<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended DECEMBER 26, 1997
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Commission file number 0-20287
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NU-KOTE HOLDING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-1296153
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17950 PRESTON ROAD, SUITE 690, DALLAS, TEXAS 75252
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(Address of principal executive offices (Zip Code)
(972) 250-2785
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -------
Number of shares of common stock of registrant outstanding at February 5,
1998:
Class Outstanding
----- -----------
Class A common stock $.01 par value 21,775,302
1
<PAGE>
NU-KOTE HOLDING, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets as of
December 26, 1997 and March 31, 1997 3
Consolidated Statements of Operations and Retained
Earnings (Accumulated Deficit) for the Three
Month Periods Ended December 26, 1997 and
December 27, 1996 4
Consolidated Statements of Operations and Retained
Earnings (Accumulated Deficit) for the Nine
Month Periods Ended December 26, 1997 and
December 27, 1996 5
Consolidated Statements of Cash Flows for the Nine
Month Periods Ended December 26, 1997
and December 27, 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II - OTHER INFORMATION
Other Information 23
Signature Page 25
</TABLE>
2
<PAGE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 26, March 31,
1997 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,683 $ 12,275
Accounts receivable, net 55,357 71,024
Receivables from related party 3,249 3,694
Inventories, net 87,238 93,770
Prepaid expenses 8,982 10,452
Deferred income taxes 180 1,573
--------- ---------
Total current assets 166,689 192,788
Property, plant, and equipment, net 70,120 75,683
Other assets and deferred charges 7,281 4,386
Assets held for sale 2,959 4,482
Intangibles, net 15,480 19,698
--------- ---------
Total assets $ 262,529 $ 297,037
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans, current maturities of long-term debt and
long-term debt subject to acceleration $ 144,558 $ 1,135
Accounts payable 38,331 51,035
Compensation related liabilities 4,734 6,500
Other accrued liabilities 44,181 37,726
--------- ---------
Total current liabilities 231,804 96,396
Long-term debt, net of current maturities and portion subject
to acceleration 134,677
Other liabilities 8,912 9,995
Deferred income taxes 6,307 6,541
--------- ---------
Total liabilities 247,023 247,609
--------- ---------
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued
Class A common stock, $.01 par value, 40,000,000 shares
authorized; 22,325,302 shares issued; 21,775,302 shares
outstanding 223 223
Class B common stock, $.01 par value, 15,000,000 shares
authorized; none issued
Additional paid-in capital 92,610 91,605
Accumulated deficit (68,130) (36,610)
Foreign currency translation adjustments (8,971) (5,564)
Treasury stock, at cost, 550,000 shares (226) (226)
--------- ---------
Total shareholders' equity 15,506 49,428
--------- ---------
Total liabilities and shareholders' equity $ 262,529 $ 297,037
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE THREE MONTH PERIODS ENDED DECEMBER 26, 1997
AND DECEMBER 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 70,755 $ 82,923
Cost of sales 61,140 67,568
------------- -------------
Gross margin 9,615 15,355
Selling, general and administrative expenses 14,158 15,387
Research and development expenses 1,505 2,517
Provision for loss on sale of division 4,061
Restructuring expense 488 2,031
------------- -------------
Operating loss (10,597) (4,580)
Interest expense 3,513 1,990
Other expense items, net 85 158
------------- -------------
Loss before income taxes (14,195) (6,728)
Provision (benefit) for income taxes 785 (2,699)
------------- -------------
Net loss (14,980) (4,029)
Retained earnings (accumulated deficit) -
Beginning of period (53,150) 12,505
------------- -------------
Retained earnings (accumulated deficit) - End
of period $ (68,130) $ 8,476
------------- -------------
------------- -------------
Net loss per share of common stock (basic and
diluted) (0.69) $ (0.19)
------------- -------------
------------- -------------
Weighted average shares outstanding 21,775,302 21,775,302
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE NINE MONTH PERIODS ENDED DECEMBER 26, 1997
AND DECEMBER 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 223,170 $ 256,621
Cost of sales 185,224 195,331
------------- -------------
Gross margin 37,946 61,290
Selling, general and administrative expenses 42,932 48,413
Research and development expenses 5,123 7,648
Provision for loss on sale of division 4,061
Restructuring expense 3,305 7,811
------------- -------------
Operating loss (17,475) (2,582)
Interest expense 10,090 6,014
Other (income) expense items, net 278 (935)
------------- -------------
Loss before income taxes and extraordinary item (27,843) (7,661)
Provision (benefit) for income taxes 1,127 (3,095)
------------- -------------
Loss before extraordinary item (28,970) (4,566)
Extraordinary item arising from early
extinguishment of debt (2,550)
------------- -------------
Net loss (31,520) (4,566)
Retained earnings (accumulated deficit) -
Beginning of period (36,610) 13,042
------------- -------------
Retained earnings (accumulated deficit) - End
of period $ (68,130) $ 8,476
------------- -------------
------------- -------------
Net loss per share of common stock (basic and diluted):
Loss before extraordinary item $ (1.33) $ (0.21)
Extraordinary item (0.12)
------------- -------------
Net loss $ (1.45) $ (0.21)
------------- -------------
------------- -------------
Weighted average shares outstanding 21,775,302 21,764,239
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED DECEMBER 26, 1997
AND DECEMBER 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
December 26, December 27,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (31,520) $ (4,566)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Extraordinary loss from early
extinguishment of debt 2,550
Provision for loss on sale of division 4,061
Exchange gains (204) (1,066)
Depreciation and amortization 10,459 9,849
Deferred income taxes 1,159 (82)
Tax benefit from exercise of stock
options 75
Other (3,547) (5,187)
Changes in working capital:
Accounts receivable 14,288 24,293
Inventories 4,638 6,594
Prepaid expenses 1,470 (3,528)
Accounts payable (10,300) (4,725)
Compensation related liabilities (1,766) (7,242)
Other accrued liabilities 10,197 (6,429)
Cash paid for restructuring (3,742) (8,572)
------------- -------------
Net cash used in operating
activities (2,257) (586)
------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,381) (8,065)
Sale of property, plant and equipment 2,699 715
------------- -------------
Net cash used in investing
activities (1,682) (7,350)
------------- -------------
Cash flows from financing activities:
Borrowings on long-term debt and other
loans 21,463 100,139
Payments on long-term debt and other loans (13,290) (91,632)
Payments of financing costs (2,559)
Exercise of stock options 338
------------- -------------
Net cash provided by financing
activities 5,614 8,845
------------- -------------
Effect of exchange rate changes on cash (2,267) (2,782)
------------- -------------
Net decrease in cash (592) (1,873)
Cash and cash equivalents at beginning of
period 12,275 6,540
------------- -------------
Cash and cash equivalents at end of period $ 11,683 $ 4,667
------------- -------------
------------- -------------
Excluded from the consolidated statements of
cash flows was the effect of non-cash
financing activities related to the
issuance of stock warrants $ 1,005
-------------
-------------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
6
<PAGE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
Nu-kote Holding, Inc. ("Nu-kote") and its wholly-owned subsidiaries
are referred to collectively as the "Company". The Company is an
independent manufacturer and distributor of impact and non-impact
imaging supplies for office and home printing devices, including
the manufacture and distribution of typewriter and printer ribbons,
thermal fax ribbons, cartridges and toners for laser printers,
facsimile machines and copiers, cartridges and ink for ink jet
printers, specialty papers, calculator ink rolls, and carbon paper.
The Company sells products primarily in the United States and
Europe, directly to wholesale and retail markets, and also to
original equipment manufacturers and distributors for resale under
their brand names or private labels. The Company distributes
through major office supply marketing channels, including wholesale
distributors, office products dealers, direct mail catalogs, office
supply "super stores", warehouse clubs, information processing
specialists, value added resellers, and mass market retailers.
The consolidated balance sheet as of December 26, 1997 and the
related consolidated statements of operations and retained earnings
(accumulated deficit) for the three and nine month periods and
consolidated statements of cash flows for the nine month periods
ended December 26, 1997 and December 27, 1996 are unaudited.
However, in the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair
presentation of such financial statements have been included.
Interim results are not necessarily indicative of results for a
full year.
The financial statements and notes are presented as permitted by
Form 10-Q, and do not contain all financial disclosures and details
included in the Company's annual financial statements and notes.
2. NET LOSS PER SHARE OF COMMON STOCK
Effective with its financial statements for the period ended
December 26, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which
establishes standards for computing and presenting earnings per
share. Basic and diluted net loss per share of common stock are the
same and, therefore, are not shown separately.
