<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF l934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1359
PUBCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 53-0246410
(State of incorporation) (I.R.S. Employer Identification No.)
3830 Kelley Avenue, Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 881-5300
Securities registered pursuant to Section l2(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section l2(g) of the Act:
Common Stock, Par Value $.0l Per Share
Class B Stock, Par Value $.01 Per Share
Common Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 13, 1998, the aggregate market value of the common shares held by
non-affiliates of the registrant (based upon the closing price of the Common
Stock), was approximately $13,268,528.
As of March 13, l998, 3,752,473 common shares (Common Stock and Class B
Stock) were outstanding.
Documents Incorporated by Reference Form l0-K Reference
None
The exhibit index begins on page of this Form l0-K.
<PAGE>
PART I
ITEM l. BUSINESS
The Company conducts two lines of business: the manufacture and sale
of supplies for computer printers and labeling devices (and the
manufacture of such labeling devices) and the manufacture and sale of
construction products. See Note K of Notes to Consolidated Financial
Statements for further information on industry segment reporting. The
printer supplies business is conducted by the Company and its
wholly-owned subsidiaries under the "Buckeye", "Aspen" and "Kroy"
tradenames. The construction products business is conducted by an 85%
owned subsidiary of the Company under the "Allied" tradename.
The Company also owns the "Bobbie Brooks" trademarks which are
licensed through Garan, Inc., an unaffiliated apparel-manufacturing firm,
exclusively to Wal-Mart and vendors supplying Wal-Mart with apparel
merchandise. The Company also owns other income generating assets.
In this Form 10-K, the terms "Pubco" means Pubco Corporation and the
"Company" means Pubco together with all of its divisions and
majority-owned and wholly-owned subsidiaries.
On October 20, 1997, Pubco acquired all of the outstanding stock of
Kroy, Inc. (which later became Kroy LLC). The acquisition was
accomplished through separate purchase agreements with Kroy's three
stockholders. Contemporaneously with the purchase, a Pubco subsidiary
bought Kroy's secured bank loan from National Bank of Canada. This
subsidiary now provides working capital to Kroy on a secured basis. The
total paid for Kroy's stock and the bank loan was approximately
$5,000,000. On a consolidated basis, the Company accounted for the
transaction under the purchase method of accounting. The purchase price
was allocated to the net assets acquired resulting in goodwill of
$3,300,000. The Company used cash on hand to buy Kroy and the Kroy loan.
When the Company acquired Kroy in October, 1997, Kroy had its
headquarters, sales and engineering office in Scottsdale, Arizona,
manufacturing facilities in Osceola and St. Croix Falls, Wisconsin, and
office and warehouse facilities in England, France and Germany. The
Company has scaled back Kroy's Scottsdale, Arizona offices, closed the
Osceola, Wisconsin manufacturing facility and moved those activities to
the Company's Cleveland, Ohio location, and closed the office and
warehouse facilities in France and Germany. Salespeople continue to work
in those countries. The Company now manufactures and distributes
substantially all of its printer supplies products and construction
products from the Company's Cleveland, Ohio facility.
Pubco was established in 1958 and is a Delaware corporation. As of
March 13, 1998, the Company employed approximately 335 persons.
2
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Printer Supplies Business
The Company manufactures or resells computer ribbons, cartridge
ribbons, computer paper, laser toner, remanufactured toner cartridges,
thermal transfer ribbons, ink-jet supplies, magnetic media and commercial
and industrial label printers and supplies. The Company purchases
supplies and component parts from various suppliers, some of whom produce
component parts on molds owned by the Company. Printers are manufactured
by the Company and by subcontractors who produce printers from tools and
dies owned by the Company. The Company also publishes and sells the
AspenGuide(R), the definitive computer printer industry compatibility guide
which provides cross-reference information concerning ribbons, fax, laser
and other related supplies.
The Company markets its computer and data processing supplies
products through (i) an in-house telemarketing organization primarily to
end-users in the United States; (ii) dealers located in the United States
who resell the products to end-users, sometimes utilizing their own
labeling, and (iii) original equipment manufacturers. Label printers and
supplies are principally marketed throughout North America and Western
Europe through distributors and wholesalers, original equipment
manufacturers who sell products under their own tradenames, office
machine and office product dealers, specialty retailers and catalog
houses.
The Company's printer supplies businesss has approximately 14,000
accounts, none of which represents 5% of its business.
Principal raw materials used by the Company include (i) nylon
impression fabric which is primarily purchased from one weaving mill, but
is readily available from other sources, (ii) uncoated free sheet paper,
which is purchased primarily from two suppliers, but is also readily
available from numerous sources, (iii) plastic cartridge components,
which are purchased from numerous suppliers, (iv) microprocessors and
printed circuit boards, which are available from numerous sources, and
(v) coatings and heat shrinkable tubing, all of which materials are
available from a variety of suppliers.
The Company's label printers and supplies are covered by a variety of
US and European patents which protect the propriety of the Company's
label products. The "Kroy" trademark is registered in over 40
countries. "Aspen Ribbons", "AspenGuide" and "Laser I" are registered
trademarks in the United States.
There are no dominant suppliers of product in the computer printing
supplies market, which has numerous manufacturers and resellers. The
label printer and supplies market is dominated by a half dozen producers,
some of whom have significantly greater resources than the Company. Some
of these producers concentrate on the high volume mass merchant channel,
which the Company has not aggressively pursued.
3
<PAGE>
Construction Products Business
The Company designs, manufactures, assembles and distributes products
for the construction, utility and mining industries. These operations
are also housed in the Company's Cleveland, Ohio facility. Construction
products are divided into (i) products which are mounted on excavators,
industrial tractors, loaders and other equipment, including (A) hydraulic
hammers used for breaking rock, concrete and similar materials, (B)
hydraulic mounted compactors used for soil compaction and pile and
sheeting driving applications, (C) grapples used for material handling
and demolition, (D) asphalt cutters, and (E) hydraulic pedestal boom
systems used for breaking oversize material at rock crushing operations
and for waste handling operations; and (ii) underground products,
including (A) pneumatic piercing tools used to make horizontal holes for
placement or repair of underground utility lines, and (B) aluminum trench
supports used to support the walls of open construction trenches. During
the last three fiscal years, mounted products represented approximately
80-85% of the Company's sales while underground products represented the
balance.
The Company has a long-term contractual relationship with Krupp
Bautechnik GmbH, a German manufacturer of hammers and component parts.
The Company purchases component parts from Krupp, assembles its own
hammer products using these and other components purchased domestically,
and sells and distributes hammer products in the United States and Canada
under its "Allied" tradenames. Under the agreement, Krupp does not sell
competing products in Allied's markets. Purchases from Krupp have
represented approximately 50% of the total component and material
purchases of construction products during the past three fiscal years.
Construction product components and materials are purchased from a
variety of metal products manufacturers, hydraulic system component
suppliers, and steel and aluminum suppliers, principally located in the
United States. One domestic supplier presently provides approximately 7%
of construction product components and materials. No other supplier
represents more than 5% of the construction product component and
material purchases. Raw materials are available from a variety of
sources and all of the domestic vendors are replaceable.
Approximately 60% of the annual sales in the construction product
business occurs during the first half of the year.
Construction products are sold to over 200 customers, none of which
represents more than 5% of the annual sales of construction products.
Firm order backlog totalled approximately $3,900,000 as of
March 13, 1998 compared to approximately $3,600,000 at March 13, 1997.
4
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Construction products are marketed principally through distributors.
There are approximately 15 other foreign and domestic manufacturers in
the mounted product market and approximately 10 other foreign and
domestic manufacturers in the underground product market. None of the
Company's competitors is believed to hold a dominant position although
some have greater financial resources than the Company.
Trademark Licensing
Since 1986, the Company has been licensing use of its "Bobbie Brooks"
related trademarks to Garan, Incorporated. Garan and its sublicensees,
including Wal-Mart, sell sportswear under these labels exclusively at
Wal-Mart Stores. Effective for the three year period commencing January
1, 1996, the Company receives a set annual licensing fee of $475,000,
payable not less frequently than quarterly. Licensing fees are recorded
within the Corporate segment in Industry Segment Information at Note K.
5
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ITEM 2. PROPERTIES
The Company owns or leases the following properties:
Owned or Square
Location Leased Footage Use
Cleveland, OH Leased 312,000 Printer supply operations
executive/administrative
facilities; portion subleased
to third party
Scottsdale, AZ Leased 25,600 Kroy's administrative
offices; leased through
March, 2001-the Company is
not using the entire facility
and intends to exercise an
option at the end of 1998,
to reduce the space to 10,000
square feet
St Croix Falls, WI Leased 11,500 Kroy's coating plant and
storage; leased through
February, 2000
Scottsdale, AZ Leased 10,100 Kroy's sign Division; leased
through December, 2000
Reading, England Leased 11,300 Kroy's European operations;
leased through September,
2006
Louisville, CO Leased 2,900 Aspen's sales offices; leased
through September, 1998
St. Louis, MO Owned 100,000 Commercial printing/offices
leased to a 3rd party
through 2001
Havana, IL Owned 25,000 Retail; leased to a 3rd
party through 2000
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 3l, l997.
6
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Pubco's Common Stock is traded over-the-counter and quoted on
NASDAQ's SmallCap Market under the symbol "PUBO". The following table
presents the high and low sales prices of Pubco's Common Stock as
reported by NASDAQ.
1996
First Quarter $ 7 $ 6
Second Quarter 9 6 3/8
Third Quarter 8 5/8 7
Fourth Quarter 8 7/8 7 1/4
1997
First Quarter $ 8 3/8 $ 7
Second Quarter 8 5/8 7 3/4
Third Quarter 11 1/2 8 1/4
Fourth Quarter 11 5/8 10 3/8
Transferability of Class B Stock is restricted to certain family
members and others who are "Permitted Transferees" (as defined) and
accordingly there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis.
(b) Holders.
There were approximately 8,750 holders of Common Stock of record and
approximately 250 holders of Class B Stock of record, as of March 13,
1998.
(c) Dividends.
Pubco has never paid cash dividends on its Common Stock and Class B
Stock and does not anticipate paying dividends on its Common Stock or
Class B Stock in the forseeable future. In addition, no dividends may be
paid on the Common Stock or Class B Stock while there is any unpaid
dividend on the Preferred Stock. No preferred stock dividends are in
arrears at December 31, 1997. Subject to the foregoing, the payment of
dividends will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company.
7
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ITEM 6. SELECTED FINANCIAL DATA
(All numbers shown in 000's except share data and ratios)
<TABLE>
<CAPTION>
Selected Statement of Operations Data
Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 53,902 $ 51,069 $ 47,590 $ 46,016 $ 42,084
--------- --------- --------- --------- --------
Income from continuing
operations before income
taxes and minority interest 6,437 5,828 4,036 3,454 2,487
--------- --------- --------- --------- ---------
Net Income (Loss):
Continuing Operations (A) 10,224 6,291 3,953 3,380 2,386
Discontinued Operations (B) - - 1,100 (13,588) (2,511)
--------- --------- --------- --------- ---------
Net Income (Loss) 10,224 6,291 5,053 (10,208) (125)
--------- --------- --------- --------- ---------
Net Income (Loss) Applicable
to Common Stockholders (C) 9,367 5,416 4,178 (10,908) (825)
--------- --------- --------- --------- ---------
Income (Loss) Per Share:
Continuing Operations (C) 2.50 1.50 .89 .77 .49
Discontinued Operations (B) - - .32 (3.92) (.73)
--------- --------- --------- --------- ---------
Net Income (Loss)
per Common Share (A) $ 2.50 $ 1.50 $ 1.21 $ (3.15) $ (.24)
--------- --------- --------- --------- ---------
Weighted Average
Number of Shares 3,752,473 3,610,278 3,463,387 3,463,727 3,463,727
--------- --------- --------- --------- ---------
Selected Balance Sheet Data
December 31
1997 1996 1995 1994 1993
Working Capital Ratio 2.6 to 1 2.8 to 1 2.3 to 1 1.3 to 1 1.5 to 1
Total Assets $ 85,946 $ 64,523 $ 57,157 $ 50,902 $ 73,776
Long-term Debt - - 2,407 949 6,057
Stockholders' Equity 42,049 31,335 21,515 16,548 27,456
Common Stockholders'
Equity (D) 35,049 24,335 14,515 9,548 20,456
Per Common Share (D) $ 9.34 $ 6.49 $ 4.19 $ 2.76 $ 5.91
Shares Outstanding
at Year End 3,752,473 3,752,473 3,461,727 3,463,727 3,463,727
<FN>
(A) Income in 1997 and 1996 includes the benefit of recording an increase in the Company's
deferred tax asset of $4,265 and $735, respectively. Refer to Note I.
(B) Includes the discontinuance of the commercial printing segment in 1993 and the
discontinuance of the apparel and retail segments in 1994. Refer to Note C of the
Consolidated Financial Statements.
(C) Net of Preferred Stock dividend requirements.
(D) Common Stockholders' Equity and Stockholders' Equity Per Common Share are computed net of
the face value of Preferred Stock.
</TABLE>
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of 1997 and 1996
Income from continuing operations before income taxes and minority
interest increased in 1997 from 1996 primarily because of an increase in
income both at the Company's construction products business and printer
supplies business. The increase in net income applicable to common
stockholders in 1997 from 1996 is primarily the result of the increase in
the recognition of the benefits of deferred tax assets in 1997
($4,265,000) from that of 1996 ($735,000).
Sales increased in 1997 from 1996 primarily because the inclusion of Kroy
more than offset the decrease in sales at the Company's other businesses.
Gross profit percentage increased in 1997 from 1996 primarily because of
the inclusion of Kroy which maintains a higher gross profit percentage
than the Company's other businesses and the lower cost of sales at the
Company's construction products business arising from favorable currency
fluctuations.
Selling, general and administrative expenses increased in 1997 from 1996
because of the inclusion of Kroy.
The change in interest, net, is primarily the result of lower borrowing
levels at the Company's construction products business during 1997
compared to 1996 and an increase in interest income. Earnings from the
Company's cash and cash equivalents and marketable securities and other
short term investments increased because of increases in the amount of
such assets during the year prior to the acquisition of Kroy.
Comparison of 1996 and 1995
The Company's 1996 results of operations improved over 1995 primarily as
the result of an increase in interest income, nonrecurring gains on sale
of fixed assets (included in other income), as well as improvements in
operating income in the Company's construction products business.
Sales increased in 1996 from 1995 primarily as the result of the
inclusion of the sales of Aspen in 1996 due to the increase in Brooks'
ownership of Aspen to approximately 62% at December 31, 1995. In 1995,
the Company accounted for Aspen's results of operations using the equity
method which were not significant and were included in other income in
the Company's Consolidated Statements of Operations.
9
<PAGE>
The gross profit percentage increase in 1996 compared to 1995 is the
result of a lower cost of sales at the Company's construction products
business resulting from favorable currency fluctuations and product mix
as well as the inclusion of Aspen in 1996.
Selling, general and administrative expenses increased in 1996 from 1995
primarily as the result of the inclusion of Aspen in 1996.
Other income, net, increased in 1996 from 1995 primarily as the result of
net gains on sales of fixed assets.
The change in interest, net, is primarily the result of lower borrowing
levels at the Company's construction products business during 1996
compared to 1995 and the significant increase in interest income.
Earnings from the Company's cash and cash equivalents and marketable
securities and other short term investments increased because of
increases in the amount of such assets. The Company will continue to
generate interest and other income on its available funds until used to
acquire other operating businesses. While no particular acquisition is
pending or has been identified, the Company routinely reviews acquisition
opportunities.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $27,381,000 of cash, cash
equivalents, marketable securities and other short-term investments and
no long term debt. In October, 1997, the Company used approximately
$5,000,000 to purchase the Common Stock of Kroy and acquire its bank
debt. The Company's remaining marketable securities and other short term
investments continue to be subject to risk of loss and fluctuations in
value. The income generated from the remaining marketable securities and
other short-term investments may not be the same from year to year or
period to period. The Company will continue to buy, hold and sell
marketable securities and other short term investments to the extent
funds are not required to make additional acquisitions of operating
businesses.
The Company has a $2,500,000 working capital line for its printer
supplies business and a $3,000,000 working capital line of credit for its
construction products business. At December 31, 1997, there were no
borrowings under either of these lines. The Company also has a
$10,000,000 line of credit which it uses for the issuance of letters of
credit and which can be used for other purposes, including acquisitions.
At December 31, 1997, letters of credit aggregating approximately
$1,000,000 had been issued, but there were no borrowings under this
line. The Company is continually reviewing business acquisition
opportunities.
10
<PAGE>
Regarding the functionality of the Company's computer systems for the
year 2000, the systems utilized by the printer supplies business and
Pubco corporate (including stock transfer functions), are currently
compliant. All of such systems had been routinely acquired by the
Company and were already year 2000 compliant. Not all of the computer
systems used by the Company's construction products business are
presently year 2000 compliant. The construction products business
expects that such systems will become completely compliant at a cost not
to exceed $350,000 and that such compliance will be substantially
completed by the end of 1998.
Stockholders' equity of $42,049,000 at December 31, 1997 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at December 31, 1997, the face value of the
Preferred Stock ($7,000,000) and any unpaid cumulative dividends on the
Preferred Stock must be subtracted from total stockholders' equity.
There were no unpaid cumulative preferred stock dividends outstanding at
December 31, 1997.
To the extent that the Company is able to utilize its net operating loss
carryforwards, there will be a positive impact on the Company's future
cash flows and liquidity.
In 1997, the Company reduced the valuation allowance applied against the
deferred tax assets related to net operating loss carryforwards and
certain deductible temporary differences by $4,265. The reduction
recorded was based upon future taxable income projections over the next
several years made by management of the Company. These projections take
into consideration the recent acquisition of Kroy and the taxable income
generated by the Company over the past three years. The Company will
need to generate approximately $15,000 of future taxable income prior to
the expiration of the net operating loss carryforwards in order to
realize the net deferred tax assets recorded at December 31, 1997. This
paragraph and the immediately preceeding paragraph contain forward
looking statements. The Company's ability to utilize net operating loss
carryforwards prior to their expiration will depend upon the ability of
the Company to generate sufficient taxable income during future periods.
The Company's ability to generate taxable income at the same levels
generated during the past three years is not necessarily indicative of
the Company's ability to generate taxable income in future years. In
addition, the Company's acquisition of Kroy does not assure profitability
of that or other Company operations. A number of factors could prevent
the Company from generating taxable income in the future or lower such
income, including changes in technology, competitive pressures, raw
material price increases, and other factors which affect businesses
generally.
