FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
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 incorporation or organization) (I.R.S. Employer
Identification No.)
ONE KOMER CENTER
ELMIRA, NEW YORK 14902
(607) 733-5541
(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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by non-
affiliates was approximately
$14,795,500 on March 20, 1997.
As of March 20, 1997, the Registrant had 6,344,146 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, 1996 are incorporated by reference in Parts II and IV of
this report and portions of the Registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders are incorporated by reference in Part III of
this report.
PART I
ITEM 1. BUSINESS.
CERTAIN OF THE INFORMATION CONTAINED IN THIS FORM 10-K,
INCLUDING THE DISCUSSION WHICH FOLLOWS IN THIS ITEM 1 OF THE
COMPANY'S PLANS AND STRATEGIES FOR ITS BUSINESS AND RELATED
FINANCING AND THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A") FOUND IN
ITEM 7 OF THIS REPORT, CONTAIN FORWARD-LOOKING STATEMENTS. FOR
A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING
STATEMENTS, PLEASE CAREFULLY REVIEW THE DISCUSSION OF RISK
FACTORS CONTAINED IN THIS ITEM 1, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS REPORT AND IN THE COMPANY'S
PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC" OR "COMMISSION").
GENERAL Artistic Greetings Incorporated ("Artistic" or the
"Company") sells, markets and manufactures
domestically a broad range of personalized products
focused on three core business lines (i) personalized
bank checks ("Checks"), (ii) name and address products
("Personalized Products") and (iii) gift items (some
of which are personalized), greeting cards, apparel
and household consumable items ("Catalog Items"). The
merchandise is sold via free standing newspaper
inserts ("FSIs"), co-op mailing programs ("Co-ops"
and, together with FSIs, "Mass Media") and catalogs
throughout the United States. The Company also
generates revenues from personalized product and
catalog fulfillment services ("Fulfillment Services"),
package insert programs ("PI Programs") and mailing
list rentals to other concerns ("List Rentals").
Additionally, the Company has initiated an advertising
and sales campaign over the Internet where its
interactive, order-capable home page can be found at
WWW.ARTISTICGREETINGS.COM. The Company also markets
certain of its merchandise internationally in
countries which include Canada, the United Kingdom
(the "U.K.") and Australia.
MARKETING AND The Company's advertising efforts for its Checks and
PROMOTION Personalized Products are focused primarily on Mass
Media. An exclusive agreement with Valassis Com-
munications, Inc. ("Valassis") provides the Company
with a right of first refusal to participate in
Valassis FSI media publications distributed through
Sunday newspapers in 55 million homes across the
country 48 weeks each year (the "Advertising
Agreement"). The Company considers this exclusive
access to its customers crucial to geographically and
demographically targeting, and profitably managing,
its customer solicitation efforts. In particular, the
Valassis relationship enables the Company to target
its advertising and measure response from customers in
regions which have historically produced the highest
response rates for specific products, as well as
determine which regions are less suitable for the Com-
pany's solicitation efforts.
Since the early 1980's, Artistic has also participated
in nationwide Co-op mailing programs in order to
enhance its domestic market penetration. Under these
programs, printed inserts advertising the Company's
products are distributed along with inserts of other
participating marketers through the mail.
Additionally, the Company has been advertising in Co-
op mailings in Canada since 1993, PI Programs in the
U.K. since the late 1980's, and plans to test its
first Co-op mailing program in Australia in April
1997.
The Company also distributes its catalog, THE PERSONAL
TOUCH{<reg-trade-mark>}, through the mail and in the Company's
PI Program. The PERSONAL TOUCH CATALOG
{<reg-trade-mark>} is a digest-
size catalog of low to middle-priced consumer products
that mails monthly, with four distinct seasonally
thematic merchandise groupings (Spring, Summer, Fall
and Holiday). More than 90% of the 400,000 PERSONAL
TOUCH CATALOG{<reg-trade-mark>} customers who have purchased
merchandise from the catalog in the last 12 months are
middle to upper income bracket (average income above
$50,000), highly-educated females between 25 and 55
years old. The catalog features personalized and dec-
orative labels, stationery, greeting cards, gifts,
apparel and creative accessories. The three major
product groupings sold in the catalog are: (i)
utilitarian paper, labels, home/office paper and
productivity tools, (ii) licensed character items and
(iii) natural-decoratively themed items such as
flowers, angels and animals.
The Company began to advertise its personalized checks
on the World Wide Web in August 1994, long before the
current heightened awareness of this medium. The web
pages have had the advantage of showing all available
check designs, as well as all other information and
options regarding checks. Artistic has recently
completed the next step in an ongoing initiative to
expand its Internet presence to include Personalized
Products and Catalog Items in addition to Checks, with
a new highly-sophisticated, order-capable Internet
server displaying a home page at
WWW.ARTISTICGREETINGS.COM.
CHECKS GENERAL. Artistic Checks{<reg-trade-mark>}, the Company's Check
product line, was initiated in August 1993 and was
expanded in May 1995 through the acquisition from
Valassis of the assets of its direct-mail check
operation, The Valcheck Company ("Valcheck"), which,
like the Company, had been engaged in the direct-mail
check market (the "Direct-Mail Channel"). The
acquisition also added significantly to the Company's
check sales and added nearly one million names to its
customer list. Check sales represented 44% of the
Company's 1996 net sales, compared with 39% and 19% in
1995 and 1994, respectively. Artistic currently
subcontracts its check printing through an arrangement
with the John H. Harland Company ("Harland") at a
contractually-determined price per box of checks
printed. For a further description of this
arrangement, see "Manufacturing-Checks."
MARKETPLACE. Management believes that the domestic
market for personalized bank checks in 1996 was
approximately $2 billion in sales with checks being
sold through financial institutions (the "Bank
Channel") representing 85% or $1.7 billion and the
Direct-Mail Channel representing 15% or $300 million
of the total. The Company believes that the total
market for checks in the United States is growing at a
2% to 3% rate annually, which, management believes,
represents a diminishing per capita usage of checks as
electronic banking and debit card usage increases,
offset by the growth in population of the United
States. The slow growth of the total check market
does not, however, reflect negatively on the Direct-
Mail Channel which has seen growth rates averaging
10%-12% per year over the past five years, as
consumers continue in increasing numbers to recognize
the significant favorable price differential,
convenience, variety of design and high quality of
checks offered through the Direct-Mail Channel.
Management believes sales through the Direct-Mail
Channel will continue to grow for the foreseeable
future as direct-mail check companies continue to
convert customers from the segment represented by the
Bank Channel, and that the Direct-Mail Channel is the
fastest growing check market in the world.
The Direct-Mail Channel is fragmented with a trend
toward consolidation similar to that evidenced over
the past five to seven years in the Bank Channel,
where regional-check marketers and manufacturers took
advantage of economies of scale by merging with larger
companies like Deluxe Corporation ("Deluxe"), Harland
and Clarke American ("Clarke American"). Management
believes that the high solicitation costs of new
customers in the Direct-Mail Channel favors
established, direct-mail check purveyors like Artistic
over the long-term. This advantage results from the
costs of acquiring new customers being financed by
higher-margin check reorders for which the Company
incurs virtually no advertising expense, thereby
increasing profitability and supporting the ongoing
expense of advertising campaigns for first-time
customers. The high number of check-reorder customers
which the Company has established represents a
competitive advantage over smaller check companies
that must purchase initial check customers with
capital resources not as closely associated with, and
supported by, the reorder stream. Management believes
there exist opportunities in the marketplace for
established direct-mail check companies like Artistic
to acquire smaller companies experiencing financial
pressures caused by these market dynamics. The
largest direct-mail check producer in the Direct-Mail
Channel is Current, Inc., owned by Deluxe, with an
estimated 40% share of the Direct-Mail Channel in
1996. The Company believes that its sales are
approaching those of its nearest size competitor,
Checks In The Mail, a subsidiary of Clarke-American,
and that both companies are vying for the number two
position in the Direct-Mail Channel with another
approximate 33% share of the Direct-Mail Channel
between them in 1996. Management believes that the
remaining share of the Direct-Mail Channel is
represented by numerous other smaller companies.
STRATEGY. In the Check business, management expects
regular and predictable growth to occur in initial
customer orders as advertising continues at levels
similar to those experienced in 1996, with higher
growth in revenue from the check-reorder stream as
customers acquired previously return to Artistic to
replenish their check supplies at the Company's low
reorder prices. Management plans to grow the
Company's direct-mail check business in 1997 by
managing profitably the ratio between first-time
orders and reorders. The Company is also continuously
searching the marketplace for acquisition
opportunities as a means to build check sales more
quickly.
BUSINESS CHECKS. The Company has recently begun a
campaign for the sale of three-to-a-page business and
desk checks ("Desk Checks") in its Mass Media
advertising vehicles. The Company believes that the
sale of Desk Checks represent 8% of the total check
market and that such percentage will continue to grow
as consumers recognize Desk Checks as a convenient and
efficient alternative to the traditional pocket check.
Management believes that by offering its customers
substantial savings on these products compared to the
price points available in the Bank Channel, consumers
will choose this lower-cost, easily accessible and
multi-design alternative. The Company offers its
customers a full line of business checks and other
business type products through its brochure, which it
distributes upon request to its customers who contact
the Company through its toll free business check
hotline advertised in its FSI media.
PERSONALIZED GENERAL. Personalized Products consist primarily of
PRODUCTS labels, miniprinters, stamps and other lower-price
point items, personalized in high volume for millions
of the Company's customers. Artistic virtually
invented the personalized label market and has made it
an easily accessible and affordable staple of
convenience for its millions of customers. The
shipment of these approximately five million units in
1996 has the additional benefit to the Company of
providing "ride-along" opportunities for the Company's
own advertising material, including its catalog, as
well as the sale of the space in those packages to
third parties in the Company's PI Program. See "-PI
Program." Personalized Products sales represented 37%
of the Company's 1996 net sales, compared with 45% and
58% in 1995 and 1994, respectively.
Personalized Products include labels, pens, pencils,
stationery, calling cards, self-inking stampers, other
stamps, memo pads, keychains, nameplates, letter
openers, hand embossers, luggage tags and greeting
cards. The Company also markets personalized products
with images such as Looney Toons<trademark>, Star Trek
<trademark> and Norman Rockwell<trademark> licensed
from Warner Brothers, Viacom Consumer Products and
Curtis Publishing Company, respectively, among others.
MARKETPLACE. Management believes that the approximate
domestic market size for this segment in 1996 was
approximately $250 million in sales. Artistic's 1996
sales of $36.5 million in this segment represented an
approximate 15% - 20% market share, making it a major
competitor along with Current and Concepts Direct,
Inc., among others, in this category. Management
believes that the Personalized Product market has
growth potential of approximately 3%-5% per annum,
which would tend to minimize the entrance of new
participants. There exists severe price competition
in this product line as the customers' primary focus
in their purchase decision for these highly consumable
products is price. The Company, however, has
successfully demonstrated that it can distinguish
itself from other label vendors through its consistent
and long-proven service levels, quality of product and
breadth of design.
Success in this segment is driven partially by the
ability to utilize existing printing technologies and
Mass Media marketing techniques to access new market
segments, by leveraging database expertise and by
targeting new customers and repeat buyers. The
Company is redesigning the management of its database
with the assistance of a third-party partner whose
expertise and advice the Company believes should
enable it to more scientifically determine, among
other things, Artistic's "best" customers across its
name lists and allow the Company to cross-sell and
more carefully deliver its product offerings to such
proven buyers. See "-List Rentals."
STRATEGY. In the Personalized Product business,
management expects to maintain sales at traditional
levels in the United States, while testing the
international marketplaces in such areas as the U.K.,
Australia and New Zealand. The Company's strategy is
to attempt to replicate abroad its domestic success
with the Personalized Products line by focusing on new
customers who do not have readily available access to
the simplicity and convenience of labels, miniprinters
and other personalized products, which the Company can
manufacture and ship quickly and efficiently. An
added benefit of the international marketplace is the
Company's ability to introduce and market its
Personalized Products at higher price points than are
available domestically, potentially improving overall
Company margins.
CATALOG GENERAL. 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 merchandise 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. In 1996 Artistic
shipped more than 18 million catalogs and expects to
distribute as many as 15% more in 1997. Catalog sales
represented 15% of the Company's 1996 net sales,
compared with 10% and 16% in 1995 and 1994,
respectively.
MARKETPLACE. Management believes that the direct
mail, Catalog Items market has annual sales in excess
of $800 million. With an approximate 1.75% market
share, the Company is a relatively small competitor
but believes it has significant growth opportunities
in this market. Management believes that gift and
merchandise companies compete in three distinct
demographic segments: low-middle; upper-middle; and
upper. Artistic's PERSONAL TOUCH CATALOG{<reg-trade-mark>}
targets primarily upper-middle level income customers, defined
as those with household incomes higher than $50,000.
STRATEGY. In the Catalog Items business the Company
is expecting sales growth and improved margins from
its newly refocused PERSONAL TOUCH CATALOG{<reg-trade-mark>}.
The Company has redesigned the layout of the PERSONAL
TOUCH CATALOG{<reg-trade-mark>} and has refined its product
offerings to further appeal to its upper-middle income
and primarily female customers. The Company has
developed a plan to further build the circulation and
sales performance of the PERSONAL TOUCH CATALOG{<reg-
trade-mark>} by systematically accentuating the most successful
products and eliminating those evidencing the poorest
performance. Concurrently, management has determined
to leverage its fixed expenses of this well-
established franchise by offering to provide marketing
and manufacturing fulfillment services to other
catalog merchants - primarily in the nonprofit sector
- where the economies of developing new catalog
programs are somewhat more favorable than in the "for-
profit" sector. For a further description of these
efforts, see "Fulfillment Services-HSUS."
While the check and label businesses employ more
aggressive pricing to attract customers, the Catalog
Item market relies more on the novelty, variety and
quality of merchandise to secure orders. Sales tend
to be more seasonal with a large percentage of sales
occurring during the October through December period.
However, with the strategic development of the breadth
of product in the PERSONAL TOUCH CATALOG{<reg-trade-mark>}
described above, management expects to mitigate the
historically cyclical nature of this business.
FULFILLMENT GENERAL. The Company has a highly efficient, well-
SERVICES established marketing and manufacturing infrastructure
which it maintains to service its three core business
lines. This infrastructure is flexible, scaleable and
lends itself to providing additional capacity in a
low-cost manner. The Company has contracted to
produce for Harland stampers and miniprinters
("Stamps") sold through Harland's network of financial
institutions (the "Harland Stamp Program") and has
agreed in principle with the Humane Society of the
United States ("HSUS") to market, merchandise and
fulfill orders for its new HSUS catalog program (the
"HSUS Catalog Program").
HARLAND STAMP PROGRAM. In furtherance of the
Company's relationship with Harland as described under
"Manufacturing-Checks," Harland has contracted to have
the Company produce its requirements for "Slim Stamps"
and for a high percentage of Harland's requirements
for the production of other Stamp products. Harland
receives orders for Stamps from its customers,
processes the orders and electronically transmits the
personalized information directly to the Company's
manufacturing facility where the Stamps are produced
and shipped, generally within a twenty-four hour
period. Although the revenue derived from the Harland
Stamp Program, which began in September of 1996, does
not represent a significant portion of the Company's
sales, management believes that, because of the
success of the program, additional opportunities exist
to produce more Stamps and other products for Harland
and other third parties.
HSUS CATALOG PROGRAM. The Humane Society of the
United States ("HSUS") is an international, non-profit
organization devoted to the promotion, protection and
the humane treatment of animals. Artistic and the
HSUS have agreed in principle to a five-year program
in which Artistic will provide its catalog expertise
to create, design, merchandise and fulfill orders in
keeping with the mission-related activity of the HSUS.
The Company has agreed to be a "turnkey" provider of
these services to the HSUS and is in discussion with
other nonprofit organizations to do the same.
Although the revenue to be derived in 1997 from the
HSUS Catalog Program is not expected to represent a
significant portion of the Company's sales, management
believes that the relationship offers a significant
growth opportunity with the HSUS over the five-year
term, as well as with other nonprofit entities. The
services to be provided to the HSUS have been
developed with limited additional cost as the Company
is utilizing its existing capabilities for marketing,
production and fulfillment of its PERSONAL TOUCH
CATALOG{<reg-trade-mark>}. Additionally, all customer names
generated through the HSUS Catalog Program are
expected to be maintained by the Company for further
growth of its customer base and PI Program.
PI PROGRAMS The Company's PI Program is an important element in
the continuing development of its ability to access,
service and solicit orders from its established cus-
tomer base of over 12 million buyers. The PERSONAL
TOUCH CATALOG{<reg-trade-mark>} and other Artistic advertising
material is inserted in each package that is shipped
to its customers and provides an inexpensive means of
targeted solicitation to proven Artistic buyers that
results in high average order sizes and favorable
response rates. As the Company's customer base
continues to grow through general sales activity, the
PI Program becomes a more powerful marketing asset of
the Company. The Company also derives revenue from
the marketing of the space in its outgoing packages to
other direct-mail participants for their advertising
to "ride-along" with the Company's shipments.