7
<PAGE>
3. ACCOUNTS RECEIVABLE
Accounts receivable are reflected net of allowances for doubtful
accounts of $5,404 and $3,741 at December 26, 1997 and March 31,
1997, respectively.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 26, March 31,
1997 1997
------------- ------------
<S> <C> <C>
Raw materials $ 37,645 $ 36,847
Work-in-process 13,496 12,354
Finished goods 36,097 44,569
------------- ------------
Total $ 87,238 $ 93,770
------------- ------------
------------- ------------
</TABLE>
Since physical inventories taken during the year do not necessarily
coincide with the end of a quarter, management has estimated the
composition of inventories with respect to raw materials,
work-in-process and finished goods. It is management's opinion that
this estimate represents a reasonable approximation of the
inventory levels at December 26, 1997. The amounts at March 31,
1997 are based upon the audited balance sheet at that date.
Effective December, 1997, the Company engaged the management
consulting firm of Glass and Associates, Inc. ("Glass") to provide
interim management services and to assist the Company to the extent
possible in finding solutions to its current operating issues.
Accordingly, Glass will be evaluating methods of optimizing the
utilization of inventory to generate cash for the operation of
the business. This may include the sale of inventory outside of
the ordinary course of business. The Company has not completed
its assessment of its options with respect to its inventory.
Accordingly, no additional provision for any write-downs that
may result has been recorded as of December 26, 1997.
8
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following components:
<TABLE>
<CAPTION>
December 26, March 31,
1997 1997
------------- ------------
<S> <C> <C>
Land $ 4,477 $ 4,477
Buildings and improvements 19,417 19,417
Machinery and equipment 82,280 80,490
------------- ------------
106,174 104,384
Less accumulated depreciation (36,054) (28,701)
------------- ------------
Total $ 70,120 $ 75,683
------------- ------------
------------- ------------
</TABLE>
Depreciation expense amounted to $2,855 and $2,486 for the three month
periods and $8,284 and $7,656 for the nine month periods ended December
26, 1997 and December 27, 1996, respectively.
6. INTANGIBLE ASSETS
Intangible assets consist of amounts allocated as a result of purchases
of existing businesses and are summarized as follows:
<TABLE>
<CAPTION>
Amortization December 26, March 31,
Period 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Goodwill 20 years $ 6,176 $ 9,880
Covenants-not-to-compete 3-5 years 5,636 5,636
Trademark 40 years 9,269 9,269
Technology license 8 years 1,272 1,272
------------- -------------
22,353 26,057
Less accumulated amortization (6,873) (6,359)
------------- -------------
Total $ 15,480 $ 19,698
------------- -------------
------------- -------------
</TABLE>
Covenant-not-to-compete agreements have been recorded at their net
present value using estimated discount rates of 7% and 16%. The
trademark has been recorded at its estimated value based upon royalty
rates charged for its use, discounted at an estimated rate of return of
35%. The technology license has been recorded at its estimated fair
value based on forecasted discounted cash flows using a 16% discount
rate.
As described in Note 12, the Company sold the components division of
Future Graphics, Inc. As a result, the unamortized goodwill associated
with the original acquisition of Future Graphics, Inc. amounting to
$2,826 was written off.
9
<PAGE>
7. LINE OF CREDIT
The Company has a line of credit in Colombia in the amount of $1,450.
Borrowings against the line of credit amounted to $338 and $603 at
December 26, 1997 and March 31, 1997, respectively. The line bears
interest at the prevailing Colombian interest rate plus 2 percentage
points. Average interest rates at December 26, 1997 and March 31, 1997
were 17.0% and 17.5%, respectively.
8. LONG-TERM DEBT
As of and for the quarter ended December 26, 1997, the Company was
in violation of certain financial covenants related to the
Company's credit agreement dated July 31, 1997. Effective December
31, 1997, the Company and its lenders entered into an amendment and
waiver to the aforementioned credit agreement. The amendment and
waiver provided, among other things, the following:
- Waived for the period from December 31, 1997 through April 2, 1998
violations of certain financial covenants as of and for the quarter
ended December 26, 1997 and violations of certain financial
covenants for January and February 1998;
- Deferred the mandatory principal reduction of $2,500 due on January
2, 1998 to April 1, 1998;
- Restricted the Company from making intercompany loans and
investments in certain subsidiaries; and
- Required the Company to use all proceeds from the sale of assets as
a permanent reduction of the revolving credit commitment under the
credit agreement.
As the amendment and waiver provided for the waiver of financial
covenant violations only through April 2, 1998 and there is no
certainty the lenders will grant future waivers, the portion of the
debt that would be long-term pursuant to the terms of the credit
agreement has been classified as a current liability and is
reported as long-term debt subject to acceleration.
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
December 26, March 31,
1997 1997
------------- ------------
<S> <C> <C>
Revolving lines of credit $ 143,333 $ 133,917
Other items 887 1,292
------------- ------------
144,220 135,209
Less current portion (10,000) (532)
Less portion subject to acceleration (134,220)
------------- ------------
Long-term debt, net of current portion $ - $ 134,677
------------- ------------
------------- ------------
</TABLE>
10
<PAGE>
9. INCOME TAXES
Following are the approximate effective blended tax rates for
significant jurisdictions:
North America 40 %
Switzerland 22 %
Germany 64 %
United Kingdom 33 %
The above resulted in a worldwide effective blended tax rate of 41%
and 42% for the three and nine month periods ended December 26,
1997, respectively. For the nine months ended and quarter ended
December 26, 1997, no tax benefit has been provided with respect to
any jurisdiction as it is currently not considered more likely than
not that resulting deferred tax assets will be realized.
Additionally, for the three and nine month periods ended December
26, 1997, a provision has been made in the amount of $785 and
$1,127, respectively, for income taxes in certain foreign
jurisdictions.
10. CONTINGENCIES
On January 23, 1998 a class action suit was filed by a shareholder
against Nu-kote Holding, Inc., its current directors, certain of
its current officers and certain former officers and directors in
the United States District Court for the Northern District of
Texas, Dallas Division, cause number 3-98CV0161-T. The Complaint
alleges that the Company and the specified individuals violated the
Securities Exchange Act of 1934 by knowingly making false and
misleading statements about the Company's business and issued false
and misleading financial statements between July 28, 1995 and May
29, 1997. The plaintiff is seeking compensatory damages, including
rescission where applicable, pre-judgment interest, post-judgment
interest, attorney's fees, expert witness fees and other costs, and
extraordinary, equitable, and/or injunctive relief. The Company
denies the plaintiff's allegations and intends to vigorously defend
the suit.
In 1994 and 1995 three original equipment manufacturers filed
lawsuits against Nu-kote International, Inc. ("NII") alleging that
certain NII ink jet replacement cartridges, refill inks and
packaging infringe their trademarks, trade dress and patents and
alleging, among other things, unfair competition and misleading
representations. The plaintiffs are seeking injunctive relief,
monetary damages, court costs and attorney's fees. The complaint in
one of the cases has been amended to name Pelikan Produktions A.G.
("PPAG") as a defendant. All of the lawsuits are in the discovery
stage, and in management's opinion the potential losses related to
these cases are not reasonably estimable. All of the cases are
being vigorously contested; and in each case the Company or NII has
asserted affirmative defenses and counterclaims and has requested
damages and affirmative injunctive relief. In one of these cases
NII's motion for summary judgment of the unenforceability of four of
the plaintiff's utility patents was granted although a Motion for
reconsideration with respect to the ruling is pending before the court
that granted the motion.
On May 9, 1997 Daniel M. Kerrane, a former officer and director of
the Company, filed suit against the Company. He alleges that his
Supplemental Employment Agreement with the Company entitled him to
terminate his employment and receive a lump sum severance payment
because the Company "substantially reduced" his authorities, powers
11
<PAGE>
and duties in April, 1997. Mr. Kerrane is seeking damages of $8
million and injunctive relief. The Company is vigorously defending
this lawsuit.
In addition, the Company is involved in various routine legal
matters.
In the opinion of management, all matters discussed above are
substantially covered by insurance or are without merit. However,
one or more of these matters could have a material effect on the
Company's financial position or future quarterly or annual results
of operations or cash flows when resolved.
In connection with Nu-kote's acquisition of the Office Supplies
Division and the International Business Forms Division of Unisys
Corporation ("Unisys"), Unisys agreed to retain all liabilities
resulting from or arising out of any environmental conditions
existing on or before January 16, 1987 at the Company's Rochester,
Macedon and Bardstown facilities and, additionally, to indemnify
the Company for such. State environmental agencies have alleged
that environmental contamination exists at all three sites. To date
Unisys has handled all remediation efforts related to these
properties. In connection with Nu-kote's acquisition of the
worldwide hardcopy supplies business of Pelikan, Pelikan agreed to
indemnify Nu-kote for certain pre-closing environmental
liabilities. The Company has found environmental contamination at
former Pelikan facilities in Derry, Pennsylvania and Franklin,
Tennessee, and has asserted a claim for indemnification. As a
result of the indemnifications from Unisys and Pelikan, in the
opinion of management, the ultimate cost to resolve these
environmental matters will not have a material adverse effect on
the Company's financial position, results of future operations or
liquidity.
