be no assurance
of such stabilization. The Company historically has found the necessary
materials readily available in sufficient quantities.
EMPLOYEES
Due primarily to the rapid expansion of check-printing operations following
the Valcheck Acquisition, the Company's full-time employment levels in 1995
fluctuated between a minimum of 554 persons to a high of 1,146 persons. All of
the Company's employees are located at its facilities in Elmira, Binghamton and
Penn Yan, New York. The central New York area provides an adequate supply of
labor to meet the Company's present and foreseeable needs. Of its total number
of employees, nine are executive management personnel and the remainder are
employed in the areas of order entry, processing, production and shipping,
sales and administration. The Company considers its employee relations to be
good. The Company has never experienced a work stoppage and its employees are
not represented by a labor union.
<PAGE>
COMPETITION
The Company believes that it competes primarily with all those who sell
personalized products through the mails. Because the substantial majority of
the Company's products are personalized, the Company does not believe that it
encounters much, if any, retail competition. The Company does, however, face
significant competition from as many as ten other direct-mail marketers of
personalized checks, personalized name and address products and purveyors of
personalized catalog general merchandise, as well as large check printing
houses such as Deluxe Corporation ("Deluxe"), John H. Harland Company
("Harland") and Clarke American Checks, Inc. ("Clarke American"), which
distribute personalized checks through banks and financial institutions across
the country, each as further described below.
In connection with the Company's three main product lines: personalized
checks, personalized name and address products and personalized general
merchandise (sold primarily through the Company's catalog, PERSONAL TOUCH), the
Company believes specific and identifiable competitive factors exist for each.
In the personalized check-printing segment, the Company believes that gross
sales of personalized checks in the United States are in excess of $1.8 billion
per year, the substantial majority of which consists of sales of checks through
banks, directly to their accountholders. The three principal purveyors of
those checks are Deluxe, Harland and Clarke American. Although the Company
currently services certain credit unions, it has yet to enter the bank check
market, which the Company believes has significant barriers to entry as a
result of long-term arrangements between banks and their current suppliers.
The Company, therefore, offers its personalized checks through direct-mail
solicitations and FSI's in tens of millions of Sunday newspapers throughout the
country, and to its existing customers and their friends and families, through
reorder forms contained in the customers' checkbooks. A number of other
companies offer personalized checks through direct-mail solicitation and FSI's.
However, the Company believes that it can compete effectively with those
companies because of the selling and processing economies resulting from its
substantial customer name lists; the previously mentioned access to targeted
FSI advertising through Valassis; the accuracy, quality and speed of its
production techniques; the variety of its design selections; and the efficacy
of its customer-service department. Although the Company faces significant
competitive price pressure, the Company believes that its price points and
value-added services provide an attractive option to its customers. The
Company also, unlike most of its competitors, benefits from its policy of not
charging more for reorders, thereby maintaining loyalty from its established
customer-base. Additionally, the Company guarantees the quality of all of its
products, maintains a liberal exchange and refund policy in respect of
unsatisfied customers, and maintains high standards of order turnaround times
to ensure its customers are provided with their checks quickly.
In the personalized name and address product segment, the Company directly
competes with numerous direct mail purveyors of personalized labels whose
product is sold at substantially the same price as the Company's personalized
labels. The Company, therefore, has broadened its personalized name and
address product line with new designs and offers its labels through unique
advertising presentations to distinguish Artistic Labels from its competition.
In addition, the Company believes it has a substantial share of this market,
with resulting processing and production economies to be a low-cost producer of
these items.
In the personalized product segment sold through the PERSONAL TOUCH
catalog, the Company competes with many other catalog purveyors of personalized
general merchandise, the number of which has grown over the years. The Company
believes that its competition does not lie directly with all catalog marketers
because of the value-added perception of potential customers to having their
name on the products which the Company offers. The Company attempts to
distinguish itself from other direct-mail manufacturers of personalized
merchandise by providing an interesting variety of high-quality goods in a
quick period of time. The Company has also focused its catalog offerings on
personalized-paper products and it believes that such focus has, and will
continue to, set it apart from other marketers of personalized general
merchandise. Additionally, through the Company's telemarketing department, its
employees utilize upselling techniques as well as encourage its customers to
join the Company's buyers' club, entitling them to discounts and encouraging
their loyalty to the Company.
ITEM 2. PROPERTIES.
The Company's operations are conducted in Elmira, Binghamton and Penn Yan,
New York. Presently, the Elmira facilities consist of the Company's new
130,000 production facility on Lake Street in which check and catalog
manufacturing, and warehousing is located ("Artistic Plaza"); two adjacent
locations on William Street; two adjacent buildings in downtown Elmira; and
warehouse space in the Elmira area. The Company owns the entire premises at
401-409 William Street, which contains approximately 35,000 square feet of
manufacturing (collation and insertion for mailings) and warehouse space. The
Company also owns approximately 28,000 square feet at 308 William Street, where
labels and other products are personalized, and leases approximately 3,400
square feet at 406 Academy Place pursuant to a lease with Stuart Komer, the
Company's Chairman, Chief Executive Officer and President, which expires upon
notice solely at the discretion of the Company. These facilities are used for
production and warehouse space. The Company also owns the adjacent buildings
at One Komer Center and 112 North Main Street in Elmira, which contain
approximately 49,000 and 21,000 square feet, respectively. The building at One
Komer Center is used for telemarketing, order entry and administrative office
space, while the building at 112 North Main Street is used for a retail store,
product display, training and data entry. The Company also leases
approximately 14,000 square feet in Elmira, which it uses as a warehouse, as
well as 3,000 square feet in Penn Yan and 5,600 square feet in Binghamton, both
of which facilities are used primarily for data entry. The Company believes
that these areas are well maintained and suitable for its present needs. Under
its leases, the Company paid an aggregate of approximately $340,000 in annual
rents in 1995, which it believes is comparable to the market rate for similar
space in the Elmira, New York and surrounding areas.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There were no material legal proceedings involving the Company pending at
December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of the Company's fiscal year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
This information is incorporated by reference to the section of the
Company's 1995 Annual Report to Stockholders ("1995 Annual Report") entitled
"MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS."
ITEM 6. SELECTED FINANCIAL DATA.
This information is incorporated by reference to the section of the 1995
Annual Report entitled "SELECTED FINANCIAL DATA - FINANCIAL HIGHLIGHTS."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is incorporated by reference to the section of the 1995
Annual Report entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
This information is incorporated by reference to the sections of the 1995
Annual Report entitled "BALANCE SHEETS," "STATEMENTS OF OPERATIONS,"
"STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY," "STATEMENTS OF CASH FLOW,"
"NOTES TO FINANCIAL STATEMENTS," "SELECTED FINANCIAL DATA - SELECTED QUARTERLY
FINANCIAL INFORMATION," and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This information is incorporated by reference to the section of the
Company's definitive Proxy Statement filed with respect to its 1996 Annual
Meeting of Stockholders (the "1996 Proxy Statement") entitled "PROPOSAL 1
"-ELECTION OF DIRECTORS" AND "-EXECUTIVE OFFICERS."
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
This information is incorporated by reference to the section of the 1996
Proxy Statement entitled "PROPOSAL 1 - COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This information is incorporated by reference to the section of the 1996
Proxy Statement entitled "PROPOSAL 1 - SECURITY OWNERSHIP OF CERTAIN PERSONS."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is incorporated by reference to the Company's 1996 Proxy
Statement entitled "PROPOSAL 1 - CERTAIN TRANSACTIONS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND EXHIBITS.
(1) FINANCIAL STATEMENTS. The following financial statements of the
Company and the accountant's report thereon are included in the 1995 Annual
Report and are incorporated herein by reference:
<circle> Report of Independent Public Accountants.
<circle> Balance Sheets, December 31, 1995 and 1994.
<circle> Statements of Operations for the three years ended December
31, 1995.
<circle> Statements of Changes in Stockholders' Equity for the three
years ended December 31, 1995.
<circle> Statements of Cash Flows for the three years ended December
31, 1995.
<circle> Notes to Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES. Not applicable.
(3) EXHIBITS. The following constitutes the list of exhibits required to
be filed as a part of this Report pursuant to Item 601 of Regulation S-K:
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C> <C>
EXHIBIT
Number Description Location
2-1 Amended Standstill Agreement dated Incorporated by Reference to
as of June 1, 1992, between Exhibit 2-1 to the Company's
American Greetings Corporation Report on Form 8-K filed on July
("American") and Artistic 2, 1992.
Greetings Incorporated (the
"Company").
3-1 Certificate of Incorporation of Incorporated by Reference to
the Company, a Delaware Exhibit 3-1 to the Company's Form
corporation. 10-K for the year ended December
31, 1987.
3-2 Bylaws of the Company, as amended. Incorporated by Reference to
Exhibit 3-2 to the Company's Form
10-K for the year ended December
31, 1992 ("1992 10-K").
4-1 Investment Agreement between Incorporated by Reference to
Valcheck Company ("Valcheck") and Exhibit 4-1 to the Company's
the Company dated May 30, 1995. Report on Form 8-K filed on June
15, 1995.
10-1* Company's Employee Long-Term Incorporated by Reference to
Incentive Plan, as amended. Exhibit 10-1 to the Company's Form
10-K for the year ended December
31, 1993 ("1993 10-K").
10-2* Employment Agreement between the Incorporated by Reference to
Company and Stuart Komer. Exhibit 10-2 to the 1993 10-K.
10-3* Form of Deferred Compensation Plan Incorporated by Reference to
between the Company and Stuart Exhibit 10-9 to the Company's 10-K
Komer. for the year ended December 31,
1986.
10-4 Purchase Agreement among Valcheck, Incorporated by Reference to
Valassis and the Company dated May Exhibit 10-1 of the Company's
31, 1995. Report on Form 8-K filed on June
15, 1995.
10-5 Revolving Loan Agreement dated Filed herewith; see Exhibit Index.
March 8, 1996, between the Company
and Marine Midland Bank, N.A.
("Marine").
10-6* Outside Directors Compensation Incorporated by Reference to
Plan. Exhibit 10-14 to the 1992 10-K.
10-7 Security Agreement dated March 8, Filed herewith; see Exhibit Index.
1996, between the Company and
Marine.
10-8 Lease dated March 31, 1993 between Lease incorporated by Reference to
the Company (Tenant) and Stuart Exhibit 10-11 to the 1993 10-K;
Komer (Landlord) leasing premises amendment filed herewith, see
located at 406 Academy Place, Exhibit Index.
Elmira, NY, as amended.
10-9 Term Note and Mortgage dated Incorporated by Reference to
August 16, 1991 for $750,000 Exhibit 10-15 to the Company's
between the Company and Marine. Form 10-K for the year ended
December 31, 1991 ("1991 10-K").
10-10 Sale and Development Agreement Incorporated by Reference to
dated April 26, 1991 between the Exhibit 10-16 to the Company's
Company and the City of Elmira, 1991 10-K.
NY.
10-11 Loan Agreement dated July 7, 1994, Incorporated by Reference to
re: $3,500,000 equipment financing Exhibit 10-14 to the Company's
line of credit ("Chase Agreement") Form 10-K for the year ended
between the Company and The Chase December 31, 1994 ("1994 10-K").
Manhattan Bank, N.A. ("Chase").
10-12 Amendment to Chase Agreement dated Filed herewith; see Exhibit Index.
March 1996.
10-13 Loan Agreement dated August 30, Filed herewith; see Exhibit Index.
1995, between the Company and
Southern Tier Economic Growth,
Inc. with exhibits.
10-14 Loan Agreement and Direct Mortgage Filed herewith; see Exhibit Index.
dated November 6, 1995 between the
Company and the New York State
Urban Development Corporation.
10-15 Amendment and Modification Filed herewith; see Exhibit Index.
Agreement between the Company and
Marine dated March 8, 1996.
10-16* Employment Agreement between the Filed herewith; see Exhibit Index.
Company and Joseph Calabro.
10-17 Advertising Agreement between Filed herewith; see Exhibit Index.
Valassis Communications, Inc.
("Valassis") and the Company dated
May 30, 1995.
11 Statement re: computation of per See Note 1 to the Notes to the
share earnings. Consolidated Financial Statements
Incorporated by Reference in Item
8 hereof.
13 Company's 1995 Annual Report to Filed herewith; see Exhibit Index.
Stockholders.
23 Consent of Arthur Andersen LLP, Filed herewith; see Exhibit Index.
Certified Public Accountants, re:
Incorporation by Reference.
27 Financial Data Schedule. Filed only with EDGAR filing, per
Regulation S-K, Rule 601
(c)(1)(v).
</TABLE>
___________________________
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report pursuant to Item 14 (c) of
this Report.
(b) REPORTS ON FORM 8-K. On October 3, 1995, the Company filed a report
on Form 8-K to report, under the heading of Item 5, Other Events, on the
resignation of David C. Lee as its President and Chief Operating Officer,
effective September 15, 1995.
(c) EXHIBITS. See Exhibit Index.
(d) FINANCIAL STATEMENT SCHEDULES. Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARTISTIC GREETINGS INCORPORATED
Dated: March 29, 1995 By: /S/ROBERT E. JOHNSON
Name: Robert E. Johnson
Title: Senior Vice President Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons, on behalf of the
Company, in the capacity and as of the dates indicated.
By: /S/NORMAN S. EDELCUP Date: March 29, 1996
Name: Norman S. Edelcup
Title: Director
By: /S/LYNDON E. GOODRIDGE Date: March 29, 1996
Name: Lyndon E. Goodridge
Title: Director
By: /S/STUART KOMER Date: March 29, 1996
Name: Stuart Komer
Title: Chairman, Chief Executive Officer
and President
By: /S/ALAN F. SCHULTZ Date: March 29, 1996
Name: Alan F. Schultz
Title: Director
By: /S/IRVING I. STONE Date: March 29, 1996
Name: Irving I. Stone
Title: Director
By: /S/MORRY WEISS Date: March 29, 1996
Name: Morry Weiss
Title: Director
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C> <C>
EXHIBIT
Number Description Location
2-1 Amended Standstill Agreement Incorporated by Reference to
dated as of June 1, 1992, between Exhibit 2-1 to the Company's
American Greetings Corporation Report on Form 8-K filed on July
("American") and Artistic 2, 1992.
Greetings Incorporated (the
"Company").
3-1 Certificate of Incorporation of Incorporated by Reference to
the Company, a Delaware Exhibit 3-1 to the Company's Form
corporation. 10-K for the year ended December
31, 1987.
3-2 Bylaws of the Company, as Incorporated by Reference to
amended. Exhibit 3-2 to the Company's Form
10-K for the year ended December
31, 1992 ("1992 10-K").
4-1 Investment Agreement between Incorporated by Reference to
Valcheck Company ("Valcheck") and Exhibit 4-1 to the Company's
the Company dated May 30, 1995. Report on Form 8-K filed on June
15, 1995.
10-1 Company's Employee Long-Term Incorporated by Reference to
Incentive Plan, as amended. Exhibit 10-1 to the Company's
Form 10-K for the year ended
December 31, 1993 ("1993 10-K").
10-2 Employment Agreement between the Incorporated by Reference to
Company and Stuart Komer. Exhibit 10-2 to the 1993 10-K.
10-3 Form of Deferred Compensation Incorporated by Reference to
Plan between the Company and Exhibit 10-9 to the Company's 10-
Stuart Komer. K for the year ended December 31,
1986.
10-4 Purchase Agreement among Incorporated by Reference to
Valcheck, Valassis and the Exhibit 10-1 of the Company's
Company dated May 31, 1995. Report on Form 8-K filed on June
15, 1995.
10-5 Revolving Loan Agreement dated Filed herewith.
March 8, 1996, between the
Company and Marine Midland Bank,
N.A. ("Marine").
10-6 Outside Directors Compensation Incorporated by Reference to
Plan. Exhibit 10-14 to the 1992 10-K.
10-7 Security Agreement dated March 8, Filed herewith.
1996, between the Company and
Marine.
10-8 Lease dated March 31, 1993 Lease incorporated by Reference
between the Company (Tenant) and to Exhibit 10-11 to the 1993 10-
Stuart Komer (Landlord) leasing K; amendment filed herewith.
premises located at 406 Academy
Place, Elmira, NY, as amended.
10-9 Term Note and Mortgage dated Incorporated by Reference to
August 16, 1991 for $750,000 Exhibit 10-15 to the Company's
between the Company and Marine. Form 10-K for the year ended
December 31, 1991 ("1991 10-K").
10-10 Sale and Development Agreement Incorporated by Reference to
dated April 26, 1991 between the Exhibit 10-16 to the Company's
Company and the City of Elmira, 1991 10-K.
NY.
10-11 Loan Agreement dated July 7, Incorporated by Reference to
1994, re: $3,500,000 equipment Exhibit 10-14 to the Company's
financing line of credit ("Chase Form 10-K for the year ended
Agreement") between the Company December 31, 1994 ("1994 10-K").
and The Chase Manhattan Bank,
N.A. ("Chase").
10-12 Amendment to Chase Agreement Filed herewith.
dated March 1996.
10-13 Loan Agreement dated August 30, Filed herewith.
1995, between the Company and
Southern Tier Economic Growth,
Inc. with exhibits.
10-14 Loan Agreement and Direct Filed herewith.
Mortgage dated November 6, 1995
between the Company and the New
York State Urban Development
Corporation.
10-15 Amendment and Modification Filed herewith.
Agreement between the Company and
Marine dated March 8, 1996.
10-16 Employment Agreement between the Filed herewith.
Company and Joseph Calabro.
10-17 Advertising Agreement between Filed herewith. [Note: This
Valassis Communications, Inc. exhibit is the subject of a
("Valassis") and the Company request for confidential
dated May 30, 1995. treatment before the SEC.]
11 Statement re: computation of per See Note 1 to the Notes to the
share earnings. Consolidated Financial Statements
Incorporated by Reference in Item
8 hereof.
13 Company's 1995 Annual Report to Filed herewith.
Stockholders.
23 Consent of Arthur Andersen LLP, Filed herewith.
Certified Public Accountants, re:
Incorporation by Reference.
27 Financial Data Schedule. Filed only with EDGAR filing, per
Regulation S-K, Rule 601
(c)(1)(v).
</TABLE>
EXHIBIT 10-5
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT dated March 8, 1996, between ARTISTIC
GREETINGS INCORPORATED, a Delaware corporation (the "Borrower") and MARINE
MIDLAND BANK, a New York banking corporation, (the "Bank"). The parties
hereto hereby agree as follows:
RECITALS
1. The Borrower is in default under a $3,500,000 Term Loan Agreement
and a Security Agreement, both dated March 31, 1995 with The Chase
Manhattan Bank (the "Chase Loan Documents").
2. The Bank has made available to the Borrower a discretionary line of
credit (the "Existing Line") in the maximum principal amount of $6,500,000
pursuant to a letter agreement dated April 26, 1991, on which there was an
outstanding principal balance of $3,642,000 as of the close of business on
February 28, 1996.
3. The Borrower is in default under the Existing Line and under
certain other loan documents between the Bank and the Borrower, by reason
of its failure to achieve certain financial covenants and by reason of its
default under the Chase Loan Documents.
4. The Borrower has requested a waiver of the foregoing defaults and
the Bank has agreed to such a waiver upon the terms and conditions set
forth below.
5. The Bank and the Borrower have agreed to terminate the Existing
Line and refinance the amounts outstanding thereunder, pursuant to the
terms and conditions set forth herein, to be effective as of the date of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and in consideration
of the Bank's willingness to extend credit to the Borrower, the Bank and
the Borrower agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have
the same meaning when used in the plural and vice versa):
"ACCOUNTS" means "accounts" as defined in the Uniform Commercial Code
as enacted in the State of New York.
"ADDITIONAL LETTERS OF CREDIT" shall have the meaning assigned to such
term in section 2.2.
"AFFILIATE" means any Person (1) which directly or indirectly controls,
or is controlled by, or is under common control with the Borrower or a
Subsidiary; (2) which directly or indirectly beneficially owns or holds ten
percent (10%) or more of any class of voting stock of the Borrower or any
Subsidiary; or (3) ten percent (10%) or more of the voting stock of which
is directly or indirectly beneficially owned or held by the Borrower or a
Subsidiary. The term control means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities,
by contract, or otherwise.
"AGREEMENT" means this Revolving Credit Agreement, as amended,
supplemented, or modified from time to time.
"BORROWING BASE" has the meaning assigned to such term in section 2.1.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or other
day on which commercial banks in Elmira or Rochester, New York are
authorized or required to close under the laws of the State of New York.
"CAPITAL LEASE" means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"CHASE" means The Chase Manhattan Bank, N.A.
"CHASE LOAN DOCUMENTS" has the meaning given to such term in the
Recitals.
"COLLATERAL" means all property which is subject to the Lien granted by
the Security Agreement and/or the Existing Loan Documents.
"COMMITMENT" means the Bank's obligation to make loans to the Borrower
pursuant to section 2.1 in the amount not to exceed the lesser of
$6,500,000.00 or the Borrowing Base.
"CUSTOMER LIST" means all written and computer records, data and
software identifying by name, address and other identifying information all
of the Borrower's customers with respect to all of its lines of business,
and in addition, for the customers of its check printing business all
software, technology or processes necessary or helpful in the production of
additional checks for each customer.
"DEFAULT" means any of the events specified in section 8.1, whether or
not any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"DISPOSAL" means the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing,
burning, thermal destruction or placing of any substance so that it or its
constituents may enter the environment.
"ELIGIBLE ACCOUNTS" means Accounts which are not Ineligible Accounts.
"ENVIRONMENT" means any water including but not limited to surface
water and ground water or water vapor, any land including land surface or
subsurface, stream sediments, air, fish, wildlife, plants and all other
natural resources or environmental media.
"ENVIRONMENTAL LAWS" means all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws,
statutes, ordinances, regulations, codes and rules relating to the
protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances and the regulations, rules, ordinances, bylaws,
policies, guidelines, procedures, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and
authorities with respect thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published
interpretations thereof.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which together with the Borrower would be treated as a single
employer under section 4001 of ERISA.
"EVENT OF DEFAULT" means any of the events specified in section 8.1,
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"EXISTING LETTERS OF CREDIT" means the letters of credit issued by the
Bank for the account of the Borrower which were outstanding as of January
31, 1996 and any extensions and renewals thereof.
"EXISTING LINE" has the meaning assigned to such term in the Recitals.
"EXISTING LOAN DOCUMENTS" has the meaning assigned to such term in
Section 4.14.
"GAAP" means generally accepted accounting principles in the United
States.
"HAZARDOUS SUBSTANCE" means, without limitation, any explosives, radon,
radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances and
any other material defined as a hazardous substance in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. <section>9601, ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. <section>1801, ET SEQ.; the Resource
Conservation and Recovery Act, 42 U.S.C. <section>6901, ET SEQ.; Articles
15 and 27 of the Environmental Conservation Law of the State of New York;
any so-called "Superfund" or "Superlien" law; or any other federal, state
or local law, regulation, rule, ordinance, bylaw, policy, guideline,
procedure, interpretation, decision, order or directive, whether existing
as of the date hereof, previously enforced or subsequently enacted.
"INELIGIBLE ACCOUNTS" means the aggregate amount of the following
described Accounts, such aggregate amount to be computed as of the last
Business Day of the immediately preceding month:
(1) Any Account which has remained unpaid for more than ninety (90)
days after the original invoice date or, in the case of Accounts related to
the use of customer lists or package insert programs, for more than ninety
(90) days after the completion of mailing or the completion of such package
insert program.
(2) Any Account with respect to which a representation or warranty
contained in the Security Agreement was not, or does not continue to be,
true and accurate, including, without limitation, any Account subject to a
setoff.
(3) In the discretion of the Bank, any Account of an Account Debtor
if at any time a check, promissory note, draft, trade acceptance, or other
instrument for the payment of money has been received, presented for
payment, and returned uncollected for any reason with respect to 10% of the
aggregate dollar amount of outstanding Accounts owed at the time of such
non-payment by the Account Debtor to the Borrower.
(4) Any Account on which the Borrower has extended the time for
payment beyond the longer of thirty (30) days after the original due date,
or ninety (90) days after the original invoice date (or, in the case of
Accounts related to the use of customer lists or package insert programs,
ninety (90) days after the completion of mailing or the completion of such
package insert program) without the consent of Bank.
(5) Any Account as to which any one or more of the following events
occurs respecting an Account Debtor: death or judicial declaration of
incompetency; the filing by or against any Account Debtor of a request or
petition for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, or other relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by any Account Debtor for the benefit of
creditors; the appointment of a receiver or trustee for any Account Debtor
or for any of the assets of an Account Debtor, including, without
limitation, the appointment of or taking possession by a "custodian," as
defined in the Federal Bankruptcy Code; the institution by or against any
Account Debtor of any other type of insolvency proceeding (under the
bankruptcy laws of the United States or otherwise) or of any formal or
informal proceeding for the dissolution or liquidation of, settlement of
claims against, or winding up of affairs of, any Account Debtor; the sale,
assignment, or transfer of all or any material part of the assets of any
Account Debtor; the general nonpayment by any Account Debtor of debts as
they become due (other than an Account); or the cessation of the business
of any Account Debtor as a going concern.
(6) All Accounts owed by an Account Debtor, if at any time 10% of
the aggregate dollar amount of outstanding Accounts owed by such Account
Debtor to the Borrower is classified as ineligible under any criterion set
forth in (1), (3), (4) or (5) above, or (9) below.
(7) All Accounts owed by Account Debtors which do not maintain
their chief executive offices in the United States, or which are not
organized under the laws of the United States or any State, unless the Bank
shall, in its sole discretion as evidenced by written notification to the
Borrower, deems such Accounts to be credit-worthy.
(8) All Accounts of an Account Debtor, if the Borrower, or any
Person who, directly or indirectly controls the Borrower, either owns in
whole or material part, or directly or indirectly controls, such Account
Debtor.
(9) Any Account, if either the perfection, enforceability, or
validity of the Bank's security interest in such Account, or the Bank's
right or ability to obtain direct payment to the Bank of the Proceeds of
such Account, is governed by any federal or state statutory requirements
other than those of the Uniform Commercial Code, including, without
limitation, any Account subject to the Federal Assignment of Claims Act of
1940, as amended.
(10)Any Account, which in the discretion of the Bank is not
satisfactory to the Bank for credit reasons (determined in accordance with
customary credit policies of the Bank).
"INTEREST PERIOD" means the period commencing on the date a Fixed Rate
is selected by the Borrower and ending on the sixth day thereafter,
provided that:
(1) No Interest Period may extend beyond the Termination Date; and
(2) If an Interest Period would end on a day that is not a Business
Day, such Interest Period shall be extended to the next Business Day.
"LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement
or preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any
financing statement under the Uniform Commercial Code or comparable law of
any jurisdiction to evidence any of the foregoing).
"LOAN DOCUMENTS" means this Agreement, the Note, and the Security
Agreement.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such term
in section 4.1.
"MONEY MARKET RATE" means the rate per annum quoted by the Bank to
Artistic on the first day of any applicable Interest Period (which rate
will be what the Bank then estimates is its cost of acquiring funds for a
period comparable to the Interest Period and in an amount comparable to the
principal amount of the Quoted Rate Loans).
"MULTIEMPLOYER PLAN" means a Plan described in section 4001(a)(3) of
ERISA which covers employees of the Borrower or any ERISA Affiliate.
"NOTE" shall have the meaning assigned to such term in section 2.6.
"ORDERLY LIQUIDATION VALUE" means, with respect to any asset of the
Borrower, the amount of net proceeds which could be expected upon a sale by
a willing and informed seller to a willing and informed buyer, both
exercising prudent judgment and not acting with undue haste, but with the
seller under compulsion to sell within a liquidation period not to exceed
120 days.
"PAYMENT OFFICE" means the place of business of the Bank at 150 Lake
Street, Elmira, New York 14901.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority, or other entity of
whatever nature.
"PLAN" means any employee benefit or other plan established,
maintained, or to which contributions have been made by the Borrower or any
ERISA Affiliate.
"PRIME RATE LOANS" means those Revolving Credit Loan for which the
interest thereon is determined by reference to the Prime Rate.
"PRIME RATE" means the rate of interest publicly announced by the Bank
from time to time as its prime rate and is a base rate for calculating
interest on certain loans.
"PROHIBITED TRANSACTION" means any transaction set forth in section 406
of ERISA or section 4975 of the Internal Revenue Code of 1954, as amended
from time to time.
"PROPERTY" means all real property owned, occupied or operated by the
Borrower or its Subsidiaries.
"QUOTED RATE LOANS" means those Revolving Credit Loans for which the
interest rate thereon is determined by reference to the Money Market Rate.
"REPORTABLE EVENT" means any of the events set forth in section 4043 of
ERISA.
"REVOLVING CREDIT LOAN(S)" shall have the meaning assigned to such term
in section 2.1.
"SECURITY AGREEMENT" means the Security Agreement in substantially the
form of Exhibit A, to be delivered by the Borrower under the terms of this
Agreement.
"SUBSIDIARY" means, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such Person.
"TERMINATION DATE" means March 9, 1997.
"TERM LOANS" means collectively, the term loans made by the Bank to the
Borrower evidenced by the Commercial Installment Loan Agreement dated
August 16, 1991 and the Commercial Installment Loan Agreement dated March
29, 1995, and the notes executed in connection therewith.
SECTION 1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with
those applied in the preparation of the financial statements referred to in
section 4.4, and all financial data submitted pursuant to this Agreement
shall be prepared in accordance with such principles.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1 REVOLVING CREDIT. The Bank agrees on the terms and
conditions herein set forth, to make Revolving Credit Loans (which shall
include Prime Rate Loans, Quoted Rate Loans and the face amount of Letters
of Credit issued pursuant to section 2.2) to the Borrower from time to time
during the period from the date of this Agreement up to but not including
the Termination Date in an aggregate outstanding amount not to exceed at
any time, the lesser of:
(1) Six Million Five Hundred Thousand Dollars ($6,500,000), (the
"Commitment"); or
(2) The Borrowing Base, calculated as follows:
(a) 80% of the Borrower's Eligible Accounts; plus
(b) 70% of the Borrower's raw paper inventory and raw material
inventory located at those addresses shown on Schedule
2.1(2)(b) hereof; plus
(c) 50% of the Borrower's raw paper inventory not located at
any of the addresses listed on Schedule 2.1(2)(b) hereof,
to the extent that such inventory is listed at a location
described on Schedule 2.1(2)(c) hereof, and that the Bank
has received a written offset waiver in the form of Exhibit
B hereto from each owner, operator, or lessee of the
premises at which such inventory is located; plus
(d) 40% of the Borrower's finished goods inventory which is not
in transit and which is located at an address listed on
Schedule 2.1(2)(d) hereto; plus
(e) such amount as is reasonably satisfactory to the Bank and
the Borrower as being representative of the Orderly
Liquidation Value of the Borrower's Customer List. (In
establishing such amount the Bank and the Borrower shall
give reasonable consideration to the Orderly Liquidation
Value of the Borrower's customer lists as determined by an
independent expert reasonably satisfactory to the Bank and
the Borrower. At the present time, and until such expert
determination and the subsequent agreement between the Bank
and the Borrower as to a different sum, the Orderly
Liquidation Value of the Borrower's customer lists for use
in computing this element of the Borrowing Base shall be
$2,500,000); LESS
(f) $343,000 (such amount to be reduced from time to time by
the amount of any voluntary prepayment of the Term Loans,
if any), if any part of the Term Loans remains unpaid; LESS
(g) the amount outstanding or committed by the Bank under the
Existing Letters of Credit.
Within the limits of the Commitment and the Borrowing Base, and
assuming no Default has occurred, the Borrower may borrow, prepay pursuant
to section 2.8 and reborrow under this section 2.1. At any time, the
Revolving Credit Loans may be outstanding as Prime Rate Loans, Quoted Rate
Loans or a combination thereof.
SECTION 2.2 LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, the Commitment may be utilized by the Borrower for the
issuance by the Bank of commercial, documentary or standby letters of
credit (other than Existing Letters of Credit) issued after January 31,
1996 ("Additional Letters of Credit") for the account of the Borrower,
provided that in no event shall:
(1) the aggregate face amount of such Additional Letters of Credit,
plus the aggregate outstanding principal amount of Revolving Credit Loans
exceed the lesser of the Commitment or the Borrowing Base;
(2) prior to the issuance of any Letter of Credit, the Borrower
shall pay the Bank's customary fees for issuance of the Additional Letters
of Credit.
All other terms and conditions, including the form of each Additional
Letter of Credit must be satisfactory to the Bank in its sole discretion.
If the terms, conditions or form of any Letter of Credit are not agreed to
by the Bank and the Borrower, the Bank shall have no liability to the
Borrower as a result of the Bank's failure to issue any such Letter of
Credit.
Amounts advanced by the Bank on account of draws against any of the
Additional Letters of Credit issued under this section will be treated as
Revolving Credit Loans.
SECTION 2.3 QUOTED RATE LOANS. Provided that no Default has occurred
hereunder, the Borrower may request that the Bank make Revolving Credit
Loans to the Borrower under this Agreement at any time prior to the
Termination Date, bearing interest at the Quoted Rate during any Interest
Period. At the end of each Interest Period, the Borrower may repay the
Quoted Rate Loan in whole or in part and/or elect to renew the Quoted Rate
Loan for an additional Interest Period at a new Quoted Rate by giving the
notice required by Section 2.4. Any Quoted Rate Loan that is not so
renewed, shall automatically convert to a Prime Rate Loan at the end of the
applicable Interest Period.
Each Quoted Rate Loan shall constitute a "Revolving Credit Loan" for
all purposes of, and shall be governed by, this Agreement. The Borrower
shall give the Bank notice of each Quoted Rate Loan as provided in Section
2.4.
Each Revolving Credit Loan which is not a Quoted Rate Loan shall be a
Prime Rate Loan.
SECTION 2.4 NOTICE AND MANNER OF BORROWING.
(1) The Borrower shall give the Bank written notice (effective upon
receipt) of each Revolving Credit Loan requested under this Agreement by
9:30 a.m. on the date such Revolving Credit Loan is to be made, specifying
the amount thereof, and whether such Revolving Credit Loan shall be a Prime
Rate Loan or a Quoted Rate Loan. Not later than the close of business on
the date of such Revolving Credit Loan and upon fulfillment of the
applicable conditions set forth in Article III, the Bank will make such
Loan available to the Borrower in immediately available funds by crediting
the amount thereof to the Borrower's account with the Bank.
(2) The Borrower shall give the Bank at least three (3) Business
Days' written notice (effective upon receipt) of each Letter of Credit to
be issued under this Agreement, specifying the date and amount thereof, and
describing in reasonable detail the proposed term of such Additional Letter
of Credit (including the beneficiary thereof) and the nature of the
transactions or obligations purported to be supported thereby.
SECTION 2.5 INTEREST. The Borrower shall pay interest to the Bank on
the outstanding and unpaid principal amount of the Revolving Credit Loans
made under this Agreement at a rate per annum as follows:
(1) for a Prime Rate Loan, at a rate equal to the Prime Rate; and
(2) for a Quoted Rate Loan at a rate equal to the Money Market
Rate plus 135 basis points (1.35%).
Any change in the interest rate resulting from a change in the Prime
Rate shall become effective as of the opening of business on the day on
which such change in the Prime Rate shall become effective. Interest shall
be calculated on the basis of a year of 360 days for the actual number of
days elapsed. Interest shall be paid in immediately available funds on the
first day of each month hereafter at the Payment Office. Any principal
amount not paid when due (at maturity, by acceleration, or otherwise) shall
bear interest thereafter until paid at a rate which shall be two percent
(2.0%) above the Prime Rate, regardless of whether such principal amount is
outstanding as a Prime Rate Loan or a Quoted Rate Loan.
In any dispute involving the interest due on any Revolving Credit
Loans, the Bank shall be entitled to an irrefutable presumption that each
interest bill issued by the Bank is correct unless within thirty days of
the date of the bill, the Borrower has sent the Bank a written notice of
any error with respect thereto, which notice shall include the Borrower's
calculation of the amount of interest it believes is properly due.
SECTION 2.6 COMMITMENT FEE. The Borrower agrees to pay to the Bank a
commitment fee on the average daily unused portion of the Commitment from
the date of this Agreement until the Termination Date at the rate of one
percent (1%) per annum, based on a year of 360 days, payable on May 15,
1996, August 15, 1996, November 15, 1996 and on the Termination Date.
SECTION 2.7 NOTE. All Revolving Credit Loans made by the Bank under
this Agreement shall be evidenced by, and repaid with interest in
accordance with, a single promissory note of the Borrower in substantially
the form of Exhibit C duly completed, in the principal amount of Six
Million Five Hundred Thousand and no/100 Dollars ($6,500,000.00), dated the
date of this Agreement, payable to the Bank, and maturing as to principal
on the Termination Date (the "Note"). The Bank is hereby authorized by the
Borrower to endorse, on Schedule A attached to the Note in the case of
Prime Rate Loans, and Schedule B attached to the Note in the case of Quoted
Rate Loans, the amount of each such Revolving Credit Loan, the amount of
each payment of principal received by the Bank on account of such Revolving
Credit Loans, and, in the case of Quoted Rate Loans, the Quoted Rate in
effect with respect to such Quoted Rate Loan, which endorsement shall, in
the absence of manifest error, be conclusive as to the outstanding balance
of the Revolving Credit Loans made by the Bank; provided, however, that the
failure to make such notation with respect to any Revolving Credit Loan or
payment shall not limit or otherwise affect the obligations of the Borrower
under this Agreement or the Note.
SECTION 2.8 PREPAYMENTS.
(1) PERMISSIVE. The Borrower may, at any time, prepay the Note in
whole or in part with accrued interest to the date of such prepayment on
the amount prepaid, provided that a Quoted Rate Loan may be prepaid only on
the last day of the Interest Period for such Quoted Rate Loan.
(2) MANDATORY. Until the Termination Date, the Borrower shall
prepay the Revolving Credit Loans in such amounts as shall be necessary so
that at all times the aggregate amount of Revolving Credit Loans
outstanding, plus the aggregate face amount of Letters of Credit, plus the
aggregate face amount of Existing Letters of Credit, shall not exceed the
Borrowing Base. Each Mandatory prepayment shall be made within two
business days of the date on which the Borrower learns or could reasonably
have learned that such condition exists. Mandatory prepayments shall be
applied first to Prime Rate Loans and then to Quoted Rate Loans, but only
to the extent that such prepayment would not violate Section 2.7(1). In
the event that the mandatory prepayment required hereby exceeds the amount
of Revolving Credit Loans that may be prepaid pursuant to Section 2.7(1),
then the Borrower shall deposit with the Bank, as cash collateral, an
amount equal to such excess to be used by the Bank to prepay Quoted Rate
Loans in accordance with Section 2.7(1).
SECTION 2.9 METHOD OF PAYMENT. The Borrower shall make each payment
under this Agreement and under the Note no later than 2:00 p.m. Eastern
time on the date when due in lawful money of the United States to the Bank
at the Payment Office in immediately available funds. The Borrower hereby
authorizes the Bank, if and to the extent payment is not made when due
under this Agreement or under the Note, to charge from time to time against
any account of the Borrower with the Bank any amount so due. Whenever any
payment to be made under this Agreement or under the Note shall be stated
to be due on a Saturday, Sunday, or a public holiday, or the equivalent for
banks generally under the laws of the State of New York, such payment shall
be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of the payment of
interest and the commitment fee, as the case may be.