LIST RENTALS Artistic has 400,000 PERSONAL TOUCH CATALOG{<reg-trade-mark>},
customers who have purchased Catalog Items from the
Company in the past 12 months, four million direct-to-
consumer check customers, and three million customers
of other Personalized Products advertised in Mass
Media (collectively, the "Artistic Names"). As of
January 1, 1997, the Company has contracted with
Brigar Computer Services, Inc. and Direct Tech, Inc.
("BDT") for the management and maintenance of the
Artistic Names. Management expects that the Company
will benefit from the experience and direct-mail
expertise offered by BDT. With support, training and
advisement of the BDT consultants, Artistic should be
able to more effectively utilize its catalog database
management, statistical modeling and other file man-
agement techniques such as recency-frequency-monetary
file segmentation. The Company expects that the
information regarding Artistic's "best" customers will
provide sales opportunities that have yet to be
accessed. As a result of the proven success of sales
through Artistic's in-house PI Program, management
will continue to focus on building package insert
opportunities or the "back end," to leverage the
Artistic Names as that list continues to grow.
Additionally, management is focusing on cross-selling
between the Artistic Names and the names of the
partners for whom it will conduct catalog fulfillment
and other services. The Company has also historically
generated revenue from the rental and exchange of the
Artistic Names to and with other direct-mail
companies. Management expects that with its renewed
focus on the maintenance of the Artistic Names, the
Company should derive additional revenue from such
list rental activities as it becomes easier to market
the Artistic Names to other direct mailers who would
benefit from the characteristics of the Artistic
customers represented by the Artistic Names.
MANAGEMENT In 1996 the Company began an extensive effort to
INFORMATION overhaul its entire information systems infrastructure
SYSTEMS following a full-scale review of the Company's system
capabilities. The study determined that the Company
was enduring substantive capacity and reliability
problems with its proprietary software and hardware.
After the completion of the systems assessment in July
of 1996, a strategic information systems plan was
developed and a software package systems selection
made. The following improvements have been
accomplished or are underway:
<circle>Aging proprietary enterprise hardware has been
replaced with an open systems architecture
relying on common HP 9000 hardware and the
UNIX operating system, which has been
networked with client/server enterprise
applications and PC based office automation
tools.
<circle>Proprietary financial and inventory systems have been
replaced with Lawson Insight, a
client/server based enterprise software
package (the "Enterprise Systems").
<circle>Existing PICK operating system-based order processing
protocol is being converted to run under
the UNIX operating system on the new HP
9000 hardware.
<circle>Use of stand-alone PC's has been consolidated to a
modern PC network running standard
Microsoft Office tools with e-mail and on-
line calendaring and scheduling systems for
office automation.
<circle>A cultural shift from hierarchical management to
empowered work teams.
From this enterprise-wide effort, the Company expects
enhanced access to financial and operational
information for decision making and control in terms
of both order content and timeliness of production and
delivery, as well as a flexible information system
architecture that can be easily scaled upward to
support anticipated growth of the Company's business.
The Company has completed the installation of the
hardware and network infrastructure for this system
and the general ledger module became operational in
January 1997. Purchasing, inventory management and
accounts payable are expected to come on line in July
1997 and the order processing system will have been
converted to the new platform in May 1997. Upon its
completion this project will yield to Artistic an
organizational and informational infrastructure that
is a highly scaleable, competitive asset.
MANUFACTURING CATALOG ITEMS AND PERSONALIZED PRODUCTS. The Company
personalizes approximately 90% of the products that it
sells, while other items are manufactured by outside
vendors, "pick-packed" and shipped at Artistic Plaza
or "drop-shipped" directly from the vendor. The
Company has recently completed renovation of Artistic
Plaza, a 142,000 square foot facility, which provides
the necessary space for all current manufacturing
operations of the Company. Management believes that
housing all manufacturing under one roof has decreased
the cost of material movement and increased
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 and 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 maintains a wide variety of paper
inventory to meet the demand for its customers'
orders. The Company has more recently been better
able to plan its inventory replenishment cycle which
reduces the commitment of large amounts of working
capital to inventory. Inventories have decreased 55%
during 1996 as evidenced by an increase in inventory
turns from 7.3x in 1995 to 10.0x in 1996, and the
reduction of inventory from $5.8 million at year end
1995 to $2.6 million at year end 1996. These
improvements have been accomplished through major
programs such as supplier partnerships, replenishment,
just-in-time material management, consigned supply and
inventory concepts, and strict quality management
practices. The outsourcing of all check production to
Harland as described below in "-Checks" was also a
major factor in the reduction of inventory. These
approaches have resulted in reduced supply costs,
freight costs and scrap, and more efficient reporting
and tracking procedures and controls. The warehouse
operations utilize efficient storage location and
handling methods to ensure security of materials,
reduced loss and damage, and ease of movement. These
concepts add to a more efficient and low-cost
operation. Management believes that the Company's
inventory system accuracy level exceeds 99%.
CHECKS. On August 29, 1996, the Company contracted
with Harland for the production of its requirements
for checks for a period of seven years (the "Harland
Contract"). All orders for check products are
received by the Company, processed and electronically
transferred to a Harland production facility in either
the East or West geographical areas of the United
States, depending on the customer's geographical
location. Harland imprints the customers' checks and
ships the orders directly from its facilities for a
fixed price per box and within tolerances including a
two-day turnaround time and a 99.9% micro-line
accuracy rate. The Harland Contract is a valuable
asset to the Company as it provides for virtually
unlimited check production capacity with no
significant limitations or capital expenditure
requirements which would otherwise be associated with
the growth of the Check product line. As a part of
the Harland Contract, the Company sold its check-
production equipment to Harland at net book value
resulting in no gain or loss being recognized.
Additionally, the Harland Contract has resulted in the
elimination of business risk associated with quality,
cost and labor-load leveling issues previously
experienced by the Company. The Company has also
directed its financial and human resources to new and
more efficient uses within the Company. The Company
believes that its relationship with Harland is
positive.
BACKLOG/POSTAGE. 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 heavily involved in direct-mail
solicitations and shipping of orders, increases in
U.S. Postal Service ("USPS") rates affect its cost of
doing business to a degree. Each time the USPS 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 2% 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
changes in price structure under such contracts.
DATA ENTRY/ORDER PROCESSING. Over 7.6 million
incoming orders were handled in the Company's order
processing department in 1996. Approximately 85% 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.
Two data entry sites, one at Artistic Plaza and the
other in Binghamton, New York, key and verify each
order. Networked computers utilizing post-relational
database technology, along with fully integrated
scanning devices, assist data entry clerks in the
entry of personalized and other information related to
each order. The speed and accuracy consistently
exhibited by this department contributes to a high
level of customer satisfaction, as well as the
retention and growth of repeat customers.
TELEMARKETING. An increasing percentage of the
Company's revenue is being generated through its call
center. In 1996, over 3.2 million telephone calls
were answered as compared to 2 million calls in 1995.
With a base of over 12 million customers, along with a
direct link to the manufacturing floor, the customer
service/telemarketing representatives are able to
recall detailed order history, facilitating customer
inquiries, reorders or problem resolution. The use of
cross-selling and "up-selling" techniques results in
the average order from the Company being 20-30% higher
when placed over the telephone versus when it is
received through the mail.
RAW MATERIALS. The raw materials necessary for the
Company's 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. Management believes that
the availability of paper products in 1996 expanded
with a concomitant stabilization in prices, although
there can be no assurance that such stabilization will
continue. The Company historically has found the
necessary materials readily available in sufficient
quantities.
EMPLOYEES. As of February 28, 1997, the Company had approximately
656 employees, including 578 hourly and 78 salaried workers. The Company
maintains strong employee relations which has helped to build a cohesive,
marketing-driven organization that is focused, innovative and highly
motivated. To enhance its workforce, Artistic has established ongoing
programs for employee training, safety and communications. Employees are
encouraged to join Artistic's buyer's club which entitles them to discounts
and enhances their loyalty to the Company. The Company believes its
employee relations to be good. Artistic has never experienced a work stoppage
and its employees are not represented by a labor union.
RISK FACTORS.
RECENT LOSSES; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Although the Company has for many years experienced year-to-year
revenue growth, it has incurred net losses of $9.9 million and $.4 million
in 1995 and 1994, respectively. There can be no assurance that revenue
growth will continue or that the Company will achieve profitability in the
future.
The Company's operating results have fluctuated in the past and may
fluctuate in the future as a result of a variety of factors, some of which
are outside of the Company's control, including general economic
conditions, specific economic conditions in the retail trade industry, the
mix of products sold and the cost and types of advertising through which
they are sold, and prices charged by suppliers, among others.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To complete orders, the Company must record and process customer data
quickly and accurately. While the Company is in the process of
significantly upgrading its management information system, there can be no
assurance that the new system, when fully installed and implemented, will
deliver the full range of data processing functionality expected. The
Company believes that the successful installation and implementation of its
new computer system is important to its continued growth, but there can be
no assurance that the Company will not encounter delays or cost overruns or
suffer adverse consequences in implementing the new system.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the
continued contributions of its core management team. While the Company has
employment agreements with its four key executives, they still have the
ability to voluntarily terminate their employment with the Company at any
time, as do the Company's other executives and employees. Competition for
qualified personnel in the Company's segment of the retail trade industry
is relatively intense and, from time to time, there are a limited number of
persons with knowledge of and experience in particular sectors of the
Company's business. The Company's success also will depend on its ability
to attract and retain qualified management, marketing, technical and other
executives and personnel. The loss of the services of key personnel, or
the inability to attract additional qualified personnel, could have a
material adverse effect on the Company's results of operations, development
efforts and ability to expand. There can be no assurance that the Company
will be successful in attracting and retaining such executives and
personnel.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been and may
continue to be highly volatile. See the discussion under Item 5 of this
Report, "Market for Registrant's Common Equity and Related Stockholder
Matters." Factors such as variations in the Company's revenue, earnings
and cash flow, the difference between the Company's actual results and the
results expected by investors and analysts, and announcements of new
product offerings, marketing plans or price reductions by the Company or
its competitors could cause the market price of the Company's Common Stock
to fluctuate.
CONTROL BY PRESENT STOCKHOLDERS
In the aggregate, Stuart Komer, American Greetings Corporation and
Valcheck Company control approximately 52% of the Company's issued and
outstanding Common Stock. Accordingly, to the extent these stockholders
act together in the voting of their shares, they will have the ability to
determine the outcome of most matters put before the Company's
stockholders.
ITEM 2. PROPERTIES.
Artistic's corporate headquarters is located at One Komer Center, Elmira,
New York, approximately 240 miles northwest of New York City. The
facilities are in good condition and have been regularly maintained. The
table below summarizes the function and key ownership or lease terms for
each of the Company's locations:
<TABLE>
<CAPTION>
FACILITY OWNERSHIP SQ. FT. USE
<S> <C> <C> <C>
Artistic Plaza Owned 142,000 Manufacturing
Komer Center Owned 49,000 Administration/Telemarketing
112 North Main Owned 21,000 Retail Store/Human Resources
401- 409 William Owned 30,000 Lettershop/Advertising Material
308 William Owned 28,000 Warehousing
Binghamton Leased 3,500 Data Entry/Retail Store
406 Academy Place Leased 5,000 Attached to 401-409 William
</TABLE>
Each of the Artistic Plaza production and warehousing facility, the
two manufacturing and warehousing operations on William Street, the
telemarketing operations and administrative offices at One Komer Center, and
the retail store, human resources and training center adjacent to Komer
Center at 112 North Main Street, reside in an economic development
zone within the City of Elmira and easily accessible to regional
transportation centers. The Company also has access to a large
pool of talented and skilled labor. Artistic also leases office space in
Binghamton, New York, which is used as a data entry satellite facility.
ITEM 3. LEGAL PROCEEDINGS.
There were no material legal proceedings involving the Company pending at
December 31, 1996.
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, 1996.
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 1996 Annual Report to Stockholders ("1996 Annual Report")
entitled "MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS."
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data:
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Net sales $69,763 $78,442 $91,121 $97,042 $98,911
Net income (loss) 3,607 1,163 (426) (9,952) 2,675
Per common share:
Net income (loss) 0.60 0.20 (0.07) (1.57) 0.42
Cash flows from operations 4,408 2,697 (1,902) (4,275) 11,535
AT YEAR END
Total assets 31,996 31,733 37,909 38,654 28,998
Current liabilities 9,453 9,198 16,852 16.998 12,950
Long-term debt 2,155 1,848 1,559 9,593 1,034
Stockholders' equity 19,844 20,295 19,308 9,548 12,288
</TABLE>
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 1996
Annual Report entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
This information is incorporated by reference to the sections of the 1996
Annual Report entitled "BALANCE SHEETS," "STATEMENTS OF OPERATIONS,"
"STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY," "STATEMENTS OF CASH
FLOW," "NOTES TO FINANCIAL STATEMENTS," and "REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
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 1997
Annual Meeting of Stockholders (the "1997 Proxy Statement") entitled
"PROPOSAL 1 -ELECTION OF DIRECTORS" AND "-EXECUTIVE OFFICERS."
ITEM 11. EXECUTIVE COMPENSATION.
This information is incorporated by reference to the section of the 1997
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 1997
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 1997 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 1996 Annual Report and are incorporated
herein by reference:
Report of Independent Public Accountants.
Balance Sheets, December 31, 1996 and 1995.
Statements of Operations for the three years ended
December 31, 1996.
Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1996.
Statements of Cash Flows for the three years ended
December 31, 1996.
Notes to Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES. Not applicable.
(3) EXHIBITS. The following constitutes the list of
exhibits required to be filed as part of this Report
pursuant to Item 601 of Regulation S-K:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<S> <C> <C>
2-1 Amended Standstill Agreement dated as Incorporated by reference to Exhibit
of June 1, 1992, between American 2-1 to the Company's Report on Form 8-
Greetings Corporation ("American") K filed on July 2, 1992.
and Artistic.
3-1 Certificate of Incorporation of the Incorporated by reference to Exhibit
Company, a Delaware corporation. 3-1 to the Company's Form 10-K for the
year ended December 31, 1987.
3-2 Bylaws of the Company, as amended. Filed herewith; see Exhibit Index.
4-1 Investment Agreement between Valcheck Incorporated by reference to Exhibit
and the Company dated May 30, 1995. 4-1 to the Company's Report on Form 8-
K filed on June 15, 1995.
10-1 * Company's Employee Long-Term Incorporated by reference to Exhibit
Incentive Plan, as amended. 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 Exhibit
Company and Stuart Komer (the "Komer 10-2 to the 1993 10-K.
Agreement").
10-3 * Amendment to the Komer Agreement. Filed herewith; see Exhibit Index.
10-4 * Employment Agreement between the Incorporated by reference to Exhibit
Company and Joseph A. Calabro. 10 to the Company's Form 10-Q for the
quarter ended September 30, 1996.
10-5 * Employment Agreement between the Filed herewith; see Exhibit Index.
Company and Robert E. Johnson.
10-6 * Employment Agreement between the Filed herewith; see Exhibit Index.
Company and Thomas C. Wyckoff.
10-7 * Form of Deferred Compensation Plan Incorporated by reference to Exhibit
between the Company and Stuart Komer. 10-9 to the Company's 10-K for the
year ended December 31, 1986.
10-8* Form of Nonqualified Deferred Filed herewith; see Exhibit Index.
Compensation Plan between the Company
and Certain Highly Compensated
Employees of the Company.
10-9 Purchase Agreement among Valcheck, Incorporated by reference to Exhibit
Valassis and the Company dated May 10-1 of the Company's Report on Form
31, 1995. 8-K filed on June 15, 1995.
10-10 Revolving Loan Agreement (the Incorporated by reference to Exhibit
"Revolver") dated March 8, 1996, 10-5 of the Company's Report on Form
between the Company and Marine 10-K for the year ended December 31,
Midland Bank, N.A. ("Marine"). 1995 ("1995-10-K").
10-11 Amendment and Modification Agreement Incorporated by reference to Exhibit
of the Revolver between the Company 10-15 of the 1995 10-K.
and Marine, dated as of March 8,
1996.
10-12 Amendment No. 2 to the Revolver, Filed herewith; see Exhibit Index.
dated as of November 14, 1996.
10-13 Amendment No. 3 to the Revolver, Filed herewith; see Exhibit Index.
dated as of December 31, 1996.
10-14* Outside Directors Compensation Plan. Incorporated by reference to Exhibit
10-14 to the Company's Report on Form
10-K for the year ended December 31,
1992.
10-15 Security Agreement dated March 8, Incorporated by reference to Exhibit
1996, between the Company and Marine. 10-7 of the 1995 10-K.