This note contains various "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities and Exchange Act of 1934, which represent the
Company's expectations or beliefs concerning the possible outcome
of the various litigation matters described herein and estimates of
the Company's liabilities associated with identified environmental
matters. The Company cautions that the actual outcome of the
various litigation matters could be affected by a number of factors
beyond its control, including, without limitation, judicial
interpretations of applicable laws, rules and regulations, the
uncertainties and risks inherent in any litigation, particularly a
jury trial, the nature and extent of any counter claims, and the
scope of insurance coverage, and that the final resolution of such
matters could differ materially from the Company's current
evaluation of such matters. The Company further cautions that the
statements regarding identified environmental matters are qualified
by important factors that could cause the Company's actual
liabilities to differ materially from those in the forward looking
statements, including, without limitation, the following: (i) the
actual nature and extent of contamination, if any; (ii) the
remedial action selected; (iii) the actual cleanup level required;
(iv) changes in regulatory requirements; (v) the ability of other
responsible parties, if any, to pay their respective shares; and
(vi) any insurance recoveries.
12
<PAGE>
11. RESTRUCTURING EXPENSE
Restructuring activities commenced during fiscal 1997 (the "1997
Restructuring") related primarily to the consolidation of impact
product production into Scotland, Mexico and China; centralization
of distribution primarily into Franklin, Tennessee and Duren,
Germany; and the closure of one toner facility, and consolidation
of toner manufacturing into Connellsville, Pennsylvania and Egg,
Switzerland.
Activity related to accrued restructuring costs for the 1997
Restructuring during the three and nine month periods ended
December 26, 1997 are as follows:
<TABLE>
<CAPTION>
Amount Amount
Description of Accrued at Amount Accrued at
Restructuring Beginning of Paid in Additional End of
Expense Period Period Provision Period
---------------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Three Months Ended
December 26,
1997:
Severance $ 1,153 $ 506 $ 134 $ 781
Lease 430 430
cancellations
Facility
maintenance
and other 233 354 354 233
------------ ------------ ------------ -----------
$ 1,816 $ 860 $ 488 $ 1,444
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
Amount Amount
Description of Accrued at Amount Accrued at
Restructuring Beginning of Paid in Additional End of
Expense Period Period Provision Period
--------------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Nine Months Ended
December 26,
1997:
Severance $ 1,204 $ 1,961 $ 1,538 $ 781
Lease 430 430
cancellations
Facility
maintenance
and other 247 1,781 $ 1,767 233
------------ ------------ ------------ -----------
$ 1,881 $ 3,742 $ 3,305 $ 1,444
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The Company anticipates that as a result of declining sales,
additional restructuring measures will be necessary to the extent
cash is available for funding such expenses.
During fiscal 1996, the Company substantially completed the merger
of its operations with those of the Pelikan Hardcopy Division,
which was acquired in February 1995. That plan included, among
other things, the closure of the Company's manufacturing,
distribution and administration facility in Bardstown, Kentucky and
merger of its operations into the Pelikan Hardcopy Division's
facility in Franklin, Tennessee; the termination of contract
manufacturing and other contracts; closure of the Company's
manufacturing facility in Deeside, Wales and merger of its
operations with the Pelikan Hardcopy Division's operations is
Scotland; consolidation of certain toner manufacturing
13
<PAGE>
operations of ICMI's Connellsville, Pennsylvania facility and the
Pelikan Hardcopy Division's Derry, Pennsylvania facility; and
consolidation of sales and administrative organizations of the two
companies. The Company substantially completed the merger
activities in fiscal 1997.
Activity related to accrued restructuring costs for the Pelikan
merger during the three and nine month periods ended December 27,
1996 are as follows:
<TABLE>
<CAPTION>
Amount Amount
Description of Accrued at Amount Accrued at
Restructuring Beginning of Paid in Additional End of
Expense Period Period Provision Period
--------------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Three Months Ended
December 27,
1996:
Severance $ 2,693 $ 938 $ $ 1,755
Lease 385 184 201
cancellations
Facility
maintenance
and other 209 15 194
------------ ------------ ------------ ----------
$ 3,287 $ 1,137 $ $ 2,150
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
Amount Amount
Description of Accrued at Amount Accrued at
Restructuring Beginning of Paid in Additional End of
Expense Period Period Provision Period
---------------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Nine Months Ended
December 27,
1996:
Severance $ 71 $ 1,009 $ 2,693 $ 1,755
Lease 425 224 201
cancellations
Facility
maintenance
and other 384 190 194
------------ ------------ ------------ ----------
$ 880 $ 1,423 $ 2,693 $ 2,150
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
12. SALE OF DIVISION
The Company sold the assets of the components division of Future
Graphics, Inc. on December 31, 1997, for approximately $3,700 in a
combination of cash and assumed liabilities. This division was sold
as part of the Company's continuing effort to exit non-core
businesses. The sale of the components division resulted in a loss
of $4,061, which includes the write off of $2,826 of related
unamortized goodwill. As the conditions giving rise to this loss
existed at December 26, 1997, the loss was recognized in the
December 26, 1997 financial statements.
14
<PAGE>
13. NEW ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting
standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information". Preliminary analysis of these new standards
by the Company indicates that the standards will not have a
material impact on the Company's financial statements. The
standards are effective for financial statements for fiscal years
beginning after December 15, 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 26, 1997 COMPARED TO QUARTER ENDED
DECEMBER 27, 1996
Net sales for the quarter ended December 26, 1997 were $70.8
million, a decline of $12.1 million (14.6%) over the quarter ended
December 27, 1996. For the quarter ended December 26, 1997, sales
by North American entities were $33.6 million, a decline of $9.5
million or 22.0%, as compared to sales in the previous year period.
Sales by European entities declined $2.6 million, or 6.5%, as
compared to the previous year period and were $37.2 million.
Approximately $3.4 million, or 35.8% of the decline in sales by
North American entities, was due to the decline in sales of ink jet
products. Impact sales declined $2.7 million, or 28.4% of the
decline in sales by North American entities, and were $15.3
million. The remaining decline of $3.4 million, or 35.8% of the
decline in sales by North American entities was primarily due to a
decline in toner and related component sales. Approximately $0.6
million of the decline in sales in Europe was due to exchange rate
fluctuations. The balance of the decline in sales in Europe was due
largely to the continuing decline in sales of impact products of
$1.1 million and a decline in sales of non-impact products of $0.9
million over the previous year period.
Worldwide sales of non-impact supplies amounted to $41.6 million
and accounted for approximately 58.8% of total sales for the
quarter ended December 26, 1997, compared to 58.0% of total sales
in the quarter ended December 27, 1996.
In North America, sales of non-impact supplies amounted to $18.3
million in the quarter ended December 26, 1997, down $6.8 million
or 27.1%, as compared to the previous year period, and represented
54.5% of total North American sales. Sales of non-impact supplies
in Europe were $23.1 million in the quarter ended December 26, 1997
and remained flat as compared to the previous year period.
Cost of sales were $61.1 million (86.3% of net sales) for the
quarter ended December 26, 1997, compared to $67.6 million (81.5%
of net sales) in the previous year period. In North America cost of
sales included manufacturing volume variances amounting to $0.7
million for the quarter ended December 26, 1997. The remaining
worldwide percentage increase in cost of sales is due to the mix of
products and customers for the quarter ended December 26, 1997. In
addition, gross margin was adversely impacted during the quarter by
$2.0 million (2.8% of net sales), associated with increased customer
allowances, principally in North America.
16
<PAGE>
For the quarter ended December 26, 1997, research and development
expenses amounted to $1.5 million, (2.1% of net sales), as compared
to $2.5 million (3.0% of net sales ) in the previous year period.
Approximately $0.4 million of the decline occurred in North America
and the remaining $0.6 million of the decline occurred in Europe
where the Company has implemented an expense reduction program to
maintain research and development expenses at approximately 2.0% of
net sales.
Selling, general and administrative expenses were $14.2 million in
the quarter ended December 26, 1997 as compared to $15.4 million in
the previous year period. The $1.2 million reduction in these
expenses resulted from the Company's implementation of worldwide
expense reduction programs.
Restructuring expenses amounted to $0.5 million in the current
period. These expenses related primarily to: (1) consolidating
impact product production into Scotland, Mexico and China; (2)
centralizing distribution primarily into Franklin, Tennessee and
Duren, Germany; and (3) closing one toner facility and
consolidating toner manufacturing into Connellsville, Pennsylvania
and Egg, Switzerland.