SECTION 2.10 USE OF PROCEEDS. The proceeds of the Revolving Credit
Loans hereunder shall be used by the Borrower to repay amounts outstanding
under the Existing Line of Credit and then for general corporate purposes
and the issuance of Letters of Credit. The Borrower will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock so as to cause a violation of Regulation U of the
Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 CONDITION PRECEDENT TO THE LOAN. The obligation of the
Bank to make the initial Loan to the Borrower is subject to the condition
precedent that the Bank shall have received on or before the day of such
Loan each of the following, in form and substance satisfactory to the Bank
and its counsel:
(1) NOTE. The Note duly executed by the Borrower;
(2) SECURITY AGREEMENT. A Security Agreement, duly executed by the
Borrower, together with Financing Statements (UCC-1) duly executed by the
Borrower for filing under the Uniform Commercial Code in all jurisdictions
necessary or, in the opinion of the Bank, desirable to perfect the security
interest created by the Security Agreement;
(3) EVIDENCE OF ALL CORPORATE ACTION BY THE BORROWER. Certified
(as of the date of this Agreement) copies of all corporate action taken by
the Borrower, including resolutions of its Board of Directors (or any
executive committee thereof), authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party and each other
document to be delivered pursuant to this Agreement;
(4) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE BORROWER. A
certificate (dated as of the date of this Agreement) of the Secretary or
Assistant Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign the Loan
Documents to which it is a party and each other document to be delivered by
the Borrower under this Agreement;
(5) OPINION OF COUNSEL FOR THE BORROWER. (a) A favorable opinion
of Cahill, Gordon & Reindel, transactional counsel for the Borrower, in
substantially the form of Exhibit D; and (b) a favorable opinion of Thomas
C. Wyckoff, general counsel for the Borrower, in substantially the form of
Exhibit E; and
(6) INSURANCE CERTIFICATE. A duly issued policy or certificate
evidencing compliance with section 5.5 below.
SECTION 3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Bank to make each Revolving Credit Loan (including the initial Revolving
Credit Loan) shall be subject to the further conditions precedent that on
the date of such Revolving Credit Loan:
(1) The representations and warranties contained in Article IV of
this Agreement, and in section III of the Security Agreement,
are correct in all material respects on and as of the date of
such Revolving Credit Loan as though made on and as of such
date, unless such representation and warranty under Article IV
of this Agreement indicates that it is being made as of an
other specific date in which case on and as of such other date;
(2) No Default or Event of Default has occurred and is continuing,
or would result from such Revolving Credit Loan; and
(3) The Revolving Credit Loan would not cause the aggregate amount
of Revolving Credit Loans outstanding, plus the aggregate face
amount of Additional Letters of Credit to exceed the Borrowing
Base.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and make the Loan(s) to
the Borrower, the Borrower represents and warrants and so long as the Note
remains unpaid or this Agreement remains in effect, shall be deemed
continuously to represent and warrant as follows:
SECTION 4.1 INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION. The
Borrower and each of its Subsidiaries is a corporation duly incorporated,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation; has the corporate power and authority to own its
assets and to transact the business in which it is now engaged or proposed
to be engaged in; and is duly qualified as a foreign corporation and in
good standing under the laws of each other jurisdiction in which such
qualification is required., except where the failure to so qualify would
not have a material adverse effect on the financial condition, properties
or operations (collectively, a "Material Adverse Effect") of the Borrower.
SECTION 4.2 CORPORATE POWER AND AUTHORITY. The execution, delivery,
and performance by the Borrower of the Loan Documents to which it is a
party have been duly authorized by all necessary corporate action and do
not and will not (1) require any consent or approval of the stockholders of
such corporation; (2) contravene such corporation's charter or bylaws; (3)
violate any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination, or award presently in effect having
applicability to such corporation, other than which in the aggregate will
not have a Material Adverse Effect on the Borrower; (4) result in a breach
of or constitute a default under any indenture or loan or credit agreement
(other than the Chase Loan Documents) or any other agreement, lease, or
instrument to which such corporation is a party or by which it or its
properties may be bound or affected which default or breach could have a
Material Adverse Effect on the Borrower; (5) result in, or require, the
creation or imposition of any Lien, upon or with respect to any of the
properties now owned or hereafter acquired by such corporation, except for
Liens in favor of the Bank and except for Liens which in this aggregate
will not have a Material Adverse Effect on the Borrower; and (6) cause such
corporation to be in default under any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination, or award or any such
indenture, agreement, lease, or instrument, which default would have a
Material Adverse Effect on the Borrower.
SECTION 4.3 LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will
be, legal, valid, and binding obligations of the Borrower enforceable
against the Borrower, as the case may be, in accordance with their
respective terms, except to the extent that such enforcement may be limited
by applicable bankruptcy, insolvency, and other similar laws affecting
creditors' rights generally.
SECTION 4.4 FINANCIAL STATEMENTS. The balance sheet of the Borrower
and its Subsidiaries as at December 31, 1995, and the related statements of
income and retained earnings of the Borrower for the fiscal year then
ended, draft copies of which have been furnished to the Bank, are
substantially complete and correct and fairly present the financial
condition of the Borrower and its Subsidiaries as at such dates and the
results of the operations of the Borrower and its Subsidiaries for the
periods covered by such statements, all in accordance with GAAP
consistently applied, and since December 31, 1995, there has been no change
in the condition (financial or otherwise), business, or operations of the
Borrower which has had a Material Adverse Effect on the Borrower. There
are no liabilities of the Borrower, fixed or contingent, which are material
but are not reflected in the financial statements, other than contingent
liabilities related to the litigation referred to in Schedule 4.7, the
employment agreement between the Borrower and its chairman, and payments
which may be made to Valassis pursuant to the advertising arrangements
between the Borrower and Valassis and the put right of Valassis, and
liabilities arising in the ordinary course of business since December 31,
1995. As of the date hereof the Borrower has furnished to the Bank true
and correct copies of all reports and documents filed by it with the
Securities and Exchange Commission since January 1, 1995, and no such
information, exhibit, or report so furnished by the Borrower to the Bank
whether in connection with the negotiation of this Agreement or otherwise
contained at the time of filing, any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading.
SECTION 4.5 LABOR DISPUTES AND ACTS OF GOD. Neither the business nor
the properties of the Borrower or any Subsidiary are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or public enemy, or other
casualty (whether or not covered by insurance) materially and adversely
affecting such business or properties or the operation of the Borrower or
such Subsidiary.
SECTION 4.6 OTHER AGREEMENTS. Neither the Borrower nor any Subsidiary
is a party to any indenture, loan, or credit agreement, or to any lease or
other material agreement or instrument, or subject to any charter or
corporate restriction which could have a Material Adverse Effect on the
Borrower or any Subsidiary. Except for certain defaults under the Chase
Loan Documents, neither the Borrower nor any Subsidiary is in default in
any respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or
instrument material to its business to which it is a party.
SECTION 4.7 LITIGATION. As of the date of this Agreement, there is no
pending or threatened action or proceeding against or affecting the
Borrower or any of its Subsidiaries before any court, governmental agency,
or arbitrator, which may, in any one case or in the aggregate, have a
Material Adverse Effect on the Borrower or any Subsidiary except such as
are disclosed on Schedule 4.7 hereto but such disclosure or listing a
matter on that schedule shall not be deemed an indication that either the
Bank or the Borrower considers such pending or threatened action or
proceeding as likely to have a Material Adverse Effect on the Borrower.
After the date of this Agreement, there is no other pending or threatened
action or proceeding against or affecting the Borrower or any of its
Subsidiaries before any court, governmental agency, or arbitrator, except
such as both (i) have been disclosed in writing to the Bank if the amount
sought exceeds $50,000, and (ii) are not reasonably likely, in any one case
or in the aggregate, to have a Material Adverse Effect on the Borrower or
any Subsidiary.
SECTION 4.8 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. As of the
date of this Agreement, the Borrower and its Subsidiaries have satisfied
all material judgments, and neither the Borrower nor any Subsidiary is in
default with respect to any material judgment, writ, injunction, decree,
rule, or regulation of any court, arbitrator, or federal, state, municipal,
or other governmental authority, commission, board, bureau, agency, or
instrumentality, domestic or foreign.
SECTION 4.9 OWNERSHIP AND LIENS. As of the date of this Agreement,
the Borrower and each Subsidiary has title to, or valid leasehold interests
in, all of its properties and assets, real and personal, including the
properties and assets and leasehold interest reflected in the financial
statements referred to in section 4.4 (other than any properties or assets
disposed of in the ordinary course of business).
SECTION 4.10 SUBSIDIARIES AND OWNERSHIP OF STOCK. Set forth in
Exhibit F is a complete and accurate list of the Subsidiaries of the
Borrower as of the date of this Agreement, showing the jurisdiction of
incorporation of each and showing the percentage of the Borrower's
ownership of the outstanding stock of each Subsidiary. All of the
outstanding capital stock of each Subsidiary has been validly issued, is
fully paid and nonassessable, and is owned by the Borrower free and clear
of all Liens.
SECTION 4.11 ERISA. The Borrower and each Subsidiary is in compliance
in all material respects with all applicable provisions of ERISA. Neither
a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any Plan; no notice of intent to terminate a
Plan has been filed nor has any Plan been terminated; no circumstances
exist which constitute grounds under section 4042 of ERISA entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to
administrate, a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower nor any ERISA Affiliate has completely or partially
withdrawn under sections 4201 or 4204 of ERISA from a Multiemployer Plan;
the Borrower and each ERISA Affiliate has met its minimum funding
requirements under ERISA with respect to all of its Plans and the present
value of all vested benefits under each Plan does not exceed the fair
market value of all Plan assets allocable to such benefits, as determined
on the most recent valuation date of the Plan and in accordance with the
provisions of ERISA and the regulations thereunder for calculating the
potential liability of the Borrower or any ERISA Affiliate to the PBGC or
the Plan under Title IV of ERISA; and neither the Borrower nor any ERISA
Affiliate has incurred any liability (other than to pay annual premiums) to
the PBGC under ERISA.
SECTION 4.12 OPERATION OF BUSINESS. The Borrower and its Subsidiaries
possess all material licenses, permits, franchises, patents, copyrights,
trademarks, and trade names, or rights thereto, to conduct their respective
business substantially as now conducted and as presently proposed to be
conducted, and the Borrower and its Subsidiaries are not in violation of
any valid rights of others with respect to any of the foregoing.
SECTION 4.13 TAXES. The Borrower and each of its Subsidiaries have
filed all tax returns (federal, state, and local) required to be filed and
have paid all material taxes, assessments, and governmental charges and
levies thereon to be due, including interest and penalties other than those
not yet delinquent or being contested in good faith. The federal income
tax liability of the Borrower and its Subsidiaries have been audited by the
Internal Revenue Service and have been finally determined and satisfied for
all taxable years up to and including the taxable year ended December 31,
1993.
SECTION 4.14 DEBT. Exhibit G is a complete and correct list of all
credit agreements, indentures, purchase agreements, guaranties, Capital
Leases, and other investments, agreements, and arrangements presently in
effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which the Borrower or any Subsidiary is
in any manner directly or contingently obligated; and the maximum principal
or face amounts of the credit in question, which are outstanding and which
can be outstanding, are correctly stated.
SECTION 4.15 COMPLIANCE WITH LAWS. The Borrower is in compliance with
all applicable laws and regulations, in all jurisdictions in which it is
presently doing business, other than such non-compliance that would not
have a Material Adverse Effect on the Borrower.
SECTION 4.16 CHASE LOAN DOCUMENTS. As of the date of this Agreement,
the Borrower is in default of its obligations under the Chase Loan
Documents and the execution and delivery of the Security Agreement may
constitute a further default under the Chase Loan Documents. The Borrower
is engaged in negotiations with Chase to obtain a waiver of the
aforementioned defaults. Chase has knowledge of and has not objected to
the grant of the security interest affected by the execution of the
Security Agreement. Chase has made no claim or assertion that the
execution of the Security Agreement constitutes tortious interference with
its rights under the Chase Loan Documents or any similar claim.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any amount of the Note remains unpaid, this Agreement
remains in effect, or the Borrower shall have the right to borrow
hereunder, the Borrower shall:
SECTION 5.1 MAINTENANCE OF EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence in
good standing in the jurisdiction of its incorporation, and qualify and
remain qualified, and cause each Subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction where the failure
to so qualify would have or would be likely to have a Material Adverse
Effect on the Borrower.
SECTION 5.2 MAINTENANCE OF RECORDS. Keep, and cause each Subsidiary
to keep, adequate records and books of account, in which complete entries
will be made in accordance with GAAP consistently applied, reflecting all
financial transactions of the Borrower and its Subsidiaries.
SECTION 5.3 MAINTENANCE OF PROPERTIES. Maintain, keep, and preserve,
and cause each Subsidiary to maintain, keep, and preserve, all of its
material properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.4 CONDUCT OF BUSINESS. Continue, and cause each Subsidiary
to continue, to engage in a business of the same general type as now
conducted by it on the date of this Agreement.
SECTION 5.5 MAINTENANCE OF INSURANCE. Maintain, and cause each
Subsidiary to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks
as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.
SECTION 5.6 COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary
to comply, in all respects with all applicable laws, rules, regulations,
and orders, including without limitation Environmental Laws, except where
non-compliance would not have a Material Adverse Effect on the Borrower.
SECTION 5.7 RIGHT OF INSPECTION. At any reasonable time and from time
to time, upon prior written notice and during normal business hours, permit
the Bank, or any agent or representative thereof, or any appraiser or
engineer retained by or on behalf of the Bank, to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of, the Borrower and any Subsidiary, and to discuss the affairs,
finances, and accounts of the Borrower and any Subsidiary with any of their
respective officers and directors and the Borrower's independent
accountants.
SECTION 5.8 REPORTING REQUIREMENTS. Furnish to the Bank:
(1) FINANCING STATEMENTS AND SEARCHES. On or before March 25,
1996, (a) acknowledgment copies of the Financing Statements (UCC-1) duly
filed under the Uniform Commercial Code of all jurisdictions necessary or,
in the opinion of the Bank, desirable to perfect the security interest
created by the Security Agreement, and (b) certified copies of Requests for
Information (Form UCC-11) identifying all of the financing statements on
file with respect to the Borrower in all jurisdictions referred to under
(a), including the Financing Statement filed by the Bank against the
Borrower, indicating that no party claims an interest in any of the
Collateral, except as permitted by this Agreement;
(2) NO CONFLICTS OPINION. On or before March 31, 1996, an opinion
of Thomas C. Wyckoff, General Counsel for the Borrower, in form and
substance reasonably satisfactory to the Bank and its counsel, that the
Loan Documents, and the Borrower's payment of the indebtedness evidenced by
the Note, do not, after giving effect to the Chase Amendment, cause a
breach of any of the provisions of, or constitute a default under, or
result in the creation or imposition of a lien, charge or encumbrance upon
any of the assets of the Borrower, pursuant to the Chase Documents.
(3) BORROWING BASE/CERTIFICATE OF NO DEFAULT. Within thirty (30)
days after the end of each month, a certificate of the chief financial
officer of the Borrower (a) showing a calculation of the Borrowing Base
(which shall include, attached thereto, an accounts receivable aging
schedule) and (b) certifying that to the best of his knowledge no Default
or Event of Default has occurred and is continuing or, if a Default or
Event of Default has occurred and is continuing, a statement as to the
nature thereof and the action which is proposed to be taken with respect
thereto.
(4) MONTHLY FINANCIAL STATEMENTS. As soon as available and in any
event within thirty (30) days after the end of each month (which is not
also the end of a fiscal quarter) of each fiscal year of the Borrower,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such month, consolidated and consolidating
statements of income and retained earnings of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such month, and a consolidated and
consolidating statement of change in financial position of the Borrower and
its Subsidiaries for the portion of the fiscal year ended with the last day
of such month, all in reasonable detail and stating in comparative form the
respective consolidated and consolidating figures for the corresponding
date and period in the previous fiscal year and all prepared in accordance
with GAAP consistently applied and certified by the chief financial officer
of the Borrower (subject to year-end adjustments);
(5) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in
any event within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of the Borrower, consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as of the
end of such quarter, consolidated and consolidating statements of income
and retained earnings of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end
of such quarter, and a consolidated and consolidating statement of change
in financial position of the Borrower and its Subsidiaries for the portion
of the fiscal year ended with the last day of such quarter, all in
reasonable detail and stating in comparative form the respective
consolidated and consolidating figures for the corresponding date and
period in the previous fiscal year and all prepared in accordance with GAAP
consistently applied and certified by the chief financial officer of the
Borrower (subject to year-end adjustments);
(6) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of the
Borrower, a consolidated and consolidating balance sheet of the Borrower
and its Subsidiaries as of the end of such fiscal year and a consolidated
and consolidating statement of income and retained earnings of the Borrower
and its Subsidiaries for such fiscal year and a consolidated and
consolidating statement of change in financial position of the Borrower and
its Subsidiaries for such fiscal year, all in reasonable detail and stating
in comparative form the respective consolidated and consolidating figures
for the corresponding date and period in the prior fiscal year and all
prepared in accordance with consistently applied and as to the consolidated
statements accompanied by an opinion thereon reasonably acceptable to the
Bank by Arthur Anderson, LLP or other independent accountants selected by
the Borrower and acceptable to the Bank;
(7) MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of
any reports submitted to the Borrower or any Subsidiary by independent
certified public accountants in connection with examination of the
financial statements of the Borrower or any Subsidiary made by such
accountants;
(8) ACCOUNTANT'S REPORT. Simultaneously with the delivery of the
annual financial statements referred to in section 5.8(5), a certificate of
the independent public accountants who audited such statements to the
effect that, in making the examination necessary for the audit of such
statements, they have obtained no knowledge of any condition or event which
constitutes a Default or Event of Default, or if such accountants shall
have obtained knowledge of any such condition or event, specify in such
certificate each such condition or event of which they have knowledge and
the nature and status thereof;
(9) NOTICE OF LITIGATION. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or
governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting the Borrower which, if
determined adversely to the Borrower, could have a Material Adverse Effect
on the Borrower;
(10)NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. As soon as possible
and in any event within three (3) days after Borrower learns or should
reasonably have learned of the occurrence of a Default or Event of Default,
a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto;
(11)REPORTS TO OTHER CREDITORS. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, credit or similar agreement
and not otherwise required to be furnished to the Bank pursuant to any
other clause of this section 5.8 if such statement or report is related to
a Default or Event of Default under this Agreement or any other loan,
indenture, credit or similar agreement;
(12)PROXY STATEMENTS, ETC. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements, and reports
which the Borrower or any Subsidiary sends to its stockholders, and copies
of all regular, periodic, and special reports, and all registration
statements which the Borrower or any Subsidiary files with the Securities
and Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange; and
(13)GENERAL INFORMATION. Such other information respecting the
condition or operations, financial or otherwise, of the Borrower or any
Subsidiary as the Bank may from time to time reasonably request.
ARTICLE VI
NEGATIVE COVENANTS
So long as any amount of the Note remains unpaid, this Agreement
remains in effect, or the Borrower shall have the right to borrow
hereunder, the Borrower, without the written consent of the Bank, shall
not:
SECTION 6.1 LIENS. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any
Lien upon or with respect to any Collateral now owned or hereafter
acquired, except:
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than thirty (30) days or which are being contested in
good faith by appropriate proceedings and for which appropriate reserves
have been established;
(4) Liens under workmen's compensation, unemployment insurance,
social security, or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), or public or statutory
obligations, surety, stay, appeal, indemnity, performance, or other similar
bonds; or other similar obligations arising in the ordinary course of
business;
(6) Judgment and other similar Liens arising in connection with
court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
(7) Liens securing obligations of a Subsidiary to the Borrower or
another Subsidiary;
(8) Existing Liens to the extent that the holder of which, the
debts secured thereby, the collateral encumbered thereby, and the priority
thereof are accurately described on Exhibit H hereto which has been
prepared by the Borrower and/or its counsel; and
(9) Liens voluntarily created hereafter by the Borrower which are
subordinate to the Liens in favor of the Bank and subject to an inter-
creditor agreement satisfactory to the Bank between the Bank and the
secured parties with respect to such other Liens.
SECTION 6.2 MERGERS, ETC. Merge or consolidate with, or sell, assign,
lease, or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether now owned
or hereafter acquired) to any Person, or acquire all or substantially all
of the assets or the business of any Person, or permit any Subsidiary to do
so, except that (1) any Subsidiary may merge into or transfer assets to the
Borrower and (2) any Subsidiary may merge into or consolidate with or
transfer assets to any other Subsidiary.
SECTION 6.3 DIVIDENDS. Declare or pay any dividends; or purchase,
redeem, retire, or otherwise acquire for value any of its capital stock now
or hereafter outstanding; or make any distribution of assets to its
stockholders as such whether in cash, assets, or obligations of the
Borrower; or allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement
of, any shares of its capital stock; or make any other distribution by
reduction of capital or otherwise in respect of any shares of its capital
stock; or permit any of its Subsidiaries to purchase or otherwise acquire
for value any stock of the Borrower or another Subsidiary.
SECTION 6.4 SALE OF COLLATERAL. Sell, lease, assign, transfer, or
otherwise dispose of any of its now owned or hereafter acquired Collateral,
except: (1) for inventory disposed of in the ordinary course of business;
and (2) the sale or disposition of assets no longer used or useful in the
conduct of its business, provided that the proceeds of any specific
equipment subject to a Lien in favor of the Bank are paid to the Bank in
kind.
SECTION 6.5 GUARANTIES, ETC. Assume, guarantee, endorse, or otherwise
be or become directly or contingently responsible or liable, or permit any
Subsidiary to assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable (including, but not limited
to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or
to maintain or cause such Person to maintain a minimum working capital or
net worth or otherwise to assure the creditors of any Person against loss)
for obligations of any Person, except (1) guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business, (2) guaranties in favor of the Bank
(including the Guaranty), (3) guaranties of the obligations of employees
made in connection with their employment, and (4) miscellaneous guaranties
not to exceed in each case, $50,000 or in the aggregate $100,000.
SECTION 6.6 TRANSACTION WITH AFFILIATE. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property
or the rendering of any service, with any Affiliate, or permit any
Subsidiary to enter into any transaction, including, without limitation,
the purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate, except in the ordinary course of and pursuant
to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
SECTION 6.7 HAZARDOUS SUBSTANCES. Suffer, cause or permit the
Disposal of Hazardous Substances at any Property or at any real property on
which the Collateral is located, nor suffer, cause or permit the
generation, handling, processing, use or storage of Hazardous Substances on
any such real property except in compliance with all Environmental Laws
except where such non-compliance may not have a Material Adverse Effect on
the Borrower or any Subsidiary.
ARTICLE VII
FINANCIAL COVENANTS
So long as any amount of the Note remains unpaid, this Agreement
remains in effect, or the Borrower shall have the right to borrow
hereunder:
SECTION 7.1 MINIMUM WORKING CAPITAL. The Borrower will maintain at
all times an excess of current liabilities over current assets of not more
than $350,000 through June 30, 1996 and will maintain an excess of current
assets over current liabilities of not less than $1.00 at all times
thereafter. For the purpose of this section, all amounts outstanding under
the Revolving Credit Note shall be treated as long term debt.
SECTION 7.2 MINIMUM TANGIBLE NET WORTH. The Borrower will maintain at
all times a tangible net worth of not less than $8,000,000.
SECTION 7.3 MONTHLY INCOME/LOSS. During each month ending after the
date hereof, the Borrower will not incur a net, pre-tax loss (exclusive of
non-cash write-downs not to exceed $500,000 in the aggregate) in excess of
$500,000.
SECTION 7.4 CURRENT RATIO. The Borrower will maintain at all times a
ratio of current assets to current liabilities of not less than .9 to 1.0
through June 30, 1996 and 1.0 to 1.0 at all times thereafter. For the
purpose of this section, all amounts outstanding under the Revolving Credit
Note shall be treated as long term debt.
SECTION 7.5 QUARTERLY LOSS. During fiscal 1996, the Borrower will not
suffer or incur a quarterly net loss (exclusive of non-cash write-downs not
to exceed $500,000 in the aggregate) before taxes in excess of the
following amounts:
Maximum
QUARTER ENDED: QUARTERLY LOSS:
3/31/96 $900,000
6/30/96 500,000
9/30/96 - 0 -
12/31/96 - 0 -
SECTION 7.6 LEVERAGE RATIO. The Borrower will maintain at all times a
ratio of total liabilities to tangible net worth of not greater than 4.0 to
1.0.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. If any of the following events
("Events of Default") shall occur:
(1) The Borrower should fail to pay the principal of, or interest
on, the Note, as and when due and payable (including any mandatory
prepayments or deposits required by Section 2.7(2));
(2) The Borrower shall fail to obtain a written waiver of all
defaults under the Borrower's loan agreements with Chase on or before March
31, 1996;
(3) Chase or any subsequent holder shall seek to enforce any right
or remedy it has as a result of any Default or Event of Default under any
loan or collateral agreement of the Borrower presently held by Chase;
(4) Any representation or warranty made or deemed made by the
Borrower in this Agreement or the Security Agreement or which is contained
in any certificate, document, opinion, or financial or other statement
furnished at any time under or in connection with any Loan Document shall
prove to have been incorrect in any material respect on or as of the date
made or deemed made;
(5) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Sections 5.2, 5.3, 5.8(6), or 5.8(10)
and such failure shall continue uncured for thirty (30) days;
(6) The Borrower shall fail to perform or observe any term,
covenant, or agreement contained in any Loan Document (other than the Note
and other than those covenants identified in the preceding subparagraph) to
which it is a party on its part to be performed or observed;
(7) The Borrower or any of its Subsidiaries shall (a) fail to pay
any indebtedness for borrowed money (other than the Note) of the Borrower
or such Subsidiary in excess of $50,000, as the case may be, or any
interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), or (b) fail to
perform or observe any term, covenant, or condition on its part to be
performed or observed under any agreement or instrument relating to any
such indebtedness, when required to be performed or observed, if the effect
of such failure to perform or observe is to accelerate, or to permit the
acceleration after the giving of notice or passage of time, or both, of the
maturity of such indebtedness, unless and until such failure to perform or
observe shall be waived by the holder of such indebtedness{1} or cured to
the satisfaction of the holder of such indebtedness; or any such
indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof;
(8) The Borrower or any of its Subsidiaries (a) shall generally
not, or shall be unable to, or shall admit in writing its inability to pay
its debts as such debts become due; or (b) shall make an assignment for the
benefits of creditors, petition or apply to any tribunal for the
appointment of a custodian, receiver, or trustee for him or it or a
substantial part of his or its assets; or (c) shall commence any proceeding
under any bankruptcy, reorganization, arrangements, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction, whether now
or hereafter in effect; or (d) shall have any such petition or application
filed or any such proceeding commenced against him or it in which an order
for relief is entered or adjudication or appointment is made and which
remains undismissed for a period of thirty (30) days or more; or (e) by any
act or omission shall indicate its consent to, approval of, or acquiescence
in any such petition, application, or proceeding or order for relief or the
appointment of a custodian, receiver, or trustee for all or any substantial
part of his or its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of sixty
(60) days or more;
(9) One or more judgments, decrees, or orders for the payment of
money in excess of Fifty Thousand and no/100 Dollars ($50,000.00) in the
aggregate shall be rendered against the Borrower, any of its Subsidiaries
and such judgments, decrees, or orders shall continue unsatisfied and in
effect for a period of thirty (30) consecutive days without being vacated,
discharged, satisfied, stayed or bonded pending appeal; or
(10)The Security Agreement shall at any time after its execution
and delivery and for any reason cease (a) to create a valid and perfected
first priority security interest in and to the property purported to be
subject to such Security Agreement; or (b) to be in full force and effect
or shall be declared null and void, or the validity or enforceability
thereof shall be contested by the Borrower, or the Borrower shall deny it
has any further liability or obligation under the Security Agreement, or
the Borrower shall fail to perform any of its obligations under the
Security Agreement;
Then, and in any such event, the Bank may, by notice to the Borrower,
(1) declare its obligation to make Loans to be terminated whereupon the
same shall forthwith terminate, and (2) declare the Note, all interest
thereon, and all other amounts payable under this Agreement to be forthwith
due and payable, whereupon the Note, all such interest, and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 OTHER LOAN DOCUMENTS. Attached hereto as Exhibit I, are
true and correct copies of certain commercial loan documents (the
"Continuing Loan Documents") currently in full force and effect between the
Bank and the Borrower which will continue in full force and effect after
the execution and delivery of the Loan Documents. The Loan Documents and
the Continuing Loan Documents each constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their
respective terms except to the extent modified in accordance with those
amendments copies of which are annexed hereto as Exhibit J and except to
the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors' rights generally.
The Borrower has no defenses, offsets, claims, or counterclaims of any kind
or nature with respect to its obligations arising under any of the Loan
Documents or Continuing Loan Documents.
SECTION 9.2 AMENDMENTS, ETC. No amendment, modification,
termination, or waiver of any provision of any Loan Document to which the
Borrower is a party, nor consent to any departure by the Borrower from any
Loan Document to which it is a party, shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
SECTION 9.3 NOTICES, ETC. All notices and other communications
provided for under this Agreement and under the other Loan Documents to
which the Borrower is a party shall be in writing (including telegraphic or
facsimile communication) and mailed or telegraphed or delivered, if to the
Borrower, at its address at 1 Komer Plaza, Elmira, New York 14902 (fax No.
(607) 733-5782) Attention: Robert Johnson, and if to the Bank, at its
address at One Marine Midland Plaza, Rochester, New York 14639 (fax No.
(716) 238-7267), Attention: Stanley L. Peck; or, as to each party, at such
other address as shall be designated by such party in a written notice to
the other party complying as to delivery with the terms of this section
9.2. All such notices and communications shall, when mailed or
telegraphed, be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid, except that
notices to the Bank pursuant to the provisions of Article II shall not be
effective until received by the Bank.
SECTION 9.4 NO WAIVER; REMEDIES. No failure on the part of the Bank
to exercise, and no delay in exercising, any right, power, or remedy under
any Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right under any Loan Documents preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
SECTION 9.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights under any Loan Document to which the Borrower
is a party without the prior written consent of the Bank.
SECTION 9.6 COSTS, EXPENSES, AND TAXES. Except as limited herein,
the Borrower agrees to pay on demand (1) all costs and expenses in
connection with the negotiation, preparation, execution, delivery, filing,
recording, and administration of any of the Loan Documents, including,
without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank, and local counsel who may be retained by said
counsel, with respect thereto and with respect to advising the Bank as to
its rights and responsibilities under any of the Loan Documents, (2) all
costs and expenses, if any, in connection with advice concerning the Bank's
rights under, and/or in connection with, the enforcement of any of the Loan
Documents. In addition, the Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, and recording of any of the Loan Documents and
the other documents to be delivered under any such Loan Documents, and
agrees to save the Bank harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay
such taxes and fees. The Borrower's obligation to reimburse the Bank for
appraisals heretofore obtained are limited to $5,000 for equipment
appraisals and $3,000 for real property appraisals. The Borrower's
obligation to reimburse the Bank for legal fees under subdivision (1)(a) of
this section: (a) shall be limited to $20,000 for (i) services rendered
through January 17, 1996, (ii) preparation of first draft closing
documents, and (iii) closing arrangements.
SECTION 9.7 RIGHT OF SETOFF. Upon the occurrence and during the
continuance of any Event of Default the Bank is hereby authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by the Bank to or for
the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement
or the Note or any other Loan Document, irrespective of whether or not the
Bank shall have made any demand under this Agreement or the Note or such
other Loan Document and although such obligations may be unmatured. The
Bank agrees promptly to notify the Borrower after any such setoff and
application, provided that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of the Bank under
this section 9.6 are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which the Bank may have.
SECTION 9.8 GOVERNING LAW. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9.9 SEVERABILITY OF PROVISIONS. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in
any other jurisdiction.
SECTION 9.10 HEADINGS. Article and section headings in the Loan
Documents are included in such Loan Documents for the convenience of
reference only and shall not constitute a part of the applicable Loan
Documents for any other purpose.
SECTION 9.11 INDEMNIFICATION. The Borrower agrees to indemnify,
defend, and hold harmless the Bank from and against any and all
liabilities, claims, damages, penalties, expenditures, losses, or charges
arising under Environmental Laws. Such costs or other liabilities incurred
by the Bank or any other person or entity shall be deemed to include,
without limitation, any sums which the Bank deems it necessary or desirable
to expend to protect its security interest in the Collateral. The
liability of the Borrower to the Bank under the covenants of this Paragraph
is not limited by any exculpatory provisions in this Agreement, or in the
other documents securing this Loan and shall survive any repayment of this
Loan, transfer of the Collateral, or any other transfer or termination of
this Agreement regardless of the means of such transfer or termination. In
addition to any other conditions necessary to terminate this Agreement, the
liability of the Borrower to the Bank under this Paragraph shall survive
until the following conditions are met: (1) neither the Bank nor any other
person or entity indemnified under this Paragraph has taken title to or
operated any Property or the Collateral, or any part thereof, nor
participated, or had the ability to participate, in decisions affecting
Hazardous Substances present on, in or under any Property; (2) no change in
any Environmental Law has occurred during the period beginning on the date
hereof, and ending on the date the Note has been paid in full, which would
make the Bank liable for any condition in the Environment arising from the
Collateral or any Property; and (3) no actual, threatened, or pending claim
by the Bank or any other person or entity for indemnification under this
Paragraph exists.
In addition, the Borrower agrees to indemnify, defend, and hold
harmless the Bank from and against any and all liabilities, claims,
damages, penalties, expenditures, losses, or charges incurred by the Bank
in connection with any claim made, or action or proceeding brought, by
Chase against the Bank related to the Borrower's execution, delivery or
performance of its obligations under any of the Loan Documents.
SECTION 9.12 RENEWAL OF EXISTING LETTERS OF CREDIT. Upon written
application of the Borrower, and upon payment of the Bank's customary fees
for such service or accommodation, the Bank will renew Existing Letters of
Credit through March 9, 1997 or such earlier date as is requested by the
Borrower, provided that no Default or Event of Default shall have occurred
and be continuing at the time of such application.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Robert Johnson
Robert Johnson, EVP and CFO
MARINE MIDLAND BANK
By: /s Stanley L. Peck
Stanley L. Peck, Vice President
**FOOTNOTES**
{1}Except that any existing default by the Borrower under its existing
agreements with Chase which has been reported by the Borrower to the Bank in
writing, shall not constitute a default under this subsection provided that all
such defaults are waived by Chase on or before March 31, 1996 and provided
further that this exception does not apply to, or in any way limit or impair
the operation of, subsection (3) above.
<PAGE>
7.01; 030896
EXHIBIT INDEX
Exhibit A Form of Security Agreement
Exhibit B Form of Offset Waiver
Exhibit C Revolving Credit Note
Exhibit D Form of Opinion of Cahill Gordon & Reindel
Exhibit E Opinion of Thomas C. Wyckoff
Exhibit F List of Subsidiaries
Exhibit G List of Debt
Exhibit H List of Permitted Liens
Exhibit I Copies of Continuing Loan Documents
Exhibit J Form of Amendment and Modification Agreement
Exhibit K Form of Borrowing Base Certificate
SCHEDULE INDEX
SCHEDULE 2.1(2)(b)Locations owned by Borrower at which raw
material inventory is located.
SCHEDULE 2.1(2)(c)Locations at which raw material inventory
subject to vendor setoff waivers is located.
SCHEDULE 2.1(2)(d)Locations owned by Borrower at which finished
goods inventory is located.
SCHEDULE 4.7Litigation list.
<PAGE>
7.01; 030896
EXHIBIT C
NOTE
$6,500,000.00 March 8, 1996
Rochester, New York
FOR VALUE RECEIVED, the undersigned, ARTISTIC GREETINGS INCORPORATED a
Delaware corporation (the "Borrower"), DOES HEREBY PROMISE to pay to the
order of MARINE MIDLAND BANK (the "Bank"), at its office at One Marine
Midland Plaza, Rochester, New York 14639 in lawful money of the United
States and in immediately available funds, the principal amount of Six
Million Five Hundred Thousand and no/100 Dollars ($6,500,000.00) or the
aggregate unpaid principal amount of all Revolving Credit Loans made to the
Borrower by the Bank hereunder and pursuant to the Agreement, whichever is
less, on March 9, 1997, and to pay interest (computed on the basis of a
year of 360 days) from the date of this Note on the unpaid principal amount
hereof, in like money, at said office, at a rate per annum as provided in
the Agreement (as defined below).
The Borrower hereby authorizes the Bank to endorse on Schedule A
annexed to this Note in the case of Prime Rate Loans and Schedule B annexed
to this Note in the case of Quoted Rate Loans, all Revolving Credit Loans
made to the Borrower and all payments of principal amounts in respect of
such Revolving Credit Loans, which endorsements shall, in the absence of
manifest error, be conclusive as to the outstanding principal amount of all
Revolving Credit Loans; provided, however, that the failure to make such
notation with respect to any Revolving Credit Loan or payment shall not
limit or otherwise affect the obligations of the Borrower under the
Agreement or this Note.
This Note is the Note referred to in a certain Revolving Credit
Agreement between the Bank and the Borrower dated March 8, 1996 (the
"Agreement"), and capitalized terms used herein shall have the meanings
ascribed to such terms in the Agreement. The Agreement, among other
things, contains provisions for acceleration of the maturity of this Note
upon the happening of certain stated events and also for prepayments on
account of the principal of this Note prior to the maturity upon the terms
and conditions specified in the Agreement. This Note is secured by a
Security Agreement reference to which is hereby made for a description of
the Collateral and the rights of the Borrower and the Bank with respect to
such Collateral. This Note shall be governed by the laws of the State of
New York, provided that, as to the maximum rate of interest which may be
charged or collected, if the laws applicable to the Bank permit it to
charge or collect a higher rate than the laws of the State of New York,
then such law applicable to the Bank shall apply to the Bank under this
Note.
ARTISTIC GREETINGS INCORPORATED
By:
Title:
<PAGE>
7.01; 030896
SCHEDULE A
<TABLE>
<CAPTION>
Unpaid Principal
Amount of Principal Balance of all Name of Person
Amount of Prepaid Prime Rate Loans Making Notation
Date Loan
<S> <C> <C> <C> <C>
</TABLE>
SCHEDULE B
QUOTED RATE LOANS
<TABLE>
<CAPTION>
Unpaid Principal
Balance of all Name of Person
Amount of Quoted Rate Making
Amount of Loan Principal Prepaid Loans Notation Applicable
Date Quoted Rate
<S> <C> <C> <C> <C> <C>
</TABLE>
EXHIBIT 10-7
SECURITY AGREEMENT
AGREEMENT made this 8th day of March, 1996 between ARTISTIC GREETINGS
INCORPORATED, a Delaware corporation (the "Debtor"), and MARINE MIDLAND
BANK, a New York State banking corporation (the "Secured Party").