10-16 Lease dated March 31, 1993 between Incorporated by reference to Exhibit
the Company and Stuart Komer leasing 10-8 to the 1995 10-K.
premises located at 406 Academy
Place, Elmira, NY, as amended.
10-17 Sale and Development Agreement dated Incorporated by reference to Exhibit
April 26, 1991 between the Company 10-16 of the Company's Report on Form
and the City of Elmira, NY. 10-K for the year ended December 31,
1991.
10-18 Loan Agreement and Direct Mortgage dated Incorporated by reference to Exhibit 10-14
November 6, 1995 between the Company and of the 1995 10-K.
New York State Urban Development
Corporation.
10-19 Advertising Agreement between Valassis Incorporated by reference to Exhibit 10-17
and the Company dated May 30, 1995 (the of the 1995 10-K.
"Advertising Agreement").
10-20 Amendment to the Advertising Agreement Filed herewith; see Exhibit Index.
dated June 28, 1996.
10-21 Master Agreement between Artistic and Incorporated by reference to Exhibit 10-1
Harland, dated August 29, 1996. of the Company's Report on Form 8-K filed
on September 20, 1996.
10-22 Fulfillment Agreement between Artistic Incorporated by reference to Exhibit 10-2
and Harland, dated August 29, 1996. of the Company's Report on Form 8-K filed
on September 20, 1996.
10-23 Agreement for Purchase of Equipment Incorporated by reference to Exhibit 10-3
between Artistic and Harland, dated of the Company's Report on Form 8-K filed
August 29, 1996. on September 20, 1996.
11 Statement re: computation of per share See Note 1 to the Notes to the
earnings. Consolidated Financial Statements
Incorporated by reference in Item 8
hereof.
13 Company's 1996 Annual Report to Filed herewith; see Exhibit Index.
Stockholders.
23 Consent of Arthur Andersen LLP, Certified Filed herewith; see Exhibit Index.
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. None filed during the fourth quarter of the
Company's fiscal year ended December 31, 1996.
(c) EXHIBITS. See Exhibit Index.
(d) FINANCIAL STATEMENT SCHEDULES. Not applicable.
<PAGE>
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 21, 1997 By: /S/ROBERT E. JOHNSON
Name: Robert E. Johnson
Title: Senior Vice President Finance and
Chief Financial Officer
(Principal Financial & Accounting
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 capacities and as of the dates indicated.
By: /S/JOSEPH A. CALABRO Date: March 21, 1997
Name: Joseph A. Calabro
Title: Chief Executive Officer, President and a Director
By: /S/NORMAN S. EDELCUP Date: March 21, 1997
Name: Norman S. Edelcup
Title: Director
By: /S/LYNDON E. GOODRIDGE Date: March 21, 1997
Name: Lyndon E. Goodridge
Title: Director
By: /S/ROBERT E. JOHNSON Date: March 21, 1997
Name: Robert E. Johnson
Title: Senior Vice President Finance and Chief Financial
Officer (Principal Financial & Accounting Officer)
By: /S/STUART KOMER Date: March 21, 1997
Name: Stuart Komer
Title: Chairman and a Director
By: /S/ALAN F. SCHULTZ Date: March 21, 1997
Name: Alan F. Schultz
Title: Director
By: /S/IRVING I. STONE Date: March 21, 1997
Name: Irving I. Stone
Title: Director
By: /S/MORRY WEISS Date: March 21, 1997
Name: Morry Weiss
Title: Director
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
<S> <C> <C>
2-1 Amended Standstill Agreement dated as Incorporated by reference to Exhibit
of June 1, 1992, between American 2-1 to the Company's Report on Form 8-
Greetings Corporation ("American") K filed on July 2, 1992.
and Artistic.
3-1 Certificate of Incorporation of the Incorporated by reference to Exhibit
Company, a Delaware corporation. 3-1 to the Company's Form 10-K for the
year ended December 31, 1987.
3-2 Bylaws of the Company, as amended. Filed herewith; see Exhibit Index.
4-1 Investment Agreement between Valcheck Incorporated by reference to Exhibit
and the Company dated May 30, 1995. 4-1 to the Company's Report on Form 8-
K filed on June 15, 1995.
10-1 Company's Employee Long-Term Incorporated by reference to Exhibit
Incentive Plan, as amended. 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 Exhibit
Company and Stuart Komer (the "Komer 10-2 to the 1993 10-K.
Agreement").
10-3 Amendment to the Komer Agreement. Filed herewith; see Exhibit Index.
10-4 Employment Agreement between the Incorporated by reference to Exhibit
Company and Joseph A. Calabro. 10 to the Company's Form 10-Q for the
quarter ended September 30, 1996.
10-5 Employment Agreement between the Filed herewith; see Exhibit Index.
Company and Robert E. Johnson.
10-6 Employment Agreement between the Filed herewith; see Exhibit Index.
Company and Thomas C. Wyckoff.
10-7 Form of Deferred Compensation Plan Incorporated by reference to Exhibit
between the Company and Stuart Komer. 10-9 to the Company's 10-K for the
year ended December 31, 1986.
10-8 Form of Nonqualified Deferred Filed herewith; see Exhibit Index.
Compensation Plan between the Company
and Certain Highly Compensated
Employees of the Company.
10-9 Purchase Agreement among Valcheck, Incorporated by reference to Exhibit
Valassis and the Company dated May 10-1 of the Company's Report on Form
31, 1995. 8-K filed on June 15, 1995.
10-10 Revolving Loan Agreement (the Incorporated by reference to Exhibit
"Revolver") dated March 8, 1996, 10-5 of the Company's Report on Form
between the Company and Marine 10-K for the year ended December 31,
Midland Bank, N.A. ("Marine"). 1995 ("1995-10-K").
10-11 Amendment and Modification Agreement Incorporated by reference to Exhibit
of the Revolver between the Company 10-15 of the 1995 10-K.
and Marine, dated as of March 8,
1996.
10-12 Amendment No. 2 to the Revolver, Filed herewith; see Exhibit Index.
dated as of November 14, 1996.
10-13 Amendment No. 3 to the Revolver, Filed herewith; see Exhibit Index.
dated as of December 31, 1996.
10-14 Outside Directors Compensation Plan. Incorporated by reference to Exhibit
10-14 to the Company's Report on Form
10-K for the year ended December 31,
1992.
10-15 Security Agreement dated March 8, Incorporated by reference to Exhibit
1996, between the Company and Marine. 10-7 of the 1995 10-K.
10-16 Lease dated March 31, 1993 between Incorporated by reference to Exhibit
the Company and Stuart Komer leasing 10-8 to the 1995 10-K.
premises located at 406 Academy
Place, Elmira, NY, as amended.
10-17 Sale and Development Agreement dated Incorporated by reference to Exhibit
April 26, 1991 between the Company 10-16 of the Company's Report on Form
and the City of Elmira, NY. 10-K for the year ended December 31,
1991.
10-18 Loan Agreement and Direct Mortgage dated Incorporated by reference to Exhibit 10-14
November 6, 1995 between the Company and of the 1995 10-K.
New York State Urban Development
Corporation.
10-19 Advertising Agreement between Valassis Incorporated by reference to Exhibit 10-17
and the Company dated May 30, 1995 (the of the 1995 10-K.
"Advertising Agreement").
10-20 Amendment to the Advertising Agreement Filed herewith; see Exhibit Index.
dated June 28, 1996.
10-21 Master Agreement between Artistic and Incorporated by reference to Exhibit 10-1
Harland, dated August 29, 1996. of the Company's Report on Form 8-K filed
on September 20, 1996.
10-22 Fulfillment Agreement between Artistic Incorporated by reference to Exhibit 10-2
and Harland, dated August 29, 1996. of the Company's Report on Form 8-K filed
on September 20, 1996.
10-23 Agreement for Purchase of Equipment Incorporated by reference to Exhibit 10-3
between Artistic and Harland, dated of the Company's Report on Form 8-K filed
August 29, 1996. on September 20, 1996.
11 Statement re: computation of per share See Note 1 to the Notes to the
earnings. Consolidated Financial Statements
Incorporated by reference in Item 8
hereof.
13 Company's 1996 Annual Report to Filed herewith; see Exhibit Index.
Stockholders.
23 Consent of Arthur Andersen LLP, Certified Filed herewith; see Exhibit Index.
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 3-2
As amended by action of the Board of Directors on October 24, 1996
/s/ Thomas C. Wyckoff
Assistant Secretary
BYLAWS
OF
ARTISTIC GREETINGS INCORPORATED
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
Section 1.01 ANNUAL MEETING. The Annual Meeting of the
stockholders of this Corporation, for the purpose of electing Directors and
transacting such other business as may come before the meeting, shall be
held on such date, at such time and at such place as may be designated by
the Board of Directors.
Section 1.02 SPECIAL MEETINGS. Special Meetings of the
stockholders may be called at any time by the Chairman or by the President,
or by majority of the entire Board of Directors acting with or without a
meeting. Special Meetings may be called for any purpose(s); however, the
business transacted at any such Special Meeting shall be confined to the
purposes set forth in the notice thereof.
Section 1.03 PLACE OF MEETINGS. Meetings of stockholders shall
be held at such place as the person or persons calling the meetings shall
decide, unless the Board of Directors decides that a meeting shall be held
at some other place and causes the notice thereof to so state.
Section 1.04 NOTICES OF MEETINGS. Unless waived, a written,
printed, or typewritten notice of each Annual or Special meeting, stating
the date, hour and place and the purpose or purposes thereof shall be
delivered or mailed to each stockholder of record entitled to vote or
entitled to notice, not more than 60 days nor less than 10 days before any
such meeting. If mailed, such notice shall be directed to a stockholder at
his or her address as the same appears on the records of the Corporation.
Notice shall not be required to be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after
such meeting. The attendance of any stockholder at a meeting without
protesting, prior to the conclusion of the meeting, the lack of notice of
such meeting, shall constitute a waiver of notice by him or her. If a
meeting is adjourned to another time or place and such adjournment is for
30 days or less and no new record date is fixed for the adjourned meeting,
no further notice as to such adjourned meeting need be given if the time
and place to which it is adjourned are fixed and announced at such meeting.
If, however, such adjournment exceeds 30 days or if, after the adjournment,
a new record date is fixed for the adjourned meeting, a notice of such
adjourned meeting must be given to each stockholder of record entitled to
vote at such meeting. In the event of a transfer of shares after notice
has been given and prior to the holding of the meeting, it shall not be
necessary to serve notice on the transferee. Such notice shall specify the
place where the stockholders list will be open for examination prior to the
meeting if required by Section 1.08 hereof.
Section 1.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any other change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any
other action. If the Board shall not fix such a record date, (i) the
record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be the close of business on the date
next preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which the
meeting is held, and (ii) in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders, the record date for determining stockholders for such purpose
shall be the close of business on the day on which the Board of Directors
shall adopt the resolution relating thereto. Determination of stockholders
entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of such meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 1.06 ORGANIZATION. At each meeting of the stockholders,
the Chairman, or in the absence of the Chairman, the President, or, in the
absence of both such officers, a Chairman chosen by a majority in interest
of the stockholders present in person or by proxy and entitled to vote,
shall act as Chairman, and the Secretary of the Corporation, or, if the
Secretary of the Corporation not be present, the Assistant Secretary, or,
in the absence of both such officers, any person whom the Chairman of the
Meeting shall appoint, shall act as Secretary of the Meeting.
Section 1.07 QUORUM. A stockholders' meeting duly called shall
not be organized for the transaction of business unless a quorum is
present. Except as otherwise expressly provided by law, the Certificate of
Incorporation or these Bylaws, the presence in person or by proxy of
holders of record of shares of stock of the Corporation entitling them to
exercise at least a majority of the voting power of the Corporation shall
constitute a quorum for such meeting. The stockholders present at a duly
organized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. If a meeting cannot be organized because a quorum has not
attended, a majority in voting interest of the stockholders present may
adjourn, or, in the absence of a decision by the majority, any officer
entitled to preside at such meeting may adjourn the meeting from time to
time to such time (not more than 30 days after the previously adjourned
meeting) and place as they (or he/she) may determine, without notice other
than by announcement at the meeting of the time and place of the adjourned
meeting. At any such adjourned meeting at which a quorum is present any
business may be transacted which might have been transacted at the meeting
as originally called.
Section 1.08 LIST OF STOCKHOLDERS. The Secretary of the
Corporation shall prepare and make a complete list of the stockholders of
record as of the applicable record date entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least 10 days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to
be held. This list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The Corporation shall be entitled for all
purposes to rely on the address for any stockholder appearing on the
records of its duly-appointed transfer agent(s), unless a stockholder shall
specifically file with the Secretary of the Corporation a written request
that notices intended for such stockholder be mailed to a different
address, in which case all notices shall be mailed to the address specified
in such request.
Section 1.09 ORDER OF BUSINESS AND PROCEDURE. The order of
business at all meetings of the stockholders and all matters relating to
the manner of conducting the meeting shall be determined by the Chairman of
the Meeting, whose decisions may be overruled only by majority vote of the
stockholders present and entitled to vote at the meeting in person or by
proxy. Meetings shall be conducted in a manner designed to accomplish the
business of the meeting in a prompt and orderly fashion and to be fair and
equitable to all stockholders, but it shall not be necessary to follow any
manual of parliamentary procedure.
Section 1.10 VOTING.
(a) Each stockholder of Common Stock shall, at each meeting of
the stockholders, be entitled to one vote for each share of the Common
Stock of the Corporation which shall have been held by and registered in
the name of such stockholder on the books of the Corporation on the date
fixed pursuant to these Bylaws as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting, except as
may otherwise be provided by statute or the Certificate of Incorporation.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote
nor be counted for quorum purposes.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the Secretary of the Meeting in
sufficient time to permit the necessary examination and tabulation thereof
before the vote is taken; provided, however, that no proxy shall be valid
after the expiration of three years after the date of its execution, unless
the stockholder executing it shall have specified therein the length of
time it is to continue in force. At any meeting of the stockholders at
which a quorum is present, all matters, except as otherwise expressly
required by law, the Certificate of Incorporation or these Bylaws, shall be
decided by the vote of a majority of the shares present in person or by
proxy and entitled to vote thereat and thereon. The vote at any meeting of
the stockholders on any questions need not be by ballot, unless so directed
by the Chairman of the Meeting or required by the Certificate of
Incorporation. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by such stockholder's proxy, as the case may be, and
it shall state the number of shares voted. Each proxy shall be revocable
at the pleasure of the person executing it, or of such person's personal
representative(s) or assign(s), except as otherwise provided by statute.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the stockholder who executed the proxy unless,
before the authority is exercised, valid and sufficient written notice of
an adjudication of such incompetence or of such death is received by the
Secretary of the Corporation.
Section 1.11 INSPECTORS. The Board of Directors, in advance of
any meeting of the stockholders, may appoint one or more inspectors to act
at the meeting. If inspectors are not so appointed, the person presiding
at the meeting may appoint one or more inspectors. If any person so
appointed fails to appear or act, the vacancy may be filled by appointment
made by the Board of Directors in advance of the meeting or at the meeting
by the person presiding thereat. The inspectors so appointed shall
determine the number of shares outstanding, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and
effect of proxies and shall receive votes, ballots, waivers, releases, or
consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots,
waivers, releases, or consents, determine and announce the results and do
such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the person presiding at the meeting, the
inspectors shall make a report in writing of any challenge, question or
matter determined by them and execute a certificate of any fact found by
them. Any report or certificate made by them shall be prima facie evidence
of the facts stated and of the vote as certified by them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 GENERAL POWERS OF BOARD. The powers of the
Corporation shall be exercised, its business and affairs conducted, and its
property controlled by the Board of Directors, except as otherwise provided
by the law of Delaware or in the Certificate of Incorporation. Each
Director shall be at least 21 years of age.
Section 2.02 NUMBER OF DIRECTORS. The number of Directors of
the Corporation shall not be less than three, with the exact number of
Directors to be such number as may be set from time to time by resolution
adopted by affirmative vote of a majority of the entire Board of Directors;
PROVIDED, HOWEVER, that no decrease in the size of the Board shall serve to
reduce the term of any Director then in office. As used in these Bylaws,
the term "entire Board" means the total number of Directors which the
Corporation would have if there were no vacancies. The initial number of
Directors and the persons appointed as the initial Directors shall be as
selected by the incorporator.
Section 2.03 ELECTION OF DIRECTORS. At each Annual Meeting of
the stockholders, Directors shall be elected by a plurality of the votes
cast by the holders of Common Stock entitled to vote thereon for a term of
one year, and shall hold office until the election and qualification of
their successors, or until their earlier resignation or removal.
Section 2.04 NOMINATIONS. Nominations for the election of
Directors may be made by the Board of Directors or a committee thereof or
by any stockholder entitled to vote for the election of Directors.