Interest expense for the current fiscal quarter was $3.5 million,
compared to $2.0 million for the previous year period. The increase
is the result of higher outstanding borrowings and higher interest
rates.
For the quarter ended December 26, 1997, the Company recognized a
tax valuation allowance of approximately $6.0 million against
certain deferred tax assets pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the provisions of SFAS 109, the Company will recognize
an income tax benefit when the deferred tax assets are actually
realized or at such time as it is determined that realization of
the deferred tax assets is more likely than not. The Company
reported a tax benefit of $2.7 million in the previous year period.
For the quarter ended December 26, 1997, the Company recognized a
net loss of $15.0 million compared to a net loss of $4.0 million in
the previous year period. The increase in net loss is directly
attributable to: (1) the $12.1 million decrease in sales and the
4.8% increase in cost of goods sold as a percentage of sales; (2) higher
interest expense of $1.5 million and income tax benefit reduction of
$3.5 million; and (3) a $4.1 million loss on the sale of a division of
the Company. The increase in net loss was offset by $1.2 million
reduction in selling, general and administrative expenses, a $1.0
million reduction in research and development costs and a $1.5 million
decrease in restructuring costs.
17
<PAGE>
NINE MONTHS ENDED DECEMBER 26, 1997 COMPARED TO NINE MONTHS ENDED
DECEMBER 27, 1996
Net sales for the nine months ended December 26, 1997 were $223.2
million, a decline of $33.4 million (13.0%) over the nine months
ended December 27, 1996. For the nine months ended December 26,
1997, sales by North American entities were $115.1 million, a
decline of $14.4 million or 11.1%, as compared to sales in the
previous year period. Sales by European entities declined $19.0
million, or 15.3%, as compared to the previous year period and were
$108.1 million. Laser cartridge sales in North America were up $3.2
million, or 28.8%, primarily due to product category growth in the
marketplace compared to the previous year period. Sales of ink jet
products in North America declined $7.5 million or 34.9% as a
result of an across the board decline in sales of ink jet products
combined with the fact that current period sales were sales of
units with a lower average sell price versus sales in the previous
year period. Sales of impact products were down $3.7 million as the
ribbon market continues to decline. Toner and component sales in
North America were down $6.4 million, or 15.2%, as compared to the
previous year period. Approximately $2.1 million of the decline in
sales in Europe was due to exchange rate fluctuations. The balance
of the decline in sales in Europe was due largely to the continuing
decline in sales of impact products of $14.1 million and a decline
in sales of non-impact products of $2.8 million over the previous
year period. The Company believes that the worldwide sales of impact
products will continue to decline as the market shifts to non-impact
supplies.
Worldwide sales of non-impact supplies accounted for approximately
59.7% of total sales for the nine months ended December 26, 1997,
compared to 57.0% of total sales in the nine months ended December
27, 1996. Sales of non-impact products as a percentage of worldwide
sales increased largely because sales of impact products declined
by $19.3 million (17.6%), which exceeded the overall decline in
worldwide non-impact sales of $14.1 million or 9.6%.
In North America, sales of non-impact supplies amounted to $64.1
million in the nine months ended December 26, 1997, down $10.7
million or 14.3% as compared to the previous year period, and
represented 55.7% of total North American sales. Sales of
non-impact supplies in Europe were $69.1 million in the nine months
ended December 26, 1997 as compared to $72.5 million in the
previous year period. The decline in sales of non-impact products
in Europe was principally due to exchange rate fluctuations.
Cost of sales were $185.2 million (83.0% of net sales) for the nine
months ended December 26, 1997, compared to $195.3 million (76.1%
of net sales) in the previous year period. Included in cost of
sales for the nine months ended December 26, 1997 were $3.7 million
(1.7% of net sales) of expenses resulting from the transition of
impact product production from the Company's German facility to the
Company's facilities in Scotland, Mexico and China. In addition,
gross margin was adversely impacted during the nine month period by
$4.8 million (2.2% of net sales), associated with increased
customer allowances, principally in North America.
18
<PAGE>
For the nine months ended December 26, 1997, research and
development expenses amounted to $5.1 million, (2.3% of net sales),
as compared to $7.7 million (3.0% of net sales ) in the previous
year period. Approximately $2.2 million, or 84.6%, of the decline
in this expense category occurred in Europe where the Company has
implemented an expense reduction program to maintain research and
development expenses at approximately 2.0% of net sales.
Selling, general and administrative expenses were $42.9 million for
the nine months ended December 26, 1997 as compared to $48.4
million in the previous year period. The reduction in these
expenses resulted primarily from the Company's implementation of
worldwide expense reduction programs.
Restructuring expenses amounted to $3.3 million in the current
period. These expenses related primarily to: (1) consolidating
impact product production into Scotland, Mexico and China; (2)
centralizing distribution primarily into Franklin, Tennessee and
Duren, Germany; and (3) closing one toner facility and
consolidating toner manufacturing into Connellsville, Pennsylvania
and Egg, Switzerland.
Interest expense for the current fiscal period was $10.1 million,
compared to $6.0 million for the previous year period. The increase
is the result of higher outstanding borrowings and higher interest
rates.
For the nine months ended December 26, 1997, the Company recognized
a tax valuation allowance of approximately $12.5 against certain
deferred tax assets pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under the provisions of SFAS 109, the Company will recognize an
income tax benefit when the deferred tax assets are actually
realized or at such time as it is determined that realization of
the deferred tax assets is more likely than not. The Company
reported a tax benefit of $3.1 million in the previous year period.
For the nine months ended December 26, 1997, the Company recognized
a net loss of $31.5 million compared to a net loss of $4.6 million
in the previous year period. The increase in net loss is directly
attributable to: (1) a $33.4 million decrease in sales and a 6.9%
increase in cost of goods sold as a percentage of sales; (2) the
recognition of an extraordinary charge resulting from the early
extinguishment of debt of $2.6 million; (3) higher interest expense
of $4.1 million and income tax benefit reduction of $4.2 million; and
(4) a $4.1 million loss on the sale of a division of the Company. The
increase in net loss was offset by a $5.5 million reduction in selling,
general and administrative costs, $2.6 million reduction in research and
development costs and $4.5 million decline in restructuring costs.
19
<PAGE>
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Because the Company conducts business in many countries,
fluctuations in foreign currency exchange rates affect the
Company's financial position and results of operations. It is the
Company policy to monitor currency exposures and enter into hedging
arrangements to manage the Company's exposure to currency
fluctuations. As a result, the Company reported $0.2 million and
$1.1 million in exchange gains in the nine months ended December
26, 1997 and December 27, 1996, respectively.
LIQUIDITY AND CASH FLOW
The Company's cash requirements are related to funding working
capital for operations, capital expenditures and payment of
interest and principal on indebtedness. For the nine months ended
December 26, 1997, $2.3 million in cash was used for operations,
primarily to fund reductions of accounts payable and restructuring
expenses. Capital expenditures, primarily related to computer
systems and manufacturing equipment were $4.4 million. As indicated
above, interest expense for the nine months ended December 26, 1997
was $10.1 million.
The Company's sources of liquidity and capital include cash
provided by operating activities, borrowing under the Company's
credit facility and open account trade terms from vendors. For
seven of the last nine fiscal quarters, the Company has experienced
declining revenues and this has negatively impacted the cash
generated from operations. Additionally, during the nine months
ended December 26, 1997, $10.3 million in cash was used to reduce
accounts payable. As of February 2, 1998, borrowings outstanding
under the Company's credit facilities amounted to $143.1 million,
up $9.2 million from March 31, 1997. As of February 2, 1998 the
Company had approximately $.4 million available for future
borrowings under the credit facilities. Cash on hand as of February
2, 1998 amounted to approximately $5.8 million.
Management does not believe that the Company has adequate sources
of working capital to provide the Company with sufficient cash to
meet its near term obligations. In December, 1997, the Company
engaged Glass and Associates, Inc., management consultants, to
provide interim management services and to assist the Company to
the extent possible in finding solutions to its current operating
issues. In addition, the Company has engaged BT Alex Brown
Incorporated to assist it in evaluating its strategic options which
may include the sale of all or part of the Company's business. The
Company will also continue to focus on managing net working
capital. However, there can be no assurance that any of these
strategies will provide the Company with adequate working capital
and sufficient cash flow to meet its near term obligations and
avoid a default under its credit agreement.