11
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PUBCO CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997
12
<PAGE>
ERNST & YOUNG LLP ONE CASCADE PLAZA
AKRON, OH 44308
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pubco Corporation
We have audited the accompanying consolidated balance sheets of Pubco
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Pubco Corporation and subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
----------------------------
Akron, Ohio
March 23, 1998
13
<PAGE>
CONSOLIDATED BALANCE SHEETS
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
December 3l
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,720 $ 1,539
Marketable securities and other
investments available for sale--Note D 25,661 24,877
Trade receivables (less allowances of
$931 in 1997 and $269 in 1996) 7,549 4,410
Inventories--Note H 11,000 6,681
Deferred income taxes 2,400 735
Prepaid expenses and other current assets 1,570 1,085
-------- --------
TOTAL CURRENT ASSETS 49,900 39,327
PROPERTY AND EQUIPMENT--Note H 6,072 5,929
INTANGIBLE ASSETS ARISING FROM ACQUISITIONS
(at cost less accumulated amortization of
$913 in 1997 and $677 in 1996)--Note A 4,204 1,129
OTHER ASSETS 25,770 18,138
-------- --------
TOTAL ASSETS $ 85,946 $ 64,523
======== ========
See notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
December 3l
1997 l996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,918 $ 5,224
Accrued liabilities--Note H 11,505 8,906
-------- --------
TOTAL CURRENT LIABILITIES 19,423 14,130
DEFERRED CREDITS AND NONCURRENT LIABILITIES 23,812 18,450
MINORITY INTERESTS 662 608
STOCKHOLDERS' EQUITY--Notes A and E
Preferred Stock:
Preferred Stock-par value $.01; 2,000,000
shares authorized, 70,000 shares issued
and outstanding in 1997 and 1996 ($7,000
aggregate liquidation preference) 1 1
Convertible preferred stock-par value $1;
20,000 shares authorized, none issued - -
Common Stock:
Common Stock-par value $.01; 5,000,000
shares authorized; 3,200,871 issued
and 3,198,871 outstanding in 1997
and 3,198,088 issued and 3,196,088
outstanding in 1996 32 32
Class B Stock-par value $.01; 2,000,000
shares authorized; 553,602 issued and
outstanding in 1997 and 556,385 issued
and outstanding in 1996 6 6
Additional paid in capital 32,180 32,180
Retained earnings (deficit) 6,266 (3,101)
Cumulative translation adjustment (10) -
Unrealized gains on investments available for sale 3,586 2,229
-------- --------
42,061 31,347
Treasury stock at cost, 2,000 shares
in 1997 and 1996 (12) (12)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 42,049 31,335
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,946 $ 64,523
======== ========
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Year Ended December 3l
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 53,902 $ 51,069 $ 47,590
Cost of sales 37,510 36,747 34,844
--------- --------- ---------
GROSS PROFIT 16,392 14,322 12,746
Costs and expenses:
Selling, general and administrative expenses 13,470 11,339 9,956
Interest, net (2,729) (2,287) (911)
--------- --------- ---------
10,741 9,052 9,045
Other income, net 786 558 335
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 6,437 5,828 4,036
(Benefit) provision for income taxes--Note I (3,955) (534) 53
--------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST 10,392 6,362 3,983
Minority interest (168) (71) (30)
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 10,224 6,291 3,953
Income from discontinued operations,
net of taxes--Note C - - 1,100
--------- --------- ---------
NET INCOME 10,224 6,291 5,053
Preferred stock dividend requirements 857 875 875
--------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 9,367 $ 5,416 $ 4,178
========= ========= =========
Earnings per share--Note A:
CONTINUING OPERATIONS (NET OF PREFERRED
STOCK DIVIDEND REQUIREMENTS) $ 2.50 $ 1.50 $ .89
DISCONTINUED OPERATIONS - - .32
--------- --------- ---------
NET INCOME $ 2.50 $ 1.50 $ 1.21
========= ========= =========
Weighted average number of shares
outstanding--Notes A and E 3,752,473 3,610,278 3,463,387
========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
16
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Three Years Ended December 3l, l997
Preferred Stock Common Stock Class B Stock Additional Retained
Par Par Par Paid In Earnings
Shares Value Shares Value Shares Value Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 70,000 $ 1 2,905,225 $29 558,502 $ 6 $30,957 $(14,445)
Conversion of Class B
Stock to Common Stock--Note E 1,472 (1,472)
Shares purchased for Treasury (2,000)
Preferred Stock dividends paid
(paid at $12.50 per share)
--Note E (875)
Net income for l995 5,053
------ --- --------- --- ------- --- ------- --------
Balance at December 31, 1995 70,000 $ 1 2,904,697 $29 557,030 $ 6 $30,082 $ (9,392)
Conversion of Class B
Stock to Common Stock--Note E 645 (645)
Preferred Stock dividends paid
(paid at $12.50 per share)
--Note E (875)
Shares issued--Note B 290,746 3 2,973
Net income for 1996 6,291
------ --- --------- --- ------- --- ------- --------
Balance at December 31, 1996 70,000 $ 1 3,196,088 $32 556,385 $ 6 $32,180 $ (3,101)
Conversion of Class B
Stock to Common Stock--Note E 2,783 (2,783)
Preferred Stock dividends paid
(paid at $12.25 per share)
--Note E (857)
Net income for 1997 10,224
------ --- --------- --- ------- --- ------- --------
Balance at December 31, 1997 70,000 $ 1 3,198,871 $32 553,602 $ 6 $32,180 $ 6,266
====== === ========= === ======= === ======= ========
<FN>
See notes to consolidated financial statements.
</TABLE>
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Year Ended December 3l
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $ 10,224 $ 6,291 $ 3,953
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued operations - - 1,100
Depreciation and amortization 1,180 1,358 1,379
Deferred income taxes (4,265) (735) -
Net (gain) on sales of securities (779) (51) (75)
Net loss (gain) on disposal of fixed assets 71 (500) (256)
Minority interest 54 (36) (55)
Changes in operating assets and liabilities
net of acquisitions and divestitures:
Trade receivables 34 648 1,292
Inventories (1,149) 766 491
Other assets (4,930) (539) (272)
Accounts payable 387 486 (2,121)
Other current liabilities (1,023) (380) (2,471)
Deferred credits and noncurrent liabilities 5,352 (216) (750)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,156 7,092 2,215
INVESTING ACTIVITIES
Purchases of marketable securities (9,971) (20,882) (11,764)
Proceeds from sales of marketable securities 11,323 9,320 1,364
Purchases of fixed assets (154) (173) (327)
Proceeds from the sale of fixed assets 27 2,095 2,727
Acquisition of Kroy (273) - -
Purchase of subsidiaries' stock - (43) (665)
Cash acquired in Aspen investment - - 4,359
-------- -------- --------
NET CASH PROVIDED (USED IN) BY INVESTING ACTIVITIES 952 (9,683) (4,306)
FINANCING ACTIVITIES
Net (repayments) on loans payable - (289) (1,622)
Proceeds from long-term debt 24,325 26,294 32,614
Principal payments on long-term debt (29,395) (28,919) (32,678)
Dividends paid on preferred stock (857) (875) (875)
Purchase of treasury stock - - (12)
-------- -------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (5,927) (3,789) (2,573)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 181 (6,380) (4,664)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,539 7,919 12,583
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,720 $ 1,539 $ 7,919
======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUBCO CORPORATION AND SUBSIDIARIES
December 3l, l997
($ in 000's except share amounts)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements of Pubco
Corporation ("Company" or "Pubco") include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
On October 20, 1997, Pubco acquired all of the outstanding stock of Kroy, Inc.
(which later became Kroy LLC). The operations of Kroy from the date of its
acquisition are included in the consolidated statements of operations and its
assets and liabilities are included in the consolidated balance sheets of the
Company at December 31, 1997.
The Company includes its Buckeye Business Products, Inc. division ("Buckeye")
and its Aspen Imaging International, Inc. ("Aspen") subsidiary which
manufacture and market computer and data processing supplies, and Pubco owns
approximately 85% of Allied Construction Products, Inc. ("Allied"), which
manufactures and distributes products for the construction and related
industries. Pubco also owns other income producing assets.
Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid
investments generally with a maturity of three months or less at the time of
purchase.
Marketable Securities and Other Investments: Marketable securities and other
investments are classified as available for sale and, accordingly, are stated
at fair value, with the unrealized gains and losses reported in a separate
component of stockholders' equity. Realized gains and losses, and declines in
value judged to be other-than-temporary, are included in "other income, net"
in the consolidated statements of operations. The cost of securities sold is
based on the specific identification method.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Financial Instruments: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents and marketable securities and
other investments. Because of their short maturity, the carrying amount of
cash and cash equivalents and marketable securities and other investments
approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
products subsidiary purchases components from a German supplier and from time
to time, enters into foreign currency exchange contracts with banks in order
to fix its trade payables denominated in the Deutsche Mark. The contract
amounts outstanding and the net deferred gains or losses were not significant
at December 31, 1997 and 1996.
Long-lived Assets: Property and equipment are recorded at cost with
depreciation and amortization principally computed by the straight-line method
over the following estimated useful lives: buildings, 10 to 30 years;
machinery, equipment and fixtures, 5 to 10 years; and leasehold improvements,
5 to 10 years.
Intangible assets ("goodwill") represents the excess of the purchase price
over the fair value of the net assets of acquired businesses and is being
amortized by the straight-line method, in most cases over 10 to 20 years. The
carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related groups
of assets may not be recoverable. Measurement of the amount of impairment may
be based on appraisal, market values of similar assets or estimated discounted
future cash flows resulting from use and ultimate disposition of the asset.
Revenue Recognition: Revenue is recognized generally upon shipment.
Research and Development Costs: Allied performs research and development on
present and future products and all costs are expensed as incurred. Total
expenditures amounted to $638, $385 and $489 for the years ended December 31,
1997, 1996 and 1995.
Per Common Share Amounts: Per common share amounts are computed after
preferred dividend requirements on the basis of the weighted average number of
shares of Common Stock outstanding. The Financial Accountings Standards Board
issued Statement ("SFAS") No. 128, Earnings per Share. SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. The Company had no dilutive securities
outstanding for any period presented. Accordingly, basic and diluted earnings
per share are the same and no restatement of previously recorded amounts was
required by the adoption of SFAS No. 128.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE A--SIGNIFICANT ACCOUNT POLICIES--CONTINUED
and assumptions that affect the reported amounts of 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.
Reclassifications: Certain amounts presented in prior years' financial
statements and the notes thereto have been reclassified to conform with the
1997 presentation.
NOTE B--BUSINESS COMBINATIONS
On October 20, 1997, Pubco purchased all of the stock of Kroy, Inc. and a
Company subsidiary acquired Kroy's bank debt for approximately $5,000,0000.
The subsidiary now acts as Kroy's secured lender.
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Kroy have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $3,300 is being amortized over 20 years.
The following unaudited proforma consolidated results of operations for the
years ending December 31, 1997 and 1996 assume the Kroy acquisition occurred
as of January 1, 1996.
1997 1996
Net sales $72,822 $77,954
======= =======
Net income $ 8,547 $ 4,123
======= =======
Earnings per common share $ 2.28 $ 0.90
======= =======
On June 27, 1996 Bobbie Brooks, Incorporated ("Brooks"), an approximately 90%
owned subsidiary, merged with and into the Company. As a result of the
merger, each Brooks stockholder received one share of the Company's Common
Stock in exchange for each six shares of Brooks Common Stock.
On June 27, 1996, the Company also acquired all of the assets of Aspen,
subject to all of its liabilities, in exchange for Common Stock of the
Company. As a result of the acquisition, each Aspen stockholder received one
share of the Company's Common Stock for each seven shares of Aspen Common
Stock.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE B--BUSINESS COMBINATIONS--CONTINUED
The merger of Brooks into the Company and the acquisition by the Company of
the assets and business of Aspen, resulted in the Company issuing
approximately 290,746 shares of the Company's Common Stock to the Brooks and
Aspen minority stockholders. The Company paid cash in lieu of fractional
shares. The Merger of Brooks into the Company was accounted for under the
purchase method of accounting. The minority interest of Brooks acquired in
the Merger was valued for accounting purposes at an amount equal to the market
value of the stock of the Company issued to the Brooks minority stockholders.
Goodwill of $640,000 was recognized as a result of the Merger. The stock of
the Company received by the minority stockholders of Aspen was valued for
accounting purposes at an amount equal to the fair value of the net assets
acquired.
Brooks had increased its ownership in Aspen at year-end 1995 from
approximately 41% to approximately 62%. The Company's Consolidated Balance
Sheets at December 31, 1997 and December 31, 1996 include the accounts of
Aspen. The Company's Consolidated Statements of Operations for 1997 and 1996
include the results of Aspen's operations whereas the Company's Consolidated
Statements of Operations for 1995 account for Aspen's operations on the equity
method.
NOTE C--DISCONTINUED OPERATIONS
During 1994, the Company discontinued the operations of its retail and apparel
manufacturing segments. Accordingly, a charge was made in 1994 for such
discontinued operations related to the write-down of net assets to their net
realizable value and to provide for operating losses during the phaseout
period. In 1995, the Company reduced the reserve by $1,100 primarily related
to actual results being more favorable than anticipated when the accrual was
established in 1994. The remaining reserve balance of $915 at December 31,
1997, is believed to be sufficient to provide primarily for the costs of
future lease, employee and other liabilities.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE D--MARKETABLE SECURITIES
<TABLE>
The following is a summary of available for sale securities:
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
December 31, 1997
US Corporate Equity Securities $ 4,426 $ 991 $ (9) $ 5,408
US Corporate Debt Securities 10,444 1,274 (110) 11,608
Foreign Government Debt Securities 2,294 1,062 - 3,356
Foreign Corporate Debt Securities 4,911 420 (42) 5,289
-------- -------- -------- --------
$ 22,075 $ 3,747 $ (161) $ 25,661
======== ======== ======== ========
December 31, 1996
US Corporate Equity Securities $ 3,069 $ 409 $ (88) $ 3,390
US Corporate Debt Securities 11,132 635 (143) 11,624
Foreign Government Debt Securities 3,759 1,213 (9) 4,963
Foreign Corporate Debt Securities 4,688 212 - 4,900
-------- -------- -------- --------
$ 22,648 $ 2,469 $ (240) $ 24,877
======== ======== ======== ========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$855, $1,086 and $75 for 1997, 1996 and 1995, respectively. The gross
realized losses totaled $76 and $1,035 in 1997 and 1996, respectively.
The cost and estimated fair value of debt securities at December 31, 1997,
by estimated maturity, are shown below. Expected maturities may differ
from contractual maturities because the issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Cost Fair Value
Due in one year or less $ 283 $ 297
Due after one year through three years 1,667 1,636
Due after three years 15,699 18,320
-------- --------
$ 17,649 $ 20,253
======== ========
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE E--STOCKHOLDERS' EQUITY
The Company's Common Stock has one vote per share and Class B Stock has ten
votes per share. Transferability of Class B Stock is restricted and,
accordingly, there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis.
The Company's Preferred Stock is subject to redemption, in whole or in
part, at the Company's option at any time. In the event of a redemption of
the Preferred Stock or a liquidation of the Company, holders of Preferred
Stock are entitled to a distribution equal to the face value of the
Preferred Stock (and any unpaid cumulative dividends) before any amount may
be paid on Common Stock.
The Company's non-voting Preferred Stock Series A requires cumulative
annual dividends on the $100 face value per share at four percent above the
averaged base lending rate of three large commercial banks. No dividend
may be paid on Common Stock while there is any dividend arrearage on the
Preferred Stock. In 1997, the Company paid $857 ($12.25 per share) of
Preferred Stock Series A dividends. As of December 31, 1997, there were no
undeclared and unpaid dividends on the Preferred Stock.
Stockholders' equity of $42,049 at December 31, 1997 includes Common and
Preferred stockholders' equity. In order to calculate Common stockholders'
equity at December 31, 1997, the face value of the Preferred Stock ($7,000)
and any unpaid cumulative dividends on the Preferred Stock must be
subtracted from total stockholders' equity. There were no unpaid
cumulative Preferred Stock dividends outstanding at December 31, 1997.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE F--RETIREMENT PLANS
The Company maintains two discretionary non-qualified profit sharing plans
to provide retirement benefits for certain of its key employees. The
assets are segregated, but are included in Other Assets. The liabilities
associated with these plans are included in Other Liabilities. In 1997,
the Company adopted a 401(k) plan for its printer supplies business and its
corporate employees. The construction products business also maintains a
401(k) plan. Kroy also maintains a 401(k) for its employees. The Company
presently partially match employee deferrals under these plans. Expenses
under these various plans aggregated approximately $391, $366 and $346 for
the years ended December 3l, 1997, l996 and l995, respectively.
The Company makes contributions to a collectively-bargained, multiemployer
defined benefit pension plan. The Company contributed and charged to
expense $55, $10 and $8 for the years ended December 3l, l997, l996 and
1995, respectively, for the plan. These contributions are determined in
accordance with the provisions of a negotiated labor contract and generally
are based on the amount of wages earned. Information as to the Company's
portion of the accumulated plan benefits, plan net assets and unfunded
vested benefits, if any, is not determinable. In the event of a withdrawal
from the plan, the Company may be subject to a withdrawal liability under
the provisions of the Multiemployer Pension Plan Amendments Act of 1980.
Management does not intend to take any action that would subject the
Company to any such liability under the plan.
The Company maintains a noncontributory defined benefit pension plan
covering employees who are under a collective bargaining agreement and
sponsors a pension plan for terminated employees of a former operation of a
predecessor company. The excess actuarial present value of accumulated
plan benefits over net assets available for benefits under these plans was
approximately $226 and $216 at December 31, 1997 and 1996, respectively,
which amounts have been reflected in the accompanying balance sheets.
Expenses under these plans were approximately $73, $62 and $50 for 1997,
1996 and 1995, respectively.
Since 1986, the Company's President has deferred his salary under the terms
of deferred compensation plans established for his benefit. As
compensation is earned by him, it is paid by the Company to deferred
compensation trusts and included in selling, general and administrative
expenses. Amounts are being distributed to him by the trusts in accordance
with the terms of the deferred compensation plans. The securities included
in these trusts are classified as trading and, accordingly, are stated at
fair value. Unrealized gains (losses) were $(1,055), $1,564 and $2,004 for
the years ended December 31, 1997, 1996 and 1995, respectively. Realized
and unrealized gains and losses, interest, dividends and plan expenses are
reflected in other income, net, and total $4,615, $3,013 and $3,998 for the
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE F--RETIREMENT PLANS--CONTINUED
years ended December 31, 1997, 1996 and 1995, respectively. There is no
resulting effect on net income, because these are matched by charges to
deferred compensation expense, which are also included in other income,
net. The amounts of these charges were ($4,615), ($3,013) and ($3,998) for
the years ended December 31, 1997, 1996 and 1995, respectively.