Section 2.05 RESIGNATIONS. Any Director of the Corporation may
resign at any time by giving written notice to the Chairman, the President
or the Secretary of the Corporation. Such resignation shall take effect at
the time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 2.06 VACANCIES. In the event that any vacancy shall
occur in the Board of Directors, whether because of death, resignation,
removal, newly created directorships resulting from any increase in the
authorized number of Directors, the failure of the stockholders to elect
the whole authorized number of Directors, or for any other reason, such
vacancy shall be filled by the vote of a majority of the Directors then in
office, although less than a quorum. A Director elected to fill a vacancy
shall hold office until the next Annual Meeting of stockholders for the
election of Directors, and until the election and qualification of his or
her successor.
Section 2.07 REMOVAL OF DIRECTORS. Any or all of the Directors
may be removed for cause or without cause only by a majority vote of all
outstanding shares of stock.
Section 2.08 PLACE OF MEETING, ETC. The Board of Directors may
hold any of its meetings at the principal office of the Corporation or at
such other place or places as the Board of Directors may from time to time
designate. Directors may participate in any regular or special meeting of
the Board of Directors or of any committee thereof by means of conference
telephone or similar communications equipment pursuant to which all persons
participating in any such meeting can hear each other and such
participation shall constitute presence in person at any such meeting.
Section 2.09 REGULAR MEETINGS. A Regular Meeting of the Board
of Directors shall be held following each Annual Meeting of Stockholders
for the purpose of organizing the Corporation's affairs and the transaction
of such other business as may properly come before such meeting. Other
Regular Meetings of the Board of Directors may be held at such intervals
and at such time as shall from time to time be determined by the Board of
Directors. Once such determination has been made and notice thereof has
been once given to each person then a member of the Board of Directors,
such Regular Meetings may be held at such intervals and at the time(s) and
place(s) so designated without further notice being given.
Section 2.10 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman, by the President or by
a majority of Directors then in office, to be held on such day and at such
time as shall be specified by the person or persons calling the meeting.
Section 2.11 NOTICE OF MEETINGS. Notice of each Special Meeting
or, where required, each Regular Meeting, of the Board of Directors shall
be given to each Director either by being failed on at least the third day
prior to the date of the meeting or by being telegraphed or given
personally or by telephone at least 24 hours prior to the date of meeting.
Such notice shall specify the place, date and hour of the meeting and, if
it is for a Special Meeting, the purpose or purposes for which the meeting
is called. At any meeting of the Board of Directors at which every
Director shall be present, even though without such notice, any business
may be transacted. Any acts or proceedings taken at a meeting of the Board
of Directors not validly called or constituted may be made valid and fully
effective by ratification at a subsequent meeting which shall be legally
and validly called or constituted. Notice of any Regular Meeting of the
Board of Directors need not state the purpose of the meeting and, at any
Regular Meeting duly held, any business may be transacted. If the notice
of a Special Meeting shall state as a purpose of the meeting the
transaction of any business that may come before the meeting, then at the
meeting any business may be transacted, whether or not referred to in the
notice thereof. A written waiver of notice of a Special or Regular
Meeting, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed the equivalent of
such notice, and attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting except when the Director attends the
meeting and prior to or at the commencement of such meeting protests the
lack of proper notice to him or her.
Section 2.12 QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of a majority of the Directors then in office shall
constitute a quorum for the transaction of business; PROVIDED, HOWEVER,
that such number may not be less than one-third of the entire Board.
Except as otherwise required by law, the Certificate of Incorporation, or
these Bylaws, the vote of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. At all meetings of the Board of Directors, each Director shall
have one vote.
Section 2.13 COMMITTEES. The Board of Directors may appoint an
Executive Committee, an Audit, Finance and Compensation Committee, and any
other committee of the Board of Directors, each to consist of three or more
Directors of the Corporation. Each such committee shall have and may
exercise all of the powers and authority of the Board of Directors
necessary and appropriate to the carrying out of its functions, EXCEPT that
no such committee shall have the power or authority:
(a) To amend the Certificate of Incorporation or these Bylaws;
(b) To adopt an agreement of merger or consolidation;
(c) To recommend to the stockholders the sale, lease or exchange
of all or substantially all the Corporation's property and assets;
(d) To recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; nor
(e) To declare a dividend or to authorize the issuance of stock
unless the resolution creating such committee expressly so provides.
The Executive Committee of the Board shall have the power and
authority to act in lieu of the full Board of Directors as may be necessary
in the intervals between Board meetings and as otherwise requested by the
full Board, except as otherwise specifically circumscribed by the Delaware
General Corporation Law, the Corporation's Certificate of Incorporation or
these Bylaws.
The Audit, Finance and Compensation Committee of the Board shall
periodically review the Corporation's auditing practices and procedures,
make recommendations to management or to the Board of Directors as to any
changes to such practices and procedures deemed necessary from time to time
to comply with applicable auditing rules, regulations and practices, and
recommend independent auditors for the Corporation to be elected by the
stockholders. It shall also from time to time review and approve the
compensation and benefits payable to the Corporation's executive officers
and other senior executives.
Each such committee shall serve at the pleasure of the Board of
Directors and shall be subject to the control and direction of the Board of
Directors. In the absence of any member of any such committee, the members
thereof present at any meeting may appoint a member of the Board of
Directors previously designated by the Board of Directors as a committee
alternate to act in the place of such absent member. Any such committee
shall keep written minutes of its meetings and report the same to the Board
of Directors at the next Regular Meeting of the Board of Directors.
Section 2.14 COMPENSATION. The Board of Directors may, by
resolution passed by a majority of those in office, fix the compensation of
Directors for service in any capacity and may fix fees for attendance at
meetings and may authorize the Corporation to pay the traveling and other
expenses of Directors incident to their attendance at meetings, or may
delegate such authority to a committee of the Board of Directors. The
Board of Directors shall fix the compensation of all officers of the
Corporation who are appointed by the Board of Directors. The Board of
Directors may authorize the Chairman or the President to fix the
compensation of such assistant and subordinate officers and agents as
either of them is authorized to appoint and remove.
Section 2.15 ACTION BY CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent
thereto is signed by all members of the Board of Directors or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
Section 3.01 GENERAL PROVISIONS. The officers of the
Corporation shall be the Chairman of the Board, a President, such number of
Vice Presidents as the Board of Directors may from time to time determine,
a Secretary and a Treasurer. Any person may hold any two or more offices
and perform all the duties thereof. The Board of Directors may also elect a
Chief Financial Officer, a Controller and such other officers as it may
determine.
Section 3.02 ELECTION, TERMS OF OFFICE, AND
QUALIFICATION. The officers of the Corporation named in Section 3.01 of
this Article III shall be elected by the Board of Directors for an
indeterminate term and shall hold office at the pleasure of the Board of
Directors.
Section 3.03 ADDITIONAL OFFICERS, AGENTS, ETC. In addition to
the officers mentioned in Section 3.01 of this Article III, the Corporation
may have such other officers or agents as the Board of Directors may deem
necessary and may appoint, each of whom shall hold office for such period,
have such authority and perform such duties as may be provided in these
Bylaws as the Board of Directors may from time to time determine. The
Board of Directors may from time to time delegate to the Chairman or the
President the power to appoint any subordinate officers or agents and
prescribe the powers and duties thereof. In the absence of any officer of
the Corporation, or for any other reason the Board of Directors may deem
sufficient, the Board of Directors may delegate the powers and duties of
such officer, in whole or in part, to any other officer, or to any
Director.
Section 3.04 REMOVAL. Any officer of the Corporation may be
removed, either with or without cause, at any time, by resolution adopted
by the Board of Directors at any meeting. Any officer appointed not by the
Board of Directors but by an officer or committee to which the Board of
Directors shall have delegated the power of appointment may be removed,
with or without cause, by the Board of Directors, by the committee that or
superior officer (including successors) who made the appointment, or by any
committee or officer upon whom such power of removal may be conferred by
the Board of Directors.
Section 3.05 RESIGNATIONS. Any officer may resign at any time
by giving written notice to the Board of Directors, or to the Chairman, the
President, or the Secretary of the Corporation. Any such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective.
Section 3.06 VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification, or otherwise, shall be
filled in the manner prescribed in these Bylaws for regular appointments or
elections to such office.
ARTICLE IV
DUTIES OF THE OFFICERS
Section 4.01 CHAIRMAN. The Chairman shall preside at all
meetings of the stockholders and of the Board of Directors, and shall have
general charge of and be primarily responsible for the conduct of the
business of the Corporation, including long range planning and strategic
analyses of the Corporation's future growth and direction, and subject to
the Board s approval, establishing the general business policies and goals
of the Corporation. Except where by law the signature of the President is
required, the Chairman shall possess the same power as the President to
sign all contracts, certificates and other instruments of the Corporation
which may be authorized by the Board of Directors. During the absence or
disability of the President, the Chairman shall exercise all the powers and
discharge all the duties of the President. The Chairman shall also perform
such duties and may exercise such other powers as from time to time may be
assigned by these Bylaws or by the Board of Directors.
Section 4.02 PRESIDENT. The President shall, subject to the
control of the Board and the Chairman, have general supervision of the day-
to-day operation and administration of the business of the Corporation,
together with such other duties and such other powers as from time to time
may be assigned by the Board of Directors or the Chairman. He shall
execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute
documents when so authorized by these Bylaws, the Board of Directors or
Chairman. In the absence or disability of the Chairman, the President
shall preside at all meetings of the shareholders and the Board of
Directors.
Section 4.03 VICE PRESIDENTS. The Vice Presidents shall perform
such duties as are conferred upon them by these Bylaws or as may from time
to time be assigned to them by the Board of Directors, the Chairman or the
President. Any one of the Vice Presidents may be designated by the Board
of Directors as an Executive Vice President. At the request of the
Chairman or the President, or in the absence or disability of the
President, the Executive Vice President shall perform all the duties and
have all the powers of the President. If there be no Executive Vice
President, the Vice President designated by the Board of Directors shall
perform such duties and exercise such functions. Each Vice President shall
have such other powers and duties as may from time to time be properly
prescribed by the Board of Directors, the Chairman, or the President.
Chief Operating Officer.
Section 4.04 TREASURER. The Treasurer shall keep correct and
complete books and records of account for the Corporation. Subject to the
control and supervision of the Board of Directors and the Chairman, or such
other officer as either of them may designate, the Treasurer shall
establish programs for the provision of the capital required by the
Corporation, including negotiating the procurement of capital and
maintaining adequate sources for the Corporation's current borrowings from
lending institutions. He shall maintain banking arrangements to receive,
have custody of and disburse the funds and securities of the Corporation.
He shall invest the funds of the Corporation as required, and establish and
coordinate policies for investment in pension and other similar accounts
due the Corporation. The Treasurer shall have such other powers and duties
as may from time to time be properly prescribed by the Board of Directors,
the Chairman, the President, or the Chief Financial Officer.
Section 4.05 SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and of the stockholders, and shall record all
votes in the Minutes of all such proceedings in a book to be maintained for
such purpose. The Secretary shall give or cause to be given a notice of
all meetings of stockholders and of the Board of Directors. The Secretary
shall be the custodian of the seal of the Corporation and shall affix the
seal to any instrument when authorized by the Board of Directors. The
Secretary shall keep all the documents and records of the Corporation, as
required by law or otherwise, in a proper and safe manner. The Secretary
shall have such other powers and duties as may from time to time be
properly prescribed by the Board of Directors, the Chairman or the
President.
Section 4.06 CHIEF FINANCIAL OFFICER. The Board of Directors
may appoint a Chief Financial Officer. Subject to the control and
supervision of the Board of Directors and the Chairman, the Chief Financial
Officer shall have general charge of establishing and overseeing all
financial and accounting policies and matters of the Corporation. The
Chief Financial Officer shall also have such other powers and duties as may
from time to time be properly prescribed by the Board of Directors or the
Chairman.
Section 4.07 CONTROLLER. The Board of Directors may appoint a
Controller. Subject to the control and supervision of the Board of
Directors, the Chairman, or such officer as either of them may designate,
the Controller shall establish, coordinate and administer an adequate plan
for the financial control of operations, including profit planning,
programs for capital investing and for financing, sales forecasts, expense
budgets and cost standards, together with the necessary procedures to
effectuate such plans. The Controller shall compare performance with
operating plans and standards and shall report and interpret the results of
operations to all levels of management.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 5.01 MANDATORY INDEMNIFICATION. The Corporation shall
indemnify any officer or Director of the Corporation who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceedings, whether civil, criminal, administrative or
investigative (including, without limitation, any action threatened or
instituted by or in the right of the Corporation), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, trustee, officer, employee or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. A person claiming indemnification under this Section
5.01 shall be presumed, in respect of any act or omission giving rise to
such claim for indemnification, to have acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal matter, to have had no
reasonable cause to believe his conduct was unlawful, and the termination
of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, rebut such presumption.
Section 5.02 COURT-APPROVED INDEMNIFICATION. Anything contained
in these Bylaws or elsewhere to the contrary notwithstanding:
(a) The Corporation shall not indemnify any officer or Director
of the Corporation who was a party to any completed action or suit
instituted by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a Director, trustee, officer, employee or agent of
another Corporation (domestic or foreign, nonprofit or for profit),
partnership, joint venture, trust or other enterprise, in respect of any
claim, issue or matter asserted in such action or suit as to which he shall
have been adjudged to be liable for gross negligence or intentional
misconduct in the performance of his duty to the Corporation unless and
only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite such adjudication of liability, and in view of
all the circumstances of the case, he is fairly and reasonably entitled to
such indemnity as such Court of Chancery or such other court shall deem
proper; and
(b) The Corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by
this Section 5.02.
Section 5.03 INDEMNIFICATION FOR EXPENSES. Anything contained
in these Bylaws or elsewhere to the contrary notwithstanding, to the extent
that an officer or Director of the Corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred
to in Section 5.01, or in defense of any claim, issue or matter therein, he
shall be promptly indemnified by the Corporation against expenses
(including, without limitation, attorneys fees, filing fees,court
reporters' fees and transcript costs) actually and reasonably incurred by
him in connection therewith.
Section 5.04 DETERMINATION REQUIRED. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall be
made by the Corporation only upon a determination that such indemnification
of the officer or Director is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 5.01. Such
determination may be made only (a) by a majority vote of a quorum
consisting of Directors of the Corporation who were not and are not parties
to any such action, suit or proceedings, or (b) if such a quorum is not
obtainable or if a majority of a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders, or (d) by the Court of Chancery of the State of Delaware or
(if the Corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any. Any such determination may be made
by a court under division (d) of this Section 5.04 at any time (including.,
without limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been
denied or disregarded by the disinterested Directors under division (a) or
by independent legal counsel under division (b) or by the stockholders
under division (c) of this Section 5.04); and no failure for any reason to
make any such determination, and no decision for any reason to deny any
such determination, by the disinterested Directors under division (a) or by
independent legal counsel under division (b) or by stockholders under
division (c) of this Section 5.04 shall be evidence in rebuttal of the
presumption recited in Section 5.01. Any determination made by the
disinterested Directors under division (a) or by independent legal counsel
under division (b) of this Section 5.04 to make indemnification in respect
of any claim, issue or matter asserted in an action or suit threatened or
brought by or in the right of the Corporation shall be promptly
communicated to the person who threatened or brought such action or suit,
and within twenty days after receipt of such notification such person shall
have the right to petition the Court of Chancery of the State of Delaware
or the court in which such action or suit was brought, if any, to review
the reasonableness of such determination.
Section 5.05 ADVANCES FOR EXPENSES. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs) incurred in defending any action, suit or proceeding
referred to in Section 5.01 shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding to or on behalf of
the officer or Director promptly as such expenses are incurred by him, but
only if such officer or Director shall first agree, in writing, to repay
all amounts so paid in respect of any claim, issue or other matter asserted
in such action, suit or proceeding in defense of which he shall not have
been successful on the merits or otherwise:
(a) If it shall ultimately be determined as provided in Section
5.04 that he is not entitled to be indemnified by the Corporation as
provided under Section 5.01; or
(b) If, in respect of any claim, issue or other matter asserted
by or in the right of the Corporation in such action or suit, he shall have
been adjudged to be liable for gross negligence or intentional misconduct
in the performance of his duty to the Corporation, unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application
that, despite such adjudication of liability, and in view of all the
circumstances, he is fairly and reasonably entitled to all or part of such
indemnification.
Section 5.06 ARTICLE V NOT EXCLUSIVE. The indemnification
provided by this Article V shall not be deemed exclusive of any other
rights to which any person seeking indemnification may be entitled under
the Certificate of Incorporation or any Bylaw, agreement, vote of
stockholders or disinterested Directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be an
officer or Director of the Corporation and shall inure to the benefit of
the heirs, executors, and administrators of such a person.
Section 5.07 INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a Directors, trustee, officer, employee, or
agent of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would
have the obligation or the power to indemnify him against such liability
under the provisions of this Article V.