In consideration of any and all extensions of credit heretofore or
hereafter made by the Secured Party to the Debtor pursuant to the Revolving
Credit Agreement dated the date hereof between the Debtor and the Secured
Party (the "Credit Agreement"), it is hereby agreed as follows:
I. SECURITY INTEREST
The Debtor hereby grants a present security interest in and assigns to
the Secured Party the collateral described in Paragraph II (the "Security
Interest") to secure payment and performance of all debts, liabilities,
obligations and indebtedness of the Debtor to the Secured Party described
in the Credit Agreement (including Existing Letters of Credit as defined
therein), the Commercial Installment Loan Agreement between the Debtor and
the Secured Party dated August 16, 1991, the Commercial Installment Loan
Agreement between the Debtor and the Secured Party dated March 29, 1995,
and all notes executed in connection therewith, whether such indebtedness
is from time to time reduced and thereafter increased or entirely
extinguished and thereafter reincurred, including, without limitation, any
sums advanced by the Secured Party for taxes, assessments, insurance and
other charges and expenses as hereinafter provided (the "Indebtedness").
II. COLLATERAL
The collateral of this Security Agreement is all of Debtor's accounts
receivable, book debts, notes, drafts, acceptances and other forms of
obligations heretofore received by or belonging or owing to Debtor, whether
arising from the sale of goods or rendition of services by Debtor or
otherwise (including, without limitation, for the purposes of this
definition, any such obligation that might be characterized as an account,
contract right, instrument, general intangible or chattel paper under the
Uniform Commercial Code as in effect in any jurisdiction), all of Debtor's
rights in, to and under all purchase orders heretofore, now or hereafter
received by Debtor for goods or services, and all moneys due or to become
due to Debtor under all contracts for the sale of goods and the performance
of services by Debtor (whether or not yet earned by performance) or in
connection with any other transaction, and in and to all rights and
remedies which the Debtor might exercise with respect thereto but for the
execution of this Security Agreement (hereinafter collectively called the
"accounts"); all inventory now or hereafter owned or acquired by Debtor,
including without limitation goods held for sale or lease or to be
furnished under contracts of service, raw materials, work in progress,
materials to be used or consumed in Debtor's business, all documents
covering said inventory, and all such inventory which is returned or
repossessed (hereinafter collectively called the "inventory"); general
intangibles; and Customer Lists (as defined in the Credit Agreement)
together with all the proceeds thereof in any form, including insurance
proceeds (hereinafter collectively called the "Collateral").
III. DEBTOR'S WARRANTIES AND REPRESENTATIONS
Debtor represents and warrants and, so long as any Indebtedness
remains unpaid, shall be deemed to continuously represent and warrant that:
A. Debtor is the owner of the Collateral free of all security
interests, liens or other encumbrances, except the Security Interest and
except as reflected on Schedule B annexed hereto and liens of the type
described in Section 6.1 of the Credit Agreement.
B. Debtor is authorized to enter into this Security Agreement.
C. This Security Agreement is effective to create in favor of the
Secured Party the Security Interest in the Collateral as set forth herein.
D. Debtor is authorized to enter into the transactions contemplated
herein.
E. Debtor is engaged in business operations which are carried on at
the address(es) specified in Schedule A annexed hereto.
F. Debtor's records concerning the Collateral are kept at the
address(es) specified in Schedule A annexed hereto.
G. The Collateral is located at the address(es) specified in Schedule
A annexed hereto.
H. Each account is genuine and enforceable in accordance with its
terms against the party obligated to pay or perform it (the "account
debtor") subject, as to enforceability, to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws at the time in
effect affecting the enforceability of creditors' rights generally, and
except for accounts which are properly reserved against on the Debtor's
financial statements and except for accounts which do not at any time
exceed $25,000 less the aggregate amount of accounts included under the
similar exception in paragraph III. J. below.
I. The amounts or performance represented by Debtor to the Secured
Party as owing by each account debtor or all account debtors is the correct
amount or performance actually owing by the account debtor or all account
debtors, except for normal cash discounts where applicable.
J. To the Debtor's knowledge, no account debtor has any defense, set
off, claim or counterclaim against Debtor which can be successfully
asserted against the Secured Party, whether in any proceeding to enforce
this Security Agreement and the rights conferred hereunder or otherwise,
except for defenses, set off, claims or counterclaims which do not at any
time exceed, in the aggregate, $25,000 less the aggregate amount of
accounts included under the similar exception in paragraph III. H. above.
K. Each account or all accounts arose in the ordinary course of
Debtor's business.
L. No notice of the bankruptcy or insolvency of any account debtor has
been received by Debtor.
M. The Collateral is used or bought for use primarily for Debtor's
business operations.
IV. COVENANTS OF DEBTOR
So long as any Indebtedness remains unpaid, the Debtor:
A. will defend the Collateral against the claims and demands of all
other parties claiming any interest therein adverse to Secured Party,
except that the Debtor need not so defend the Collateral against purchasers
and lessees of inventory in the ordinary course of the Debtor's business.
B. will keep the Collateral free from all security interests, liens or
other encumbrances, except the Security Interest and except as reflected in
Schedule B annexed hereto and liens of the type described in Section 6.1 of
the Credit Agreement.
C. will not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein, except as reflected in Schedule B
annexed hereto, except that the Debtor may sell or lease inventory in the
ordinary course of the Debtor's business until the occurrence of a default
as hereinafter provided.
D. will indemnify the Secured Party against all claims arising out of
or in connection with this Agreement or the pledge and security interest
contemplated hereby.
E. will at all times maintain, in accordance with generally accepted
accounting principles consistently applied, complete and accurate books and
records concerning the Collateral, and at the Secured Party's request will
mark all books and records and any or all accounts to indicate the Security
Interest.
F. will permit the Secured Party or its agents to inspect the
Collateral, to audit the books and records of the Debtor relating to the
Collateral and to make extracts from them or from any of the Debtor's
books, reports, records and correspondence upon reasonable notice and at
reasonable times, and to inspect the Debtor's business locations and
operations at any reasonable time upon notice, and not to unreasonably
interfere with the operation of the Debtor's business.
G. upon the occurrence and during the continuance of an Event of
Default, will deliver to the Secured Party, upon demand, any documents of
title, chattel paper, invoices, shipping or delivery receipts, purchase
orders, contracts or other documents representing or concerning the
Collateral or any part thereof and any proceeds and any and all other
schedules, documents and statements which the Secured Party may from time
to time reasonably request.
H. will advise the Secured Party promptly in writing, in sufficient
detail, of the occurrence of any event which would have a material effect
on the value of the Collateral as a whole or on the lien and Security
Interest granted to the Secured Party herein.
I. will, on the Secured Party's reasonable request, execute and
deliver to the Secured Party such financing statements and other
instruments and do all acts as in the Secured Party's reasonable judgment
may be necessary or appropriate to establish and maintain a valid security
interest in the Collateral; and on the Debtor's failure to do so, the
Secured Party may sign any financing statements or other papers on the
Debtor's behalf; and the Debtor will pay all costs of any filings of
financing statements or other instruments.
J. will insure the Collateral against any and all risks customarily
insured against by corporations in the same or similar businesses, in
coverage, form and amount reasonably satisfactory to the Secured Party with
the Secured Party named as additional insured, and loss payee as its
interests may appear, with provision for thirty (30) days minimum
cancellation notice to the Secured Party; should the Collateral consist in
whole or in part of real property, the Secured Party is to be named as
mortgagee, and, at the Secured Party's written request, will deliver copies
of each such policy or certificate of insurance to the Secured Party.
K. will promptly notify the Secured Party in writing of any change in
the Debtor's business address(es) specified in Schedule A annexed hereto
and of any changes in the location(s) specified therein or of the existence
of additional locations at which the Collateral or records concerning it
are kept; and, if any such change in location requires a refiling of a
financing statement to perfect the Security Interest in any of the
Collateral or is to a place outside the state or province in which the
Collateral is located on the date hereof, will not change such location
without at least ten (10) days prior written notice to the Secured Party.
L. will promptly notify the Secured Party in writing of any condition
or event which constitutes, or would constitute with the passage of time or
giving of notice or both, an Event of Default under this Security
Agreement, and shall promptly inform the Secured Party of any events or
changes in the Debtor's financial condition occurring since the date of
this Security Agreement which individually or cumulatively may result in a
material adverse change in the financial condition of the Debtor.
M. will pay, prior to delinquency, all taxes, charges, liens and
assessments against the Collateral other than taxes, charges, liens and
assessments being contested by Debtor in good faith, by appropriate
proceedings; and (subject to Debtor's right to contest) on the Debtor's
failure to do so after notice from Secured Party, the Secured Party, at its
option, may pay any such items necessary to discharge the same. Such
payment shall become part of the Indebtedness secured by the Security
Agreement.
N. will reimburse the Secured Party for any action elected hereunder
and taken by the Secured Party to remedy a default hereunder.
O. upon maturity, whether by acceleration or otherwise, will keep the
Collateral and its proceeds separate and distinct from other property of
the Debtor and will keep accurate and complete records of the Collateral
and its proceeds.
P. upon the occurrence of an Event of Default, before or after
notification to account debtors, will hold in trust for the Secured Party
all proceeds in the forms of cash and negotiable instruments for the
payment of money received by the Debtor in payment of any account and will
not later than the next business day following the day of their receipt pay
the same over to the Secured Party for application against the Indebtedness
of the Debtor to the Secured Party, the order and method of application to
be in the sole discretion of the Secured Party.
Q. will immediately notify the Secured Party of any default by any
account debtor in performance of his obligation with respect to any
Eligible Account.
R. will not, without the Secured Party's written consent, make or
agree to make any alteration, modification, cancellation of, substitution
for, credit, adjustment or allowance on any Eligible Account with an unpaid
balance in excess of $25,000.
S. will, if the Collateral is of a type normally used in more than one
state and the Debtor has a place of business in more than one state,
promptly notify the Secured Party in writing of any change in the Debtor's
chief place of business from that shown on Schedule A annexed hereto.
T. will keep the Collateral in good condition and repair, except for
the ordinary wear and tear of its intended primary use, and will not use it
in violation of any provisions of this Security Agreement, any applicable
statute, regulation, ordinance or of any policy insuring it.
V. DEFAULT \ SECURED PARTY'S REMEDIES ON DEFAULT
A. The occurrence of an Event of Default under the terms of the Credit
Agreement shall constitute an Event of Default under this Security
Agreement whether or not the Credit Agreement is still in force and effect.
B. On the occurrence and during the continuance of an Event of
Default, the Secured Party may, without notice to the Debtor, declare any
or all of the obligations secured by this Security Agreement immediately
due and payable; and the Secured Party's rights and remedies with respect
to the Collateral shall be those of the Secured Party under the Uniform
Commercial Code and under any other applicable law, as the same may from
time to time be in effect, in addition to those rights granted herein and
in any other Loan Document (as defined in the Credit Agreement) now or
hereafter in effect between the Debtor and the Secured Party.
C. Without in any way requiring notice to be given in the following
time and manner, the Debtor agrees that any notice by the Secured Party of
any sale, disposition or other intended action hereunder or in connection
herewith, whether required by the Uniform Commercial Code or otherwise,
shall constitute reasonable notice to the Debtor (to each of them if there
are more than one) if such notice is mailed by regular or certified mail,
postage prepaid, at least ten (10) days prior to such action, to the
Debtor's address first specified in Schedule A annexed hereto and to any
other address which the Debtor has specified in writing to the Secured
Party as the address at which notices hereunder shall be given to the
Debtor.
D. At or after maturity, whether by acceleration or otherwise, and on
the Secured Party's written notice to the Debtor, the Debtor will assemble
the Collateral and make it available to the Secured Party at such place, to
be designated in said notice, as is reasonably convenient to both parties.
E. The Debtor agrees to pay all reasonable costs and expenses actually
incurred by the Secured Party in enforcing this Security Agreement, in
realizing upon any Collateral and in enforcing and collecting any
Indebtedness, including, without limitation, reasonable attorneys' fees if
the Secured Party retains counsel for any such purpose.
F. No act, delay, omission, or course of dealing between the Debtor
and the Secured Party will be a waiver of any of the Secured Party's rights
or remedies under this Security Agreement; and no single or partial
exercise of any right or remedy hereunder shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. A
waiver by the Secured Party of any rights or remedies under the terms of
this Security Agreement or with respect to any obligation secured by this
Security Agreement on any occasion will not be a bar to the exercise of any
right or remedy on any subsequent occasion. The Secured Party may remedy
any default by the Debtor hereunder or with respect to any Indebtedness in
any reasonable manner without waiving the default remedied and without
waiving any other prior or subsequent default by the Debtor.
VI. OTHER RIGHTS OF SECURED PARTY
A. The Secured Party shall have the right to verify all or any
accounts in any manner and through any medium the Secured Party may
consider reasonably appropriate and the Debtor agrees to furnish all
assistance and information and perform any acts which the Secured Party may
reasonably require in connection therewith.
B. At and after maturity, whether by acceleration or otherwise, the
Secured Party may notify all or any account debtors of the Security
Interest and may also direct such account debtors to make all payments on
accounts to the Secured Party. The Secured Party may, upon written notice,
require the Debtor to so notify and direct the account debtors. All
payments on and other proceeds from accounts received by the Secured Party
directly or from the Debtor shall be applied to the Indebtedness in such
order and manner and at such times as the Secured Party shall, in its sole
discretion, determine. Upon the occurrence and during the continuance of
an Event of Default and upon demand by the Secured Party, any payments on
or other proceeds of accounts received by the Debtor, before or after
notification to account debtors, shall be held by the Debtor in trust for
the Secured Party in the same medium in which received, shall not be
commingled with any assets of the Debtor and shall be turned over to the
Secured Party not later than the next business day following the day of
their receipt. Upon the occurrence and during the continuance of an Event
of Default and upon demand, the Debtor shall also promptly notify the
Secured Party of the return to or repossession by the Debtor of any
inventory or goods underlying any account, and the Debtor shall hold the
same in trust for the Secured Party and shall dispose of the same as the
Secured Party directs. At and after maturity, whether by acceleration or
otherwise, the Secured Party may also demand, collect and sue on the
accounts in either the Debtor's or the Secured Party's name at the latter's
option, with the right to enforce, compromise, settle or discharge any
account, and may endorse the Debtor's name on any and all checks,
commercial paper and any other instruments pertaining to the accounts.
C. The Debtor hereby authorizes the Secured Party, at the Debtor's
expense, to file such financing statement or statements relating to the
Collateral without the Debtor's signature thereon as the Secured Party at
its option may reasonably deem necessary in order to perfect its Security
Interest hereunder, and appoints the Secured Party as the Debtor's
attorney-in-fact (without requiring the Secured Party) to execute any such
financing statement or statements in the Debtor's name and to perform all
other acts which the Secured Party reasonably deems necessary in order to
perfect and continue the Security Interest and to protect and preserve the
Collateral.
D. As further security for payment of the Indebtedness, the Debtor
hereby grants to the Secured Party a security interest in and lien on any
and all property of the Debtor which is or may hereafter be in the Secured
Party's possession in any capacity, including, without limitation, all
moneys owed or to be owed by the Secured Party to the Debtor; and with
respect to all of such property, the Secured Party shall have the same
rights hereunder as it has with respect to the Collateral.
E. Without limiting any other right of the Secured Party, whenever the
Secured Party has the right to declare any Indebtedness to be immediately
due and payable (whether or not it has been so declared), the Secured Party
at its sole election may set off against the Indebtedness any and all
moneys then owed to the Debtor by the Secured Party in any capacity,
whether or not due, and the Secured Party shall be deemed to have exercised
such right of setoff immediately at the time of such election even though
any charge therefor is made or entered on the Secured Party's records
subsequent thereto. The Secured Party shall give the Debtor written notice
of any such setoff.
F. The rights and benefits of the Secured Party hereunder shall, if
the Secured Party so agrees, inure to any party acquiring any interest in
the Indebtedness or any part thereof.
G. The Secured Party shall have no obligation to take, and the Debtor
shall have the sole responsibility for taking, any and all steps to
preserve material rights against any and all prior parties to any
instrument or chattel paper in the Secured Party's possession as proceeds
in connection with this Security Agreement. The Debtor hereby waives
protest of any instrument constituting Collateral at any time held by the
Secured Party on which the Debtor is in any way liable.
VII. GENERAL PROVISIONS
A. As used herein, the phrase "and during the continuance of an Event
of Default" means the period commencing upon the occurrence of such Event
of Default and ending on the date such Event of Default is waived by the
Secured Party in writing.
B. All rights and remedies of the Secured Party inure to the benefit
of its successors or assigns and the Debtor may assert no claims or
defenses against the assignee which it may have against the Secured Party
except those granted by this Security Agreement.
C. As used in this Security Agreement, "Debtor" means singular or
plural according to the number of persons signing this Security Agreement
and includes Debtor's heirs, executors, administrators, successors,
representatives, receivers and trustees; "Secured Party" includes its
successors and assigns.
D. If this Security Agreement is signed by more than one person as
Debtor, it will be the joint and several agreement of all signing.
E. If any provision of this Security Agreement is invalid or
unenforceable under any law, such provision is and will be totally
ineffective to that extent, but the remaining provisions will be
unaffected.
F. Division headings used in this Security Agreement are for
convenience only and are to be given no substantive meaning or significance
whatever in construing the terms and provisions of this Security Agreement.
G. Any notice to the Secured Party will be effective only on its
receipt by the Secured Party.
H. This Security Agreement and the transactions evidenced by it shall
be interpreted, construed, applied and enforced in accordance with the laws
of the State of New York, as they may from time to time be in effect.
I. This Security Agreement together with the Loan Documents (as
defined in the Credit Agreement) constitutes the entire understanding
between the parties to it with respect to the transactions contemplated
herein; and no modification, rescission, release, amendment, or waiver
(except as indicated in this Security Agreement) of any provision of this
Security Agreement shall be made except by a written agreement subscribed
by Debtor and by the Secured Party or their agents.
J. This Security Agreement is and is intended to be a continuing
Security Agreement and shall remain in full force and effect until all of
the Indebtedness and any extensions or renewals thereof together with
interest accruing thereon, shall be paid in full. However, on request of
the Borrower, the Bank will release only the Security Interest granted by
this Security Agreement, if all of the following conditions have been
satisfied:
(i) All Indebtedness and obligations of the Borrower incurred
under (a) the Credit Agreement and (b) any and all reimbursement
agreements with respect to any Existing Letters of Credit (as
defined in the Credit Agreement), shall have been fully, finally,
and irrevocably paid in full;
(ii) No Existing Letters of Credit or Additional Letters of
Credit shall be outstanding;
(iii) The Bank shall have no continuing obligations under the
Credit Agreement;
(iv) No Event of Default shall have occurred under this Security
Agreement except for any waived by the Bank; and
(v) The Bank shall have received an appraisal in form and
substance satisfactory to it, by an appraiser approved by it, fully
paid for by the Borrower, and dated as of a date within thirty days
of the date of the request for release of the Security Interest,
showing that the Orderly Liquidation Value of the specific
equipment collateral securing the remaining Indebtedness exceeds
the principal balance of the remaining Indebtedness.
K. In the event the Secured Party seeks to take possession of any or
all of the Collateral by court process, Debtor hereby irrevocably waives
any bonds and any surety or security relating thereto required by any
statute, court rule or otherwise as an incident to such possession, and
waives any demand for possession prior to the commencement of any suit or
action to recover with respect thereto and waives the right to demand a
jury in the trial of any action in which the Secured Party and Debtor are
parties.
L. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or persons may require.
M. The exercise by the Secured Party or failure to exercise any
authority granted it hereunder shall in no way affect Debtor's liability to
the Secured Party hereunder or under the Credit Agreement; and the Secured
Party shall not be under any obligation or duty to exercise any of the
powers hereby conferred upon it and it shall be without liability for any
act or failure to act in connection with the collection of, or the
preservation of any rights with regard to, any of the Collateral.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Thomas C. Wyckoff
EXHIBIT 10-8
AMENDMENT NO. 2
The Landlord and Tenant hereby amend this Agreement dated March 31,
1993 by adding the following paragraph:
The term of this lease shall end one month following notice by
the Tenant of cancellation of this lease (which may occur at any time
in the full discretion of the Tenant). Commencing on the effective
date hereof, the monthly rent shall be increased 5% to $3,465. All of
the other conditions, provisions and covenants of this lease shall
continue in force and apply in all respects as herein provided.
The effective date of this Amendment No. 2 is December 31, 1995.
By: /s/ Stuart Komer
Name: Stuart Komer
ARTISTIC GREETINGS INCORPORATED
By: /s/ Marie B. Belt
Name: Marie B. Belt
Title: Assistant Corporate Secretary
G:\ATTORNEY\TPY\WORK2\AGI2.AMD
EXHIBIT 10-12
AMENDED TERM PROMISSORY NOTE
$2,733,337.00 Rochester, New York
March 28, 1996
This Term Promissory Note (the "Note") amends, restates and replaces the
Term Loan Agreement and Term Promissory Note dated March 31, 1995. All sums
outstanding thereunder shall be deemed outstanding hereunder. No new
indebtedness is created hereby.
For value received, the undersigned (referred to herein as the "undersigned"
or the "Borrower") unconditionally promises to pay to the order of THE CHASE
MANHATTAN BANK (National Association) ("Chase"), at its office located at One
Chase Square, Rochester, New York 14643, or to such other address as Chase may
notify the undersigned, the principal amount of Two Million Seven Hundred
Thirty-three Thousand Three Hundred Thirty-seven and No/100 Dollars
($2,733,337.00) (the "loan").
This Note includes any Schedule or Rider attached hereto.
TERMS OF REPAYMENT. The entire amount of principal, and remaining
accrued interest on, this Note shall be due on January 1, 1999 (the "Maturity
Date"). Installments shall be payable in 34 consecutive principal installments
of $80,392.26 each due on the first day of each month commencing on April 1,
1996.
INTEREST. The undersigned promises to pay interest on the unpaid balance
of the principal amount of the loan from and including the date of the loan
to but excluding the date the loan shall be paid in full at a rate of interest
per year which shall automatically increase or decrease from time to time so
that at all times such rate shall remain equal to that rate of interest from
time to time announced by Chase at its head office as its prime commercial
lending rate (the "Prime Rate") plus 1.5%. Changes in the rate of interest
hereunder shall be effective as of and for the entire day on which such change
in the Prime Rate becomes effective.
Interest shall be payable on the first day of each month (commencing on the
first such date occurring after the date of the loan), unless otherwise
specified on a Rider attached hereto, on the Maturity Date, and on any
prepayment of principal. Interest shall be calculated on the basis of a year
of 360 days and payable for the actual number of days elapsed.
After the occurrence of an Event of Default set forth below, Chase, at its
option, by written notice to the undersigned may increase the interest rate on
this Note by an additional two percent (2%) per year effective on the date of
such notice.
PAYMENTS. All payments under this Note shall be made in lawful money of the
United States of America at Chase's office specified above. Chase may (but
shall not be obligated to) debit the amount of any payment (principal or
interest) under this Note when due to any deposit account of (any of) the
undersigned with Chase. Chase may apply any money received or collected for
payment of this Note to the principal of, interest on or any other amount
payable under, this Note in any order that Chase may elect.
Whenever any payment to be made hereunder (including principal and interest)
shall be stated to be due on a day on which Chase's head office is not open for
business, that payment will be due on the next following banking day, and any
extension of time shall in each case be included in the computation of interest
payable on this Note.
If any payment (principal or interest) shall not be paid within 15 days of
the date it is due, other than a payment of the entire principal balance of the
Note due upon demand, the undersigned shall pay a late payment charge equal to
five percent (5%) of the amount of such delinquent payment, provided that the
amount of such late payment charge shall be not less than $25 nor more than
$500.
AUTHORIZATIONS. The undersigned hereby authorizes Chase to make the loan
and disburse the proceeds and to make repayments of the loan by debiting such
account upon oral, telephonic instructions made by any person purporting to be
an officer or agent of the undersigned who is empowered to make such requests
and give such instructions. The undersigned may amend these instructions, from
time to time, effective upon actual receipt of the amendment by Chase. Chase
shall not be responsible for the authority, or lack of authority, of any person
giving such telephonic instructions to Chase pursuant to these provisions. By
executing this Note, the undersigned agrees to be bound to repay the loan
obtained hereunder as reflected on Chase's books and records.
RECORDS. The date and amount of the loan and each payment of principal, and
the outstanding principal balance of the loan, shall be recorded by Chase on
its books and any such record shall be conclusive absent manifest error.
REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants
upon the execution and delivery of this Note, that: (a) it is duly organized
and validly existing under the laws of the jurisdiction of its organization or
incorporation and, if relevant under such laws, in good standing; (b) it has
the power to execute and deliver this Note and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance; (c) such execution, delivery and performance do not
violate or conflict with any law applicable to it, any provision of its
organizational documents, any order or judgment of any court or other agency of
government applicable to it or any of its assets or any material contractual
restriction binding on or materially affecting it or any of its assets, except
for such violations or conflicts, other than violations or conflicts of any
provision of the Borrower's organizational documents, which would not
materially adversely affect the financial condition, operations, property or
business of the Borrower or the ability of the Borrower to perform its
obligations under this Note (a "Material Adverse Effect"); (d) to the best of
undersigned's knowledge, all governmental and other consents that are required
to have been obtained by it with respect to this Note have been obtained and
are in full force and effect and all conditions of any such consents have been
complied with; (e) its obligations under this Note constitute its legal, valid
and binding obligations, enforceable in accordance with its terms except to the
extent that such enforcement may be limited by applicable bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and
general principles of equity; (f) all financial statements and related
information furnished and to be furnished to Chase from time to time by the
undersigned are true and complete and fairly present the financial or other
information stated therein as at such dates or for the periods covered thereby;
(g) there are no actions, suits, proceedings or investigations pending or, to
the knowledge of the undersigned, threatened against or affecting the
undersigned before any court, governmental agency or arbitrator, which would
have a Material Adverse Effect; and (h) there has been no material adverse
change in the financial condition of the undersigned since the financial
statements for the month ending February 29, 1996.
SECURITY. As collateral security for the payment of this Note and of any
and all other obligations and liabilities of the undersigned to Chase, now
existing or hereafter arising, the undersigned grants to Chase a security
interest in and a lien upon and right of offset against all moneys, deposit
balances, securities or other property or interest therein of the undersigned
now or at any time hereafter held or received by or for or left in the
possession or control of Chase or any of its affiliates, including
subsidiaries, whether for safekeeping, custody, transmission, collection,
pledge or for any other or different purpose.
As further collateral security, the undersigned has granted to Chase a
security interest in all equipment of the undersigned, whether now owned or
hereafter acquired, and all proceeds thereof (which security interest in the
equipment listed on Schedule A hereto shall be subordinate to the interest of
the creditor listed opposite such equipment on Schedule A).
DEFAULT. IF ANY OF THE FOLLOWING EVENTS OF DEFAULT SHALL OCCUR with respect
to any of the undersigned (each an "Event of Default"):
(a) the undersigned shall fail to pay the principal of, or interest on,
this Note, or any other amount payable under this Note, as and when due and
payable;
(b) any representation or warranty made or deemed made by the undersigned
in this Note or in any document granting security or support for (or otherwise
executed in connection with) this Note or by any third party supporting or
liable with respect to this Note (whether by guaranty, subordination, grant of
security or any other credit support, a "Third Party") in any document
evidencing the obligations of a Third Party (this Note and all of the foregoing
documents and all agreements, instruments or other documents executed by the
undersigned or a Third Party being the "Facility Documents") or which is
contained in any certificate, document, opinion, financial or other statement
furnished at any time under or in connection with any Facility Document, shall
prove to have been incorrect in any material respect on or as of the date made
or deemed made;
(c) the undersigned or any Third Party shall fail to perform or observe
any term, covenant or agreement contained in any Facility Document on its part
to be performed or observed, and such failure shall continue for 30 consecutive
days;
(d) the undersigned or any Third Party shall fail to pay when due any
indebtedness in excess of $50,000.00 (including but not limited to indebtedness
for borrowed money) or if any such indebtedness shall become due and payable,
or shall be capable of becoming due and payable at the option of any holder
thereof, by acceleration of its maturity, or if there shall be any default by
the undersigned or any Third Party under any agreement relating to such
indebtedness unless such default shall be cured within an applicable cure
period or waived by the holder of such indebtedness;
(e) the undersigned or any Third Party: (i) shall generally not, or be
unable to, or shall admit in writing its inability to, pay its debts as such
debts become due; (ii) shall make an assignment for the benefit of creditors;
(iii) shall file a petition in bankruptcy or for any relief under any law of
any jurisdiction relating to reorganization, arrangement, readjustment of debt,
dissolution or liquidation; (iv) shall have any such petition filed against it
and the same shall remain undismissed for a period of 30 days or shall consent
or acquiesce thereto; or (v) shall have had a receiver, custodian or trustee
appointed for all or a substantial part of its property;
(f) any Third Party Facility Document shall at any time and for any reason
cease to be in full force and effect or shall be declared null and void, or its
validity or enforceability shall be contested by the relevant Third Party or
such Third Party shall deny it has any further liability or obligation under
any Facility Document or shall fail to perform its obligations under any
Facility Document;
(g) any security agreement or other agreement (whether by the undersigned
or any Third Party) granting a security interest, lien, mortgage or other
encumbrance securing obligations under any Facility Document shall at any time
and for any reason cease to create a valid and perfected first priority
security interest (except with respect to security interests in equipment
referenced on Schedule A), lien, mortgage or other encumbrance in or on the
property purported to be subject to such agreement or shall cease to be in full
force and effect or shall be declared null and void, or the validity or
enforceability of any such agreement shall be contested by any party to such
agreement, or such party shall deny it has any further liability or obligation
under such agreement or any such party shall fail to perform any of its
obligations under such agreement;
(h) there be such a change in the condition or affairs (financial or
otherwise) of the Borrower or any guarantor of this Note, as in the reasonable
opinion of Chase or any holder hereof, which will substantially increase the
credit risk of Chase or any holder hereof; or
(i) one or more judgments, decrees or orders for the payment of money in
excess of $50,000 in the aggregate shall be rendered against the undersigned
and shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
THEN, IN ANY SUCH CASE, if Chase shall elect by notice to the undersigned, the
unpaid principal amount of this Note, together with accrued interest, shall
become forthwith due and payable; provided that in the case of an event of
default under (e) above, the unpaid principal amount of this Note, together
with accrued interest, shall immediately become due and payable without any
notice or other action by Chase.
CERTAIN WAIVERS. The undersigned waives presentment, notice of dishonor,
protest and any other notice or formality with respect to this Note.
COSTS. The undersigned agrees to reimburse Chase on demand for all
costs, expenses and charges (including, without limitation, fees and charges of
external legal counsel for Chase and costs allocated by its internal legal
department) in connection with the preparation, interpretation, performance or
enforcement of this Note and the Facility Documents.
NOTICES. All notices, requests, demands or other communications to or
upon the undersigned or Chase shall be in writing and shall be deemed to be
delivered upon receipt if delivered by hand or overnight courier or five days
after mailing to the address (a) of the undersigned as set forth next to the
undersigned's execution of this Note, (b) of Chase as first set forth above, or
(c) of the undersigned or Chase at such other address as the undersigned or
Chase shall specify to the other in writing.
ASSIGNMENT. This Note shall be binding upon the undersigned and its or
their successors and shall inure to the benefit of Chase and its successors and
assigns.
ENTIRE AGREEMENT, AMENDMENT AND WAIVER. This Note and the Facility
Documents constitute the entire agreement between the undersigned and Chase and
may be amended only by a writing signed on behalf of each party and shall be
effective only to the extent set forth in that writing. In the event of any
inconsistency between this Note (and any Rider(s) attached hereto) and the
Facility Documents, this Note and such Riders shall prevail. No delay by Chase
in exercising any power or right hereunder shall operate as a waiver thereof or
of any other power or right; nor shall any single or partial exercise of any
power or right preclude other or future exercise thereof, or the exercise of
any other power or right hereunder.
GOVERNING LAW; JURISDICTION. This Note shall be governed by and
construed in accordance with the laws of the State of New York. The undersigned
consents to the nonexclusive jurisdiction and venue of the state or federal
courts located in such state. In the event of a dispute hereunder, suit may be
brought against the undersigned in such courts or in any jurisdiction where the
undersigned or any of its assets may be located. Service of process by Chase
in connection with any dispute shall be binding on the undersigned if sent to
the undersigned by registered mail at the address(es) specified below or to
such further address as the undersigned may specify to Chase in writing.
MAXIMUM INTEREST. Notwithstanding any other provision of this Note, the
undersigned shall not be required to pay any amount pursuant to this Note which
is in excess of the maximum amount permitted to be charged by national banks
under applicable law and any such excess interest paid shall be refunded to the
undersigned or applied to principal owing hereunder.
BUSINESS COVENANTS. The undersigned agrees that until payment in full of
the loan, all interest thereon and all other amounts payable under this Note,
the undersigned shall perform and comply with the covenants set forth on the
Business Covenants Rider annexed hereto.
BORROWER WAIVERS. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE(S) (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY
RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE
OR ANY FACILITY DOCUMENT, AND AGREES THAT ANY SUCH DISPUTE SHALL, AT CHASE'S
OPTION, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN ADDITION, THE UNDERSIGNED WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE
BASED UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF DELAY BY CHASE AND ANY
SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.
Chase Account No. to be charged for Disbursements and Payments:
______________________________
Address for notices: ARTISTIC GREETINGS INCORPORATED
One Komer Center By: /s/ Thomas C. Wyckoff
P.O. Box 1999
Elmira, New York 14901 Print Name _________________________________
Title: Senior VP and General Counsel
<PAGE>
Business Covenants Rider
SCHEDULE OF BUSINESS COVENANTS
This Rider is referred to in and is attached to the NOTE made by ARTISTIC
GREETINGS INCORPORATED (the "undersigned" or the "Borrower") to the order of
THE CHASE MANHATTAN BANK (National Association) ("Chase") dated March 28, 1996
(the "Note") Any capitalized term not otherwise defined herein shall have the
meaning ascribed.
1. AFFIRMATIVE COVENANTS. The undersigned agrees that it shall:
1.1 Furnish to Chase:
(a) As soon as available and in any event within 90 days after and
as at the close of each Fiscal Year, a consolidated (and consolidating) balance
sheet of undersigned and its consolidated Subsidiaries, and consolidated (and
consolidating) statements of income, cash flows and changes in shareholders'
equity of undersigned and its consolidated Subsidiaries prepared in accordance
with GAAP consistently applied, on an audit basis, prepared by Arthur Anderson,
LLP or other independent public accounting firm satisfactory to Chase, and as
to audited statements, accompanied by a satisfactory report and opinion of such
accountants.
(b) As soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters, a consolidated (and
consolidating) balance sheet of undersigned and its consolidated Subsidiaries
as at the end of each such quarter and related consolidated (and consolidating)
statements of income, cash flow and changes in shareholders' equity of the
undersigned and its consolidated Subsidiaries for the Fiscal Quarter and from
the beginning of such Fiscal Year to the end of such Fiscal Quarter, together
with comparisons to the previous year, if appropriate, and to budget
projections, prepared in conformity with GAAP consistently applied (subject to
year-end adjustments), and certified by an appropriate financial officer of
undersigned.
(c) As soon as available and in any event within 30 days after the
end of each month which is not also the end of a Fiscal Quarter, a consolidated
(and consolidating) balance sheet of undersigned and its consolidated
Subsidiaries as at the end of each such month and related consolidated (and
consolidating) statements of income, cash flow and changes in shareholders'
equity of the undersigned and its consolidated Subsidiaries for the month and
from the beginning of such Fiscal Year to the end of such month, together with
comparisons to the previous year, if appropriate, and to budget projections,
prepared in conformity with GAAP consistently applied(subject to year-end
adjustments), and certified by an appropriate financial officer of undersigned.
(d) Such other books, records and reports as Chase may from time to
time reasonably request, including an equipment listing; inventory listing,
aging and locations; and accounts receivable aging; which information, together
with the above financial reports, shall all be prepared in form and detail
satisfactory to Chase.
1.2 Cause to be done all things necessary to preserve and keep in
full force and effect undersigned's and its Subsidiaries' existence, rights,
licenses and franchises necessary and material to undersigned's operations
taken as a whole; and comply with all laws applicable to undersigned, except
for such non-compliance which would not have a Material Adverse Effect.
1.3 Permit representatives of Chase to visit and inspect any of the
properties of undersigned and its Subsidiaries, examine its corporate books and
records, and to make extracts or copies of such books and records, and discuss
its affairs, finances and accounts with its officers, provided that the
foregoing shall only be done at reasonable times upon prior written notice and
during normal business hours and with not more than reasonable frequency, and
provided further that the reasonable cost of such inspections and examinations
shall be paid by undersigned.
1.4 Cause to be paid and discharged all obligations when due and all
lawful taxes, assessments and governmental charges or levies imposed upon
undersigned or any Subsidiary, or upon any property, real, personal or mixed,
belonging to undersigned or its Subsidiaries, or upon any part thereof, before
the same shall become in default, as well as lawful claims for labor, materials
and supplies which, if unpaid, might become a lien or charge upon such property
or any part thereof; provided, however, that neither the undersigned nor any
Subsidiary shall be required to cause to be paid and discharged any such
obligation, tax, assessment, charge, levy or claim so long as the validity
thereof shall be contested in the normal course of business and in good faith.
1.5 Maintain with financially sound, reputable and duly licensed
insurers, insurance of the kinds, covering the risks and in the relative
proportionate amounts usually carried by similar companies in similar
localities.
1.6 Promptly notify Chase in writing with full details if any event
occurs or any condition exists which constitutes, or which but for a
requirement of lapse of time or giving of notice or both would constitute an
Event of Default under the Note or which might materially and adversely affect
the financial condition or operations of undersigned or any Subsidiary.
2. NEGATIVE COVENANTS. Undersigned agrees that it shall not, and shall
not permit any Subsidiary to:
2.1 Pledge or encumber any of its assets, except:
(a) mortgages, liens, security interests or encumbrances
granted to Chase,
(b) in the case of real properties, easements, restrictions,
exceptions, reservations or defects which, in the aggregate, do not interfere
materially with the continued use of such properties for the purposes for which
they are used and do not affect materially the value thereof;
(c) liens, pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure performance in
connection with bids, tenders and contracts (other than contracts for the
payment of borrowed money) to which the undersigned or any Subsidiary is a
party;
(d) deposits to secure public or statutory obligations of the
undersigned and any Subsidiaries;
(e) liens, deposits or pledges to secure the performance of
surety, stay, appeal, indemnity, performance or similar bonds;
(f) materialmen's, mechanics', carriers', workers' or other
like liens arising in the ordinary course of business, or deposits of cash or
United States obligations to obtain the release of such liens;
(g) purchase money liens created by undersigned or any
Subsidiary in the course of purchasing property, or existing on property at the
time of such purchase (whether or not assumed), provided that such lien shall
be restricted to the property being purchased, that the indebtedness secured
thereby shall not exceed 80% of the lesser of cost or fair market value at the
time of purchase, and the related expenditure is permitted by Section 2.10
hereof; and
(h) liens and encumbrances existing as of the date hereof and
disclosed to Chase in writing, including without limitation, liens in favor of
Marine Midland Bank; and
(i) judgment and other similar liens or encumbrances arising
in connection with court proceedings, provided the execution or other
enforcement of such liens or encumbrances is effectively stayed and the claims
secured thereby are being actively contested in good faith by appropriate
proceedings.