The Company provides life insurance benefits and/or contributes to the cost
of medical insurance for certain retired salaried and commission basis
employees. The accumulated postretirement benefit obligation and related
expense recorded for each year are not material to the balance sheet or the
results of operations.
NOTE G--FINANCING ARRANGEMENTS
The Company has a $10,000 revolving credit facility at LIBOR plus 1.5% or
the lending bank's prime rate ("Prime"), at the Company's option, expiring
in 2000, with no outstanding borrowings at December 31, 1997. The Company
has a $2,500 demand credit facility at LIBOR plus 2% or Prime, at the
Company's option, with no outstanding balance at December 31, 1997. The
Company has a $3,000 revolving credit facility at LIBOR plus 2.5% or Prime,
at the Company's option, expiring in 1999, with no outstanding balance at
December 31, 1997.
Total interest payments by the Company were $59, $120 and $244 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Total interest expense was $48, $113 and $280 for the years ended December
31, 1997, 1996 and 1995, respectively.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE H--OTHER INFORMATION
December 31
1997 1996
Inventories:
Raw materials and supplies $ 5,585 $ 4,472
Work in process 596 356
Finished goods 4,819 1,853
-------- --------
$ 11,000 $ 6,681
======== ========
Property and equipment:
Land and buildings $ 1,475 $ 1,571
Machinery, equipment and fixtures 12,427 11,559
Leasehold improvements 3,154 3,050
Construction in progress 188 47
-------- --------
17,244 16,227
Less accumulated depreciation and
amortization (11,172) (10,298)
-------- --------
$ 6,072 $ 5,929
======== ========
Other assets:
Assets held for deferred compensation $ 19,659 $ 15,038
Other 6,111 3,100
-------- --------
$ 25,770 $ 18,138
======== ========
Accrued liabilities:
Payroll and other employee benefits $ 3,552 $ 2,523
Accrued taxes 1,659 1,823
Accrual for discontinued businesses 577 1,098
Other 5,717 3,462
-------- --------
$ 11,505 $ 8,906
======== ========
Deferred credits and non-current
liabilities:
Deferred compensation liability $ 19,659 $ 15,038
Other 4,153 3,412
-------- --------
$ 23,812 $ 18,450
======== ========
Under current accounting rules, assets of the deferred compensation trusts
must be accounted for as if they are assets of the Company although the assets
are not available for general corporate use by the Company and could only be
available to creditors of the Company in the event of the Company's bankruptcy.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE I--INCOME TAXES
Pubco and its consolidated subsidiaries file a consolidated federal income tax
return. The (benefit) provision for income taxes for continuing operations
consists of the following components:
Year Ended December 3l
1997 1996 1995
Federal currently payable $ 199 $ 156 $ 39
Federal deferred benefit (4,265) (735) -
State and local currently payable 111 45 14
------ ------ ------
($3,955) $ (534) $ 53
====== ====== ======
Income taxes paid by the Company were $310, $192 and $30 for the years ended
December 31, 1997, 1996 and 1995, respectively.
A reconciliation of the statutory federal income tax rate to the effective
rate for continuing operations is as follows:
Year Ended December 3l
1997 1996 1995
Statutory federal rate 34.0% 34.0% 34.0%
Deferred tax benefit (66.2%) (12.6) -
State and local taxes 1.1 .5 0.2
Utilization of net operating loss
carryforwards (31.7) (32.0) (34.6)
Other 1.4 .9 1.7
---- ---- ----
(61.4%) (9.2%) 1.3%
==== ==== ====
At December 31, 1997, the Company had available net operating loss
carryforwards of approximately $8,500 for federal income tax purposes.
Approximately $4,500 are subject to limitations based on certain subsidiaries'
ability to generate future taxable income. The loss carryforwards, if not
used, will expire as follows: $3,000 in 2000, $300 in 2002, $700 in 2007, $300
in 2008 and $4,200 in 2009.
In addition, for tax purposes, the Company has investment tax credit
carryforwards of approximately $78 which expire between 1998 and 2000 and
alternative minimum tax credit carryforwards of approximately $879.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, for financial
reporting purposes, and the amounts used for income tax purposes. Significant
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE I--INCOME TAXES--CONTINUED
components of the Company's federal and state deferred tax assets and
liabilities are as follows:
1997 1996
Deferred tax assets:
Net operating loss carryforwards
and credits $ 4,700 $ 8,000
Accrual for discontinued operations 300 400
Deferred compensation 6,100 4,000
Other 4,600 4,100
-------- --------
Total deferred tax assets 15,700 16,500
Deferred tax liabilities:
Tax over book depreciation 700 800
Other 200 100
-------- --------
Total deferred tax liabilities 900 900
-------- --------
Net deferred tax assets 14,800 15,600
Valuation allowance for
deferred tax assets (9,800) (14,865)
-------- --------
Net deferred taxes $ 5,000 $ 735
======== ========
The Company establishes valuation allowances in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes." The Company continualy
reviews the adequacy of the valuation allowance and is recognizing these
benefits only as reassessment indicates that it is more likely than not that
the benefits will be realized.
In 1997, the Company reduced the valuation allowance applied against the
deferred tax assets related to net operating loss carryforwards and certain
deductible temporary differences by $4,265. The reduction recorded was based
upon future taxable income projections over the next several years made by
management of the Company. These projections take into consideration the
recent acquisition of Kroy and the taxable income generated by the Company
over the past three years. The Company will need to generate approximately
$15,000 of future taxable income prior to the expiration of the net operating
loss carryforwards in order to realize the net deferred tax assets recorded at
December 31, 1997. This paragraph and the immediately preceeding paragraph
contain forward looking statements. The Company's ability to utilize net
operating loss carryforwards prior to their expiration will depend upon the
ability of the Company to generate sufficient taxable income during future
periods. The Company's ability to generate taxable income at the same levels
generated during the past three years is not necessarily indicative of the
Company's ability to generate taxable income in future years. In addition,
the Company's acquisition of Kroy does not assure profitability of that or
other Company operations. A number of factors could prevent the Company from
generating taxable income in the future or lower such income, including
changes in technology, competitive pressures, raw material price increases,
and other factors which affect businesses generally.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE J--LEASING ARRANGEMENTS
As Lessee:
Pubco and certain of its subsidiaries are parties to separate leasing
arrangements for office and factory space in an approximately 312,000 square
foot building owned and operated by a partnership that is controlled by the
majority stockholder of the Company. The Company's printer supplies business
and construction products business conduct substantially all of their business
activities from this building. Pubco has its corporate offices at this
building. The leases expire in 2005. The leases require annual payments
aggregating $549. Rent expense associated with these leases was $549 for each
of the years ended December 31, 1997, 1996 and 1995.
The Company and its subsidiaries lease certain facilities and equipment under
non-cancellable leases for periods ranging from 1 to 10 years. Total rental
expense from continuing operations under all operating leases is summarized
below:
Year Ended December 31
1997 1996 1995
Minimum rentals $ 867 $ 600 $ 732
Sublease rental income (66) (61) (61)
------- ------- -------
$ 801 $ 539 $ 671
======= ======= =======
At December 3l, l997, the commitments under non-cancellable operating leases
are as follows:
Operating
Leases
l998 1,404
l999 1,278
2000 1,131
2001 648
2002 645
Thereafter 1,178
-------
$ 6,284
=======
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE J--LEASING ARRANGEMENTS--CONTINUED
As Lessor:
The Company leases certain land, buildings and equipment with an aggregate net
book value of $1,704 at December 3l, l997, under operating leases expiring
between 1998 and 2001. Upon expiration of the initial terms, the lessees have
options to renew for periods up to 10 years.
At December 3l, l997, future minimum rentals to be received under operating
leases are as follows:
l998 $ 582
1999 582
2000 515
-------
$ 1,679
=======
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE K--INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Summarized industry segment information is as follows:
Printer Construction
Supplies Products
Business Business Corporate Consolidated
<S> <C> <C> <C> <C>
1997
Net sales $ 29,373 $ 24,529 $ - $ 53,902
Trade receivables 4,969 2,460 120 7,549
Income (loss) from continuing operations
before income taxes and minority interest 3,840 1,992 605 6,437
Identifiable assets 22,195 9,257 54,494 85,946
Capital expenditures 29 94 31 154
Depreciation and amortization 160 390 630 1,180
1996
Net sales $ 25,930 $ 25,139 $ - $ 51,069
Trade receivables 2,445 1,909 56 4,410
Income from continuing operations
before income taxes and minority interest 3,344 1,624 860 5,828
Identifiable assets 10,610 8,528 45,385 64,523
Capital expenditures 45 57 71 173
Depreciation and amortization 348 381 629 1,358
1995
Net sales $ 22,735 $ 24,855 $ - $ 47,590
Trade receivables 2,603 2,433 22 5,058
Income (loss) from continuing operations
before income taxes and before income
taxes and minority interest 4,127 101 (192) 4,036
Identifiable assets 13,223 8,998 34,936 57,157
Capital expenditures 51 141 135 327
Depreciation and amortization 192 374 813 1,379
</TABLE>
Corporate includes certain amounts related to the previously discontinued
segments and amounts held for deferred compensation arrangements. The printer
supplies business includes the operations of Kroy which was acquired in
October, 1997.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations in 1997 and 1996 are set
forth below.
1997
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 13,705 $ 12,882 $ 12,161 $ 15,154
======== ======== ======== ========
Gross profit $ 3,821 $ 3,856 $ 3,594 $ 5,121
======== ======== ======== ========
Net income $ 2,007 $ 1,708 $ 1,380 $ 5,129
======== ======== ======== ========
Income applicable to
Common Stockholders $ 1,788 $ 1,489 $ 1,162 $ 4,928
======== ======== ======== ========
Net income per
common share $ .48 $ .39 $ .31 $ 1.32
======== ======== ======== ========
1996
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 14,079 $ 13,946 $ 11,716 $ 11,328
======== ======== ======== ========
Gross profit $ 3,780 $ 3,956 $ 3,494 $ 3,092
======== ======== ======== ========
Net income $ 1,575 $ 1,557 $ 2,233 $ 926
======== ======== ======== ========
Income applicable to
Common Stockholders $ 1,356 $ 1,338 $ 2,015 $ 707
======== ======== ======== ========
Net income per
common share $ .39 $ .39 $ .54 $ .19
======== ======== ======== ========
Net income in the 4th quarter included adjustments to recognize deferred tax
assets of $4,265 and $735, respectively in 1997 and 1996.
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors and Executive Officers
Glenn E. Corlett, age 54, has been Dean of the Business School at
Ohio University since July 1, 1997. Between November, 1996 and June 30,
1997, Mr. Corlett was an independent business consultant. Prior to
November, 1996, Mr. Corlett was the Executive Vice President and Chief
Operating Officer of N.W. Ayer, Incorporated, an advertising agency he
joined in 1990. Mr. Corlett was appointed in February, 1997 to the
Company's Board to fill the vacancy created by the death of Stanley R.
Browne in 1996.
William A. Dillingham, age 54, has been President of the Company's
printer supplies business for more than the past five years. Mr.
Dillingham was appointed a Director of the Company in December, 1997.
Harold L. Inlow, age 64, is an independent business consultant who
has consulted for the Company since 1995. Mr. Inlow was President of the
Company's former retail subsidiary prior to 1995. Mr. Inlow was
appointed a Director of the Company in December, 1997.
Stephen R. Kalette age 47, has been a Director of Pubco since
December, 1983 and has been an executive officer of Pubco since April,
1984. Mr. Kalette currently serves as its Vice President,
Administration, General Counsel and Secretary.
Robert H. Kanner, age 50, has been a Director and executive officer
of Pubco since December, 1983. Mr. Kanner currently serves as its
Chairman, President and Chief Financial Officer. Mr. Kanner is also a
Director of CleveTrust Realty Investors, which invests in real estate.
Leo L. Matthews, age 58, has been President of the Company's
construction products business since it was acquired in March, 1993.
Between 1987 and 1993, Mr. Matthews provided consulting services in
strategic planning, marketing, management and finance.
Family Relationships
There are no familial relationships between any Director and
executive officer of Pubco.
34
<PAGE>
Board of Directors
The Board of Directors establishes broad corporate policies which are
carried out by the officers of Pubco who are responsible for day-to-day
operations. In 1997, the Board held one meeting and took action by
unanimous written consent on five other occasions. No Director was
absent during the year from any of the meetings of the Board of Directors
or of any of the committees of the Board on which he served.
Committees of the Board of Directors
Pubco has a standing Audit Committee. The Audit Committee, which met
once in 1997, consists of Mr. Corlett and Mr. Inlow. The Audit Committee
(i) reviews the internal controls of Pubco and its financial reporting;
(ii) meets with the Chief Financial Officer and such other officers as
it, from time to time, deems necessary; (iii) meets with Pubco's
independent public auditors and reviews the scope and results of auditing
procedures, the degree of such auditors' independence, audit and
non-audit fees charged by such auditors, and the adequacy of the
Company's internal accounting controls; and (iv) recommends to the Board
the appointment of the independent auditors.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
The following table discloses compensation paid or accrued, during each of the Company's last three
fiscal years, to the Company's Chief Executive Officer and to its other executive officers.
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Name and Other Annual Restricted LTIP All Other
Principal Bonus Compensation Stock Options Payouts Compensation
Position Year Salary($) ($) ($) Awards ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Kanner(1)
Chairman, CEO, 1997 $525,000 --- $72,014(2) --- --- --- $184,691(3,4)
President & 1996 525,000 --- 64,917 --- --- --- 185,560
CFO 1995 525,000 --- 59,836 --- --- --- 188,973
Stephen R. Kalette
VP-Admin., 1997 $330,000 --- $26,416(5) --- --- --- $ 35,799(4,5)
General Counsel 1996 330,000 --- 25,022 --- --- --- 35,076
& Secretary 1995 330,000 --- 25,776 --- --- --- 35,815
William A. Dillingham(7)
President of 1997 $450,000 --- $ 5,473(7) --- --- --- $ 31,000(5,8)
Buckeye Division 1996 450,000 --- 7,284 --- --- --- 30,000
1995 450,000 --- 5,946 --- --- --- 30,000
Leo L. Matthews(9)
President of 1997 $130,000 $ 90,900 $ 5,163(10) --- --- --- $ 10,847(11)
Allied 1996 120,000 85,055 5,459 --- --- --- 7,200
1995 120,000 10,000 4,817 --- --- --- 7,200
36
<PAGE>
<FN>
(1) Mr. Kanner deferred his entire salary for each of the years reported under the terms
of deferred compensation plans established for his benefit. The amounts reported
for each year are the amounts deferred for that year. As compensation is earned by
Mr. Kanner, it is paid by the Company to deferred compensation trusts. These
amounts are being be distributed to Mr. Kanner by the trusts in accordance with the
terms of the deferred compensation plans.
(2) Of the amount shown in the table, $67,620 in 1997, $61,370 in 1996 and $55,870 in
1995 represents the premiums on life insurance paid for by the Company on Mr.
Kanner's life, and for which the Company is not a beneficiary; and $4,394 in 1997,
$3,547 in 1996 and $3,966 in 1995 represents the cost of providing Mr. Kanner with
use of an automobile during the year.
(3) Of the amount reflected, $125,400 in 1997, $127,900 in 1996 and $130,100 in 1995
represents a payment by the Company toward the premium on split dollar life
insurance on Mr. Kanner's life and for which the Company is not the beneficiary.
The amounts will be repaid to the Company out of the death proceeds from such policy.
(4) In 1988, the Company adopted a non-qualified plan to provide retirement benefits for
executive officers and other key employees. The plan provides benefits upon
retirement, death or disability of the participant and benefits are subject to a
restrictive vesting schedule. $58,291 in 1997, $57,660 in 1996 and $58,873 in 1995
of the amounts shown in the table for Mr. Kanner and all of the amounts shown in the
table for Mr. Kalette are amounts contributed to such plan for the benefit of such
executive officers with respect to the years noted. Vesting of benefits under the
plan is phased in over 20 years and only a portion of the amount contributed for
each year has fully vested.
(5) In 1997, the Company adopted a 401-K plan to provide retirement benefits for
employees of Pubco and the Company's printer supplies business, including officers.
Participating employees make voluntary contributions to the Plan, a portion of which
the Company matches. Of the amounts shown in the 1997 table for Mr. Kalette and
Mr. Kanner, $1,000 was contributed by Pubco to such plan. Of the amount shown in
the 1997 table for Mr. Dillingham, $1,000 was contributed by Buckeye to such plan.
Vesting of benefits under the plan is phased in over six years.
(6) Of the amount shown in the table, $22,210 in 1997, $21,396 in 1996 and $20,546 in
1995 represents the premiums on life insurance paid for by the Company on Mr.
Kalette's life, and for which the Company is not a beneficiary; and $3,725 in 1997,
$3,154 in 1996 and $4,023 in 1995 represents the cost of providing Mr. Kalette with
use of an automobile during the year
(7) All of the amounts shown as paid to or for Mr. Dillingham were paid by the Company's
printer supplies business. Of the amount shown in the table, $3,885 in 1997, $3,535
in 1996 and $3,205 in 1995 represents the premiums on life insurance paid for by the
Company's printer supplies business on Mr. Dillingham's life, and for which it is
not a beneficiary; and $1,588 in 1997, $3,749 in 1996 and $2,741 in 1995 represents
the cost of providing Mr. Dillingham with use of an automobile during the year.
(8) In 1988, the Company's printer supplies business adopted a non-qualified plan to
provide retirement benefits for executive officers and other key employees. The
plan provides benefits upon retirement, death or disability of the participant and
37
<PAGE>
benefits are subject to arestrictive vesting schedule. All of the amount shown in
the table for Mr. Dillingham are amounts contributed to such plan for the benefit of
such executive officer with respect to the years noted. Vesting of benefits under
the plan is phased in over 20 years and only a portion of the amount contributed for
each year has fully vested.
(9) All of the amounts shown as paid to or for Mr. Matthews were paid by the Company's
construction products business. Mr. Matthews has an employment agreement with such
business providing for a minimum $130,000 per year base salary; a share of Allied's
earnings in excess of its operating plan earnings, if any, and discretionary bonuses
(as were paid in 1995).