Section 5.08 CERTAIN DEFINITIONS. For purposes of this Article
V, and as examples and not by way of limitation:
(a) A person claiming indemnification under this Article V shall
be deemed to have been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 5.01, or in defense
of any claim, issue or the matter therein, if such action, suit or
proceeding shall be terminated as to such person, with or without
prejudice, without the entry of a judgment or order against him, without a
conviction of him, without the imposition of a fine upon him and without
his payment or agreement to pay any amount in settlement thereof (whether
or not any such termination is based upon a judicial or other determination
of the lack of merit of the claims made against him or otherwise results in
his vindication); and
(b) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" within the meaning of that term as used in this Article V.
Section 5.09 VENUE. Any action, suit or proceeding to determine
a claim for indemnification under this Article V may be maintained by the
person claiming such indemnification, or by the Corporation, in the Court
of Chancery of the State of Delaware. The Corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction
over its or his person by the Court of Chancery of the State of Delaware in
any such action, suit or proceeding.
Section 5.10 CONTRACTUAL NATURE. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and
each Director and officer who serves in such capacity at any time while
this Section 5.10 is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon
any such state of facts.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 CERTIFICATE FOR SHARES. Every owner of one or more
shares in this Corporation shall be entitled to a certificate, which shall
be in such form as the Board of Directors shall prescribe, certifying the
number and class of shares in the Corporation owned by such person. When
such certificate is countersigned by an incorporated transfer agent or
registrar, the signature of any of said officers may be facsimile,
engraved, stamped or printed. The certificates for the respective classes
of such shares shall be numbered in the order in which they shall be issued
and shall be signed in the name of the Corporation by the Chairman, the
President or a Vice President and by the Secretary or the Treasurer. A
record shall be kept of the name of the person, firm, or corporation owning
the shares represented by each such certificate and the number of shares
represented thereby, the date thereof and in case of cancellation, the date
of cancellation. Every certificate surrendered to the Corporation for
exchange or transfer shall be cancelled and no new certificate or
certificates shall be issued in exchange for any existing certificates
until such certificates shall have been so cancelled. In case any officer
who has signed, or whose facsimile signature has been placed upon a
certificate, shall have ceased to be such officer before such certificate
is issued, such certificate may be issued by the Corporation with the same
effect as if such person were such officer at the date of issue.
Section 6.02 LOST, DESTROYED OR MUTILATED CERTIFI- CATES. If
any certificates for shares in this Corporation become worn, defaced, or
mutilated but are still substantially intact and recognizable, the
Directors, upon production and surrender thereof, shall order the same
cancelled and shall issue a new certificate in lieu of same. The holder of
any shares in the Corporation shall immediately notify the Corporation if a
certificate therefor shall be lost, destroyed, or mutilated beyond
recognition, and the Corporation may issue a new certificate in the place
of any certificate theretofore issued by it which is alleged to have been
lost or destroyed or mutilated beyond recognition. Unless otherwise
provided by the Board of Directors or an officer of the Corporation, the
owner of the certificate which has been lost, destroyed, or mutilated
beyond recognition, or his legal representative, shall give the Corporation
a bond in such sum and with such surety or sureties as may be required to
adequately indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, destruction, or mutilation of
any such certificate. The Board of Directors may, however, in its
discretion, refuse to issue any such new certificate pending the resolution
of any legal proceedings involving such certificate or the loss,
destruction or mutilation thereof.
Section 6.03 TRANSFERS OF SHARES. Transfers of shares in the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, his or its legal guardian, executor, or
administrator, or by his or its attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation or
with a transfer agent appointed by the Board of Directors, and on surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by properly executed stock powers (and any requested signature
guarantees) and evidence of the payment of all taxes imposed upon such
transfer. The person in whose name shares stand on the books of the
Corporation shall, to the full extent permitted by law, be deemed the owner
thereof for all purposes as regards the Corporation, and the Corporation
shall not be bound to recognize any equitable or other claim or interest in
such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by statute.
Section 6.04 STOCK LEDGERS. The stock ledgers of the
Corporation containing the names and addresses of the stock- holders and
the number of shares held by them respectively shall be maintained at the
principal offices of the Corporation, or, if there be a transfer agent, at
the office of such transfer agent as the Board of Directors shall
determine.
Section 6.05 REGULATIONS. The Board of Directors may make such
rules and regulations as it may deem expedient and not inconsistent with
these Bylaws concerning the issue, transfer, and registration of
certificates for shares in the Corporation. It may appoint one or more
transfer agents or one or more registrars, or both, and may require all
certificates for shares to bear the signature of either or both.
ARTICLE VII
FINANCES
Section 7.01 DIVIDENDS. Subject to any statutory provisions,
dividends upon the capital stock of the Corporation may be declared by the
Board of Directors, payable on such dates as the Board of Directors may
designate.
Section 7.02 RESERVES. Before the payment of any dividend,
there may be set aside out of the funds of the Corporation available for
dividends, such sum or sums as the Board of Directors may from time to time
in its absolute discretion deem proper as a reserve to meet contingencies
or for equalizing dividends, or for repairing or maintaining any property
of the Corporation, or for such other purpose as the Board shall deem
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 7.03 BILLS, NOTES, ETC. All checks or demands for money
and notes or other instruments evidencing indebtedness or obligations of
the Corporation shall be made in the name of the Corporation and shall be
signed by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
ARTICLE VIII
DIVISIONS
Section 8.01 CREATION OF DIVISIONS. The Board of Directors may
from time to time create Divisions of the Corporation as operational units
of the Corporation, and may set apart to such Divisions such aspects or
portions of the business, affairs and properties of the Corporation as the
Board of Directors may from time to time determine.
Section 8.02 DIVISION OFFICERS. The Board of Directors of the
Corporation may appoint as officers of a Division a President, one or more
Vice Presidents, a Secretary, a Treasurer and any other officers, all of
whom shall serve at the pleasure of the Board of Directors. The same
person may hold two or more offices of a Division, and any person holding
an office of a Division may also be elected an officer of the Corporation.
The officers and all other persons who shall serve a Division in the
capacities set forth in this Article are hereby appointed agents of the
Corporation with the powers and duties herein set forth; provided, however,
that the authority of said agents shall be limited to matters related to
the properties, business and affairs of the Division and shall not extend
to any other portion of the properties, business and affairs of the
Corporation. The Board of Directors may from time to time authorize the
Chairman or the President of the Corporation to appoint and remove all such
Divisional officers and agents and to prescribe their respective powers and
duties.
Section 8.03 DIVISION PRESIDENT. The President of a Division
shall be the Chief Executive Officer of the Division and shall have the
responsibility for the general management of the affairs of the Division,
subject to the direction of the Board of Directors, the Chairman and the
President of the Corporation. He shall see that all orders, instructions,
policies and resolutions of the Board of Directors, the Chairman and the
President of the Corporation relating to the business and affairs of the
Division are carried into effect.
Section 8.04 DIVISION SECRETARY. The Division Secretary shall
have the custody of such books and papers, shall maintain such records and
shall have such other powers and duties as may from time to time be
properly prescribed by the Board of Directors, the Chairman and the
President of the Corporation and by the Division President.
Section 8.05 DIVISION TREASURER. Subject to the direction of
the Treasurer of the Corporation and the Division President, the Division
Treasurer shall have custody of the funds and securities of the Division,
shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Division, shall deposit all monies and other
valuable effects in the name and to the credit of the Division in such
depositories as may be designated by the Board of Directors and shall have
such other powers and duties as may from time to time be properly
prescribed by the Board of Directors, the Chairman and the President of the
Corporation and by the Division President.
ARTICLE IX
SEAL
The Board of Directors may provide a corporate seal, which shall
be circular and contain the name of the Corporation engraved around the
margin and the words "corporate seal," the year of its organization, and
the word "Delaware."
ARTICLE X
AMENDMENTS
Section 10.01 POWER TO AMEND. These Bylaws may be adopted,
altered, amended or repealed only by the affirmative vote of the holders of
at least 80% of the issued and outstanding shares of this Corporation's
Common Stock. The Board of Directors shall also have the power to adopt,
alter, amend or repeal these Bylaws by a majority vote of the entire Board
of Directors at any meeting thereof.
Exhibit 10-3
AMENDMENT TO
STUART KOMER'S EMPLOYMENT CONTRACT
The Employment Contract (the "Agreement"), dated as of August 31, 1993,
by and between Artistic Greetings Incorporated (the "Corporation"), a Delaware
corporation and Stuart Komer, 850 Euclid Avenue, Elmira, New York is hereby
amended (the "Amendment") as follows:
The Agreement shall be amended by (1) inserting the letter "(A)"
following the word "shall" in the fourth line of Section 5(a)(i) of the
Agreement and (2) inserting the phrase "and (B) in the event that the
Termination Notice is delivered as a result of an Acquisition of Control,
cause any outstanding stock options held by the Executive to automatically
vest as of the date of the Termination Notice" at the end of the penultimate
sentence of Section 5(a) of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the 27{th} day of February 1997.
ARTISTIC GREETINGS INCORPORATED
By: /S/ THOMAS C. WYCKOFF
Name: Thomas C. Wyckoff
Title: Senior Vice President Administration
and Assistant Secretary
By: /S/ STUART KOMER
Name: Stuart Komer
Exhibit 10-5
EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") dated as of
November 1, 1996 by and between Robert E. Johnson, Jr., residing at 888 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 has served in various capacities,
including
Senior Vice President Finance and Chief Financial Officer of the Company since
October 16, 1995;
II. WHEREAS, the Company desires to memorialize the retention of
the full-time services of the Executive hereby, and the Executive is willing
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 the Executive's 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 Finance and Chief Financial Officer of the Company or in
such other capacity as the Chief Executive Officer shall determine (the
"Duties"). The Executive shall devote the Executive's customary working time
to the business of the Company and shall perform the 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 the Executive
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 (i)
paid each week beginning on the Execution Date; and (ii) reviewed by the
Company on an annual basis with increases of such Yearly Salary granted
to the Executive in the sole discretion of the Company based upon, among
other things, the Executive's performance of the Duties during the prior
period.
b. A percentage of 100% of a Share Unit (as hereinafter defined)
calculated from January 1, 1996 and thereafter. A Share Unit is equal to
the sum of 3% of the Net Operating Income (as hereinafter defined) of the
prior year (if Net Operating Income is negative, such number equals zero)
plus 12% of the increase in Net Operating Income of the current year over
the prior year (a "Share Unit"). Net Operating Income is equal to Net
Income before (i) interest and investment income (expense), (ii) taxes,
(iii) bonuses and (iv) extraordinary items. The amount of the
Executive's percentage Share Unit shall be reviewed by the Company on an
annual basis with increases of such Share Unit granted to the Executive
in the sole discretion of the Company based upon, among other things, the
Executive's performance of the Duties during the prior period. Bonuses
shall be paid no later than March 15th of the following year. Should the
Executive be Terminated for Cause, no bonus for the year in which the
Termination occurs will be due or payable.
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. Three (3) weeks of paid vacation per calendar year, or such
greater period as may be approved from time to time by the Chief
Executive Officer of the Company;
b. Health insurance (Company pays 75% and Executive pays 25% of
the plan options selected);
c. Long-term disability insurance (Company pays 100%);
d. Life insurance equal to one year's base earnings; 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. TERM. This Agreement shall be effective for a period of two
years from the Execution Date (the "Term").
5. 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 (A) make Payment (any amount due under
this Section 5 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 or (II)
twelve months; (B) cause any outstanding Stock Options held by the
Executive to automatically vest as of the date of the Termination Notice;
and (C) make Payment to the Executive, within (30) days of such
Termination, an amount equal to the Executive's pro rata share of the
Executive's bonus (as determined in accordance with Section 2(b) hereof)
up through the last day of the calendar month immediately prior to the
date of the Termination Notice.
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 and if
Executive is not retained pursuant to an employment agreement under
Section 8(d)(i), 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 the amount due therefore, including such
Benefits as are described in sections 5(a)(ii)(B) and 5(a)(ii)(C).
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 5 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.
6. 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 6.
7. 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 7 (the "Noncompete Period")), the Executive will not:
a. For the Executive 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 acquired by
the Company, or contacted or solicited by the Executive during the
Executive's employment with the Company;
b. For the Executive 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 or 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 the
Executive's agreement under this Section 7 for the duration of the Noncompete
Period.
The provisions of this Section 7 shall survive any Termination. If
any of the restrictions on competitive activities contained in this Section 7
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 shall 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.
8. 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 51% or more of the total
number of votes that may be cast 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) willful or bad-faith conduct materially injurious to 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) an Acquisition of Control of the Company and if an
employment agreement, reasonably satisfactory to the Executive, for the
continuation of the employment of the Executive is not executed; 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).
9. 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.
10. 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, the Executive's
legal representatives, heirs and distributees.
11. 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.
12. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and may not be altered or amended 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
enforced 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/ JOSEPH A. CALABRO
Name: Joseph A. Calabro
Title: Chief Executive Officer and President
By: /S/ ROBERT E. JOHNSON
Name: Robert E. Johnson, Jr.
Title: Senior Vice President Finance and
Chief Financial Officer
Exhibit 10-6
EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") dated as of
November 1, 1996 by and between Thomas C. Wyckoff, residing at 909 Hoffman
Street, 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 has served in various capacities,
including
Senior Vice President and General Counsel of the Company since July 31,
1995;
II. WHEREAS, the Company desires to memorialize the retention of
the full-time services of the Executive hereby, and the Executive is
willing 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 the Executive's 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 Administration, Corporate Development and General
Counsel of the Company or in such other capacity as the Chief Executive
Officer shall determine (the "Duties"). The Executive shall devote the
Executive's customary working time to the business of the Company and shall
perform the 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 the
Executive pursuant to this Agreement in the following manner:
a. A base salary of One Hundred Twenty-Two Thousand Dollars
($122,000) per calendar year (the "Yearly Salary"), which shall be (i)
paid each week beginning on the Execution Date; and (ii) reviewed by
the Company on an annual basis with increases of such Yearly Salary
granted to the Executive in the sole discretion of the Company based
upon, among other things, the Executive's performance of the Duties
during the prior period.
b. A percentage of 60% of a Share Unit (as hereinafter defined)
calculated from January 1, 1996 and thereafter. A Share Unit is equal
to the sum of 3% of the Net Operating Income (as hereinafter defined)
of the prior year (if Net Operating Income is negative, such number
equals zero) plus 12% of the increase in Net Operating Income of the
current year over the prior year (a "Share Unit"). Net Operating
Income is equal to Net Income before (i) interest and investment
income (expense), (ii) taxes, (iii) bonuses and (iv) extraordinary
items. The amount of the Executive's percentage Share Unit shall be
reviewed by the Company on an annual basis with increases of such
Share Unit granted to the Executive in the sole discretion of the
Company based upon, among other things, the Executive's performance of
the Duties during the prior period. Bonuses shall be paid no later
than March 15th of the following year. Should the Executive be
Terminated for Cause, no bonus for the year in which the Termination
occurs will be due or payable.
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. Three (3) weeks of paid vacation per calendar year, or such
greater period as may be approved from time to time by the Chief
Executive Officer of the Company;
b. Health insurance (Company pays 75% and Executive pays 25% of
the plan options selected);
c. Long-term disability insurance (Company pays 100%);
d. Life insurance equal to one year's base earnings; 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. TERM. This Agreement shall be effective for a period of two
years from the Execution Date (the "Term").
5. 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 (A) make Payment (any amount due under
this Section 5 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 or (II)
twelve months; (B) cause any outstanding Stock Options held by the
Executive to automatically vest as of the date of the Termination Notice;
and (C) make Payment to the Executive, within (30) days of such
Termination, an amount equal to the Executive's pro rata share of the
Executive's bonus (as determined in accordance with Section 2(b) hereof)
up through the last day of the calendar month immediately prior to the
date of the Termination Notice.
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 and if
Executive is not retained pursuant to an employment agreement under
Section 8(d)(i), 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 the amount due therefore, including such
Benefits as are described in sections 5(a)(ii)(B) and 5(a)(ii)(C).
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 5 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.
6. 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 6.
7. 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 7 (the "Noncompete Period")), the Executive will not:
a. For the Executive 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 acquired by
the Company, or contacted or solicited by the Executive during the
Executive's employment with the Company;
b. For the Executive 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 or 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 the
Executive's agreement under this Section 7 for the duration of the Noncompete
Period.
The provisions of this Section 7 shall survive any Termination. If
any of the restrictions on competitive activities contained in this Section 7
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 shall 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.
8. 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 51% or more of the total
number of votes that may be cast 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) willful or bad-faith conduct materially injurious to 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) an Acquisition of Control of the Company and if an
employment agreement, reasonably satisfactory to the Executive, for the
continuation of the employment of the Executive is not executed; 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).
9. 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.
10. 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, the Executive's
legal representatives, heirs and distributees.
11. 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.
12. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and may not be altered or amended 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
enforced 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Execution Date.