The Company's credit facilities contain a number of financial ratio
covenants. The Company's credit facilities have been amended to
defer a mandatory principal reduction of $2.5 million due on
January 2, 1998 to April 1, 1998. In addition, compliance with
20
<PAGE>
certain financial covenants was waived through April 2, 1998. Under
the terms of the waiver, the company is restricted, among other
things, from making further investments, including intercompany
loans and advances, to certain subsidiaries. Additionally, the
amendment requires the Company to use proceeds from the sale of
assets as a permanent reduction of the Revolving Credit
Commitments. Scheduled principal reductions over the next year are
$5 million on April 1, 1998, $2.5 million on July 1, 1998 and $2.5
million on October 1, 1998. The Company has classified the debt as
short term as it continues to negotiate refinancing alternatives
with its lending group.
It is unlikely that the Company will be able to make the $5.0 million
principal payment due on April 1, 1998. The waiver of compliance
with the financial ratio covenants of the Company's credit agreement
will expire on April 2, 1998. The Company will attempt to obtain
additional waivers from its lenders, but there can be no assurance
that any waivers can be obtained, at which point the Company will
be in default under its credit agreement.
NEW ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting
standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information". Preliminary analysis of these new standards
by the Company indicates that the standards will not have a
material impact on the Company's financial statements. The
standards are effective for financial statements for fiscal years
beginning after December 15, 1997.
YEAR 2000 COMPUTER ISSUES
The Company is in various stages of addressing the year 2000 issue
and has not fully completed its assessment. However, certain of the
Company's information systems are not currently in compliance with
the modifications necessary for the year 2000. The Company intends
to make the necessary system changes to continue to sustain the
information needs of the business, but there can be no assurance
that the Company will have adequate resources to fund such system
changes.
CAUTIONARY STATEMENT
The foregoing "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains various
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934, which represent the Company's expectations or
beliefs concerning, among other things, future operating results
and various components thereof and the adequacy of future
operations to provide sufficient liquidity. The Company
21
<PAGE>
cautions that such matters necessarily involve significant risks
and uncertainties that could cause actual operating results and
liquidity needs to differ materially from such statements,
including, without limitation, general economic conditions, product
demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, new product development, availability
of raw materials and critical manufacturing equipment, new plant
startups and the regulatory and trade environment.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On January 23, 1998 a class action suit was filed against Nu-kote
Holding, Inc., its current directors, certain of its current
officers and certain former officers and directors in the United
States District Court for the Northern District of Texas, Dallas
Division, cause number 3-98CV0161-T. The Complaint alleges that the
Company and the specified individuals violated the Securities
Exchange Act of 1934 by knowingly making false and misleading
statements about the Company's business and issued false and
misleading financial statements between July 28, 1995 and May 29,
1997. The plaintiff is seeking compensatory damages, including
rescission where applicable, pre-judgment interest, post-judgment
interest, attorney's fees, expert witness fees and other costs, and
extraordinary, equitable, and/or injunctive relief. The Company
denies the plaintiff's allegations and intends to vigorously defend
the suit.
On December 10, 1997 the lawsuit styled INTERNATIONAL COMMUNICATION
MATERIALS, INC. V. RICOH COMPANY, LTD and Ricoh Corporation, civil
action 95-0767 in the United States District Court for the Western
District of Pennsylvania was settled. In connection with the
settlement, International Communication Materials, Inc. stopped
selling certain Ricoh compatible cartridges. The case has been
dismissed.
See Item 3 - Legal Proceedings in the registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997 and Note 10 of
Notes to Consolidated Financial Statements for the three and nine
month periods ended December 26, 1997 and December 27, 1996
included elsewhere in this report.
ITEM 2 INAPPLICABLE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
The Company and its lenders entered into a Second Amended and
Restated Credit Agreement and Waiver as of December 31, 1997 (the
"Amended Credit Agreement"). The Amended Credit Agreement deferred
until April 1, 1998 the principal payment which would otherwise
have been due on January 2, 1998. In addition, the Company's
lending group waived compliance with certain financial covenants
through April 2, 1998. Amended Credit Agreement requires the
Company to use all proceeds from the sale of assets as a permanent
reduction of its revolving credit commitments and requires
principal reductions of $5.0 million on April 1, 1998, $2.5 million
on July 1, 1998 and $2.5 million on October 1, 1998. In the absence
of this latest amendment and waiver, the Company would have been in
default under its credit agreement.
ITEMS 4 - 5 INAPPLICABLE
23
<PAGE>
PART II - OTHER INFORMATION (CONTINUED):
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.6 - Second Amendment to Second
Amended and Restated Credit
Agreement and Waiver
Exhibit 10.7 Management consulting agreement
- Glass and Associates, Inc.
Exhibit 11.1 - Statement regarding
computation of per share earnings.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during
the quarterly period ended December 27, 1997.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date February 9, 1998 /s/ Shaun K. Donnellan
---------------------------- ----------------------------------
Shaun K. Donnellan
Chief Executive Officer
Date February 9, 1998 /s/ Steven J. DiPasquale
---------------------------- ----------------------------------
Steven J. DiPasquale
Chief Financial Officer
25
<PAGE>
SECOND AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT AND WAIVER
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND WAIVER ("Amendment") is dated as of the 31st day of December, 1997, and
entered into among NU-KOTE HOLDINGS, INC., a Delaware corporation
("Holding"), NU-KOTE INTERNATIONAL, INC., a Delaware corporation ("Company"),
the Lenders signatory hereto, BARCLAYS BANK PLC, in its capacity as
documentation agent ("Documentation Agent") and NATIONSBANK OF TEXAS, N.A., a
national banking association, as administrative agent and collateral agent
(in such capacities, "Agent").
WITNESSETH:
WHEREAS, Holding, Company, Lenders, Documentation Agent and Agent
entered into a Second Amended and Restated Credit Agreement, dated as of July
31, 1997, as amended by First Amendment to Second Amended and Restated Credit
Agreement dated as of November 28, 1997 (as amended, the "Credit Agreement");
WHEREAS, Holding and Company have requested that Lenders (i) defer
the mandatory $2,500,000 reduction in the commitments of the lenders to lend
from January 2, 1998, until April 1, 1998, (ii) waive during the period
starting on December 31, 1997, to April 2, 1998, inclusive (the "Waiver
Period"), Holding and the Company's failure to comply with certain financial
covenants set forth in the Credit Agreement, and (iii) consent to an asset
sale and permit certain proceeds of such asset sale to be retained by the
Company for working capital purposes; and
WHEREAS, Lenders and Agent have agreed to grant the request of
Holding and Company and to modify the Credit Agreement upon the terms and
conditions set forth below.
NOW, THEREFORE, for valuable consideration hereby acknowledged,
Holding, Company, Lenders, Documentation Agent and Agent agree as follows:
SECTION 1. DEFINITIONS. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto
in the Credit Agreement.
SECTION 2. WAIVERS. Subject to the terms and conditions hereof,
Lenders hereby waive, but only during the Waiver Period, the Specified
Defaults (hereinafter defined); PROVIDED, HOWEVER, that Lenders' waiver of
the Specified Defaults and their rights and remedies as a result of the
occurrence thereof shall not constitute and shall not be deemed to constitute
a waiver of any other Event of Default, whether arising as a result of
further violations of any provision of the Credit Agreement previously
violated by Holding or Company, or a waiver of any rights and remedies
arising as a result of such other Events of Default. As used herein,
"SPECIFIED DEFAULTS" shall mean the failure of Holding and Company to observe
(i) the covenants set forth in Section 6.6A, Section 6.6B, Section 6.6C,
Section 6.6E, and Section 6.6H of the Credit Agreement for the fiscal quarter
ended December 31, 1997, and (ii) the covenants set forth in
<PAGE>
Section 6.6F and Section 6.6G for the months ended December 31, 1997, January
31, 1998, and February 28, 1998. At the end of the Waiver Period, the waiver
of the Specified Defaults will automatically terminate.
SECTION 3. AMENDMENTS TO CREDIT AGREEMENT. Subject to the terms and
conditions hereof, the provisions of the Credit Agreement enumerated below
are amended as follows:
(a) Section 2.4A(ii) of the Credit Agreement is amended to read as follows:
The Company shall, promptly on the date of receipt of any Net Cash
Proceeds from any Asset Sale, prepay an aggregate principal amount of
the Revolving Credit Loans or Eurocurrency Loans as elected by Requisite
Lenders in an amount equal to the amount of all such Net Cash Proceeds,
with each such prepayment constituting a permanent reduction in the
Revolving Credit Commitments or the Commitments of the Eurocurrency
Lenders under the Eurocurrency Credit Agreements (whichever is prepaid
with such proceeds). Each such prepayment of Eurocurrency Loans shall be
accompanied by payment of amounts sufficient to compensate the
Eurocurrency Lenders for any loss, cost, or expense incurred as a result
of payment on a date other than the last day of the Term (as defined in
the Eurocurrency Credit Agreements) for such Eurocurrency Loans.