(10) Of the amount shown in the table, $1,710 in 1997, $1,710 in 1996 and $1,710 in 1995
represents the premiums on life insurance paid for by the construction products
business on Mr. Matthew's life, and for which it is not a beneficiary; and $3,453 in
1997, $3,749 in 1996 and $3,107 in 1995 represents the cost of providing Mr.
Matthews with use of an automobile during that year.
(11) In 1993, the Company's construction products business adopted a 401-K plan (with a
profit sharing component) to provide retirement benefits for its employees,
including officers. Participating employees make voluntary contributions to the
Plan, a portion of which such business matches. All of the amount shown in the
table for Mr. Matthews was contributed by Allied to such plan. Vesting of benefits
under the plan is phased in over three years.
</TABLE>
Unless covered by an employment agreement with the Company, officers
serve for one year terms or until their respective successors are duly
elected and qualified.
Compensation of Directors
The Company pays its outside Directors an annual fee of $15,000,
payable monthly. The Company also reimburses its Directors for any
expense reasonably incurred while performing services for the Company.
Directors who are employees of the Company or otherwise receive
compensation from the Company do not receive any fee for acting as
Directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As Directors of the Company, Mr. Kanner and Mr. Kalette participate
in Board of Directors' deliberations and decisions concerning executive
officer compensation. Mr. Kanner and Mr. Kalette are executive officers
of the Company.
38
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997 (i) the number
of shares of Pubco's stock owned, directly or indirectly, by each
Director and executive officer of the Company and by all Directors and
officers as a group, and (ii) the number of shares of Pubco's stock held
by each person who was known by Pubco to beneficially own more than 5% of
Pubco's stock:
<TABLE>
<CAPTION>
Common Stock Class B Stock Aggregate
Amount and Nature Amount and Nature Percent of
of Beneficial Percent of of Beneficial Percent of Voting
Name of Holder Ownership (1)(2) Class Ownership (1)(2) Class Power
<S> <C> <C> <C> <C> <C>
Glenn E. Corlett -- -- -- -- --
Harold L. Inlow -- -- -- -- --
Stephen R. Kalette 166 * 13,759 2.5 1.6
Robert H. Kanner 2,066,894 64.6 514,044 92.8 82.5
William A. Dillingham 3,725 * -- -- *
Leo L. Matthews(3) -- -- -- -- --
3830 Kelley Avenue
Cleveland, OH 44114
All Directors and
officers as a group 2,070,785 64.7 527,903 95.4 84.1
(7 persons)
<FN>
* indicates less than 1%.
</TABLE>
(1) Except as set forth below, each owner has sole voting and investment
power with respect to the shares beneficially owned by him.
(2) Class B Stock is convertible into Common Stock on a share for share
basis. Therefore, ownership of Class B Stock may also be deemed to
be beneficial ownership of the same number of shares of Common Stock.
(3) Mr. Matthews owns approximately 3.6% of the Common Stock of Allied.
Warrants and Options to Purchase Securities
No warrants, options or rights to purchase the Company's Common Stock
were granted by the Company to, or exercised by, any officer or Director
of the Company during 1997.
39
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases a general purpose 312,000 square foot building in
Cleveland, Ohio (the "Building") on a triple net basis. The premises are
used for executive and administrative facilities, the manufacturing and
administrative operations of the Company's printer supplies business and
the manufacturing and administrative operations of the Company's
construction products business. Pubco subleases a portion of the
building to an unrelated party. The annual rental for the Building is
approximately $548,700. The Partnership that owns the Building is 80%
owned and controlled by Mr. Kanner. Mr. Dillingham, Mr. Kalette and five
other individuals have a minority interest in the Partnership.
40
<PAGE>
PART IV
ITEM l4. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) l. List of Financial Statements
Page Number
Consolidated Balance Sheets at
December 3l, l997 and l996........................ 14
Consolidated Statements of Operations
for each of the three years in the
period ended December 3l, l997.................... 16
Consolidated Statements of Stockholders'
Equity for each of the three years in
the period ended December 3l, l997................ 17
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 3l, l997.................... 18
Notes to Consolidated Financial Statements........ 19
2. List of Financial Statement Schedules
Schedule II - Valuation and Qualifying
Accounts.......................................... S-1
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
3. List of Exhibits
Exhibit
No. Description
10.28 June 30, 1997 (Seventh) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association.
10.29 July 11, 1997 (Eighth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association.
41
<PAGE>
10.30 Amended and Restated Master Promissory Note,
Pledge and Security Agreement dated November 25,
1997, between Pubco Corporation and KeyBank
National Association.
10.31 Second Amended and Restated Master Promissory
Note and Security Agreement dated November 25,
1997, between Pubco Corporation and KeyBank
National Association for the Buckeye Business
Products, Inc. Division.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules.
The following exhibits were previously filed with the Commission as
indicated in the bracketed [] references and are hereby incorporated
by reference.
Exhibit
No. Description
2.1 Agreement and Plan of Merger dated April 26, 1996
between Pubco Corporation and Bobbie Brooks,
Incorporated [Registration Statement on Form S-4
No. 333-02951, Exhibit 2.1].
2.2 Sale and Liquidation Agreement dated April 26,
1996 between Pubco Corporation, PSI, Inc. and
Aspen Imaging International, Inc. [Registration
Statement on Form S-4 No. 333-02951, Exhibit 2.2].
3.1 Certificate of Incorporation of Pubco, as amended
[Form 10-K for year ended December 31, 1987,
Exhibit 3.1 and Information Statement dated June
27, 1990 for August 14, 1990 Annual Meeting of
Stockholders, Appendix I].
3.2 By-Laws of Pubco, as amended [Form 10-K for year
ended December 31, 1986, Exhibit 3.2(a)].
10.19 Credit Facility and Security Agreement dated
March 1, 1993 between Allied Construction
Products, Inc. and Society National Bank [Form
10-K for year ended December 31, 1993, Exhibit
10.19].
42
<PAGE>
10.20 Amendments to Credit Facility and Security
Agreement dated March 1, 1993 between Allied
Construction Products, Inc. and Society National
Bank [Form 10-K for year ended December 31, 1994,
Exhibit 10.20].
10.21 June 30, 1995 (Fifth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and Society National Bank. [Form 10-K for year
ended December 31, 1995, Exhibit 10.21]
10.22 December 4, 1996 (Sixth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association. [Form 10-K for
year ended December 31, 1996, Exhibit 10.22]
10.25 Stock Purchase Agreement between Pubco and Kroy
Holding Company. [Form 8-K dated October 20,
1997, Exhibit 10.25]
10.26 Stock Purchase Agreement between Pubco and Marion
and Warren Pollock. [Form 8-K dated October 20,
1997, Exhibit 10.26]
10.27 Stock Purchase Agreement between Pubco and Quest
Equities Corp. [Form 8-K dated October 20, 1997,
Exhibit 10.27]
(b) Reports on Form 8-K Filed during Fourth Quarter
Report on Form 8-K dated October 20, 1997 and filed November 3,
1997 reporting the acquisition of Kroy, Inc. and Form 8-KA
filed December 29, 1997 with respect to that same acquisition.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PUBCO CORPORATION
By: /s/ Robert H. Kanner
----------------------------------
Robert H. Kanner,
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer
Dated: March 25, l998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant, on the date indicated above:
/s/ Robert H. Kanner
------------------------------
Robert H. Kanner, Director
/s/ Stephen R. Kalette
------------------------------
Stephen R. Kalette, Director
/s/ Glenn E. Corlett
------------------------------
Glenn E. Corlett, Director
/s/ William A. Dillingham
-------------------------------
William A. Dillingham, Director
/s/ Harold L. Inlow
-------------------------------
Harold L. Inlow, Director
44
<PAGE>
PUBCO CORPORATION
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(000's)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Additions Balance at
Beginning Charged to: End of
Description of Period Cost/Expense Other Deductions Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts-trade receivables
Year ended December 31, 1997 $ 269 $ 17 $ 672 (B) $ 27 (A) $ 931
Year ended December 31, 1996 $ 279 $ 61 $ - $ 71 (A) $ 269
Year ended December 31, 1995 $1,250 $ 44 $ 66 (B) $ 480 (A) $ 279
601 (D)
<FN>
(A) Bad-debt writeoffs.
(B) Allowances for doubtful accounts acquired.
(C) Sale of receivables.
(D) Recoveries of accounts previously reserved.
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
2.1 Agreement and Plan of Merger dated April 26, 1996
between Pubco Corporation and Bobbie Brooks,
Incorporated [Registration Statement on Form S-4 No.
333-02951, Exhibit 2.1].
2.2 Sale and Liquidation Agreement dated April 26, 1996
between Pubco Corporation, PSI, Inc. and Aspen Imaging
International, Inc. [Registration Statement on Form
S-4 No. 333-02951, Exhibit 2.2].
3.1 Certificate of Incorporation of Pubco, as amended
[Form 10-K for year ended December 31, 1987, Exhibit
3.1 and Information Statement dated June 27, 1990 for
August 14, 1990 Annual Meeting of Stockholders,
Appendix I].
3.2 By-Laws of Pubco, as amended [Form 10-K for year ended
December 31, 1986, Exhibit 3.2(a)].
10.19 Credit Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc. and
Society National Bank [Form 10-K for year ended
December 31, 1993, Exhibit 10.19].
10.20 Amendments to Credit Facility and Security Agreement
dated March 1, 1993 between Allied Construction
Products, Inc. and Society National Bank. [Form 10-K
for year ended December 31, 1994, Exhibit 10.20].
10.21 June 30, 1995 (Fifth) Amendment to Credit Facility and
Security Agreement dated March 1, 1993 between Allied
Construction Products, Inc. and Society National Bank.
[Form 10-K for year ended December 31, 1995, Exhibit
10.21]
10.22 December 4, 1996 (Sixth) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association.[Form 10-K for year ended
December 31, 1996, Exhibit 10.22]
10.25 Stock Purchase Agreement between Pubco and Kroy
Holding Company. [Form 8-K dated October 20, 1997,
Exhibit 10.25]
<PAGE>
10.26 Stock Purchase Agreement between Pubco and Marion and
Warren Pollock. [Form 8-K dated October 20, 1997,
Exhibit 10.26]
10.27 Stock Purchase Agreement between Pubco and Quest
Equities Corp. [Form 8-K dated October 20, 1997,
Exhibit 10.27]
10.28 June 30, 1997 (Seventh) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association.
10.29 July 11, 1997 (Eighth) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association.
10.30 Amended and Restated Master Promissory Note, Pledge
and Security Agreement dated November 25, 1997,
between Pubco Corporation and KeyBank National
Association.
10.31 Second Amended and Restated Master Promissory Note and
Security Agreement dated November 25, 1997, between
Pubco Corporation and KeyBank National Association for
the Buckeye Business Products, Inc. Division.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
<PAGE>
EXHIBIT 10.28
<PAGE>
SEVENTH AMENDMENT TO
CREDIT FACILITY AND SECURITY AGREEMENT ('Amendment')
WHEREAS, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware corporation,
(formerly doing business as Allied Steel & Tractor Products, Inc.) (herein
called the 'Borrower') and KEY CORPORATE CAPITAL INC., a Michigan
corporation (herein referred to as 'Lender') by assignment from KeyBank
National Association (formerly known as Society National Bank), a national
banking association, entered into a Credit Facility and Security Agreement
dated March 1, 1993, which has previously been amended from time to time (as
amended, herein called the 'Agreement'), and
WHEREAS, the Borrower and the Lender have agreed to further amend the
Agreement to provide for an extension of the termination date of the line
of credit and to acknowledge the assignment by KeyBank National Association
all of its interests under the Agreement to Key Corporate Capital Inc.;
NOW, THEREFORE, for valuable consideration received to their mutual
satisfaction, the Borrower and the Lender hereby agree as follows:
1. The definitions of 'Cash Collateral Account', 'Cash Security', and
'Termination Date' appearing in Section 1.2 of the Agreement are hereby
amended by deleting such definitions in their entirety and substituting
therefor the following:
"'Cash Collateral Account' means a commercial Deposit Account
designated 'cash collateral account' and maintained by Borrower with
KeyBank, without liability by KeyBank to pay interest thereon, from
which account Lender shall have the exclusive right to withdraw funds
until all Obligations are paid, performed, satisfied, enforced, and
observed in full, and with respect to which account Lender shall have
a first security interest."
"'Cash Security' means all cash, Deposit Accounts, Instruments and
other cash equivalents, whether matured or unmatured, whether
collected or in the process of collection, upon which Borrower
presently has or may hereafter have any claim, that are presently or
may hereafter be existing or maintained with, issued by, drawn upon
or in the possession of Lender or KeyBank."
"'Termination Date' means September 30, 1997, or such earlier date on
which the commitment of the Lender to make Advances pursuant to
Section 2.1 of this Agreement shall have been terminated pursuant to
Sections 10 or 14 of this Agreement."
2. Section 1.2 of the Agreement is hereby amended by adding the
following definitions for 'KeyBank' and 'Lender' in proper alphabetical
sequence:
1
<PAGE>
"'KeyBank' means KeyBank National Association, a national banking
association whose principal office is located at 127 Public Square,
Cleveland, Ohio 44114-1306."
"'Lender' means Key Corporate Capital Inc., a Michigan corporation
and a subsidiary of KeyBank whose principal office is located at 127
Public Square, Cleveland, Ohio 44114-1306."
3. Except as otherwise amended hereby, all use of and reference to
the defined term 'Bank' set forth in the Agreement shall be amended by
deleting such term and inserting the defined term 'Lender' in place thereof.
4. Section 7(a) of the Agreement is hereby deleted in its
entirety, and the following language is inserted in lieu thereof:
"(a) Prior to exercise by Lender of its rights under Section 10 of
this Agreement, and except as provided in Subsection 7(b) of this
Agreement, both (i) the lawful collection and enforcement of each of
the Borrower's Accounts Receivable and (ii) the lawful receipt and
retention by Borrower of all Proceeds of all of its Collateral,
including Accounts Receivable and Inventory shall be as Lender's
agent. Borrower shall cause all remittances representing collections
and Proceeds of Collateral to be mailed or delivered to Borrower's
Lock Box Account, to which Lender shall have access for processing
such items in accordance with the provisions, terms and conditions of
the Lock Box Agreement. All such lawful collections of Borrower's
Accounts Receivable and such Proceeds of each Borrower's Accounts
Receivable and Inventory which are received by Borrower, shall be
remitted daily by Borrower to KeyBank for the benefit of Lender in
the form in which they are received by the Borrower, either by
mailing or by delivering such collections and Proceeds to KeyBank,
appropriately endorsed for deposit in the Cash Collateral Account.
Borrower shall not commingle such collections or Proceeds with any
of its other funds or property, but shall hold such collections and
Proceeds separate and apart therefrom upon an express trust for
Lender. Lender may, in its sole discretion, at any time and from
time to time, apply all or any portion of the account balance in the
Cash Collateral Account as a credit to any Obligations allowing two
(2) days for collection and clearance of remittances; provided,
however, that, in the event the Lender applies any Proceeds from the
Cash Collateral Account and such payment includes uncollected funds,
Borrower shall incur a charge for those uncollected funds at the rate
payable on Advances. If any remittance shall be dishonored, or if,
upon final payment, any claim with respect thereto shall be made
against Lender on its warranties of collection, Lender may charge the
amount of such item against the Cash Collateral Account or any other
Deposit Account maintained by the Borrower with Lender or KeyBank,
and, in any event, retain same and Borrower's interest therein as
additional security for the Obligations. In such event, no allowance
is made for collection and clearance. The Lender, and KeyBank at
Lender's direction, may, in its sole discretion, release funds from
the Cash Collateral Account to Borrower for use in the Borrower's
business. The balance in the Cash Collateral Account may be
withdrawn by the Borrower upon termination of this Agreement."
2
<PAGE>
5. The Borrower hereby agrees that it will, contemporaneously with
the execution of this Amendment to the Agreement, execute and deliver to the
Lender a new Revolving Credit Promissory Note in the form of Exhibit A-2 to
replace the Revolving Credit Promissory note currently held and owned by the
Lender representing the Borrower's borrowings under the Agreement.
6. This Amendment shall be effective as of June __, 1997. Except
as previously amended or as herein specifically amended, directly or by
reference, all of the terms and conditions set forth in the Agreement are
confirmed and ratified, and shall remain as originally written. This
Amendment shall be construed in accordance with the laws of the State of
Ohio, without regard to principles of conflict of laws. The Agreement and
all other related loan documents executed in connection with the Agreement
shall remain in full force and effect in all respects as if the unpaid
balance of the principal outstanding, together with interest accrued
thereon, had originally been payable and secured as provided for therein,
as amended from time to time and as modified by this Amendment. Nothing
herein shall affect or impair any rights and powers which the Lender may
have under the Agreement and any and all related loan documents.
7. In consideration of this Amendment, the Borrower hereby
releases and discharges the Lender and its shareholders, directors,
officers, employees, attorneys, affiliates and subsidiaries from any and all
claims, demands, liability and causes of action whatsoever, now known or
unknown, arising prior to the date hereof out of or in any way related to
the extension or administration of the Obligations of the Borrower (as
defined in the Agreement), the Agreement or any mortgage or security
interest related thereto.
8. For purposes of this Amendment, the terms used in the Agreement
shall have the same meaning as used herein unless otherwise defined herein.
The Borrower and the Lender hereby agree to extend all liens and security
interests securing the Obligations, until said Obligations, as modified
herein, and any and all related promissory notes have been fully paid. The
parties hereto further agree that this Amendment shall in no manner affect
or impair the liens and security interests evidenced by the Agreement and/or
any other instruments evidencing, securing or related to the Obligations.
The Borrower hereby acknowledges that all liens and security interests
securing the Obligations are valid and subsisting.
9. The Borrower covenants and agrees (i) to pay the balance of any
principal, together with all accrued interest, as specified above in
connection with any promissory note executed and evidencing any indebtedness
incurred in connection with the Agreement, as modified by this Amendment,
and (ii) to perform and observe covenants, agreements, stipulations and
conditions on its part to be performed hereunder or under the Agreement and
all other related loan documents executed in connection herewith or thereof.
10. The Borrower hereby declares that the Borrower has no set offs,
counterclaims, defenses or other causes of action against the Lender arising
out of the Agreement or any related loan documents, and to the extent any
such set offs, counterclaims, defenses or other causes of action may exist,
whether known or unknown, such items are hereby waived by the Borrower.