ARTISTIC GREETINGS INCORPORATED
By: /S/ JOSEPH A. CALABRO
Name: Joseph A. Calabro
Title: Chief Executive Officer and President
By: /S/ THOMAS C. WYCKOFF
Name: Thomas C. Wyckoff
Title: Senior Vice President Administration
and General Counsel
Exhibit 10-8
NONQUALIFIED DEFERRED COMPENSATION PLAN
FOR CERTAIN HIGHLY COMPENSATED EMPLOYEES
OF ARTISTIC GREETINGS INCORPORATED
Artistic Greetings Incorporated, a Delaware corporation ("Artistic" or
the "Company"), desires to establish a plan to permit certain highly
compensated employees to defer the receipt of a portion of their salaries and
bonuses. In order to carry out this purpose, the Company adopted and
sponsored this unfunded, nonqualified deferred compensation plan, which plan
is embodied herein.
This Plan is adopted this 24th day of October, 1996 by the Company for
the exclusive benefit of its Officers.
RECITALS
A. The Company, by appropriate action of its Board of Directors, has
deemed it to be in its best interest to adopt this Plan.
B. The Officers of the Company have been authorized and directed to
enter into this Plan to carry out the aforesaid Plan of the Company.
NOW, THEREFORE, the Company adopts the Plan herein set forth which shall
be known as the Nonqualified Deferred Compensation Plan for Certain Highly
Compensated Employees of Artistic and which shall have the following
provisions.
ARTICLE I
DEFINITIONS
1.00 "Act" shall mean the Employee Retirement Income Security Act of 1974
("ERISA"), as from time to time amended.
1.01 "Board" shall mean the Board of Directors of the Company.
1.02 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.03 "Company" shall mean Artistic Greetings Incorporated and any of its
subsidiaries or affiliated business entities participating in this Plan.
1.04 "Deferred Compensation" shall mean the amount deferred by a
Participant for each calendar year.
1.05 "Effective Date" shall mean October 24, 1996.
1.06 "Participant" shall mean an individual serving as an Officer of the
Company and designated by the Board (or a delagee of the Board) to participate
in the Plan.
1.07 "Plan" shall mean the Nonqualified Deferred Compensation Plan for
Certain Highly Compensated Employees of Artistic, as from time to time amended
or restated, which shall be a non-qualified deferred compensation plan as more
fully described in Act Sections 201(2), 301(a)(3) and 401(a)(1).
ARTICLE II
PARTICIPATION
2.00 A Participant may, on or before December 1st of each year, notify
the Company in writing that he irrevocably elects to have up to 100 percent of
the compensation payable to him by the Company as salary or bonus during the
following calendar year deferred to a date specified in that notification.
The amount deferred shall be that Participant's Deferred Compensation.
2.01 During the first year of this Plan, a Participant may make an
election to defer compensation for the remainder of the first plan year, such
election to be made within the 30-day period following the adoption of this
Plan by the Company.
ARTICLE III
ACCOUNTS
3.00 The Company shall create a Deferred Compensation Account in the name
of each Participant, which will be credited with the following amounts:
(a) The amount of the Deferred Compensation. Such amounts shall
be considered to have been contributed to the account ratably throughout the
calendar year. Similarly, installment distributions of Deferred Compensation
shall be considered to have been distributed from the account ratably
throughout the calendar year. A lump sum is considered distributed on the
distribution date.
(b) An amount equal to the amount which could have been earned if
the Deferred Compensation Account had been invested for the previous calendar
year at the average prime rate charged by Marine Midland Bank, N.A. in
Rochester, New York. The average prime rate shall be computed by averaging
the prime rate on January 1st of the succeeding calendar year. The interest
shall be credited to the Deferred Compensation Account on each January 1st.
ARTICLE IV
BENEFITS
4.00 Payment of a Participant's Deferred Benefit shall be made at such
time as the Company and the Participant shall mutually agree.
4.01 If a Participant dies while he is a Participant in the Plan, such
participation shall cease as of the last day of the month in which death
occurs. In such event, or in the event of a Participant's death prior to the
time when he shall have received full payment of the amounts payable to him
from the Deferred Account, the full balance of the amount of Deferred
Compensation, including any interest increments to the Deferred Compensation
Account, payable to him and unpaid at the time of his death, shall immediately
become due and payable to the Participant's Estate.
4.02 If a Participant becomes permanently disabled or incapacitated while
he is a Participant in the Plan, the Participant may elect that payments shall
commence as of the anniversary date on which such event commenced. Permanent
disability for purposes of this Plan shall be deemed to have occurred if the
Participant shall have been unable to perform his duties with the Company for
a continuous period of 12 months.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.00 The Board is hereby designated as the named fiduciary under this
Plan. The named fiduciary shall have the authority to control and manage the
operation and administration of this Plan and it shall be responsible for
establishing and carrying out a funding policy and method consistent with the
objectives of this Plan.
5.01 The Board shall make all determinations as to rights to benefits
under this Plan. Any decision by the Board denying a claim by a Participant
for benefits under this Plan shall be stated in writing and delivered or
mailed to the Participant or his beneficiary. Such decision shall set forth
the specific reasons for the denial, written to the best of the Board's
ability in a manner that may be understood without legal or actuarial counsel.
In addition, the Board shall afford a reasonable opportunity to the
Participant or in the case of an estate, his representative, for a full and
fair review of the decision denying such claim.
5.02 Subject to the foregoing, the Board shall have full power and
authority to interpret, construe and administer the Plan. The interpretation
and construction of this Plan by the Board, and any action taken hereunder,
shall be binding and conclusive upon all parties in interest. No member of
the Board of Directors shall, in any event, be liable to any person for any
action taken or omitted to be taken in connection with the interpretation,
construction or administration of this Plan, so long as such action or
omission to act be made in good faith.
5.03 The Company may amend or terminate the Plan at any time, provided,
however, that no such amendment or termination shall adversely affect a
benefit to which a Participant or his beneficiary is entitled.
5.04 The benefits payable hereunder or the right to receive future
benefits under the Plan may not be anticipated, alienated, pledged,
encumbered, or subjected to any charge or legal process, and if any attempt is
made to do so, or a person eligible for any benefits becomes bankrupt, the
interest under the Plan of the person affected may be terminated by the
Company which, in its sole discretion, may cause the same to be held or
applied for the benefit of one or more of the dependents of such person or
make any other disposition of such benefits that it deems appropriate.
5.05 Nothing contained in this Plan, and no action taken by any party
hereto, shall create, nor be construed to create, a trust of any kind, or a
fiduciary relationship between the Company and any Participant, beneficiary,
or any other person except as provided in paragraph 5.00.
5.06 The payments to the Participants or their beneficiaries hereunder
shall be made from assets which shall continue, for all purposes, to be a part
of the general assets of the Company. The provisions of this Plan shall give
no person, other than the Company's any interest in such assets. To the
extent that a Participant or any other person acquires a right to receive
payments from the Company under the provisions hereof, such right shall be no
greater than the right of any unsecured general creditor of the Company.
5.07 This Plan, and any amendment thereto, shall be binding and inure to
the benefit of the Company, its successors and assigns, and the Participants
and their beneficiaries, heirs, executors, administrators and legal
representatives.
5.08 Nothing contained in this Plan shall be construed as a control of
employment between the Company and any Participant, or as a right of any
Participant to be continued in employment of the company, or as a limitation
on the right of the Company to discharge any of its employees, with or without
cause.
5.09 Any notice, consent or demand required or permitted to be given
under the provisions of this Plan shall be in writing and shall be signed by
the party giving or making the same. As such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of the Company. The date of such mailing shall be deemed the date of
notice, consent or demand.
5.10 This Plan, and the rights of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of New
York.
IN WITNESS WHEREOF, Artistic Greetings has adopted this Plan, as of the
date hereinabove specified.
ARTISTIC GREETINGS INCORPORATED
By: _______________________________
Name:
Title:
EXHIBIT 10-12 AMENDMENT NO. 2 TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. 2, dated November 14, 1996 but to be effective as of
September 30, 1996, is made by and between ARTISTIC GREETINGS INCORPORATED
a Delaware corporation (the "Borrower") and MARINE MIDLAND BANK, a bank
organized under the laws of the State of New York (the "Bank").
RECITALS:
WHEREAS, the Borrower and the Bank are parties to a Revolving Credit
Agreement, dated March 8, 1996, as amended by Amendment No. 1 to Revolving
Credit agreement dated May 30, 1996 (the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as
originally executed for the purpose of extending the term thereof and
making certain other modifications as set forth below.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINED TERMS.
(a) Except as otherwise provided herein, all terms used herein and
defined in the Agreement shall have the meanings ascribed to such terms in
the Agreement. The terms "Agreement," "hereunder," "herein," and similar
references in the Agreement shall be deemed to refer to the Agreement as
amended hereby.
(b) The definition of "Termination Date" shall be amended by deleting
such definition in its entirety and replacing it with the following:
"TERMINATION DATE" means January 2, 1998.
ARTICLE 2. AMENDMENT TO SECTION 7.1.
The Agreement shall be amended by deleting Section 7.1 in its entirety
and substituting the following Section 7.1 in lieu thereof:
SECTION 7.1 MINIMUM WORKING CAPITAL. The Borrower will not at any
time permit current liabilities to exceed current assets by more than
$1,900,000. For purposes of this section, all amounts outstanding under
the Revolving Credit Note shall be treated as long term debt.
ARTICLE 3. AMENDMENT TO SECTION 7.4.
The Agreement shall be amended by deleting Section 7.4 in its entirety
and substituting the following Section 7.4 in lieu thereof:
SECTION 7.4 CURRENT RATIO. The Borrower will maintain at all
times a ratio of current assets to current liabilities of not
less than .8 to 1.0. For the purpose of this section, all
amounts outstanding under the Revolving Credit Note shall be
treated as long term debt.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
(a) The Borrower represents and warrants to the Bank (which
representations and warranties shall survive the execution and delivery of
this Amendment) that each of the Representations and Warranties of the
Borrower contained in Article IV of the Agreement is true and correct on
the date hereof and will be true and correct on the Effective Date as
hereinafter defined. For purposes of this Article 4, where a
Representation and Warranty contained in the Agreement makes reference to
the Agreement, the term "Agreement" shall be deemed, where appropriate, to
include the execution, delivery and performance of this Amendment.
(b) The Borrower represents and warrants to the Bank that all necessary
action has been taken to perfect the security interests in and charges upon
the Collateral described in the Security Agreement for the benefit of the
Bank, and no filing (including without limitation, any financing statements
pursuant to the Uniform Commercial Code), recording, registration, giving
of notice to other action is required in connection with this Amendment in
order to continue in effect the security interests described in the
Security Agreement.
ARTICLE 5. CONDITIONS PRECEDENT TO EFFECTIVENESS HEREOF.
When this Amendment has been executed by the Bank and the Borrower and
lodged with the Bank, this Amendment shall be deemed to be effective (the
"Effective Date"), provided that each of the following conditions shall
have been satisfied in a manner satisfactory to the Bank:
(a) All representations and warranties contained herein or otherwise
made in writing in connection herewith shall be true and correct with the
same force and effect as though the representations and warranties had been
made on the Effective Date.
(b) No material adverse change shall have occurred in the financial
condition of the Borrower since June 30, 1996.
(c) There shall not exist on the Effective Date any Event of Default as
defined in Section 8.1 of the Agreement, or any event which with notice or
lapse of time, or both, would constitute such an Event of Default.
(d) All corporate and legal proceedings necessary in connection with
the transactions contemplated by this Amendment shall have been completed
and the execution of this Amendment shall have been duly authorized.
(e) By executing this Amendment, the Borrower shall be deemed to have
certified to the Bank that all of the conditions specified in this Article
5 have been satisfied as of such date, and that the representations and
warranties set forth in Article 4 are true and correct as of such date.
ARTICLE 6. SURVIVAL OF COVENANTS.
All covenants, agreements, representations and warranties made herein
or concurrently with the execution and delivery hereof, and in certificates
given pursuant hereto, shall survive the execution and delivery of this
Amendment, and shall continue in full force and effect with respect to the
date as of which they were made as long as any indebtedness remains unpaid
hereunder or under the Agreement.
ARTICLE 7. COSTS, EXPENSES AND TAXES.
The Borrower agrees to pay on the Effective Date all costs and
expenses in connection with the preparation, execution, delivery, filing
and recording 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.
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 (if any) 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.
ARTICLE 8. AMENDMENTS.
This Amendment may not be amended or modified except in writing signed
by the Borrower and the Bank.
ARTICLE 9. SUCCESSORS AND ASSIGNS.
This Amendment shall be binding upon and shall inure to the benefit of
the Borrower, the Bank and their respective successors and assigns,
including each successive holder or holders of the Note (or any interest
therein).
ARTICLE 10. LIMITATION OF AMENDMENTS.
The amendments set forth herein are limited precisely as written and
shall not be deemed to be a consent or any waiver of or modification of any
other term or condition of the Agreement, the Security Agreement, the
Guaranty or any of the instruments or agreements referred to therein, or
prejudice any right or rights which the Bank may now have or may have in
the future under or in connection with the Agreement, the Security
Agreement, the Guaranty or any of the instruments or agreements referred to
therein. Except as expressly modified hereby, the terms and provisions of
this Agreement, the Security Agreement and the Guaranty shall continue in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Thomas C. Wyckoff
Thomas C. Wyckoff
Senior Vice President - Administration
MARINE MIDLAND BANK
By: /s/ Paul E. Willsey
Paul E. Willsey
Senior Vice President
- 1 -
EXHIBIT 10-13 AMENDMENT NO. 3 TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. 3, dated as of December 31, 1996, is made by and
between ARTISTIC GREETINGS INCORPORATED a Delaware corporation (the
"Borrower") and MARINE MIDLAND BANK, a bank organized under the laws of the
State of New York (the "Bank").
RECITALS:
WHEREAS, the Borrower and the Bank are parties to a Revolving Credit
Agreement, dated March 8, 1996, as amended by Amendment No. 1 to Revolving
Credit agreement dated May 30, 1996 and Amendment No. 2 to Revolving Credit
Agreement dated November 14, 1996 (as amended, the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as
originally executed for the purpose of modifying certain financial
covenants as set forth below.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINED TERMS.
Except as otherwise provided herein, all terms used herein and defined
in the Agreement shall have the meanings ascribed to such terms in the
Agreement. The terms "Agreement," "hereunder," "herein," and similar
references in the Agreement shall be deemed to refer to the Agreement as
amended hereby.
ARTICLE 2. AMENDMENT TO SECTION 7.1.
The Agreement shall be amended by deleting Section 7.1 in its entirety
and substituting the following Section 7.1 in lieu thereof:
SECTION 7.1 MINIMUM WORKING CAPITAL. The Borrower will not at any
time permit current liabilities to exceed current assets by more than
$3,000,000. For purposes of this section, all amounts outstanding under
the Revolving Credit Note shall be treated as long term debt.
ARTICLE 3. AMENDMENT TO SECTION 7.4.
The Agreement shall be amended by deleting Section 7.4 in its entirety
and substituting the following Section 7.4 in lieu thereof:
SECTION 7.4 CURRENT RATIO. The Borrower will maintain at all
times a ratio of current assets to current liabilities of not
less than .75 to 1.0. For the purpose of this section, all
amounts outstanding under the Revolving Credit Note shall be
treated as long term debt.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Bank (which representations
and warranties shall survive the execution and delivery of this Amendment)
that each of the Representations and Warranties of the Borrower contained
in Article IV of the Agreement is true and correct on the date hereof and
will be true and correct on the Effective Date as hereinafter defined. For
purposes of this Article 4, where a Representation and Warranty contained
in the Agreement makes reference to the Agreement, the term "Agreement"
shall be deemed, where appropriate, to include the execution, delivery and
performance of this Amendment.
ARTICLE 5. CONDITIONS PRECEDENT TO EFFECTIVENESS HEREOF.
When this Amendment has been executed by the Bank and the Borrower and
lodged with the Bank, this Amendment shall be deemed to be effective (the
"Effective Date"), provided that each of the following conditions shall
have been satisfied in a manner satisfactory to the Bank:
(a) All representations and warranties contained herein or otherwise
made in writing in connection herewith shall be true and correct with the
same force and effect as though the representations and warranties had been
made on the Effective Date.
(b) There shall not exist on the Effective Date any Event of Default as
defined in Section 8.1 of the Agreement, or any event which with notice or
lapse of time, or both, would constitute such an Event of Default.
(d) All corporate and legal proceedings necessary in connection with
the transactions contemplated by this Amendment shall have been completed
and the execution of this Amendment shall have been duly authorized.
By executing this Amendment, the Borrower shall be deemed to have
certified to the Bank that all of the conditions specified in this Article
5 have been satisfied as of such date, and that the representations and
warranties set forth in Article 4 are true and correct as of such date.
ARTICLE 6. SURVIVAL OF COVENANTS.
All covenants, agreements, representations and warranties made herein
or concurrently with the execution and delivery hereof, and in certificates
given pursuant hereto, shall survive the execution and delivery of this
Amendment, and shall continue in full force and effect with respect to the
date as of which they were made as long as any indebtedness remains unpaid
hereunder or under the Agreement.