(b) Section 2.4A(iii)(a) of the Credit Agreement is amended to read as
follows:
On April 1, 1998, July 1, 1998, and October 1, 1998, prepay an
aggregate principal amount of the Revolving Credit Loans in the
amount, if any, necessary to reduce the sum of the aggregate
principal amount of all Revolving Credit Loans on such date PLUS
the Letter of Credit Usage on such date, to an amount which does
not exceed the aggregate Revolving Credit Commitments on such date.
On each such date the Company shall also prepay all accrued and
unpaid interest on the principal amount so prepaid.
(c) Section 2.4E(ii) of the Credit Agreement is amended to read as
follows:
In addition to the reductions specified in subsection 2.4E(i)
above, the Revolving Credit Commitments shall automatically and
permanently reduce by the amount of $5,000,000 on April 1, 1998,
and the amount of $2,500,000 on each of July 1, 1998, and October
1, 1998.
(d) Section 5.1 of the Credit Agreement is hereby amended to add thereto
subsection (xiii) to read as follows:
On or prior to January 27, 1998, a written analysis of the Company's
core business plan prepared by the Company.
(e) Section 5.6 of the Credit Agreement is amended to read as follows:
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<PAGE>
Neither Holding, Company nor any Subsidiary shall enter into any
agreement prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
(f) The preamble of Section 5.13 of the Credit Agreement is amended to
read as follows:
On or before December 15, 1997, and thereafter on or prior to
twenty days after Agent's request that the guarantees and/or Liens
contemplated by subsection (iii) below be provided (to the extent
that same can be provided in compliance with such subsection (iii)
below), Holding and Company shall deliver or cause to be delivered
to Agent the following:
(g) Section 6.3(vi) of the Credit Agreement is amended to read as follows:
On and after December 31, 1997, through and including April 1,
1998, Company and its Domestic Subsidiaries may not make further
Investments in (including intercompany loans to) or otherwise
transfer funds or other assets to Eurocurrency Borrowers for any
purpose except for fundings to or for the benefit of MIT if the
prior written consent of Required Lenders to such fundings has been
obtained; furthermore (A) with respect to the aggregate principal
amount of all such Investments in all such Eurocurrency Borrowers,
Company or any such Domestic Subsidiary, as appropriate, shall
maintain a ledger recording all such Investments in and
intercompany loans made pursuant to this subsection 6.3(vi), and
such ledger shall be available for inspection at any Lender's
request and (B) all intercompany loans made pursuant to this
subsection 6.3(vi) shall be evidenced by promissory notes which
shall be on terms and conditions satisfactory to Agent, including
collateral, and which shall be pledged and delivered to Agent
pursuant to the Collateral Documents;
(h) Section 6.3(vii) of the Credit Agreement is amended to read as follows:
On and after December 31, 1997, through and including April 1,
1998, Company and its Domestic Subsidiaries may not make further
Investments in (including intercompany loans to) or otherwise
transfer funds or other assets to Latin American Subsidiaries for
any purpose; furthermore (A) with respect to the aggregate
principal amount of all such Investments outstanding on December
31, 1997, Company or any such Domestic Subsidiary, as appropriate,
shall maintain a ledger recording all such Investments in and
intercompany loans made pursuant to this subsection 6.3(vii) prior
to December 31, 1997, and such ledger shall be available for
inspection at any Lender's request and (B) all intercompany loans
made pursuant to this subsection 6.3(vii) shall be evidenced by
promissory notes which shall be on terms and conditions
satisfactory to Agent, including collateral, and which shall be
pledged and delivered to Agent pursuant to the Collateral Documents;
(i) Section 6.7B(ii)(E) of the Credit Agreement is amended to read as
follows:
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<PAGE>
no Asset Sale transactions involving assets located in the United
States may be made after December 31, 1997, other than the sale of
the Components Division of Future Graphics, Inc., under the terms
set forth in that certain Second Amendment to Second Amended and
Restated Credit Agreement and Waiver dated as of December 31, 1997,
among Company, Agent, and the others named therein;
(j) The proviso at the end of Section 6.8 of the Credit Agreement is
amended to read as follows:
PROVIDED that Company and its Subsidiaries may enter into
sale/leaseback arrangements if permitted by subsection 6.6 and
subsection 6.7.
(k) Section 8.13 of the Credit Agreement is amended to read as follows:
(A) Except as otherwise permitted by subsection 6.7B(i), Holding
shall cease to own and control 100% of the common stock and 100% of
the voting power of Company entitled to vote for an election of the
board of directors of Company; or (B) individuals who on February
24, 1995 were members of the board of directors of Holding
(together with any new directors whose election to such board of
directors or whose nomination for election by the stockholders of
Holding was approved by a vote of a majority of the directors then
still in office who were either directors on February 24, 1995 or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of such
board of directors then in office; or (C) a "person" or "group"
(within the meaning of Section 13(d) of the Exchange Act), becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 30% of the total issued and outstanding common
stock of Holding; or (D) on or after December 15, 1997, the Company
shall fail to retain management resources reasonably satisfactory
to Requisite Lenders, for the purpose of facilitating the
restructuring of Holding and its Subsidiaries, which management
resources shall be subject solely to Holding and Company's
direction and authority;
SECTION 4. CONSENT TO SALE OF COMPONENTS DIVISION OF FUTURE GRAPHICS,
INC. AND RETENTION OF CERTAIN NET CASH PROCEEDS THEREOF. Subject to the terms
and conditions hereof, Lenders hereby consent to the sale of the Components
Division of Future Graphics, Inc., so long as the gross cash proceeds thereof
are not less than $1,000,000, all liabilities due and owing in connection
with the business to which such assets relate are assumed by the purchaser
thereof, such sale occurs on or before January 31, 1998, and such sale is
otherwise upon terms reasonably satisfactory to Agent and heretofore
disclosed to Lenders. Lenders furthermore consent to the retention by the
Company of such cash proceeds for use by the Company as working capital
notwithstanding the provisions of Section 2.4A of the Credit Agreement.
SECTION 5. RELEASES. In consideration of Lenders' agreements herein
and certain other good and valuable consideration, Holding and Company each
hereby expressly acknowledge and agree that neither of them has any setoffs,
counterclaims, adjustments, recoupments, defenses, claims or actions of any
character, whether contingent, non-contingent, liquidated, unliquidated,
-4-
<PAGE>
fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, known or unknown, against any Lender, Documentation Agent or Agent
or any grounds or cause for reduction, modification or subordination of the
Obligations or any liens or security interests of any Lender or the
Collateral Agent. To the extent Holding or Company may possess any such
setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds or
causes, each of Holding and Company hereby waives, and hereby releases each
Lender, Documentation Agent and Agent from, any and all of such setoffs,
counterclaims, adjustments, recoupments, claims, actions, grounds and causes,
such waiver and release being with full knowledge and understanding of the
circumstances and effects of such waiver and release and after having
consulted counsel with respect thereto.
SECTION 6. CONDITIONS PRECEDENT. This Amendment shall not be
effective until all proceedings of Company taken in connection herewith and
the transactions contemplated hereby shall be satisfactory in form and
substance to Documentation Agent, Agent and Lenders, and each of the
following conditions precedent shall have been satisfied:
(a) All fees and expenses, including legal and other
professional fees and expenses incurred on or prior to the date of
this Amendment by Agent or any Lender, including, without
limitation, the fees and expenses of U.S. and foreign counsel and
title insurance expenses, shall have been paid to the extent that
same have been billed.
(b) Agent and each Lender shall have received each of the
following, in form and substance satisfactory to Agent, Lenders and
Agent's counsel in their sole and absolute discretion:
(1) a certificate of Holding and Company
certifying (i) as to the accuracy, after giving effect to
this Amendment, of the representations and warranties set
forth in Section 4 of the Credit Agreement, the other
Loan Documents and in this Amendment, and (ii) that there
exists no Potential Event of Default or Event of Default,
after giving effect to this Amendment, and the execution,
delivery and performance of this Amendment will not cause
a Potential Event of Default or Event of Default; and
(2) such other documents, instruments, and
certificates, in form and substance reasonably
satisfactory to Lenders, as Lenders shall deem necessary
or appropriate in connection with this Amendment and the
transactions contemplated hereby, including without
limitation copies of resolutions of the boards of
directors of each of Holding and Company authorizing the
transactions contemplated by this Amendment.
(c) All accrued and unpaid interest on the Revolving Credit
Loans and the Eurocurrency Loans through and including December 31,
1997, shall have been paid in full.