3
<PAGE>
11. This Amendment may be executed in counterparts and all such
counterparts shall constitute one agreement binding on all the parties,
notwithstanding that the parties are not signatories to the same
counterpart.
12. The Borrower hereby represents and warrants to the Lender that
(a) the Borrower has the legal power and authority to execute and deliver
this Amendment; (b) the officials executing this Amendment have been duly
authorized to execute and deliver the same and bind the Borrower with
respect to the provisions hereof; (c) the execution and delivery hereof by
the Borrower and the performance and observance by the Borrower of the
provisions hereof do not violate or conflict with the organizational
agreements of the Borrower or any law applicable to the Borrower or result
in a breech of any provisions of or constitute a default under any other
agreement, instrument or document binding upon or enforceable against the
Borrower; and (d) this Amendment constitutes a valid and binding obligation
upon the Borrower in every respect.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Seventh Amendment to the Agreement to be executed by their duly authorized
officers as of the ____ day of June, 1997.
KEY CORPORATE CAPITAL INC., ALLIED CONSTRUCTION
a Michigan corporation, by assignment PRODUCTS, INC.,
from KeyBank National Association a Delaware corporation,
(formerly known as Society National Bank), (formerly doing business as
a national banking association Allied Steel & Tractor
Products, Inc.
By: By:
--------------------------------- -----------------------------
Name: Name:
-------------------------------- ----------------------------
Its: Its:
-------------------------------- -----------------------------
4
<PAGE>
EXHIBIT A-2
REVOLVING CREDIT PROMISSORY NOTE
$4,500,000.00 June ___, 1997
Cleveland, Ohio
FOR VALUE RECEIVED, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware
corporation, (formerly doing business as Allied Steel & Tractor Products,
Inc.) (the "Borrower"), promises to pay to the order of KEY CORPORATE
CAPITAL INC. (the "Holder") on September 30, 1997, or sooner as hereinafter
provided, the principal amount of Four Million Five Hundred Thousand and
no/100 Dollars ($4,500,000.00) or, if less, the aggregate unpaid principal
amount from time to time borrowed by the Borrower from the Holder pursuant
to the Credit Agreement (hereinafter defined). The unpaid principal balance
outstanding on this Revolving Credit Promissory Note from time to time (the
"Outstanding Principal Balance") shall be determined by the ledgers and
records of the Holder as accurately maintained.
This Revolving Credit Promissory Note is the "Revolving Note" defined
and referred to in, and is entitled to the benefits of, a certain Credit
Facility and Security Agreement dated March 1, 1993 (said Credit Facility
and Security Agreement as amended and including, as it may be from time to
time further amended, restated or otherwise modified, being herein called
the "Credit Agreement"), between the Borrower and the Holder, to which
reference is hereby made for a statement of the rights of the Holder and the
duties and obligations of the Borrower in relation thereto, but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal of and interest on this Revolving Credit Promissory Note when due.
Capitalized terms used in this Revolving Credit Promissory Note not defined
hereinafter shall have the respective meanings given to such items in the
Credit Agreement.
This Revolving Credit Promissory Note is being executed and delivered
in substitution for an existing Revolving Credit Promissory Note executed
by Borrower and dated June 30, 1995, and the execution and delivery of this
Revolving Credit Promissory Note shall not constitute a novation and shall
not terminate or otherwise affect the first lien and security interest of
the Holder in Borrower's property.
The Outstanding Principal Balance of this Revolving Credit Promissory
Note shall bear interest from and including the date hereof until the date
of payment in full at the rate per annum as set forth in the Credit
Agreement. All interest on this Revolving Credit Promissory Note shall be
paid in accordance with the terms of the Credit Agreement. Interest shall
be computed on the basis of a year of 360 days for the actual number of days
elapsed. All unpaid principal and interest on this Revolving Credit
Promissory Note shall be due on the maturity date hereof as set forth in the
Credit Agreement.
1
<PAGE>
Reference is hereby made to the Credit Agreement which contains
provisions for the acceleration of the maturity hereof upon the happening
of certain stated events and for mandatory prepayments and voluntary
prepayments hereon. The term "Holder" includes the successors and assigns
of Holder.
This Revolving Credit Promissory Note is secured by collateral
assigned, pledged or granted to the Holder; reference is made to the Credit
Agreement and the documents and instruments assigning, pledging or granting
said collateral for a description of the Holder's rights with respect
thereto.
Payment of the principal of and interest on this Revolving Credit
Promissory Note shall be made in lawful money of the United States of
America, by federal funds wire transfer to the main office of Holder, 127
Public Square, Cleveland, Ohio 44114-1306, or at such other place or in such
other manner of payment as Holder or any subsequent holder hereof shall have
designated to the Borrower in writing.
The Borrower waives demand, presentment for payment, notice of
dishonor, protest, and notice of protest and diligence in collection and
bringing suit and agrees that Holder may extend the time for payment, accept
partial payment, take security therefor, or exchange or release any
collateral, without discharging or releasing the Borrower.
This Revolving Credit Promissory Note was executed in Cleveland,
Cuyahoga County, Ohio. The construction, validity, and enforceability of
this Revolving Credit Promissory Note shall be governed by the laws of the
State of Ohio.
The Borrower authorizes any attorney at law to appear before any
court of record, state or federal, in the county where this Revolving Credit
Promissory Note was executed or where the Borrower resides or may be found,
after the unpaid principal balance of this Revolving Credit Promissory Note
becomes due, either by lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, and waive the
issuance and service of process, admit the maturity of this Revolving Credit
Promissory Note, by reason of acceleration or otherwise, and confess
judgment against the Borrower in favor of the holder of this Revolving
Credit Promissory Note for the amount then appearing due on this Revolving
Credit Promissory Note, together with interest thereon and costs of suit,
and thereupon to release all errors and to waive all rights of appeal and
stay of execution. The foregoing warrant of attorney shall survive any
judgment and may be used from time to time without exhausting the right to
further use the warrant of attorney and, if any judgment be vacated for any
reason, the holder of this Revolving Credit Promissory Note nevertheless may
use the foregoing warrant of attorney to obtain an additional judgment or
judgments against the Borrower. Borrower agrees that the holder's attorney
may confess judgment pursuant to the foregoing warrant of attorney.
Borrowers further agrees that the attorney confessing judgment pursuant to
the foregoing warrant of attorney may receive a legal fee or other
compensation from the holder.
2
<PAGE>
WARNING--BY SIGNING THIS PAPER YOU GIVE US YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
ALLIED CONSTRUCTION PRODUCTS,
INC., a Delaware corporation,
(formerly doing business as Allied
Steel & Tractor Products, Inc.)
By:________________________________
Name:______________________________
Title:_____________________________
3
<PAGE>
EXHIBIT 10.29
<PAGE>
EIGHTH AMENDMENT TO
CREDIT FACILITY AND SECURITY AGREEMENT ('Amendment')
WHEREAS, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware corporation,
(herein called the "Borrower") and KEY CORPORATE CAPITAL INC., a Michigan
corporation (herein referred to as the "Lender") by assignment from KeyBank
National Association (formerly known as Society National Bank), a national
banking association, entered into a Credit Facility and Security Agreement
dated March 1, 1993, which has previously been amended from time to time (as
amended, herein called the "Agreement"), and
WHEREAS, the Borrower and the Lender have agreed to further amend the
Agreement;
NOW, THEREFORE, for valuable consideration received to their mutual
satisfaction, the Borrower and the Lender hereby agree as follows:
1. The definitions of "Borrowing Base", "Discontinued Inventory" and
"Termination Date" appearing in Section 1.2 of the Agreement are hereby
amended by deleting such definitions in their entirety and substituting
therefor the following:
"'Borrowing Base' means an amount not in excess of the sum of the
following:
(a) seventy-five percent (75%) of the amount due and
owing on Eligible Accounts Receivable, plus
(b) seventy-five percent (75%) of the amount due and
owing on the sum of Eligible Notes Receivable and
Eligible Dating Receivables, plus
(c) fifty percent (50%) of the cost on a first-in,
first-out inventory cost basis or market value
(whichever is lower) of: (i) Borrower's Eligible
Parts Inventory during the preceding month; and
(ii) Borrower's Eligible Finished Goods Inventory,
less
(d) Ineligible FFC Receivables in the form of an
availability block against the Borrowing Base for
such amount, less
(e) any outstanding Letters of Credit."
"'Discontinued Inventory' means any Inventory which is discontinued
or obsolete Inventory which has been specifically identified to Bank
as Discontinued Inventory in Exhibit N attached hereto."
"'Termination Date' means June 30, 1999, or such earlier date on
which the commitment of the Lender to make Advances pursuant to
Section 2.1 of this Agreement shall have been terminated pursuant to
Sections 10 or 14 of this Agreement."
1
<PAGE>
2. The second line of the first paragraph of the definition of
"Eligible Finished Goods Inventory" appearing in Section 1.2 of the
Agreement is hereby amended by deleting the words "two times" and
substituting therefore the following: "one time," the foregoing with respect
to the minimum number of times each year such inventory may turnover.
3. The third line of the first paragraph of the definition of
"Eligible Parts Inventory" appearing in Section 1.2 of the Agreement is
hereby amended by deleting the words "but less than two times per year."
4. The first sentence of Section 2.1(a) of the Agreement is hereby
amended by deleting the amount "Four Million Five Hundred Thousand Dollars
($4,500,000.00)" and substituting therefore the following amount: "Three
Million Dollars ($3,000,000.00)," the foregoing with respect to the dollar
amount of the revolving credit facility approved for the Borrower by the
Bank.
5. The second sentence of Section 2.1(a) of the Agreement is
hereby amended by deleting the amount: "Two Hundred Fifty Thousand Dollars
($250,000.00)" and substituting therefore the following amount "One Million
Dollars ($1,000,000.00)," the foregoing with respect to the maximum dollar
amount of issued and outstanding Letters of Credit approved for the Borrower
by the Bank.
6. The last sentence of Section 2.4(b) of the Agreement is hereby
deleted in its entirety and the following sentence is substituted in place
thereof: "In addition, Borrower shall pay a monthly Collateral monitoring
fee in the amount of $150.00 per month in arrears on the first day of each
month."
7. Section 5.10 of the Agreement shall be amended to read as
follows:
"5.10 Cash Flow. Borrower shall at all times maintain a Cash
Flow Coverage Ratio of at least 1.05 to 1.0 calculated at the
end of the fiscal period of Borrower ending closest to the end
of each calendar quarter based upon a cumulative year
calculation."
8. Section 6.4(d) of the Agreement is hereby amended by deleting
such section in its entirety and substituting the following in place
thereof:
"(d) pay or declare dividends in any fiscal year (except the
following: (i) payments pursuant to a tax sharing agreement
with Pubco Corporation, successor in interest to Brooks
Management Company, in form and substance acceptable to Lender,
so long as the amount paid is equivalent to the amount that
would have been paid by Borrower in taxes, if Borrower had
filed a separate return, and/or (ii) dividends declared by
Borrower, provided that no Event of Default would exist
following the payment of such dividends.)"
2
<PAGE>
9. The fifth sentence of Section 7(a) of the Agreement is hereby
amended by deleting the number "two (2)" and substituting therefore the
number "one (1)," the foregoing with respect to the number of hold days
required by the Bank for collection and clearance of remittances.
10. The Borrower hereby agrees that it will, contemporaneously with
the execution of this Amendment to the Agreement, execute and deliver to the
Lender a new Revolving Credit Promissory Note in the form of Exhibit A-3 to
replace the Revolving Credit Promissory Note currently held and owned by the
Lender representing the Borrower's borrowings under the Agreement. Lender
agrees to promptly return to Borrower the previously executed Revolving
Credit Promissory Note.
11. This Amendment shall be effective as of July __, 1997. Except
as previously amended or as herein specifically amended, directly or by
reference, all of the terms and conditions set forth in the Agreement are
confirmed and ratified, and shall remain as originally written. This
Amendment shall be construed in accordance with the laws of the State of
Ohio, without regard to principles of conflict of laws. The Agreement and
all other related loan documents executed in connection with the Agreement
shall remain in full force and effect in all respects as if the unpaid
balance of the principal outstanding, together with interest accrued
thereon, had originally been payable and secured as provided for therein,
as amended from time to time and as modified by this Amendment. Nothing
herein shall affect or impair any rights and powers which the Lender may
have under the Agreement and any and all related loan documents.
12. In consideration of this Amendment, the Borrower hereby
releases and discharges the Lender and its shareholders, directors,
officers, employees, attorneys, affiliates and subsidiaries from any and all
claims, demands, liability and causes of action whatsoever, now known or
unknown, arising prior to the date hereof out of or in any way related to
the extension or administration of the Obligations of the Borrower (as
defined in the Agreement), the Agreement or any mortgage or security
interest related thereto.
13. For purposes of this Amendment, the terms used in the Agreement
shall have the same meaning as used herein unless otherwise defined herein.
The Borrower and the Lender hereby agree to extend all liens and security
interests securing the Obligations, until said Obligations, as modified
herein, and any and all related promissory notes have been fully paid. The
parties hereto further agree that this Amendment shall in no manner affect
or impair the liens and security interests evidenced by the Agreement and/or
any other instruments evidencing, securing or related to the Obligations.
The Borrower hereby acknowledges that all liens and security interests
securing the Obligations are valid and subsisting.
14. The Borrower covenants and agrees (i) to pay the balance of any
principal, together with all accrued interest, as specified above in
connection with any promissory note executed and evidencing any indebtedness
incurred in connection with the Agreement, as modified by this Amendment,
and (ii) to perform and observe covenants, agreements, stipulations and
conditions on its part to be performed hereunder or under the Agreement and
all other related loan documents executed in connection herewith or thereof.
3
<PAGE>
15. The Borrower hereby declares that the Borrower has no set offs,
counterclaims, defenses or other causes of action against the Lender arising
out of the Agreement or any related loan documents, and to the extent any
such set offs, counterclaims, defenses or other causes of action may exist,
whether known or unknown, such items are hereby waived by the Borrower.
16. This Amendment may be executed in counterparts and all such
counterparts shall constitute one agreement binding on all the parties,
notwithstanding that the parties are not signatories to the same
counterpart.
17. The Borrower hereby represents and warrants to the Lender that
(a) the Borrower has the legal power and authority to execute and deliver
this Amendment; (b) the officials executing this Amendment have been duly
authorized to execute and deliver the same and bind the Borrower with
respect to the provisions hereof; (c) the execution and delivery hereof by
the Borrower and the performance and observance by the Borrower of the
provisions hereof do not violate or conflict with the organizational
agreements of the Borrower or any law applicable to the Borrower or result
in a breech of any provisions of or constitute a default under any other
agreement, instrument or document binding upon or enforceable against the
Borrower; and (d) this Amendment constitutes a valid and binding obligation
upon the Borrower in every respect.
18. In consideration for entering into this Amendment, Borrower
agrees to pay Lender a renewal fee of One Thousand Dollars ($1,000.00)
payable on the date hereof. The Borrower further agrees to reimburse Lender
for any and all out-of-pocket costs, fees and expenses incurred in
connection with this Amendment, including, without limitation, attorney's
fees, provided, however, that the Borrower's responsibility for such
attorney's fees shall not exceed One Thousand Five Hundred Dollars
($1,500.00) in connection with this Eighth Amendment to the Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Eighth Amendment to the Agreement to be executed by their duly authorized
officers as of the ____ day of July, 1997.
KEY CORPORATE CAPITAL INC., ALLIED CONSTRUCTION
a Michigan corporation, by assignment PRODUCTS, INC.,
from KeyBank National Association a Delaware corporation,
(formerly known as Society National Bank), (formerly doing business as
a national banking association Allied Steel & Tractor
Products, Inc.
By: By:
--------------------------------- -----------------------------
Name: Name:
-------------------------------- ----------------------------
Its: Its:
-------------------------------- -----------------------------
And By:
-----------------------------
Name:
-----------------------------
Its:
-----------------------------
5
<PAGE>
EXHIBIT A-3
REVOLVING CREDIT PROMISSORY NOTE
$3,000,000.00 July ___, 1997
Cleveland, Ohio
FOR VALUE RECEIVED, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware
corporation, (the "Borrower"), promises to pay to the order of KEY CORPORATE
CAPITAL INC. (the "Holder") on June 30, 1999, or sooner as hereinafter
provided, the principal amount of Three Million and no/100 Dollars
($3,000,000.00) or, if less, the aggregate unpaid principal amount from time
to time borrowed by the Borrower from the Holder pursuant to the Credit
Agreement (hereinafter defined). The unpaid principal balance outstanding
on this Revolving Credit Promissory Note from time to time (the "Outstanding
Principal Balance") shall be determined by the ledgers and records of the
Holder as accurately maintained.
This Revolving Credit Promissory Note is the "Revolving Note" defined
and referred to in, and is entitled to the benefits of, a certain Credit
Facility and Security Agreement dated March 1, 1993 (said Credit Facility
and Security Agreement as amended and including, as it may be from time to
time further amended, restated or otherwise modified, being herein called
the "Credit Agreement"), between the Borrower and the Holder, to which
reference is hereby made for a statement of the rights of the Holder and the
duties and obligations of the Borrower in relation thereto, but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal of and interest on this Revolving Credit Promissory Note when due.
Capitalized terms used in this Revolving Credit Promissory Note not defined
hereinafter shall have the respective meanings given to such items in the
Credit Agreement.
This Revolving Credit Promissory Note is being executed and delivered
in substitution for an existing Revolving Credit Promissory Note executed
by Borrower and dated June 30, 1997, and the execution and delivery of this
Revolving Credit Promissory Note shall not constitute a novation and shall
not terminate or otherwise affect the first lien and security interest of
the Holder in Borrower's property.
The Outstanding Principal Balance of this Revolving Credit Promissory
Note shall bear interest from and including the date hereof until the date
of payment in full at the rate per annum as set forth in the Credit
Agreement. All interest on this Revolving Credit Promissory Note shall be
paid in accordance with the terms of the Credit Agreement. Interest shall
be computed on the basis of a year of 360 days for the actual number of days
elapsed. All unpaid principal and interest on this Revolving Credit
Promissory Note shall be due on the maturity date hereof as set forth in the
Credit Agreement.
1
<PAGE>
Reference is hereby made to the Credit Agreement which contains
provisions for the acceleration of the maturity hereof upon the happening
of certain stated events and for mandatory prepayments and voluntary
prepayments hereon. The term "Holder" includes the successors and assigns
of Holder.