2.2 Make or permit to be made any material change in the character,
management or direction of undersigned's business or operations (including, but
not limited to, a change in its executive management or in the ownership of its
capital stock which effects a change in the control of any such business or
operations), without reasonable prior written notice to Chase.
2.3 Be in violation of any law or regulation, order, writ,
injunction or decree of any court or governmental instrumentality or in breach
of any agreement or instrument to which undersigned or any Subsidiary is
subject or in default thereunder, except for such violations, breaches or
defaults which would not have a Material Adverse Effect.
2.4 Enter into or be a party to any merger, consolidation,
reorganization, exchange of stock or all or substantially all of its assets,
unless undersigned is the surviving corporation and as such satisfies all of
the covenants contained in this Schedule; provided further, however, the
undersigned will not permit any corporation to merge into undersigned or
acquire all or substantially all of its assets in exchange for securities of
its own issue if immediately after such merger or asset acquisition, assuming
full conversion of any convertible securities issued in connection therewith,
the shareholders of the corporation merged into undersigned or any Subsidiary
would hold 50% or more of the voting power of undersigned or any Subsidiary.
2.5 Organize or cause to exist any new Subsidiaries, without Chase's
prior written consent, which consent shall not be unreasonably withheld and may
be conditioned, without limitation, upon the execution by such Subsidiary of a
guarantee of payment of the Note and all other indebtedness of undersigned to
Chase and of a security agreement covering such Subsidiary's assets and
securing such debt.
2.6 Sell, lease, assign, transfer or otherwise dispose of any of the
assets of undersigned that are collateral for the undersigned's obligations to
Chase.
2.7 Make or hold any investment in any securities of any kind other
than ownership of stock of Subsidiaries and other than securities owned as of
the date hereof and securities purchased with the proceeds of such securities,
be or become a party to any joint venture or partnership, or make or keep
outstanding any advance or loan except as permitted pursuant to and under
Part 2.8. The foregoing provision shall not apply to any investment in direct
obligations of the United States of America, certificates of deposit issued by
a member bank of the Federal Reserve System, or any investment in commercial
paper which at the time of such investment is assigned the highest quality
rating in accordance with the rating systems employed by either Moody's
Investors Service, Inc. or Standard & Poor's Corporation.
2.8 Loan or make advances to, or guarantee, indorse or otherwise be
or become liable or contingently liable in connection with the obligations or
indebtedness of any other person, firm or corporation, directly or indirectly
except:
(a) as an indorser of negotiable instruments for the payment
of money in the ordinary course of business;
(b) trade credit extended in the ordinary course of business;
(c) advances, not in excess of $10,000.00 in each instance,
made in the usual course of business to officers and employees and guaranties
of the obligations of employees incurred in connection with their employment;
(d) loans to wholly-owned Subsidiaries which have guaranteed
all indebtedness of undersigned to Chase;
(e) guarantees by Subsidiaries of undersigned's indebtedness
to Chase;
(f) miscellaneous guarantees not to exceed in each case
$50,000.00 or in the aggregate $100,000.00.
2.9 Make expenditures for fixed or capital assets exceeding an
aggregate amount of $3,000,000.00 in any single Fiscal Year, plus the amount
permitted to be and not as of yet expended for fixed or capital assets in the
prior Fiscal Year.
2.10 Declare or pay any dividends, purchase, redeem, retire or
otherwise acquire for value any of its capital stock, or make any distribution
of its assets to its stockholders or permit any of its Subsidiaries to purchase
or otherwise acquire for value any stock of the undersigned or another such
Subsidiary, except that: (a) the undersigned may declare and deliver dividends
and make distributions payable solely in common stock of the undersigned; and
(b) the undersigned may declare dividends in its current Fiscal Year which do
not exceed the amount of tax liability of the shareholders of the undersigned
attributable to the undersigned's undistributed taxable income during any
applicable Fiscal Year.
3. FINANCIAL COVENANTS. The undersigned shall maintain the following
financial covenants and ratios:
3.1 MINIMUM CONSOLIDATED WORKING CAPITAL. The Borrower will
maintain at all times an excess of Consolidated Current Liabilities over
Consolidated Current Assets of not more than $350,000 through June 30, 1996 and
will maintain an excess of Consolidated Current Assets over Consolidated
Current Liabilities of not less than $1.00 at all times thereafter. For the
purpose of this section, all amounts outstanding under the Revolving Credit
Note executed and delivered by Borrower to Marine Midland Bank shall be treated
as long term debt.
3.2 MINIMUM TANGIBLE NET WORTH. The Borrower will maintain at all
times a Consolidated Tangible Net Worth of not less than $8,000,000.
3.3 MONTHLY INCOME/LOSS. During each month ending after the date
hereof, the Borrower will not incur a net, pre-tax loss (exclusive of non-cash
write-downs not to exceed $500,000 in the aggregate) in excess of $500,000.
3.4 CURRENT RATIO. The Borrower will maintain at all times a ratio
of Consolidated Current Assets to Consolidated Current Liabilities of not less
than .9 to 1.0 through June 30, 1996 and 1.0 to 1.0 at all times thereafter.
For the purpose of this section, all amounts outstanding under the Revolving
Credit Note executed and delivered by Borrower to Marine Midland Bank shall be
treated as long term debt.
3.5 QUARTERLY LOSS. The Borrower will not suffer or
incur a quarterly net loss (exclusive of non-cash write-downs not to exceed
$500,000 in the aggregate) before taxes in excess of the
following amounts:
QUARTER ENDED Maximum Quarterly Loss
3/31/96 $900,000
6/30/96 500,000
9/30/96 -0-
12/31/96, and each -0-
fiscal quarter thereafter
3.6 LEVERAGE RATIO. The Borrower will maintain at all times a ratio
of Consolidated Liabilities to Consolidated Tangible Net Worth of not greater
than 4.0 to 1.0.
4. DEFINITIONS AND RULES OF CONSTRUCTION.
4.1 In addition to the terms defined elsewhere in the Note, the
following terms shall have the following meanings for purposes of this
Schedule:
"CONSOLIDATED CURRENT ASSETS" means, in respect of a Person, all assets of
such Person and its Subsidiaries (if any) on a consolidated basis which should
in accordance with GAAP be classified as current assets after eliminating
inter-company items, but in any event excluding any assets which are pledged or
deposited as security for, or for the purpose of paying, any Indebtedness.
"CONSOLIDATED CURRENT LIABILITIES" means, in respect of a Person, all
Indebtedness of such Person and its Subsidiaries (if any) on a consolidated
basis which should, in accordance with GAAP, be classified as current
liabilities after eliminating inter-company items (including loans payable to
officers and employees of the undersigned) and excluding Subordinated Debt.
"CONSOLIDATED LIABILITIES" means, in respect of a Person, all Indebtedness
of such Person and its Subsidiaries (if any) on a consolidated basis which
should, in accordance with GAAP, be classified as liabilities after eliminating
inter-company items and excluding Subordinated Debt.
"CONSOLIDATED TANGIBLE NET WORTH" means, in respect of a Person, the
consolidated stockholders' equity in such Person and its Subsidiaries
determined in accordance with GAAP, except that there shall be deducted
therefrom all intangible assets (other than leasehold improvements) of such
Person and its Subsidiaries, such as organization costs, unamortized debt
discount and expense, goodwill, patents, trademarks, copyrights, contractual
franchises, and research and development expenses.
"CONSOLIDATED WORKING CAPITAL" means the difference of Consolidated Current
Assets minus Consolidated Current Liabilities in respect of a Person.
"FISCAL YEAr" means the undersigned's fiscal year consisting of a twelve
month period ending on each December 31.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date hereof and from time to time hereafter,
consistently applied.
"INDEBTEDNESS" means, in respect of any Person, all items (other than
capital stock, additional paid-in capital, retained earnings and deferred
credits) which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet as at the date on
which Indebtedness is to be determined. "Indebtedness" shall also include,
whether or not so reflected, (i) indebtedness, obligations, and liabilities
secured by any mortgage, pledge or lien existing on property owned subject to
such mortgage, pledge or lien whether or not the indebtedness, obligations or
liabilities secured thereby shall have been assumed, (ii) all guaranties made
by such Person, and (iii) the amount of any reimbursement obligation in respect
of any letter of credit.
"PERSON" means an individual, a corporation, a company, a voluntary
association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
"SUBORDINATED DEBT" means indebtedness of the undersigned which shall be
subordinated to the loan in a form satisfactory to Chase in its sole discretion
reasonably exercised and to which Chase shall have given its express written
consent.
"SUBSIDIARY" means any corporation or other entity of which at least a
majority of the securities or other ownership interests having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the undersigned.
4.2 All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP.
4.3 All references to Subsidiaries or Consolidated Subsidiaries
shall be deemed to mean if any shall exist. For so long as undersigned has no
Subsidiary, all definitions and covenants referring to undersigned and its
Subsidiaries or Consolidated Subsidiaries on a consolidated basis and all
references to consolidated and consolidating financial statements shall be
deemed to refer to undersigned alone and to undersigned's financial statements
alone, respectively, but shall remain applicable in all other respects.
Dated: March 28, 1996 ARTISTIC GREETINGS INCORPORATED
By:/s/ Thomas C. Wyckoff
Print Name:__________________________
Title: Senior VP and General Counsel
AMENDMENT AND WAIVER AGREEMENT
AMENDMENT AND WAIVER AGREEMENT (THE "Agreement") dated March 28, 1996 by
and between ARTISTIC GREETINGS INCORPORATED, a Delaware corporation (the
"Borrower"), and THE CHASE MANHATTAN BANK, N.A., a national banking
association (the "Bank").
R E C I T A L S
1. The Borrower and the Bank have entered into a Term Loan Agreement
dated as of March 31, 1995 (the "Term Loan Agreement) and a Security
Agreement dated as of March 31, 1995 (the "Security Agreement"), and, in
connection with the transactions contemplated by the Term Loan Agreement,
the borrower executed a Term Promissory Note in favor of the Bank dated
March 31, 1995 (the "Note"; the Term Loan Agreement, the Security Agreement
and the Note are hereinafter referred to collectively as the "Loan
Documents").
2. The Borrower is in default under the Loan Documents by reason of
the violation of certain covenants in the Term Loan Agreement and the
Security Agreement.
3. The Borrower and Marine Midland Bank ("Marine Midland") have
entered into a Revolving Credit Agreement dated as of March 8, 1996 (the
"Marine Credit Agreement"), and a Security Agreement dated as of March 8,
1996 (the "Marine Security Agreement") an Amendment, Modification and
Waiver Agreement dated as of March 8, 1996 (the "Marine Amendment and
Waiver Agreement"; the Marine Credit Agreement, Marine Security Agreement
and Marine Amendment and Waiver Agreement are hereinafter collectively
referred to as the "Marine Loan Documents") for the purpose of waiving
certain defaults of the Borrower under a pre-existing line of credit and
certain other loan documents between the Borrower and Marine Midland and
for the purpose of terminating such pre-existing line of credit and
refinancing the amounts outstanding thereunder.
4. The Borrower, the bank and Marine Midland have entered into a
letter agreement (the "Letter Agreement") dated March 8, 1996 relating to
certain equipment securing an equipment loan from Marine Midland to
Borrower.
5. The Borrower and the Bank have agreed to amend, restate and replace
the Term Loan Agreement and the Note with an Amended Term Promissory Note
(the "Amended Note") in substantially the form attached hereto as EXHIBIT
A.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Borrower and the Bank hereby agree as follows:
1. WAIVER OF DEFAULTS. The Bank hereby waives the following:
(a) Through the date of this Agreement, any defaults arising under
paragraph 1, paragraph 2 and paragraph 3 of Term Loan Agreement.
(b) Through the date of this Agreement, any events of default
under paragraphs 3(b), 3(c), 3(d) and 3(f) of the Note.
(c) Through the date of this Agreement, events of default, if any,
arising under the Security Agreement.
(d) Any default under the Loan Documents resulting from the
execution, delivery and performance of the Marine Loan documents and the
transactions contemplated thereby.
2. PRE-PAYMENT. The Borrower shall on the date hereof make a pre-
payment to the Bank of $125,000 (the "Pre-Payment"). Such Pre-Payment
shall be applied against the principal amount outstanding under the Note.
3. TERM LOAN AGREEMENT AND NOTE. The Bank and the Borrower hereby
agree to terminate the Term Loan Agreement and the Note and replace them
with the Amended Note. The remaining principal balance outstanding under
the Note of $2,733,337.00 shall be deemed outstanding under the Amended
Note.
4. RESTRUCTURING FEE. Borrower shall pay to Bank on the date hereof a
restructuring fee equal to $6,833.34.
5. AMENDMENT TO SECURITY AGREEMENT.
(a) The Bank and the Borrower hereby amend paragraphs (a), (c) and
(f) of the "FURTHER WARRANTIES AND COVENANTS OF DEBTOR" section of the
Security Agreement by including therein exceptions for (i) certain liens,
security interests and filings granted to Marine Midland in the items of
equipment identified on Schedule A to the Amended Note ("Schedule A"), (ii)
liens, security interests and filings granted to Southern Tier Economic
Growth in the items of equipment identified on Schedule A and (iii) liens,
security interest and filings granted or to be granted to secure purchase
money indebtedness permitted under the Amended Note.
(b) The Bank and the Borrower hereby amend the "EVENTS OF DEFAULT"
section of the security agreement by deleting Paragraphs (a) through (f) of
such section in their entirety. The Bank and the Borrower hereby agree
that an occurrence of an event of default under the Amended Note shall
constitute and event of default under the Security Agreement.
(c) The Bank and the Borrower hereby agree that to the extent a
term of the Security Agreement is inconsistent with the terms of the
Amended Note, the terms of the Amended Note shall govern.
6. MARINE MIDLAND LIENS. The Bank and the Borrower hereby affirm the
Letter Agreement relating to the liens of Marine Midland on the Marine
Equipment (as defined therein) and the liens of the Bank on the Chase
Collateral (as defined therein).
7. EXCHANGE OF TERM LOAN AGREEMENT AND NOTE. The Bank shall on the
date hereof deliver the original Term Loan Agreement and the Note in
exchange for execution and delivery of the Amended Promissory Note.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written above.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Thomas C. Wyckoff
Title: Senior VP and General Counsel
THE CHASE MANHATTAN BANK, N.A.
By: Debra Andrako
Title:
LOAN AGREEMENT EXHIBIT 10-13
THIS AGREEMENT is made as of this 30th day of August, 1995 by and
between the following parties:
SOUTHERN TIER ECONOMIC GROWTH, INC., a corporation duly organized
under the laws of the State of New York, having its principal office and place
of business at The Mark Twain Building, 147 West Gray Street, Elmira, New York
(hereinafter "STEG"); and
ARTISTIC GREETINGS, INC., a Delaware corporation with a principal
place of business at One Komer Center, Elmira, New York, (hereinafter
"Artistic")
W I T N E S S E T H:
WHEREAS, the City of Elmira, New York (the "City") is a recipient of
Community Development Block Grant Funding through the U.S. Department of
Housing and Urban Development ("HUD"); and
WHEREAS, the purpose of the Community Development Block Grant
Program ("Program") is to promote sound community development; to revitalize
distressed cities; to reverse urban decay; to promote programs for housing
rehabilitation; to assist low and moderate income persons; and to stimulate
growth in a manner as to promote the aforementioned purposes; and
WHEREAS, all activities funded under the Program must meet at least
one of the three statutory objectives of the Program as set forth by Congress:
(1) directly benefit low to moderate income persons; (2) aid in the prevention
or elimination of slum and blight; or (3) meet community development needs
having a particular urgency and for which no other source of funding is
available; and
WHEREAS, The City has contracted with STEG to implement and
administer economic development activities utilizing funds from the City's
Community Development Block Grant Funding; and
WHEREAS, at least sixty percent (60%) of the funds received by the
City under the Program must be used for activities that principally benefit
low and moderate income persons; and
WHEREAS, an activity will be considered to benefit low and moderate
income persons ONLY if it meets one of the following tests: (1) the activity
must be carried out in a neighborhood consisting predominatelyof persons of
low to moderate incomes and provide services for such persons; (2) the
activity must involve facilities which are designated for use predominately by
low to moderate income persons; or (3) THE ACTIVITY MUST INVOLVE EMPLOYMENT OF
PERSONS, A MAJORITY OF WHICH ARE LOW TO MODERATE INCOME; and
WHEREAS, Artistic has requested that STEG provide financial
assistance to assist in the expansion of its check printing business at the
former Diven Plaza, Elmira, New York, thus creating new job opportunities,
particularly for persons of low to moderate incomes (hereinafter the
"Project"); and
WHEREAS, Artistic has indicated that it will initially employ full
time persons and will hire additional full time persons upon completion of the
Project and will have created approximately 80 new jobs; and
WHEREAS, Artistic has indicated that the total project cost is
approximately Ten Million and 00/100ths Dollars ($10,000,000.00) and that it
needs STEG's participation in the amount Two Hundred Thousand and 00/100ths
Dollars ($200,000.00) to successfully undertake this Project; and
WHEREAS, STEG has relied on these representations in authorizing the
allocation of Community Development Block Grant funds for loan to Artistic.
NOW, THEREFORE, in consideration of a $200,000.00 Loan from STEG to
Artistic and the promises, covenants and agreements contained herein, the
parties hereto covenant and agree as follows:
SECTION 1
DEFINITIONS
For the purpose of this Agreement, the following words and terms
shall have the respective meanings set forth as follows:
"BASE EMPLOYMENT" means the number of full time persons employed by
Artistic within the City, for the period commencing July 1, 1994 and ending
June 30, 1995 using the New York State Department of Labor WRS-2 forms filed
by Artistic for such period. The "Base Employment" shall be computed by
taking the sum total of the quarterly WRS-2 forms applicable for said year and
dividing it by four (4).
"BUSINESS DAY" means any day other than a Saturday, Sunday, or
public holiday in the State of New York or day upon which the banks in the
County of Chemung, State of New York are authorized or ordered to remain
closed.
"CITY OF ELMIRA" means the corporate limits of the City of Elmira.
"FAMILY" means all persons living in the same household who are
related by birth, marriage or adoption.
"FULL TIME JOB" is equal to one person working thirty-five (35)
hours per week for a calendar quarter, or two or more part time persons whose
combined working hours per week are equal
to 35 hours per week for a calendar quarter. Full time jobs shall be computed
by taking Artistic's total hours worked in a calendar quarter less all
overtime hours in said quarter and dividing said total by 455.
"LOAN DOCUMENTS" shall mean all of the documentation executed and
delivered by Artistic to STEG in connection with the $200,000.00 Loan from
STEG to Artistic, including without limitation this Agreement and the Note.
"LOW TO MODERATE INCOME FAMILY" means a family having an income
equal to or less than the Section 8 Income limits established by the U.S.
Department of Housing and Urban Development, as the same may be amended from
time to time. Attached hereto in Exhibit A is a listing of the Section Income
guidelines as they exist as of the date hereof.
"LOW TO MODERATE INCOME JOB". A job will be considered to be
available to low to moderate income persons only if: (1) special skills that
can only be acquired with substantial training or work experience or education
beyond high school are not a prerequisite to fill such jobs, unless the
business agrees to hire unqualified persons and provide training; and (2) the
business takes actions to ensure that low and moderate income persons receive
first consideration for filling such jobs.
"NET EMPLOYMENT GAIN" means the remainder of a calculation made by
subtracting the "Base Employment" from the number of full time persons
employed by Artistic in the City of Elmira for the most recent four quarters
using the New York State Department of Labor WRS-2 forms filed by Artistic for
such period.
"NEW JOB" means the creation of a new full-time position at Artistic
in the City of Elmira. For purposes of this definition lateral transfers of
Artistic employees who were employed by Artistic in any location during the
last four quarters shall not be counted. Lateral transfer includes the
reemployment of any employee who was on Artistic payroll at any time during
the previous four (4) quarters.
"PROJECT" means the expansion of Artistic's check printing business
at the former Diven Plaza, Elmira, New York; the retention of jobs by Artistic
within the City of Elmira; and the creation by Artistic of no less than eighty
(80) new jobs, fifty-one percent (51%) of which shall be classified as "Low to
Moderate Income Jobs" and made available to persons of low to moderate income
families.
SECTION II
OBLIGATIONS OF THE PARTIES
1. STEG shall:
A. Loan to Artistic the sum of Two Hundred Thousand and 00/100ths
Dollars ($200,000.00) to be repaid with interest thereon at a rate
of seven percent (7.00%) per annum, pursuant to the Terms of the
Note attached hereto as Exhibit "C".
2. Artistic shall:
A. REPAYMENT OF INDEBTEDNESS: Artistic shall repay the sum of Two
Hundred Thousand and 00/100ths Dollars ($200,000.00) to be repaid
with interest thereon at the rate of seven percent (7.00%) per annum
pursuant to the terms of the Note attached hereto as Exhibit "C".
B. DOCUMENTATION: Artistic shall supply such documentation to STEG as
is reasonably required by STEG to administer the Loan pursuant to
governmental regulations promulgated in connection with the City's
Community Block Grant Funding and this Agreement.
C. EXPANSION OF PROPERTY: Artistic shall expand the property as set
forth in the description of the Project herein.
D. CREATION OF JOBS:
(a) Retention of Jobs: As of the date of acquisition of the Project
by Artistic there were _____ employees;
(b) Artistic warrants that it will create a "Net Employment Gain",
on or before June 30, 1998, of not less than eighty (80) new full
time jobs; and
(c) Artistic warrants that of the not less than eighty (80) new
jobs, Artistic will use its best efforts to employ, or make
available employment opportunities, for not less than fifty-one
(51%) of the new full time jobs to persons of low to moderate income
families.
E. LOAN COLLATERAL: As Collateral security for the repayment of the Two
Hundred Thousand and 00/100 Dollar ($200,000.00) indebtedness,
Artistic will execute and deliver or cause to be executed and
delivered to STEG the following documents in form acceptable to
Counsel to STEG:
i. This Loan Agreement.
ii. A Promissory Note in the sum of Two Hundred Thousand
Dollars ($200,000.00) in form substantiallysimilar to Exhibit C
annexed hereto.
iii. A Security Agreement and Financing Statement in form
substantially similar to Exhibit D annexed hereto.
SECTION III
REPORTS
All reports required to be sent under this section shall be sent to
STEG; 147 West Gray Street, P.O. Box 251, Elmira, New York 14901-1510.
1. COMPLETION OF REDEVELOPMENT REPORTING: At the end of every calendar
quarter, throughout the duration of this Agreement and further upon
completion of the expansion and redevelopment of the property,
Artistic shall furnish a report to STEG which shall contain an
accurate figure for the cost of such expansion and redevelopment,
substantially in the form of Exhibit B hereto, together with a copy
of the Certificate of Occupancy furnished by the City's Department
of Inspection Services if the Loan is secured by a Mortgage.
2. RETENTION OF JOBS REPORTING: Within thirty (30) days of the
execution of this Agreement, Artistic shall furnish to STEG copies
of the New York State Department of Labor WRS-2 forms filed by
Artistic for the period commencing July 1, 1994 and ending June 30,
1995. Upon receipt, STEG shall compute the "Base Employment" as
defined herein. This computation shall be attached hereto as
Exhibit E and from the "Base Employment" figure which shall be
relied upon by STEG and Artistic in measuring employment retention
and compliance under the terms of this Agreement.
3. CREATION OF JOBS REPORTING: Commencing with the calendar quarter
ending September 30, 1995 and within forty-five (45) days after each
quarter thereafter, Artistic shall submit a report to STEG setting
forth the "Net Employment Gain" of Artistic with supporting
documentation which shall include copies of the more recent WRS-2
forms filed by Artistic identifying those individuals being counted
in the "Net Employment Gain".
4. EMPLOYMENT OF PERSONS IN A "LOW TO MODERATE INCOME FAMILY REPORTING:
Artistic shall provide to STEG, commencing with the calendar quarter
ending September 30, 1995 and within forty-five (45) days of each
quarter thereafter, documentation which adequately describes the
efforts undertaken by Artistic to hire qualified persons for the
jobs available. This documentation shall include, but not be
limited to: advertisements specifically requesting persons of low
and moderate incomes to apply; the job descriptions and job titles
which meet the requirements of a "Low to Moderate Income Job"
described in Section I hereof; and the notification of the job
opportunities to agencies and organizations which could reasonable
be construed as being able to assist Artistic in locating such
persons. Additionally, Artistic shall provide documentation, in the
form of an income certification, substantially in the form of
Exhibit A hereto, or similar documentation, for each employee hired
that Artistic is counting in meeting the required low to moderate
income jobs which result from the Project.
5. CERTIFICATE OF COMPLIANCE: Upon the completion of the "Project" by
Artistic and upon receipt of such documentation as may be required
to evidence that Artistic has fulfilled all of its obligations under
this Agreement, STEG shall issue a "Certificate of Compliance" for
the Project. The Certificate shall recite that the Project has been
completed in accordance with the approved plans and that Artistic
has fulfilled all of its obligations under this Agreement.
SECTION IV
ADDITIONAL REPORTING REQUIREMENTS
It is understood and acknowledged by Artistic that these funds are
made available through the use of Community Development Block Grant monies
awarded to the City of Elmira by the U.S. Department of Housing and Urban
Development (HUD). Artistic understands and acknowledges that the City of
Elmira and/or HUD may require additional documentation to be provided by
Artistic to ensure compliance with the conditions of this Agreement, and
Artistic agrees to promptly provide such documentation as may be reasonably
requested.
SECTION V
DEFAULTS AND REMEDIES
1. In the event that Artistic fails to comply with any of the obligations,
terms and conditions set forth herein, in the Loan Documents, or in any
other agreement with STEG regarding this loan and executed simultaneously
herewith, Artistic shall be in default under this Agreement and STEG may
in addition to other remedies it may have, may take one or more of the
following remedial steps:
A. STEG, upon written notice to Artistic, may cause all principal
installments payable under this loan for the remainder of the term
of the Loan Agreement to be immediately due and payable, whereupon
the same shall become immediately due and payable.
B. STEG may take whatever action at law or in equity as may appear
necessary or desirable to collect the amounts then due and
thereafter to become due, or to enforce the performance or
observance of any obligations, agreements or covenants of Artistic
under this Agreement. In the event that Artistic fails to make any
payment required under the terms of the Promissory Note executed
simultaneously herewith, the installment so in default shall
continue as an obligation of Artistic until the amount in default
shall have been paid.
C. At its option, and if this loan is secured by a real property
mortgage, STEG may pay real property taxes and discharge real
property liens or other liens superior to STEG's interest at any
time levied or placed on the premises and Artistic agrees to
reimburse STEG on demand for any payment made or any expenses
incurred thereby, provided, with respect to real property taxes,
that said real property taxes are not paid by Artistic within thirty
(30) days of their due date.
D. If such default is solely by reason of Artistic's failure to file
with STEG, reports as required herein or to provide information or
documentation as required herein, then Artistic shall have thirty
(30) days to cure the default.
E. In the event of a default, STEG shall provide written notice to
Artistic of said default mailed certified mail, return receipt
requested to Artistic at One Komer Center, P.O. Box 1999, Elmira,
New York 14902-1999, or such other address as they may designated,
in writing, giving Artistic thirty (30) days to cure said default.
Any notice required to be given to STEG shall be mailed certified
mail return receipt requested to Southern Tier Economic Growth,
Inc., 147 West Gray Street, P.O. Box 251, Elmira, New York 14902-
1510.
2. REMEDIES CUMULATIVE: The rights and remedies of STEG under this
Agreement shall be cumulative and shall not exclude any rights and
remedies of STEG allowed by law with respect to any default under this
Agreement. Failure by STEG to insist upon the strict performance of any
of the covenants and agreements herein set forth or to exercise any
rights or remedies upon default by Artistic hereunder shall not be
considered or taken as a waiver or relinquishment for the future of the
right to insist upon and to enforce by mandamus or other appropriate
legal remedy a strict compliance by Artistic with all of the covenants
and conditions hereof or of the rights to exercise any such rights or
remedies if such default by Artistic be continued or repeated or of the
right to recover possession of the project by reason thereof.
3. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER: In the event any covenant or
agreement contained in this Agreement should be breached by either party
and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any
other breach hereunder. No waiver shall be binding unless it is in
writing and signed by the party making such waiver. No course of dealing
between STEG and Artistic or any delay or omission on the part of STEG in
exercising any rights hereunder shall operate as a waiver.
4. EFFECT ON DISCONTINUANCE OF PROCEEDINGS: In the event any proceeding
taken by STEG under this Agreement on account of any Event of Default
hereunder shall have been discontinued or abandoned for any reason or
shall have been determined adversely to STEG, the and in every such case,
STEG shall be restored, respectively, to its former position and rights
hereunder, and all rights, remedies, powers and duties of STEG shall
continue as in effect prior to the commencement of such proceedings.
5. AGREEMENT TO PAY ATTORNEY'S FEES AND EXPENSES: In the event that
Artistic should default under any of the provisions of this Agreement and
STEG should employ attorneys or incur other expense for the collection of
amounts payable hereunder or the enforcement of performance or observance
of any obligation or agreement on the part of Artistic herein contained,
Artistic agrees that it will, on demand, therefore pay to STEG the
reasonable fees and disbursements of such attorneys and such other
expenses so incurred.
6. FURTHER ASSURANCES: Artistic will cooperate with STEG for the purpose of
protecting STEG's interest in the project, and the sums due under this
Agreement and including, without limitation, the execution of all Uniform
Commercial Code financing statements requested by STEG. STEG is
authorized if permitted by applicable law to file one or more Uniform
Commercial Code financing statements disclosing any security interest in
the project and the sums due under this Agreement without the signature
of Artistic or signed by STEG as attorney-in-fact for Artistic. Artistic
will pay all costs of filing and financing, continuation or termination
statements with respect to the project and this Agreement. Artistic
shall execute and deliver the instruments and assurances as STEG deems
necessary or advisable for the implementation, effectuation, confirmation
or perfection of this Agreement and any rights of STEG hereunder.
SECTION VI
EQUAL EMPLOYMENT OPPORTUNITY
Artistic shall not discriminate against employees or applicants for
employment because of race, creed, color, national origin, sex, age,
disability or marital status and will undertake or continue existing programs
of affirmative action to ensure that minority group members and women are
afforded equal employment opportunities without discrimination. Artistic
shall state in all solicitations or advertisements for employees, that, in the
performance of this Agreement all qualified applicants will be afforded equal
employment opportunities without discrimination because of race, creed, color,
national origin, sex, age, disability or marital status. Artistic shall upon
request furnish to STEG evidence that such language was used in all
advertisements for employment.
SECTION VII
MODIFICATIONS, ALTERATIONS OR CHANGES TO THIS AGREEMENT
This Agreement may not be altered, modified, amended or changed in
any manner without the expressed written consent of the STEG.
SECTION IX
RECORDING
In the event of default by Artistic that remains uncured for thirty
(30) days, STEG shall have the right to record this Agreement in the Office of
the Chemung County Clerk and all costs associated with such recording shall be
added to the principal amount owed by Artistic to STEG.
SECTION X
BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of
each of the parties, their successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and date first written above.
SOUTHERN TIER ECONOMIC GROWTH, INC.
/s/ George E. Miner, President
By: George E. Miner, President
Artistic Greetings, Inc.
By:/s/ Thomas C. Wyckoff
Its General Counsel
State of New York, )
: ss.
County of Chemung. )
On the 30th day of August, 1995, before me, personally came George
E. Miner, to me known, who being by me duly sworn, did depose and say that he
resides at_______________________________, in the _______ of ___________,
Chemung County, New York; that he is the President of Southern Tier Economic
Growth, Inc., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation and that he signed his name thereto
by like order.
___________________________
Notary Public.
State of New York, )
: ss.
County of Chemung. )
On the 30th day of August, 1995, before me, personally came
____________________________________, to me known, who being by me duly sworn,
did depose and say that _he resides at ________
_______________________________, in the _______ of ___________, _________
County, New York; that _he is the _____________________ of Artistic Greetings,
Inc., the corporation described in and which executed the foregoing
instrument; that _he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said corporation and that _he signed h__ name
thereto by like order.
___________________________
Notary Public.
LIST OF EXHIBITS
A. New Employee Income Certification and Low to Moderate IncomeGuidelines
B. Project Budget
C. Note
D. Security Agreement and Financing Statement
E. Base Employment Computation
EXHIBIT A.
NEW EMPLOYEE INCOME CERTIFICATION
In order to make it economically feasible to expand property located
at Diven Plaza, Elmira, New York, Artistic obtained a loan from STEG. As a
condition of this loan, Artistic agreed to hire at least forty-one low to
moderate income persons, as defined below.
In order for STEG to be able to provide the City of Elmira with
documentation regarding our efforts in meeting this goal, it is requested that
you complete this form. PLEASE BE ADVISED THAT THIS INFORMATION IS BEING USED
SOLELY FOR THE PURPOSE OF PROVIDING THE REQUIRED DOCUMENTATION TO THE CITY AND
IN NO WAY AFFECTS YOUR EMPLOYMENT OPPORTUNITY AT ARTISTIC.
To complete the form you must:
1. Look at the chart below. Determine you family size. Note: "Family"
means all persons living in the same household who are related to you by
birth, marriage, or adoption.
2. Look at the "Total Annual Income" column directly across from your family
size. IF YOUR FAMILY INCOME IS EQUAL TO OR LESS THAN THIS AMOUNT, THEN
YOU FALL "WITHIN" THE INCOME GUIDELINES. IF YOUR INCOME IS GREATER THAN
THIS AMOUNT YOU "DO NOT FALL WITHIN" THE INCOME GUIDELINES. Note: Total
Family Income means the total income received during the past year by all
members of your family including wages, tips, social security, pension,
child support, etc.
3. Check the appropriate box at the bottom of this form and sign it.
LOW TO MODERATE INCOME GUIDELINES
FAMILY SIZE TOTAL ANNUAL INCOME
1 $19,950
2 $22,800
3 $25,650
4 $28,500
5 $30,250
6 $32,650
( ) I, _____________, hereby certify that my family income is EQUAL TO OR
LESS THAN the total annual income listed above for my family size.
OR
( ) I, _____________, hereby certify that my family income is GREATER than
the amount indicated above for my family size.
SIGNATURE:______________________________ DATE:______________________
ADDRESS: ______________________________ SIZE OF FAMILY:____________
EXHIBIT B
PROJECT BUDGET
PROJECT DESCRIPTION:
Site Acquisition $
Purchase of Machinery
and Equipment
Working Capital
Purchase of Inventory
PROJECT FINANCING:
PERCENT SOURCE
STEG $
Artistic (equity)
Bank
CCIDA
EXHIBIT E
BASE EMPLOYMENT COMPUTATION
To be completed by Artistic and STEG on a quarterly basis.
_____________________________________________________________________
PROMISSORY NOTE
August 30, 1995
Elmira, New York $200,000.00
For valuable consideration received, ARTISTIC GREETINGS, INC., a
Delaware corporation, maintaining a place of business at One Komer Center,
P.O. Box 1999, Elmira, New York 14902-1999 (the "Borrower"), does hereby
acknowledge that it is indebted to SOUTHERN TIER ECONOMIC GROWTH, INC., with
an office at 147 West Gray Street, Elmira, New York 14901, (the "Lender"), in
the principal sum of Two Hundred Thousand and 00/100ths Dollars ($200,000.00),
which sum the Borrower does hereby agree to Pay To The Order Of the Lender
with interest thereon at a rate of seven percent (7.00%) per annum until said
principal sum and interest are paid in full. Borrower shall pay interest only
on the principal sum from the date hereof to August 31, 1995. Borrower shall
then make a monthly payment of principal and interest to Lender in the amount
of Three Thousand Nine Hundred Sixty and 24/100ths Dollars ($3,960.24) on
October 1, 1995 and the same amount on the 1st day of each and every month
thereafter until the principal indebtedness is paid in full. In any event,
all unpaid principal and all accrued interest shall be paid in full by
September 1, 2000. Payments shall be applied first to interest then owing,
then to the unpaid principal balance.
In the event that any monthly payment shall become past due for a
period of ten (10) days, a "late charge" of two percent for each monthly
payment so past due may be charged by the Lender, for the purpose of defraying
the expenses incident thereto.
Any of the following shall constitute a default:
(1) Failure to pay any monthly payment within thirty (30) days of the due
date; (2) default in or breach of any other agreement or obligation with the
Lender; (3) the furnishing of false information to the Lender in connection
with this Note; (4) the commencement or institution of bankruptcy proceedings,
any assignment for the benefit of creditors, or any other proceedings for the
relief from, or adjustment of, debts by or against the Borrower; (5) if the
Borrower sells, leases, transfers, conveys or otherwise alienates any interest
in any collateral or security which secures this Note; and (6) if the Borrower
moves the primary place of its business or the collateral which secures this
Note to a location outside of the City of Elmira.
Borrower hereby waives presentment, notice of dishonor and protest.
Borrower shall make all payments at Lender's office set forth above
or at such other place as Lender may require.
Borrower shall have the right to make prepayments of principal in
whole or in part at any time without penalty.
The terms of this Note cannot be changed, nor may this Note be
discharged, in whole or part, except by a writing executed by Lender. Any
acceptance by Lender of partial payment shall not constitute waiver of the
right to accelerate payment of the Note, nor shall any delay or failure of
Lender to enforce any provision of this Note act as waiver, nor shall it
prevent Lender from later enforcing any provision hereof.
Borrower agrees to pay all reasonable costs and expenses incurred by
Lender in enforcing this Note, including but not limited to reasonable
attorney's fees and costs.
This Note shall be binding upon the successors, assigns and personal
representatives of the Borrower.
This Note shall be construed and enforced in accordance with the
laws of the State of New York.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note and any reference herein to the
Borrower shall be deemed to include and apply to every person now or hereafter
liable under this Note.
In Witness, the Borrower has executed this Note as of the day and
year first above written.
Artistic Greetings, Inc.
By: /s Thomas C. Wyckoff
Its: General Counsel
________________________________________________________________________
SECURITY AGREEMENT
(EQUIPMENT)
AGREEMENT, dated August 30, 1995, by and between ARTISTIC GREETINGS,
INC., having an office located at One Komer Center, P.O. Box 1999, Elmira, New
York, 14902-1999 (the "Debtor") and SOUTHERN TIER ECONOMIC GROWTH, INC.,
having an office located at Mark Twain Building, 147 W. Gray Street, P.O. Box
251, Elmira, NY 14902-1510 (the "Secured Party").
I. Creation of Security Interest.
1. Debtor hereby grants to Secured Party a security interest in:
the equipment described in Schedule A to this
agreement
Debtor should
initial one
line all equipment which the Debtor now owns or may
hereafter acquire, and,
in either case, all substitutions, additions, and accessories therefor or
thereto and the proceeds thereof ( the "Collateral").
(If neither line or both lines are initialed, it is agreed that all equipment
which the Debtor now owns or may hereafter acquire is subject to this
agreement.)
2. The Collateral is given to secure the payment of a Two Hundred
Thousand Dollar ($200,000.00) obligation of Debtor to Secured Party of even
date herewith, and any and all renewals, modifications or extensions thereof,
and any sums advanced by Secured Party under the provisions of this Security
Agreement.