ARTICLE 7. COSTS, EXPENSES AND TAXES.
The Borrower agrees to pay on the Effective Date all costs and
expenses in connection with the preparation, execution, delivery, filing
and recording 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.
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 (if any) 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.
ARTICLE 8. AMENDMENTS.
This Amendment may not be amended or modified except in writing signed
by the Borrower and the Bank.
ARTICLE 9. SUCCESSORS AND ASSIGNS.
This Amendment shall be binding upon and shall inure to the benefit of
the Borrower, the Bank and their respective successors and assigns,
including each successive holder or holders of the Note (or any interest
therein).
ARTICLE 10. LIMITATION OF AMENDMENTS.
The amendments set forth herein are limited precisely as written and
shall not be deemed to be a consent or any waiver of or modification of any
other term or condition of the Agreement, the Security Agreement or any of
the instruments or agreements referred to therein, or prejudice any right
or rights which the Bank may now have or may have in the future under or in
connection with the Agreement, the Security Agreement or any of the
instruments or agreements referred to therein. Except as expressly
modified hereby, the terms and provisions of this Agreement and the
Security Agreement shall continue in full force and effect.
- 1 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ARTISTIC GREETINGS INCORPORATED
By: /s/ Robert E. Johnson
Robert E. Johnson
Senior Vice President - Finance
MARINE MIDLAND BANK
By: /s/ David Brooks
David Brooks
Vice President
- 2 -
Exhibit 10-20
ARTISTIC GREETINGS INCORPORATED AND VALASSIS COMMUNICATIONS, INC.
AMENDMENT TO ADVERTISING AGREEMENT
The Advertising Agreement, dated as of the 30th day of May, 1995, by
and between ARTISTIC GREETINGS INCORPORATED, a Delaware Corporation
(hereinafter "ARTISTIC"), and Valassis Communications, Inc., a Delaware
Corporation (hereinafter "Valassis") (a copy of which is attached hereto),
is hereby amended as follows:
Section 3(b) is hereby amended in its entirety as follows:
(b) "For any PSI advertising placed by ARTISTIC under this
Agreement, ARTISTIC shall pay Valassis the applicable prices as set
forth herein. Commencing on January 1, 1997, Valassis shall have the
right to increase the applicable prices as set forth in Schedule 1
hereto, on January 1, 1997, and then on the anniversary date of the
execution of this Agreement, no more than 3% each time during the term
hereof, 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 County Inserts, placed by
ARTISTIC under this Agreement, ARTISTIC shall pay Valassis the market
prices for such products."
IN WITNESS WHEREOF, the parties hereto have executed this amendment as
of the 28th day of June, 1996.
ARTISTIC GREETINGS INCORPORATED Valassis Communications, Inc.
By:/s/ Thomas C. Wyckoff By:/s/ Robert L. Recchia
Title: SVP and General Counsel Title: CFO
EXCERPTS FROM ARTISTIC GREETINGS INCORPORATED
1996 ANNUAL REPORT TO STOCKHOLDERS
Selected Financial Data:
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR 1994 1995 1996
<S> <C> <C> <C>
Net sales $91,121 $97,042 $98,911
Net income (loss) (426) (9,952) 2,675
Per common share:
Net income (loss) (0.07) (1.57) 0.42
Cash flows from operations (1,902) (4,275) 11,535
AT YEAR END
Total assets 37,909 38,654 28,998
Current liabilities 16,852 16.998 12,950
Long-term debt 1,559 9,593 1,034
Stockholders' equity 19,308 9,548 12,288
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Dollars in thousands, except per share data)
The following discussion contains forward-looking statements. For a discussion
of important factors that could cause actual results to differ materially from
such forward-looking statements, please carefully review the discussion of the
Risk Factors contained in Item 1 of the Company's report on Form 10-K for its
year ended December 31, 1996 as filed with the Securities and Exchange
Commission ("SEC"): see "Recent Losses; Potential Fluctuation in Operating
Results"; "Dependence on Effective Information Systems"; "Potential Volatility
of Stock Price"; and "Control by Present Stockholders" as well as the other
information contained in this Report and in the Company's periodic reports
filed with the SEC.
Results of Operations
1996 vs. 1995
Net Sales
In 1996, the Company's net sales increased 1.9% to $98,911 compared to $97,042
in 1995, as it continued its efforts to develop its check-printing activities
and increase volume in its catalog operation. Sales volume 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"), by an
aggregate of 17.3%, from $44,196 in 1995 to $36,539 in 1996. As in 1995, these
reductions resulted from discontinuing marginally profitable products and
advertising initiatives. Check sales increased by 14.0% from $37,806 in 1995
to $43,100 in 1996. This growth was primarily the result of the full-year
effect in 1996 of the acquisition of the assets of Valcheck Company
("Valcheck"), a direct-mail check printing company in the second quarter (the
"Valcheck Acquisition") of 1995, combined with the growth of higher-margin
check reorders.
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 1996 decreased 3.6% to $21, 973 compared to $22,802 in
1995. Lower sales volume in personalized products partially offset volume-
related increases in material costs for checks and catalogs. Costs of
materials for personalized products, checks and catalogs decreased as a result
of savings from additional management focus on manufacturing efficiencies in
these areas. Material costs decreased 1.3% as a component of net sales between
years due to the subcontracting of a portion of check personalization and
fulfillment ("check production") for the first three quarters of 1996, in
addition to the implementation in the fourth quarter of an agreement with the
John Harland Company ("Harland") to manufacture 100% of the Company's check
orders (the "Harland Agreement").
Direct labor was down 19.4% from $8,595 in 1995 to $6,928 in 1996, a decrease
of 1.9% as a component of net sales. Overall sales volume was higher, as
discussed above. More than offsetting this factor in the production areas,
however, was the effect of continued management attention to improving
manufacturing efficiencies, combined with increased subcontracting of check
production to Harland, as discussed above. Labor to receive incoming orders
was higher resulting from the increased mix of check reorders and catalog
volume, causing higher call volume.
Manufacturing overhead increased 6.0% to $11,764 in 1996 compared to $11,101 in
1995, however, such increase only represented a .5% increase as a component of
net sales during that period. Manufacturing overhead represented by indirect
labor increased as the manufacturing support and management infrastructure were
strengthened. Employee benefits expense increased in 1996 primarily as a
result of the prior conversion of long-term temporary personnel to full-time
status in the third quarter of 1995.
Selling, Advertising, General and Administrative
(SG&A)
The three largest components of SG&A expenses are advertising, postage and
labor.Advertising expense decreased 22.8% to $37,809 in 1996 compared to
$48,978 in 1995, which represents a decrease of 12.3% as a component of net
sales. Personalized products advertising was down $9,010 from 1995 as marginal
programs were reduced or eliminated. Catalog advertising was up $2,476 in an
effort to pursue higher-margin growth through increased circulation. Check
advertising was down $4,705 due to a lower level of free standing insert
("FSI") circulation, mostly in the third and fourth quarters of 1996 as
compared to 1995, in an effort to achieve targeted advertising with higher
margin potential. An additional factor in check advertising which partially
offset the lower FSI circulation was the increased amortization expense, for
all of 1996 as compared to the second half of 1995, for annual payments related
to an advertising agreement (the "Advertising Agreement") with Valassis
Communications, Inc. ("Valassis").
Postage and shipping expense in 1996 decreased 4.6% to $8,876 compared to
$9,300 in 1995, which represents a decrease of .6% as a component of net sales.
This decrease in postage and shipping expense occurred despite higher
production volumes and was attributable primarily to a significant reduction in
exchanges resulting from improved product and process quality.
Other administrative expense was reduced by 2.7% to $7,797 in 1996 compared to
$8,010 in 1995, representing a reduction of .4% as a component of net sales.
This reduction is substantially the result of decreases in utilities and
depreciation partially offset by increases in expenses for consulting, legal
and other outside advisors to the Company.
Other
The Company incurred expense of $1,406 in 1996 compared to expense of $919 in
1995. Interest expense decreased to $536 in 1996 from $881 in 1995, which
represents a decrease of .4% as a component of net sales. The decrease in
interest expense was due to reductions in both long- and short-term borrowing
as the Company applied its strong cash flow from operations to debt reduction.
Accruals for employee incentive compensation and contributions to the Company
profit-sharing plan were $992 in 1996, as compared to zero in 1995.
Tax Provision
The Company's effective tax benefit rate for 1995 was 21.4%. In 1995, the
Company was not able to recognize, in its tax provision, the full benefit for
its 1995 loss and 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 was
required to establish a valuation allowance in 1995 for the deferred tax assets
to reduce the value of these assets to a level that was more likely than not to
be realized. The effect of recording a valuation allowance related to the
Company's 1995 deferred tax assets was to reduce the 1995 tax benefit from the
statutory rate. The $317 tax benefit recorded in 1996 is substantially the
result of the recognition of tax assets for which a valuation allowance was
previously recorded. As the Company demonstrated profitability through 1996, a
portion of the net operating loss carryforward was utilized. The tax benefit
of this carryforward was not fully recorded in 1995 due to the valuation
allowance described above. Additionally, based upon the 1996 profitability and
the profitability expected in the future, the Company has recorded benefits for
the remaining net operating loss and credit carryforwards.
Net Income
For the reasons discussed above, the Company's 1996 net income was $2,675 or
$0.42 per share, compared to 1995's net loss of $9,952 or $1.57 per share.
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 products category, 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 Valcheck Acquisition in the second quarter and significant increases in
check advertising from the establishment of the Advertising Agreement.
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 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 39.0% 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. 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. 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 27.0% 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, Advertising, 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 net 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 32.0% to $9,300 compared to
$7,046 in 1994, which represents an increase of 1.9% as a component of net
sales. Such increase was 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 was 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 of $919 in 1995 compared to expense of $109 in
1994. Interest expense increased to $881 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 were recorded in 1995, reflecting primarily the costs of
consolidation of several warehouse facilities in the Elmira area.
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%. 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 was 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 was 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.
Liquidity and Capital Resources
The Company has historically met its cash requirements primarily from operating
activities. Although the Company's liquidity was reduced in 1995, the
operating activities of the Company in 1996 provided for a reduction in
accounts payable to historical levels and a repayment in full of borrowings on
the Company's revolving line of credit and certain of the Company's long-term
debt. In addition, proceeds from check-manufacturing equipment sold to Harland
as part of the Harland Agreement were used to pay off two equipment term loans.
Marketable securities, cash and cash equivalents were $2,999 at year end 1996
and $3,108 at year end 1995; accounts payable have been reduced from $13,993 at
year end 1995 to $9,847 at year end 1996; long-term debt was reduced from
$9,593 at year end 1995 to $1,034 at year end 1996; and the Company has
modified its revolving line of credit as further described in Note 8 to the
Financial Statements.
While working capital decreased to negative $2,865 at December 31, 1996 as
compared to $805 at December 31, 1995, this is attributable to several factors
and reflects successful efforts to manage the operations of the Company.
Current assets decreased from year to year by $7,718, primarily due to a
reduction of $430 in cash and cash equivalents to pay off long-term debt,
reduction of inventory by $3,579 due to improved materials management and
outsourcing 100% of check production and a $3,052 reduction of prepaid
advertising. Current liabilities decreased by $4,048 due to a reduction of
$4,146 in accounts payable and $1,624 in current portion of long-term debt,
partially offset by an increase of $1,395 in other accrued liabilities, mostly
related to employee incentive programs. As a result of the Harland Agreement,
the Company has no inventory for its check business but records accounts
payable for the costs of Harland's check production.
The Company has available $6,500 as of year end under its revolving line of
credit with its bank (the "Revolver"), which is subject to a borrowing base
formula and certain other conditions. As of March 20, 1997, the Company had no
outstanding balance under the Revolver and, based on the borrowing base
formula, had $5,602 available to it thereunder. For additional information
concerning the terms of the Revolver, see Note 8 to the Notes to the Financial
Statements contained herein.
Management believes that the operating activities of the Company, together with
the line of credit available under its Revolver, will substantially support its
cash requirements for the next twelve months and that sufficient capital
resources are available to the Company to provide adequate liquidity overall.
Management is of the opinion that inflation will not have a material effect on
the operations of the Company.
Significant Agreements
During 1996 and 1995, the Company entered into several significant agreements
relating to its manufacturing operations, management information system and
advertising.
In 1996, the Company entered into the Harland Agreement under which Harland
will manufacture and ship all check orders received by the Company at a
contractually-determined price per box together with related shipping and
handling fees. The Harland Agreement is for an initial term of seven years and
provides the Company with access to virtually unlimited check-production
capacity without the capital expenditure requirements or inventory costs that
the Company would otherwise have to incur in connection with the growth of its
check- product line. The Harland Agreement provides that, in the event either
party wishes to terminate, such party must provide one year's notice of such
intention to terminate prior to its effectiveness. The Harland Agreement also
provided for Harland's purchase of the Company's check-production equipment at
net book value resulting in no gain or loss being recognized.
Also in 1996, the Company reviewed, selected and began the installation of a
new management information system, at a projected cost of $4.5 million of which
$3.2 million was incurred in 1996. The Company has entered into various
agreements to purchase computer hardware and software, implementation support
services and training. The installation of and conversion to the entire system
is expected to be completed by mid-1997. The Company believes that upon its
completion, this new system will improve the Company's access to information
for enhanced decision making and control.
In 1995, the Company entered into the Advertising Agreement, under which, in
return for the payment of an annual fee to Valassis, the Company obtained an
exclusive right of first refusal to place its weekly newspaper FSI advertising
at competitive rates in all circulation in which Valassis has contracts for the
placement of such advertising. The Company has committed to pay $10 million in
annual fees over the term of the Agreement which expires in May 2000. As of
December 31, 1996, the remaining commitment under the contract was $5,000,
payable in annual installments of $2,000 through May 1998 and the final
installment of $1,000 due in May 1999.