This Revolving Credit Promissory Note is secured by collateral
assigned, pledged or granted to the Holder; reference is made to the Credit
Agreement and the documents and instruments assigning, pledging or granting
said collateral for a description of the Holder's rights with respect
thereto.
Payment of the principal of and interest on this Revolving Credit
Promissory Note shall be made in lawful money of the United States of
America, by federal funds wire transfer to the main office of Holder, 127
Public Square, Cleveland, Ohio 44114-1306, or at such other place or in such
other manner of payment as Holder or any subsequent holder hereof shall have
designated to the Borrower in writing.
The Borrower waives demand, presentment for payment, notice of
dishonor, protest, and notice of protest and diligence in collection and
bringing suit and agrees that Holder may extend the time for payment, accept
partial payment, take security therefor, or exchange or release any
collateral, without discharging or releasing the Borrower.
This Revolving Credit Promissory Note was executed in Cleveland,
Cuyahoga County, Ohio. The construction, validity, and enforceability of
this Revolving Credit Promissory Note shall be governed by the laws of the
State of Ohio.
The Borrower authorizes any attorney at law to appear before any
court of record, state or federal, in the county where this Revolving Credit
Promissory Note was executed or where the Borrower resides or may be found,
after the unpaid principal balance of this Revolving Credit Promissory Note
becomes due, either by lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, and waive the
issuance and service of process, admit the maturity of this Revolving Credit
Promissory Note, by reason of acceleration or otherwise, and confess
judgment against the Borrower in favor of the holder of this Revolving
Credit Promissory Note for the amount then appearing due on this Revolving
Credit Promissory Note, together with interest thereon and costs of suit,
and thereupon to release all errors and to waive all rights of appeal and
stay of execution. The foregoing warrant of attorney shall survive any
judgment and may be used from time to time without exhausting the right to
further use the warrant of attorney and, if any judgment be vacated for any
reason, the holder of this Revolving Credit Promissory Note nevertheless may
use the foregoing warrant of attorney to obtain an additional judgment or
judgments against the Borrower. Borrower agrees that the holder's attorney
may confess judgment pursuant to the foregoing warrant of attorney.
Borrowers further agrees that the attorney confessing judgment pursuant to
the foregoing warrant of attorney may receive a legal fee or other
compensation from the holder.
2
<PAGE>
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
ALLIED CONSTRUCTION PRODUCTS,
INC., a Delaware corporation,
(formerly doing business as Allied
Steel & Tractor Products, Inc.)
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
And By:
-----------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
3
<PAGE>
EXHIBIT 10.30
<PAGE>
AMENDED & RESTATED
MASTER PROMISSORY NOTE ('NOTE')
$10,000,000.00 Cleveland, Ohio, ____________, 1997
Company promises to pay to the order of Lender at any of its offices
the principal amount of each Advance, together with interest on the daily
principal balance of such Advance at a rate per annum equal to the Interest
Rate applicable to such Advance. The principal amount of each Advance shall
be due and payable on the Maturity Date applicable to such Advance. Accrued
interest on each LIBOR Advance shall be due and payable on the Maturity Date
applicable to such Advance. Accrued interest on each Prime Advance shall be
due and payable on the ___ day of each month. During any Event of Default,
the daily principal balance of each Advance shall bear interest at a rate
per annum equal to the Default Interest Rate. Except during any Event of
Default, no LIBOR Advance may be repaid prior to its Maturity Date.
This note shall serve as a master note to evidence all Advances;
provided, however, that the aggregate unpaid principal amount of all
Advances shall not at any one time outstanding exceed the lesser of the
amount specified in the Line Facility or forty percent (40%) of the value
of the Collateral. This note shall also evidence the obligation of Company
to repay to Lender all Obligations related to the issuance by Lender of
Letters of Credit in the aggregate amount of up to Three Million Dollars
($3,000,000.00) provided that the aggregate amount of issued Letters of
Credit and Advances, all as further described in the Financing Commitment,
shall not exceed Ten Million Dollars. In the absence of clear and
convincing evidence established by Company to the contrary, Lender's
records as to (a) the principal amount, the Maturity Date, and the Interest
Rate applicable to each Advance, (b) each payment of principal and interest
received by Lender applicable to each Advance, and (c) payment of any
Letter of Credit shall be conclusively deemed to be accurate.
For each payment of principal or interest not received by Lender
when due, the Company agrees to pay Lender a late charge equal to the
greater of ten percent (10%) of the amount of the payment or One Hundred
Dollars ($100.00).
This Note is being executed and delivered as an amendment to and
restatement of an existing Master Promissory Note dated October 3, 1996 and
the execution and delivery of this Note shall not constitute a novation and
shall not terminate or otherwise affect the rights of Lender in the
Collateral. This Note is secured by the provisions of that certain Pledge
and Security Agreement of even date herewith
Company shall pay Lender commitment fee computed at a rate
one-fourth of one percent (1/4 of 1 %) per annum (calculated on the basis
of a year of 360 days for the actual number of days elapsed) on the average
daily unused amount of the commitment of the Lender to make the Advances
or issue Letters of Credit hereunder during the period from the date of this
Note to the Maturity Date, payable starting on _______________, 1997, and
continuing quarter annually thereafter, and on the Maturity Date, with
respect to the portion of such preceding period as to which such fee has
accrued and remains unpaid.
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Company waives presentment, demand, notice, protest, and all other
demands and notices in connection with delivery, acceptance, performance,
default, or enforcement of this note. Any request, demand, or notice by or
on behalf of Lender, when delivered or deposited for delivery, postage
prepaid, by certified United States mail to Company at Company's address set
forth below shall constitute, but shall not preclude other means of, an
effective request, demand, or notice. Any request, demand, or notice by or
on behalf of Company must be in writing and shall not be effective until
delivered to Lender at Lender's address set forth below.
At the option of Lender during any Event of Default, all Obligations
shall become immediately due and payable, Lender may terminate the Line
Facility (including, without limitation, any obligation of Lender to make
any further Advances), and Lender may require KeyBank to apply or setoff
any Cash Security against all Obligations and pay such amounts to Lender,
all without any notice to or demand upon Company, in addition to any other
rights and remedies Lender may have pursuant to law, this Note, or any
other instruments or agreements, which rights and remedies shall be
cumulative. If during any Event of Default any LIBOR Advance becomes due and
payable and is repaid prior to its Maturity Date, Company also promises to
reimburse Lender on demand for any resulting loss, cost, or expense
incurred by Lender as a result of Company's repayment of such Advance prior
to its Maturity Date including, without limitation, any loss incurred in
obtaining, liquidating, or employing deposits from third parties, but
excluding loss of margin for the period after any such payment. If, because
of the introduction of or any change in, or because of any judicial,
administrative, or other governmental interpretation of, any law or
regulation, there shall be any increase in the cost to Lender of making,
funding, maintaining, or allocating capital to any LIBOR Advance, then
Company shall, from time to time upon demand by Lender, pay to Lender
additional amounts sufficient to compensate Lender for such increased cost.
If, because of the introduction of or any change in, or because of any
judicial, administrative, or other governmental interpretation of, any law
or regulation, it becomes unlawful for Lender to make, fund, or maintain
any LIBOR Advance, then Lender's obligation to make, fund, or maintain any
LIBOR Advance shall terminate and each affected outstanding LIBOR Advance
shall be converted to a Prime Advance on the earlier of the applicable
Maturity Date for each such Advance or the date the making, funding, or
maintaining of each such Advance becomes unlawful.
All provisions hereof shall be subject to, governed by, and construed
in accordance with Ohio law. Unenforceability of any provision hereof or any
application of any provision hereof shall not affect the enforceability of
any other provision or application of any provision. Any amendment or waiver
hereof or any waiver of any right or remedy otherwise available must be in
writing and signed by the party against whom enforcement of the amendment
or waiver is sought. After all Obligations evidenced by this note become due
and payable, any attorney-at-law is irrevocably authorized to (a) appear for
Company in any state or federal court of record, (b) waive the issuance and
service of process, all errors, and all rights of appeal and stay of
execution, and (c) confess judgment against Company in favor of Lender for
the principal balance of this note, the amount of all unpaid accrued
interest, the amount of all costs of suit, and the amount of a reasonable
attorney's fee. These authorizations shall survive any judgment(s) and any
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<PAGE>
vacation of any judgment(s). Company agrees that the Lender's attorney may
confess judgment pursuant to the foregoing warrant of attorney. Company
further agrees that the attorney confessing judgment pursuant to the
foregoing warrant of attorney may receive a legal fee or other compensation
from the Lender.
For the purposes of this Note:
"Advance" means any loan advance made by Lender to Company pursuant
to the Line Facility;
"Business Day" means a day of the year on which National Banking
Associations are not required or authorized to close in Cleveland,
Ohio and, if the applicable Business Day relates to any LIBOR
Advance, on which dealings are carried on in the London interbank
eurodollar market;
"Company" means the undersigned and its successors and assigns;
provided, however, that Company may not assign or otherwise transfer
any of its rights under this note without the express written consent
of Lender;
"Cash Flow Coverage Ratio" means (i) the sum of Company's net income
(after taxes paid in cash), plus depreciation, plus amortization,
plus interest expense to (ii) the sum of Company's current portion of
long term debt, plus capitalized lease payment, plus capital
expenditures, plus interest expense, plus dividends. The Cash Flow
Coverage Ratio shall be calculated on a quarterly basis.
"Cash Security" means any present or future (a) money in the
possession of Lender or KeyBank in which Company has or may have any
right, title, or interest, (b) Deposit Account maintained with
KeyBank in which Company has or may have any right, title or
interest, or (c) Instrument or General Intangible issued or assumed
by Lender or KeyBank in which Company has or may have any right,
title, or interest;
"Collateral" means the custodial account at Key Trust Company of Ohio
known as Account No. 20-10-200-1123440 and the securities therein
which are covered by the Pledge and Security Agreement given by
Company to KeyBank of even date herewith ("Security Agreement").
"Debt to Worth Ratio" means the ratio of (i) Company's Total
Indebtedness, minus Subordinated Debt to (ii) Company's total equity
plus Subordinated Debt, minus related party advances, minus
intangible assets. The Debt to Worth Ratio shall be calculated on a
quarterly basis;
"Default Interest Rate" means that floating rate per annum
(calculated on the basis of a year of 360 days for the actual number
of days elapsed) equal to the greater of three percent (3%) in excess
of the Prime Rate, which rate shall be immediately adjusted to
correspond with each change in the Prime Rate, or sixteen percent
(16%);
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<PAGE>
"Deposit Account" shall be defined as set forth in Article 9 of the
UCC;
"Event of Default" means any of the following events or conditions:
(a) any Obligation evidenced by this Note, the Line Facility or any
Letter of Credit is not paid when such Obligation becomes due and
payable; (b) any Obligation not evidenced by this note or the Line
Facility is not paid when (or within any applicable grace period
after) such Obligation becomes due and payable; (c) any material
representation, warranty, certification, financial statement, loan
application, information, or record made, furnished, or made
available to Lender by or on behalf of Company in connection with
any Obligation is inaccurate or misleading in any material respect
when made, furnished, or made available; (d) any material provision
of any documentation evidencing, securing, or otherwise relating to
any Obligation is breached; (e) Company (1) is adjudicated by any
court in any jurisdiction to be insolvent, (2) ceases, is unable, or
admits in writing the inability to generally pay its debts as they
become due, (3) makes any general assignment for the benefit of its
creditors, (4) applies for or consents to the appointment of or the
taking of possession by any receiver, custodian, trustee, liquidator,
or similar representative of or for it or of or for any material part
of its property, or (5) commences or consents to the commencement of
any case or proceeding with respect to it or any material amount of
its property pursuant to any Insolvency Law; (f) any case or
proceeding pursuant to any Insolvency Law is commenced against or
with respect to Company or any material amount of its property
without its consent which is not dismissed or stayed within 30 days
after its commencement; or (g) any judgment, attachment, execution,
or similar process aggregating in excess of $1,000,000 is rendered,
issued, or levied against Company or any material amount of its
property and is not fully satisfied, released, vacated, or bonded
within 30 days after its rendering, issue, or levy, or (h) Company
creates, grants, or permits to exist any lien encumbrance, or claim
on the Collateral, other than as created by the Pledge and Security
Agreement and either (i) the Collateral does not equal or exceed in
fair market value 200% of the outstanding principal balance of this
Note, or (ii) any such liens, encumbrances or claims aggregate in
excess of $500,000.
"Financing Commitment" shall mean that certain Financing Commitment
issued by Lender to Company dated _______________, 1997.
"General Intangible" shall be defined as set forth in Article 9 of
the UCC;
"Insolvency Law" means any reorganization, arrangement, composition,
or readjustment of debts, bankruptcy, insolvency, dissolution,
liquidation, receivership, trusteeship, or similar law of any state
or the United States;
"Instrument" shall be defined as set forth in Article 9 of the UCC;
"Interest Rate" means (a) as to any Prime Advance, that floating rate
per annum (calculated on the basis of a year of 360 days for the
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<PAGE>
actual number of days elapsed) equal to the Prime Rate, which rate
shall be immediately adjusted to correspond with each change in the
Prime Rate, and (b) as to any LIBOR Advance, that fixed rate per
annum (calculated on the basis of a year of 360 days for the actual
number of days elapsed) equal to one and one-half percent (1.50%) in
excess of the Reserve Adjusted LIBOR Rate;
"KeyBank" means KeyBank National Association, a national banking
association whose principal office is located at 127 Public Square,
Cleveland, Ohio 44114;
"Lender" shall mean Key Corporate Capital Inc., a Michigan
corporation and a subsidiary of KeyBank whose principal office is
located at 127 Public Square, Cleveland, Ohio 44114;
"Letter of Credit" means any outstanding letter of credit issued by
Lender on the account of Company;
"LIBOR Advance" means any Advance that bears interest determined with
reference to the Reserve Adjusted LIBOR Rate;
"Libor Reserve Requirements" means, for any Libor Advance, the
maximum reserves (whether basic, supplemental, marginal, emergency,
or otherwise) prescribed by the Board of Governors of the Federal
Reserve System (or any successor) with respect to liabilities or
assets consisting of or including "Eurocurrency liabilities" (as
defined in Regulation D of the Board of Governors of the Federal
Reserve System) having a term equal to the term of such Advance;
"Line Facility" means the revolving credit and letter of credit
facility held available by Lender for Company evidenced by a letter
agreement dated November ___, 1997 and Financing Commitment attached
thereto, and this note, together with all extensions, renewals,
amendments, restatements, and substitutions thereof;
"Maturity Date" means the earlier of (a) the date all Obligations
evidenced by this note become due and payable or (b) (1) with respect
to any Prime Advance, April 30, 2000, and (2) with respect to any
LIBOR Advance, the earlier of (i) April 30, 2000 or (ii) the date
selected by Company that ends thirty, sixty, ninety or one hundred
eighty days after the date of the making of such Advance;
"Obligations" means any present or future obligation, indebtedness,
or liability of Company owed to Lender of whatever kind and however
evidenced, together with all extensions, renewals, amendments,
restatements and substitutions thereof or therefor (including,
without limitation, any evidenced by this note or the Line Facility
or by any Letter of Credit);
"Prime Advance" means any Advance that bears interest determined with
reference to the Prime Rate:
"Prime Rate" means that interest rate established from time to time
by Lender as Lender's Prime Rate, whether or not such rate is
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<PAGE>
publicly announced. The Prime Rate may not be the lowest interest
rate charged by Lender for commercial or other extensions of credit;
"Reserve Adjusted LIBOR Rate" means, with respect to any LIBOR
Advance, the rate per annum (rounded upwards to the next higher whole
multiple of 1/16% if such rate is not such a multiple) equal to the
quotient of (a) the rate per annum (rounded upwards to the next
higher whole multiple of 1/16% if such rate is not such a multiple)
at which deposits in United States dollars are offered at 11:00 a.m.
(London, England time) (or as soon thereafter as is reasonably
practicable) by prime banks in the London interbank eurodollar market
2 Business Days prior to the day such Advance is made in an amount
and with a maturity comparable to the amount and maturity of such
Advance, divided by (b) a number equal to 1.00 minus the aggregate
(without duplication) of the rates (expressed as a decimal fraction)
of the LIBOR Reserve Requirements current on the date 2 Business Days
prior to the day such Advance is made;
"Senior Debt to Cash Flow Ratio" means the ratio of (i) Company's
Obligations and any liabilities incurred under capitalized leases, to
(ii) the sum of Company's net income (after taxes paid in cash), plus
depreciation, plus amortization, plus interest expense. The Senior
Debt to Cash Flow Ratio shall be calculated on a quarterly basis;
"Subordinated Debt" shall mean Indebtedness of a Person which is
subordinated, in a manner satisfactory to the Lender, to all
Indebtedness owing to the Lender;
"Total Indebtedness" shall mean the total of all items of
indebtedness or liability which in accordance with generally accepted
accounting principles would be included in determining total
liabilities on the liability side of the balance sheet as of the date
of determination;
"UCC" means the Ohio Uniform Commercial Code, as amended.
Company, to the extent permitted by law, waives any right to have a
jury participate in resolving any dispute, whether sounding in contract,
tort, or otherwise, between Lender and Company arising out of, in
connection with, related to, or incidental to the relationship established
between Company and Lender in connection with this note or any other
agreement, instrument or document executed or delivered in connection
therewith or the transactions related thereto. This waiver shall not in any
way affect, waive, limit, amend or modify Lender's ability to pursue
remedies pursuant to any confession of judgment or cognovit provision
contained in this note, or any other agreement, instrument or document
related thereto.
WARNING: BY SIGNING THIS PAPER. YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS. FAULTY GOODS. FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT. OR ANY OTHER CAUSE.
6
<PAGE>
COMPANY: PUBCO CORPORATION
By:
--------------------------
Title:
--------------------------
And:
--------------------------
Title:
--------------------------
ADDRESS: 3830 Kelly Avenue
Cleveland, Ohio 44114
7
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, entered into as of
_______________, 1997, by and between the PUBCO CORPORATION (herein called
the "Pledgor") and KEY CORPORATE CAPITAL INC., a Michigan corporation having
an office at Cleveland, Ohio (herein called the "Lender");
W I T N E S S E T H:
In consideration of and in order to induce the Lender, at any time
and from time to time, at its option, to grant the Liabilities (as herein
defined) to Pledgor, and in further consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
SECTION ONE
THE PLEDGE
As security for the payment of the Liabilities, the Pledgor hereby
grants Lender a security interest in and pledges, assigns and sets over to
the Lender the Collateral (as herein defined), and in particular the items
listed in Exhibit A attached hereto and made a part hereof. Lender shall
not perfect the security interest pledged herein until and unless an Event
of Default (as defined therein) has occurred in the Liabilities or a breach
has occurred in any of the Loan Covenants contained in the Financing
Commitment, as may be amended from time to time.