-5-
<PAGE>
SECTION 7. REPRESENTATIONS AND WARRANTIES; RATIFICATIONS. Holding and
Company represent and warrant to Lenders, Documentation Agent and Agent that
(a) this Amendment constitutes their legal, valid, and binding obligations,
enforceable in accordance with the terms hereof (subject as to enforcement of
remedies to any applicable bankruptcy, reorganization, moratorium, or other
laws or principles of equity affecting the enforcement of creditors' rights
generally), (b) there exists no Potential Event of Default or Event of
Default under the Credit Agreement after giving effect to this Amendment, (c)
their representations and warranties set forth in the Credit Agreement and
other Loan Documents are true and correct on the date hereof after giving
effect to this Amendment, (d) they have complied with all agreements and
conditions to be complied with by them under the Credit Agreement and the
other Loan Documents by the date hereof after giving effect to this
Amendment, and (e) the Credit Agreement, as amended hereby, and the other
Loan Documents remain in full force and effect. Except as expressly modified
by this Amendment, the terms and provisions of the Credit Agreement and the
other Loan Documents are ratified and confirmed and shall continue in full
force and effect. Except as provided herein, this Amendment shall not
constitute an amendment or waiver of any terms and provisions of the Credit
Agreement and other Loan Documents nor a waiver of the rights of the Lenders,
Documentation Agent and Agent to insist upon compliance with each term,
covenant, condition or provision of the Credit Agreement and other Loan
Documents.
SECTION 8. EXPENSES OF LENDERS. Holding and Company hereby jointly
and severally agree to pay on demand all reasonable costs and expenses
incurred by Agent or any Lender, including costs and fees of counsel to Agent
or any Lender and other professional fees and expenses, in connection with
the preparation, negotiation, review and execution of this Amendment and the
other Loan Documents executed pursuant hereto and any and all amendments,
modifications and supplements thereto. Holding and Company hereby confirm
their obligation to pay promptly the costs and expenses for which they are
obligated pursuant to Section 10.3 of the Credit Agreement.
SECTION 9. FURTHER ASSURANCES. Holding and Company shall execute and
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to Agent, as Agent or any Lender may deem
necessary or appropriate in connection with this Amendment.
SECTION 10. CONSENTS OF EUROCURRENCY BORROWERS AND EUROCURRENCY
LENDERS. Each Eurocurrency Borrower and Eurocurrency Lender by its execution
below consents and agrees to this Amendment and agrees that the Eurocurrency
Credit Agreement or Eurocurrency Credit Agreements to which it is a party are
and shall continue to be in full force and effect and are hereby ratified and
confirmed in all respects except that, upon the effectiveness of and on and
after the date of this Amendment each reference to the Credit Agreement,
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
this Amendment. Each Eurocurrency Borrower agrees that the collateral
described in the Eurocurrency Security Documents to which it is a party shall
continue to secure the payment of the indebtedness therein described.
-6-
<PAGE>
SECTION 11. COUNTERPARTS. This Amendment and the other Loan Documents
may be executed in any number of counterparts, all of which taken together
shall constitute one and the same instrument. In making proof of any such
agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought. Telecopies of signatures shall be binding and effective as originals.
SECTION 12. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
LAW, HOLDING AND COMPANY EACH HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A
TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR
OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
SECTION 13. GOVERNING LAW. (a) THIS AGREEMENT AND ALL LOAN DOCUMENTS
SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO
THE EXTENT (1) FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT AND ALL LOAN
DOCUMENTS OR (2) STATE LAW GOVERNS UCC COLLATERAL INTERESTS FOR PROPERTIES
OUTSIDE THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, HOLDING
AND COMPANY EACH AGREES THAT THE COURTS OF TEXAS WILL HAVE JURISDICTION OVER
PROCEEDINGS IN CONNECTION HEREWITH.
(b) HOLDING AND COMPANY EACH HEREBY WAIVES PERSONAL SERVICE OF ANY
LEGAL PROCESS UPON IT. IN ADDITION, HOLDING AND COMPANY EACH AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO IT AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS
AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY
IT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF AGENT OR ANY LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 14. ENTIRE AGREEMENT. THIS AMENDMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. THIS AMENDMENT SHALL CONSTITUTE A LOAN DOCUMENT.
-7-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
set forth above.
Holding: NU-KOTE HOLDING, INC.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
Company: NU-KOTE INTERNATIONAL, INC.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
Agent: NATIONSBANK OF TEXAS, N.A.,
By:
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
Documentation Agent: BARCLAYS BANK PLC
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Lenders and Eurocurrency NATIONSBANK OF TEXAS, N.A.
Lenders:
By:
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
set forth above.
Holding: NU-KOTE HOLDING, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Company: NU-KOTE INTERNATIONAL, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Agent: NATIONSBANK OF TEXAS, N.A.,
By: /s/ William E. Livingstone, IV
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
Documentation Agent: BARCLAYS BANK PLC
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Lenders and Eurocurrency NATIONSBANK OF TEXAS, N.A.,
Lenders:
By: /s/ William E. Livingstone, IV
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
set forth above.
Holding: NU-KOTE HOLDING, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Company: NU-KOTE INTERNATIONAL, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Agent: NATIONSBANK OF TEXAS, N.A.,
By:
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
Documentation Agent: BARCLAYS BANK PLC
By: /s/ Ronald E. Spitzer
------------------------------------
Name: Ronald E. Spitzer
-----------------------------------
Title: Director
-----------------------------------
Lenders and Eurocurrency NATIONSBANK OF TEXAS, N.A.,
Lenders:
By:
------------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
<PAGE>
The undersigned Barclays Bank PLC executes this Amendment for the purpose
of agreeing to all provisions thereof save and except Section 2 thereof.
BARCLAYS BANK PLC
By: /s/ John A. O'Kane
------------------------------------
Name: John A. O'Kane
-----------------------------------
Title: Director
-----------------------------------
<PAGE>
BARCLAYS BANK PLC
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ABN AMRO BANK, N.V.
By: /s/ Ronald O. Drake
------------------------------------
Name: Ronald O. Drake
-----------------------------------
Title: Group Senior Vice President
-----------------------------------
By: /s/ William J. Fitzgerald
------------------------------------
Name: William J. Fitzgerald
-----------------------------------
Title: Senior Vice President
-----------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
BARCLAYS BANK PLC
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ABN AMRO BANK, N.V.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
By: /s/ Harry P. Yergey
------------------------------------
Name: Harry P. Yergey
-----------------------------------
Title: SVP and Manager
-----------------------------------
By: /s/ W. David Suttles
------------------------------------
Name: W. David Suttles
-----------------------------------
Title: Vice President
-----------------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
BARCLAYS BANK PLC
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ABN AMRO BANK, N.V.
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
By: [ILLEGIBLE]
------------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: First Vice President
-----------------------------------
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By: /s/ Silvia L. Spear
------------------------------------
Name: Silvia L. Spear
-----------------------------------
Title: Director
-----------------------------------
By: /s/ R. A. Visconti
------------------------------------
Name: R. A. Visconti
-----------------------------------
Title: Asst. V. P.
-----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SOCIETE GENERALE
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
FIRST AMERICAN NATIONAL BANK
By: [ILLEGIBLE]
------------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: S. V. P.
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SOCIETE GENERALE
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Richard A. Peterson
------------------------------------
Name: Richard A. Peterson
-----------------------------------
Title: First Vice President
-----------------------------------
SOCIETE GENERALE
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SOCIETE GENERALE
By: /s/ Richard M. Lewis
------------------------------------
Name: Richard M. Lewis
-----------------------------------
Title: Vice President
-----------------------------------
<PAGE>
CONSENTED AND AGREED TO BY EUROCURRENCY BORROWERS:
PELIKAN SCOTLAND LIMITED
By: [ILLEGIBLE]
----------------------------------
Name: [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
PELIKAN PRODUKTIONS AG
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
PELIKAN HARDCOPY (INTERNATIONAL) AG
By: [ILLEGIBLE]
----------------------------------
Name: [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
<PAGE>
<PAGE>
CONSENTED AND AGREED TO BY EUROCURRENCY BORROWERS:
PELIKAN SCOTLAND LIMITED
By: [ILLEGIBLE]
----------------------------------
Name: [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
PELIKAN PRODUKTIONS AG
By: [ILLEGIBLE]
----------------------------------
Name: [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
PELIKAN HARDCOPY (INTERNATIONAL) AG
By: [ILLEGIBLE]
----------------------------------
Name: [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
<PAGE>
CONSENT
Each of the undersigned, as Guarantors under a "Subsidiary Guaranty"
and as grantors under one or more "Subsidiary Security Documents" (as such
terms are defined in the Credit Agreement referred to in the foregoing
Amendment), each hereby consents and agrees to the foregoing Amendment and
agrees that (i) each Subsidiary Guaranty and Subsidiary Security Document is
and shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects except that, upon the effectiveness of and on and
after the date of such Amendment each reference to the Credit Agreement,
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
such Amendment, and (ii) the collateral described in the Subsidiary Security
Documents shall continue to secure the payment of the indebtedness therein
described.