<PAGE>
FINANCIAL STATEMENTS
Balance Sheets
(Dollars in thousands, except share data and per share amounts)
Assets
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 99 $ 529
Marketable securites:
Trading, at market
(cost $2,699 in 1996 and $1,704 in 1995) 2,881 1,926
Available for sale, at market
(cost $11 in 1996 and $651 in 1995) 19 653
Trade receivables (net of allowance for doubtful accounts of
$112 and $113 in 1996 and 1995, respectively) 1,252 1,803
Income tax receivable - 900
Inventories 2,270 5,849
Prepaid advertising 3,064 6,116
Prepaid expenses and other current assets 500 27
Total current assets 10,085 17,803
Deferred advertising 2,113 3,537
Property, plant and equipment, net 16,237 16,869
Cash surrender value of life insurance
(net of policy loans of $127 in 1996 and 1995) 433 308
Other assets 130 137
Total assets $28,998 $38,654
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ 153 $ 1,777
Accounts payable, trade (includes checks-in-transit
of $243 in 1996 and $1,438 in 1995) 9,847 13,993
Accrued liabilities 2,386 991
Customer advances 451 237
Income taxes payable 113 -
Total current liabilities 12,950 16,998
Long-term debt 1,034 9,593
Other liabilities 383 483
Total liabilities 14,367 27,074
Commitments and contingencies:
Common stock, subject to put option - 500,000 shares 2,343 2,032
Stockholders' Equity:
Common stock, par value $0.10;
Authorized: 10,000,000 shares;
Issued: 6,037,720 shares in 1996 and 1995 $ 604 $ 604
Additional paid-in capital 11,042 11,028
Unrealized gains on marketable securities
held as available for sale, net of tax effect 1 1
Retained earnings 1,526 (1,149)
13,173 10,484
Less: Treasury stock, at cost (200,356 and 216,427
shares in 1996 and 1995, respectively) (885) (936)
Total stockholders' equity 12,288 9,548
Total liabilities and stockholders' equity $28,998 $38,654
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
Statement of Operations
Years Ended December 31,
(Dollars in thousands, except share data and per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $98,911 $97,042 $91,121
Cost of sales 40,665 42,498 33,932
Gross profit 58,246 54,544 57,189
Selling, advertising, general
and administrative expenses 54,482 66,287 58,510
Income (loss) from operations 3,764 (11,743) (1,321)
Other income (expense):
Interest and dividend income 158 278 498
Net unrealized gains (losses)
on trading securities (34) 230 (8)
Net realized gains (losses)
on marketable securities 328 (161) (186)
Interest expense (536) (881) (339)
Bonus and profit sharing expense (992) - -
Other (330) (385) (74)
Income (loss) before income taxes 2,358 (12,662) (1,430)
Provision for (benefit from) income taxes (317) (2,710) (1,004)
Net income (loss) $ 2,675 $(9,952) $ (426)
Net income (loss) per common
and common equivalent share $ 0.42 $ (1.57) $ (0.07)
Weighted average number of common and
common equivalent shares outstanding 6,349,318 6,331,688 5,912,136
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
Statement of Changes in Stockholders' Equity
(Dollars in thousands, except share data and per share amounts)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 6,034,520 $603 $11,002 $ 9,665 $(975) $ - $20,295
Exercise of stock options
by employees 2,300 1 8 9
Stock grants to directors/employees 21 50 71
Purchase of treasury stock (20) (20)
Dividends paid ($.075 per share) (436) (436)
Unrealized losses on marketable
securities held as available for sale,
net of tax effect (185) (185)
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
Stock grants to directors/employees 14 51 65
Net income $2,675 2,675
Balance December 31, 1996 6,037,720 $604 $11,042 $1,526 $ (85) $ 1 $12,288
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
Statement of Cash Flows
Years Ended December 31,
(Dollars in thousands, except share data and per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 2,675 $ (9,952) $ (426)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,379 2,544 1,745
Allowance for doubtful accounts (1) 113 -
Net unrealized losses (gains)
on trading securities 40 (230) 8
Net realized losses (gains)
on marketable securities (328) 161 186
Purchase of trading securities (4,891) (1,922) (1,680)
Proceeds from sale of trading securities 4,858 1,268 672
Accretion of common stock subject to a put option 311 157 -
Decrease (increase) in cash surrender value
of life insurance (125) (66) (55)
Decrease (increase) in assets:
Trade receivables 552 (360) (605)
Income taxes receivable 900 14 (914)
Inventories 3,579 341 (816)
Prepaid advertising, prepaid expenses and other 3,058 (2,772) (1,280)
Deferred advertising 1,424 3,180 (1,332)
Deferred income taxes (472) - -
Increase (decrease) in liabilities:
Checks-in-transit (1,195) 507 931
Accounts payable, trade (2,951) 4,895 2,010
Accrued liabilities 1,395 (241) 167
Customer advances 214 54 (275)
Deferred income taxes - (1,966) (125)
Income taxes payable 113 - (113)
Net cash provided by (used in)
operating activities 11,535 (4,275) (1,902)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (5,388) (6,101) (3,403)
Proceeds from sale of equipment 3,641 - -
Purchase of marketable securities - (1,595) (2,998)
Proceeds from sale of marketable securities - 7,215 3,711
Net cash provided by (used in)
investing activities (1,747) (481) (2,690)
Cash Flows from Financing Activities:
Repayment of borrowings from the line of credit (25,311) (40,663) (28,812)
Proceeds from the line of credit 20,349 40,757 33,680
Purchase of treasury stock - - (20)
Proceeds from long-term borrowings - 4,553 -
Proceeds from issuance of common stock,
treasury stock and options exercised 65 6 79
Proceeds from (payments to) New York State Urban
Development Corporation (100) 483 -
Payment of dividends - - (436)
Repayment of long-term debt (5,221) - (299)
Net cash provided by (used in)
financing activities (10,218) 5,136 4,192
Net increase (decrease) in cash
and cash equivalents (430) 380 (400)
Cash and cash equivalents at beginning of year 529 149 549
Cash and cash equivalents at end of year $99 $529 $149
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the year for:
Interest $527 $735 $319
Income taxes, net of refunds received $(858) $(771) $36
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
Notes to Financial Statements
(Dollars in thousands, except share data)
Note 1
Summary of Significant Accounting Policies
Description of Business
The Company is engaged primarily in the direct-mail 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 its
retail store. 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. 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.
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
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.
During 1996, the Company adopted 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." 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 such
events or changes in circumstances are present, a loss is recognized to the
extent the carrying value of the asset is in excess of the sum of the
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition.
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, 1996 and 1995, $5,177 and $9,653 of advertising costs,
respectively, were reported as assets. Advertising expense for the years ended
December 31, 1996, 1995 and 1994 was $37,809, $48,978 and $42,441,
respectively. The expense in 1995 includes a charge of $2,229 to writedown
deferred advertising to its net realizable value. The expense for 1996 and
1995 includes approximately $12,500 and $8,500, respectively, in advertising
placements related to the Advertising Agreement described in Note 13 to the
Financial Statements.
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 approximately $1,800, 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:
1996 1995 1994
Common shares 6,328,207 6,331,688 5,871,759
Common equivalent shares 21,111 - 40,377
Total 6,349,318 6,331,688 5,912,136
Fair Value of Financial Instruments
Cash and cash equivalents, trade receivables, accounts payable, accrued
liabilities and other current liabilities other than long-term debt are
reflected in the financial statements at fair value because of the short-term
maturity of those instruments.
The estimated fair value of the Company's financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Marketable securities $2,900 $2,900 $ 2,579 $ 2,579
Long-term debt,including
current portion $1,187 $ 812 $11,370 $10,901
</TABLE>
The fair values of the Company's financial instruments were determined as
follows:
Marketable securities: The fair value is based on quoted market prices for
these or similar instruments. Accordingly, the carrying amount of marketable
securities approximates fair value.
Long-term debt including current portion: The fair value of the long-term debt
is estimated based upon interest rates available to the Company for issuance of
similar debt with similar terms and remaining maturities.
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.
Note 2
Marketable Securities
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
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:
<PAGE>
December 31, 1996 1995
Securities available for sale
Realized gain $ - $ 32
Realized loss $ - $249
Unrealized gain 8 2
Trading securities
Realized gain 358 120
Realized loss 30 64
Net unrealized gain 182 222
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 in both 1996 and 1995.
Note 3
Inventories
Inventories include cost of materials, labor and overhead and are comprised of
the following:
December 31, 1996 1995
Finished goods $ 652 $ 798
Work-in-process $ 561 $ 492
Raw materials and supplies $1,057 $4,559
Total $2,270 $5,849
Note 4
Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, 1996 1995
Land $ 385 $ 365
Buildings 9,160 8,335
Machinery and equipment 15,203 15,457
Furniture and fixtures 1,667 1,618
Transportation equipment 194 160
Subtotal 26,609 25,935
Less:
Accumulated depreciation
and amortization 10,372 9,066
Net $16,237 $16,869
Depreciation and amortization expense charged to operations amounted to $2,379,
$2,434 and $1,745 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Note 5
Accrued Liabilities
Accrued liabilities consist of the following:
December 31, 1996 1995
Accrued executive bonuses $ 691 $ -
Accrued employee profit sharing 301 -
Accrued and deferred compensation 406 511
Accrued vacation 396 400
Miscellaneous accrued liabilities 592 80
Total $2,386 $ 991
Note 6
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The provision for
(benefit from) income taxes is comprised of the following:
December 31, 1996 1995 1994
Currently payable:
Federal $ 134 $ (757) $ (987)
State 21 13 13
Total current 155 (744) (974)
Deferred:
Net loss carryforward 786 (917) -
Receivable reserve (41) - 41
Depreciation (108) 293 84
Promotional costs (752) (1,361) 523
Deferred compensation - 35 (35)
Vacation expense 2 (3) (37)
Insurance liability (122) - -
Investment losses and
carryforwards (14) 157 (71)
Contribution carryforward (281) 172 (470)
Inventory reserve 219 (348) 29
Investment credits - 270 (33)
Other (161) (261) (61)
Total deferred (472) (1,966) (30)
Total $(317) $(2,710) $(1,004)
The following is a reconciliation of the expected federal tax at statutory
rates to the effective rates:
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
<S> <C> <C> <C>
Expected tax $ 802 $(4,305) $ (486)
State tax effect 19 (30) 27
Interest and dividend exclusion (5) (49) (126)
Investment credit - - (67)
Nondeductible interest 106 - -
Adjustment of prior years' accruals 53 - (86)
Contributions (125) - (205)
Federal valuation allowance (1,144) 1,381 -
Other 33 205 17
Federal tax (261) (2,798) (926)
State tax (56) 88 (78)
Total $ (317) $(2,710) $(1,004)
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
Depreciation $ 773 $ 881
Promotional costs 781 1,308
Marketable securities 68 82
Gross deferred tax liabilities 1,622 2,271
Promotional costs (410) (185)
Vacation expense (146) (148)
Contribution carryforward (579) (298)
Net loss carryforward (674) (2,476)
Alternate minimum tax credits (307) (143)
Inventory reserve (52) (401)
Receivable reserve (41) -
Insurance liability (122) -
Credit carryforwards (1,002) (1,002)
Gross deferred tax assets (3,333) (4,653)
Deferred tax assets valuation allowance 1,239 2,382
Total net deferred taxes $ (472) $ -
</TABLE>
The valuation allowance for deferred tax assets in 1996 of $1,239 relates
primarily to the realizability of the contribution carryforward and the
uncertainty of realizing the tax benefit of certain state tax credits. The
valuation allowance for deferred tax assets in 1995 of $2,382 related primarily
to the realizability of net operating loss carryforwards and 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 $100 with varying expiration
dates through 2002. The Company also has available Economic Development Zone
Credits of approximately $900 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 $42, $91 and $97 in 1996, 1995 and 1994,
respectively. Other rental expense amounted to $90, $255 and $332 in 1996,
1995 and 1994, respectively.
Future minimum lease payments under operating leases through the end of the
lease terms are expected to be $22 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 can borrow up to $6,500 (the
"Demand Line"), with a revolving line of credit that is committed to the
Company until January 2, 1998, (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 or the
Money Market Rate as quoted by Marine at the time of borrowing. Additionally,
Marine has provided letters of credit to secure workers' compensation
obligations of the Company in the amount of approximately $252, which expire on
September 30, 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 PAGE 17
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. 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.
Various modifications, including working capital covenants, maturity date and
valuation of collateral were made effective May 30, 1996; September 30, 1996;
and December 31, 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 was secured by specific items of
equipment (the "Marine Equipment"), incurred interest at Marine's quoted Prime
Rate and was to expire in April 2000. The Marine Equipment Loan was paid in
full in 1996.
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"), the proceeds of which were used to finance certain computer hardware
and software of the Company (the "Computer Equipment"). The Marine Computer
Loan was secured by the Computer Equipment, incurred interest at Marine's
quoted Prime Rate and expired in August 1996. The final payment on this loan
was made in 1996.
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 was secured by the Manufacturing
Facilities, incurred interest at a rate which is one percent above the quoted
Prime Rate of Marine and required a repayment of the aggregate principal amount
thereunder of $467 as of October 1996. The outstanding principal amount was
paid in full in 1996.
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 was secured by specific items of
equipment (the "Chase Equipment"). The Chase Equipment Term Loan was paid in
full in 1996.
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 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 was secured
by the STEG Equipment, incurred interest at a rate of 7% per annum and required
amortization over a five-year period with the principal amount thereunder due
to be repaid in September 2000. The STEG Loan was paid in full in 1996.
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 were deferred
until May 1996. Interest accrued 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 were 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, 1996 1995
Marine Revolver $ - $4,962
Marine Equipment Loan _ 1,275
Marine Computer Loan - 132
Marine Mortgage - 514
Chase Equipment Loan - 2,975
UDC Mortgage 300 400
STEG Loan - 192
City of Elmira Mortgage 887 920
Total long-term debt 1,187 11,370
Less: Current portion 153 1,777
Total $1,034 $9,593
Minimum debt repayments under long-term obligations for the next five years and
thereafter are as follows:
1997 .......................................$153
1998 .......................................$153
1999 .......................................$153
2000 .......................................$ 53
2001 .......................................$ 53
Thereafter .................................$622
The weighted average interest rate on short-term borrowings outstanding are as
follows:
1996 1995 1994
30-day notes -% -% 6.14%
Money-market line 6.82% 7.36% 6.06%
Regular line 8.25% 8.78% 7.12%
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. In 1996, the Company matched 25% of the first
4% contributed by each participating employee annually. The Company's matching
contributions were $39, $35 and $31 during 1996, 1995 and 1994, 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. The
profit-sharing contribution for 1996 was $301. Due to the net loss in 1995 and
1994, no contributions were made to the plan for those years.
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.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Statement encourages, but does not require, a
fair value based method of accounting for an employee stock option or similar
equity instrument. The Company accounts for its stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for the options. Had
compensation cost for these options been determined based on the fair value at
the grant dates of the awards, consistent with SFAS 123, the Company's pro
forma amounts for net income and earnings per share would have been as follows:
1996 1995
Net income (loss) As reported $2,675 $(9,952)
Pro forma $2,345 $(9,977)
Net income (loss) As reported 0.42 (1.57)
per common and Pro forma 0.37 (1.58)
common equivalent share
SFAS 123 has only been applied to options granted after January 1, 1995. As a
result, the pro forma compensation expense may not be representative of that to
be expected in future years.
The weighted-average assumptions used to estimate the fair value of each option
on the date of grant using the Black-Scholes option pricing model include:
1996 1995
Risk-free interest rate 6.37% 6.02%
Expected life 5 years 5 years
Expected volatility 51.1% 51.1%
Expected dividends - -
Weighted average fair value
of options granted $2.24 $1.68
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.
<PAGE>
Number of
Shares Price Range
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 to $2.62
Canceled: (149,730) $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
Outstanding at January 1, 1996: 500,900 $3.12 to $10.31
Granted: 147,000 $2.62 to $5.00
Exercised: - $- to $-
Canceled: (259,490) $3.20 to $9.38
Outstanding at December 31, 1996: 388,410 $2.62 to $10.31
Exercisable at December 31, 1996: 139,700 $2.62 to $10.31
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 775,920, 663,430 and
529,700 at December 31, 1996, 1995 and 1994, 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 1996, the Company issued 1,071 shares of its treasury stock to a director at
a price per share of $3.50 for services rendered. In 1996, the Company granted
10,000 and 5,000 shares of its treasury stock to two employees at a price per
share of $3.88 and $4.69, respectively, for services rendered. 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 did not repurchase
shares in either 1996 or 1995. The Company repurchased 3,500 shares in 1994.
These shares were repurchased at an average per share price of $5.60.
Note 12
Related Party Transactions
The son of an executive officer of the Company, who is a licensed stock broker,
processes the Company's marketable securities transactions. Total commissions
paid to this individual were approximately $17, $21 and $16 in 1996, 1995 and
1994, respectively.
Note 13
Commitments and Contingencies
Employment Contracts
In 1996, the Company entered into a three-year employment agreement with the
Chief Executive Officer and President of the Company, which provides for a
minimum annual compensation of $200 and for participation in the Company's
executive bonus program. Additionally, the Company entered into two-year
employment agreements, providing for participation in the bonus program and
minimum annual compensation of $125 and $122, with each of its Senior Vice
President of Finance and Senior Vice President Administration, respectively.
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 any such
litigation cannot be determined, in the opinion of management, such liability,
if any, 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, 1996, the remaining commitment under the contract, which expires
May 2000, was $5,000, 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 Valcheck'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 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". The statement is
effective for fiscal years ending after December 15, 1997. When adopted,
restatement of prior years' earnings per share will be required.
The statement establishes revised standards for computing and presenting
earnings per share. Management does not expect the application to have a
material effect on the Company's financial statements.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Artistic Greetings Incorporated:
We have audited the accompanying balance sheets of Artistic Greetings
Incorporated, (a Delaware corporation) as of December 31, 1996 and 1995, and
the related statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 as of December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Rochester, New York
February 7, 1997
<PAGE>
10-K Report
A copy of the Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available at no charge upon request by writing or
calling Robert E. Johnson, Chief Financial Officer.
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 1996 and 1995 as provided by the NASD.
1996 Quarter 1 High 3 Low 2 3/8
1996 Quarter 2 High 4 1/16 Low 2 3/4
1996 Quarter 3 High 5 7/8 Low 3 3/8
1996 Quarter 4 High 5 15/16 Low 4 1/4
1995 Quarter 1 High 3 3/4 Low 2 1/8
1995 Quarter 2 High 4 3/8 Low 2 1/4
1995 Quarter 2 High 4 1/8 Low 3 1/8
1995 Quarter 2 High 3 7/8 Low 2 1/4
On March 20, 1997, the closing price of the Company's common stock was $4.75
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 20, 1997
was in excess of 626, 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.
/s/ Arthur Andersen LLP
Rochester, New York,
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE DATA IN THIS SCHEDULE ARE EXTRACTED FROM THE AUDITED 1996 FINANCIAL
STATEMENTS OF ARTISTIC GREETINGS INCORPORATED AND ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000007610
<NAME> ARTISTIC GREETINGS INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 99
<SECURITIES> 2,900
<RECEIVABLES> 1,364
<ALLOWANCES> 112
<INVENTORY> 2,270
<CURRENT-ASSETS> 10,085
<PP&E> 26,609
<DEPRECIATION> 10,372
<TOTAL-ASSETS> 28,998
<CURRENT-LIABILITIES> 12,950
<BONDS> 1,034
0
0
<COMMON> 604
<OTHER-SE> 11,684
<TOTAL-LIABILITY-AND-EQUITY> 28,998
<SALES> 98,911
<TOTAL-REVENUES> 98,911
<CGS> 40,665
<TOTAL-COSTS> 95,147
<OTHER-EXPENSES> 870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 2,358
<INCOME-TAX> (317)
<INCOME-CONTINUING> 2,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,675
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