The Pledgor will pledge and set over to the Lender, as further
security hereunder, any additional securities as and when acquired by the
Pledgor.
SECTION TWO
TERMS AND AGREEMENTS
Section 2.1. Definitions. The following terms, when used herein,
shall have the meanings stated.
(a) "Collateral" shall include any and all securities or other
property hereby or at any time hereafter pledged with the Lender by the
Pledgor and any replacement and proceeds thereof; and
(b) "Liabilities" shall mean loans in the maximum principal amount
of Ten Million Dollars ($10,000,000) made by Lender to Pledgor, which loans
are evidenced by an Amended and Restated Master Promissory Note of Pledgor
dated _______________, 1997, and any renewals, or rearrangements of the
above as the Lender and Pledgor may make.
(c) "Account" shall mean custodial account number 20-10-200-1123440
in which the collateral is held by Key Trust Company of Ohio, National
Association.
(d) "Financing Commitment" shall mean that Financing Commitment
issued by Lender to Borrower and dated _______________, 1997.
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Section 2.2. Warranty. The Pledgor warrants that the Pledgor is the
sole owner of the Collateral; that the Pledgor has full power and authority
to pledge the same; that all the securities comprised in the Collateral are
validly issued, fully paid and nonassessable; that the Collateral is, and
during the term hereof will remain, free and clear of al liens, charges,
encumbrances, pledges, assignments or transfers of any interest therein or
thereto (other than to the Lender or as permitted in the Promissory Note)
and the Pledgor warrants and will defend the Collateral against the claims
and demands of all persons whomsoever.
Section 2.3. Possession of Securities. The Pledgor warrants that
possession of all certificated securities comprising the Collateral pledged
hereby are in the possession of Key Trust Company of Ohio, National
Association ("Custodian") and held by Custodian for safekeeping as custodian
and registered in the name of Custodian for the benefit of Pledgor and all
book entry securities comprising the Collateral are registered in the name
of Custodian.
Section 2.4. Execution of Instruments. Pledgor shall execute such
instruments as Lender may request in order to assign or endorse to Lender
or its order the title to all the Collateral and will pay the transfer tax
or execute such exemption certificates with respect to such taxes as Lender
may determine are required with respect to any such transfer.
Section 2.5. Discharge of Pledge. If the whole amount of the
principal of, premium (if any) and interest on, the Liabilities shall have
been paid in full and the Lender shall not then have outstanding any
obligation to extend credit to, or acquire the obligations of, the Pledgor,
then, and in that event, all rights and interests assigned and pledged
hereby or pursuant hereto by the Pledgor shall revert to the Pledgor and the
right, title and interest of the Lender therein shall cease, determine and
be void and the Collateral belonging to the Pledgor shall be free and clear
of Lender's lien, and notice of such event shall be given by Lender to
Pledgor and Custodian.
Section 2.6. Acknowledgment of Custodian. At such time as set forth
in the letter agreement dated _______________, 1997, between Lender and
Pledgor, Pledgor shall have delivered to Lender an acknowledgment by
Custodian of the Pledge or security interest granted hereby and Custodian's
agreement to have said Pledge noted in its records, and to only release the
Collateral pursuant to the terms hereof, all in form and substance
acceptable to Lender.
Section 2.7. Reporting. At least once each month no later than the
fifteenth (15th) day of each month, Lender shall receive a list of the
assets held by Custodian as Collateral hereunder.
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<PAGE>
SECTION THREE
RIGHTS OF PLEDGOR
Section 3.1. Rights of the Pledgor Prior to Default. So long as
(i) the Collateral has a fair market value at least equal to 200% of the
outstanding principal balance of the Liabilities, (ii) the principal balance
of the Liabilities has not become due and payable, (iii) the interest on the
Liabilities is not past due, and (iv) the Pledgor has not become insolvent,
but not thereafter, the Pledgor shall have the right, from time to time, to
exercise all ownership rights, such as right to sell, reinvest in securities
of approximate equal fair market value, and to substitute for any Collateral
other securities of at least equal fair market value and comparable ratings.
The right of Pledgor to exercise the foregoing rights of ownership shall
be subject always to its obligation to maintain Collateral with a fair
market value not less than the sum of 200% of the outstanding principal
balance of the Liabilities. In the event said fair market value is not
maintained and not restored by delivery of additional Collateral within five
business days after notice thereof from Lender, all of Pledgor's rights of
ownership shall cease until the Collateral returns to said fair market
value. Furthermore, if a default of any of the Liabilities shall have
occurred, then during the continuance thereof, the Lender, in addition to
the other remedies hereunder provided, may disallow the distribution of all
such dividends to the Pledgor and, in its discretion, may vote or cause its
nominee to vote the shares of stock included in the Collateral. Pledgor
shall have the right from time to time to withdraw Collateral from the
Account as long as the fair market value of the remaining Collateral is not
less than 200% of the outstanding principal balance of the Liabilities. Any
request for withdrawal after perfection of Lender's interest in the
Collateral shall be evidenced by a certificate of Pledgor delivered to the
Lender and Custodian setting forth the outstanding principal balance of the
Liability and the fair market value of the Collateral as most recently
determined by Lender. The Lender shall have the right to obtain from
Custodian an accounting of the Fund in addition to the monthly report
furnished to the Pledgor, at such times as the Lender may reasonably believe
that unusual market conditions exist.
Section 3.2. No Right of Exoneration. The Pledgor hereby waives,
releases and discharges any right of exoneration which it may have with
respect to the Liabilities and also any right which it has or may have at
law, in equity, or by statute to require the Lender to pursue or otherwise
avail itself of any rights or remedies which the Lender has or may have
against any other person with respect to any other security at any time held
by the Lender for the payment of the Liabilities.
SECTION FOUR
RIGHTS OF THE BANK
Section 4.1. Rights of the Lender on Default of Payment of Any of
the Liabilities. In the event that any of the Liabilities shall have become
payable pursuant to the provisions thereof whether at maturity, by
declaration, or otherwise and the full amount of such Liabilities or any of
them shall not have been paid in full, all of Pledgor's rights of ownership
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<PAGE>
in the Collateral referred to in Section 3.1 hereof shall cease and the
Lender may forthwith apply any cash constituting a part of the Collateral
to the payment of the Liabilities ratably, and may collect or otherwise
realize upon any of the Collateral, or any part thereof. Without limiting
the generality of the foregoing, the Lender in making such realization may,
or by giving notice to Custodian to do so on its behalf, after ten (10)
days' written notice to the Pledgor, sell, assign or otherwise dispose of,
or give options to purchase, the Collateral through any exchange, broker's
board or elsewhere, for cash or credit, or for future delivery, without
assumption by the Lender upon any such sale or sales, public or private, to
purchase the whole or any part of the Collateral free from any right or
equity of redemption in the Pledgor or any one claiming through or under the
Pledgor, which right or equity or redemption in the Pledgor or any one
claiming through or under the Pledgor, which right or equity or redemption
is hereby expressly waived and released, and to apply the net proceeds of
such realization, after deducting all costs and expenses of every kind, to
the payment in full of the Liabilities. Any surplus shall be returned to
the Pledgor. The Pledgor waives, to the full extent permitted by law, all
rights of appraisement or valuation whether before of after sale.
Section 4.2. Right of the Lender to Deal With the Liabilities. The
Pledgor hereby grants to the Lender full power and authority, in the
Lender's uncontrolled discretion and without notice to the Pledgor, to deal
with the Liabilities or any of them, to the extent of the following powers:
(a) to grant any waiver or indulgence with respect to any of the
Liabilities; and to effect any release, compromise or settlement with
respect to any of the Liabilities;
(b) to waive, or enter into any agreement of forbearance with
respect to, any of the Liabilities, or with respect to all or any part of
any other security for any of the Liabilities at any time held by the
Lender, and to change the terms of any such waiver or agreement of
forbearance;
(c) to consent to the substitution, exchange or release of all or
any part of any other security at any time held for any of the Liabilities,
and in the case of a substitution or exchange, whether or not the new
security received by the Lender shall be the same or of a different
character or value from the security surrendered by the Lender; and
(d) to accelerate the maturity of any of the Liabilities in
accordance with the terms thereof.
No action which the Lender shall take or fail to take pursuant to the
foregoing powers shall operate to release the pledge hereby created. The
Pledgor shall have no right of recourse against the Lender by reason of any
action which the Lender may take or fail to take pursuant to the foregoing
powers.
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<PAGE>
SECTION FIVE
MISCELLANEOUS
Section 5.1. Persons Bound. This agreement benefits the Lender, its
successors and assigns, and binds the Pledgor and its successors and
assigns.
Section 5.2. Fair Market Value. All determinations as to the fair
market value of the Collateral to be made hereunder shall be made by Lender,
on a reasonable basis. The reasonable judgment of Lender as to the fair
market value of any Collateral shall be final and binding upon all persons
and Lender shall not be liable to any person for any loss resulting from the
exercise of such judgment in good faith.
Section 5.3. Governing Law. This Pledge Agreement shall be deemed
to be a contract made under and shall be construed in accordance with and
governed by the laws of the State of Ohio. This Pledge shall be interpreted
so as to fully comply with the provisions of Section 8-313 of the Uniform
Commercial Code or any comparable and applicable State Law.
Section 5.4. Notices. All notices hereunder shall be deemed to have
been sufficiently given or served for all purposes hereof, when delivered
or deposited in certified or registered U.S. Mail, postage prepaid, and
addressed to the Company at the address given below or at such other address
either party may have designated to the other in writing.
Pledgor: Pubco Corporation
3830 Kelly Avenue
Cleveland, Ohio 44114
Attn:
--------------------
Lender: Key Corporate Capital Inc.
127 Public Square
Cleveland, Ohio 44114
Attn: Manager, Structured Finance
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
executed as of the date first above written.
PUBCO CORPORATION
By:_________________________
Title:_________________________
And:_________________________
Title:_________________________
KEY CORPORATE CAPITAL INC.
a Michigan corporation
By:__________________________
Title:__________________________
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<PAGE>
EXHIBIT A
TO
PLEDGE AND SECURITY AGREEMENT
BY AND BETWEEN
PUBCO CORPORATION
AND
KEYBANK NATIONAL ASSOCIATION
Description of Collateral:
All securities now held or to be held in an account known as Pubco
Corporation Custodial Account No. 20-10-200-1123440, which securities are
held by Key Trust Company of Ohio, National Association ("Custodian")
pursuant to the terms of a Custodial Agreement between Pledgor and Custodian
dated July 16, 1996, a list of which securities currently held is attached
hereto as Exhibit A-1. This list may be updated and amended as securities
are sold, exchanged or substituted.
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EXHIBIT A-1
SECURITIES
8
<PAGE>
_______________, 1997
Key Trust Company of Ohio, National Association
127 Public Square
Cleveland, Ohio 44114
Attention:
-----------------------
RE: Account No. 20-10-200-1123440
Gentlemen/Ladies:
You are hereby notified that the undersigned (hereinafter referred to as
"Borrower") has granted Key Corporate Capital Inc. ("Lender") a security
interest in all securities (the "Securities") held from time to time under
the above-described account to collateralize all of its existing and future
liabilities to Lender. Please mark your books and records to reflect the
security interest of Lender in the securities.
Although the security interest was granted for purpose of security only, you
are hereby irrevocably authorized and empowered to deal with Lender as if
Lender were the sole beneficial owner of the securities. Without limiting
the generality of the foregoing provisions, the undersigned expressly agrees
with you as follows:
1. You are hereby irrevocably (a) authorized to honor all instructions
given to you by Lender in respect of the securities exactly as if
those instructions came from the undersigned and in each case to do
so without any inquiry into Lender's right to give you such
instructions, (b) instructed not to place orders for the purchase and
sale of the securities in the above described account without the
prior consent of Lender, and (c) instructed not to deliver the
securities or any portion thereof to the undersigned at any time
without in each case first obtaining Lender's written consent. You
are to furnish a copy of the monthly account statements to Lender by
sending such statements to Key Corporate Capital Inc., 127 Public
Square, Cleveland, Ohio 44114, Attention: Structured Finance
Department.
2. In the event the above account is terminated, for whatever reason, you
shall automatically and immediately give possession of all pledged
securities then held in the account to Lender.
3. Whenever you deliver any such securities or anything else to Lender,
you shall have no duty whatever to follow Lender's disposition of any
such item or any proceeds thereof. You shall be under no duty or
obligation to enforce any right which the undersigned or the
undersigned's heirs, executors, administrators, successors and
assigns may have against Lender or any person, corporation,
1
<PAGE>
partnership or association by reason of any property delivered by you
to Lender.
4. Notwithstanding the security interest granted to Lender, the
undersigned remains responsible and liable for all its obligations
and other liabilities, if any, to you.
5. The undersigned represents and warrants to you and Lender that the
undersigned is not subject to any limitations, prohibitions or
restrictions which would affect the validity and enforceability of
this letter agreement.
6. This letter shall not be amended, modified or revoked without the
prior written consent of Lender. This letter shall bind the
undersigned's heirs, executors, administrators, successors and
assigns and shall benefit Lender and its successors and assigns.
7. This letter is being executed and delivered to you in triplicate. If
you accept this letter please sign the form of acceptance below and
return one such copy to undersigned and forward another to Key
Corporate Capital Inc. at the address noted above.
In the Presence of:
PUBCO CORPORATION
By:
-------------------------
Title:
----------------------
And:
------------------------
Its:
------------------------
Lender hereby agrees that until you shall have been given written notice
from Lender that the indebtedness owed by Borrower or any part thereof has
not been paid in full upon demand, Lender shall have no right to vote the
securities held in the above account and Borrower shall continue to exercise
all such voting rights and be entitled to receive all cash dividends
pertaining to such securities.
KEY CORPORATE CAPITAL INC.
By:
-------------------------
Title:
----------------------
2
<PAGE>
ACKNOWLEDGMENT
Key Trust Company of Ohio, National Association ("Custodian"), as
Custodian of the Pubco Corporation ("Fund") under the Custody Agreement
("Custodial Agreement") between itself and Pubco Corporation ("Owner") dated
as of July 24, 1996, does herewith acknowledge the pledge of all of the
certain securities of said Fund by Owner to Key Corporate Capital Inc.
("Lender") pursuant to the terms and conditions of a Pledge and Security
Agreement dated _______________, 1997 ("Pledge"), a copy of which is
attached hereto as Exhibit "A" and incorporated herein, and agrees to hold
the Fund, until Custodian receives notice otherwise from Lender, subject to
the terms of the Pledge.
Custodian certifies that the Custodial Agreement is, as of the date
hereof, in full force and effect. Custodian further certifies that there
is nothing in the Custodial Agreement that prohibits the pledge of the
assets of the Fund.
Prior to execution of this Acknowledgment by Custodian, Owner shall
be permitted to deal with the Fund as it deems fit as provided in the
Pledge, including causing the disbursement of sums of money from the Fund.
After execution hereof by Custodian, thereby perfecting Lender's security
interest, Custodian agrees not to disburse any sum of money from the Fund
without the prior written consent of the Lender; provided Owner may exercise
such rights over the Fund as provided in the Pledge.
Custodian warrants and represents to Lender that it has marked its
books and records to reflect the Lender's security interest and pledge of
the securities held in the Fund to Lender and agrees to hold the securities
as agent for the Lender for the purpose of perfecting the Lender's security
interest in the securities. Custodian agrees to provide Lender a copy of
the monthly account statement that it provides to the Owner, which statement
will contain a list of assets in the Fund and a current valuation, and at
other reasonable times, upon request by Lender furnish Lender with an
unaudited report of Fund assets.
Upon execution by Custodian hereof, Custodian agrees that until it is
notified by Lender that the Pledge is no longer in effect, it shall hold the
assets of the Fund subject to Lender's security interest, and upon receipt
of written notice from Lender that it is entitled to receive proceeds from
the Owner, Custodian will proceed to the extent necessary to liquidate the
assets of the Fund in accordance with the terms of the Pledge and deliver
said proceeds to Lender. Lender agrees to indemnify and hold Custodian
harmless for any such actions taken by Custodian in good faith at the
direction of Lender.
All notices to Lender shall be given by certified mail to:
Key Corporate Capital Inc.
127 Public Square
Cleveland, Ohio 44114
Attn: Structured Finance
1
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement by
its duly authorized officers as of the ____ day of ____________, 1997.
CUSTODIAN: BANK:
KEY TRUST COMPANY OF OHIO, KEY CORPORATE CAPITAL INC.
NATIONAL ASSOCIATION
By: By:
---------------------------- ---------------------------
Title: Title:
------------------------- ------------------------
Consented to By:
PUBCO CORPORATION
By:
----------------------------
Title:
-------------------------
2
<PAGE>
EXHIBIT 10.31
<PAGE>
SECOND AMENDED AND RESTATED
MASTER PROMISSORY NOTE
WHEREAS, Ribbons, Inc. executed and delivered to Ameritrust Company
National Association ('Ameritrust') a Promissory Grid Note dated June 2,
1986, in the maximum principal amount of Three Million Five Hundred Thousand
Dollars ($3,500,000) (the 'Note');
WHEREAS, as security for the indebtedness evidenced by the Note,
Ribbons, Inc. executed a certain Security Agreement in favor of Ameritrust
dated May 28, 1985, as amended by an Amendment to Security Agreement dated
June 2, 1986 and an Amendment to Security Agreement dated August 5, 1993 (as
amended, the 'Security Agreement');
WHEREAS, Buckeye Business Products, Inc. is successor by a series of
mergers and name changes to Ribbons, Inc.;
WHEREAS, PUBCO CORPORATION ('Company') is successor by merger to
Buckeye Business Products, Inc. and KEYBANK NATIONAL ASSOCIATION (formerly
known as Society National Bank) ('KeyBank') is successor by merger to
Ameritrust; and
WHEREAS, Company and KeyBank entered into that certain Amended and
Restated Master Promissory Note dated as of November 14, 1996, (the "Amended
Note") which Amended Note was assigned to Lender;
WHEREAS, the business operations of the former Buckeye Business
Products, Inc. are currently conducted as a division of Company known as
Buckeye Business Products Inc. (the "Buckeye Division"), and separate books
and records, including financial records, are maintained therefor.