FUTURE GRAPHICS, INC.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
INTERNATIONAL COMMUNICATION
MATERIALS, INC.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
NU-KOTE IMAGING INTERNATIONAL, INC.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
NU-KOTE IMPERIAL, LTD.
By: /s/ R. A. Larsen
------------------------------------
Name: Richard A. Larsen
-----------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
GLASS & ASSOCIATES, INC.
AGREEMENT ENGAGING THE SERVICES OF
GLASS & ASSOCIATES, INC. AS INTERIM MANAGER
Nu-Kote Holding, Inc. of 17950 Preston Road, Suite 690, Dallas, TX 75252
("the Company") wishes to engage professional management assistance to
provide general management of the Company's operating and business affairs,
and to assist the Company to the extent possible in seeking and finding
solutions to certain problems within the sphere of management direction and
planning.
The Company hereby agrees to engage Glass & Associates, Inc. ("Glass"), a
Delaware corporation with its principal offices located at 4571 Stephen
Circle N.W., Suite 130, Canton, Ohio, 44718, for the purpose of managing the
Company during the critical period ahead. Glass will provide Shaun K.
Donnellan to serve as Interim Chief Executive Officer of the Company, subject
to the following terms and conditions. Glass may provide others from time to
time as required during the course of the assignment.
1. Glass shall have full access to all personnel and a relationship with the
entire internal organization, much like that of the Chief Executive
Officer, although the relationship of Glass to the Company shall at all
times be that of an independent contractor. Glass may, in the performance
of its duties, negotiate on behalf of Company with various parties,
including but not limited to creditors, stockholders and employees of
Company, and governmental entities.
2. Glass shall review and approve all financial and operating policies, plans
and programs and shall participate in any major decision which might have a
significant impact on such policies.
3. Glass shall be subject solely to the control of the Board of Directors of
the Company. Except for such control, Glass shall not be subject to the
control of any other person or persons.
4. Glass shall be compensated for its services under this agreement at its
regular published rates, per the attached schedule, plus expenses. There
shall be an initial payment of $200,000.00 as a client deposit which unused
portion will be refunded at the end of the assignment. Fees and expenses
shall be billed weekly, and all invoices are due and payable upon receipt.
5. Upon completion of its engagement, the Board will consider a performance
bonus for Glass, consistent with that which a resident top executive might
receive for a job well done. During the course of the assignment, Glass may
propose a basis upon which such bonus could be paid.
1
<PAGE>
6. In consideration for Glass undertaking to discharge the responsibilities as
set forth above:
a) The Company shall and does hereby forever release, remise and
discharge, agree to indemnify, pay on demand and hold harmless Glass,
its agents, attorneys, employees, and representatives, (the
"Releases"), from any and all claims, costs, demands, actions,
liabilities, judgments, or attorneys fees which may result from any
act or failure to act in what Releasees in good faith believe to be
the best interests of the company arising out of Releasees'
performance or non-performance under this Agreement, or Releasees'
present or future association with the affairs of the Company ,its
creditors, stockholders, employees, agents, attorneys or
representatives. This release, indemnification and agreement to hold
harmless extends to all claims of every nature and kind whatsoever,
past, present or future, known or unknown, and suspected or
unsuspected.
b) Company further expressly agrees that it will execute and enter into,
sign, seal and deliver any and all additional documents, papers,
releases, indemnity agreements, and will do and perform any and all
things which Glass may deem desirable to protect it or its agents,
attorneys, employees, representatives, and each of them, from any
aforesaid claims, costs, demands, actions, liabilities, judgments or
attorneys fees, whatsoever, and to do any and all other things
necessary or desirable in the opinion of Glass to effectuate the
purposes of this release, indemnification and agreement to hold
harmless.
c) In the event of a breach of this Agreement by the Company, the
company agrees to pay all costs, including reasonable attorneys' fees
incurred by Glass in its efforts to enforce its rights under this
Agreement.
7. This engagement of Glass shall continue at the pleasure of the Board of
Directors, and may be terminated at any time by resolution of the Board of
Directors, a certified copy of which shall be delivered to Glass. Glass
shall have the option to terminate its employment at any time upon
notification to the Board of Directors of its desire to terminate. The
provisions of Paragraph 6 (Indemnification) shall survive the termination
of this Agreement for any reason.
8. In the event that the Glass representative is offered and accepts a
permanent assigned position with the Company, Glass will receive from
Company payment equal to 30% of his first year's total compensation, an
amount not unlike that received by an executive recruiter.
2
<PAGE>
9. The parties hereto agree that the interpretation and enforceability of this
Agreement shall be determined in accordance with the substantive laws of
the State of Ohio, exclusive of choice of law provisions. In case any one
or more of the provisions contained in this Agreement shall for any reason
be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
Dated: GLASS & ASSOCIATES, INC.
-----------------------------
By:
-------------------------------------
(Office)
-------------------------------------
COMPANY
By:
---------------------------------
Its:
---------------------------------
3
<PAGE>
RATE SCHEDULE
EFFECTIVE JANUARY 1, 1996
Principal ........ $250.00 - $300.00 per hour
Case Director ........ $200.00 - $250.00 per hour
Senior Consultant ......... $175.00 - $225.00 per hour
Consultant ........ $125.00 - $175.00 per hour
Clerical/Administrative ........ $45.00 - $60.00 per hour
Out-of-Pocket Expenses ........ At Cost
<PAGE>
EXHIBIT 11.1
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------- -------------
DECEMBER 26, DECEMBER 27,
1997 1996
------------- ------------
<S> <C> <C>
BASIC
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,775
------------- ------------
------------- ------------
Net loss $ (14,980) $ (4,029)
------------- ------------
------------- ------------
Net loss per common share $ (0.69) $ (0.19)
------------- ------------
------------- ------------
DILUTED
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,775
Net effect of dilutive stock options and
warrants (1)
------------- ------------
21,775 21,775
------------- ------------
------------- ------------
Net loss $ (14,980) $ (4,029)
------------- ------------
------------- ------------
Net loss per common share $ (0.69) $ (0.19)
------------- ------------
------------- ------------
</TABLE>
26
<PAGE>
EXHIBIT 11.1 (CONTINUED)
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------ ------------
DECEMBER 26, DECEMBER 27,
1997 1996
------------ ------------
<S> <C> <C>
BASIC
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,764
------------ ------------
------------ ------------
Loss before extraordinary item $ (28,970) $ (4,566)
Extraordinary loss (2,550)
------------ ------------
Net loss $ (31,520) $ (4,566)
------------ ------------
------------ ------------
Loss per common share before extraordinary item $ (1.33) $ (0.21)
Extraordinary loss per common share (0.12)
------------ ------------
Net loss per common share $ (1.45) $ (0.21)
------------ ------------
------------ ------------
DILUTED
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,764
Net effect of dilutive stock options and
warrants (1)
------------ ------------
21,775 21,764
------------ ------------
------------ ------------
Loss before extraordinary item $ (28,970) $ (4,566)
Extraordinary loss (2,550)
------------ ------------
Net loss $ (31,520) $ (4,566)
------------ ------------
------------ ------------
Loss per common share before extraordinary item $ (1.33) $ (0.21)
Extraordinary loss per common share (0.12)
------------ ------------
Net loss per common share $ (1.45) $ (0.21)
------------ ------------
------------ ------------
</TABLE>
---------------------------
(1) For the three and nine month periods ended December 26, 1997 and
December 27, 1996, respectively, stock options and warrants are not
considered as those periods resulted in net losses, making the stock
options and warrants anti-dilutive.
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-26-1997
<CASH> 11,683
<SECURITIES> 0
<RECEIVABLES> 60,761
<ALLOWANCES> 5,404
<INVENTORY> 87,238
<CURRENT-ASSETS> 166,689
<PP&E> 106,174
<DEPRECIATION> 36,054
<TOTAL-ASSETS> 262,529
<CURRENT-LIABILITIES> 231,804
<BONDS> 0
0
0
<COMMON> 223
<OTHER-SE> 15,283
<TOTAL-LIABILITY-AND-EQUITY> 262,529
<SALES> 223,170
<TOTAL-REVENUES> 223,170
<CGS> 185,224
<TOTAL-COSTS> 185,224
<OTHER-EXPENSES> 55,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,090
<INCOME-PRETAX> (27,843)
<INCOME-TAX> 1,127
<INCOME-CONTINUING> (28,970)
<DISCONTINUED> 0
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</TABLE>