II. Debtor's Covenants, Representations and Warranties.
The Debtor covenants, represents and warrants that:
1. If Debtor maintains a place or places of business in New York State,
they are situated in the County of Chemung.
2. The Collateral is located at the following locations(s):
City of Elmira, Chemung County, New York
3. The Collateral is not and shall not be attached or affixed to real
estate without permission of Secured Party; and it is and shall be kept at the
above locations(s) or other locations(s) designated to and agreed to in
writing by Secured Party. Debtor will not remove the Collateral from said
location(s) without the prior written consent of Secured Party. The
Collateral will not be or suffered to be wasted, misused, abused or to
deteriorate, except for ordinary wear and tear, and will not be used in
violation of any law, ordinance or regulation of any governmental authority.
4. Except for the security interest granted hereby, Debtor is the sole
owner of the Collateral; it is free and will remain free of any lien, security
interest or encumbrance; and Debtor will defend the Collateral against all
claims and demands of any person at any time claiming the same or any interest
therein.
5. If this agreement is security for a loan to be used to pay a part or
all of the purchase price of any Collateral, Debtor agrees to use the proceeds
of the loan to pay the purchase price, filing fees and insurance premiums.
The Secured Party, however, may pay the proceeds directly to the seller of the
Collateral.
6. The Collateral shall be insured with such carriers and in such
amounts and against such risks as shall be satisfactory to Secured Party, with
policies payable to both Secured Party and Debtor, as their interest may
appear. All policies of insurance shall provide for thirty days prior written
notice of cancellation to Secured Party and Secured Party shall be furnished
with duplicate policies or other evidence of compliance with the foregoing
insurance provisions. Debtor hereby appoints Secured Party the attorney for
the Debtor in obtaining, adjusting and cancelling any such insurance and
endorsing settlement drafts and hereby assigns to Secured Party all sums which
may become payable under such insurance, including return premiums and
dividends, as additional security for the indebtedness.
7. Debtor will pay when due all taxes and assessments upon the
Collateral or its operation or use.
8. At its option, and without any obligation to do so, Secured Party
may discharge or pay any taxes, liens, security interest, or other
encumbrances at any time levied or placed on or against the Collateral or
Debtor, and may pay for insurance on the Collateral and may pay for the
Collateral's maintenance and preservation. Debtor agrees to reimburse Secured
Party on demand for any such payment made, or expense incurred pursuant to the
foregoing authorizations.
9. The Collateral will not without the prior written consent of Secured
Party be sold, transferred, substantially modified or disposed of. Secured
Party shall have the right upon reasonable notice to inspect and examine the
Collateral. Debtor shall immediately notify Secured Party of any partial or
complete loss, destruction, or theft of the Collateral.
10. Debtor hereby irrevocably appoints Secured Party as its lawful
attorney and agent to execute financing statements on its behalf, and hereby
further authorizes Secured Party to file on its behalf such financing
statements in any appropriate public office. Debtor also shall execute from
time to time, alone or with Secured Party, any financing statements or other
documents and do such other act or acts considered by Secured Party to be
necessary or desirable to perfect or protect the security interest hereby
created, and pay all costs and expenses (including without limitation
reasonable fees and expenses of counsel and filing fees) related to the
preparation and filing of any financing statements, continuation statements or
other documents related to the perfection or protection of the security
interest hereby created.
III. Events of Default.
Occurrence of any of the following events shall, at the option of Secured
Party, constitute a default hereunder: default by Debtor in the payment, when
due, whether by acceleration or otherwise, of any debt, liability, or
obligation to Secured Party; default by Debtor in the terms of any note or
agreement with Secured Party; default by Debtor in performance of any term of
this Security Agreement: if any representation or warranty made by Debtor
herein shall prove to have been incorrect in any material respect when made;
loss, theft, substantial damage to or destruction of the Collateral; the
making of any levy, seizure or attachment of or on the Collateral.
IV. Secured Party's Remedies.
Upon the default in payment of any obligation, liability or claim secured
hereby, Secured Party shall have the rights and remedies of a secured party
under the Uniform Commercial Code as in effect in the State of New York at the
date hereof. Without limiting the generality of the foregoing, Secured Party
may exercise the following rights and remedies:
1. Secured Party may peacefully by its own means or with judicial
assistance enter Debtor's premises and take possession of the Collateral, or
render it unusable, or dispose of the Collateral on Debtor's premises, and
Debtor will not resist or interfere with such action.
2. Secured Party may require Debtor to assemble all or any part of the
Collateral and make it available to Secured Party at any place designated in a
Notice sent to Debtor.
3. Debtor hereby agrees that a notice sent to it at least ten days
before the time of any intended public sale, or of the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such or other disposition.
4. Secured Party may incur reasonable attorney's fees and expenses in
exercising any of its rights and remedies upon default which shall become part
of Secured Party's reasonable expenses of retaking, holding, preparing for
sale of the like. Debtor will reimburse Secured Party for all such expenses.
After payment of such expenses or deduction of same by Secured Party from
proceeds
of collection or sale of Collateral, the residue of any such proceeds shall be
applied to the payment of principal and interest on liabilities in such order
of preference as Secured Party may determine.
5. The Debtor shall remain liable for any deficiency resulting from a
sale of the Collateral and shall pay any such deficiency forthwith on demand.
V. Miscellaneous.
1. No failure on the part of Secured Party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise by Secured Party of any right or
remedy hereunder preclude any other or future exercise thereof or the exercise
of any other right or remedy. All rights and remedies of Secured Party
hereunder are cumulative.
2. This Security Agreement and the rights and obligations of the
parties hereunder shall be construed and interpreted in accordance with the
laws of the State of New York.
3. Any notice or notification required to be given by mailing such
notice, postage prepaid, to Debtor's address as it appears at the beginning of
this Security Agreement or to the Debtor's last known address.
4. The terms "Secured Party" and "Debtor" as used herein shall include
the heirs, executors, administrators, successors, or assigns of those parties.
5. If more than one Debtor executes this Security Agreement, the term
"Debtor" shall include each as well as all of them and their obligations,
warranties and representations hereunder shall be joint and several.
6. This Security Agreement may not be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
7. This Security Agreement is not delivered upon any condition and
constitutes the entire agreement between the parties with regard to the
collateral and secured Party's security interest therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first above written.
Southern Tier Economic Growth, Inc.
By /s/ George E. Miner
Its President
Artistic Greetings, Inc.
By /s/ Thomas C. Wyckoff
Its General Counsel
WARNING: IT IS A CRIMINAL OFFENSE IN NEW YORK STATE FOR A DEBTOR TO
KNOWLINGLY SELL OR OTHERWISE DISPOSE OF COLLATERAL IN CONTRAVENTION OF THE
TERMS OF A SECURITY AGREEMENT.
SCHEDULE A
One Kugler Checkbinder Type 380 including Drive, Central
Lubrication, and Electrical Equipment, with 12 Hohner Stitching
Heads, Serial No. 1247-376-2.
Artistic Greetings, Inc.
By
Its
Date: AUGUST 30, 1995
(If this schedule is completed, Debtor should sign above to indicate that this
schedule contains an accurate description of the equipment covered by the
Security Agreement)
EXHIBIT 10-14
Loan Agreement
by and between
Artistic Greetings Incorporated
and
New York State Urban Development Corporation
TABLE OF CONTENTS
ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS.
Section 1.01 Certain Defined Terms
Section 1.02 Accounting Terms
ARTICLE 2: THE CREDIT.
Section 2.01 The Loan
Section 2.02 The Note
Section 2.03 Purpose of Loan; Project
Section 2.04 Prepayments
Section 2.05 Interest
Section 2.06 Payments
ARTICLE 3: CONDITIONS PRECEDENT.
Section 3.01 Conditions Precedent
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF BORROWER.
Section 4.01 Incorporation, Good Standing and Due Qualification
Section 4.02 Corporate Power and Authority; No Conflicts
Section 4.03 Legally Enforceable Agreements
Section 4.04 Litigation
Section 4.05 Financial Statements
Section 4.06 Ownership and Liens
Section 4.07 Taxes
Section 4.08 Operation of Business; Compliance with Laws
Section 4.09 Subsidiaries and Ownership of Stock
Section 4.10 Credit Arrangements
Section 4.11 No Default on Outstanding Judgments or Orders
Section 4.12 Labor Disputes and Acts of God
Section 4.13 Financial Support
Section 4.14 Application and Documents Submitted to Lender
ARTICLE 5: AFFIRMATIVE COVENANTS.
Section 5.01 Maintenance of Existence
Section 5.02 Conduct of Business
Section 5.03 Maintenance of Properties
Section 5.04 Maintenance of Records
Section 5.05 Maintenance of Insurance
Section 5.06 Compliance with Laws
Section 5.07 Taxes
Section 5.08 Right of Inspection and Audit
Section 5.09 Reporting Requirements
Section 5.10 Employee Reporting Form
Section 5.11 Reduction in Permanent Workforce
Section 5.12 Non-Discrimination and Affirmative Action
<PAGE>
ARTICLE 6: NEGATIVE COVENANTS.
Section 6.01 Debt
Section 6.02 Transactions with Affiliates
Section 6.03 Location of Business
Section 6.04 Compensation
ARTICLE 7: EVENTS OF DEFAULT.
Section 7.01 Events of Default
Section 7.02 Remedies
ARTICLE 8: MISCELLANEOUS.
Section 8.01 Amendments and Waivers
Section 8.02 Usury
Section 8.03 Expenses
Section 8.04 Indemnification
Section 8.05 Assignment
Section 8.06 Notices
Section 8.07 Jurisdiction; Immunities
Section 8.08 Captions
Section 8.09 Severability
Section 8.10 Counterparts
Section 8.11 Governing Law
EXHIBITS
Exhibit A Note
Exhibit B Employee Reporting Form
Exhibit C Request for Disbursement
SCHEDULES
Schedule 3.01(d)Support
Schedule 4.06Liens
<PAGE>
LOAN AGREEMENT
THIS AGREEMENT made this 23rd day of October, 1995, by and between
Artistic Greetings Incorporated, a corporation duly organized and
existing under the laws of the State of Delaware, having its principal
offices and place of business at One Komer Center, P.O. Box 1999, Elmira,
New York 14902-1999 ("Borrower") and New York State Urban Development
Corporation, a corporate governmental agency of the State of New York,
constituting a political subdivision and public benefit corporation,
having its principal office and place of business at 1515 Broadway, New
York, New York 10036-8960 ("Lender").
ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS.
Section 1.01. CERTAIN DEFINED TERMS. As used herein, the following
terms have the following meanings (terms defined in the singular shall
have the same meaning when used in the plural and VICE VERSA):
"Affiliate" means any Person: (a) which is a director, officer
or employee of Borrower; (b) which directly or indirectly controls,
or is controlled by, or is under common control with, Borrower; or
(c) which directly or indirectly beneficially owns or holds 10% or
more of any class of voting stock of Borrower. The term "control"
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.
"Application" means the application submitted by Borrower to UDC
in connection with the Loan as such application may have been
amended or supplemented.
"Capital Lease" means any lease which has been capitalized on the
books of the Borrower in accordance with GAAP.
"Debt" means, with respect to any Person, all indebtedness of
such Person for borrowed money, whether fixed or contingent or
secured or unsecured, including, without limitation, indebtedness
for the deferred purchase price of property or services, the face
amount of any outstanding letters of credit issued for the account
of such Person, all guaranties, endorsements (other than for
collection in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person, or otherwise to assure a credit
against loss, any obligations secured by any Lien on property of
such Person, and all obligations of such Person as lessee under
Capital Leases.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Default Rate" means a variable rate per annum of 2% above the
Prime Rate as in effect from time to time upon the occurrence of
each event which causes the Loan to bear interest at the Default
Rate.
"Event of Default" has the meaning set forth in Section 7.01.
"Full-Time Permanent Employee" means either (a) an employee on
Borrower's payroll, who has worked at the Premises for a minimum of
thirty-five hours per week for not less than twelve consecutive
weeks and who is entitled to receive the usual and customary fringe
benefits extended by Borrower to other employees with comparable
rank and duties; or (b) two employees on Borrower's payroll, who
have worked at the Premises for a combined minimum of thirty-five
hours per week for not less than twelve consecutive weeks and who
are entitled to receive the usual and customary fringe benefits
extended by Borrower to other employees with comparable rank and
duties.
"GAAP" means generally accepted accounting principles in the
United States of America, as in effect on the date hereof.
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge,
conditional sale, title retention agreement, financing lease or
other encumbrance or similar right of others, or any agreement to
give any of the foregoing.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" means this Agreement and the Note.
"Note" shall have the meaning set forth in Section 2.02 hereof.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Premises" means the principal office of the Borrower located at
the address listed on page 1 of this Agreement or any of its
production facilities.
"Prime Rate" means the prime rate of interest as published in The
Wall Street Journal from time to time.
"Project" shall have the meaning set forth in Section 2.03
hereof.
"Reduction in Permanent Workforce" shall have the meaning set
forth in Section 5.11 hereof.
"Related Person" means any Person related by blood or marriage to
another Person.
"Subsidiary" means, as to any Person, any corporation or other
entity of which at least a majority of the securities or other
ownership interests having ordinary voting power (absolutely or
contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or
indirectly by such Person.
"Support Schedule" shall mean a schedule supporting the
disbursement substantially in the form of Schedule 3.01(d) hereto.
Section 1.02. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP,
and all financial data required to be compiled or delivered hereunder
shall be prepared in accordance with GAAP.
ARTICLE 2: THE CREDIT.
Section 2.01. THE LOAN. Subject to the terms, covenants and
conditions of the Loan Documents, Lender agrees to lend to Borrower the
aggregate sum of Four Hundred Thousand Dollars ($400,000) (the "Loan").
The Loan shall be disbursed in one lump sum on
October 24, 1995 (the "Disbursement Date").
Section 2.02. THE NOTE. The Loan shall be evidenced by a
promissory note of even date herewith duly completed and executed by
Borrower in substantially the form attached hereto as Exhibit A (the
"Note"), the terms, covenants and conditions of which are hereby
incorporated herein.
Section 2.03. PURPOSE OF LOAN; PROJECT. Borrower has substantially
completed the renovation of its production facility on Lake Road in
Elmira, New York (the "Project") and will use the proceeds of the Loan as
reimbursement for a portion of the expenditures (such expenditures in an
amount substantially exceeding the amount of the Loan) already made by
the Borrower in connection with the Project.
Section 2.04. PREPAYMENTS. Borrower shall have the right to prepay
the Loan at any time or from time to time without penalty.
Section 2.05. INTEREST. No interest shall accrue on the
outstanding and unpaid principal amount of the Loan.
Section 2.06. PAYMENTS. The Loan shall be payable in accordance
with the Note.
<PAGE>
ARTICLE 3: CONDITIONS PRECEDENT.
Section 3.01. CONDITIONS PRECEDENT. The obligation of Lender to
the disbursement under the Loan on the Disbursement Date shall be subject
to the following conditions precedent as of such date:
I. The following statements shall be true:
A. the representations and warranties contained in Article 4
of this Agreement are true and correct on and as of the
Disbursement Date; and
B. no Default or Event of Default has occurred or would
result from the disbursement.
II. Lender shall have received such approvals, opinions or documents as
provided in this Agreement.
III.The Borrower shall not have suffered a material adverse change in
its financial condition.
IV. Lender shall have received a Request for Disbursement in the form
set forth as Exhibit C to this Agreement, together with a Support
Schedule in the form set forth as Schedule 3.01(d) attached hereto.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
represents and warrants as follows:
Section 4.01. INCORPORATION, GOOD STANDING AND DUE QUALIFICATION.
Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has the corporate power
and authority to own its assets and to transact business in which it is
now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each other jurisdiction in which such
qualification is required.
Section 4.02. CORPORATE POWER AND AUTHORITY; NO CONFLICTS. The
execution, delivery and performance by Borrower of the Loan Documents
have been duly authorized by all necessary corporate action and do not
and will not: (a) require any consent or approval of its stockholders or
Board of Directors; (b) contravene its charter or by-laws; (c) violate
any provision of, or require any filing, registration, consent or
approval under, any law, rule, regulation, order writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower or any of its Affiliates; (d) result in a
breach of, or constitute a default or require any consent under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or its properties
may be bound or affected; (e) result in, or require, the creation or
imposition of any Lien, upon or with respect to any of the properties now
owned by Borrower; or (f) cause Borrower (or any Affiliate) to be in
default under any law, rule, regulation, order writ, judgment,
injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
Section 4.03. LEGALLY ENFORCEABLE AGREEMENTS. Each Loan Document
is, or when delivered under this Agreement will be, a legal, valid and
binding obligation of Borrower enforceable against Borrower in accordance
with its terms, except to the extent that such enforcement may be limited
by bankruptcy, insolvency and other similar laws affecting creditors'
rights generally.
Section 4.04. LITIGATION. There are no actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against
or affecting Borrower before any court, governmental entity or
arbitrator, which may, in any one case or in the aggregate, materially
adversely affect the financial condition, operations, properties or
business of Borrower, or the ability of Borrower to perform its
obligations under the Loan Documents.
Section 4.05. FINANCIAL STATEMENTS. The financial statements of
Borrower for the fiscal year of Borrower ended on December 31, 1994,
together with the opinion thereon, dated February 17, 1995, of
independent certified public accountants, and the interim financial
statements of Borrower for the six months ended on June 30, 1995, copies
of which have been furnished to Lender, are complete and correct and
fairly present the financial condition of Borrower as of such dates and
the results of the operations of Borrower for the periods covered by such
statements, all in accordance with GAAP consistently applied (subject to
year-end adjustments in the case of the interim financial statements).
There are no liabilities of Borrower, fixed or contingent, which are
material but are not reflected in such financial statements or in the
notes thereto. Since the date of the financial statements for the most
recently concluded fiscal reporting period of Borrower referred to above
and submitted to Lender, there has been no material adverse change in the
financial condition of Borrower.
Section 4.06. OWNERSHIP AND LIENS. Borrower has to, or valid
leasehold interests in, all of its properties and assets, real and
personal, including the properties and assets, and leasehold interests
identified in the Application or in any information, report or exhibit
submitted in connection with the Application or reflected in the
financial statements referred to in Section 4.05 (other than any
properties or assets disposed of in the ordinary course of business), and
none of the properties and assets owned by Borrower and none of its
leasehold interests are subject to any Lien, except as disclosed in the
Application, or such information, exhibit, report or financial statements
or as listed on Schedule 4.06 attached hereto or as may be permitted
hereunder.
Section 4.07. TAXES. Borrower has filed all tax (federal, state
and local) returns required to be filed and has paid all taxes,
assessments and governmental charges and levies thereon to be due,
including interest and penalties (except such amounts being protested in
good faith as of the date hereof).
Section 4.08. OPERATION OF BUSINESS; COMPLIANCE WITH LAWS.
Borrower possesses all material licenses, permits, franchises, patents,
copyrights, trademarks and trade names, or rights thereto, to conduct its
business substantially as now conducted and as presently proposed to be
conducted, and Borrower is not aware that it is in violation of any valid
rights of others with respect to any of the foregoing.
To its knowledge, the Borrower is in compliance in all respects with
all applicable laws, rules, regulations and orders applicable to it.
Section 4.09. SUBSIDIARIES AND OWNERSHIP OF STOCK. The Borrower
has no subsidiaries.
Section 4.10. CREDIT ARRANGEMENTS. Except as has been disclosed to
Lender in writing, the financial statements of Borrower referred in
Section 4.05 identify all credit agreements, indentures, purchase
agreements, guaranties, Capital Leases and other investments, agreements
and arrangements in effect as of the date of such financial statements
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit) in respect of
which Borrower is in any manner directly or contingently obligated, which
individually or in the aggregate exceed $1,000,000; and the maximum
principal or face amounts of the credit in question outstanding and which
can be outstanding are correctly stated, and all Liens of any nature
given as security therefor are correctly described or indicated in such
financial statements.
Section 4.11. NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS.
Borrower has satisfied all judgments and is not in default with respect
to any judgment, writ, injunction, decree, rule or regulation of any
court, arbitrator or federal, state, municipal or other governmental
authority, commission, board, bureau, agency or instrumentality, domestic
or foreign that would have a material adverse effect on the Borrower's
financial condition. The Borrower is not a party to any indenture, loan
or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporate restriction which would have a
material adverse effect on the financial condition of Borrower or the
ability of Borrower to carry out its obligations under the Loan
Documents.
Section 4.12. LABOR DISPUTES AND ACTS OF GOD. Neither the business
nor the properties of Borrower are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), materially and adversely affecting
the financial condition of the Borrower.
Section 4.13. FINANCIAL SUPPORT.
(a) Borrower has obtained financial support or secured binding, written
commitments to provide financial support in the amount necessary to
undertake the Project to completion. The following Persons have
provided Borrower with financial support or commitments to provide
financial support in amounts not less than those set forth opposite
their names:
Southern Tier Economic Development Corporation$200,000
(b) The amount contributed by Borrower in support of the Project is
$4,200,000.
Section 4.14. APPLICATION AND DOCUMENTS SUBMITTED TO LENDER. All
information contained in the Application or submitted to Lender in
connection with the Loan is complete and correct and fairly presents the
condition, operations and prospects of Borrower as of the date hereof.
Borrower has not misstated, omitted or withheld any fact in connection
with its Application upon which Lender may have relied in its decision to
make the Loan. Each invoice, bill of sale, receipt, check or other
document or instrument, heretofore or hereafter submitted to Lender by
Borrower in connection with the Loan, upon submission was or shall be
complete and genuine and accurately reflect the transaction to which it
relates.
ARTICLE 5: AFFIRMATIVE COVENANTS. So long as the Note shall remain
unpaid, Borrower agrees as follows:
Section 5.01. MAINTENANCE OF EXISTENCE. Borrower shall preserve
and maintain its corporate existence and good standing in the
jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
required.
Section 5.02. CONDUCT OF BUSINESS. Borrower shall continue to
engage in its business substantially as conducted by it on the date of
this Agreement. Notwithstanding the foregoing, the Borrower may expand
its business in the event Borrower, in its sole judgment, deems such
expansion necessary.
Section 5.03. MAINTENANCE OF PROPERTIES. Borrower shall maintain,
keep and preserve all of its properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good working
order and condition, ordinary wear and tear excepted.
Section 5.04. MAINTENANCE OF RECORDS. Borrower shall keep adequate
records and books of account, in which complete entries will be made in
accordance with GAAP, reflecting all financial transactions of Borrower
and retain such records and books for three years after payment in full
of the Loan.
Section 5.05. MAINTENANCE OF INSURANCE. Borrower shall maintain in
full force and effect adequate insurance substantially similar to the
insurance in place on the date hereof.
Section 5.06. COMPLIANCE WITH LAWS. Borrower shall comply in all
material respects with all applicable federal, state and local laws,
rules, regulations and orders.
Section 5.07. TAXES. Borrower shall file when due all tax returns
required to be filed by all applicable federal, state and local laws and
shall make timely payment of all taxes, assessments and governmental
charges and levies assessed, charged or properly imposed upon Borrower or
any of its properties.
Section 5.08. RIGHT OF INSPECTION AND AUDIT. At any reasonable
time and upon reasonable notice, Borrower shall permit Lender or any
agent or representative thereof, to examine and make copies and abstracts
from the records and books of account of, and visit the properties of the
Borrower and to discuss the affairs, finances and accounts of Borrower
with officers of the Borrower and with Borrower's independent
accountants. Lender's right of inspection and audit pursuant to this
Section shall survive the payment of the Loan and remain in full force
and effect for three years thereafter.
Section 5.09. REPORTING REQUIREMENTS. Borrower shall furnish to
Lender the following financial information:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 120 days after the end of each fiscal year of Borrower
financial statements of Borrower reasonably detailed and stating in
comparative form the respective figures for the corresponding date
and period in the prior fiscal year and prepared in accordance with
GAAP and accompanied by an opinion thereon reasonably satisfactory
to Lender by the Borrower's independent public accountant.
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as practicable and in any
event within 90 days subsequent to the end of each of the first
three quarters of each fiscal year of Borrower financial statements
of Borrower as of the end of such quarter, reasonably detailed and
stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and
prepared in accordance with GAAP and certified by the chief
financial officer of Borrower (subject to year-end adjustments).
(c) MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of any
reports submitted to Borrower by independent public accounts in
connection with examination of the financial statements of Borrower
made by such accountants.
(d) NOTICE OF LITIGATION. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting Borrower which, if
determined adversely to Borrower, would have a material adverse
effect on the financial condition of Borrower.
(e) NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. As soon as possible and
in any event within 30 days after the occurrence of a Default or
Event of Default, a written notice setting forth the details of such
Default or Event of Default and the action which is proposed to be
taken by Borrower with respect thereto.
(f) PROXY STATEMENTS, ETC. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and
reports which Borrower sends to its stockholders and all
registration statements which Borrower files with the Securities and
Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange.
Section 5.10. EMPLOYEE REPORTING FORM. Borrower shall furnish to
Lender, not later than March 1 of each year, an employee reporting form
substantially in the form attached hereto as Exhibit B stating the number
of Full-Time Permanent Employees as of the immediately preceding January
1.
Section 5.11. REDUCTION IN PERMANENT WORKFORCE. Borrower shall
notify Lender in writing, not less than ninety (90) days subsequent to a
Reduction in Permanent Workforce. For the purposes hereof, "Reduction in
Permanent Workforce" means a reduction in the number of Borrower's Full-
Time Permanent Employees which, individually or in the aggregate, results
in a reduction of the greater of (a) 600 Full-Time Permanent Employees or
(b) 50% or more of the number of Full-Time Permanent Employees on the
date of the first reduction.
Section 5.12. NON-DISCRIMINATION AND AFFIRMATIVE ACTION.
(a) Borrower shall comply in all material respects with all United
States and New York State laws and regulations prohibiting
discrimination against any employee or applicant for employment
because of race, creed, color, national origin, ancestry, sex, age,
disability or marital status.
(b) Borrower shall continue its program of equal opportunity pursuant to
which Borrower shall provide all employees of Borrower, and
applicants for employment with Borrower, with equal employment
opportunities with respect to, but not limited to, recruitment, job
assignment, promotion, demotion, transfer, lay-off or termination,
rates of pay or other compensation, and selection for training or
re-training, including apprenticeship and on-the-job training.
ARTICLE 6: NEGATIVE COVENANTS. So long as the Note shall remain unpaid,
Borrower agrees as follows:
Section 6.01. DEBT. Borrower shall not create, incur, assume or
suffer to exist any Debt, except:
(a) Debt of Borrower under this Agreement or the Note;
(b) Debt that would be reasonably likely to prevent the Borrower from
repaying the Loan or satisfy its obligations under this Agreement or
the Note.
Section 6.02. TRANSACTIONS WITH AFFILIATES.
(a) Borrower shall not enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate, including without
limitation, the purchase, sale or exchange of property or the
rendering of any service with any Affiliate, except in the ordinary
course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to
Borrower than would obtain in a comparable arm's length transaction
with a Person who is not an Affiliate.
Section 6.03. LOCATION OF BUSINESS. Borrower shall not remove its
business operations away from the State of New York.
Section 6.04. COMPENSATION. Borrower shall not pay any
compensation (whether by way of salary, emoluments, stock options, bonus
or otherwise) to any director, officer, employee or agent in excess of
that which is reasonable and customary for enterprises engaged in a
similar business and similarly situated.
ARTICLE 7: EVENTS OF DEFAULT.
Section 7.01. EVENTS OF DEFAULT. Any of the following events shall
be an "Event of Default":
(a) Borrower shall fail to pay the principal of the Note within forty-
five (45) days after such principal payment is due and payable.
(b) Any representation or warranty made or deemed made by Borrower in
any Loan Document or which is contained in any certificate,
document, opinion, financial or other statement furnished at any
time under or in connection with any Loan Document shall have been
incorrect in any material respect on or as of the date made or
deemed made.
(c) Borrower shall fail to perform or observe any term, covenant or
agreement on its part to be performed or observed in any Loan
Document and such failure shall continue for sixty (60) consecutive
days after notice.
(d) Borrower shall fail to perform or observe any material term,
covenant or condition on its part to be performed or observed under
any agreement or instrument relating to any such indebtedness, when
required to be performed or observed, if the effect of such failure
to perform or observe would (i) have a material adverse effect on
the financial condition of the Borrower; and (ii) cause the
acceleration or permit the acceleration of, after the giving of
notice or passage of time, or both, the maturity of such
indebtedness unless such failure to perform or observe shall be
waived by the holder of such indebtedness.
(e) Borrower (i) shall be unable to, or shall admit in writing its
inability to, pay its debts as such debts become due; or (ii) shall
petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets; or (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statue of any jurisdiction, whether now or
hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced
against it in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding
remains undismissed for a period of 90 days or more; or (v) by any
act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or
trustee for all or any substantial part of its properties; or (vi)
shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 90 days or more.
(f) One or more judgments, decrees or orders for the payment of money
which individually or in the aggregate shall result in a material
adverse change in the financial condition of Borrower or any such
judgments, decrees or orders shall continue unsatisfied and in
effect for a period of 90 consecutive days without being vacated,
discharged, satisfied or stayed or bonded pending appeal.
(g) If Borrower shall dissolve or for any reason cease to be in
existence.
Section 7.02. REMEDIES. If any Event of Default shall occur,
Lender may, by notice to Borrower, declare the outstanding principal of
the Note and all other amounts payable under this Agreement and the Note
to be forthwith due and payable, whereupon the Note, all such amounts
shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by Borrower.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
ARTICLE 8: MISCELLANEOUS.
Section 8.01. AMENDMENTS AND WAIVERS. No amendment or waiver of
any provision of this Agreement nor consent to any departure by Borrower
therefrom shall in any event be effective unless the same shall be in
writing and signed by an authorized officer of Lender, and then such
waiver or consent shall be effective only in the specific instance and
for the specified purpose for which given. No failure on the part of
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof of preclude any other or further exercise
thereof or the exercise of any other right.
Section 8.02. USURY. Anything herein to the contrary
notwithstanding, the obligations of Borrower under this Agreement and the
Note shall be subject to the limitation that payments of interest shall
not be required to the extent that receipt thereof would be contrary to
provisions of law applicable to Lender limiting rates of interest which
may be charged or collected by Lender.
Section 8.03. EXPENSES. Borrower shall reimburse Lender on demand
for all reasonable costs, expenses and charges (including, without
limitation, reasonable fees and charges of external legal counsel for
Lender) incurred by Lender in connection with the preparation,
performance or enforcement of this Agreement or the Note or the making of
the Loan. The obligations of Lender under this Section shall survive the
repayment of the Loan.
Section 8.04. INDEMNIFICATION. Borrower agrees to indemnify Lender
and its directors, officers, employees and agents from, and hold each of
them harmless against, any and all losses, liabilities, claims, damages
or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any
threatened investigation obligation or other proceedings) relating to any
actual use by Borrower of the proceeds of the Loan, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings
(but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the negligence or misconduct of Lender). The
obligations of Borrower under this Section shall survive repayment of the
Loan.
Section 8.05. ASSIGNMENT. This Agreement shall be binding upon,
and shall inure to the benefit of, Borrower, Lender and their respective
successors and assigns. Upon the consent of the Borrower and such
consent shall not be unreasonably withheld, Lender may assign all or any
part of the Loan to a bank or other entity, in which event upon notice
thereof by Lender to Borrower, the assignee shall have, to the extent of
such assignment (unless otherwise provided therein), the same rights and
benefits as it would have if it were Lender hereunder. Lender may
furnish any information concerning Borrower in the possession of Lender
from time to time to assignees and prospective assignees.
Section 8.06. NOTICES. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section and
except as otherwise provided in this Agreement, notices shall be given to
Lender and to Borrower by hand, by facsimile confirmed in writing or by
certified mail, return receipt requested, addressed to such party at its
address set forth below. Notices shall be effective:
(a)if given by certified mail, 72 hours after deposit in the mails
with first class postage prepaid, addressed and aforesaid;
(b)if sent by facsimile upon receipt; and
(c)if given by hand, upon receipt:
<PAGE>
Address for notices to Lender
New York State Urban Development Corporation
1515 Broadway
New York, New York 10036
Attention: Lee Webb, Executive Vice President
Facsimile No:
Address for notices to Borrower
Artistic Greetings Incorporated
One Komer Center, P.O. Box 1999
Elmira, New York 14902-1999
Attention: Thomas C. Wyckoff, General Counsel
Facsimile No:(607) 733-5782
Section 8.07. JURISDICTION; IMMUNITIES.
(a)Borrower hereby irrevocably submits to the jurisdiction of any New
York State or United States Federal court sitting in New York State
or, at Lender's sole discretion, over any action or proceeding
arising out of or relating to this Agreement or the Note, and
Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such New
York State or Federal Court. Borrower irrevocably consents to the
service of any and all process in any such action or proceeding by
the mailing of copies of such process to Borrower at its address set
forth above. Borrower agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b)Nothing in this Section shall affect the right of either party
hereto to serve legal process in any other manner permitted by law
or affect the right of Lender to bring any action or proceeding
against Borrower or its property in the courts of any other
jurisdictions.
(c)To the extent that Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect
to itself or its property, Borrower hereby irrevocably waives such
immunity in respect of its obligations under this Agreement and the
Note.
Section 8.08. CAPTIONS. The captions and headings hereunder are
for convenience only and shall not affect the interpretation or
construction of this Agreement.
Section 8.09. SEVERABILITY. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this
Agreement shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
in any manner affecting the validity or enforceability thereof in any
other jurisdiction or the remaining provisions hereof in any
jurisdiction.
Section 8.10. COUNTERPARTS. This agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument and any party hereto may execute this Agreement
by signing any such counterpart.
Section 8.11. GOVERNING LAW. This Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed as of the day and year first above written.
ARTISTIC GREETINGS INCORPORATED
By:/s/ Thomas C. Wyckoff
Name: Thomas C. Wyckoff
Title:General Counsel
NEW YORK STATE URBAN
DEVELOPMENT CORPORATION
By: /s/ Carolyn C. Bachan
Title:Executive Vice President
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF CHEMUNG )
On the 23rd day of October, 1995, before me personally came Thomas
C. Wyckoff, to me known, who, being by me duly sworn, did depose and say
that he resides at 909 Hoffman Street, Elmira, New York; that he is the
General Counsel of Artistic Greetings Incorporated, the corporation
described in and which executed the foregoing instrument; and that he
signed his name thereto.
____________________________
Notary Public
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On the [ ] day of October, 1995, before me personally came
__________, to me known, who, being by me duly sworn, did depose and say
that he resides at 9 East 45th Street, New York, New York; that he is the
Executive Vice President of the New York State Urban Development
Corporation, the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the
directors of said corporation.
____________________________
Notary Public
<PAGE>
Exhibit A
NOTE
(Single Disbursement)
October 23, 1995
New York, New York $400,000.00
FOR VALUE RECEIVED, Artistic Greetings Incorporated, a corporation
organized under the laws of the State of Delaware, having its principal
office and place of business at One Komer Center, P.O. Box 1999, Elmira,
New York 14902-1999 ("Borrower") hereby unconditionally promises to pay
to the order of New York State Urban Development Corporation with offices
at 1515 Broadway, New York, New York 10036-8960, ("Lender"), the
principal sum of Four Hundred Thousand Dollars ($400,000) (the "Principal
Amount") pursuant to that certain Loan Agreement of even date herewith
between Borrower and Lender (the "Loan Agreement").
The terms, covenants and conditions of the Loan Agreement are by
this reference incorporated herein. Defined terms utilized and not
otherwise defined herein shall have the meaning assigned to such term in
the Loan Agreement. The Loan Agreement provides for the acceleration of
the amounts payable under this Note upon the occurrence and/or
continuance of Events of Default.
1. PAYMENTS. The Loan shall be payable in accordance with the
amortization schedule attached hereto as Schedule I.
All payments of principal shall be made in lawful funds of the
United States of America and sent to the New York State Urban Development
Corporation, 1515 Broadway, New York New York 10036-8960, to the
attention of the Controller, or to such other address as the holder
hereof may designate in writing to Borrower from time to time. Payments
shall be deemed made when received by the holder hereof in accordance
with the foregoing.
Borrower hereby waives presentment, notice of dishonor, protest and
any other notice or formality with respect to this Note.
2. LATE CHARGE; RETURNED CHECKS. In the event that any payment
required hereby shall become overdue for a period in excess of thirty
(30) days, a late charge of five cents ($.05) for each dollar so overdue
shall become immediately due and payable. Borrower shall pay Lender a
returned check charge of the greater of twenty-five dollars ($25.00) or
costs incurred by Lender for each check tendered by Borrower as payment
of any payment under the Loan Documents which is returned unpaid for any
reason by Lender's depository bank.
3. PREPAYMENTS. Borrower shall have the right from time to time to
prepay the unpaid principal balance due hereunder, in whole or in part,
without premium or penalty; PROVIDED, HOWEVER, that any such prepayment
shall be applied first to accrued and unpaid interest, other amounts
payable under the Loan Documents and then to principal installments.
4. DEFAULT RATE. If any amount of principal, interest or any other
amount payable under the Loan Documents shall not be paid when due (at
stated maturity, by acceleration or otherwise), interest shall accrue on
such amount from and including such due date to but excluding the date
paid in full at the Default Rate. Interest accruing at the Default Rate
shall be due and payable from time to time on demand of Lender.
5. MISCELLANEOUS. This Note may not be modified, amended, waived or
otherwise altered in whole or in part except by a further writing signed
by the party to be charged. This Note shall be binding upon the Borrower
and its successors and assigns and shall inure to the benefit of Lender
and its successors, assigns and transferees.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by
its duly authorized officer as of the date and year set forth above.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Thomas C. Wyckoff
Name: Thomas C. Wyckoff
Title:General Counsel
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF CHEMUNG )
On the 23rd day of October, 1995, before me personally came Thomas
C. Wyckoff, to me known, who, being by me duly sworn, did depose and say
that he resides at 909 Hoffman Street, Elmira, New York; that he is the
General Counsel of Artistic Greetings Incorporated, the corporation
described in and which executed the foregoing instrument; and that he
signed his name thereto.
____________________________
Notary Public
<PAGE>
Exhibit B
EMPLOYEE REPORTING FORM
ANNUAL REPORT OF EMPLOYMENT
As of January 1, 1995
Date:[ ], 1996
To: New York State Urban Development Corporation
Attention: Director, Project Administration
1515 Broadway
New York, New York 10036
From: Artistic Greetings Incorporated
Attention: John Hyland, Training and Community Relations
Coordinator
One Komer Center, P.O. Box 1999
Elmira, New York 14902-1999
RE: UDC Project Name: [ ]
Please fill in the following information as of January 1, 1995
FULL-TIME EMPLOYEES
Total
MALE FEMALE EMPLOYED
White
Black
Hispanic
Asian
American Indian
NOTE:A full-time employee works 35-40 hours per week. Use a fraction for
part-time employees (i.e., .5 = one employee working 17 1/2-20 hours per
week).
<PAGE>
As a condition of funding, your company has agreed for new employment
opportunities, individuals on Public Assistance and those eligible to
participate in federal Job Training Partnership Act Programs:
Please check all that apply
________ I have contacted the NYS Department of Labor Job Service and
interviewed recipients.