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein, the Company and Lender hereby mutually
agree that the Amended Note shall be further amended and restated in its
entirety as follows:
$2,500,000.00 Cleveland, Ohio, ____________, 1997
On demand after the date of this Note, for value received, Company
promises to pay to the order of Lender at any of its offices the principal
amount of each Advance, together with interest on the daily principal
balance of such Advance at a rate per annum equal to the Interest Rate
applicable to such Advance. The principal amount of each Advance shall be
due and payable to Lender upon demand. Issued and outstanding letters of
credit issued by Lender on the account of the Buckeye Division shall not
exceed Five Hundred Thousand Dollars ($500,000). Accrued interest on each
LIBOR Advance shall be due and payable on the Maturity Date applicable to
such Advance. Accrued interest on each Prime Advance shall be due and
payable on the first day of each month. During any Event of Default, the
daily principal balance of each Advance shall bear interest at a rate per
annum equal to the Default Interest Rate. Except during any Event of
Default, no LIBOR Advance may be repaid prior to its Maturity Date.
1
<PAGE>
This note shall serve as a master note to evidence all Advances;
provided, however, that the aggregate unpaid principal amount of all
Advances shall not at any one time outstanding exceed (a) the amount
specified in the Line Facility, or (b) the Borrowing Base, whichever is
less. Company shall provide a Borrowing Base Certificate to Lender
monthly. In the absence of reasonable evidence established by Company to
the contrary, Lender's records as to (a) the principal amount, the Maturity
Date, and the Interest Rate applicable to each Advance, and (b) each payment
of principal and interest received by Lender applicable to each Advance
shall be conclusively deemed to be accurate.
This note is being executed and delivered as an amendment to and
restatement of an existing Amended and Restated Master Promissory Note and
dated November 14, 1996, and the execution and delivery of this note shall
not constitute a novation and shall not terminate or otherwise affect the
first lien and security interest of Lender in the Buckeye Division's
property.
For each payment of principal or interest not received by Lender
when due, the Company agrees to pay Lender a late charge equal to the
greater of ten percent (10%) of the amount of the payment or twenty five
dollars ($25.00).
Company waives presentment, demand, notice, protest, and all other
demands and notices in connection with delivery, acceptance, performance,
default, or enforcement of this note. Any request, demand, or notice by or
on behalf of Lender, when delivered or deposited for delivery, postage
prepaid, by certified United States mail to Company at Company's address set
forth below shall constitute, but shall not preclude other means of, an
effective request, demand, or notice. Any request, demand, or notice by or
on behalf of Company must be in writing and shall not be effective until
delivered to Lender at Lender's address set forth below.
At the option of Lender during any Event of Default, all Obligations
shall become immediately due and payable, Lender may terminate the Line
Facility (including, without limitation, any obligation of Lender to make
any further Advances), and Lender may direct KeyBank to apply or setoff any
Cash Security against all Obligations and pay such amounts to Lender, all
without any notice to or demand upon Company, in addition to any other
rights and remedies Lender may have pursuant to law, this note, or any
other instruments or agreements, which rights and remedies shall be
cumulative. If during any Event of Default any LIBOR Advance becomes due
and payable and is repaid prior to its Maturity Date, Company also promises
to reimburse Lender on demand for any resulting loss, cost, or expense
incurred by Lender as a result of Company's repayment of such LIBOR Advance
prior to its Maturity Date including, without limitation, any loss incurred
in obtaining, liquidating, or employing deposits from third parties, but
excluding loss of margin for the period after any such payment. If, because
of the introduction of or any change in, or because of any judicial,
administrative, or other governmental interpretation of, any law or
regulation, there shall be any increase in the cost to Lender of making,
funding, maintaining, or allocating capital to any LIBOR Advance, then
Company shall, from time to time upon demand by Lender, pay to Lender
additional amounts sufficient to compensate Lender for such increased cost.
2
<PAGE>
If, because of the introduction of or any change in, or because of any
judicial, administrative, or other governmental interpretation of, any law
or regulation, it becomes unlawful for Lender to make, fund, or maintain
any LIBOR Advance, then Lender's obligation to make, fund, or maintain any
LIBOR Advance shall terminate and each affected outstanding LIBOR Advance
shall be converted to a Prime Advance on the earlier of the applicable
Maturity Date for each such LIBOR Advance or the date the making, funding,
or maintaining of each such LIBOR Advance becomes unlawful.
All provisions hereof shall be subject to, governed by, and construed
in accordance with Ohio law. Unenforceability of any provision hereof or
any application of any provision hereof shall not affect the enforceability
of any other provision or application of any provision. Any amendment or
waiver hereof or any waiver of any right or remedy otherwise available must
be in writing and signed by the party against whom enforcement of the
amendment or waiver is sought. After all Obligations evidenced by this note
become due and payable, any attorney-at-law is irrevocably authorized to (a)
appear for Company in any state or federal court of record, (b) waive the
issuance and service of process, all errors, and all rights of appeal and
stay of execution, and (c) confess judgment against Company in favor of
Lender for the principal balance of this note, the amount of all unpaid
accrued interest, the amount of all costs of suit, and the amount of a
reasonable attorney's fee. These authorizations shall survive any
judgment(s) and any vacation of any judgment(s). Company agrees that the
lender's attorney may confess judgment pursuant to the foregoing warrant
of attorney. Company further agrees that the attorney confessing judgment
pursuant to the foregoing warrant of attorney may receive a legal fee or
other compensation from the Lender.
Company agrees to reimburse Lender for any and all out-of-pocket
costs, fees and expenses incurred in connection with this Note, including,
without limitation, attorneys' fees.
For the purposes of this note:
'Advance' means any loan advance made by Lender to the Buckeye
Division pursuant to the Line Facility;
'Borrowing Base' means an amount not in excess of the sum of the
following:
(a) eighty-five percent (85%) of the amount due and owing on
Qualified Accounts Receivable, plus
(b) the lesser of (1) forty percent (40%) of the cost or
market value (whichever is lower) of Company's Qualified
Inventory or (2) One Million Dollars ($1,000,000), less
(c) balance of outstanding letters of credit, if any;
'Borrowing Base Certificate' shall mean a certificate, substantially
in the form of attached Exhibit A;
'Business Day' means a day of the year on which National Banks are
not required or authorized to close in Cleveland, Ohio and, if the
applicable Business Day relates to any LIBOR Advance, on which
dealings are carried on in the London interbank eurodollar market;
3
<PAGE>
'Cash Security' means any present or future (a) money in the
possession of Lender in which the Buckeye Division has or may have
any right, title, or interest, (b) Deposit Account maintained with
KeyBank in which the Buckeye Division has or may have any right,
title or interest, or (c) Instrument or General Intangible issued or
assumed by Lender or KeyBank in which the Buckeye Division has or
may have any right, title, or interest;
'Company' means the undersigned and its successors and assigns;
provided, however, that Company may not assign or otherwise transfer
any of its rights under this note without the express written consent
of Lender;
'Default Interest Rate' means that floating rate per annum
(calculated on the basis of a year of 360 days for the actual number
of days elapsed) equal to the greater of three percent (3%) in excess
of the Prime Rate, which rate shall be immediately adjusted to
correspond with each change in the Prime Rate, or sixteen percent
(16%);
'Deposit Account' shall be defined as set forth in Article 9 of the
UCC;
'Event of Default' means any of the following events or conditions:
(a) any Obligation evidenced by this note or the Line Facility is
not paid when such Obligation becomes due and payable; (b) any
Obligation not evidenced by this note or the Line Facility is not
paid when (or within any applicable grace period after) such
Obligation becomes due and payable; (c) any material representation,
warranty, certification, financial statement, loan application,
information, or record made, furnished, or made available to Lender
by or on behalf of Company in connection with any Obligation is
inaccurate or misleading in any material respect when made,
furnished, or made available; (d) any material provision of any
documentation evidencing, securing, or otherwise relating to any
Obligation is breached; (e) Company (1) is adjudicated by any court
in any jurisdiction to be insolvent, (2) ceases, is unable, or admits
in writing the inability to generally pay its debts as they become
due, (3) makes any general assignment for the benefit of its
creditors, (4) applies for or consents to the appointment of or the
taking of possession by any receiver, custodian, trustee, liquidator,
or similar representative of or for it or of or for any material part
of its property, or (5) commences or consents to the commencement of
any case or proceeding with respect to it or any material amount of
its property pursuant to any Insolvency Law; (f) any case or
proceeding pursuant to any Insolvency Law is commenced against or
with respect to Company or any material amount of its property
without its consent which is not dismissed or stayed within 30 days
after its commencement; (g) any judgment, attachment, execution, or
similar process aggregating in excess of $1,000,000 is rendered,
issued, or levied against Company or any material amount of its
property and is not fully satisfied, released, vacated, or bonded
within 30 days after its rendering, issue, or levy; and (h) Company
ceases to maintain separate books and records, including financial
records, for the Buckeye Division.
4
<PAGE>
'General Intangible' shall be defined as set forth in Article 9 of
the UCC;
'Insolvency Law' means any reorganization, arrangement, composition,
or readjustment of debts, bankruptcy, insolvency, dissolution,
liquidation, receivership, trusteeship, or similar law of any state
or the United States;
'Instrument' shall be defined as set forth in Article 9 of the UCC;
'Interest Rate' means (a) as to any Prime Advance, that floating rate
per annum (calculated on the basis of a year of 360 days for the
actual number of days elapsed) equal to the Prime Rate, which rate
shall be immediately adjusted to correspond with each change in the
Prime Rate, and (b) as to any LIBOR Advance, that fixed rate per
annum (calculated on the basis of a year of 360 days for the actual
number of days elapsed) equal to two percent (2%) in excess of the
Reserve Adjusted LIBOR Rate;
'Inventory' means:
(a) any of the Buckeye Division inventory;
(b) all goods of the Buckeye Division that are raw materials;
(c) all goods of the Buckeye Division that are work in
process;
(d) all goods of the Buckeye Division that are materials used
or consumed in the ordinary course of the business of the
Buckeye Division;
(e) all goods of the Buckeye Division that are, in the
ordinary course of Company's business, held for sale or lease
or furnished or to be furnished under contracts of service; and
(f) all substitutes and replacements for, and parts,
accessories, additions, attachments, or accessions to (a) to
(e) above;
'KeyBank' means KeyBank National Association, a national banking
association whose principal office is located at 127 Public Square,
Cleveland, Ohio 44114;
'Lender' shall mean Key Corporate Capital, Inc., a Michigan
corporation and a subsidiary of KeyBank whose principal office is
located at 127 Public Square, Cleveland, Ohio 44114;
'Letter of Credit' means any outstanding letter of credit issued by
Lender on the account of the Buckeye Division;
'LIBOR Advance' means any Advance that bears interest determined with
reference to the Reserve Adjusted LIBOR Rate;
'LIBOR Reserve Requirements' means, for any LIBOR Advance, the
maximum reserves (whether basic, supplemental, marginal, emergency,
or otherwise) prescribed by the Board of Governors of the Federal
Reserve System (or any successor) with respect to liabilities or
assets consisting of or including 'Eurocurrency liabilities' (as
5
<PAGE>
defined in Regulation D of the Board of Governors of the Federal
Reserve System) having a term equal to the term of such Advance;
'Line Facility' means the line of credit held available by Lender
for Company evidenced by this note, together with all extensions,
renewals, amendments, restatements, and substitutions thereof or
therefor, the provisions of which are hereby incorporated by
reference as if fully rewritten herein;
'Maturity Date' means the earlier of (a) the date Lender demands
payment of any or all of the Obligations or such other date that all
Obligations evidenced by this note become due and payable or (b) with
respect to any LIBOR Advance, the date selected by Company that ends
one, two or three months after the date of the making of such
Advance;
'Obligation' means any present or future obligation, indebtedness, or
liability of Company for the Buckeye Division owed to Lender of
whatever kind and however evidenced, together with all extensions,
renewals, amendments, restatements and substitutions thereof or
therefor (including, without limitation, any evidenced by this note
or the Line Facility);
'Prime Advance' means any Advance that bears interest determined with
reference to the Prime Rate;
'Prime Rate' means that interest rate established from time to time
by Lender as Lender's Prime Rate, whether or not such rate is
publicly announced. The Prime Rate may not be the lowest interest
rate charged by Lender for commercial or other extensions of credit;
'Qualified Account Receivable' means any account receivable generated
by the Buckeye Division which, at all times until it is collected in
full, continuously meets the following requirements:
(a) is not subject to any claim for credit, allowance, or
adjustment by the account debtor or any set off or counter
claim,
(b) arose in the ordinary course of the business of the
Buckeye Division from the performance (fully completed) of
services or bona fide sale of goods which have been shipped to
the account debtor, and not more than ninety (90) days have
elapsed since the performance (fully completed) of services or
the sale of goods for or to the account debtor,
(c) no notice of the financial impairment of the account
debtor has been received by Company,
(d) is not subject to an assignment, pledge, claim, mortgage,
lien, or security interest of any type except that granted to
or in favor of Lender,
(e) account debtor has not rejected, returned, revoked
acceptance of, or refused to accept any of the goods which are
the subject of the account receivable,
(f) Company has not received any instrument or chattel paper
with respect to or in payment of the account receivable, and
6
<PAGE>
(g) Lender has not determined that the account receivable is
unsatisfactory in any respect;
'Qualified Inventory' means all Inventory allocated to the Buckeye
Division, except Inventory which is:
(a) located outside the United States;
(b) in the possession of a bailee or a third party;
(c) work in process;
(d) damaged, defective, or obsolete;
(e) held by Company or a third party on consignment; or
(f) Lender has determined that the Inventory is
unsatisfactory in any respect;
'Reserve Adjusted LIBOR Rate' means, with respect to any LIBOR
Advance, the rate per annum (rounded upwards to the next higher whole
multiple of 1/16% if such rate is not such a multiple) equal to the
quotient of (a) the rate per annum (rounded upwards to the next
higher whole multiple of 1/16% if such rate is not such a multiple)
at which deposits in United States dollars are offered at 11:00 a.m.
(London, England time) (or as soon thereafter as is reasonably
practicable) by prime banks in the London interbank eurodollar market
two (2) Business Days prior to the day such Advance is made in an
amount and with a maturity comparable to the amount and maturity of
such Advance, divided by (b) a number equal to 1.00 minus the
aggregate (without duplication) of the rates (expressed as a decimal
fraction) of the LIBOR Reserve Requirements current on the date two
(2) Business Days prior to the day such Advance is made;
'UCC' means the Ohio Uniform Commercial Code, as amended.
Company, to the extent permitted by law, waives any right to have a
jury participate in resolving any dispute, whether sounding in contract,
tort, or otherwise, between Lender and Company arising out of, in
connection with, related to, or incidental to the relationship established
between Company and Lender in connection with this note or any other
agreement, instrument or document executed or delivered in connection
therewith or the transactions related thereto. This waiver shall not in any
way affect, waive, limit, amend or modify Lender's ability to pursue
remedies pursuant to any confession of judgment or cognovit provision
contained in this note, or any other agreement, instrument or document
related thereto.
7
<PAGE>
WARNING: BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
COMPANY: PUBCO CORPORATION
By:
--------------------------
Title:
--------------------------
And By:
--------------------------
Title:
--------------------------
ADDRESS: 3830 Kelly Avenue
Cleveland, Ohio 44114
8
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Certificate No. _________________
Computed as of: _________________
I, the undersigned, the ______________ of Pubco Corporation (the 'Company'),
do hereby certify pursuant to the Second Amended and Restated Master
Promissory Note executed by Company and dated _____________, 1997 (the
'Note'), that the following computations have been made in accordance with
the provisions of the Note and without duplication or overlap:
1. Qualified Accounts Receivable, as
defined in the Note $__________
Total Accounts Receivable of the
Buckeye Division $__________
Less Accounts Receivable of the Buckeye
Division Not Qualified $__________
Total Qualified Accounts Receivable $__________
85% of Qualified Accounts Receivable
2. Qualified Inventory, as defined in the
Note (cost or market value, whichever
is lower).
Total Qualified Inventory $__________
40% of Qualified Inventory but not more
than $1,000,000. $__________
3. Lesser of Borrowing Base (Total of Nos.
1 and 2) $_____________ or Company's
Line of Credit Limit $2,500,000, less
the balance of outstanding letters of
credit, if any $__________
Advances Outstanding $__________
1
<PAGE>
Other Obligations owed Lender $__________
Total Obligations $__________
Borrowing Base Over/Under $__________
I further certify that as of the date of this Borrowing Base Certificate:
(a) No Event of Default, as defined in the Note, and no event
which, but for a requirement of giving of notice or passage of
time, or both, would constitute such an Event of Default has
occurred or is continuing;
(b) The Buckeye Division has places of business or maintains
Inventory only at the following locations: 3830 Kelly Avenue,
Cleveland, Ohio 44114;
(c) The Buckeye Division keeps all of its records pertaining to
accounts and contract rights, at Company's office located at:
3830 Kelly Avenue, Cleveland, Ohio 44114;
(d) The principal place of business of the Buckeye Division: 3830
Kelly Avenue, Cleveland, Ohio 44114;
(e) Each representation and warranty made by Company to Lender in
the Agreement is true and correct as if made on the date of
this Borrowing Base Certificate.
Dated this ___ day of ______________, l9___.
PUBCO CORPORATION
By:________________________
Title:_____________________
2
<PAGE>
EXHIBIT 21
PUBCO CORPORATION
Subsidiaries of the Registrant
The Company directly or indirectly owns 100% of the capital stock of
the following significant subsidiaries:
Subsidiaries State of Incorporation
Buckeye Business Products, Inc., Division
Aspen Imaging International, Inc. Delaware
Kroy LLC Nevada
The Company owns an indirect 85% plus interest in Allied Construction
Products, Inc., a Delaware corporation.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT 12/31/97 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED 12/31/97 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,720
<SECURITIES> 25,661
<RECEIVABLES> 8,480
<ALLOWANCES> 931
<INVENTORY> 11,000
<CURRENT-ASSETS> 49,900
<PP&E> 17,244
<DEPRECIATION> 11,172
<TOTAL-ASSETS> 85,946
<CURRENT-LIABILITIES> 19,423
<BONDS> 0
0
1
<COMMON> 38
<OTHER-SE> 42,010
<TOTAL-LIABILITY-AND-EQUITY> 85,946
<SALES> 53,902
<TOTAL-REVENUES> 53,902
<CGS> 37,510
<TOTAL-COSTS> 37,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,437
<INCOME-TAX> (3,955)
<INCOME-CONTINUING> 10,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,224
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
</TABLE>