________ I need from UDC additional assistance in contacting NYS
Department of Labor Job Service.
________ I have hired employees through the DOL Job Service and I have
found my experience with DOL Job Service to be:
Excellent Good Acceptable Unacceptable
Do you have any additional needs in identifying or training
disadvantaged workers that UDC or NYS Department of Labor could
be helpful with?
____________________________________________________________
____________________________________________________________
The information included herein is correct to the best of my knowledge
and belief.
Signature:________________________________ Date:___________________
Print Name and Title:________________________________
Any false statement herein may cause the borrower to be in default under
its loan agreement with UDC.
<PAGE>
REQUEST FOR DISBURSEMENT
Artistic Greetings Incorporated ("Borrower") hereby requests,
pursuant to that certain Loan Agreement, dated as of October 23, 1995
("Loan Agreement") by and between Borrower and the New York State Urban
Development Corporation ("Lender"), disbursement by Lender of Four
Hundred Thousand dollars ($400,000) of the Loan to be made to Borrower
pursuant to the Loan Agreement.
1. Attached to this Disbursement Request are documents evidencing
the amount and purpose of the disbursement
condition of the Loan Agreement;
2. All warranties and representations of Borrower set forth in the
Loan Agreement are true and correct as of the date hereof; and
3. Each invoice, bill of sale, receipt, check or other document or
instrument submitted in support of this Disbursement Request is
complete and genuine and accurately reflects the transaction to
which it relates.
ARTISTIC GREETINGS INCORPORATED
By:_____________________________
Name: Thomas C. Wyckoff
Title:General Counsel
<PAGE>
(
INTEREST RATE SUBSIDY
GRANT AGREEMENT
RELATING TO
ARTISTIC GREETINGS INCORPORATED
LAKE STREET
INDUSTRIAL PROJECT
(Project No. [ ])
(
<PAGE>
GRANT AGREEMENT between the NEW YORK STATE URBAN DEVELOPMENT
CORPORATION ("UDC"), a corporate governmental agency of the State of New
York constituting a political subdivision and public benefit corporation,
having an office at 1515 Broadway, New York, New York 10036-8960, and
ARTISTIC GREETINGS INCORPORATED ("Grantee"), a Delaware corporation with
a principal office located at One Komer Center, P.O. Box 1999, Elmira,
New York 14902-1999.
1. PRELIMINARY STATEMENT
(a) The Legislature of the State of New York has appropriated certain
funds for the Strategic Resurgence Industrial Effectiveness, Expansion,
Retention and Attraction Program ("SRP").
(b) Grantee has undertaken a certain project in connection with
Grantee's purchase of land and construction of a building in the City of
Elmira, New York (as more fully described in Section 3 below, the
"Project") and seeks reimbursement of interest paid in connection with
funds borrowed for the Project and, in connection therewith, has applied
to UDC for financial assistance.
(c) On September , 1995 the Board of Directors of UDC adopted a
resolution to award a grant (the "Grant") to the Grantee of up to Five
Hundred Thousand Dollars ($500,000) in SRP funds.
(d) The Grant will effectively reimburse the Grantee for interest
paid in connection with funds borrowed for the Project.
(e) The Grantee and UDC (collectively, the "Parties") desire to set
forth the terms and conditions of the administration and disbursement of
the Grant.
2. DEFINITIONS. For the purposes of this Agreement the following terms
shall have the following meanings:
"Application" means the application of Grantee to UDC for SRP
assistance a such Application may have been amended or supplemented.
"Default"means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Effective Date" shall mean the date when all of the conditions
set forth in
<PAGE>
Section 5 hereof are satisfied.
"Event of Default" means any event upon the occurrence of which
the Lender may declare the outstanding principal amount of the Loan,
all interest thereon and other amounts payable in connection
therewith to be forthwith due and payable, or both.
"Premises" shall have the meaning assigned to such term in
Section 3 hereof.
"Prohibited Expenditures" means expenditures of Grant funds for
any of the following purposes:
(a) POLITICAL ACTIVITIES. Political activities of any kind
including, but not limited to, promoting the election or defeat
of any candidate for public, political or party office, or
furthering the passage, defeat, or repeal of any legislation.
(b) RELIGIOUS ACTIVITIES. Religious worship, instruction or
proselytizing.
(c) PAYMENTS TO RELATED PARTIES. Payments to any Related
Parties.
"Project" shall have the meaning assigned to such term in Section
3 hereof.
"Related Parties" means (a) any person who (i) directly or
indirectly controls the Grantee, or (ii) is related by blood or
marriage to any person who directly or indirectly controls the
Grantee, and (b) any partnership, corporation, trust or other entity
which directly or indirectly controls, or is controlled by, or is
under common control with the Grantee.
3. THE PROJECT. The Project consists of the purchase of land and
the refurbishment on said land of a building located on Lake Street in
the City of Elmira, New York (the "Premises") and the permanent financing
thereof.
4. DISBURSEMENT OF THE GRANT. Subject to the terms, covenants and
conditions of this Grant Agreement, UDC shall disburse the Grant to the
Grantee in a single installment as follows:
(a) The Grant shall be disbursed after receipt by UDC of a statement
signed by the General Counsel of Grantee requesting that UDC pay the
proceeds of such Grant to Grantee, at its principal office located at One
Komer Center, P.O. Box 1999, Elmira, New York 14902-1999.
(b) The disbursal of the Grant shall be made on October 24, 1995.
5. CONDITIONS PRECEDENT AND EFFECTIVE DATE. This Agreement shall
become effective when all of the following conditions precedent have been
satisfied.
(a) EXECUTED AGREEMENT. UDC has received a copy of this Agreement
executed by an authorized representative of the Grantee.
(b) OPINION OF COUNSEL. UDC has received an opinion from General
Counsel to the Grantee in substantially the form appended to this
Agreement as Exhibit A.
(c) CERTIFICATE OF APPROVAL OF AVAILABILITY OF FUNDS. A certificate
of approval of availability of funds has been issued by the Director of
the Budget of the Sate of New York, and the Grant funds have been
received by UDC.
(d) CURRENT FINANCIAL STATEMENTS. Grantee shall deliver to UDC
current financial statements for the Grantee, no older than six months
prior to date hereof.
6. WARRANTIES AND REPRESENTATIONS. The Grantee warrants and
represents to UDC as follows:
(a) FORMATION AND GOOD STANDING. It is duly formed and validly
existing as a corporation under the laws of the jurisdiction of Delaware;
and it has the corporate power and authority to own its assets and to
transact the business in which it is now engaged.
(b) ENFORCEABLE AGREEMENT. The execution, delivery and performance
of this Agreement has been authorized by all necessary corporate action
on its part and constitutes a valid and binding obligation enforceable
against it in accordance with its terms.
(c) APPLICATION. All information contained in the Application or
submitted to UDC in connection therewith is complete and correct and does
not contain any material misstatement or omission of fact which may have
been taken into consideration by UDC in its determination to make the
Grant.
(d) NO UNDUE INFLUENCE. Neither the Grantee nor any of its partners,
officers, employees or agents have given anything of value to any
director, officer, employee or agent of UDC to procure the Grant or to
influence the judgment of any such person in the exercise of its official
duties in connection with the making of the Grant or the matters
contemplated by this Agreement.
(e) NECESSARY AUTHORIZATIONS. All authorizations, consents,
approvals and licenses of all pertinent governmental authorities
necessary under applicable law or regulation for it to implement the
Project have been obtained and are in full force and effect.
(f) LOAN DOCUMENTS. The Loan Documents are in full force and effect
and remain unamended.
(g) NO DEFAULTS OR EVENTS OF DEFAULT. No Default or Event of Default
has occurred with respect to any Loan Document.
<PAGE>
7. CERTAIN COVENANTS OF THE GRANTEE. The Grantee hereby agrees as
follows:
(a) TASKS AND INTERIM REPORTS. The Grantee will perform such tasks
and submit such interim reports regarding the Project as UDC shall
reasonably require from time to time.
(b) REPORTS. In addition to any other reports UDC may request, at
the conclusion of the Project, the Grantee will submit to UDC a final
report ("Final Report"). The Final Report shall describe the objectives
of the Project and describe the problems encountered and the results
accomplished by the Grantee in the implementation of the Project. In
addition, the Final Report shall include an accounting of costs and
expenditures incurred in connection with the Project and identify cash
and in-kind contributions made by the Grantee and all other funding
sources in support of the Project.
(c) PROHIBITED EXPENDITURES. The Grantee shall not use Grant funds
for any Prohibited Expenditures.
(d) OTHER FUNDING SOURCES. Other than financing provide for the
acquisition of the land and construction of the Project, the Grantee
shall inform UDC in writing about any financial assistance promised or
awarded to the Grantee by any source for the purposes of the Project
within sixty (60) days after having any knowledge thereof. The Grantee
shall provide UDC with a copy of the proposal and budget, if any, upon
which such financial assistance was made. The Grant funds cannot be
applied to any expenses paid or payable from any other funding source.
(e) COST OVERRUNS. The Grantee is solely responsible for funding all
Project costs in excess of the Grant amount.
(f) BOOKS AND RECORDS. The Grantee will maintain true and complete
records and books of account concerning the Project and retain such
records and books of account for a period of at least three (3) years
after the expiration of this Agreement.
(h) AUDITS. At any reasonable time and from time to time, the
Grantee shall permit UDC and its agents upon reasonable notice to conduct
a partial or complete audit of the records and books of account
maintained by the Grantee with respect to the Project including, without
limitation, any bank or other records relating to the Grant funds, and to
make copies of such records and books of account. This provision shall
survive disbursement of the Grant funds and shall remain in effect for
three (3) years after the expiration of this Agreement.
(i) INSPECTIONS. At any reasonable time and from time to time, the
Grantee shall permit UDC and its agent to visit the properties of the
Grantee and to conduct an inspection thereof to determine whether the
Grantee is in compliance with this Agreement.
(j) INDEMNIFICATION. The Grantee shall indemnify and hold harmless
UDC, the State of New York and their respective agents, officers,
employees and directors (herein collectively called the "Indemnitees")
from and against any and all damages, costs, claims, liabilities and
expenses (including, but not limited to, reasonable attorneys' fees and
disbursements), resulting from, arising out of, or occurring in
connection with, the implementation of the Project by the Grantee and the
performance by the Grantee of its obligations hereunder, except any such
costs, claims, liabilities or expenses which result from the negligence
or misconduct of UDC. The provisions of this Section shall survive the
disbursement of the Grant funds and the termination of this Agreement.
(k) AMENDMENT OF LOAN DOCUMENTS. The Grantee shall not, without the
prior written consent of UDC, amend, or consent to an amendment of, the
terms, covenants and conditions of the Loan Documents which would
conflict with the terms hereof.
(l) NOTICE OF DEFAULT. The Grantee shall notify UDC of the
occurrence of a Default or an Event of Default, promptly, after having
knowledge thereof.
(m) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
event within one hundred twenty (120) days after the end of each fiscal
year of Grantee, Grantee shall deliver or cause to be delivered financial
statements of the Grantee, reasonably detailed and stating in comparative
form the respective figures for the corresponding date and period in the
prior fiscal year and prepare din accordance with generally accepted
accounting principles in the United States of America (in effect as of
the date hereof) and reviewed by a certified public accountant and
certified by an authorized representative of the Grantee.
8. RELATIONSHIP. The Grantee shall be an independent contractor at
all times during the term of this Agreement and, neither the Grantee nor
any of its employees, agents or representatives hall be deemed to be an
employee, agent, or representative of either UDC or the State of New York
for any purpose, or be eligible to participate in any benefits or
privileges given or extended by either UDC or the State of New York to
its employees. Nothing in this Agreement shall constitute the Grantee as
UDC's agent for any purpose and the Grantee shall have no power to act
for or bind either UDC or the State of New York. Nothing in this
Agreement shall be construed as creating a partnership or joint venture
between the parties.
9. CANCELLATION OF GRANT. Upon the occurrence of any of the
following events, UDC may, in its sole discretion, cancel the Grant.
(a) EVENTS OF DEFAULT. If an Event of Default shall occur under any
Loan Document.
(b) AMENDMENTS OF LOAN DOCUMENT. If any of the terms of payment of
the loan shall be amended so as to conflict with the terms hereof without
the prior written consent of UDC.
(c) FAILURE TO PERFORM BY GRANTEE. If the Grantee fails to perform
any of its obligations hereunder within ninety (90) days after notice by
UDC to Grantee of such failure.
(d) FAILURE TO COMPLETE PROJECT. If Grantee abandons the Project or
fails to undertake the Project to completion.
(e) FALSE REPRESENTATIONS AND WARRANTIES. If any representation or
warranty made by the Grantee in this Agreement or in the Application
shall prove to have been incorrect or untrue in any material respect as
of the date when made or deemed made.
(f) UNDUE DELAYS. If the Grantee fails to satisfy the conditions
precedent to the effectiveness of this Agreement set forth in Section 6,
above, within a reasonable time, or fails to complete the Project within
2 years after the disbursement of Grant funds.
(g) REIMBURSEMENT OF IMPROPER DISBURSAL. If UDC determines that any
Grant funds have been disbursed in violation of the terms of this
Agreement, or based upon a false representation or warranty (hereinafter
an "Improper Disbursal"), UDC may require, in its sole discretion, that
the party responsible for such Improper Disbursal reimburse UDC in an
amount equal to the Grant funds improperly disbursed. In such event, the
Grantee or the Bank, as the case may be, shall reimburse UDC for all
Improper Disbursal of Grant funds for which it may be responsible upon
demand therefor by UDC.
(h) CUMULATIVE REMEDIES. The remedies provided to UDC herein are
cumulative and not exclusive of any other remedies available to UDC at
law, equity or otherwise.
10. MISCELLANEOUS.
(a) NOTICES. Each notice, demand, request or other communication
required or otherwise permitted hereunder shall be in writing and shall
be effective upon receipt if personally delivered or sent by any
overnight service or 3 days after dispatch by certified mail, return
receipt requested, to the addresses set forth below:
(i)to the Grantee:
(
(Artistic Greetings Incorporated
(One Komer Center, P.O. Box 1999
(Elmira, New York 14902-1999
(Attention: Thomas C. Wyckoff, General Counsel
(
(ii)to UDC:
(
(New York State Urban Development Corporation
(Broadway
(New York, New York 10036-8960
(Attention: Lee Webb, Executive Vice President
All other communications, including any reports required by of this
Agreement, to UDC at the address in the preceding paragraph, to the
Attention of the Director of Project Administration, or to such other
address as UDC may designate in writing.
(b) AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement nor consent to any departure by either Grantee or any
Lender therefrom shall in any event be effective unless the same shall be
in writing and signed by an authorized representative of UDC, and then
such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure on the part of
UDC to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further exercise
thereof or the exercise of any other right.
(c) CAPTIONS. The captions and headings hereunder are for
convenience only and shall not affect the interpretation or construction
of this Agreement.
(d) SEVERABILITY. The provisions of this Agreement are intended to
be severable. If for any reason any provision of this Agreement shall be
held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by executing
any such counterpart.
(f) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
NEW YORK STATE URBAN
DEVELOPMENT CORPORATION
By:_____________________________
Name: Lee Webb
Title: Executive Vice President
ARTISTIC GREETINGS INCORPORATED
By:____________________________
Name: Thomas C. Wyckoff
Title: General Counsel
<PAGE>
_________________________________________________________________________
DIRECT
MORTGAGE
Dated as of November 6, 1995
In the Amount of
$400,000.
By
ARTISTIC GREETINGS, INC.
One Komer Center
Elmira, New York 14902
to
NEW YORK STATE URBAN DEVELOPMENT CORPORATION
D/B/A EMPIRE STATE DEVELOPMENT CORP.
having an office at
633 Third Avenue, New York, New York 10017
Location of Premises
Street Address: 1580 Lake Street
City : Elmira
County : Chemung
State : New York
Section : 79.15
Block : 2
Lot : 1.2
TABLE OF CONTENTS
ARTICLE 1 CERTAIN REPRESENTATIONS AND WARRANTIES.
Section 1.01 Legally Enforceable Agreements
Section 1.02 Warranty of Title
Section 1.03 Ownership and Liens
Section 1.04 Creation of Lien
Section 1.05 Taxes
Section 1.06 Use of the Collateral
Section 1.07 No Authorization Required
ARTICLE 2 CERTAIN COVENANTS.
Section 2.01 Insurance
Section 2.02 Taxes and Other Charges
Section 2.03 Maintenance of the Premises
Section 2.04 Use of Premises
Section 2.05 Estoppel Certificate
Section 2.06 Subordination of Leases
Section 2.07 Restrictions Against Sale,
Conveyance, Etc.
Section 2.08 Lien Law
Section 2.09 Further Agreements
ARTICLE 3 EMINENT DOMAIN
Section 3.01 Assignment of Condemnation Proceeds
Section 3.02 Application of Condemnation Proceeds
ARTICLE 4 HAZARDOUS SUBSTANCES
Section 4.01 Representation and Warranties
Section 4.02 Covenants
Section 4.03 Environmental Audits
ARTICLE 5 EVENTS OF DEFAULT
Section 5.01 Remedies Upon Default
Section 5.02 Cumulative Remedies
Section 5.03 Receiver
Section 5.04 Single Parcel
Section 5.05 Multiple Actions
Section 5.06 Waiver of Exemptions, Marshalling,
Etc.
ARTICLE 6 REAL COVENANTS
ARTICLE 7 MISCELLANEOUS
Section 7.01 Waiver and Amendment
Section 7.02 Expenses
Section 7.03 Joint and Several Obligations
Section 7.04 Notices
Section 7.05 Captions
Section 7.06 Severability
Section 7.07 Governing Law
Section 7.08 Trial by Jury; Counterclaims
Section 7.09 Immunities
Section 7.10 Successors and Assigns, Transfer
of Rights
SCHEDULE A DESCRIPTION OF THE PREMISES
MORTGAGE, made as of the 6th day of November, 1995, by Artistic
Greetings, Inc., a corporation duly organized and existing under the laws
of Delaware, having its principal office and place of business at One Komer
Center, Elmira, New York, 14902 to New York State Urban Development
Corporation d/b/a Empire State Development Corp., 633 Third Avenue, New
York, New York 10017.
PRELIMINARY STATEMENT.
1. The Mortgagee has entered into a Loan Agreement dated October 24,
1995 (the Loan Agreement, as it may hereafter be amended from time to time,
being the "Loan Agreement") with the Mortgagor providing for the making of
a loan in the principal amount of $400,000 (the "Loan") (the Loan
Agreement, and each and every document executed and delivered in connection
with the Loan shall hereinafter be referred to collectively, as the "Loan
Documents").
2. It is a condition precedent to the making of the Loan by the
Mortgagee that the Mortgagor execute and deliver this Mortgage as security
for its obligations to the Mortgagee arising out of or in connection with
the Loan Documents (such obligations as the same may be amended, modified
or extended are hereinafter referred to as the "Obligations"). Defined
terms utilized and not otherwise defined herein shall have the meaning
assigned to such terms in the Loan Agreement.
WITNESSETH, that to secure the payment of the Obligations to the
Mortgagee, the Mortgagor hereby mortgages to the Mortgagee and grants to
the Mortgagee a security interest in:
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected or to be erected situate, lying and being in
the County of Chemung, State of New York, more particularly bounded and
described in Schedule A (the "Premises") hereto annexed and all materials
intended for construction, reconstruction, alteration and repair of such
buildings and improvements now or hereafter delivered to the Premises, all
of which materials shall be deemed to be included in and as part of the
Premises upon the delivery thereof to the Premises;
TOGETHER with all right, title and interest, if any, of the Mortgagor
of, in and to the land lying in the streets, roads or avenues, open or
proposed, in front of or adjoining the Premises and of, in and to any
strips or gores of land adjoining the Premises and all easements and
appurtenances thereto;
TOGETHER, ALSO, with (a) all unearned premiums, accrued, accruing or
to accrue under any insurance policies now or hereafter obtained by the
Mortgagor and the Mortgagor's interest in and to all proceeds which now or
hereafter may be paid in connection with the conversion of the Premises or
any portion thereof into cash or liquidated claims, together with the
interest payable thereon and the right to collect and receive the same,
including, but without limiting the generality of the foregoing, proceeds
of casualty
insurance, title insurance and any other insurance now or hereafter
maintained with respect to the Premises or in connection with the use or
operation thereof and (b) all awards, payments and/or other compensation,
together with the interest payable thereon and the right to collect and
receive the same which now or hereafter may be made with respect to the
Premises as a result of (i) a taking by eminent domain, condemnation or
other governmental action or purchase in lieu thereof including, without
limitation, the change of grade of any street, road or avenue or the
widening of any streets, roads or avenues adjoining or abutting the
Premises (hereinafter, "Condemnation Proceeds"), or (ii) any other injury
to, or decrease in value of, the Premises or any portion thereof, in any of
the foregoing circumstances described in clause (a) or (b) above, to the
extent of the entire amount of the Obligations outstanding as of the date
of receipt by the Mortgagee of any such insurance proceeds or awards,
notwithstanding that the entire amount of the Obligations may not then be
due and payable, and also to the extent of reasonable attorneys' fees,
costs and disbursements incurred by the Mortgagee in connection with the
collection of any such insurance proceeds or awards; and the Mortgagor
hereby assigns to the Mortgagee, and the Mortgagee is hereby authorized to
collect and receive, all insurance proceeds and awards and to give proper
receipts and acquittances therefor and to apply the same toward the
outstanding amount of the Obligations notwithstanding that the entire
amount of the Obligations may not then be due and payable, and also to the
extent of reasonable attorneys' fees, costs and
disbursements incurred by the Mortgagee in connection with the collection
of any such insurance proceeds or awards; and the Mortgagor hereby agrees
to make, execute and deliver, from time to time, upon demand, such further
documents, instruments, or assurances as may be requested by the Mortgagee
to confirm the assignment of the insurance proceeds and the awards to the
Mortgagee, free and clear of any interest of the Mortgagor whatsoever
therein and free and clear of any other liens, claims or encumbrances of
any kind or nature whatsoever;
TO HAVE AND TO HOLD the Premises and other property, privileges,
rights, interests and franchises hereby granted or mortgaged, or intended
so to be, unto the Mortgagee, their successors and assigns forever;
AND the Mortgagor represents, covenants, and agrees with the Mortgagee
as follows:
ARTICLE 1. CERTAIN REPRESENTATIONS AND WARRANTIES
For so long as any of the Obligations shall remain outstanding, the
Mortgagor hereby represents and warrants to the Mortgagee, as follows:
SECTION 1.01. LEGALLY ENFORCEABLE AGREEMENTS. This Mortgage is, or
when delivered will be a legal, valid and binding obligation of the
Mortgagor enforceable against the Mortgagor in accordance with its terms,
except to the extent that such enforcement may be limited by bankruptcy,
insolvency and other similar laws affecting creditor's rights generally.
SECTION 1.02. WARRANTY OF TITLE. The Mortgagor has good and
marketable title to the Premises and the Building Equipment.SECTION 1.03.
OWNERSHIP AND LIENS. The Mortgagor owns the Premises free and clear of all
known security interests encumbrances and Liens, except for the Lien
created by this Mortgage.
SECTION 1.04. CREATION OF LIEN. This Mortgage creates a valid first
priority Lien on the Premises securing the payment of the Obligations and
all actions necessary or desirable to protect such Lien have been duly
taken.
SECTION 1.05. TAXES. The Mortgagor has filed all tax (federal, state
and local) returns required to be filed and has paid all taxes, assessments
and governmental charges and levies thereon to be due, including interest
and penalties except those taxes being contested in good faith. The
Mortgagor has no knowledge of any claims for taxes due and unpaid which
might become a Lien upon the Premises or the Building Equipment.
SECTION 1.06. USE OF THE COLLATERAL. The Premises will not be used
for personal, family, household or farming use.
SECTION 1.07. NO AUTHORIZATION REQUIRED. No authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either for (a) the grant by the
Mortgagor of the Lien granted hereby or the execution, delivery or
performance of this Mortgage by the Mortgagor or (b) the exercise by the
Mortgagee of its rights and remedies hereunder.
ARTICLE 2. CERTAIN COVENANTS.
For so long as any of the Obligations shall remain outstanding, the
Mortgagor agrees as follows:
SECTION 2.01. INSURANCE.
(a) The Mortgagor shall keep the buildings on the Premises insured
against: (i) loss of fire, (ii) additional perils customarily covered under
an all-risk policy and (iii) flood hazard, if the Premises are located in
an area identified by the Secretary of Housing and Urban Development as an
area having special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of 1968, as amended.
The insurance required in this paragraph (a) shall provide coverage for an
amount not less than the full replacement value of the buildings on the
Premises or such other amount as the Mortgagee may reasonably require,
provided that (i) the amount of insurance coverage shall be in an amount
sufficient to satisfy, at all times, any co-insurance requirements, and
(ii) the amount of any flood hazard insurance shall not exceed the maximum
amount of coverage available under the National Flood Insurance Act.
(b) The premises are presently insured by Royal Insurance and if this
policy is replaced it shall be by a policy issued by a comparable company
pursuant to a policy satisfactory to Mortgagee in form and substance.
Without limiting the generality of the foregoing, the policies of insurance
required hereby shall provide for ten (10) days' prior written notice of
cancellation and shall be payable to the Mortgagee pursuant to a New York
standard mortgagee endorsement.
(c) The Mortgagor shall give prompt written notice to the Mortgagee
in the event of damage to the Premises by reason of fire or other hazard or
casualty.
(d) Notwithstanding the provisions of Subdivision 4 of Section 254 of
the Real Property Law, the Mortgagee shall be entitled to retain and apply
the proceeds of any insurance required hereby to the payment of the
Obligations or, in the sole discretion of the Mortgagee, apply any or all
such proceeds to the cost of restoration of the Premises, in which case the
Mortgagor shall proceed with reasonable diligence to repair, replace or
rebuild the Premises to substantially their condition prior to such damage
in full compliance with all legal requirements.
(e) The Mortgagor shall provide the Mortgagee with copies of all
policies of insurance (or certificates thereof) for the required insurance
coverages in form and substance satisfactory to the Mortgagee. In
addition, the Mortgagor shall provide the Mortgagee with copies of renewal
policies (or certificates thereof) or temporary binders in the event
renewal policies have not been issued, in a timely manner. The Mortgagor
must, in any event, provide Mortgagee with satisfactory confirmation of
renewal coverage by the renewal date.
(f) In the event that the Mortgagor fails to maintain the insurance
required hereby, the Mortgagee may obtain such insurance and pay the
premiums therefor and the Mortgagor shall, on demand, reimburse the
Mortgagee for any insurance premiums paid, together with interest thereon
computed at the highest rate per annum
allowable under New York State law. The obligations of the Mortgagor to
reimburse the Mortgagee pursuant to this paragraph (g) shall be secured by
this Mortgage.
(g) The Mortgagor will not take any action, or permit any condition
to exist, with respect to the Premises which may, in any manner, partially
or wholly invalidate the insurance on the Premises required hereby.
SECTION 2.02. TAXES AND OTHER CHARGES. The Mortgagor shall pay all
taxes, assessments, water rates, sewer rents and other charges now or
hereafter levied against the Premises or any part thereof and also any and
all license fees or similar charges which might be imposed by any
municipality in which the Premises are situated for the use of vaults,
chutes, areas and other space beyond the lot line and on or abutting the
public sidewalks in front of or adjoining the Premises, together with any
penalties or interest on any of the foregoing. The Mortgagee may, but
shall not be obligated to, pay any such taxes, assessments, water rates,
sewer rents, license fees or similar charges in the event that the
Mortgagor shall default in the payment thereof, and the Mortgagor shall, on
demand, reimburse the Mortgagee for all amounts so paid together with
interest thereon computed at the highest rate per annum allowable under New
York State law, and such amounts shall be secured by this Mortgage. Upon
request of the Mortgagee, the Mortgagor will furnish to the Mortgagee
receipts for the payment of all items specified in this Section prior to
the date when the same become delinquent.
SECTION 2.03. MAINTENANCE OF THE PREMISES.
(a) The Mortgagor shall maintain the Premises in good condition
and repair, and not commit or suffer any waste thereof or the conduct of
any nuisance or unlawful occupation or business on, or use of, the
Premises, and to comply with, or cause to be complied with, all statutes,
ordinances and requirements of any governmental authority relating to the
Premises.
(b) The Mortgagor shall promptly repair, restore, replace or
rebuild any part of the Premises now or hereafter subject to the Lien of
this Mortgage which may be substantially damaged or destroyed by any
casualty whatsoever or which may be materially affected by any proceeding
of the character referred herein; and the Mortgagor will not initiate, join
in, or consent to any change in any private restrictions, limiting or
defining the uses which may be made of the Premises or any part thereof.
(c) The Mortgagor shall not remove, demolish or materially alter
any building or other property now or hereafter covered by the Lien of this
Mortgage, or permit any such building or other property to be removed,
demolished or materially altered, without the prior written consent of the
Mortgagee.
SECTION 2.04. USE OF PREMISES. Except as approved by the Mortgagee,
which approval shall not be unreasonably withheld, the Mortgagor shall not
permit the Premises to be used for any purpose other than the operation of
the Mortgagor's business, as it is presently conducted.
SECTION 2.05. ESTOPPEL CERTIFICATE. Within ten (10) business days
after a request therefor, the Mortgagor shall furnish a written statement
duly acknowledged of the amount due on this Mortgage and whether any
offsets or defenses exist against the Obligations.
SECTION 2.06. SUBORDINATION OF LEASES. The Mortgagor shall cause all
present and future leases affecting the Premises to be subject and
subordinate to this Mortgage.
SECTION 2.07. RESTRICTIONS AGAINST SALE, CONVEYANCE, ETC. The
Mortgagor shall not sell, convey, transfer, lease, further encumber or
otherwise dispose of the Premises or any part thereof or any interest
therein without the prior written approval of the Mortgagee, which approval
shall not be unreasonably withheld. The lease of the premises to the
Chemung County Industrial Development Agency is specifically excluded from
this provision.
SECTION 2.08. LIEN LAW. In compliance with Section 13 of the Lien
Law, the Mortgagor shall receive the advances secured hereby and hold such
advances as a trust fund to be applied first for the purpose of paying the
cost of improvement and before using any part of the total of the same for
any other purpose.
SECTION 2.09. FURTHER AGREEMENTS. The Mortgagor shall undertake all
such further acts and execute, acknowledge and deliver, at its sole cost
and expense, all such further acts, deeds, conveyances, mortgages,
assignments, estoppel certificates, notices of assignment, transfers and
assurances as the Mortgagee may reasonably require from time to time in
order to confirm,
convey, grant, transfer and assign, confirm unto the Mortgagee, the rights
now or hereafter intended to be granted to the Mortgagor under this
Mortgage.
ARTICLE 3. EMINENT DOMAIN.
SECTION 3.01. ASSIGNMENT OF CONDEMNATION PROCEEDS. All Condemnation
Proceeds are hereby assigned to and shall be paid to the Mortgagee. The
Mortgagor hereby authorizes the Mortgagee to collect and receive such
Condemnation Proceeds to give proper receipts and acquittances therefor and
to apply the same toward the payment of the Obligations notwithstanding the
fact that all of the Obligations may not then be due and payable. Upon
request by the Mortgagee, the Mortgagor shall make, execute and deliver any
and all assignments and other instruments necessary or appropriate, in the
reasonable discretion of the Mortgagee, in order to effect the pledge,
transfer and assignment to the Mortgagee of the aforesaid Condemnation
Proceeds free and clear of any Liens, charges or encumbrances of any kind
or nature whatsoever. The Mortgagor shall continue to pay interest on the
entire principal amount or any of the Obligations, until the Condemnation
Proceeds for such taking or other action shall have been actually received
by the Mortgagee.
SECTION 3.02. APPLICATION OF CONDEMNATION PROCEEDS. The Condemnation
Proceeds assigned hereby may be applied by the Mortgagee in such
proportions and priority as the Mortgagee, in its sole discretion, may
elect, to the payment of principal, interest or other sums, secured by this
Mortgage and/or to the payment to
the Mortgagor, on such terms as the Mortgagee may specify, for the sole
purpose of altering, restoring or rebuilding any part of the Premises which
may have been altered, damaged or destroyed as a result of any such taking
or other action. If, prior to the receipt by the Mortgagee of any
Condemnation Proceeds the Premises shall have been sold on foreclosure of
this Mortgage, the Mortgagee shall have the right to receive and apply said
Condemnation Proceeds to the extent of any deficiency found to be due upon
such sale, with legal interest thereon, whether or not a deficiency
judgment on this Mortgage shall have been sought or recovered or denied,
together with reasonable counsel fees and the costs and disbursements
incurred by the Mortgagee in connection with the collection of said
Condemnation Proceeds.
ARTICLE 4. HAZARDOUS SUBSTANCES.
SECTION 4.01. REPRESENTATION AND WARRANTIES. The Mortgagor hereby
warrants and represents that there are no known Hazardous Substances (as
hereinafter defined) at or affecting the Premises in any manner which
violates Federal, State or local laws, ordinances, rules or regulations
governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Substances.
SECTION 4.02. COVENANTS. For so long as any of the Obligations shall
remain unpaid, the Mortgagor agrees as follows:
(a) the Mortgagor shall keep or cause the Premises to be kept
free of Hazardous Substances and not cause or permit the
Premises to be used to generate, manufacture, refine, transport, treat,
store, handle, dispose, produce or process Hazardous Substances, except in
compliance with all applicable Federal, State and local laws, ordinances,
rules or regulations.
(b) the Mortgagor shall require compliance by all operators and
occupants of the Premises with all applicable Federal, State and local
laws, ordinances, rules and regulations by ensuring that all such operators
and occupants obtain and comply with any and all required approvals,
registrations or permits.
For the purposes of this Article 6, "Hazardous Substance" shall mean
any and all substances and/or conditions, on or affecting the Premises,
which are now deemed to be hazardous substances, or that may present an
unreasonable risk to health or the environment, as determined pursuant to
any Federal, State or local laws, ordinance, rule or regulation governing
the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of hazardous substances including but not
limited to solid wastes, toxic materials and asbestos.
ARTICLE 5. REMEDIES.
SECTION 5.01. REMEDIES UPON DEFAULT. Upon the occurrence of any
Event of Default under the Loan Agreement, the Mortgagee may, in addition
to any rights or remedies available to it under the other Loan Documents,
at law or at equity, take such action as it
deems advisable to protect and enforce its rights against the Mortgagor and
in and to the Premises including, but not limited to, the following
actions, each of which may be pursued concurrently or otherwise, at such
time and in such sequence as the Mortgagee may determine, in its sole
discretion, without impairing or otherwise affecting any other rights or
remedies of the Mortgagee: (a) apply for the appointment of a custodian,
trustee, receiver, liquidator or conservator of the Premises, without
regard for the adequacy of the security for the indebtedness and without
regard for the solvency of the Mortgagor, or any Third Party; (b) institute
an action, suit or proceeding in equity for the specific performance of any
covenants, conditions or agreements contained herein or in the Obligations;
(c) institute proceedings for the foreclosure of this Mortgage, in which
case the Premises may be sold in one or more parcels; (d) enter upon the
Premises and dispossess the Mortgagor and its agents and servants
therefrom; or (e) pursue such other remedies as the Mortgagee may have at
equity, at law under this Mortgage of under any of the Loan Documents.
SECTION 5.02. CUMULATIVE REMEDIES. The rights of the Mortgagee under
this Mortgage and the other Loan Documents shall be separate, distinct and
cumulative and none of them shall be to the exclusion of the others or of
other rights conferred by law; and no act of the Mortgagee shall be
construed as an election to proceed under any one provision herein as an
election to proceed under any one provision herein to the exclusion of any
other provision, anything herein or otherwise to the contrary
notwithstanding.
SECTION 5.03. RECEIVER. The holder of this Mortgage, in any action
to foreclose it, shall be entitled to the appointment of a receiver,
without notice and without regard to the adequacy of any
security for the Obligations secured hereby and any such receiver shall
have the right, INTER ALIA, to enter upon the Premises.
SECTION 5.04. SINGLE PARCEL. In case of a foreclosure sale, the
Premises, or so much thereof as may be affected by this Mortgage, may be
sold in one parcel and as an entirely or in such parcels, manner or order
as the Mortgage, in its sole discretion may elect.
SECTION 5.05. MULTIPLE ACTIONS. To the extent permitted by law, the
Mortgagee shall have the right from time to time to sue for any sums,
whether interest, damages for failure to pay principal or any installment
thereof, taxes, installments of principal, or any other sums required to be
paid under the terms of the Obligations or this Mortgage as the same become
due, without regard to whether or not the principal sum of the Obligations
or any other sums secured by this Mortgage shall be due and without
prejudice to the right of the Mortgagee thereafter to bring an action to
foreclosure, or any other action, for a default or defaults by the
Mortgagor existing at the time such earlier action was commenced.
SECTION 5.06. WAIVER OF EXEMPTIONS, MARSHALLING, ETC. The Mortgagor
will not at any time insist upon, or plead, or in any manner whatever claim
or take any benefit or advantage of any stay or extension or moratorium
law, any exemption from execution or sale of the Premises or any part
thereof, wherever enacted, now or at any time hereafter in force, which may
affect the covenants and terms of performance of this Mortgage, nor claim,
take or insist
upon any benefit or advantage of any law now or hereafter in force
providing for the valuation or appraisal of the Premises, or any part
thereof, prior to any sale or sales thereof which may be made pursuant to
any provision herein, or pursuant to the decree, judgment or order of any
court of competent jurisdiction; nor, after any such sale or sales, claim
or exercise any right under any statute heretofore or hereafter enacted to
redeem the property so sold or any part thereof and the Mortgagor hereby
expressly waives all benefit or advantage of any such law or laws and
covenant not to hinder, delay or impede the execution of any power herein
granted or delegated to the Mortgagee, but to suffer and permit the
execution of every power as though no such law or laws have been made or
enacted. The Mortgagor for itself and all who may claim under it, waive,
to the extent that they lawfully may claim under it, waive, to the extent
that they lawfully may, all right to have the Premises marshaled upon any
foreclosure hereof and further waive and release all technical procedural
errors, defects, and imperfections in any proceeding instituted by the
Mortgagee hereunder.
ARTICLE 6. REAL COVENANTS.
The terms, covenants and conditions of this Mortgage shall
run with the land, shall constitute real covenants and be binding upon the
Mortgagor, its successors and assigns, and all subsequently mortgagees,
tenants and subtenants of the Premises and shall inure to the benefit of
the Mortgagee, subsequent holders of this Mortgage and their respective
successors and assigns.
ARTICLE 7. MISCELLANEOUS.
SECTION 7.01. WAIVER AND AMENDMENT. No amendment or waiver of any
provision of this Mortgage nor consent to any departure by the Mortgagor
therefrom shall in any event be effective unless the same shall be in
writing and signed by an authorized officer of the Mortgagee, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No failure on the part of the
Mortgagee to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof or preclude any other or further exercise
thereof or the exercise of any other right.
SECTION 7.02. EXPENSES. The Mortgagor shall reimburse the Mortgagee
on demand for all reasonable costs, expenses, and charges incurred by the
Mortgagee in connection with the performance, or enforcement of this
Mortgage.
SECTION 7.03. JOINT AND SEVERAL OBLIGATIONS. As used herein the term
Mortgagor shall include all signatories hereto, if more than one. In such
event, the obligations, representations and warranties of the Mortgagor
hereunder shall be joint and several.
SECTION 7.04. NOTICES. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except
as otherwise provided in this Mortgage, notices shall be given to the
Mortgagee and to the Mortgagor by hand or by certified mail, return receipt
requested, addressed to such party at its address set forth below. Notices
shall be effective: (a) if given by certified mail, 72 hours after deposit
in the mails with
first class postage prepaid, addressed as aforesaid; and (b) if given by
hand, upon receipt, provided that notices to the Mortgagee shall be
effective only upon receipt;
Address for notices to the Mortgagee
New York State Urban Development Corporation
d/b/a Empire State Development Corp.
633 Third Avenue
New York, New York 10017
Attention: Senior Vice President and
General Counsel
Address for notices to the Mortgagor
Artistic Greetings, Inc.
One Komer Center
Post Office Box 1999
Elmira, New York 14902-1999
Attention: Tom Wyckoff
SECTION 7.05. CAPTIONS. The captions and headings hereunder are for
convenience only and shall not affect the interpretation or construction of
this Mortgage.
SECTION 7.06. SEVERABILITY. The provisions of this Mortgage are
intended to be severable. If for any reason any provision of this Mortgage
shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction
or the remaining provisions hereof in any jurisdiction.
SECTION 7.07. GOVERNING LAW. This Mortgage shall be governed by, and
interpreted and construed in accordance with, the laws of the State of New
York.
SECTION 7.08. TRIAL BY JURY; COUNTERCLAIMS.
(a) WAIVER OF TRIAL BY JURY. The Mortgagor hereby waives all
rights to trial by jury in any action, proceeding, claim or counterclaim
arising out of this Mortgage.
(b) COUNTERCLAIMS, ETC. Anything contained in this Mortgage to
the contrary notwithstanding, the Mortgagor does hereby waives any
counterclaim, defense,set-off or right of recoupment in any action or
proceeding to foreclose this Mortgage or to recover payment of any amount
payable to the Mortgagee under this Mortgage, the Obligations or any of the
Loan Documents.
SECTION 7.09. IMMUNITIES. To the extent that the Mortgagor has or
hereafter may acquire any immunity from jurisdiction of any court or from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, the Mortgagor hereby irrevocably waives
such immunity with respect to its obligations under this Mortgage.
SECTION 7.10. SUCCESSORS AND ASSIGNS; TRANSFER OF RIGHTS. This
Mortgage shall be binding upon the Mortgagor and any of its successors,
assigns and transfers as may be permitted by the Mortgagee and shall inure
to the benefit of the Mortgagee, its successors and assigns. None of the
rights or obligations of the Mortgagor hereunder may be assigned or
otherwise transferred without the prior written consent of the Mortgagee.
The Mortgagee may assign all or any part of the Obligations to a bank or
other entity, in which event, upon notice by the Mortgagee to the
Mortgagor, the assignee shall have, to the extent of such assignment
(unless otherwise provided herein), the same rights and benefits with
respect to the Premises and the Building Equipment as it would have if it
were the Mortgagee hereunder. The Mortgagee may furnish any information in
the possession of the Mortgagee concerning the Mortgagor, the Premises or
the Building Equipment to any assignee or prospective assignees.
IN WITNESS WHEREOF, this Mortgage has been duly executed as of the day
and year first above written.
ARTISTIC GREETINGS, INC.
By:/s/ Thomas C. Wyckoff
Title: General Counsel
STATE OF NEW YORK )
) SS:
COUNTY OF CHEMUNG )
On the 5th day of November, 1995, before me personally came THOMAS
C. WYCKOFF, to me known, who, being by me duly sworn, did depose and say that
he resides at Elmira, New York; that he is the General Counsel of Artistic
Greetings, Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the
directions of said corporation.
______________________________
NOTARY PUBLIC
EXHIBIT 10-15
AMENDMENT, MODIFICATION AND WAIVER AGREEMENT
THIS AGREEMENT, dated March 8, 1996 is made by and between ARTISTIC
GREETINGS INCORPORATED, a Delaware Corporation (the "Borrower") and MARINE
MIDLAND BANK, a New York Banking Corporation (the "Bank").
R E C I T A L S:
WHEREAS, the Bank and the Borrower have entered into a Revolving Credit
Agreement dated the date hereof (the "Revolving Credit Agreement"), in
connection with which the Bank has agreed to waive certain defaults under,
and to amend and modify, certain other agreements between the Bank and the
Borrower.
WHEREAS, the Bank and the Borrower desire to enter into this agreement
to set forth the Bank's waivers of certain defaults and to provide for
amendments of certain other agreements.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meaning given to them in the Revolving Credit Agreement.
"1991 EQUIPMENT SECURITY AGREEMENT" means that certain Security
Agreement dated August 16, 1991, between the Borrower and the Bank, a copy
of which is attached to the Revolving Credit Agreement as a part of Exhibit
I.
"1991 TERM LOAN AGREEMENT" means that certain Commercial
Installment Loan Agreement dated August 16, 1991, between the Borrower and
the Bank, a copy of which is attached to the Revolving Credit Agreement as
a part of Exhibit I.
"1991 MORTGAGE LOAN AGREEMENT" means that certain loan agreement
dated August 16, 1991 between the Borrower and the Bank, a copy of which is
attached to the Revolving Credit Agreement as a part of Exhibit I.
"1991 MORTGAGE" means that certain mortgage dated August 16, 1991
between the Borrower and the Bank, a copy of which is attached to the
Revolving Credit Agreement as a part of Exhibit I.
"1995 EQUIPMENT SECURITY AGREEMENT" means that certain Security
Agreement dated March 29, 1995,between the Borrower and the Bank, a copy of
which is attached to the Revolving Credit Agreement as a part of Exhibit I.
"1995 TERM LOAN AGREEMENT" means that certain Commercial
Installment Loan Agreement dated March 25, 1995, between the Borrower and
the Bank, a copy of which is attached to the Revolving Credit Agreement as
a part of Exhibit I.
"EQUIPMENT SECURITY AGREEMENTS" means the 1991 Equipment Security
Agreement and the 1995 Equipment Security Agreement.
"REIMBURSEMENT AGREEMENTS" means those agreements between the
Borrower and the Bank providing for, inter alia, reimbursement of the Bank
in the event of a draw under any of the Existing Letters of Credit.
"TERM LOAN AGREEMENTS" means the 1991 Term Loan Agreement and the
1995 Term Loan Agreement.
2. WAIVER OF DEFAULTS. The Bank hereby waives each of the following:
a. Through the date of this Agreement, the defaults arising under
paragraphs 3(a) and 4(a) of the Equipment Security Agreements by reason of
the Borrower's grant of a security interest in the Collateral to Chase.
b. Through March 31, 1996, the defaults under the Continuing Loan
Documents by reason of a breach or default by the Borrower under any
agreement with Chase.
c. Through the date of this Agreement, the defaults under the
Continuing Loan Documents by reason of the breach by the Borrower of any
financial or negative covenant contained therein.
d. Through the date of this Agreement, the defaults under the
Continuing Loan Documents as a result of the cross-default provisions being
triggered by any of the defaults waived above in subparagraphs a, b or c of
this paragraph.
3. WAIVER OF CERTAIN PROVISIONS. The Bank hereby waives, through the
earlier of the maturity of the Revolving Credit Loans (by acceleration or
otherwise) or the Termination Date of the Revolving Credit Agreement, the
Borrower's obligation to comply with Section IVB, Section VA and Section VC
of the 1991 Mortgage Loan Agreement.
4. CORRECTION OF NAME. The Bank and the Borrower hereby amend the
1995 Equipment Security Agreement by correcting the name of the Debtor from
"Artistic Greetings, Inc." to "Artistic Greetings Incorporated."
5. CHASE LIENS.
a. The Bank and the Borrower hereby amend paragraph 3(a) of the
Equipment Security Agreements by adding the following language at the end
of such paragraph:
", and except for any security interest of The Chase Manhattan
Bank, N.A. in the Collateral which Chase agrees is second in priority to
the Security Interest;"
b. The Bank and the Borrower hereby amend paragraph 4(a) of the
Equipment Security Agreements by deleting such paragraph and adding the
following language in its place:
"(a) will defend the Collateral against the claims and demands of
all other parties; will keep the Collateral free from all security
interests of other encumbrances, except the Security Interest and except as
specified in an appropriate schedule hereto and except for any security
interest of The Chase Manhattan Bank, N.A. in the Collateral which Chase
agrees is second in priority to the Security Interest; and will not sell,
transfer, lease, assign, deliver or otherwise dispose of any Collateral or
any interest therein without the prior written consent of Secured Party;"
6. NEGATIVE COVENANTS. The Bank and the Borrower hereby amend the
Term Loan Agreements by deleting paragraph 4. ("Negative Covenants") of
those loan agreements.
7. EVENTS OF DEFAULTS. The occurrence of an Event of Default under
the terms of the Revolving Credit Agreement shall constitute an Event of
Default under the Term Loan Agreements and the Equipment Security
Agreements whether or not the Revolving Credit Agreement is still in force
and effect.
8. RESERVATION OF RIGHTS. Except as expressly modified hereby, all of
the terms and conditions of the Continuing Loan Agreements shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written above.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Thomas C. Wyckoff
MARINE MIDLAND BANK
By: /s/ Stanley L. Peck
EXHIBIT 10-16
EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") dated as of
January 1, 1996 by and between Joseph A. Calabro, residing at 919 Upland
Drive, Elmira, New York 14905 (the "Executive") and Artistic Greetings
Incorporated, a Delaware corporation with a business address of One Komer
Center, P.O. Box 1999, Elmira, New York 14902 (the "Company").
I. WHEREAS, the Executive served as a consultant to the
Company under a Consulting Agreement dated August 21, 1995 (the
"Consulting Agreement") since such date;
II. WHEREAS, the Company desires to memorialize the retention
of the full-time services of the Executive hereby and cancel the
Consulting Agreement, and the Executive is willing to cancel such
agreement and to accept full-time employment for a period of two (2)
years subsequent to the date of execution of this Agreement (the
"Execution Date");
III. WHEREAS, the Company is seeking to address the following
issues in connection with the Executive's employment with, and services
to, the Company:
1. The Company's desire to compensate the Executive at a
level sufficient to induce the Executive to continue his efforts toward
the advancement of the Company's business; and
2. The Company's desire to provide for and fund a non-
competition agreement with the Executive to ensure the protection of its
investment in the advancement of its business under the management of the
Executive.
IV. WHEREAS, the Company desires and agrees, in consideration
of the objectives described above, to employ the Executive on the terms
and conditions set forth herein; and
V. WHEREAS, the Executive is desirous and willing to accept
employment with the Company on the terms and conditions expressed herein.
NOW, THEREFORE, the Executive and the Company hereby enter into
this Agreement on the terms and conditions hereinafter set forth (certain
capitalized terms used herein shall be defined in Section 9 hereof).
1. EMPLOYMENT AND DUTIES. The Executive shall serve as the
Senior Vice President of Manufacturing of the Company. The Executive
shall devote his customary working time to the business of the Company
and shall perform his duties in a diligent, effective and loyal manner.
2. COMPENSATION. The Executive shall be compensated by the
Company (the "Compensation") for the services to be rendered by him
pursuant to this Agreement in the following manner:
a. A base salary of One Hundred Twenty-Five Thousand Dollars
($125,000) per calendar year (the "Yearly Salary"), which shall be
paid each week beginning on the Execution Date as compensation for
services to be rendered by him pursuant to this Agreement, such
compensation being based in part upon the level of compensation
previously received by the Executive as a consultant to the Company;
and
b. A yearly profit sharing (bonus) share of 100% of a total
profit share (bonus) unit (a "Unit"). A Unit is equal to the sum of
1/4 % of the net operating income of the prior year plus 1 1/2 % of
the increase in net operating income of the current year over the
prior year. The time frame for profit sharing (bonus) calculation
purposes for this program will begin as of the first day in January
following the Execution Date. Should you be dismissed for any
reason other than for Cause, or be unable to continue your work due
to death or permanent disability, your profit share (bonus) for the
year involved will be prorated based on the earnings to date.
Should you resign your position at the Company for other than Good
Reason, no profit share (bonus) for the year in which the
resignation takes place will be due or paid.
3. BENEFITS. During the Term of this Agreement, and
thereafter as may be specifically provided herein, the Executive shall be
entitled to receive the following benefits (collectively, the
"Benefits"):
a. Two (2) weeks of paid vacation per calendar year, or such
greater period as may be approved from time to time by the President
of the Company;
b. Health insurance (Company pays 60% and Executive pays 40%
of the plan options selected);
c. Long-term disability insurance (Company pays 100%);
d. Life insurance equal to one year's base earnings up to a
capped limit of $150,000 (Company pays 100%); and
e. Contribution (profit) sharing as a full participant in the
Company's 401K Profit Sharing Plan under the conditions outlined in
the Company's plan manual entitled "Savings Plan".
4. OTHER COMPENSATION. Upon the Execution date you shall be
entitled to the following other compensation (the "Other
Compensation"):
a. A grant of 5,000 shares of the Company's non-registered
Common Stock (subject to the acceptance and ratification of such
grant by the Board of Directors). Such Common Stock to be held in
escrow for the first twelve (12) months of employment and turned
over to you after the escrow period. Should you not be in the
employ of the Company at that time, the shares shall be returned to
the Company, except should death or disability occur during that
time, your designee shall be awarded the shares; and
b. The issuance of 10,000 stock options (subject to the
acceptance and ratification of such grant by the Board of
Directors). The Board will establish the options value and
conditions of stock acquisition at the time of the option grant
under the traditional valuation procedures and conditions followed
in the past for such grants.
5. TERM. This Agreement shall be effective for a period of
two years from the Execution Date (the "Term").
6. TERMINATION OF EMPLOYMENT. "Termination" shall mean
termination of the Executive's employment with the Company prior to the
end of the Term, as of a date specified in a Termination Notice delivered
by either:
a. (i) The Company, for any reason other than the
Executive's death, disability or for Cause or (ii) the Executive for
Good Reason, in either event, the Company shall make Payment (any
amount due under this Section 6 is referred to as a "Payment") to
the Executive, within thirty (30) days of such Termination, of an
amount equal to the product of (x) one-twelfth of Yearly Salary and
(y) the greater of (I) the remaining number of calendar months of
the Term of this Agreement and (II) six months;
b. (i) The Executive in resignation at any time without Good
Reason or (ii) the Company for Cause, and in either event, the
Company shall continue to pay to the Executive the Compensation and
Benefits provided for under this Agreement only until the effective
date of such Termination;
c. The Executive as a result of disability prior to the
expiration of the Term of this Agreement, in which event, the
Executive shall receive the Compensation and Benefits for the
remainder of the Term of this agreement; and
d. The Executive in the event of an Acquisition of Control,
the Company shall pay to the Executive the Compensation and
Benefits, within thirty (30) days of such Acquisition of Control in
a lump-sum amount equal to what the Executive would have received
for twenty-four (24) calendar months, assuming a level of
Compensation and Benefits existing at the date of the Acquisition of
Control.
In the Event of the Executive's death prior to the
expiration of the Term of this Agreement, the Company shall make a lump-
sum payment to the Executive's estate within thirty (30) days of such
death in the amount of the present value (applicable present value
interest factor shall be the Federal Rate described in Section 1274 of
the Internal Revenue Code, hereinafter referred to as the "Code") of the
Compensation and Benefits for the remainder of the Term of this
Agreement.
Any calculation of an amount of Compensation and Benefits
to be paid under this Section 6 shall be made using a rate of
Compensation and Benefits that was applicable immediately prior to the
death of the Executive or prior to the date of any Termination Notice
hereunder.
<PAGE>
7. LIMITATION ON CERTAIN PAYMENTS. Notwithstanding
anything contained herein, if any of the Payments provided for in this
Agreement, together with any other payments of Compensation which the
Executive receives from the Company, would constitute a "Parachute
Payment" (as defined in Section 280G(b)(2) of the Code), the Payments
pursuant to this Agreement shall be reduced to the largest amounts as
will result in no portion of such Payments being subject to the excise
tax imposed in Section 4999 of the Code; provided however, that the
Executive and the Company shall mutually agree to the amount of such
Payments as otherwise would be paid but for the foregoing limitation of
this Section 6, in equal installments such that the present value
(applicable present value discount rate shall be in accordance with
Section 280G(d)(4) of the Code) of such installments will result in no
portion of such Payments to be treated as Parachute Payments under the
Code. The first such installment shall be payable when such amount would
otherwise have been payable; provided further, however, that the
Executive and the Company shall mutually agree to the allocation of any
reductions required by this Section 7.
8. COVENANT NOT TO COMPETE. The Executive hereby covenants
and agrees that, during the period of three (3) years from the Execution
Date (the duration of such Noncompete Period being subject to the
penultimate paragraph of this Section 8 (the "Noncompete Period")), the
Executive will not:
a. For himself or on behalf of any other person, firm,
partnership or corporation, call upon any customer of the Company
for the purpose of soliciting or providing to such customer any
products or services which are the same as or similar to those
provided to customers by the Company. For purposes of this
Agreement, "customers of the Company" shall include, but not be
limited to, all customers contacted or solicited by the Executive
during his employment with the Company;
b. For himself or on behalf of any other person, firm,
partnership or corporation, directly or indirectly seek to persuade
any director, officer or employee of the Company to discontinue that
individual's status or employment with the Company in order to
become employed in any activity similar to or competitive with the
business of the Company, nor will the Executive solicit or retain
any such person for such purpose; and
c. Directly or indirectly, alone or as an employee,
independent contractor of any type, partner, officer, director,
creditor, substantial (i.e., 5% or greater) stockholder of holder of
any option or right to become a substantial stockholder in any
entity or organization, engage within the United States of America
in any business pertaining to the sale, distribution, manufacture,
marketing, production or provision of products or services similar
to or in competition with any products or services produced,
designed, manufactured, sold, distributed or rendered, as the case
may be, by the Company.
The parties agree that the Compensation provided for in Section
2 hereof, shall constitute fair and adequate consideration not only for
the Executive's services to be performed during the Term, but also for
his agreement under this Section 8 for the duration of the Noncompete
Period.
The provisions of this Section 8 shall survive any Termination.
If any of the restrictions on competitive activities contained in this
Section 8 shall for any reason be held by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope,
activity or subject, such restrictions hall be construed so as to
thereafter be limited or reduced to be enforceable to the extent
compatible with applicable law as it shall then exist; it being
understood that by the execution of this Agreement the parties hereto
regard such restrictions as reasonable and compatible with their
respective rights and expectations.
9. CERTAIN DEFINITIONS. The following terms shall have the
following respective meanings when utilized in this Agreement:
a. "Acquisition of Control" shall mean:
(i) upon the sale or other disposition to a person,
entity or "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (other than the Executive or a
group which includes the Executive), of shares of the Company having
35% or more of the total number of votes that may be case for the
election of Directors of the Company; and
(ii) stockholder approval of a transaction for the
acquisition of the Company, or substantially all of its assets, by
another entity or through a merger reorganization, consolidation or
other business combination to which the Company is a party.
b. "Cause" shall mean any action by the Executive which is
reasonably believed by the Company to constitute: (i) fraud; (ii)
embezzlement or misappropriation; (iii) felony; (iv) moral
turpitude; or (v) unsatisfactory performance of his or her duties as
an officer of the Company, other than as a result of the Executive's
death or disability.
c. "Disability" shall mean any physical or mental incapacity,
illness or injury that renders the Executive unable to provide full-
time services to the Company as contemplated by this Agreement for
more than six consecutive calendar months.
d. "Good Reason" shall mean:
(i) any Acquisition of Control of the Company; and
(ii) The Company's failure to perform in a timely manner
its material obligations under this Agreement, a reduction in the
amount of the Executive's base Compensation or Benefits or the
breach by the Company of any other provision of this Agreement.
e. "Termination Notice" shall mean a written notice which:
(i) may be given by either the Company or the Executive
for any of the reasons set forth in Section 6 hereof.
(ii) sets forth the specific provision of this Agreement
relied upon by the Company to terminate the Executive's employment
or by the Executive to resign from such employment;
(iii)sets forth in reasonable detail the facts and
circumstances claimed to provide the basis for the termination of
the Executive's employment; and
(iv) sets forth a Termination Date (which shall not be
less than 30 days or more than 60 days following the delivery of a
Termination Notice).
10. NOTICES. Any notice required or desired to be given
hereunder relating to this Agreement shall be effective if in writing and
delivered personally or by certified mail, postage prepaid, return
receipt requested to a party at the address for such party previously set
forth in this Agreement or to such other address as a party may specify
by written notice to the other party similarly given.
11. BENEFIT. This Agreement and the rights and obligations
contained herein shall be binding upon and inure to the benefit of the
Company, its successors and assigns, and upon the Executive, his legal
representatives, heirs and distributees.
12. WAIVER. The waiver of any party of a breach of any
provision of this Agreement shall not operate as or be construed as a
waiver of any subsequent breach.
13. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and may not be altered, amended or
terminated except by an instrument in writing signed by all parties
hereto. In the event of any conflict between this Agreement and the
terms of any of the Company's employment policies, manuals, or other
statements regarding employment generally, now existing or hereafter
promulgated, the terms of this Agreement shall control.
14. PARTIAL INVALIDITY. The invalidity or enforceability of
any particular provision of this Agreement shall not affect the other
provisions hereof and this Agreement shall be construed in all respects
as if such invalid or unenforceable provision were omitted.
15. APPLICABLE LAW. This Agreement shall be construed and
enforce in accordance with the laws of the State of New York.
16. HEADINGS. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Execution Date.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Stuart Komer
Name: Stuart Komer
Title:Chairman, Chief Executive Officer
and President
By: /s/ Joseph A. Calabro
Name: Joseph A. Calabro
Title:Senior Vice President Manufacturing
EXHIBIT 10-17 EDITED VERSION--
SUBJECT TO CONFIDENTIAL TREATMENT REQUEST
ADVERTISING AGREEMENT
This Agreement is by and between ARTISTIC GREETINGS INCORPORATED, a
Delaware corporation with its principal office at One Komer Center, Elmira,
New York 14902 ("Artistic") and VALASSIS COMMUNICATIONS, INC., a Delaware
corporation with an address of 36111 Schoolcraft Road, Livonia, Michigan
48150 ("Valassis").
R E C I T A L S:
WHEREAS, the parties hereto, along with Valcheck Company ("Valcheck"),
are parties to an Asset Purchase Agreement of even date herewith, pursuant
to which Artistic is purchasing certain assets of Valcheck, a partnership
of which Valassis Direct Response, Inc., a Delaware corporation and a
wholly-owned subsidiary of Valassis, is an 80% partner; and
WHEREAS, Valcheck is engaged in the direct mail marketing of
personalized bank checks ("checks"); and
WHEREAS, Valassis currently has long-term contracts for the placement
of advertising in print media with a total of over 55,000,000 in weekly
circulation; and
WHEREAS, as a material element of the transactions contemplated under
the Asset Purchase Agreement, Valassis has agreed to grant Artistic the
rights to place Artistic's advertising set forth hereinafter, in return for
which Artistic has agreed to pay the consideration set forth hereinafter;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1) RIGHT OF FIRST REFUSAL.Valassis hereby grants to Artistic an
exclusive right of first refusal with respect to the placement of weekly
newspaper full-page "free standing insert" ("FSI") advertising, as well as
in any newspaper supplement or similar advertising in which Valassis has
placement contracts, in all such circulation in which Valassis now or
hereafter during the term of this agreement has placement contracts with
respect to advertising, subject to Valassis' standard terms and conditions
of such advertising placement.
2) EXCLUSIVE PLACEMENT.Valassis guarantees Artistic that for all
circulation in which Artistic elects to place FSI advertising pursuant to
this agreement for checks, Artistic's advertisements will be the exclusive
check advertising contained in that edition of each publication in which
such advertising is placed.
3) ADVERTISING; PRICING.(a) During the term hereof, Valassis
guarantees to Artistic that Valassis shall use its best efforts
to maintain the right to place full-page FSI advertising in newspapers
with weekly circulation of no less than 40,000,000 copies.
(b) For any FSI advertising placed by Artistic under this agreement,
Artistic shall pay Valassis the applicable price as set forth in Schedule 1
hereto. The prices listed in Schedule 1 shall be subject to an increase of
3% annually for each twelve-month year during the term hereof, beginning on
the first anniversary date of the execution of this Agreement. Provided,
however, that if the price at which Valassis would have sold the space
purchased by Artistic to a third party drops materially below the
applicable price set forth in Schedule 1 hereto such that the Schedule 1
price then in effect is uncompetitive, the parties shall negotiate in good
faith toward a reasonable decrease in the Schedule 1 price then in effect.
If the parties cannot agree on such an adjustment, the Schedule 1 price
then in effect shall remain in force. For any other newspaper supplement
or similar advertising, including, without limitation, ROP and C&D Inserts,
placed by Artistic under this Agreement, Artistic shall pay Valassis market
prices for such products.
(c) In addition to the payments set forth in Section 3(b) above, in
consideration of the circulation volume offered, the right of first refusal
and the advertising pricing that Valassis is granting to Artistic
hereunder, Artistic agrees to pay Valassis the following amounts, whether
or not Artistic elects to place any advertising pursuant to this Agreement:
PAYMENT DATE: AMOUNT:
Year 1 - Upon execution of this agreement and
the closing of the transactions contemplated
in the Asset Purchase Agreement
(the "closing date"): $3,000,000
Year 2 - On the first anniversary of the closing date: $2,000,000
Year 3 - On the second anniversary of the closing date: $2,000,000
Year 4 - On the third anniversary of the closing date: $2,000,000
Year 5 - On the fourth anniversary of the closing date: $1,000,000
All such payments shall be made by certified check or bank draft payable to
the order of Valassis or as directed by Valassis or by or wire transfer to
an account designated by Valassis, and shall be made in advance of the year
for which the payment is made, within three business days following the due
date for each such payment.
4) TERM; TERMINATION.This agreement shall remain in effect for five
years following the date of its execution, subject to earlier termination
only upon the mutual agreement of the parties hereto or in the event of a
material breach of any of the terms hereof by either party. In the event
of a material breach, the party alleging such breach shall promptly give
written notice to the party alleged to have committed such breach, which
notice shall describe with reasonable detail the breach alleged to have
occurred. Upon receiving such notice, the party alleged to have committed
the breach shall have 30 days to remedy such breach to the reasonable
satisfaction of the non-breaching party, or this agreement shall terminate
at the end of such 30 day cure period without further notice being
required. In the event that this agreement is terminated, the obligations
of both parties hereto, including but not limited to Artistic's obligations
to make any further payments to Valassis hereunder and Valassis'
obligations to place advertising for Artistic hereunder, shall
automatically expire.
5) GENERAL.
(a) NOTICE.Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been duly given (i) upon hand delivery,
or (ii) on the third day following delivery to the U.S. Postal Service as
certified mail, return receipt requested and postage prepaid, or (iii) on
the first day following delivery to a nationally recognized U.S. overnight
courier service, fee prepaid and return receipt or other confirmation of
delivery requested, or (iv) when telecopied or sent by facsimile
transmission. Any such notice shall be delivered to a party at its address
first set forth above, or at such other address as may be designated by one
party in a notice given to the other from time to time in accordance with
the terms of this paragraph.
(b) ASSIGNMENT. This Agreement may not be assigned in whole or in
part without the written consent of all parties.
(c) ENTIRE AGREEMENT; AMENDMENT.This Agreement, together with all
Schedules hereto, contains the entire understanding among the parties
hereto and supersedes any prior agreements, understandings, discussions, or
writings among the parties with respect to the subject matter hereof. This
Agreement may only be amended by a written document signed by all parties
hereto. There are no representations, warranties, or obligations of any
party not expressly contained herein.
(d) WAIVER.No waiver by any party of a breach of any term or
condition of this Agreement by any other party shall be effective unless in
writing and duly executed by the waiving party. No such waiver shall
constitute a waiver of any subsequent breach of the same or any other term
or condition of this Agreement.
(e) CONSTRUCTION.Should an occasion arise in which interpretation of
this Agreement becomes necessary, such construction or interpretation shall
not presume that the terms hereof be more strictly construed against one
party by reason of any rule of construction or authorship.
(f) DUPLICATE ORIGINALS.This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Agreement to produce or account for more
than one of such counterparts.
(g) HEADINGS.The headings included herein are for convenience only
and do not constitute a portion of this Agreement and shall not be used in
any construction hereof.
(h) APPLICABLE LAW; SEVERABILITY.This Agreement shall be governed and
construed in accordance with the laws of the State of New York pertaining
to contracts made and to be wholly performed within such state, without
taking into account conflict of laws principles. If any provision
contained herein is held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions shall not in any way be affected
or impaired.
(i) JURISDICTION AND VENUE.In the event that any legal proceedings
are commenced in any court with respect to any matter arising under this
Agreement, the parties hereto specifically consent and agree that the
courts of the State of New York and/or the Federal Courts located in the
State of New York shall have jurisdiction over each of the parties hereto
and over the subject matter of any such proceedings, and the venue of any
such action shall be in Monroe County, New York and/or the U.S. District
Court for the Western District of New York.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the 30th day of May, 1995.
ARTISTIC GREETINGS INCORPORATED VALASSIS COMMUNICATIONS, INC.
By: /s/ David C. Lee By: /s/ Robert L. Recchia
Title: President and COO Title:CFO and Treasurer
<PAGE>
SCHEDULE 1
FSI PRICING
*DENOTES CONFIDENTIAL TREATMENT REQUESTED OF REDACTED INFORMATION
1995 June $[ ]*
July $[ ]*
August $[ ]*
September $[ ]*
October $[ ]*
November $[ ]*
December $[ ]*
1996 January $[ ]*
February $[ ]*
March $[ ]*
April $[ ]*
May $[ ]*
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $97,042 $91,121 $78,442 $69,763 $63,174
Net (loss) income (9,952) (426) 1,163 3,607 2,746
Net (loss) income per common
and common equivalent share (1.57) (.07) .20 .60 .46
Total assets
38,654 37,909 31,733 31,996 27,533
Long-term debt 9,550 1,559 1,848 2,155 2,453
Stockholders' equity 9,548 19,308 20,295 19,844 15,964
Book value per share 1.51 3.32 3.50 3.39 2.75
Weighted average number of
common and common equivalent
shares outstanding
6,331,688 5,912,136 5,957,569 5,967,453 5,905,899
</TABLE>
No dividends were paid during the year ended December 31, 1995. Dividends of
$.075 per share were paid during the year ended December 31, 1994. Dividends
of $.075 per share were paid during the year ended December 31, 1993. No
dividends were paid during the year ended December 31, 1992. Dividends of
$.083 per share were paid during the year ended December 31, 1991.
Additionally, a 3 for 2 stock split was effective for stockholders of record on
May 9, 1991 and payable June 10, 1991.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
<S> <C> <C> <C> <C>
Net sales $21,488 $18,982 $26,386 $30,187
Gross profit 13,514 11,627 14,267 16,325
Net income (loss) (1,029) (237) (1,750) (6,936)*
Earnings (loss) per share (.17) (.04) (.28) (1.06)
1994 QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
Net sales $23,139 $18,190 $21,179 $28,613
Gross profit 15,047 11,488 13,052 17,602
Net income (loss) 1,193 (380) (803) (435)
Earnings (loss) per share .20 (.06) (.14) (.07)
</TABLE>
*The net loss for the fourth quarter of 1995 includes several adjustments which
decreased earnings by approximately $5,943 ($.91 per share). These charges
consist of the following items:
(1) Adjustments to deferred advertising $3,829
(2) Adjustments for excess and obsolete inventory 1,413
(3) Valuation allowance related to deferred tax assets 1,437
(4) Other 691
7,370
(5) Related tax benefit (1,427)
Net fourth quarter adjustment $5,943
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS
1995 VS. 1994
NET SALES
In 1995 the Company's net sales increased 6.5% to $97,042 compared to $91,121
in 1994, as it continued its efforts to improve profitability of core
businesses while further developing its check-printing activities. Sales
decreased in the personalized name and address product category, which consists
of labels, MiniPrinters<reg-trade-mark> self-inking stamps and certain other
products generally sold through mass media channels ("personalized products"),
as well as in catalog and international categories by an aggregate of 20.5%,
from $70,249 in 1994 to $55,860 in 1995. These reductions resulted from
discontinuing marginally profitable products and advertising initiatives.
Check sales more than doubled from $17,718 in 1994 to $37,806 in 1995. This
growth was primarily the result of the acquisition of the assets of Valcheck
Company ("Valcheck"), a direct-mail check printing competitor, in the second
quarter (the "Valcheck Acquisition") and significant increases in check
advertising from the establishment of an agreement (the "Advertising
Agreement") with Valassis Communications, Inc. ("Valassis"). See Note 13 to
the Financial Statements.
COST OF SALES
The major components of cost of goods sold are materials, which consist
primarily of paper and gift items; direct labor; and manufacturing overhead.
The cost of materials in 1995 increased 26.8% to $22,802 compared to $17,987 in
1994, primarily as a result of the increase in check sales volume, which
resulted in an increase in the volume of check material purchased. Lower sales
volume in other product lines partially offset volume-related increases in
material costs for checks. Costs of materials for personalized products and
catalogs was decreased as a result of savings from additional management focus
on manufacturing efficiencies in these areas. Finally, material costs
increased 2.6% as a component of net sales between years due to the
subcontracting of a portion of check personalization and fulfillment.
Direct labor was up 39% from $6,182 in 1994 to $8,595 in 1995, an increase of
2.1% as a component of net sales during that period for two primary reasons.
First, as discussed above, check printing volume increased substantially
requiring an increase in direct labor for check printing. Temporary quality
problems resulting from the volume growth also caused a substantial increase in
direct labor hours. The second factor for the increase in direct labor was the
integration of the Valcheck Acquisition and the relocation of production and
warehousing activities to a new facility ("Artistic Plaza"). Employment levels
nearly doubled, with corresponding higher expense for new employees. These
increases in direct labor peaked in the third quarter and subsequently
decreased as a result of reductions in the labor force as requirements were
reevaluated.
Manufacturing overhead increased 13.7% to $11,101 in 1995 compared to $9,763 in
1994, however, such increase only represented a .7% increase as a component of
net sales during that period. Manufacturing overhead represented by indirect
labor partially offset the increase as a result of cost reductions as overall
production methods became more efficient. Employee benefits expense increased
substantially as a result of both overall higher employment levels and the
conversion of long-term temporary personnel to full-time status. Other check-
related expenses were higher in 1995 due to inefficiencies resulting from the
volume growth. Finally, depreciation expense increased by 27% from $650 in
1994 to $828 in 1995 as a result of the purchase of Artistic Plaza in the
second quarter, the refurbishment of that facility and the purchase of check-
printing equipment to support volume increases.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A)
The three largest components of SG&A expenses are advertising, postage and
labor.
Advertising expense increased 15.4% to $48,978 in 1995 compared to $42,441 in
1994, which represents an increase of 3.9% as a component of sales. Although
advertising for personalized products, catalog and international categories
decreased by 16.2% from 1994 due to downsizing efforts to improve
profitability, such decrease was offset by a more than 200% increase in
advertising for checks, as the Company took advantage of increased circulation
availability resulting from the Advertising Agreement.
Postage and shipping expense in 1995 increased 32% to $9,300 compared to $7,046
in 1994, which represents an increase of 1.9% as a component of sales. Such
increase is attributable primarily to check volume increases (which packages
are generally heavier and cost more to ship than other product lines) and
temporary quality problems with an attendant increase in the number of
exchanges of product at no additional charge to customers.
Other administrative expense was reduced by 2.7% to $8,010 in 1995 compared to
$8,236 in 1994, representing a reduction of 1.6% as a component of net sales.
This reduction is substantially the result of the decrease in salaries and
wages, with associated reductions in employee benefits costs. Several other
factors offset one another, including increases in expenses for consulting,
legal and other outside advisors to the Company to facilitate the business
restructuring, as well as charges for donations of obsolete inventory, which in
turn were offset by reductions in travel, office supplies, equipment purchases
and the elimination of international marketing expense.
OTHER
The Company incurred expense under the other (expense) income category of
$2,107 in 1995 compared to income of $109 in 1994. Interest expense increased
to $882 in 1995 from $339 in 1994, which represents an increase of .5% as a
component of net sales. The increase in interest expense was due to higher
borrowing to support the expansion of facilities and working capital for the
growth of the check business. Additionally, in June 1995 the Company began to
accrete a monthly expense to account for the $78 increase in 1995 of the value
of the common stock subject to a put option granted to Valcheck in the Valcheck
Acquisition. Finally, non-recurring charges of $1,397 were recorded in 1995,
reflecting primarily the costs of consolidation of several warehouse facilities
in the Elmira area, and the disposal and writedowns of certain excess and
obsolete inventory.
TAX PROVISION
The Company's effective tax benefit rate for 1995 was 21.4% compared to an
effective 1994 tax benefit rate of 70.2%. The combined federal and state
statutory rate is 40%. In 1994, the Company recognized a tax benefit related
to its loss, as well as tax benefits for New York State investment tax credits
on manufacturing equipment, and federal rehabilitation and job credits. In
1995, the Company was not able to recognize in its tax provision, the full
benefit for its 1995 loss and 1995 credits generated. The Company's tax
benefits were reduced through the application of FAS 109. FAS 109 requires
that the Company assess the value of the deferred tax assets on its balance
sheet. The Company is required to establish a valuation allowance for the
deferred tax assets to reduce the value of the deferred tax assets to a level
that is more likely than not to be realized. The effect of recording a
valuation allowance related to the Company's 1995 deferred tax assets is to
reduce the 1995 tax benefit. Therefore, the Company's effective tax benefit
rate was reduced from 1994 to 1995.
NET INCOME
For the reasons discussed above, the Company's 1995 net loss was $9,952 or
$1.57 per share, compared to 1994's net loss of $426 or $0.07 per share.
RESULTS OF OPERATIONS
1994 VS. 1993
NET SALES
In 1994 the Company's net sales increased 16.2% to $91,121 compared to $78,442
in 1993, primarily as a result of increases of catalog and check sales. Check
sales were $17,718 in 1994 as compared to $2,215 in the previous year and
catalog sales increased 8.3% from $13,477 in 1993 to $14,594 in 1994. Sales
decreased in the personalized products, business and international areas by a
total of 3.3% from $72,674 in 1993 to $70,249 in 1994, a portion of which is
attributed to the decrease in international sales of 14.5% from $3,286 in 1993
to $2,810 in 1994. The decline in sales volumes for personalized products from
$55,911 in 1993 to $52,845 in 1994 primarily reflects the effect of price
decreases implemented in mid-1993 and increased competition. Direct operations
in the United Kingdom were transferred to a licensee in July 1994 and Canadian
sales were scaled back in the fourth quarter of 1994.
COST OF SALES
The major components of cost of goods sold are materials, which consist
primarily of paper and gift items; direct labor; and manufacturing overhead.
The cost of materials in 1994 increased 41.5% to $17,987 compared to $12,712 in
1993, or an increase of 3.5% as a component of net sales during that period,
primarily as a result of three factors; the first being the effect of a sales
price decrease in the label market in July 1993. This price reduction was in
response to increased competition in the marketplace and caused a reduction in
volumes with attendant diminished need for materials during that period. The
second factor was the decision to increase the number of labels offered for the
same price in September 1994. In order to differentiate the Company's offers
from the competition, it increased the number of labels from 250/500 labels to
300/600 labels. The third factor is related to the start-up of the check-
printing operation in August 1993. Material costs for the check-printing
operation are higher than many of the Company's other product lines, and in
addition, are reflective of inefficiencies related to the training and start-up
costs of this operation in the first part of 1994.
Direct labor was up from $4,522 in 1993 to $6,182 in 1994, an increase of 1% as
a component of net sales during that period, partially as a result of the
personalized product market's price reduction. In addition, similar to
material cost variances, the proportion of direct labor involved in the check-
printing operation is higher than many of the Company's other product lines.
Typical inefficiencies associated with the check-printing operation start-up
also contributed to this variance. In addition, as a result of space
limitations associated with the expansion of the check-printing operation, the
Company was unable to implement the expected level of automation and realize
the anticipated reduction in labor cost.
Manufacturing overhead increased 13.7% to $9,763 in 1994 compared to $6,971 in
1993, and such increase represented a 1.8% increase as a component of net sales
during that period. This increase in manufacturing overhead is attributable to
the check-printing operation, including depreciation associated with the large
investment in check-printing equipment.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A)
The three largest components of SG&A expenses are advertising, postage and
labor.
Advertising expense increased 5% to $42,441 in 1994 compared to $40,421 in
1993, which represents a decrease of 4.9% as a component of net sales. The
increase in advertising costs in terms of dollars is the result of the
expansion of the check-printing operation. As a percentage of sales,
advertising expense was more efficient in 1994 than in 1993. This is a result
of the review of programs put into place in the last half of 1993. In the
personalized products category, certain less efficient advertising offerings
and advertising placement programs were eliminated in 1994. Personalized
product advertising dropped to $29,207 in 1994 from $32,133 in 1993, or 8.9% as
a component of net sales during that period. Gains in this category, however,
were offset by extensive product testing in the third and fourth quarters of
1994. In addition, increased competition, cost increases from advertising
vendors and overall paper cost increases negatively affected advertising costs
for 1994. Catalog advertising costs increased to 44.7% of sales in 1994 from
37.8% of sales in 1993. One catalog contributed the bulk of this increase, and
as a result, it was discontinued at the end of 1994. As a result of poor
response rates in the United Kingdom, advertising was discontinued in March
1994, and the subsidiary operations were terminated with the ongoing business
transferred to a licensee in July 1994. Canadian operations also reflected
poor response rates in the first three quarters of 1994. All marginal
advertising programs were eliminated in the fourth quarter of 1994. The
Company experienced much higher customer acquisition costs in the check-
printing market than had been experienced in 1993. A substantial portion of
this cost can be attributed to start-up issues as the Company experimented with
a number of advertising approaches and media as it was perfecting check
advertising programs. In addition, substantial increases in competition also
affected advertising results for the third and fourth quarters of 1994.
Postage and shipping expense in 1994 increased 28% to $7,046 compared to $5,507
in 1993, or an increase of .7% as a component of net sales during that period.
These increases are attributable to the expansion of the check-printing
operation with its higher attendant weight and mailing costs than other product
lines. Employee benefit costs also increased as a result of the expansion of
the check operation coupled with cost increases of both health insurance,
workers' compensation insurance and unemployment benefits.
OTHER
Other (expense) income increased to $109 in 1994 compared to expense of $464 in
1993. The major components were interest and dividends of $498 for 1994 and
$551 for 1993. For 1994 and 1993, interest expense was $339 and $175,
respectively, primarily related to line of credit borrowings. The Company
incurred a net loss on sales of securities of $186 in 1994, as compared to a
net gain on sales of securities of $88 in 1993.
TAX PROVISION
The Company's effective tax rate in 1993 was 11.9%, compared with a tax benefit
rate of 70.2% in 1994. The difference between the Company's effective tax
rate, as compared to the combined federal and state statutory rate of 44%, is
due to New York State investment tax credits on manufacturing equipment, and
federal rehabilitation and job credits, and the certain permanent differences
that exist between recognition of income for book and tax purposes.
NET INCOME
For the reasons discussed above, the Company's 1994 net income decreased by
$1,589 to a net loss of $426 or $0.07 per share, as compared with net income of
$1,163 or $0.20 per share in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its cash requirements primarily from operating
activities. During 1995, cash flows provided by operating activities were
insufficient to provide for the substantial increase in capital expenditures,
higher inventory levels and the cash requirements of the Valcheck Acquisition.
Although the Company's liquidity has been reduced, management believes that the
operating activities of the Company will substantially support the cash
requirements of the Company in the next twelve months and that sufficient
capital resources are available to the Company to provide adequate liquidity
overall. Marketable securities, cash and cash equivalents were $3,108 at year
end; accounts payable have been reduced; the Company has negotiated a committed
revolving line of credit as further described in Note 8 to the Financial
Statements, and other debt agreements have been recast to waive default
conditions.
Working capital decreased to $762 at December 31, 1995 as compared to $2,425 at
December 31, 1994, which was primarily due to the use of short-term funding
sources to support investments in facilities and operating costs directly and
indirectly related to expansion of the check-printing business. This decrease
includes a reduction of $4,615 in marketable securities and an offsetting
increase of $5,302 in accounts payable. Partially offsetting these items is
also an increase of $2,695 in prepaid advertising and a reduction in notes
payable of $4,868, which note was converted to long-term debt as described in
Note 8 to the Financial Statements.
Management is of the opinion that inflation will not have a material effect on
the operations of the Company.
<TABLE>
<CAPTION>
BALANCE SHEETS
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 529 $ 149
Marketable securities:
Trading, at market (cost $1,704 in 1995 and $994 in 1994) 1,926 986
Available for sale, at market (cost $651 in 1995 and
$6,488 in 1994) 653 6,208
Trade receivables, net of allowance for doubtful accounts of
$113 and $0 in 1995 and 1994, respectively 1,803 1,556
Income taxes receivable 900 914
Inventories 5,849 5,829
Prepaid advertising 6,116 3,421
Prepaid expenses and other 27 214
Total current assets 17,803 19,277
Deferred advertising 3,537 6,717
Property, plant and equipment, net 16,869 11,668
Cash surrender value of life insurance (net of policy loans
of 308 242
$127 in 1995 and 1994)
Other assets 137 5
Total assets $ 38,654 $ 37,909
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ - $ 4,868
Current portion of long-term debt 1,777 296
Accounts payable, trade (includes checks-in-transit of
$1,438 in 1995 and $931 in 1994) 13,993 8,591
Accrued liabilities 991 1,232
Customer advances 237 183
Deferred income taxes - 1,682
Total current liabilities 16,998 16,852
Long-term debt 9,593 1,559
Deferred income taxes - 190
Other liabilities 483 -
Total liabilities 27,074 18,601
Common stock, subject to put option - 500,000 shares 2,032 -
Stockholders' Equity:
Common stock, par value $.10:
Authorized: 10,000,000 shares;
Issued:6,037,720 shares in 1995;
6,036,820 shares in 1994 $ 604 $ 604
Additional paid-in capital 11,028 11,031
Unrealized losses on marketable securities held as available
for sale, net of tax effect 1 (185)
Retained earnings (1,149) 8,803
10,484 20,253
Less: Treasury stock, at cost (216,427 and 217,790 shares in
1995 and 1994, respectively) (936) (945)
Total stockholders' equity 9,548 19,308
Total liabilities and stockholders' equity $ 38,654 $ 37,909
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE BALANCE SHEETS.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 1994 1993
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales $97,042 $ 91,121 $ 78,442
Cost of sales 42,498 33,932 24,205
Gross profit 54,544 57,189 54,237
Selling, advertising, general and administrative 66,287 58,510 53,381
expenses
(LOSS) INCOME FROM OPERATIONS (11,743) (1,321) 856
Other income (expense):
Interest and dividend income 278 498 550
Net unrealized gains (losses) on
trading securities 230 (8) -
Net realized (losses) gains on
marketable securities (161) (186) 88
Interest expense (881) (339) (175)
Other (385) (74) 1
(LOSS) INCOME BEFORE TAXES (12,662) (1,430) 1,320
(Benefit from) provision for income taxes (2,710) (1,004) 157
NET (LOSS) INCOME $(9,952) $ (426) $ 1,163
Net (loss) income per common and common equivalent
share $(1.57) $ (.07) $ .20
Weighted average number of common and common
equivalent shares outstanding 6,331,688 5,912,136 5,957,569
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained Treasury
(DOLLARS IN THOUSANDS) Shares Amount Capital Earnings Stock Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1992 5,972,720 $597 $10,698 $8,941 $(392) $ - $19,844
Exercise of stock options
by employees 61,800 6 234 240
Tax benefit from
disqualifying disposition 70 70
of stock options
Purchase of treasury stock (583) (583)
Dividends paid ($.075 per
share) (439) (439)
Net income 1,163 1,163
BALANCE DECEMBER 31, 1993 6,034,520 $603 $11,002 $9,665 $(975) $ - $20,295
Exercise of stock options
by employees 2,300 1 8 9
Stock grants to directors/
employees 21 50 71
Tax benefit from
disqualifying disposition
of stock options
Purchase of treasury stock (20) (20)
Dividends paid ($.075 per (436) (436)
share)
Unrealized losses on
marketable securities held
as available for sale, net (185) (185)
of tax effect
Net loss (426) (426)
BALANCE DECEMBER 31, 1994 6,036,820 $604 $11,031 $8,803 $(945) $(185) $19,308
Exercise of stock options
by employees 900 2 2
Stock grant to a director (5) 9 4
Unrealized gains on
marketable securities held
as available for sale, net
of tax effect 186 186
Net loss (9,952) (9,952)
BALANCE DECEMBER 31, 1995 6,037,720 $604 $11,028 $(1,149) $(936) $1 $(9,548)
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31, 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(9,952) $ (426) $1,163
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,544 1,745 1,345
Allowance for doubtful accounts 113 - -
Net unrealized (gains) losses on trading securities (230) 8 -
Net realized losses (gains) on marketable 161 186 (88)
securities
Purchase of trading securities (1,922) (1,680) -
Proceeds from sale of trading securities 1,268 672 -
Amortization on bonds - - 33
Accretion of common stock subject to a put option 157 - -
(Increase) decrease in cash surrender value of life (66) (55) 18
insurance
(Increase) decrease in assets:
Trade receivables (360) (605) (79)
Income taxes receivable 14 (914) -
Inventories 341 (816) (247)
Prepaid advertising, prepaid expenses and other (2,772) (1,280) 752
Deferred advertising 3,180 (1,332) 212
Increase (decrease) in liabilities:
Checks-in-transit 507 931 -
Accounts payable, trade 4,895 2,010 714
Accrued liabilities (241) 167 (734)
Customer advances 54 (275) 71
Deferred income taxes (1,966) (125) (288)
Federal and state taxes payable - (113) (175)
Net cash (used in) provided by (4,275) (1,902) 2,697
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (6,101) (3,403) (3,077)
Proceeds from sale of equipment - - 3
Purchase of marketable securities (1,595) (2,998) (4,579)
Proceeds from sale of marketable securities 7,215 3,711 5,961
Net cash used in investing activities (481) (2,690) (1,692)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of amounts received under lines of credit (40,663) (28,812) (20,112)
Proceeds received under lines of credit 40,757 33,680 20,112
Purchase of treasury stock - (20) (583)
Proceeds from long-term borrowings 4,553 - -
Proceeds from issuance of common stock,
treasury stock and options exercised 6 79 310
Proceeds from grant from New York State
Urban Development Corporation 483 - -
Payment of dividends - (436) (439)
Repayment of long-term debt - (299) (302)
Net cash provided by (used in) financing
activities 5,136 4,192 (1,014)
Net increase (decrease) in cash and cash
equivalents 380 (400) (9)
Cash and cash equivalents at beginning of year 149 549 558
Cash and cash equivalents at end of year $ 529 $149 $549
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $ 735 $319 $162
Income taxes, net of refunds received (771) 36 551
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Artistic Greetings Incorporated ("Artistic") is engaged primarily in the
direct-mail order marketing and sale of personalized checks, personalized name
and address products, stationery and gift items, and performing services such
as package insertion and mailing list rental. Artistic sells its products
through Sunday newspaper supplements, magazines, co-operative mailings, direct
mailings, its catalogs and through two retail stores. Sales are predominately
to individuals throughout the United States. Corporate headquarters and
manufacturing facilities are located in Elmira, New York. Artistic processes
its orders in several locations in Elmira and the surrounding area.
PRINCIPLES OF CONSOLIDATION
Prior to 1995, the financial statements include the accounts of Artistic and
its wholly-owed subsidiary (the "Company"). During 1992, the Company
established a subsidiary in the United Kingdom, Artistic Greetings Limited, to
expand on business opportunities. As of December 31, 1994, the operations of
the subsidiary were terminated. All material intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with a maturity of three months or
less to be cash equivalents which are reflected at their approximate fair
value. Checks-in-transit of $1,438 in 1995 and $931 in 1994 are reflected in
accounts payable - trade.
INVENTORIES
Inventories are stated at the lower of first-in, first-out ("FIFO") cost or
market, based on the lower of replacement cost or estimated realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and amortization
is provided principally by the straight-line method over the following
estimated useful lives of the assets:
Transportation equipment 5 years
Furniture and fixtures 5- 7 years
Machinery and equipment 5- 12 years
Leasehold improvements 7- 15 years
Buildings 18- 31 years
Betterments, renewals and extraordinary repairs that extend the life of the
assets are capitalized. Other repairs and maintenance are expensed. When
sold, the cost and accumulated depreciation applicable to assets retired are
removed from the accounts, and the gain or loss on disposition is recognized in
income.
PREPAID ADVERTISING AND DEFERRED ADVERTISING
The Company capitalizes costs for direct response advertising and amortizes the
costs over the period of expected future benefit. All other advertising costs
are expensed the first time the advertisement takes place. Direct response
advertising consists of prepaid advertising costs and deferred advertising
costs.
Prepaid advertising costs consist principally of the materials and labor
incurred in developing the advertising materials, including sales literature
and catalogs. These costs are accumulated until the materials are used or
distributed to a customer at which time they are transferred to deferred
advertising costs.
Deferred advertising includes the costs previously described and the costs
associated with distributing advertisements to customers, such as insertion and
mailing costs. Advertising is amortized over a period not to exceed one year
following the date the literature or catalog is mailed or inserted into a
newspaper or co-op mailing. The amortization period corresponds to the
expected sales cycle of the advertising material, based on actual advertising
responses. In 1994, advertising costs related to the check-printing operation
were amortized over a period not to exceed 80 weeks, as the duration of the
probable future benefits was greater than one year or one operating cycle due
to customer reorders. During 1995, the sales cycle for the check-printing
operation for the original sales order and one reorder occurred within twelve
months and the related amortization period was reduced to correspond to that
cycle. These amortization periods are in compliance with American Institute of
Certified Public Accountants Statement of Position 93-7, "Reporting on
Advertising Costs."
At December 31, 1995 and 1994, $9,653 and $10,138 of advertising costs,
respectively, were reported as assets. Advertising expense for the years ended
December 31, 1995, 1994 and 1993 was $48,978, $42,441 and $40,421,
respectively. The expense in 1995 includes a charge of $2,229 to write down
deferred advertising to its net realizable value. The expense for 1995 also
includes approximately $8,500 in advertising placements related to the
agreement described in Note 13 to the Financial Statements.
<PAGE>
CASH SURRENDER VALUE OF LIFE INSURANCE
The Company has chosen to take out loans against the cash surrender value of
certain life insurance policies in place, due to the favorable rates offered.
Face value of the policies is $1,600, with $600 being key man life insurance.
INCOME TAXES
The Company uses the liability method of accounting for deferred income taxes.
The liability method accounts for deferred income taxes by applying statutory
rates to the difference between the financial reporting and the tax bases of
assets and liabilities. Deferred federal and state income taxes result from
temporary differences in the recognition of revenue and expense for income tax
and financial statement purposes. Such differences arise principally from
depreciation, tax credit carryforwards and promotional costs. Tax credits are
applied as a reduction to the provision for federal and state income taxes
using the flow-through method.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped.
NET INCOME PER SHARE
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares (stock options determined
under the treasury stock method) outstanding during the period. The effect of
considering common stock equivalents for fully diluted net income per share was
not significant. The weighted average number of shares outstanding is computed
as follows:
1995 1994 1993
Common shares 6,331,688 5,871,759 5,866,912
Common equivalent
shares - 40,377 90,657
Total 6,331,688 5,912,136 5,957,569
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable, accrued liabilities and other
current liabilities other than debt are reflected in the financial statements
at fair value because of the short-term maturity of those instruments. The
fair values of the Company's debt are disclosed in Note 8 to the Financial
Statements.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts in prior years have been reclassified to conform to the 1995
presentation.
NOTE 2 MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," in the
first quarter of 1994 and determined that it did not have a material effect on
its financial statements.
The Company has classified its securities into two categories, available for
sale and trading securities. The value of the investment accounts is stated at
market value based on quoted market prices. The cost of investments sold is
determined on a specific identification basis. Gains and (losses) from these
securities are as follows:
December 31, 1995 1994
Securities available for sale
Realized gain $ 32 $ 22
Realized loss 249 201
Unrealized gain 2 19
Unrealized loss - 299
Trading securities
Realized gain 120 10
Realized loss 64 17
Net unrealized gain/(loss) 222 (8)
Unrealized gains and losses related to the securities available for sale are
excluded from earnings and reported as a separate component of stockholders'
equity, net of related deferred taxes of $1 and $(95) as of December 31, 1995
and 1994, respectively.
NOTE 3 INVENTORIES
Inventories include cost of materials, labor and overhead and are comprised of
the following:
December 31, 1995 1994
Finished goods $ 798 $1,482
Work-in-process 492 571
Raw materials and supplies 4,559 3,776
Total $5,849 $5,829
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31, 1995 1994
Land $ 365 $ 234
Buildings 8,335 4,412
Machinery and equipment 15,457 11,897
Furniture and fixtures 1,618 1,454
Leasehold improvements - 169
Transportation equipment 160 137
Subtotal 25,935 18,303
Less: Accumulated
depreciation and
amortization 9,066 6,635
Net $16,869 $11,668
Depreciation and amortization expense charged to operations amounted to $2,434,
$1,745 and $1,345 for the years ended December 31, 1995, 1994 and 1993,
respectively.
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31, 1995 1994
Accrued executive bonuses $ - $ 19
Accrued employee profit sharing - -
Accrued and deferred
compensation 511 497
Accrued vacation 400 391
Miscellaneous accrued
liabilities 80 325
Total $ 991 $1,232
NOTE 6 INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative
effect of the accounting change was not material. The provision for (benefit
from) income taxes is comprised of the following:
December 31, 1995 1994 1993
Currently payable:
Federal $ (757) $ (987) $ 380
State 13 13 71
Total current (744) (974) 451
Deferred:
Net loss carryforward (917) - -
Receivable reserve - 41 (41)
Depreciation 293 84 100
Promotional costs (1,361) 523 (106)
Deferred compensation 35 (35) -
Vacation expense (3) (37) (6)
Investment losses and
carryforwards 154 (71) -
Contribution carryforward 172 (470) -
Inventory reserve (348) 29 (6)
Investment credits 270 (33) (235)
Other (261) (61) -
Total deferred (1,966) (30) (294)
Total $(2,710) (1,004) 157
The following is a reconciliation of the expected federal tax at statutory
rates to the effective rates:
December 31, 1995 1994 1993
Expected tax $(4,305) $ (486) $ 449
State tax effect (30) 27 99
Interest and
dividend exclusion (49) (126) (132)
Investment credit - (67) -
Adjustments of
prior years'
accruals - (86) -
Contributions - (205) -
Federal valuation
allowance 1,381 - -
Other 205 17 33
Federal tax (2,798) (926) 449
State tax 88 (78) (292)
Total $(2,710) $(1,004) $ 157
The contribution amount is the tax benefit related to certain inventory donated
to various charities which qualify for a tax deduction in excess of cost under
the Internal Revenue Code.
Deferred tax liabilities (assets) are comprised of the following:
December 31, 1995 1994
Depreciation $ 881 $ 589
Promotional costs 1,308 2,483
Marketable securities 82 -
Gross deferred tax
liabilities 2,271 3,072
Promotional costs (185) -
Vacation expense (148) (145)
Contribution carryforward (298) (470)
Deferred compensation - (35)
Net loss carryforward (2,476) (32)
Alternate minimum tax credits (143) (28)
Inventory reserve (401) (53)
Investment losses and
carryforwards - (167)
Credit carryforwards (1,002) (705)
Gross deferred tax assets (4,653) (1,635)
Deferred tax assets
valuation allowance 2,382 435
Total net deferred taxes $ - $ 1,872
The valuation allowance for deferred tax assets in 1995 of $2,382 relates
primarily to realizability of net operating losses and the uncertainty of
realizing the tax benefit of certain state tax credits. The valuation
allowance for deferred tax assets in 1994 of $435 relates primarily to the
uncertainty of realizing the tax benefit of certain state tax credits.
The Company has New York State Investment Tax Credits and Economic Development
Zone Credits that will provide tax benefit in future years. The Company has
available investment tax credits of approximately $125 with varying expiration
dates through 2001. The Company also has available Economic Development Zone
Credits of approximately $877 which may be carried forward indefinitely.
NOTE 7 LEASES
During 1995, the Company leased a portion of its manufacturing and office space
from an officer who is a substantial stockholder of the Company. All of these
leases expired at December 31, 1995 and one was renewed. Rental expense under
these arrangements amounted to $91, $97 and $86 in 1995, 1994 and 1993,
respectively. Other rental expense amounted to $255, $332 and $260 in 1995,
1994 and 1993, respectively.
Future minimum lease payments under operating leases through the end of the
lease terms are expected to be $51 in 1996 and $20 in 1997.
NOTE 8 DEBT
MARINE REVOLVING LINE OF CREDIT
In March 1996, the Company refinanced a demand discretionary line of credit
with Marine Midland Bank ("Marine") under which it could have borrowed up to
$6,500 (the "Demand Line"), with a revolving line of credit that is committed
to the Company until March 8, 1997 (the "Marine Revolver"). The Company may
borrow and repay at its option, and issue letters of credit, up to an aggregate
of $6,500 under the Marine Revolver at either Marine's quoted Prime Rate (8.25%
as of March 8, 1996) or the Money Market Rate (6.74% as of March 8, 1996) as
quoted by Marine at the time of borrowing. The outstanding balance under the
Marine Revolver as of March 8, 1996 was $4,401. Additionally, Marine has
provided letters of credit to secure workman's compensation obligations of the
Company in the amount of approximately $358, which expire on March 8, 1997.
The amount of borrowings available to the Company under the Marine Revolver is
dependent upon the amount of accounts receivable and inventory, and the value
of certain intangibles of the Company (collectively, the "Collateral"),
determined at the time as such borrowing base is calculated each month. The
Marine Revolver is secured by the Collateral and, so long as any Other Marine
Term Loan (as defined below) remains outstanding, by the equipment pledged to
Marine as security for such obligations. The Marine Revolver contains a
restriction on the payment of dividends as well as financial and operating
covenants requiring, among other things, the maintenance of certain financial
ratios, including minimum net worth, leverage and working capital requirements
as of March 29, 1996. The Company is in compliance with all of the financial
and operating covenants contained in the Marine Revolver. The Marine Revolver
can be prepaid by the Company at any time without penalty.
MARINE EQUIPMENT TERM LOAN
In March 1995, the Company executed a commercial installment term loan
agreement with Marine, under which it borrowed $1,500 (the "Marine Equipment
Loan"), the proceeds of which were used to finance previous equipment
purchases. The Marine Equipment Loan is secured by specific items of equipment
(the "Marine Equipment"), incurs interest at Marine's quoted Prime Rate and
will expire in April 2000. The Company executed an Amendment and Modification
Agreement on March 8, 1996 with Marine (the "Amendment and Modification
Agreement"), under which Marine waived defaults of the Company on such
obligation, and modified certain covenant provisions under the Marine Equipment
Loan to conform to the covenants set forth in the Marine Revolver. The Marine
Equipment Loan also secures obligations of the Company under the Marine
Revolver, so long as the indebtedness under the Marine Equipment Loan remains
outstanding. The principal amount outstanding on the Marine Equipment Loan as
of March 8, 1996 was $1,225 and it can be prepaid by the Company at any time
without penalty.
MARINE COMPUTER TERM LOAN
In August 1991, the Company executed a commercial installment term loan
agreement with Marine under which it borrowed $1,200 (the "Marine Computer
Loan" and, together with the Marine Equipment Loan, the "Other Marine Term
Loans"), the proceeds of which were used to finance certain computer hardware
and software of the Company (the "Computer Equipment"). The Marine Computer
Loan is secured by the Computer Equipment, incurs interest at Marine's quoted
Prime Rate and will expire in August 1996. The Computer Equipment also secures
the obligations of the Company under the Marine Revolver, so long as
indebtedness under the Marine Computer Loan remains outstanding. Under the
Amendment and Modification Agreement, Marine waived defaults of the Company on
this loan as well, and modified certain covenant provisions under the Marine
Computer Loan to conform to the covenants set forth in the Marine Revolver.
The principal amount outstanding on the Marine Computer Loan as of March 8,
1996 was $92 and it can be prepaid by the Company at any time without penalty.
MARINE MORTGAGE
In August 1991, the Company executed a mortgage loan agreement with Marine
under which it borrowed $750 (the "Marine Mortgage"), the proceeds of which
were used to finance two of the Company's manufacturing facilities (the
"Manufacturing Facilities"). The Mortgage is secured by the Manufacturing
Facilities, incurs interest at a rate which is one percent above the quoted
Prime Rate of Marine and requires a repayment of the aggregate principal amount
thereunder of $467 as of October 1996. Under the Amendment and Modification
Agreement Marine waived defaults of the Company on this loan as well, and
modified certain covenant provisions under the Mortgage to conform to the
covenants set forth in the Marine Revolver.
CHASE EQUIPMENT TERM LOAN
In March 1995, the Company executed an installment term loan agreement with
Chase Lincoln First Bank, N.A. ("Chase"), under which it borrowed $3,500 (the
"Chase Equipment Loan"), the proceeds of which were used to finance previous
equipment purchases. The Chase Equipment Loan is secured by specific items of
equipment (the "Chase Equipment"). In March 1996, the Company and Chase
executed an amendment to the Chase Equipment Loan (the "Chase Amendment") that
provided, among other things, for the release of negative pledge provisions,
the waiver of certain covenant violations, the elimination of restrictions on
purchase money financing and the modification of the covenants in the Chase
Equipment Loan to conform such restrictions such that they are not
substantially more restrictive than the covenants set forth in the Marine
Revolver. Additionally, the Chase Amendment provided for an increase in the
interest rate paid by the Company under the Chase Equipment Loan from Chase's
quoted Prime Rate to 150 basis points above Chase's quoted Prime Rate; a one-
time principal payment of $125; and a shortening of the amortization of such
obligation to expire in January 1999, with principal payments made on a monthly
basis of $80 beginning in April 1996, up from $58 per month prior to such time.
Additionally, in connection with the Chase Amendment, a one-time refinancing
fee of 25 basis points was paid to Chase in March. The principal amount
outstanding on the Chase Equipment Loan as of March 8, 1996 was $2,858 and it
can be prepaid by the Company at any time without penalty.
NEW YORK STATE URBAN DEVELOPMENT CORPORATION LOAN
In October 1995, the Company executed a mortgage loan agreement (the "UDC
Mortgage") with the New York State Urban Development Corporation (the "UDC")
under which it borrowed $400, the proceeds of which were used to finance
expenses incurred in the purchase and buildout of its new production facility
("Artistic Plaza"). The UDC Mortgage is secured by Artistic Plaza, does not
incur interest and requires amortization for four years with the principal
amount thereunder due to be repaid in November 1999. The UDC Mortgage can be
prepaid by the Company at any time without penalty.
SOUTHERN TIER ECONOMIC GROWTH LOAN
In August 1995, the Company executed an equipment term loan with Southern Tier
Economic Growth, Inc. ("STEG") under which it borrowed $200 (the "STEG Loan"),
the proceeds of which were used to finance expenses incurred in the purchase of
certain items of equipment (the "STEG Equipment"). The STEG Loan is secured by
the STEG Equipment, incurs interest at a rate of 7% per annum and requires
amortization over a five-year period with the principal amount thereunder due
to be repaid in September 2000. The STEG Loan can be prepaid by the Company at
any time without penalty.
CITY OF ELMIRA MORTGAGE
In April 1991, the Company executed a Sales and Development Agreement with the
City of Elmira (the "City of Elmira Mortgage"). As part of this agreement, the
Company acquired two office buildings located in the City of Elmira. This
agreement provided financing for the purchase of these buildings evidenced by a
promissory note for $920 at one percent per annum using the simple interest
method over 25 years. Both the principal and interest payments are deferred
until May 1996. Interest accrues on the principal balance during this period
at one percent per annum using the simple interest method. After such time,
both the accrued interest and principal will be reamortized over the remaining
20 years by making equal quarterly payments of principal and interest. The
note also provides that the Company will have the right to prepay any part of,
or all of, the outstanding principal and accrued interest at any time without
penalty. This agreement is secured by a first mortgage on these buildings.
LONG-TERM DEBT
December 31, 1995 1994
Marine Revolver $ 4,962 $ -
Marine Equipment Loan 1,275 -
Marine Computer Loan 132 371
Marine Mortgage 514 564
Chase Equipment Loan 2,975 -
UDC Mortgage 400 -
STEG Loan 192 -
City of Elmira Mortgage 920 920
Total long-term debt 11,370 1,855
Less: Current portion 1,777 296
Total $ 9,593 $1,559
Minimum debt repayments under long-term obligations for the next five years and
thereafter are as follows:
1996 $1,777
1997 6,163
1998 1,201
1999 1,201
2000 305
Thereafter 723
The weighted average interest rate on short-term borrowings outstanding are as
follows:
1995 1994 1993
30-day notes - % 6.14% 3.88%
Money-market line 7.36% 6.06% 4.54%
Regular line 8.78% 7.12% 6.00%
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of long-term debt is $11,370 at December 31, 1995 while the
estimated fair value is $10,901 based upon interest rates available to the
Company for issuance of similar debt with similar terms and remaining
maturities.
NOTE 9 DEFINED CONTRIBUTION SAVINGS PLAN
The Company has a defined contribution savings plan under which employees with
one year of service, who have worked 1,000 hours and attained 21 years of age,
are eligible for participation. The Company matches 25% of the first 4%
contributed by each participating employee annually. The Company's matching
contributions were $35, $31 and $26 during 1995, 1994 and 1993, respectively.
Eligible employees enrolled and active at December 31 are eligible for employer
contributions and may make voluntary contributions subject to certain
limitations. Company profit sharing contributions are discretionary. Due to
the net loss in 1995 and 1994, no contributions were made to the plan for those
years. The Company accrued $87 applicable to the plan during 1993, which it
paid in 1994.
NOTE 10 STOCK OPTIONS
The Company has an Employee Long-Term Incentive Plan (the "Plan") under which
Incentive Stock Options ("ISOs") to purchase and/or Stock Incentive Rights
("SIRs") to receive a total of 1,800,000 shares of the Company's common stock
may be awarded. ISOs are granted at not less than fair value on the date of
grant, expire no later than ten years from the date of grant and are
exercisable over variable periods from three to five years. The following
table summarizes the changes in ISOs outstanding and related price ranges for
shares of the Company's common stock under the Plan.
Number
of Shares Price Range
Outstanding at January 1, 1993 550,580 $ 2.62 to $11.75
Granted 110,250 $ 5.25 to $10.31
Exercised (61,800) $ 2.62 to $ 8.50
Canceled (42,400) $ 3.20 to $ 9.38
Outstanding at December 31, 1993 556,630 $ 2.62 to $11.75
Exercisable at December 31, 1993 274,208 $ 3.20 to $11.75
Outstanding at January 1, 1994 556,630 $ 2.62 to $11.75
Granted 101,500 $ 4.00 to $ 5.00
Exercised (2,300) $ 3.20 to $ 5.00
Canceled (20,300) $ 6.06 to $11.75
Outstanding at December 31, 1994 635,530 $ 3.20 to $11.75
Exercisable at December 31, 1994 398,648 $ 3.20 to $11.75
Outstanding at January 1, 1995 635,530 $ 3.20 to $11.75
Granted 15,000 $ 3.12 to $ 3.50
Exercised (900) $ 2.62
Canceled (148,730) $ 4.00 to $ 9.50
Outstanding at December 31, 1995 500,900 $ 3.12 to $10.31
Exercisable at December 31, 1995 272,908 $ 3.12 to $10.31
In 1993, the shareholders approved an amendment to the Plan that, among
other things, added the right to award SIRs to the Plan. SIRs are
rights to receive shares of the Company's common stock without any cash
payment to the Company, conditioned only on continued employment with
the Company over a specified four-year incentive period. During that
incentive period, the recipient of a SIR award would receive "dividend-
equivalent" payments on the number of shares covered by his/her SIR
award, but would not have any other rights, e.g., voting rights, etc.,
with respect to such shares until they were issued to him/her under the
terms of the award. To date, no SIRs have been granted under the Plan.
The Company had shares available for awards amounting to 663,430,
529,700 and 610,900 at December 31, 1995, 1994 and 1993, respectively.
The Company is able to realize an income tax benefit from the exercise
and early disposition of ISOs. For financial reporting purposes, this
benefit results in a decrease in current income taxes payable and an
increase in additional paid-in capital.
NOTE 11 STOCKHOLDERS' EQUITY
In 1995, the Company issued 1,363 shares of its treasury stock to a
director at a price per share of $2.75 for services rendered. In 1994,
the Company granted 11,860 shares of its treasury stock to directors at
a price per share of $5.00 for services rendered and 2,000 shares of its
treasury stock to an employee at a price per share of $5.50 for services
rendered.
In October 1993, the Board of Directors authorized the purchase of up to
300,000 shares of the Company's common stock at the prevailing market
price as the shares are made available to the Company. The Company has
repurchased 3,500 and 105,000 shares in each of December 31, 1994 and
1993, respectively. The Company repurchased no shares in 1995. These
shares were repurchased at an average per share price of $5.60 and $5.55
in 1994 and 1993, respectively.
NOTE 12 RELATED PARTY TRANSACTIONS
A director of the Company who resigned in 1995 and who is a licensed
stock broker, processes the Company's marketable securities
transactions. Total commissions paid to this director were
approximately $21, $16 and $70 in 1995, 1994 and 1993, respectively.
NOTE 13 COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS
In 1996, the Company entered into a two-year employment agreement with a
Senior Vice President of the Company, which provides a minimum annual
compensation of $125 and for participation in the Company's executive
bonus program. In 1993, the Company entered into a five-year employment
agreement with the Chairman of the Company which provides minimum annual
compensation of $225 and an annual bonus based on net income before
taxes.
LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect
to such litigation cannot be determined, in the opinion of management,
such liability will not have a material adverse effect on the Company's
financial condition or results of operations.
COMMITMENTS
In May 1995, the Company negotiated a contract with a supplier to obtain
right of first refusal for advertising placement at competitive rates.
As of December 31, 1995, the remaining commitment under the contract,
which expires May 1999, was $7,000, payable in annual installments of
$2,000 through May 1998 and the final installment of $1,000 due in May
1999.
NOTE 14 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITY
During 1995, the Company acquired certain assets of Valcheck Company in
exchange for 500,000 shares of the Company's common stock. The common
stock was issued at a price of $3.75 per share, or $1,875. The common
stock is puttable to the Company, at the Seller's option, two years from
the acquisition date at $5 per share.
1995
Fair value of assets acquired
Inventory $ 361
Property, plant and equipment 1,481
Name list 33
Total $1,875
Less: common stock issued 1,875
Cash paid $ -
NOTE 15 NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS 121 becomes effective in fiscal 1996. The Statement
requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If impairment is recognized, the carrying
amount of the asset is to be reduced to its fair value. Management does
not believe adoption of SFAS 121 will have a material impact on the
Company's financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." SFAS 123 becomes effective
in fiscal 1996. SFAS 123 established financial accounting and reporting
standards for stock-based employee compensation plans. The Statement
defines a fair value based method of accounting for an employee stock
option or similar equity instrument. As provided under SFAS 123, the
Company has the option to continue application of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
provide pro forma disclosure of the fair value based method. The
Company is unable to determine the impact of the pro forma disclosure
requirement. Such impact will be dependent on future stock option
activity.
<PAGE>
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ARTISTIC GREETINGS INCORPORATED:
We have audited the accompanying consolidated balance sheets of
Artistic Greetings Incorporated, (a Delaware corporation) and
subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
the Company and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ROCHESTER, NEW YORK /s/ Arthur Andersen LLP
FEBRUARY 16, 1996
(EXCEPT FOR CERTAIN OF THE MATTERS DISCUSSED IN NOTE 8 TO THE FINANCIAL
STATEMENTS AS TO WHICH THE DATE IS MARCH 29, 1996)
<PAGE>
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following represents the range of quarterly high and low sales prices
for the Company's common stock for 1995 and 1994 as provided by the NASD.
1995 1994
Quarter High Low High Low
1 3 3/4 2 1/8 6 1/4 4 5/8
2 4 3/8 2 1/4 6 1/8 4 3/4
3 4 1/8 3 1/8 5 7/8 4 3/4
4 3 7/8 2 1/4 5 1/8 2 5/8
On March 4, 1996, the closing price of the Company's common stock was $2 7/8
per share, as quoted by NASDAQ - NMS and published in THE WALL STREET JOURNAL.
The number of holders of record of the Company's common stock on March 4, 1996
was in excess of 673, as supplied by the Company's transfer agent.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports incorporated by reference in this Form 10-K
into the Company's previously filed Registration Statements on
Form S-8, File Nos. 33-24503 and 33-43605.
Rochester, New York /s/ Arthur Andersen LLP
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE DATA IN THIS SCHEDULE ARE EXTRACTED FROM THE COMPANY'S AUDITED 1995
FINANCIAL STATEMENTS AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000007610
<NAME> ARTISTIC GREETINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 529
<SECURITIES> 2,579
<RECEIVABLES> 1,916
<ALLOWANCES> 113
<INVENTORY> 5,849
<CURRENT-ASSETS> 17,803
<PP&E> 16,869
<DEPRECIATION> 2,544
<TOTAL-ASSETS> 38,654
<CURRENT-LIABILITIES> 16,998
<BONDS> 9,593
<COMMON> 604
0
0
<OTHER-SE> 8,944
<TOTAL-LIABILITY-AND-EQUITY> 38,654
<SALES> 97,042
<TOTAL-REVENUES> 97,042
<CGS> 42,498
<TOTAL-COSTS> 108,785
<OTHER-EXPENSES> (385)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (881)
<INCOME-PRETAX> (12,662)
<INCOME-TAX> (2,710)
<INCOME-CONTINUING> (9,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,952)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> 0
</TABLE>
